Good morning. Welcome to Aker Solutions' presentation of the third quarter results for 2016. My name is Bunny Noerhadi, I'm the Chief Communications Officer here. With me here today are Luis Araujo, our CEO, and Svein Stoknes, our CFO. They will go through the results in the quarter, the main developments. After that, we will have time for a brief Q&A, we will also be able to take some questions from the media in short one-on-one interviews. Before we start today, I'd like to point to the nearest emergency exit. It is out the glass doors in this room. You just go straight out, then there's a muster area that we will point you to. Please do note that we don't have any fire drills planned today. Luis, I'll let you take it from here.
Good morning. I'm pleased to see you all here today on a to become a beautiful Friday. Together with Svein, I will go through our results for the third quarter, which was another period of strong operational performance. Let's start with the key developments. We are now more than two years into the steepest decline our industry has seen. Conditions continue to be challenging with oil companies scaling back spending. We also see some positive signs as industry cost cuts are having an effect, and the market see oil prices stabilizing at a higher level next year. Aker Solutions continue to show strong execution in the third quarter on our major projects progress as planned globally. Just to give you a flavor, our plant in Tromsø set records in the quarter.
After reducing lead times by as much as 50%, it delivered 11 subsea trees and 35 trees so far this year, mainly for Total Moho and Kaombo developments in West Africa. For Kaombo, our fabrication yard in Egersund delivered 6 out of 10 manifolds in the quarter. We mobilized our MMO team in Norway to have about 1,200 employees working in rotation on the hookup for the Gina Krog topside. Our company push to improve operations and bring down costs also made good progress in the quarter. In fact, even moving ahead of schedule. This supports our margins, which were steady in the quarter compared with a year ago, even at the industry-wide slowdown caused weakening of both our top and bottom lines.
Our financial position was solid at the end of the quarter, with a liquidity buffer of NOK 7.3 billion, and this gives us a good feasibility ahead. It's also important to emphasize that we are not resting on our laurels in the current challenging environment. Instead, we are taking necessary measures to boost our competitiveness. This includes a major new step in streamlining our operations to become more effective. As announced in September, we are organizing our business in five delivery centers that will replace our current business area structure. We expect this new setup to significantly strengthen both how we operate and how we relate to our customers. Last week, as announced, we took another important strategic step. We agreed to buy 70% of the Brazilian construction and assembly company, CSE Mecânica e Instrumentação. Easy for me to say than you, I'm sure.
This will enable us to enter Brazil brownfield market, where we see major opportunities to grow our services business. This move is firmly anchored in our long-term strategy to grow our service business in key markets globally. It builds on our strong presence in Brazil subsea segment, where we are a major supplier of equipment for the country's deepwater fields. Combining CSE's foothold in the Brazilian brownfield market with Aker Solutions' size and maintenance and project execution capabilities, more important, will put us in a position to bid for larger contracts in this market. Our goal is to become a top tier in this growing market, which is estimated today to be the same size as the North Sea maintenance and modifications market. Now for the main numbers. In the third quarter, revenue was NOK 6 billion.
EBIT was NOK 286 million. The EBIT margin was 4.8%. Excluding special items, the margin was 4.7%, and earnings per share were NOK 0.37. Compared with a year earlier, revenue was down 20% as the global oil service market slowed. Overall margins were steady year-on-year, helped by our company-wide improvement efforts. The order intake actually was NOK 3.5 billion, bringing the backlog to NOK 32 billion. My favorite slide. New orders in the quarter included two maintenance and modification and operations contract for Statoil. The first value at NOK 370 million is for compression module for the Troll field.
The second worth NOK 500 million is for engineering, procurement, construction, installation, and commissioning services to enable a tie-in of the Utgard subsea field to the Sleipner facilities. Both orders were optioned in existing contracts with Statoil. We also secured two contract extensions totaling more than NOK 400 million for maintenance and operations work offshore United Kingdom. We have signed a two-year extension on a contract with Brunei Shell Petroleum to provide reliability and maintenance for offshore facilities in Brunei, where we today have more than 300 employees, about 70% of which are locals. The extension is for work in 2018 and 2019. It's valued at about NOK 700 million.
Within subsea, we signed two five-year agreements for potential future deliveries for subsea production systems and life-of-field services at BP-operated oil and gas fields globally. The value of this will depend on the amount of work called for by BP and orders will be booked as they come in. We continue to see good interest in our early phase capability in the quarter, winning 14 study awards, including four projects in Norway, Australia, and Asia Pacific. This brings the total number of studies so far this year to more than 60. Several of these are of strategic importance and put us in a strong position to secure future work. I'm also pleased to say that we have secured additional order after the quarter's end.
This includes 2 contracts worth at least NOK 900 million from DEA Norge to deliver the subsea production system, maintenance and services at the Dvalin, former Zidane development offshore Norway. We also won a contract worth NOK 350 million for Statoil to build the pipeline facilities, modifications, and tie-ins needed at Mongstad Terminal to receive oil from the North Sea Johan Sverdrup development. A good start to this quarter with contracts at key projects, won in tough competition as a result of our continuous focus on operation improvements and finding the most cost-effective solutions for our customers. This brings me to my next point, and a brief update on our company-wide improvement program called The Journey.
It targets an improvement in cost efficiency of at least 30% or NOK 9 billion in annualized cost savings by the end of next year. That compares with our 2015 costs and work volumes. We have made good progress in The Journey. In fact, we now expect to achieve about half of the improvements already this year. That's up from a previous target for about a quarter of the improvement to come this year. We are making these improvements by simplifying our methods, our organization setup, and our geographic footprint. We are also standardizing our products and services. This is enabling us to reduce the overall cost of our projects and our products, while at the same time improving quality. A key driver of our improvement agenda is to become more competitive, and we are continuously looking at new ways to become more efficient.
This includes our organizational setup, which we are now further streamlining. Starting next week, we will have five delivery centers: customer management, front end, products, projects, and services. These centers will replace our current business area structure. Together, they reflect our business workflow from early engagement with our customers to project execution and through to life-of-field services. Each center will house selected key processes and competencies that today are spread across the business. By gathering each expertise, we can focus our efforts on further developing the standardization and enhance effectiveness that are vital to our success. We see many potential benefits from the new setup. It will simplify how we operate, enabling even leaner workflows and eliminating duplication. We expect this to generate greater synergies across the group and to accelerate our global improvement program.
The new setup will also facilitate our strategy to grow our services organization, this is an area where we see major potential. Finally, it will support our pursuit of a more international business with a diverse customer base. Of course, a major part of our improvement potential lies in how we collaborate with other industry participants to find more suitable solutions. To further this, we have over the past two years formed strategic subsea alliances with peers, where we combine our capabilities to create value for our customers. Most recently, we teamed up with Aker BP and Subsea 7 in our all for one for all alliance. This introduce a new way of working on Aker BP Norwegian Subsea developments to find the most cost-effective solutions.
Actually, the alliance, you combine Aker Solutions experience in front-end engineering, brownfield, modification subsea systems with Subsea 7 SURF capabilities and Aker BP E&P know-how. This approach is fundamentally different from current collaboration models between operators and suppliers. Project management is fully integrated with experts from each company. They will work together on different projects to ensure continuity and continuous improvement. This will drive reuse of solutions and technology. This also avoid duplication of resources between the operators and contractors. Important part, each part shares both risks and rewards. Actually, we see this as a new and exciting way of working together as operators and suppliers with many potential benefits. Now for the outlook. Lower oil prices and companies' capital constraints are having a significant impact. Projects are being postponed, and there is a persistent pressure on pricing.
There is a healthy tendering in our main markets. We are currently bidding for contracts totaling about NOK 50 billion. About 60% of the tendering is in Subsea, the rest in Field Design. We see indications that improvement measures across the industry are having an effect. Break-even costs are coming down. This increases the likelihood of some projects being sanctioned in the next 12 months. This is particularly the case for brownfield projects as oil companies focus on optimizing output from existing fields rather than greenfield developments. We see the biggest potential for growth outside our home market, Norway, where we have expanded in recent years. At the end of the third quarter, about 60% of our backlog was for projects outside Norway. Since the start of the market slowdown in 2014, we have reduced our permanent workforce by about 25%.
Going forward, we will continue to be vigilant about our workforce capacity to ensure it fits market conditions. Long term, we are optimistic. Field develops are becoming more complex, and we have the capabilities needed to manage these challenges. Forecast for global energy demand supports a positive long-term outlook for offshore and deepwater oil and gas. We are well-positioned to take advantage of this through our technology, our projects, and, as demonstrated, strong customer relationships. To sum up, we're delivering consistently strong execution and steady margins, even as we face continued market headwinds. Our global improvement efforts, order backlog, and solid finances stand as well as we face continued market uncertainty. Thank you for listening, and Svein Oscar will now go through the numbers in more details. Svein?
Thank you, Luis. Good morning. I will now take you through the key financial highlights of the third quarter, our divisional performance, run through our financial guidance before we then move on to Q&A. As always, all numbers mentioned are in Norwegian kroner. As usual, let's start with the income statement. Overall operating revenues for the third quarter were down 20% year-on-year. The slowdown continued in our North Sea-exposed activities and within subsea services, which was partly offset by good progress on a number of key projects. Our reported third quarter EBITA was NOK 477 million.
This included some special items, including a gain of NOK 36 million in Subsea related to the sale of our old Brazilian plant, a gain of NOK 11 million related to non-qualifying hedges, and a cost of NOK 39 million for idle office space. Our EBITA, excluding all special items, was NOK 471 million, equivalent to a margin of 7.9%, reflecting continued strong execution and our internal improvement efforts. On an equivalent basis, in the same period last year, EBITA was NOK 631 million, with a margin of 8.5%. For your reference, we have set out a table in the appendix that further specifies these special items. Underlying depreciation in the third quarter was slightly up from last year, ending at NOK 191 million.
As we have communicated throughout the year, we still expect 2016 depreciation to be between NOK 850 million and NOK 900 million, reflecting our recent investments in technology development and to support our workload in Brazil and Angola in particular. Our reported third quarter EBIT was down year-on-year to NOK 286 million. Excluding all special items, EBIT was NOK 280 million, and the margin was 4.7% versus 6.1% last year. Excluding an unrealized hedging loss of NOK 4 million, net financial items totaled a negative NOK 105 million. Excluding impact from currency and non-qualifying hedges, we now expect to see net financial items on an annual basis in the range of NOK 90 million–NOK 100 million per quarter, primarily as our working capital continues to normalize and in light of recent investments.
A tax charge for the quarter was equivalent to a rate of 32%. Our view remains for average P&L tax rates to be in the mid-30% range going forward. All in all, we ended the quarter with an unadjusted net profit of NOK 120 million, equivalent to an earnings per share of NOK 0.37. Normalizing for all special items, our underlying EPS for the quarter was NOK 0.39. Now moving to our balance sheet and cash flow performance. As previously indicated, our net current operating assets continued to normalize in the quarter, and we ended the third quarter at NOK 416 million, up from a negative NOK 1.6 billion at year-end 2015, and up from a negative NOK 100 million at the end of the previous quarter.
We continue to expect our current favorable working capital position to unwind over the medium term as our major projects progress and see this happening over the next 9–15 months. Due to our improvement programs and ongoing initiatives to optimize cash flows, we remain comfortable in seeing working capital trend toward a normal level of around NOK 1.5 billion or equivalent to 5%–7% of revenue through 2017. Driven by this expected normalization of our working capital position, we ended the quarter with a net debt position of just under NOK 1.8 billion, up from just under NOK 1.3 billion at the end of the previous quarter. We continue to expect to end this year at around 1 times net debt to EBITA and to exceed this conservative target level during 2017.
Our total liquidity buffer is robust at NOK 7.3 billion. This also includes our undrawn NOK 5 billion revolving credit facility with leverage covenants at 3.5x . This position continues to give us good financial headroom going forward. As a reminder, the credit facility is secured at very favorable terms with margins starting below 1%. As of the third quarter, our return on average capital employed for the group overall reached 6% versus 14% in the year-earlier period. This decrease reflects the impact of restructuring costs and other special items over the last year, as well as some normalization of our working capital. Excluding special items, our return on average capital employed reached 11% versus 18% last year. There's also the effect of recent investments that are yet to contribute to earnings.
Our group capital employed was NOK 9.5 billion at the end of Q3. Of this, around NOK 1.4 billion was linked to facilities and technologies that did not contribute to earnings at the end of Q3. Our cash flow from operations in the third quarter was a negative NOK 291 million, reflecting the expected normalization of our working capital. Our investing cash flows totaled NOK 106 million in Q3, mainly related to fixed assets and technology development. As some of our key investment programs have come to an end through this year, we now see overall CapEx spend in 2016 around NOK 700 million. Since some major CapEx expansion programs have finished this year, we see 2017 at even lower levels. We now see overall CapEx and R&D at roughly 3% of revenue going forward with flexibility.
Now on to Subsea, where second quarter revenues were down 21% year-on-year. Good progress on key projects only slightly mitigated the effect of lower order intake and lower volumes from Subsea services over the past year. Importantly, our major projects continue to progress to plan, and we continue to realize significant benefits from our improvement programs, helping to offset market headwinds. As a result, our underlying Subsea EBITDA margin was only slightly lower year-on-year at 9.2%. After the expected effect of higher depreciation, our Subsea EBIT margin reached 4.8%, excluding special items, down from 7.1% a year ago. Special items for Subsea in the quarter were related to a booked gain of NOK 36 million from the sale of the old Subsea manufacturing plant in Curitiba, Brazil.
In terms of our outlook for Subsea for the remainder of 2016, we continue to see a challenging market, particularly in terms of delayed project awards. We still expect revenues to be down around 20% versus 2015, with roughly 20% of revenues coming from aftermarket services. We see underlying EBITDA margins remaining roughly around current levels, with market headwinds largely offset by our own internal self-help. Our Subsea return on average capital employed reached 8% in the quarter. This reflected a number of factors impacting our 12-month rolling performance, including restructuring costs and the level of working capital. Excluding special items, our Subsea return on average capital employed was 11.4%. In terms of order intake, our Q3 book-to-bill was down versus last year at 0.2 times. Our backlog remains strong at NOK 15 billion.
This is equivalent to almost 12 months of Subsea revenue, and gives us good visibility for the remainder of 2016, and relatively good visibility for the medium term. The current market remains active. In Subsea, we are currently tendering for around NOK 35 billion of work. Importantly, the number of new invitations to tender or ITTs still continues to be at a good level. On to Field Design, where revenues were down 16% year-on-year, due in particular to lower volumes in the Norwegian MMO market that were only partially offset by international growth. Margins in Field Design were impacted by NOK 28 million of onerous lease costs in the quarter. Adjusted for this, our underlying EBITA was NOK 190 million, with a margin of 7.5% versus 6.1% a year earlier. Our EBIT, also adjusted for restructuring costs, was NOK 158 million with a margin of 6.3% versus 5.1% a year ago.
Our order intake was good, particularly for MMO, reaching NOK 2.9 billion for Field Design overall. Our Q3 book-to-bill was 1.2 times, up from the same period last year. Despite the tough market, tendering activity is good, with a total value of work for tender currently around NOK 15 billion. This is similar to the previous quarter, and reflects international work as well as good volume of modification work on the Norwegian continental shelf. In terms of our outlook for the remainder of this year, we still expect tough market conditions to continue. We continue to see overall revenues for Field Design down 15%-20% for 2016 compared to last year, with underlying margins slightly up year-on-year. Now to the order intake and backlog performance for the group as a whole. At NOK 3.5 billion, overall third quarter order intake was equivalent to a book-to-bill of 0.6x .
This was higher than in the third quarter last year, helped in particular by MMO, which saw a book-to-bill of around 1.6 times. It is worth noticing that year-to-date we have in total booked an order intake of NOK 12.9 billion, equivalent to a book-to-bill of 0.7 times. Our backlog ended the quarter at NOK 32 billion. This is equivalent to around 1.2 times our revenue over the last 12 months, giving us good visibility for the remainder of this year, and a reasonable visibility for the medium term. Tendering activity is at good levels, although delays in projects awards remain common. Overall, we are engaged in tenders with an estimated sales value of around NOK 50 billion. As a reminder, our backlog does not include the majority of our service business or potential growth or options on existing contracts.
In the quarter, we had roughly NOK 0.9 billion of translation-related effects on our backlog. Finally, I would like to again remind you of our medium-term financial guidance. As you can see, our three key medium-term guidance themes and other financial policies remain unchanged. To sum up, in what continues to be a very challenging time for our industry, we once again continue to deliver good project execution and a good financial performance. We have reported steady underlying margins despite lower revenue, and have controlled operational leverage due to the ongoing benefits from our focus on continuous improvements. As I explained for the individual business areas, our main guidelines for 2016 on revenue and underlying margins remain largely unchanged. As mentioned by Luis, we continue to be vigilant about our workforce capacity to ensure it fits market conditions.
We also continue to drive through our efficiency improvement program, we will take out the effects of our ongoing reorganization. As part of this, we expect there will be a need for further restructuring and related one-offs in the fourth quarter. At this stage, we estimate fourth quarter charges in the range of NOK 300 million-NOK 500 million. At this stage, our outlook for 2017 indicates overall revenues down around 10% versus this year, with activity growth in Field Design, especially within MMO. At this point, we see our nominal group EBITA level for 2017 slightly below current market consensus. We continue to face the future with a strong balance sheet and decent visibility, thanks to a continued relatively good backlog position. As mentioned, there are a growing number of signs that offshore break-even costs are seeing meaningful reductions across the industry.
This is improving the likelihood of projects moving ahead, and we are well-placed. As previously communicated, we will over the next couple of months fully implement the new organizational structure of Aker Solutions.
Starting with the 1st quarter of 2017, we will start reporting according to our new structure with two primary segments, projects and services. Historical pro forma numbers with supporting key financial KPIs will be provided prior to year-end. Thank you. That was the end of our presentation today, and we will now move on to Q&A.
Thank you, Svein. As Svein said, we do have time for a Q&A now. We plan to end at 10:00 A.M. at the latest today. We'll start with some questions in this room, and then we will take questions by email from our webcast audience. I would ask that you please limit your questions to one and one follow-up, and please also introduce yourself by name. For the sake of our webcast audience, we do have microphones in here. First question we have.
Thank you.
Can we switch on the microphone?
Yeah, it's on now.
A very clear message. Just curious, you mentioned more opportunities for work outside Norway than in Norway. Could you point out, is that subsea? Can you be a bit more specific on where you see opportunities?
Okay. Market, Norway is a very important market for us, and we see some signs of recovery on the brownfield, even though we need more works. Be clear that it's not back to the old levels. We need to win more work going forward. The world is a big place, and since we have moved from being almost entirely in Norway, back 5 years ago, 80%, something like that, now to 60% outside, there are more opportunities there. Just pure for that particular reason. This, to be honest, the market is, as we know, is bearish across the whole globe. You see some signs of recovery now with the break-even costs coming down. We can see that on the front end.
That's the main reason, because we have more opportunities, a larger world out there. We have not tried some of the markets.
Can you be a bit specific on what regions or timeframe? Is it first half of 2017, second half?
Okay. As was said, we've been talking about 12 months because of break-even costs. Very uncertain. That's no question the clients are looking. Some of the projects have been there for some time, as was the case of the Dvalin development, but now it's been awarded, we believe that the clients will start to move as out now that the production has been balanced. We actually expect brownfield earlier. We've seen brownfield moving now, but greenfield probably from second half of 2017.
There is a very good geographical spread in that tender backlog. It's Asia Pacific, it's Africa, it's Brazil, it's U.S., U.K., and Norwegian continental shelves. Very good geographic spread.
Thanks.
Any other questions? Terje Vatnæs.
Yeah. Terje Vatnæs from SB. A question on Brazil. You made an investment there. Can you talk a little bit about how you see the regulatory changes in Brazil going forward, and how that might impact the international company's interest for the region?
Thanks, Terje. Good to see you again. I like to talk about Brazil, that the changes, in my view, they're all positive. You know, I think that as any crisis, it brings some opportunities, and I think for Brazil, it's a great opportunity. As we saw, they start to make a very large investment and a greater, you know, asset in Brazil. We see that Petrobras are performing the divestment that they promised to make. We see the government changing the rules, some of them, to facilitate business. I also talk about renewal of Repetro. The taxation system is important for us. My view is that Brazil is moving in the right direction now.
Of course, like any other global market, it is stressed, our acquisition demonstrate that we believe in Brazil. We have a great relationship with Petrobras in Brazil and subsea in all the areas. We've been in the country for more than 40 years now. We also see some of our key clients moving to Brazil, which gives me a lot of pleasure to see Statoil moving to Brazil, Total, Shell. They're all our clients and the key clients that bring basically 80% of revenue today. For me, it's very encouraging what I see in Brazil. I think the frame is moving. When you have to depend, of course, on politicians, things don't move as fast as we want sometimes. I think they are moving at a decent pace.
Hopefully you'll see more rounds next year and actually a multitude of clients faithful to us.
What are your international clients saying is the main hurdle that needs to be solved in order to increase investments in the region?
In Brazil, particularly. I think it's pretty open there about the local content. I think our clients are very comfortable local content in the subsea, you know, the services side, that's where we are. I think there's a lot of discussion about the excessive local content on, for example, FPSOs and so on. It's a lot of discussions now. Even Petrobras is asking for a concession now to reduce the local content on the floating units. I think that's the main point I hear is taxes. Of course, they were talking about the fact that they could not operate some of the licensed assets like the pre-salt. It has been removed now. I think I also mentioned Repetro, it's important for them. The taxation has to be renewed.
Okay. Thank you.
Is there a question here? Coming.
Kjetil Hovland from E24. I was wondering, you're saying that you're cutting costs faster than planned. Could you say something about what kind of cuts are being done this year that you had not expected to complete until next year, and what you're planning to do next year?
Okay. I'll try to answer that very complex question in a few paragraphs. Basically the program is, as I explained before, is a very wide program that covers, changing of products, modifying our footprint, modifying our streamlined organization as presented here. Those things take time because you have to identify where the changes are coming from. We expect that to take a bit longer then, and our employees are working really hard to find those savings. As I said, we have executed some of those. It's very important to realize that to effectively develop those savings or to realize them, you need volume, and the volume is not there yet.
That's why when you talk about the savings, you talk about 2015 cost base and volume base, which is not where we are today.
Can I add to that, you know, we, as Luis is saying, the operational improvement program spans the entire value chain, you know, up from, you know, how we conduct our business development activities, our tendering activities, our resources and development activities, you know, our front-end activities, our engineering, our procurement, our construction, our lean. It spans the entire chain, and it's fantastic to see how the organization has embraced this program. I think, you know, what has caused a little bit by surprise is the momentum from the organization related to harvesting on what we see as clear efficiency improvement potentials around the organization. I guess the program priests have over-delivered compared to our expectations. That's what we're seeing.
One more question there.
Yeah. Magnus Olsvik, Swedbank. Question on Norway. We see some investment decisions expected for the next six months. How do you see Aker Solutions' position for any award related to these investment decisions?
We hope to be well positioned. You know, it's our home market. You know, that's where we still have half of our workforce. I think we are well positioned. You know, we engage in some of the early studies with Statoil, for example, and other clients. I think that some of those early studies will give us a good position for the future. We have to be very clear that we need to take our share of the market. I think we are there. The pie is smaller. That's why we need more work. We are not, as I said, resting on laurels. We win some work, but it's not to the level that we have.
We still have more capacity at the moment than we need. I think our relationship with the clients here is of course excellent. Our execution now being, as I've been, or mentioned about being the best and most supplier to Statoil and having all the IOCs doing more with us, that puts us in a very strong position in this market. Of course, it's a competitive environment, and nothing's going to come for free. That's why we need to do the things we are doing to reduce the cost, work with the clients, get closer to them. I think they've been quite vocal about how much we have helped them to reduce the break-even cost of fields. That's, I think puts us in a very strong position.
Thank you. One more question from Kjetil.
Yeah. What do you think about the global oil price, and what would be a comfortable level for Aker Solutions pushing up more activity? How long would it take if prices pick up to, say, 60, 65 next year? How long will it take before it triggers more activity globally?
I usually will refrain from commenting oil prices, especially because you won't if I say anything here, I'm gonna be wrong. That's what happens is it's very volatile. What we're doing is to concentrate in making what we do more efficient and lower cost. I think that, putting all that aside and the fact that we're all gonna be wrong, we see the clients are getting more comfortable now. This industry has produced oil where... As I was talking to one of the IOCs last week, some of the projects have been sanctioned 5, 10 years ago at $14 a barrel. I think we have to go back to the basics, and we can produce oil at the current, it can be competitive with other place at the current oil prices.
What people need is stability, and of course, oil companies need to recover, their financial, recover the balance sheets to make sure they have the investments and regain confidence.
Thank you. Any further questions in here? If not, then we do have some questions from our webcast audience. I'll start with the first one from Jessica Alderson in Morgan Stanley. Your Subsea backlog for 2017 is NOK 6.5 billion from your presentation slides. Consensus is at near NOK 15.4 billion, and this implies 42% backlog cover versus 70% at this time last year. I know you've talked about 2017 a bit already, which is helpful, but specifically, how do you feel about 2017 consensus for Subsea?
As I think we have previously commented on, we see very healthy activity levels, you know, in our tendering activity. We said NOK 35 billion of tenders. Of course, common denominator for most of them have been sliding to the right. Are we more optimistic that some of them will move forward and be sanctioned and awarded over the next 12 months? Yes. In terms of our activity level within, you know, the number of studies we worked on, we managed, we got another 15, you know, studies, not only in Subsea, but a lot of them in the Subsea space. You know, 60 study awards so far this year. There's a lot of activity in the front-end space.
That is a good indication that things are moving ahead. Hopefully will move forward into FEEDs and ultimately into EPCs. You know, of course, we did say Q3 impacted somewhat by a slowdown in the subsea aftermarket space. We see the revenue mix for Aker Solutions related to aftermarket activities holding up around current levels also for next year.
Another question from Jessica. On the subsea backlog for 2017, it is down from NOK 7.2 billion in 2Q to NOK 6.5 billion now. Why is this?
One is, you know, order intake, and then we consume part of the backlog. Then, of course, it's the order intake. I mentioned, there's about NOK 0.9 billion of currency translation-related effects in the quarter. That might be what causing her math not to add up.
Yeah.
But, um...
Yeah, ours happen to go the other way.
There's the backlog denominated in non-NOK currencies that translated into NOK could cause that difference for her.
The third and final question from the same source. Are your 3Q Field Design margins sustainable looking into next year?
We hope so. Jenny, you want to comment that?
I mean, our MMO business, of course, margin's not up to the level that they ideally should be at. I think we have seen the trough in terms of margin in the MMO space. Engineering is a game related to maximizing utilization. Very healthy activity levels at the moment, and we have all indications to believe that that activity level is going to continue into 2017. Of course, we will adjust capacity, you know, as and when needed. As we said, we're very vigilant about monitoring our capacity needs moving forward. Hence, we should be able to drive that Field Design margin in the right direction.
Sure, sure.
A question from Eirik Mathisen in DNB. Can you please confirm that you expect to book NOK 300 million-NOK 500 million in restructuring costs in 4Q, and give a breakdown of those expenses, in other words, the split between subsea and Field Design?
No, I will not go into any more details other than saying that, as we see it, right now, there will most likely be a need for a one-off provision in that magnitude, between NOK 300 million-NOK 500 million related to our ongoing efforts to drive through our efficiency improvement program, implementing the new organizational design of Aker Solutions and make sure that we do what we can to remain as competitive as we can. I'm not gonna be any more specific other than.
Just give-
give that indication that that will most likely come in Q4.
There's also a question from Morten Nystrøm, Nordea. You are guiding on a top-line reduction in 2017 of 10%. Is this including the Brazil acquisition?
That includes the Brazil acquisition.
There's a follow-up question. You are also guiding on an EBITDA margin slightly below consensus. Could you put some more color on subsea and Field Design EBITDA margin in 2017?
No. The outlook, as indicated, what we see at the moment, our outlook for 2017 in terms of nominal EBITDA slightly on the low side of current market expectations.
Okay.
Overall.
A question from Nico Constantakis at Exane. You are targeting to maintain market share. How do you see pricing pressure and competitors' behavior, and how may this affect your margins?
As I said, the market is competitive and always been. Of course, now that we are two years into this, largest slowdown this industry has seen so far, of course, there's a lot of unutilized capacity. You actually can see that some clients, some competitors actually curtailing and reducing capacity. It is competitive, we believe that the things we are doing to the company, and as proven by Dvalin, that was won in a very competitive tendering, we believe that we can compete. It's very hard to say what the competitors will do, but have to say what we do. I think we are fighting very hard to win our share.
I guess considering our current execution, it's, I think it's, the clients will come back to us as they do. What we have to do is to make sure that they are healthy with delivery of the project we are delivering. It's important to highlight that this is the lowest award offshore subsea ever. If you tell someone, if someone will tell you that we only have less than 60 trees in 2016 so far and zero FPSOs award in a year, if someone said to you that 10 years ago or even three years ago, you not believe, you would not believe it. That's, that's deep. It's competitive. It will continue to be competitive.
A question from Jan Petter Andersen at Clarksons. Can you give some color on how the acquisition of CSE is financed? Secondly, who are CSE's biggest competitors?
Okay. The Brazilian market has been, I will say the participation there was broad with several players in different segments. You also have to look into the segments as large modifications that CSE is not involved, and that's where we wanna take them with our knowledge and also the modification and maintenance. There are several competitors, and I can mention some. A large share of them being banned due to the Car Wash, as you know. I'll not list all the competitors 'cause I don't think it's any merit, but some of them are not able to compete now. It's a great opportunity for us, quite frankly. That's what the client needs, reputable contractors that bring new technology, new capabilities to Brazil.
I can also add that it's financed with cash, and the acquisition is clearly accretive to Aker Solutions.
Opportunity show up in the downtown as well.
All right. The final questions that we have received are from Christopher Moltke-Hansen at the SpareBank 1 Markets. Field Design reported a strong Q3 margin. You mentioned it was due to strong execution on backlog nearing completion. Would Q4 margins come down again, and what level would be a fair assumption?
As we indicated Field Design, we see underlying margins slightly higher than underlying margins last year. That implies that we foresee that the margins for Field Design will hold up also in Q4.
A second question from Christopher: regarding the NOK 300 million-NOK 500 million restructuring costs in Q4, what would be the cash element of these costs?
I don't want to go into any further detail on it, but part of it is related to capacity adjustments. A part of it is related to then related costs like office space, you know, IT-related expenses and some other balance sheet-related items. No further details on that.
All right. That was the final question that we had. I think we're ready to wrap up right now. Thank you very much for joining us. For media who would like to have short interviews, please do express your interest with Anna Cecilia. Thank you very much.
Thank you.