Good morning, ladies and gentlemen. Welcome to Aker Solutions presentation of first quarter results for 2016. My name is Bunny Nooryani, I'm the Chief Communications Officer. With me here today are Luis Araujo, our CEO, and Svein Stoknes, our CFO. They will go through the main developments in the quarter. After that, we'll have time for a Q&A and some one-on-one interviews with the media. Going straight forward out through the glass doors, note that we don't have any fire drills planned today. Luis, I'll let you take it from here.
Good morning, and thank you for joining us here today. Svein and I are pleased to be here and to go through our results for the first quarter and to give our view on what lies ahead. Before we get to the main numbers, let me briefly go through some key events for the quarter. We are clearly seeing challenges as low oil prices and capital constraints cause oil companies to scale back spending. We also had significant high points in the quarter. Among these were several contract awards from key customers, including a major MMO framework agreement in Norway with ConocoPhillips, Subsea services contracts with Petrobras in Brazil and BP globally, and strategically important concept study awards for Johan Sverdrup and Johan Castberg developments in Norway. We continue to execute well on major projects from Africa to Norway and Brazil in the quarter.
We made steady progress on our global push to improve operations and bring down costs across the business. Still, we saw the effects of the slowdown that's affecting our entire industry with a weakening of our top and bottom lines. In response, we announced workforce reductions of as many as 1,500 permanent positions in Subsea and field design to ensure our capacity fits current market conditions. This would bring total reductions since the second half of 2014 to about 20% of the permanent workforce. About 2/3 of these are in Norway. We also introduced measures to streamline operations and boost competitiveness in all business areas. We expect this to strengthen our ability to win new work and help safeguard jobs and key competencies going forward.
Our order backlog was steady from the end of last year at NOK 38.5 billion, and we had a solid financial position with a liquidity buffer of NOK 8.5 billion at the end of the quarter. This give us good flexibility ahead. In sum, our continuous improvement efforts are backed by a healthy backlog, consistently strong execution, and solid finances, which stand us well as we face continued market uncertainty. Now for the main numbers. In the first quarter, revenue was NOK 6.5 billion. EBIT was NOK 314 million. EBIT margin was 4.9%, and excluding special items, the margin was 5%. Earnings per share were NOK 0.56. Compared with a year earlier, revenue was down 24% as activity levels declined globally in the offshore service industry.
Margins were steady year-on-year, helped by stronger performance in field design, which was somewhat offset by a slowdown in the Subsea services segment. Still, we are pleased to deliver a decent bottom line in this challenged environment. The order intake was NOK 6 billion, helped by contracts for all our business areas, some of which I have already mentioned. Let me also emphasize the continued strong interest we see in our early phase capabilities. We won 20 study awards in the quarter, including four projects in Norway, Australia, and West Africa. Several of these are of strategic importance and put us in a strong position to secure future work at key projects. That's not all. Since the quarter's end, we have announced more orders, and these include two MMO contracts for Statoil for work on the Åsgard A production vessels in the Norwegian Sea.
An MMO agreement with Statoil for preliminary engineering work for tie-in of the North Sea Utsira High to Sleipner facilities. The contract has an option for engineering, procurement, construction, installation, and commissioning services for the platform modifications. MMO also secured an order to work as a subcontractor of Kvaerner on the upgrading of the semi-submersible platform at Statoil Njord A field. It's an installation that we originally designed many years ago. We signed a framework agreement with Lundin Norway to provide engineering service for offshore developments in Norway. A good start of the year as our customers show confidence in our ability to deliver what they need. In our final note, I knew, just last week, we had a pleasure of opening our new Subsea manufacturing and technology plant in Brazil.
This state-of-the-art facility will service customers in Brazil, one of the world's largest offshore oil and gas markets, and ensure we deliver cost efficient effectively on our backlog there. It also strengthened our global delivery model with Subsea execution hubs in Americas, Asia Pacific and Europe. I don't actually get tired of looking to that asset, and I'm not talking about the plant. I'm talking about those guys in red overalls in front. As some of you will have seen, we yesterday announced a long-term collaboration with ABB. It will build on our combined strengths in Subsea power and automation technologies. This is the first alliance of its kind. It integrates Aker Solutions' pioneering Subsea capabilities and ABB Subsea power and automation system expertise to bring customers globally more effective, reliable, and flexible Subsea production solutions.
Together, we work to enhance how production units on the sea floor are powered and controlled by applications onshore and from platforms. This will reduce costs and enable economically viable production at fields far from offshore from existing infrastructure. The cooperation builds on many years of joint work, most recently on last year's landmark delivery of the world's first Subsea compression system for the Åsgard field. We see several important interfaces between our technologies, and I'd like to mention a few. We can optimize the connection between Aker Solutions Subsea production system and ABB's topside automation system, reducing the need for extra integration work. We can increase the power and data capabilities of the Subsea system to provide more effective data on the performance and condition of the Subsea system at any given time.
This type of close monitoring of the health of the Subsea equipment will enable maintenance to be planned proactively and increase the reliability of the Subsea systems. We can develop power and automation solutions for advanced Subsea processing, including Subsea pumping and compression. Indeed, our initial focus of the cooperation will be to develop better Subsea compression systems at lower costs in less time. We also see the potential to enable our electric Subsea production systems that remove the need for hydraulic power, reducing environmental risk and increasing reliability. Our collaboration with ABB complements and ties in with other valuable Subsea partnerships we have formed, including Baker Hughes, MAN Diesel and Saipem. Through these partnerships and our own Subsea portfolio, we have access to the full spectrum of technology and expertise needed to develop fully functioning and effective Subsea oil and gas production and process systems.
The goal is to lower cost, to boost recovery, to enable viable development of more fields and improve safety, and minimize the environmental footprint while securing needed energy resources across the world. In fact, it's my firm conviction that our industry not only should, but must share knowledge and experience to ensure sustainable development for ourselves and the world that we serve. I'm pleased that we earlier this year also agreed to collaborate with Total, a major customer, on developing new cost-effective Subsea technology. This type of collaboration and innovation is essential for our industry to move forward with strength. Well, I briefly mentioned our company-wide improvement program earlier, and now I would like to go into some more detail. We are simplifying our work methods, organizational setup, geographic footprint, and products and service. This has given us a leaner and more efficient processes.
This will enable us to reduce the overall cost of our projects and our products while improving quality. Our global improvement program, The Journey, targets an improvement and cost-effective efficiency of at least 30% across our business. Based on our 2015 cost base, this equates to potential annualized cost savings of minimum NOK 9 billion by the end of 2017. We are targeting about a quarter of this improvement by the end of this year. To next year, we see even more momentum, helped by longer term improvement processes. They are supporting overall margins, and they are reflected in the work that we do with customers and projects. This is not going unnoticed.
The Aker Solutions team that works on maintenance modifications for Statoil Norway has, in the last four quarters, Be named the best contractor in Statoil customer satisfaction survey of these suppliers. We have also played a key role in bringing down break-even costs for major developments, such as Johan Castberg and Johan Sverdrup in Norway. Now, I'd like to go to the outlook. I think you have understood that we at Aker Solutions are just as aware as the rest of the industry of the challenges in the global oil and gas markets. The steep and sustained decline in oil prices and oil companies' capital constraints are having significant impact. Projects are being postponed or canceled, there is a persistent pressure on pricing.
There are still steady tendering in our main markets, and we are currently bidding for contracts totaling more than NOK 40 billion, with about three-quarters in Subsea. We see indications that improvement measures across the industry are starting to have an effect. Break-even costs are coming down, with Johan Castberg in the Barents Sea as a concrete example. This increases the likelihood of some projects being sanctioned in the next 12 - 18 months. Activity offshore Norway, our largest regional market, is expected to remain subdued this year. The main exception to this is the Johan Sverdrup development, where we have an engineering framework agreement that extends as far as 2023. We also see the biggest potential for growth outside Norway. At the end of the quarter, 65% of our revenue came from outside our home market.
Well, when it comes to long term, we remain optimistic. Field developments are becoming more complex, and we have the capabilities needed to cope with these challenges. Forecast global energy needs also support a positive long-term outlook for offshore and deepwater oil and gas developments. We are well-positioned to take advantage of this through our technology, projects, and strong customer relationships. Well, the best way we can move ahead is by boosting our competitiveness through our relentless focus on cost, continuous improvement, both within our company, with and with customers on projects, and in collaboration with key industry players. Well, thank you for listening, and Svein will take you from here. Svein?
Thank you, Luis, good morning. I'll 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 usual, all numbers mentioned are in Norwegian kroner. As usual, we start with the income statement. Overall operating revenues for the first quarter were down 24% year-on-year. A slowdown continued in our North Sea-exposed activities, several projects saw lower volumes as they progressed towards completion. This was partly offset by good progress on a number of key projects elsewhere. Our reported first quarter EBITDA was NOK 508 million. This included a small number of special items, including a restructuring cost of NOK 15 million related to the simplification and streamlining of field design.
It also included a NOK 4 million gain related to non-qualifying currency hedges and a cost of NOK 3 million related to separation of IT systems following the demerger. Our EBITDA, excluding all special items, was NOK 521 million, equivalent to a margin of 8%. On an equivalent basis, in the same period last year, EBITDA was NOK 666 million, with a margin of 7.8%. For your reference, we have as usual set out a table in the appendix that shows all these special items. Depreciation in the first quarter was slightly up from last year at NOK 195 million.
As we mentioned at Q4, we 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 first quarter EBIT was down year-on-year to NOK 314 million, and excluding all non-recurring items, EBIT was NOK 327 million, and the margin was 5% versus 6% last year. Excluding an unrealized hedging gain of NOK 4 million, net financial items totaled - NOK 59 million. We continue to see net financial items for the full year reflecting a range of NOK 70 million to NOK 80 million per quarter as our working capital continues to normalize.
Our tax charge for the quarter was equivalent to a rate of 34.5%, reflecting our view of average P&L taxes in the mid-30% range moving forward. All in all, we ended the quarter with an unadjusted net profit of NOK 169 million, equivalent to an earnings per share of NOK 0.53. Normalizing for all special items, our underlying EPS for the quarter was NOK 0.56. Now moving to our balance sheet and cash flow performance. Driven by the expected normalization of our working capital, we ended the quarter with a net debt position of NOK 406 million. We still expect our currently very favorable working capital position to normalize over the next 12-18 months. As we stated at our fourth quarter results, we expect to end this year at around 1x net debt to EBITDA.
Our total liquidity buffer is robust at NOK 8.5 billion. This also includes our undrawn NOK 5 billion revolving credit facility, which was amended in Q4 with an increase of NOK 1 billion and a leverage covenant lifted to 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 first quarter, our reported return on average capital employed for the group overall reached 7% versus 17% in the year-earlier period. This decrease versus last year 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 13% versus 19% last year.
There's also the effect of recent investments that are yet to contribute to earnings. Our group capital employed was NOK 8.5 billion at the end of Q1. Of this, around NOK 2 billion was linked to facilities and technologies that did not contribute to earnings in Q1. Our cash flow from operations in the first quarter was negative NOK 327 million, reflecting the expected normalization of working capital. Our net current operating assets remain low. As I have said previously, we continue to expect this low working capital position to unwind as major projects progress over the next 12-18 months. We continue to see a more normal level of working capital to be in the range of NOK 1.5 billion-NOK 2 billion or equivalent to 5%-7% of revenue.
Our investing cash flows totaled NOK 185 million in Q1, mainly related to fixed assets and technology development. As our current key investment programs come to an end through this year, we continue to see CapEx spend in 2016 below NOK 1 billion. On to Subsea, where first quarter revenues were down 24% year-on-year due to the effect of lower order intake over the past year, project phasing, and lower volumes from Subsea Services. Our major projects continue to progress to plan, as Luis said, we continue to realize significant benefits from our improvement programs. This is helping to offset market headwinds, and as a result, our Subsea EBITDA margin was only slightly lower year-on-year, in line with our Subsea margin outlook for 2016 overall.
After the expected effect of higher depreciation, our Subsea EBIT margin reached 5.5%, down from 7% a year ago. Due to these headwinds, in particular a challenging market in the North Sea, we have had to further reduce capacity through the start of 2016. Since mid-2014, our permanent Subsea workforce has been reduced by around 20% overall. In terms of our outlook for Subsea in 2016, we continue to see a challenging market, particularly in terms of delayed project awards. We now expect revenues to be down around 20% versus 2015 versus our previous outlook for down around 15%, with roughly 25% of revenues coming from after-market services versus around 20% in 2015. We see underlying EBITDA margins remaining around current levels, with market headwinds largely offset by our own internal self-help.
Our reported Subsea return on average capital employed reached 12% 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 22%. In terms of order intake, our Q1 book-to-bill was up slightly versus last year at 0.5x , and our backlog remains strong at NOK 20.2 billion. This is equivalent to around 14 months of Subsea revenue and gives us relatively good visibility into 2016 and also quite good visibility in the medium term. The current market remains active. In Subsea, we are currently tendering for over NOK 30 billion of work, and the number of new Invitations to Tender or ITTs continue to be at a good level. Now on to Field Design.
Field Design revenues were also down 24% year-on-year, due in particular to lower volumes in the Norwegian and the U.K. market versus last year that were only partially offset by international growth. Margins in Field Design were impacted by NOK 15 million of restructuring costs in the quarter. Adjusted for this, our underlying EBITDA was NOK 176 million, with a margin of 6.6% versus 5.3% a year earlier. Our EBIT, also adjusted for restructuring costs, was NOK 143 million, with a margin of 5.4%. Order intake for the quarter was strong at NOK 4.1 billion, equivalent to a book-to-bill of 1.6 times, mainly driven by projects in Norway and in the U.K. Despite the tough market, tendering activity is good, with a total value of work for tender currently over NOK 10 billion.
This reflects international work as well as the good volume of modification work on the Norwegian continental shelf. In terms of our outlook for this year, we still expect tough market conditions to continue, especially within the MMO segment in the North Sea. We continue to see overall revenues for Field Design down around 15% for 2016 compared to last year, with underlying margins slightly lower year on year due to an ongoing tough MMO environment. Late last year, we announced further capacity adjustments in Field Design, mostly within MMO Norway. Versus our position halfway through 2014, our Field Design business globally has seen around a 20% decrease in permanent employees from ongoing or completed capacity adjustments. Now to the order intake and backlog performance for the group as a whole.
At NOK 6 billion, overall first quarter order intake was equivalent to a book-to-bill of 0.9x , helped by decent order intake in Field Design. This was lower than in the first quarter last year, but that period included our Johan Sverdrup EPMA award in engineering. Our backlog ended the quarter at NOK 38.5 billion. This is equivalent to around 1.2x annual revenues, giving us good visibility for this year and reasonable visibility for the medium term. Tendering activity is at good levels, although delays in project awards are still common. Overall, we are engaged in tenders with an estimated sales value of over NOK 40 billion and over 2x this value in terms of opportunities. You will also note our Q1 backlog phasing chart is slightly different from that at Q4.
The totals for 2017 and beyond are slightly higher, reflecting both new work and project rephasing. As we did in Q4, we indicate the split between Subsea and Field Design. As a reminder, our backlog does not include the majority of service business or potential growth or options on existing contracts. Finally, I would like to remind you of our medium-term financial guidance. 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 continue to deliver good project execution and good financial performance. We have reported steady margins despite lower revenue, showing the ongoing benefits from our focus on a culture of continuous improvement.
Over the first quarter, our order intake was not far from 1x book-to-bill, despite the tough market environment. We hope to see further developments in the coming quarters. We also landed a number of strategically important studies and awards, showcasing the strong market position of our front-end business. We have further developed our industry and technology partnerships, including an important move this week with ABB on advanced Subsea power and processing. We face the future with a strong balance sheet and decent visibility, thanks to our good backlog position. As Luis mentioned before, there are a growing number of signs that offshore break-even costs are seeing meaningful reductions across the industry, improving the chances for projects to move ahead. We believe we are well-placed to serve the long-term needs of a recovering and growing offshore oil and gas market.
[webcast] audience today. For those who are taking part via webcast, I would like you to either call in with your questions or send them in writing. We do plan to end the session by 10:00 A.M. today. I would ask that you please limit your questions to one and one follow-up. We will start in this room, and for the sake of our webcast audience, please do use the microphone. Please do also introduce yourself. Let's see, the gentleman in the back.
[audio distortion] my name is [Kjell Erik Gjelseth]. You mentioned that the cost efficiency program you are implementing this year or next year will reduce your cost base from 2015 with approximately NOK 9 billion. And is that comparable to the NOK 30 billion in cost base you had in 2015? Does it mean that it brings it down to NOK 21 billion
Yeah, if you compare against. You have to compare somewhere.
Yeah.
That's pretty much it.
Right. Will that... You mentioned that projects in general are postponed to 12-18 months, which means that we could see the backlog started growing at the end of 2017. Will you then be able to maintain the margins as we have seen over the recent quarters, adjusted for extraordinary items? Can you say something about the margins you see in the intake that's seen over the past couple of quarters?
Okay. I can start, and I'm sure Svein can complement. Our view is that we do need to continue improving, and we have established this target of 30% reduction, and we need to measure what is happening. It is not a simple exercise. It is not also linear or in the same place. As I said, we have identified that 25% of these savings that can be applied this year, and we're gonna be improving till the end of next year. The exercise includes several things. Well, of course, like everybody else, we work with our supply chain, and the supply chain is responding in several places, just like we are. We also work in our products.
How can we make them, how can we make them lower cost, more quality, so on? Like the leaning exercise we're talking about across the globe. To give an idea, we have in as far as Brazil, as far away as Brazil, 60% of the employees have been training as white belts for lean. That's a process. Of course, I keep mentioning to everybody that we need to have work to improve. We don't improve, we don't have any work. That's, that's a bit foolish. Also, we see that we need these changes, these reductions to win work. I mentioned some examples that we won during the quarter last year. We have won this modification and maintenance contracts and so on.
Those are reimbursable contracts because the client believe we will reduce their cost by 30% as a minimum. We are working along the lines and show some results. Again, to face the headwinds we are facing and maintaining the margin steady, the only reason we're doing this is because of the effort of the employees to reduce costs. There's no other way. I hope I have answered the question. Anything else you would like to add?
Yeah. Also think about it as a 2015, you know, activity level, a 2015 cost base. We have done launched the target of lifting that activity level at 30% less cost. So far, proud to say that we have identified, you know, 2/3 of this, and it's rapidly increasing. The entire organization has embraced it. It's a cultural movement going on. I think we have very successfully been able to implement this initiative the same way as we did with our HSE initiative some year years back. We have a workforce coming to work every day with the mindset of how to do your day-to-day activities in 30% less time, you know, less effort, less cost. It's amazing to see how the entire organization has embraced this initiative.
It's not just sort of a top-down driven initiative, but, it's a, it's a bottom-up movement starting to emerge in the, in the business.
Let me follow up. Is these cost reductions, you're aiming for, are they necessary in order to maintain the margins based on the new work you have won over the past couple of quarters?
Yeah.
In order to maintain margins, you need to reduce the cost base.
Absolutely. It's necessary to maintain the margins. There's no question we engage with the clients in cost reductions, in negotiations. It's important to maintain the margin and also to make us winning the next job. There's no question about that. There's the savings we apply to the existing backlog. Some of the savings will go to the clients, there's no question about that. It happens to every industry. As Svein said, and I think it's brilliant, the name that the employees gave to the process, calling it The Journey. This is a journey that our whole industry needs to embrace. Otherwise, we won't have an industry.
Thank you. Next question, at the back there, Terje Fatnes.
Yeah, Terje Fatnes from SEB. A couple of questions on the Subsea utilization. You have quite a high workload this year and next year on the facility here at Trondheim. Can you give an update on what is the current workload on the new facility in Brazil and also to Kuala Lumpur maybe?
Okay. What we see those projects, they move through a, or called supply chain or execution chain. Usually what you see becoming free first is, of course, the, you know, the administration, the engineering, the project management, and we are adjusting that as we need it. The facility is still quite loaded. We have lower loads in Trondheim in Norway, working full speed to deliver the African projects, mainly, and some U.K. projects. In Brazil, we, it's pretty clear that we have elongated the backlog up to 2018. The facility is operating with two shifts still and a little bit more, and some half a shift in some areas that we need more continuity.
If for people who are in Brazil last week, we have six people here who was with us visiting the plant. It's a very large facility, very modern. It is the biggest and best Subsea plant in the world. Very proud of the guys have achieved there, not only building the plant on budget but also on time. The productivity they achieved, you know, they broke the record last year. Delivered 34 systems to Petrobras, another record in Brazil, and moving a plant, moving the machines. As I said, they changed the tire of the car with the car moving, which is a task on its own. Basically, we wanna need more work. Everybody does. We need the capacity. A decision was made in 2011.
In terms of Brazil, we believe in the country, as I said in the opening. The reserves are there. It's a lot of reserves in Brazil. Will be produced eventually, and they're very prolific and large. At the moment, there's no question that the whole market is stressed. The clients are analyzing, but there are some opportunities as well. Will be opportunities in Brazil for the IOCs as well as you see it. Some of our key clients that are really key clients. These are guys who actually buy 80% of our capacity. They are moving strong into Brazil. I met several of them last week, and they are there. They're looking for the opportunities. I think in the long run, that will be good.
Plus, the facility is part of the combined capacity we have. As I mentioned, I think before in the presentations, we have developed those facilities with the same methodology, same tooling. We can, depending on oil contents, we can mix that kind of supply chain. I hope I answered your question, you can have a follow-on if you...
Yeah. Then for Svein on housekeeping question. On EBITDA in the other segment was quite low this quarter. Can you remind us what is in that number and why it is so low for this quarter?
As we have indicated previously, think about other as the predominantly corporate overheads. We said corporate overheads to be in a NOK 30 million-NOK 40 million per quarter range. You also have a few other elements, for example, some results of our treasury activities or, you know, trading, you know, activities, which was favorable in this quarter. I will not sort of give you an indication of what that would be on a quarterly basis. Think about it more as corporate cost at about NOK 30 million-NOK 40 million a quarter.
The final question is on backlog coverage for 2017. Compared to last quarter, that seems to be up only NOK 100 million. Any particular reason for that? Is it shifts in the backlog, or is it currency that impacts all?
I can't remember exactly what the report said, last quarter in terms of backlog to be executed in 2017. Of course, we have successfully been awarded some work during this quarter and also following Q1, which is not reflected in that in that backlog, which is gonna help the visibility in 2017. Whatever movement you see there is just as a consequence of new awards and rephasing in terms of existing backlog.
I'd like to emphasize as well that, some of the announcements we made, I mentioned today some of the projects we won. That's the front end, or some of them are just the engineering phase. They will turn into. As long as we are successful in reducing the cost for the clients, they will turn into EPCIC, as we call it, the engineering, procurement, installation, construction, contracts in the future, and they will have a much larger volume going forward. That's what, we see for going forward on that particular field design, field services area.
Okay, thank you.
At the very back there in the middle.
Truls Olsen from Fearnley Securities. Just in terms of the Subsea bidding activity, you were talking about a bit over NOK 30 billion. On that list of projects you see on the larger projects, how comfortable are you in whatever that is going to be executed or awarded in 2016? What's the likelihood of all or majority shifting to 2017?
Okay. As I mentioned several times, and so all the clients are talking about that, the costs have come down and the break-even of the fields are improving. It's not only a matter of break-even. As you know, it's about cash flow and confidence from clients that the market is gonna be stable. It's very hard to predict that if it's gonna happen, and when I talk about the Subsea bidding, sometimes I talk about Subsea rebidding. There's a lot of rebidding. The project come back to the table, we look again, we tender. As we have seen in the last 12 months, has been almost no greenfield projects sanctioned. I think that's gonna be the story in 2016.
We see a lot of the tiebacks moving. Those are the one-offs, two-offs, three-offs, threes that we have had a few this year already and last year, where people see that they can bring the cash flow quicker and develop projects and add value to the production quicker. That's moving. I believe that's gonna move before you see the big greenfield projects moving.
Are you seeing the tiebacks starting to move, or more interest on the tiebacks, the infill, activities at oil in sort of the low or high mid-40s%, compared to two months ago, three months ago, six months ago?
Oh, yeah. Some of those fields have even break-evens lower than that because the facilities are there, and any production we bring up, that will be, you know, accretive to the existing production. I think like any downturn we've seen in the past, and this of course is a different one invest fresh capital in greenfield.
Thank you. Any further questions in here? If not, I'd like to check with our operator to see if we have any questions from our webcast audience.
Thank you. If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you're using speakerphone, please make sure the mute function is turned off to allow your signal to reach our equipment. Again, please press star one to ask a question. We will pause for just a moment to allow everyone an opportunity to signal.
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Excellent. It was very clear.
We do have some questions that have come through in writing on email. The first one is from Morten Nystrøm, Nordea. Due to higher seasonal Subsea activity in the NS during summer months, should we also expect an uptick in Subsea revenues versus Q1? What are clients telling you on future brownfield projects? Do you expect increased activity in the segment if oil prices stabilize around current levels of NOK 47?
Okay.
Shall I start with?
Yes, there are several questions in one then.
Yeah. The first one was due to higher seasonal Subsea activity in the NS during summer months, should we also expect an uptick in Subsea revenues versus Q1?
Okay, let's start from that one. I think, always the case, you have less activity in the wintertime, but there's also no secret that we have less rigs operating in the North Sea specifically. we believe it's gonna be probably better than first quarter, but clients still holding back on interventions and drilling and so on. I think. we believe that's gonna be better than Q1.
As we indicated on presentation, we see Subsea revenue down about 20% from last year. Of course, our Subsea services activities, as mentioned, was soft in Q1, and we are anticipating a pickup in activity there. In terms of estimating, giving an indication of the top line for Subsea into the summer months, I'm not gonna go there.
The next question was, what are clients telling you on future brownfield projects? Do you expect increased activity in this segment as oil prices stabilize around current levels?
Yeah, I think I answered that question previously. Yes, we see more activity there. Some of the industry called the ones and twos, as they say, they are moving. We had some of those projects awarded actually recently. I believe that's there's all potential there, and the clients will start there before they go into larger greenfields.
The next question is from Daniel Råvik in Handelsbanken. The estimated backlog for 2017 is flat despite the NOK 6 billion order intake in the quarter. Can you please quantify how large the rephasing of the 2017 backlog is? How much has been removed from the 2017 backlog?
I think we just responded to that question earlier in the presentation.
Yeah. He had a follow-up question, which was, did I understand Svein correctly that you believe that order intake will be higher in the coming quarters versus Q1 ?
We see a lot of tendering activity. We see a lot of incoming invitations to tender. We see a lot of success on moving the break-even price levels on several of these developments. Whether they will be sanctioned and move ahead to a final investment decision is hard to predict. As we said, projects have been trending to the right. We're hopeful that some of these projects will materialize in the near future, but I'm not gonna speculate on the timing of when they will be sanctioned and awarded.
I think we had a pretty decent order intake considering the market conditions in the first quarter. Basically maintaining the backlog at the same level as the fourth quarter. That's, I think, amazing and great in this current environment. We are fighting for our share of the contracts, but we don't decide that. The clients decide if they're gonna sanction or not. What we can do, of course, is doing what we've been doing. That's lowering costs, getting close to the clients, and [so on so we are working on that one but it's very hard to speculatre the volumes].
A question from Olav Tveit Mosvold in Danske Bank. What is the status on the Rotan project? Have you considered to take it out of the 2017 backlog?
Okay. Actually, this only in the press that we have heard about this. The project is not canceled. It's there, and we've been asked by the client to just slow down the activity and put on hold. This is not to do with the Subsea project. To do with the FLNG facility, who apparently PETRONAS has announced they would delay and postpone. My understanding is that the client is still discussing and so is the tieback operator, Murphy.
The next question is from Sveinung Alvestad in Arctic, and he asks, "How has the lead time for Subsea equipment changed over the past year?" He asks, or defines lead time by delivery time from the client orders the equipment to delivery.
Okay. I think the whole industry is talking about a few important points who would reduce the lead time of components and systems. The first one is, of course, front-end engineering and standardization. I firm believe that, yes. As I tell some of my clients today, that's the right timing to do a project now. It's a lot of the A teams available in the market, and the costs are quite competitive. I think that's that's the tone now. I think that's the way I see it. I think the certainly, especially to what we are doing about the lean processes, the manufacturing improvements, I think the lead time would come down.
Another question, this time from Christopher Møllerløkken at SpareBank 1 Markets. With 2016 Subsea EBITDA margins guided around current levels, would that imply Q1 level would be a fair assumption for 2016?
That is, I think, what you can read out of that statement, yes.
Yeah.
That was the last question that we did have. I would like to thank you for joining us here today and also remind you of our investor day in June, where we would be very happy to see you. Thank you.