My name is Bunny Nooryani, and 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. Before we start, I'd like to point to the nearest emergency exit, which is through the door on your right. Keep going straight forward out to the glass doors to the grass. I'd like to also point out that there are no emergency drills planned today. Luis, I'll let you take it from here.
Well, good morning, and thank you for joining us here today. I'm pleased to be here today with Svein, to go through our second quarter results. It's nice to see so many of you here in the middle of the summer, of course, if you are in the northern hemisphere. Let's go to the key developments. Well, there hasn't been a remarkable development in the oil price since I took over as the CEO, exactly July last year. I think we can all agree that the industry as a whole is struggling to cope with the decline and the current instability. Yet, during this turbulence, Aker Solutions managed to maintain its revenues from a year earlier. We made good progress on major projects from Angola to Norway, Brazil in the second quarter.
Our margins narrowed amid a slowdown in Norway, particularly in the maintenance, modification operations and subsea services. We are in response adjusting our workforce to deal with overcapacity in both MMO and subsea services in Norway, and this will affect about 500 positions this year, which is in addition to about 1,000 in the Norwegian MMO business last year. Let me assure you, we will continue to be vigilant on capacity in parts of the business to ensure the best fit for current market conditions. We also took a one-off provision of NOK 58 million in the quarter to cover lease costs on vacated office spaces. These developments were partially offset by operational improvements across the company and better capacity utilization in the engineering business.
Our order intake was NOK 3.4 billion in the quarter, and that is substantially lower than a year earlier, where we secure the NOK 14 billion subsea contract for the Kaombo development in Angola. New orders in the quarter include a long-term contract for MMO to provide engineering, procurement, construction, and maintenance services at ExxonMobil Hebron oil field in Canada. This project is strategically important for us. It support our presence in a key growth market where our technology and competence in harsh weather conditions are particularly well suited. We also saw growing interest in our front-end capabilities in the quarter and won strategically important awards from customers in Norway, Houston, Kuala Lumpur, Perth, to name a few. We announced our first-ever subsea order for offshore project in Mexico, a contract for Saipem for umbilicals at Pemex Lakash deepwater natural gas field.
Our major projects progress as planned in the quarter. We ended the quarter with a solid order backlog worth NOK 44 billion. This put us in a good position as we face a challenging market, where many of our clients continue to be vigilant about how they allocate capital. Now to the main numbers. Second quarter revenue was NOK 8 billion. EBITDA was NOK 376 million EBIT. EBIT margin was 4.7%. Excluding one-off items, the margin was 5.5%. Earnings per share were NOK 0.73. As I have said, the order backlog was NOK 3.4 billion, bringing the backlog to a healthy NOK 44 billion. We passed actually some very important key milestones in the quarter.
This include the delivery of a final compressor train for the world's first subsea gas compression system at Statoil's Åsgard field in the Norwegian Sea. I guess some of you seen the nice pictures in papers. We also completed the processing module for the Edvard Grieg platform. Together with all the industry partner, we ensure delivery of the platform to Lundin on time and on budget. We also finished testing one on the third and fourth templates and first two manifolds of a production systems we are supplying for a major U.K. North Sea oil field development. We did this ahead of schedule. We also delivered the manifold that's critical to enable first oil from Total Moho field in Congo. We also start fabrication in Angola of equipment for the Kaombo project.
In fact, we celebrated the first steel cutting last week at Sonamet, in the yard in Lobito Bay, with clients and authorities. Very good progress on key projects from our dedicated teams across the globe. I'm very proud of these guys. Now to the improvement agenda. Our efforts to improve operations and reduce costs continue to be ramped up in the quarter, and we made steady progress across the business. We stepped up the initiative using less lean principles to test work methods and process of key projects and develop new best practices. The program now has 15 projects up from four last year and showing some impressive results for our operations. We also continue to work with our customers to achieve operational and cost-saving improvements at projects.
Each effort counts, but to truly make a difference, we want to get involved early in a project at the appraisal and feasibility stages. To this end, we form an early-phase cooperation with Baker Hughes in the second quarter. Strengthening our efforts in this area, the cooperation we provide customers with field concept studies to address the entire value chain, from reservoir understanding and well design to subsea and topside facilities, including flow assurance and risk management. The first customer studies are already on the way with Baker Hughes. In fact, the market for early phase studies is really waking up. Not only are customers showing interest, in talking to us, but they are actually awarding contracts.
We won several strategically important studies in the last quarter, and this includes studies for 6 customers in Norway, including 3 studies focused on the Barents Sea. We won part of a deepwater field development study in Malaysia. We also won studies for a compression platform offshore Australia and several umbilical and riser studies for clients operating in the Gulf of Mexico. Well, last week, as important event, last week together with Subsea 7, we were also awarded a FEED contract for the Ophir Energy Fortuna Floating Liquefied Natural Gas project in Equatorial Guinea. The FEED will be finalized in competition with another group, and the award highlights our capability in early-stage engineering and subsystems. It also shows how we can work with key subsea partners to offer full field capabilities on selected projects.
We are always working to find the best solution for our customers, and collaboration is key. I'm pleased to see more of this in general in our industry right now. Looking ahead, there's still steady tendering in our main markets, though some projects are being postponed. We are seeing tougher commercial discussions and increasing pressure on prices. It would appear that some customers are holding back projects in anticipation of further downward pressure. Activity offshore Norway is expected to be sluggish over the next 1-2 years. This decline will be somewhat offset by the Orange Väder development, where we have engineering framework agreement for as many as 10 years. As I mentioned earlier, we have adjusted the workforce in MMO and Subsea services business in Norway, and we will continue to keep a close eye on market developments and make further adjustments if necessary.
Internationally, we are expanding. About 65% of our revenue was generated outside Norway in the second quarter of this year. This is up from 50% a year earlier and 40% in 2013. We are upbeat about our long-term picture. Field developments are becoming more complex as the age of easy oil ends. We have no doubt that we have the technology or will create the solutions needed to cope with these challenges. We are well-placed in the global deepwater and subsea segments, where the growth potential is good. To sum up, we are in strong position, and we are working with major clients globally. We have a healthy order backlog and growing international presence that will stand us well in the time ahead.
This will be underpinned by our continuous effort to boost operational and financial performance and reduce field development costs for our clients. Well, thank you for listening, and Svein will take us through the numbers from here.
Thank you, Luis, good morning. I will now take you through the key financial highlights of the second quarter of 2016, 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. Starting with the income statement. Overall operating revenues for the second quarter remained relatively unchanged year-on-year, driven by high activity levels and good progress on a number of key projects. Our reported second quarter EBITDA was NOK 547 million. As a result of capacity adjustments in Norway and the U.K., we took a NOK 58 million provision for onerous leases in the quarter and also saw NOK 4 million of separation-related demerger costs. Our EBITDA, excluding non-recurring items, was NOK 609 million, equivalent to a margin of 7.6%.
On an equivalent basis in the same period last year, EBITDA was NOK 608 million, with a margin of 7.5%. Depreciation was higher than last year, reflecting recent investments, in particular in Subsea. We continue to expect depreciation to be in the range of NOK 700 million-NOK 750 million this year. Our second quarter EBIT was down year-on-year to NOK 376 million. This included NOK 3 million of impairments related to Subsea Technology. Excluding all non-recurring items, EBIT was NOK 440 million, and the margin was 5.5% versus 5.9% last year. Non-recurring year-to-date, we have provided NOK 110 million for onerous leases.
We have taken NOK 29 million of technology impairments. We have incurred NOK 8 million related to separation of IT systems following the demerger last year. As can be seen from the slide, fluctuations in the fair value of hedging instruments that do not qualify for hedge accounting led to a second quarter unrealized gain of NOK 5 million, consisting of NOK 36 million unrealized loss included in EBITDA and a NOK 41 million unrealized gain in net financial items. Net financial items excluding the unrealized hedging gain totaled NOK 106 million, which included some currency translation effects. Excluding these effects, the net financial cost was in line with our expectation for around NOK 60-70 million per quarter. Our tax charge this quarter was equivalent to an overall rate of 33%. Our tax guidance is unchanged.
We still see average P&L tax rates in the mid-30% range moving forward. All in all, we ended the quarter with an unadjusted net profit of NOK 209 million, equivalent to an earnings per share of NOK 0.73. Normalizing for non-recurring effects, our underlying EPS was NOK 0.92 in Q2 and NOK 1.93 year-to-date. Moving to our balance sheet position. Our net interest-bearing debt increased to NOK 1.8 billion at the end of the quarter. Our leverage and gearing levels continue to reflect a robust financial position with leverage at 0.7 times and gearing at 31%. These continue to be below our conservative balance sheet policy, which targets around 1 times net debt to EBITDA and less than 50% gearing. Our total liquidity buffer remains robust at NOK 6 billion.
As of the second quarter, our return on average capital employed performance for the group overall reached 15.2% versus 18.2% in the year earlier period. This decrease versus last year reflects some of the expected unwinding of our low working capital position as we progress with major projects, and also, as we have commented on before, our ongoing capital investments. To put this into some context for you, our group capital employed was NOK 9.4 billion at the end of Q2, and of this, around NOK 2.4 billion was linked to facilities and technologies that are yet to come online and contribute to earnings. Let's turn to our cash flow performance for the quarter. Our cash flow from operations in the second quarter was negative NOK 80 million due to the expected working capital outflow on major project work.
Our reported net current operating assets still remain lower than normal, but we continue to expect our low working capital position to unwind as our major projects progress through this year and next. We continue to see a more normal level of working capital to be in the range of NOK 1.5 billion-NOK 2 billion. Our investing cash flows totaled NOK 419 million in Q2 and around NOK 650 million in the first half of 2015, mainly related to fixed assets and technology development. This is on track with our earlier comments for a CapEx spend of between NOK 1.5 billion-NOK 2 billion during 2015. Around 20% of our CapEx for the year is still uncommitted or not yet initiated and provides some level of flexibility.
The net effect of these operating and investing cash flows, in addition to primarily dividend payments in the quarter of NOK 394 million, brought our net interest-bearing debt to NOK 1.8 billion at the end of the quarter. Now let's move to our performance by business area. I will go through all three main business areas here, and just as a brief reminder, our Subsea segment now comprises all our Subsea operations, including umbilicals. First up, Subsea. Subsea saw a solid top-line performance with second quarter revenues up 3% year-over-year, driven by steady progress on a number of major projects. Excluding NOK 3 million of technology-related impairments, our Subsea EBIT margin reached 7.2%, similar to that in Q1.
Our major projects are progressing to plan, and we are seeing our revenue and profit mix normalize as the level of completion on major projects moves forward. Still, we continue to face market headwinds in addition to the expected effect of higher depreciation. As well as the commercial pressures we mentioned at Q1, the market for our Subsea lifecycle services business also remains challenging in the North Sea. As we announced earlier in the quarter, it has become necessary to adjust our Ågotnes facility capacity by up to 200 employees. With these market headwinds unlikely to decrease, and in some cases likely to increase, our outlook for Subsea this year remains a flat progression on earned revenue, and clearly no improvements in margins when compared with 2014.
Our Subsea return on average capital employed reached 25% in the quarter, a good increase versus the level we saw last year. This reflected a number of factors, including underlying performance on a rolling 12-month basis, but also the low level of working capital in the Subsea business, which affects our calculation of capital employed. We expect this will normalize further through 2015 as our working capital position sees an outflow on project progress, I would note our medium-term target for Subsea remains for a return on average capital employed of between 20%-25%. Our Q2 order intake in Subsea was lower than last year with a book-to-bill of 0.4, but our backlog remains solid at NOK 27.5 billion. This is equivalent to around 15 months of Subsea revenue and still gives us good visibility for 2015 and beyond.
Current market activity is at good levels. To give an indication, in Subsea, we are currently tendering for over NOK 30 billion of work. MMO. Due to a continued tough environment in the Norwegian market that was only partially offset by international growth, MMO slightly decreased its revenues slight year-on-year. Capacity costs are still impacting our margins, we did see some improvements both versus last year and versus Q1 as our capacity adjustments started to have some effect and ongoing projects delivered as planned. Despite this tough market, tendering activity was robust, reflecting potential new M&M frame agreements in Norway and the UK. Order intake for the quarter was NOK 1.3 billion, equivalent to a book-to-bill of 0.5, mainly driven by projects outside of Norway. The MMO market in Norway remains challenging, and we continue to expect little, if any, near-term recovery.
This year in particular is likely to see the full effect of lower modification activity. Due to currency effects and international growth, we now see overall revenues for 2015 around 15% lower than last year versus the 20% decline we previously communicated. We still see EBITDA margins remaining under pressure, but moving gradually towards the mid-single digits level by the end of this year. In 2014, we undertook significant capacity adjustments to reflect lower business activity, reducing our MMO workforce by around 1,000 people in Norway, and we are now in the process of adjusting the capacity by a further 300 people this year as we announced in Q1. MMO is positioned to recover when the market improves, but we continue to monitor the market closely and are prepared to make further adjustments if needed.
Engineering showed a strong top-line performance with revenue up just over 9% from the same quarter in the previous year. This was driven by good progress on all major projects in Norway, the U.K., and in Asia. Our margin performance reflected improved utilization of our engineering capacity and strong operational performance, with EBITDA margins reaching 12.7% versus 9.3% last year. We also saw a moderate positive timing effect in the quarter related to previous projects. Without this, our EBITDA margin in the quarter would have been about one percentage point lower. Our outlook for engineering, as we said last quarter, is that we see a moderate top-line growth this year and EBITDA margins on a similar level to that of 2014. Good utilization is likely to continue for some regions through 2015 and beyond.
As we have stated previously, we do see risks in certain regions that lower order intake this year could cause lower near-term utilization until our workload recovers. Order intake was slightly down year-on-year to NOK 363 million, equivalent to a book-to-bill of around 0.4. One good sign for the future remains engineering's almost record-high order backlog, which was up year-on-year to NOK 4.8 billion. Now I want to move on to our order intake and backlog performance for the group as a whole. Our group backlog at the end of Q2 was NOK 44 billion, equivalent to around 1.5 times our annual revenues. Our backlog remains at very high levels despite lower order intake in the quarter. At NOK 3.4 billion. The overall order intake was significantly lower in Q2 than for this time last year, equivalent to 0.43 times book-to-bill.
We were awarded the NOK 14 billion Kaombo project in Q2 last year, so the comparison base is unusually high. It is also worth noting that despite the current market conditions, our book-to-bill reached 0.75x for the first half of this year. Tendering activity for the group continues to be at good levels, although as we have commented before, delays in project awards are common. Just to give you a rough picture of this, the group overall is currently engaged in well over NOK 50 billion worth of tenders and is looking at over twice this value in terms of opportunities. Our backlog, which does not include the majority of service business nor growth or options on existing contracts, continues to give us very good visibility for 2015 and also quite good visibility in the medium term.
You will note our backlog phasing chart is a little different from what we showed you in Q1, with slightly less in 2016 and slightly more in later years. This reflects the continuous rephasing of our existing backlog and our continual assessment of scope and timing for projects across the board. Finally, I would like to again summarize our medium-term financial guidance. There's been no changes to this guidance since our comments we gave at our Investor Day in London in March and during our Q1 presentation in May. Our three key medium-term guidance themes are as follows. We aim to at least keep our market share in our core field design and subsea markets. We aim to move towards peer group margin levels in our subsea segment. We expect stable margins in engineering and a gradual recovery in MMO.
We aim to improve our return on average capital employed in subsea to the level of 20%-25%. As a reminder, we exceeded this return on average capital employed, level in recent quarters, but this was influenced by our low level of net current operating assets, and hence on our calculation of average capital employed. This will normalize as major projects progress through this year. Our other policies around topics like leverage, gearing, working capital, and dividends remain unchanged. That was the end of our presentation, and we will now open up for questions.
As Stein said, we have time for a brief Q&A session now. We plan to end the session by 10:00, so I would ask that you please limit your questions to 1 question and 1 follow-up. We'll start here. We also have a webcast audience, so please do introduce yourself by name. We can take the first question. Turner Holm.
Hi, good morning. Turner Holm, Clarksons Platou Securities. The past few months have seen the announcement of several alliances or JVs in the subsea space. I was just curious if you think these agreements indicate that we're moving more towards an integrated model for subsea projects where projects are awarded on a package basis, or will we continue to see projects awarded more on a single product line basis? Any color you can provide on OSCO's relative positioning in the sort of shifting competitive landscape would be helpful.
Okay. Yeah, I think it's pretty clear that collaboration, and that includes alliance, but with suppliers, with partners, with clients, is part of what we do, you know. Before it became a fashion in the industry like we see it now, we've been doing that alliance with a lot of providers. Actually, I actually particularly think that the clients want to have options. When you start to combine, you lose that option. Actually don't see many projects being tended this way yet. The only one in the industry was the Ophir that just announced that we won one of the winners. Very pleased to see that the clients in the market recognize our capabilities to provide full solutions.
That also brings our front-end capabilities, our system knowledge, where that's what we do. You know, we're very strong on that. That's our company DNA in a way. Coincidentally, together with Subsea 7, we just announced an alliance with one supplier. You mention it's project by project. I do believe that integrating might bring some savings. Depends project by project. Also, I don't believe that you can have a common recipe for all locations. I think you depend on regions, depends on capabilities. For example, we take to the Ophir, that's a deepwater project, large bore trees. That's where we have a capability, you know, kind of a different environments in new locations. We invest a lot in Africa.
It's a lot, and the clients recognize that knowledge. We have to see what's best for the client. If you start designing too much into the project, you might have to be tied up to a particular vessel, for example, that you will receive competition. Collaboration can be good, but it has to be, or as I mentioned in the presentation, selected projects. That's our particular view.
Okay, thank you. My second question is on Petrobras. I'm just curious if their new in-investment plan in any way changes your view of the way that OSCO's business in Brazil develops going forward?
Yeah, I guess we all focus on the, on Brazil. When you talk Brazil, talk about Petrobras today. There are all the players there that I expect to start to grow. I have to remind you that we are in the Pre-Salt. We are Deepwater Pre-Salt subsea. We don't have anything else in Brazil right now. Even though might be some opportunities for us in MMO and other areas that we are starting to pursue and discuss. Our backlog in Brazil is basically all in the Pre-Salt. The Pre-Salt was actually emphasized by Petrobras as being the main target, they wanna continue moving.
Libra is moving, and the projects are moving there. Might be some phasing out, and, we discussed that in previous quarters. There's nothing new right now that was not discussed before. Yeah, Brazil is, for me, not only being my home country, but is I think it's important market for the industry, for deepwater. Two-thirds of discoveries has been made in Brazil. The reserves are there. When and how they're gonna be developed is also a matter of time, and how, and there are changes, potential changes in the legislation right now to allow more operators to come in for the pre-salt. There's a lot changes for the changing markets. For us in Brazil is a good story for us right now.
We have delivering more than delivered the year before and more than the year before and more than the year before. We increase in productivity outputs constantly in our plant in Brazil, and we are building new facilities, so we do believe in the country and that particular market. Things are moving well, and we have to work with the clients. I remind you, Petrobras is a very important partner to us. We have a fantastic dialogue with that client, and we work with them to adjust the new scenario.
Thank you.
So far, we are confident.
Eirik Matthiesen, go back.
Hi. Eirik Matthiesen, DNB Markets. I have two questions. The first one is a follow-up to the question regarding alliances in subsea industry. OneSubsea has now teamed up with Subsea 7, FMC has teamed up with Technip. How does that affect your market position going forward?
Okay. I'll mention that just today in the presentation, I mentioned two installers in different contracts. We do work with those guys in particular projects, I think the clients will determine what they want. They will decide how the project will be developed. I also believe that what we do in front-end, remind you, we do have in-house sub capability in our engineering side. Some of our competitors do not have the front-end spectrum strength that we have. This is one of the key things for our company as a capability. We do look into the projects, again, when the clients want, you know, I just say needs two people to dance, the clients need to want that particular format. They will accept or not formation of alliances.
There are options, and there are more than just two installers. I just mentioned that we are doing Lapa and Iracema for Saipem, and we are doing collaborate with Subsea 7 for Ophir. Now our view is that, if there is a need to compete, like happened to Ophir, that was how the clients put together, then we're gonna present that. When the clients want to reduce field costs or look into solutions, we can provide them with the front end, if that's what they want, and then look to the whole field. Then you can go out and look for this, the installers piece, which basically vessels particular knowledge of installation. That, again, can help your project, but can also restrain your flexibility and our tendering.
I do not see many clients queuing up for integrated projects right now. There's been one case, and we came on top of that one, so I'm quite pleased with that. Remind you that it's not, we talk about the sub space, but when you go into the, what I call the vertical alliance, We are positioned with Baker, for that particular start. We're actually front runners on that. We start before the other guys start to wake up for the importance of linking the knowledge and technology.
Do I understand it correctly that you do not see a need to team up with a sub player at the same way your competitors have done?
No, you can understand that it's case by case. I don't think there are some benefits of being independent, for example, and being flexible and working. There are other things we can do in the field. I also believe that what you can do is very limited sometimes, and people would copy in a way, if how much can you do in the subsea. Of course, right now, people are listening to all the ideas that can reduce costs. I always make a joke that everybody's cutting 30%. This seems to be like, you know, cabalistic number, 30%. It'll be for free the fields now, and that's not what we see. We have to look case by case. We don't like to make a, you know, large statements. We have to work project by project.
Okay. Second question is about the subsea services in Norway. Has that stabilized now, the activity there, or should we expect a further deterioration in subsea services in Norway?
Well, I think I can start. We speak clear that clients will refrain doing things they can. They would. It's current environment and how they're trying to save capital, how trying to protect their balance sheets. They'll try to stop whatever they can, but some stuff they can't. That's why you see, I think it's stable now. We also had the, in the first quarter, some effect of the winter season, which is kind of normal. Now we see more activity, but it is slower than in Norway than other places. Actually, we see some very good progress in other locations. Including both Mexico, Brazil, there's a lot of activity despite of less rigs operating. We actually see now is, of course, we have developed large projects, installing components, so there are things that we are doing well.
We've been off to a slower start to the year than we had expected, especially in Norway, also some signs of softness on the U.K. side. As Luis touched on to a large degree, it's been offset by high activity levels within SLS elsewhere in the world. As a consequence of this slow start in Norway, we took the decision to adjust our capacity, as I touched on in the presentation, by about 200 positions at our Ogden space in Norway.
It's also important to mention that in the U.K. market, it's a bit different. There is a lot of contractors. We have reduced contractors there as well to cope with, but we don't make big announcement because it's contractors, and that will float up and down. That's part of the flexibility of the operational leverage we have.
Next question is from Christopher Møllerløkken.
Yeah, Møllerløkken from SpareBank 1. In some parts of oil services, the tendering levels are now below cash breakeven. How should we think about Aker Solutions' ability to maintain some margins further on going forward?
Remember, we have a solid backlog position. you know, we remain disciplined in how we approach our tenders. Of course, we see our tender processes are more dragged out in time. Discussions are tougher on commercial conditions, terms and conditions, as well as on the pricing side. We see a lot of positive engagement on the capabilities we bring to the table in front of our clients, related to how to bring the breakeven price levels down on some of these projects to ensure that they become sanctioned and are brought forward.
So far, we haven't seen a lot of indications of any sort of irrational behavior, and, at least, we are staying remaining disciplined and targeting where we see we can add value to the client and help them bring the cost levels down and, where we feel we have a strategically well position.
Yeah, I think, just adding up, we mentioned a few front-end studies, and they have a purpose. Clients are trying to de-risk the project. I think previous quarters, I mentioned the work we are doing, including with Statoil on Johan Castberg, looking at the platform, looking at solutions, bringing standardization to the table. I think that's a word that's been mentioned a lot recently, and always comes back. It's very important. We have to make it industrialize this industry, reduce inefficiencies, both in our side and in our client side. I think that's what we do, normally. Of course, we see some, as mentioned by one of the competitors, there are some irrational bidding sometimes, but, we won't do that. We remain focused and protect the company.
Just gonna pursue what makes sense for Aker Solutions. Be prepared to walk away from a bad deal. That's for sure it is not our plans.
The second question, what Brent oil price do you use in your long-term planning assumption?
Oh. Several.
Yeah.
We have several scenarios that we operate with related to oil price development moving forward and are of course planning as according to these scenarios.
I think it's important, one point I'd like to leave with you and the rest of the audience is that, I think we have to get out of this idea of the oil price, that it doesn't matter in a way. We need to make sure that we have a strong operation. We have a efficient cost operation. We work with the suppliers all the time. What you have to see right now in the market cannot be a procurement exercise. We need to change the way the industry operates and be prepared to live and be profitable at $50, $45, whatever you think the might be the lower case. I guess we follow all the reports.
We get busy reading all so many reports, and it ranges from similar reports you read, you know, range from a lot of different ranges. We need to make sure that the operation is efficient. We started that about a decade ago, taking complexity of Aker Solutions, taking the synergy between the BAs, and we are continuing that on that path.
Thank you.
Yes, please. Haakon Amundsen here in the front. In the middle.
Thank you. Haakon Amundsen, ABG. Just a big picture question on the subsea market outlook. Some commentaries from your peers, and today you're saying that now maybe you're a bit more clear that pricing is tough. Have your outlook for activity and margins in subsea for, say, 16 and 17 worsened over the last couple of months, or is it the same?
Haakon. Good to see you again. Thanks for the question. I think we mentioned the amount of work being tended now. Again, I think I mentioned EP1 as well. The tendering is there. The question is taking too long because, I mean, it probably is not bad for the client to wait a little bit to see, as I mentioned, how deep is deep, right? Just keep pushing him, but also looking to see what else can you do. We see actually some interesting behavior for some clients in a way of looking for new solutions, of looking for technology that could improve returns and so on. We have here Eva, who runs our alliance with Baker. They visited us today, you can see all these good discussions and behaviors in the clients. Difficult to predict.
As we mentioned in the presentation, it's a long list of projects. Some of them have been there for a while, hence the high spend, of course, we also mentioned in the report. I think eventually they're gonna be developed, and we have to position ourselves for the clients. It's very uncertain times for everybody. We are working hard and getting closer. We are closer to the clients than we've ever been, to be honest. That's a different, I guess, different behavior from previous cycles back in the past. We are discussing with some of the key clients how to make this industry, because you're not only competing against ourselves, you compete against other oil sources in some provinces. Deep water, which where we play, needs to step up.
Okay, thank you. Just a quick question on the backlogs scheduling with Svein. Is this mostly driven by your internal... I mean, I'm thinking about the 16 change.
Phasing.
Phasing. Is this mostly driven by your internal estimates on kind of MMO type frame agreements, or is this some major projects being pushed out in time? Which kind of segments have been mostly changed by this rephasing?
It's, it's related to our ongoing rebase planning of projects. You know, every month the project is updated related to the progress curve. Some of these projects stretch over several years. The fact that the data phasing now shows slightly less than 16 and more in later years is just a natural consequence of our updating of the phasing of some of these larger projects.
Anything into this in terms of profitability on some of the projects or no? Okay, thanks.
Where we have the largest projects that stretch over, you know, a long period of time is of course in subsea. So it's mostly the same pacing related.
Thank you.
There's a question back there.
Reuters, all the way at the back in the corner.
Hello. Net debt seems to have risen to NOK 1.8 billion, doubled from last quarter. Could you explain that?
Yeah. As we have explained since the point of demerger, we started off as a new company with, you know, unusually low working capital position due to upfront payments on some key contracts. We have guided pretty consistently on the fact that the only thing I can promise you is that working capital level was gonna normalize and trend back up towards what we consider a more normalized level of net current operating assets, which is between 1.5 billion-2 billion NOK. The movement that you saw in the quarter is pretty consistent with what we have guided on. In addition, we have our CapEx programs ongoing, of which our new facility in Brazil is the largest undertaking.
That is an investment program which is progressing according to plan, and we definitely have all intentions to complete by the end of this year. You would maybe consider our CapEx levels to be high in 2015 considering the market. To complete these CapEx programs is definitely still our intention.
Understood. Thank you for sharing.
Yeah.
Just one follow-up on other issue. You guided 20% lower revenues in 2015 compared to 2014. Is that still the case?
We have for a couple of quarters guided MMO about 20% down, if it was MMO you were thinking about.
Yes.
Yes. Now we see 2015 more like 15% down from 2014. Like I said, we changed our indication of top line for MMO from 20% down to 15% down. This is due to international growth, significant high activity levels for MMO internationally, as well as some favorable currency impacts due to a lot of activity in the UK and basins. Interesting to note is that MMO revenues, it's been our strategic intent to grow internationally for MMO for quite some time. First half of this year, 50% of our revenue is outside of Norway for MMO.
There's a question in the middle at the back there. Very back row. We soon have to move over to the webcast audience.
There's one question here.
Mm-hmm.
Thank you. Gianni Di Alma, Pareto Securities. Just a question. You mentioned that some clients are withholding projects in anticipation of further cost reductions. As we all know, there has been significant pricing pressure. Could you perhaps provide some sort of range of how much you've seen costs coming down? If you believe that it will be realistically to see further cost reductions, and whether this would be just, as you know, your margins and also overall scope on new projects? Thank you.
Okay. Yeah, no, I think you cannot things are not generic. You know, some clients are progressing in awarding. Just mentioned Hebron, we had a Dalia last quarter. Things are moving in some of the projects, and I think it's a good moment for clients to move projects ahead of the big, the big wave that we always see happen after a cycle. I think that the price has come down. I mean, our suppliers, they have to believe that they're not... they understand they're not only supplying to the oil industry, they're supplying to all the industries, so it's not like they're prepared to bend over the window in some cases. There is some limits what you can do in terms of deflation and I guess spare capacity.
As you can see in all the areas, people taking capacity out. There is a limit where you can go. That's why I make a point that to have the savings, you need to look into a new way of developing fields. You have to look what I think I said in a few questions before, which is how can you make this more efficient? How can you stop unnecessary documentation, cycle of documentation, project teams, immense project teams by the clients, you know, reviewing, stopping, you know, the progress of the projects? How can we use more standard components, not reinvent the wheel every time we have to do a new project? There's a lot can be done. When you talk about costs, we can talk about procurement costs, and then of course there is a limit.
It comes to a point that people want, they have or go below 0, people will not survive through the cycle if they do that. That's 1 thing. The biggest price is actually when you, when you work, look into this inefficiencies and look into how can you develop the fields. I think I mentioned in the previous quarter an example of a particular client who came to us and said, "Give me what you have. I have this field. I only have 3 engineers to work with this, but I want to specify this. This is my field characteristic. Give me what you have." As I mentioned, he even said, "I don't even care if you have a logo from another client on my drawing. I don't care.
I just want to produce what I want, equipment which field-proven, which is, the... He got this, quite cost-effective comparing to what? To another client, something like 40% cheaper than a client. There's all to be said about scale, I mean, frame agreements, about, you know, repeats and standardization. We have to combine all this to see how we can drop costs. I believe we can make this industry far more competitive going forward, and we are making it.
Okay, thank you. There was another question here at the front.
Yes. Hi, it's Bernard among the journalist. Just picking up on your comments on MMO tendering. I think you mentioned Norway and UK, and I assume that includes some large contracts from ConocoPhillips, BP and Statoil. My question is really, are you seeing any changes in the quality commercial terms and or scopes for these, or are they similar to what you've tendered in the past?
It's, how can I answer that? It changes from client to client. You're right, there's a lot out there right now 'cause they're c ng to end of the cycle of those, because they have long term agreements with Statoil, Nations, Equinor , ConocoPhillips, BP. The contracts are coming to an end, you're gonna have to renew them. Some of them are out there. It changes. I think in this kind of environment, clients are looking for good deals. I just mentioned about the way we have to change to working projects. That also applies strongly to MMO. How we get ready for example, what you call job carding, get job cards ready for offshore.
How can you do for, I was actually a couple weeks ago back in Stavanger looking at what we do in terms of only Aker Solutions does that, in terms of laser scanning of platforms. It's amazing. You know, I invite if you want to one day try to visit our center there, where you can actually scan the whole platform, and then you can have a walkthrough, and then you design things onshore to reduce your offshore time. That of course will bring your costs down, will improve efficiency. There's so much you can do, so much technology you can apply. Clients are looking to that kind of environment, which is good for us 'cause we have the knowledge. They also of course trying to pass more risk. There's a limit where you're gonna go.
We're actually prepared to take more risks, to take more size as well. That's something I think a lot of clients would like to see more, as you call, skin in the game. That's probably what we see in some of the contracts now, looking more towards, you know, risk and reward. It is naturally a risk-reward business, and I think it'll remain like that.
All right. Just, on capacity in the North Sea. I think you're taking out in August, and then MMO in general. What is the status on the Umbilical plant in, at Moss?
Okay. Umbilical is an interesting, as I mentioned, it's part of Subsea now and it's one of the, not the biggest of our, you know, energy Subsea. It's the 3rd biggest, I think. It's the biggest-
Fourth.
Fourth biggest, if you think about the scale. Our plant in Moss needs orders. We have removed all the contractors. We have reduced shifts, and then we are operating that plant in a reduced capacity. In the other hand, our plant in Mobile in Alabama is in the highest activity ever. We just won another project. We're winning projects all the time. We're just finishing all studies we're making for clients. That, there is high activity, so it's kind of a mix, and it's very difficult to change. We cannot 'cause of logistics. The clients want to pick up the Umbilical here and not in States. That's the state of Moss. Moss is operational.
We have taken the capacity we had to, especially contractors. We have moved some people that they are key for us into our plant, for example, in Tranby to work on trees 'cause we have the highest activity there in Tranby as well. We have this ability in Aker Solutions to safeguard the good people, the execution, 'cause you need to worry about that when the market comes back.
It was a high attention going into the quarter. They successfully were awarded 2 contracts in the quarter. That was a positive development for from Umbilical Systems Norway in Q2.
All right. Thank you.
Very good.
Thank you. We need to move on to the webcast audience. If there are any questions, we're prepared to take them. Could I please have the operator on the line?
Hello, Mr. Operator. Are you there?
You're looking to take the question from the audio or from the webcast?
Yes.
Yes, please.
We have one question from the audio. Please go ahead.
Hello?
Hello.
I can hear you.
Go ahead.
I had a question about the Subsea business and your plans to reach period group margins. Given the current environment, 7% margins in the division, I was just wondering if you could provide some sort of timeline around when you think you'd be able to reach those margins based on the work you have in your current backlog.
Good question. I didn't quite hear your question.
Can you talk about how-
I think you say how, when you expect the margins to go up.
Yes.
Is that what you said? As you have seen, two quarters in a row, we have delivered EBITDA margins right north of 10%. It's down from the levels we saw last year. As we indicated, we don't see Subsea margins expanding from the margin levels that we saw last year. That being said, there are considerable positive momentum on the operational improvement programs going on in Subsea. We see tangible evidence of all the key initiatives related to self-help and driving the operational improvements in Subsea, giving tangible results. Offsetting that, some headwinds, some soft spots in the portfolio.
As we mentioned earlier on the call, our Subsea lifecycle services business has been off to a slower start than we anticipated going into 2015. The positive thing is that our operational improvements, the projects are progressing as according to plan. It's offsetting the headwinds we have seen so far, so it's been pretty stable. As we also touched on, considerable tender activity at the moment. Common denominator that all of these projects have been sliding to the right in terms of timing of award, but we're hopeful that some of these will materialize during the second half of 2015 and into 2016.
Thank you.
Thank you. Could I ask your name, please, and where you're calling from? We didn't quite catch that.
Yeah, sure. It's Shola Labinjo. I'm calling from TPH.
Thank you. We will now take our next question from Amy Wong, UBS.
Good morning. Hi. I couldn't really follow, in terms of the margin question that was asked right before me. Just going to your backlog by execution and the shift in the work there, could you give a bit more color in terms of kind of what types of projects, whether it's the OE side or if it's like more services that have been shifting? Does that kinda alter the original margin profile of your business that you expect to get in 2016 and 2017, please?
No, I can start on the project because usually we don't comment particularly specific projects. Usually, of course, if you phase out or if you slow down your delivery, then you're gonna slow down some of the service that come with it in a way because you're gonna install later and so on. The phasing comes combined between product and services. Yeah, no, we addressed the question a bit earlier on the call, Amy. There's nothing dramatical in this phasing, slight amount out of 16 into later years. We have this continuous ongoing process of updating the baselines on our projects.
Of course, when something is phased out of 16 and into later years, it relates to the big projects that go over several years. This is primarily project related. Then, there is an update also related to some of our Subsea services activities, but nothing of significance. No, no change in margin profile in that backlog.
Okay. Then just a follow-up question then on your cash flow generation for during the quarter. Understand that you started from a low working capital position and it's kinda gradually building up to kind of a more normalized level. Was there anything in particular, though, in 2Q in terms of short-term customer behavior, where there's been difficulty in collections or anything like that maybe that you can call out at this point? Do we expect some of that to reverse in the next in the coming quarters, please?
I can tell you that if the quarter had been two days longer, our gearing would have been 0.4.
Okay.
All right. Great. Great. Thank you.
It does fluctuate. We are collecting well.
Great. Thank you very much. I'll turn it over.
Thank you. We are running out of time, so this has to be the last question we're able to take right now.
Our next question comes from Philip Lindsay from HSBC.
Yeah, good morning. I suppose just one question really. Just keen to understand the Baker alliance a little bit better in terms of the commitment from both parties. How many people have you got working within the alliance now, and what are the strategic ambitions of the alliance and sort of how do you see it evolving over time? I suppose related to that, what are the risks or opportunities do you see from the likely change of ownership at Baker? Thanks.
Okay. The alliance is progressing. The relationship with Baker is very good. Of course, very early days when it comes to the acquisition. Of course, they have a lot of things on their plate now to get concerned about with such a large, massive, you know, merger. The alliance is progressing well. There's a lot of I think I presented a few a few conferences, including the OTC, some of the new products that using existing technology from both companies that we have managed to get some good interest in the industry. Now, I think this quarter we announced that we are collaborating with them also on the front end.
That's taking a lot of interest from clients who have not seen the past, how much the interaction between the downhole and the reservoir can have on equipment. Examples, you can maybe change water injection. We can move your water injection reservoir to a shallow place, and then you can, you can get maybe cheaper trees and components. You have to work around that interface in the downhole. What's gonna happen down the hole and having to succeed is quite important. I think strategic intent is maintained. We believe in that alliance. We have a lot of traction with clients. Those things take time. They might realize into real contracts, but we are...
Our strategic goal remains to combine what you call this vertical alliance to maintain that. I think that we hope that Halliburton will see that as well.
All right. Thank you.
Thank you. We've run out of time now. I would like to thank everyone for coming here today. The media, if you have any questions, you can come to me.