Good morning. Welcome to Aker Solutions presentation of results for the second quarter of 2014. I'm Bunny Nooryani, Chief Communications Officer here. With me here today are Øyvind Eriksen, our Chairman, and Leif Borge, our CFO. They will go through the developments in the quarter. As a safety precaution, I just wanna point out that the emergency exit is on this floor. You go out the door there and continue going straight forward and out the building. Please note that we don't have any fire drills planned today. Øyvind, leave it to you.
Good morning, and welcome to the current Aker Solutions, very last earnings presentation. Today, I will go through the quarter that was, but even more importantly, we will also go through what we're going to become. In April, we announced a plan to split the current Aker Solutions in two. The purpose is to reduce complexity, realize synergies, and drive down costs. The separation and demerger is set to be completed in September this year by a listing of the two new companies on the Oslo Stock Exchange. One company will be an integrated field design and subsea business consisting of our subsea, umbilicals, MMO, and engineering businesses. This company will keep the name Aker Solutions. The other will be an e- oil services investment company named Akastor.
Its portfolio will include businesses such as drilling technologies, Process Systems, surface products, Aker Oilfield Services, as well as business solutions, real estate, and financial assets. With the split fast approaching, I know that many of you are curious to learn more about both the financial figures and the prospects for the two new co-companies. That's why I plan to go through not only the second quarter for Aker Solutions as it is today, but also for the performance for each of the two new companies. Let's start with the new Aker Solutions. After the split, this will be a much more streamlined company with two external reporting segments, field design and subsea. The new Aker Solutions pro forma figures for the second quarter show the following development. Revenue rose to NOK 8.1 billion.
The EBITDA increased to NOK 592 million. The margin widened to 7.2%. The order intake more than tripled to NOK 21.4 billion, bringing the backlog to NOK 54 billion for the new Aker Solutions at the end of the second quarter. This is satisfactory performance, particularly the orders, which were helped by two major subsea contracts. The first, an order worth NOK 14 billion from Total to provide a subsea production system for the Kaombo development in Angola. The second, a contract worth almost NOK 2 billion from Petrobras to supply subsea manifolds for Brazil's pre-salt fields. The pro forma figures also show that the new Aker Solutions will benefit from two strong reporting segments. Subsea, which going forward will include our umbilicals business, accounted for 58% of revenues in the second quarter, while field design represented the rest.
Sales in Subsea were NOK 4.7 billion, up 13% from the year before. The unit's EBITDA margin widened to 11.1% as we improved performance sat our umbilicals plant here in Norway and made good progress in Subsea projects in both Norway, the UK, and Brazil. Subsea order intake jumped to a record of NOK 18.5 billion. This brought the backlog to NOK 38.4 billion for the new Subsea business area and reporting segment only. We're of course pleased with the huge increase in orders, we're more than ever focused on ensuring the best possible execution of the projects in the current Subsea order backlog. The field design reporting segment, which will consist of the MMO and engineering units, wasn't quite as strong as Subsea in the second quarter.
Revenue rose to NOK 3.5 billion, helped by increased sales in the engineering business. Still, the EBITDA margin narrowed to 4.2% from 7.5% a year earlier, driven by weaker performance in MMO, which had overcapacity caused by slower market in Norway and issues with final settlements on some projects. This disappointing quarter for MMO was somewhat offset by positive development in engineering, which saw its margin widen to 9.2% as we made good progress on major projects and had better capacity utilization in our new engineering hubs, both in London and in Houston, Texas. Also on the plus side, field design order intake rose 17% in the quarter as MMO secured two new framework agreements.
One was a contract with BP in Norway worth up to NOK 1.8 billion during the next two years. The other was a five-year agreement with Statoil to provide MMO services for their Mariner oil field in the UK. Both agreements have extension options for up to four additional years. Regardless of the order intake, we're not satisfied with the recent margin development in MMO, and we're taking actions to reduce costs. We are transferring about 100 MMO staff to a new subsea engineering and project management hub in Stavanger, and we have already moved another 100 employees to our recruitment agency, Aker Advantage, which will seek to find employees new jobs inside or outside the Aker group.
The agency will be a part of Aker Solutions going forward, and Aker Advantage will assume all costs related to the said employees effective from July first this year. Finally, we're pursuing new business opportunities with the Sleipner redevelopment as the biggest opportunity short-term. A successful outcome of that tender process during the course of this quarter will be key to maintain our current MMO capacity and competency. Let's move on to Aker Solutions, which will operate and trade under this great new logo. The second quarter performer key financial numbers for Aker Solutions were revenue of NOK 6 billion and EBITDA loss of NOK 129 million, and EBITDA margin of -2.2%, and order intake of NOK 4.6 billion, leading to a backlog of NOK 13.9 billion at the end of the quarter.
The EBITDA was of course impacted by the impairment costs of OMA assets announced last Friday. Adjusted for these one-off charges, the EBITDA was NOK 322 million in the quarter, and the margin was 5.8%. Aker Oilfield Services was a weak performer in the Aker Solutions portfolio in the second quarter with an EBITDA loss of NOK 481 million in the quarter. The earnings were impacted by idle time for the Skandi Aker vessel and impairments of about NOK 1.6 billion of some assets and goodwill in the Aker Oilfield Services unit.
As announced last month, Total canceled a two-year contract for the Skandi Aker vessel, which had been idle since the end of March due to some technical issues. We will now seek work for the vessel in the spot market while exploring longer-term opportunities in parallel. We are also in negotiations about a possible contract in Brazil for the Aker Wayfarer vessel, and we expect that tender process to be concluded already during the course of this quarter. Both Aker Wayfarer and the Skandi Santos vessel, Aker Oilfield Services' third vessel, had stable performance in the quarter, contributing to a revenue of NOK 613 million. Drilling technologies is the largest business in the Akastor portfolio, accounting for more than half of Akastor's revenues.
Sales in this unit rose 25% in the quarter from a year earlier, boosted by demand for single equipment and life cycle services. Still, the profit margin decreased to 8.6%, mainly due to some execution challenges on some projects. The drilling market has slowed this year, with new projects being put on hold. This impacted the order intake, which was lower than a year ago at NOK 2 billion. Sales in Process Systems rose 7% in the quarter to NOK 567 million. The EBITDA margin narrowed to 4.2%, weighed down by low capacity utilization in some areas and high tender costs. Surface products, which used to be part of Subsea, is another unit to emerge as an independent entity within Akastor.
The unit saw sales rise 7.8% in the quarter, bolstered by high demand in both Asia-Pacific and the Middle East. The margin widened to 16.3% in the quarter. Business Solutions is the second-largest unit by sales in Akastor, with NOK 1.4 billion in revenue in the quarter and a 5.9% margin. The unit was set up 10 years ago to provide key in-house support services. Today, it employs 1,500 people with specialist skills in areas such as payroll, recruitment, HR, IT, finance, and more. We see this business as scalable for growth with Aker Solutions, Akastor, Kværner, and Dracops as the four initial customers. Starting next month, Statoil too will be a customer, as, Aker Advantage recently signed a framework agreement with Statoil to provide personnel with engineering and, technical experience.
Akastor will also hold significant financial assets and property, accounting for about 20% of its balance sheets. In sum, the Akastor companies present a somewhat mixed bag in the second quarter, but also a great opportunity to invest in businesses with growth prospects in key markets across the world. The demerger of the current Aker Solutions is set to be completed in September this year after an extraordinary shareholders meeting scheduled on August 12th. Today I will also, for the very last time, present quarterly figures for Aker Solutions before the split. Combined for the current Aker Solutions, the earnings are as follow. Revenue rose to NOK 13 billion. EBITDA fell to NOK 429 million. The margin narrowed to 3.3%. We had an order intake of NOK 24.8 billion, bringing the backlog to NOK 67.7 million.
Excluding the one-off impairment costs in OMA, the EBITDA was NOK 936 million, and the margin was 7.5%. The numbers tell the past. Let's now touch on how we view the market going forward. Capital discipline is the most crucial driver in E&P companies for the time being, and is expected to remain tight over the next one to two years, after which we anticipate a next wave of offshore development projects. Our job is to manage the balance between short-term capacity adjustments while positioning ourselves for the next upturn cycle. The North Sea is, as you know, our home market, and the NCS will continue to play an important role.
Between 50% and 60% of the revenue in the new Aker Solutions will be based on offshore Norway activities, and MMO will make up almost 30% of this. It's no secret that we have been seeing a slowdown in the Norwegian MMO market, and we predict a challenging time in that segment over the next couple of years. More broadly, we expect a robust level of activity offshore Norway going forward. There's a strong pipeline of projects, though with some risk of delay due to capital constraints. Brazil is set to become the single largest offshore exploration and production region over the next five years, with Petrobras planning large investments as it seeks to double production by 2020. There are indications of strong demand for subsea equipment in Brazil that should be visible to the market later this year.
Most of the investments will be made in the pre-salt developments, and there will be a continued demand for production systems and tie-ins also related to existing fields. Aker Solutions deepwater technology, combined with our significant local presence in Brazil, positions the company for continued growth in that market. In West Africa, deepwater markets continue to provide significant opportunities. Offshore spending is expected to grow more than in any other region at probably as much as 11% annually over the next 6 years. We also see opportunities attractive to Aker Solutions and Akastor in Atlantic Canada due to recent discoveries, and in Mexico due to regulators opening up for more private and foreign investments.
Finally, Asia Pacific, a market that remains focused on natural gas with several large projects slated in the region. Akastor is positioned to win drilling equipment contracts from yards in Singapore, China, and South Korea. In the new Aker Solutions, we expect to benefit from both field design and subsea spending in the Asia Pacific region. All in all, we maintain a prosperous market outlook, though with some more short-term challenges and risks in certain regions and segments, mainly due to capital constraints. Well, it's now time to wrap up with the big picture. In the new Aker Solutions, the prosperous trend continues in both the subsea, umbilicals, and the engineering businesses, while the MMO business in Norway is going through a challenging time.
Capacity adjustments have already been made. Winning the Zidane redevelopment contract will be key in order to maintain our MMO capacity and competency at the current level. The starting point for the new CEO, Luis Araujo, is robust. The expectation is clear. At the new Aker Solutions, additional shareholder value must be unlocked by continued improvement of operational execution. The Akastor CEO, Frank Reite, has a different mandate. Each Akastor business will be developed independently to unlock its full potential, be it through organic growth, partnerships, or M&A activity. The initial portfolio of Akastor constitutes a unique start. An allocation strategy should be developed at an early stage in order to make sure that the capital invested yields the best shareholder return possible.
The two new companies will be quite different by nature and by strategy, but both have great oil services management teams in common, and I look forward to collaborating with both teams in my future capacity as chairman of the two boards. For the very last time in this setting, I leave the floor again to you, Leif, and you will walk us through the second quarter financial performance in even a greater level of detail.
Thank you, Øyvind. Welcome to all of you. Very pleased to see that some of you are coming in the middle of the holiday season. Well, as we have already seen, the second quarter numbers are impacted by several one-offs that I will come back to. First, let's have a look at the numbers as such. Revenues in the second quarter NOK 13 billion compared to NOK 11 billion last year. Year-to-date growth of 13%. The EBITDA was NOK 429 million, but adjusted for one-off items, it ended on NOK 936 million, with a margin of 7.2% compared with 7.1% last year. Depreciations were impacted by the impairment on the OMA assets. 1 billion Norwegian crowns of impairments impacted the depreciations.
Net financial items of NOK 129, 23 million reduced further due to the fact that we repaid the most expensive part of the debt at the end of June. All of this gave a net profit of NOK 807 million negatively. Let's go through the one-off effects in the second quarter more in detail. First of all, the demerger and listing expenses are expected to be around NOK 100 million, of which NOK 47 million was booked in the second quarter. Of course, most of the remaining will come in the third quarter. The divestment of the shares in the Hotel Expo Fornebu have been announced. It gave a gain of NOK 113 million.
The termination of the Skandi Aker contract actually gave a positive accounting effect of NOK 241 million. Part of this is due to the fact that we had hedged future cash flows for the contract. Luckily, the hedge was in a money at the time of the cancellation, and we could release around NOK 150 million in hedging effects. The second part is the remaining part of the mobilization fee that was paid in the beginning of the project. In the demerger process, we also moved a number of office leases between the groups, mainly to the Akastor group. These have had a negative value due to unused capacity. We have provided NOK 150 million in provisions for expected future losses in case we are not able to sublet these offices.
Hedging. Not qualifying for hedging accounting were negative at NOK 28 million in the second quarter. Finally, the impairments on the OMA assets, Skandi Aker Wayfarer, and goodwill, had a negative effect of NOK 1.6 billion, as announced separately last week. NOK 636 million of this was a provision for future leasing costs which then impacted the EBITDA result, while the remaining part of the impairments then impacted the EBIT only. Adjusting for all of these effects, the underlying performance of the group showed an EBITDA of NOK 936 million for the quarter and an EBIT of NOK 559 million in the second quarter. Cash flow from operations were positive in the quarter with NOK 1.2 billion.
Most of the one-offs did, of course, not have any cash effects. The working capital was reduced from NOK 3.9 billion last quarter to, well, NOK 3 billion this quarter. The provision of NOK 636 million for future lease commitments is for the remaining period of the ship lease contract and is consequently booked as a long-term liability and have no impact on the reduction in the working capital level. The reduction is though mainly in the new Aker Solutions companies, and especially Subsea where installments on some big projects were quite high in the quarter. The working capital level in Drilling Technology increased though to a quite high level. We expect this to go down in the second half of the year. While the working capital level on the new Aker Solutions part will most likely increase somewhat.
The divestment of the shares in the Quality Hotel Expo gave a positive cash effect of NOK 447 million, financing the investments in the period. Finally, we paid NOK 1.1 billion in dividends in May. With all of these numbers, the debt position remained at around NOK 4 billion at the end of the quarter. With regards to funding, now of course, with the split, we are refinancing Aker Solutions. Two of the bond loans with maturity in 2017 and 2019 survives the merger and will be part of the debt of the new Aker Solutions going forward. Secondly, we also have around NOK 1.1 billion in debt in Brazil. Most of it will be part of the debt of new Aker Solutions.
Finally, we are putting in place new credit facilities for the new groups. The loan agreements were signed a couple of weeks ago. For the new Aker Solutions, we have signed a 5-year credit facility of NOK 4 billion with 13 Scandinavian and international banks. While for Akastor, we have signed a 3-year, NOK 2.5 billion term loan and a 5-year, NOK 2 billion credit facility with 7 Scandinavian and international banks. Thus, the financing of the two new groups with solid liquidity reserves is secured. Let's have a look at the business areas, and then we are still on the business areas of the old or existing Aker Solutions. Subsea delivered a quite strong quarter with a revenue growth of 18%. The growth can simply be explained by the strong order intake over the last 18 months.
The margin marginally lower than the previous couple of quarters. The underlying trend of improved margin remains. Very high order intake, especially then due to the two contracts with Total and Petrobras, bringing the backlog up to a record high level of NOK 37 billion. Umbilicals continues its journey to get back on track. Revenues of NOK 608 million reflects a quite high capacity utilization at both yards, while the margin improved to 9.4%. Order intake not so strong in the second quarter, NOK 300 million. The tender activity in Umbilicals is very high. Drilling Technologies show a quite strong growth of 25% in the second quarter. It's mainly driven by phasing our contracts, which means that several system contracts have reached a phase in the production where revenue recognition becomes quite high.
Revenues from single equipment and services were also good in the quarter. The margin declined to 8.6%, as a lot of the revenue growth comes from systems that have lower margins than services and single equipment. That of course dilutes the margin. As mentioned by Øyvind already, we also have some projects in the portfolio where we have been struggling over the last quarters with execution. Order intake of NOK 2 billion includes 1 contract for, or a contract for 1 new drilling package for a work or a rig. While the remaining order intake is single equipment and services. Process Systems, revenues of NOK 566 million in the quarter, margin of 4%. The picture remains the same.
Parts of Process Systems deliver good results, while other parts are still struggling with capacity costs and high tender costs. The order intake was quite strong in the second quarter, NOK 800 million. Engineering revenues increased with 16% to NOK 1.1 billion. The margin slowly recovers after low capacity utilization in London, 9.1% in the second quarter. We still have capacity costs diluting the margin though, especially then in London and Houston. MMO had a weak quarter. Revenues of NOK 2.8 billion is more or less on same level as last year. The activity level on the Norwegian continental shelf has gone down in the first half of the year. This causes some capacity costs.
As explained by Øyvind, we are now adjusting the capacity level for the MMO business in Norway. Also, close out of several projects have had a somewhat negative effect as we have not been able to achieve the bonuses and incentives that we have been targeting. We expect the margin to recover in the second half of the year, but it is to some extent dependent on what happens with tenders and then the capacity utilization also going forward. OMA delivered a very poor quarter with a negative EBITDA of NOK 481 million. We have been through the impairment of the OMA assets and the one-off effects on the cancellation of the Skandi Aker contract. Adjusting for this, OMA delivered a negative EBITDA of NOK 84 million in the quarter.
Skandi Aker did not have any revenues in the quarter as the vessel was struggling with the equipment until the contract was eventually canceled by Total Angola. Skandi Santos and Aker Wayfarer, though, were operating at more or less full utilization in the quarter. The asset values of Akers has been reduced from NOK 3.8 billion to NOK 2.1 billion due to the write-downs. In addition, we have around NOK 900 million in assets of Ezra shares and Aker DOF Deepwater. Order intake of NOK 25 billion in the second quarter was of course impacted by the Subsea order intake, bringing the backlog up to NOK 68 billion. Needless to say, this is of course a record high level.
The cancellation of the contract on Skandi Aker, by the way, reduced the backlog with $150 million or NOK 900 million. Subject to final approval, of course, in the shareholder meeting in August, and then final demerger at the end of this September, this is the last time we present numbers for the old Aker Solutions. In order for you to be able to understand the underlying performance for the two new groups and to be able to make your models for the two new groups, we have prepared some preliminary numbers, which even to some extent have been through already. These numbers are not audited and still a bit work in progress.
Thus, the final numbers may deviate somewhat when they have are finally concluded, being part of the prospectus of the listing of the new Aker Solutions. First, some explanations on the reporting structure of the group, starting with new Aker Solutions. We are going to report numbers on two reporting segments, Subsea and Field Design. However, we are also going to give you some numbers like revenues, EBITDA, EBIT, working capital, order intake, and order backlog for the subsegments, Subsea, Umbilicals, MMO, and Engineering. In order to be able to build a bridge from the existing business areas, you should be aware of a few things.
First of all, with regards to Subsea, the existing business remains, of course, the same with one exception, and that is that the subsegment Surface Products, which has been a fairly standalone business, mainly operating in Asia and the Middle East, will become part of Akastor and be reported as a separate business in Akastor. In addition, we're also making some changes in the way we report revenues and earnings on family joint venture projects. You may ask, what is a family joint venture project? Well, actually, it's a project where several business areas are involved in the same project. The best example is actually the Subsea Åsgard project, where engineering is involved doing system integration, project management, part of the engineering.
MMO is involved in a lot of the fabrication at the yard at Egersund, while at the end of the day, most of the scope is a subsea scope. Of course, it's part of the Subsea business, part of the Subsea strategy. Historically, or going forward, we are going to split the scope in line with what each of the parts are actually contributing, while in the past, the split of revenues and earnings has been agreed upon in the beginning of the project. For example, on Subsea Åsgard, Subsea have received 50% of the revenues and earnings, and MMO and engineering have received 25%, even though the subsea scope is in fact much higher than 50%. This will be changed going forward.
To the analysts, sorry for making the life a bit more difficult the first time you have to update your models. I'm confident that this will give a better understanding of the underlying activity and earnings in each of the segments, because it's more based on what we earn in the market segments and not reflecting how we from time to time organize ourselves internally. To the numbers. The Subsea revenues, and by the way, all of these numbers are shown as enclosure in the presentation. You will receive the tables and also, we will also re-release a spreadsheet on our homepage, so you don't have to write down all the numbers.
First, Subsea revenues are not changed much relative to the existing business reporting, which means that the around NOK 250 million in revenues per quarter of surface products that's moved out of Subsea is then compensated by increased revenues from the family joint venture project and mainly on Åsgard. The margin level is more or less in line with the margin level of the current BA Subsea. With regards to umbilicals is more or less 100% in line with existing BA report. With regards to MMO, you can see that the revenue drops with NOK 200 million-NOK 300 million per quarter as we have removed the revenues that MMO historically has got on subsea scope. This is especially the scope delivered from the Egersund yard to subsea projects for manifolds as an example.
With regards to engineering, the revenues have also dropped somewhat as we have removed part of the family joint venture volumes and moved it to subsea. Interesting with these engineering numbers though, which better reflects actually the activity level, the number of engineers working in that business area. You see a stronger growth than you can see in the existing business area reporting. These numbers as well reflects better the activity level of the engineering business. The margins of engineering increases somewhat compared with the existing business area, simply because we are taking away lower margin construction procurement scope, while on the pure engineering scope, we have higher margins. In addition to these two reporting segments with four subsegments, the new Aker Solutions will have a corporate with a running negative cost not charged to the segments.
As you can see from the enclosure in this presentation, the corporate new Aker Solutions had a negative effect of NOK 75 million in the second quarter. Of this, NOK 25 million was related to hedges not qualifying for hedging accounting, and NOK 34 million related to demerger and listing expenses. The ordinary corporate costs were around NOK 16 million for the new Aker Solutions in the second quarter. As an indication, we expect the run rate going forward to be in the range NOK 20 million-NOK 25 million per quarter on the corporate segment of new Aker Solutions. Moving on to Akastor, and here we use the new names of the business portfolio. Akastor will have five businesses or five businesses that we will report externally.
MHWirth is equal to the existing BA Drilling Technology, with the exception that a small subsegment, Step Oilt ools, is moved to other holdings. AKOFS Offshore is equal to Aker Oilfield Services, which is then part of OMA. The revenue and EBITDA and EBIT numbers is exactly the same as the OMA numbers. Because the financial assets, Ezra and Aker DOF Deepwater, that is moved into real estate and other holdings, have been booked as financial items historically. KOP Surface Products is the subsegment which historically has been part of Subsea, delivering dry trees, as I mentioned, mainly in Asia and Middle East markets. While Fjord Processing is equal to the current business area Process Systems.
Frontica Business Solutions is the service provider of IT, HR, finance, facility management services to, in the future, the new Aker Solutions businesses, the Akastor businesses, and the Kværner group. The strategy is also to over time develop the business to deliver to also other external clients. Finally, we will have some financial assets and real estates, assets representing around 20% of the capital of Akastor. These are the number for the businesses. I have not included Process Systems in Akoffs as these numbers are equal to the BA numbers that we have already gone through. In regards to Coop Surface Products, you see that it's a business with around NOK 1 billion revenue per year and a margin level of, in the range 13%-15%.
Frontica Business Solutions is a business with close to NOK 6 billion of revenue per year, and an EBITDA margin of in the range 5%-6%. With regards to balance sheet and capital structure of the two new groups, not all the numbers are ready yet. Some key figures, as already mentioned, the working capital of the new Aker Solutions as of June was around NOK 346 million. This was a very low level in taking into account that the Subsea business normally will operate with working capital levels substantially higher than this. While the working capital for Akastor as of June was NOK 2.7 billion. This is somewhat high, and we expect a decline in the second half of the year.
As of June, the net debt of existing Aker Solutions was around NOK 4 billion. Roughly half of this will remain with Akastor, and half of it follows new Aker Solutions. As we have said before, the intention has been to capitalize new Aker Solutions based on the gearing of net debt equal to 1 times EBITDA. With these numbers, the gearing is somewhat lower. However, have in mind that the working capital level was also on a somewhat lower level as of June. The equity capital of Aker Solutions, the existing group as of June was NOK 14.6 billion. Based on the assets and the net debt that will be transferred into the new Aker Solutions, we expect that around NOK 5.2 billion of the equity will follow new Aker Solutions, while the remaining NOK 9.4 billion remains in Aker Solutions.
Aker Solutions have real estate and financial assets of around NOK 2 billion. If you are able to realize most of the financial assets, the debt level will be close to zero for that group. With this capitalization, we will establish two financially strong groups going forward. As I already said, the financing have been signed with the banks already. That concludes my presentation. I guess, Pernille, we can open up for the Q&A session.
Thank you, Leif. We will be able to take some questions from the audience gathered here in Fornebu. After that, we'll also open up for questions from our webcast audience who can call in on the number. At the very end, we will take questions or have some short interviews with media who are here. Any questions in this room? Gentlemen over there.
Fredrik Lunde, Carnegie. Just on the Skandi Aker, you mentioned seeking, short-term employment for a vessel. How should we think of the cost base now for the next couple of quarters?
Well, in the numbers that I just went through, I said that the loss of adjusting for the one-offs, OMA had an EBITDA of minus NOK 84 million, and I said that Wafer and Skandi Aker will operating on full utilization, which of course means that those vessels were earning money. In other words, Skandi Aker have had a loss in a quarter when it has had no revenues of more than NOK 100 million. That's kind of the indication of the cost level. The exact OPEX of Aker Solutions will of course, Aker Solutions or Skandi Aker will of course depend on the scope, whether it's fully scoped to do well intervention services or it will have ROV crew and so on or not.
The typical OPEX, depending on the scope, will be in the range of $200-$250 per day. That's the OPEX. With regards to revenue, it of course totally depends on the services. If it operates on subsea installation, you can achieve rates from $200-$300, a little bit depending on how urgent the client need the vessel. If you get more long-term contracts, the rates will typically be lower.
Are, is they keeping the organization in place for well intervention in Angola, or has that been demobilized entirely?
We are keeping in place the organization for the Skandi Aker vessel as such, but we are demobilizing from Angola. Then again, we will of course be able to get back to Angola and operate in Angola, but we are adjusting the organization now locally due to the fact that we don't have a long-term contract.
Maybe we should add that, parts of the operational crew was from sub-suppliers as well, so that created some flexibility.
Thank you.
Any further questions? Next door.
Thank you. Håkon Amundsen in ABG. Just wondered a couple of questions on the MMO. Can you quantify how much the Norwegian MMO revenues are down in the first half relative to 13 and how much they would potentially decline further?
To put this, this way, I think, the key client has talked about a reduction in the MMO investments, also 15%-20% from 13 to 14. This is in line with what we see internally.
Okay. Thank you. Also on the margins, believe you had 6% in Q1, now you have slightly more than 3%. For the second half, assuming that you are successful in the tenders, is the 6% reflective of the current market and your capacity utilization?
Yes. I mean, we have now adjusted the capacity. Øyvind talked about some tenders and so on. It's not, it's not like the capacity utilization is given for the second half of the year. If we win our target projects, and based on the capacity adjustment we have made, it should be possible to get back to that margin level. Again, I think I was quite precise in my presentation that, of course, there is still uncertainty then whether further capacity adjustments have to be made to get back to that margin level.
Thank you. Just a final question. In subsea, you still have very good margins. What's the progress on Moho Nord? Is that contributing on the margin side? How is that developing?
The Moho Nord project is going according to plan. Of course, it's one of the projects. It was signed a year ago, so it's one of the projects that now start to contribute a lot on the revenue side. Again, it's not these huge greenfield projects that normally drive the margins in the subsea business.
Okay, thank you.
There are two more.
Hi, it's Teimur Tana in Swedbank. Just first of all, on your backlog and backlog scheduling for maybe for next year, you had NOK 23 million in your presentation here. Can you provide us with a rough split on the two segments you will be reporting on for going forward? How much of that is related to Akastor?
Well, I don't have that number now. For Akastor, it is of course mainly on the drilling technology, and somewhat on the Process Systems. Akastor probably represent 25%-30% of that and the remaining in the new Aker Solutions businesses.
For 2015 as well? Okay. Also can you elaborate on the size of the Zidane project on potential win on Zidane for MMO? The size of the scope?
I don't think that's a number that we should, we can't guide on the exact size, but it's a significant redevelopment project, which will make a big difference for us if the contract is awarded to the new Aker Solutions.
Finally, on the book value now on have an Aker of sort of, NOK 2.1 billion. How much of that is related to Skandi Aker?
The Skandi Aker vessel now have a book value of around NOK 2.1 billion.
Okay. Thank you.
Question there in the middle of the room.
Thank you.
Arnold, you're right that we have expanded in the said markets recently. If you take the portfolio perspective to the analysis, it's mainly subsea and drilling technology that has made progress in those markets. The drilling technology is not as exposed due to the profile of the customer portfolio, mainly the Asia Pacific yards and the international drillers. The risk is the business area mostly exposed is the subsea business, which has expanded significantly in Brazil and in West Africa. We also expect growth in Asia Pacific, less in the Middle East.
To develop our HSE resources, including how to prepare for security issues that you mentioned, has been a network priority for Aker Solutions during the last years. Basically, it will not change as a result of this split. We will continue to focus on this particular risk factor. We will continue to develop our expertise and capacity in general. More specifically, rather than building up an organization in Norway, we have prioritized to recruit leaders and employees from the relevant local markets with particular knowledge about the risk factors in that region and strengthen the local teams rather than building up corporate teams.
Were there any further questions? Yes. Two more.
You talk about the capital discipline with the E&P companies going forward, and you also talk about the next wave coming in in a couple of years' time. Just wondering if you can give us some more flavor about where you see the wave and if you have some special project you want to highlight?
First and foremost, the slowdown is partly about canceled projects, but even more about postponed projects. We have a continuous dialogue with key customers about when we should prepare our organization for contract awards regardless of current delays. When I indicate that we expect a pickup in the market activity in a couple of years' time, it's partly based on that dialogue and the answer to our question about when could we expect that projects currently delayed will be revisited. The most prominent example here in Norway is obviously Johan Castberg, as you probably know. The other backdrop of that indication is what's going on in the MMO market.
From a customer perspective, the intention is not to reduce the ultimate level of activity, but to reduce the level of costs. The slowdown in the level of activity will by nature, be temporary. I expect that the amount of work will gradually increase. Then, I sincerely hope that we'll be able to help the customers with a lower cost level as well. That will require structural changes because as the industry operates today, MMO is, to a large extent, a local business, and we, as suppliers, are actually penalized if we don't execute the MMO projects locally.
It's not an option available to us today to move engineering, to pick that example, to low-cost hubs like Mumbai to the same extent as we have already done in other parts of Aker Solutions, like the greenfield engineering projects.
Thank you.
Tarjei Vatne, SEB. 2 questions. First one is on the Aker Wayfarer. The charge you make of NOK 636 million on the future lease commitments, how much will that reduce the annual lease cost on the vessel?
Well, it's a quite simple calculation because the ship lease contract remains for another six years and one quarter, so around NOK 100 million per year.
Okay. Thank you. The second one is on drilling technologies. I guess no one really expects a rush of new build orders in the drilling space going forward. At what point will you have idle capacity in the drilling technologies division?
Well, as a matter of fact, the drilling market is not totally dead. As we talked about, single equipment is not so bad, and that use the same capacity as the system contract. Also the jackup market is quite active. It's mainly the deepwater rigs that, of course, the market looks a bit different than six, nine months ago. With the current backlog, we will not have to make any capacity adjustments during this year.
However, we have already, as part of an improvement plan to reduce the cost in drilling technology, started to take out quite a few hire-ins because also in drilling, we create flexibility in our capacity by having hire-ins in the organization. I don't foresee any further substantial reductions in the organization throughout this year. Needless to say, we need, of course, to win some contracts in the second half of the year.
In addition, we should highlight the difference in our execution model compared to our main competitors. The competitors have a more integrated delivery model, Aker Solutions has, over the years, developed a great level of an execution model with a great use of sub-suppliers. That creates more flexibility and optionality in a downturn market than as we're facing now.
Were there any further questions? There's one here. Front.
Yeah. It's Eilert in Swedbank again. Just back to Oilfield Services and Skandi Aker, is that vessel now available for new work?
Yes, it is, and we're negotiating, short-term contracts as we speak.
The contract you're talking about for Aker Wayfarer in Brazil, we do know that the Subsea 7 contract is now terminating in August. When should we expect, if you are to win the Brazil contract, when will that commence?
I said in my presentation that we expect the current tender process to be concluded during the course of this quarter, third quarter 2014. It's a contract for a vessel equal to the Skandi Santos vessel, which means that we have to not rebuild, but we have to make some changes on the vessel.
The contract as such will commence in the first half of 2016. It's a 5-year contract with options for additional 5 years.
In the meantime, If you are to win this contract in 2015, that's gonna be used mostly for putting the vessel ready for that contract, or can you use it for other type of spot work in the meantime?
No, Based on the current timeline, the vessel will go to the yard at the end of 2015, beginning of 2016. For 2015, we still need to sell the vessel in the spot market as a construction vessel.
Okay, thank you. Just finally from me on your plant in Brazil for drilling technologies. I guess it's gonna be ready next year or mid-next year or so. How has the progress been on the plant?
Oh, that's going more or less, according to plan.
Okay. Thank you.
Any further questions in here? Yes, in the back row there.
Torkell Stern, Arctic Securities. A couple of quarters ago, you said that, on MMO, you said that, you had been discussing this with Statoil for over a year and that, you were prepared for a market downturn. How has that developed relative to how you looked at it back then? Has it, you know, become worse, or is it in line with your, with that view?
The market has, the level of activity has dropped more than what we said, half a year ago. We have adjusted our plans accordingly. At the same time, and as I also said in my presentation, it's from a management perspective, we have to balance the short-term capacity adjustments with our long-term market outlook in order to position our, the new Aker Solutions for the next upturn cycle. That's also a dialogue with key customers.
Thank you. Are there any more questions in here? Okay. If not, we can take questions from our webcast audience, if there are any questions.
Our first question on the telephone comes from Ian Doig from HSBC. Please go ahead.
Good morning. Two questions on workload and capacity. The first one relates to subsea. Given the strong order intake that we've seen for that business, clearly we bid you in the coming years than you ever been, notwithstanding the fact that some of the delivery programs are quite long-term. Perhaps you could just talk about the ramp-up of the main projects, when you expect to be operating at peak capacity, and talk about your ability to take on new work. That's the first question. Second question, just on engineering. Can you just go through progress on Johan Sverdrup? You say it's in line, perhaps you can discuss how we should think about how the volumes develop on that project.
Again, when do you think you'll see peak man-hours on the job, and how long could you be running at those peak man-hours for? Thank you.
Let me start with Johan Sverdrup. The short answer to your question is that we're progressing according to plan. As far as subsea, your questions related to subsea, concerns, I should remind you about the fact that Aker Solutions prepared itself for this upturn cycle by making investment decisions over a couple of years back. We have extended our capacity both in Norway, in Malaysia, and we're about to extend or double the capacity in Brazil, in order to prepare ourselves for both the contract, contracts already awarded and the contracts we expect to be awarded going forward. By that answer, I partly also answer your question about whether or not we have capacity to take on more work.
The short answer is that, yes, in general, the subsea business area has a capacity to take on even more work. In Brazil, we're, it goes without saying as we're, doubling the capacity, but we also have, capacity for more work in other subsea hubs like Port Klang, Malaysia.
Okay. Thank you.
Our next question comes from Christyan Malek from Nomura. Please go ahead.
Hi. Good morning, gentlemen. Two questions if I may. First, in terms of the, in context of the sort of slowdown in CapEx, particularly in MMO, and sort of majors discipline on spend, what are you doing in terms of driving your own efficiencies in the business? Cost saving. Can you quantify the sort of cost savings now that you have in both acquisitions and Akastor? Is that something you would embark on in the next 12 months? Second question is regarding potential M&A prospects for the different business lines. What sort of appetite are you getting from the market, from industry, to either partner or acquire, you know, the assets that you would be willing to carve out? And where are you, where is the pushback?
Is it the price or is it just the outlook for the businesses? I'll those two questions first, and then follow up with the third.
Okay. If I start with measures taken or to be taken in order to drive down costs. I said already in my presentation that as far as the MMO business concerns, we have already reallocated more than 200 employees. More than 100 to a new subsea engineering and project management hub, and another 100 to our recruitment agency, Aker Advantage. In addition to that, we have developed specific plans about additional capacity adjustments in different scenarios. The main scenario is related to the Sin-Sidon contract award. We sincerely hope that we will win that contract, and we will fight hard to win it. If we lose, we have already established plans which will for additional capacity adjustments.
As we have communicated externally already, the family connection and the fact that the Aker Group in general and Aker Solutions in particular have so many different businesses and business needs have created some flexibility available to us as we develop capacity adjustment plans. The second question was about M&A. We continue both in the new Aker Solutions business as well as in the new Akastor business to pursue acquisition opportunities. Primarily built on technology acquisitions rather than big moves. The new Akastor business, we have already indicated that we expect a higher level of M&A activity as a tool for shareholder value creation. That's the headline.
The more specific strategies and plans for each of the Akastor business should be developed by the new board and the new management team. Hence, I'm not able nor willing to indicate what kind of more specific M&A transactions we as shareholders and you as analysts should expect in the months and years to come.
If I.
On the first question, which is, if you haven't sort of quantified any rules of numbers around that, I mean, you transfer engineers across from business to another, but is there any, you know, huge scale-up of taking costs out within these businesses over the next 12 months, or is it more about reallocating at this point?
No, it's, it's both. We have talked about more than 200. Firstly, of course, the first thing you do is to adjust the flexible part of your capacity, which is the hire ins. We have been working with also internally then replacing, hire ins with, own employees. Secondly, it's of course, then adjusting your fixed, cost base. We have communicated that more than 200 people will be affected, many of them, now working for other, business areas. 140 people have also been transferred to the Advantage group, which will offer engineers in the external market. Then it remains to be seen where we have to make final, adjustments.
If, if I may add, because these are of course the short-term cost adjustments by adjusting your cost base, then more long-term, it's of course also a question about how we can utilize more of the, call it, the cost, low cost, base in Aker Solutions. Today, we have, close to 2,000 engineers in India on MMO contract. A fairly limited scope is today used by those, resources. Going forward, we also have to look into that split, of course, to see where more of the scope can be, delivered from, lower, cost bases.
Brilliant. I want to follow up my third question, so sorry for taking some time there. The Moho Nord project, which we're seemingly realizing, you know, solid margin, based on Nord Q2. If I look forward to the project at Kaombo, can you conceptualize if the margin according will be higher, equal, or less than what you delivered on Moho Nord? I say that in context to Technip cutting, you know, quite a bit out of the Kaombo project. I'd just like to understand, like for, like all else equal, how your margins compare on new projects being awards versus what you seem to be delivering quite well on Moho Nord so far.
Well, to put it this way, technology-wise, Kaombo is quite similar to Moho. I would be extremely disappointed if the margin at Kaombo eventually ends up below Moho. Based on the rumors in the market before the contract award, I will be pleased to surprise you all.
Thank you very much. Cheers.
Our next question comes from Moktar Darbadi from Citig roup. Please go ahead.
Good morning, everyone. Just two very quick questions from me. First of all, just in terms of the general capital discipline focus you mentioned, what are you seeing in terms of Subsea margins in the current tender activity compared to what you have in your portfolio? Is there a change of heart in this, you know, in terms of how the customers are pursuing it? Secondly, you mentioned the execution challenges in drilling. Do you expect that to continue into the second half? Thank you very much.
Well, regards to Subsea margin. First of all, it's important to have in mind that within the Subsea business you have high margins on the services. You have quite high margins on the, call it, repetitive, typically brownfield projects. You have lower margins on the greenfield projects like the Moho and the Kaombo. It will never be those projects that drives the margins, but those projects create, of course, the install base for future services. In regards to pricing, I think it's quite stable. Of course, we are now able to create more repetitive business like Kaombo, Cop-Copio Moho and also like the contracts with Statoil.
That has a positive effect on the on the margin as as such. For these big projects, there will always be tough competition because they are so important in order to create future future install base. Then your second question was on on on drilling technology. I touched upon in the presentation that the margins in in drilling technology is somewhat impacted by the fact that In the second quarter, we grow very very strongly in the say, in the big system contracts. This and it's the same thing in drilling as in Subsea, that you have higher margins on the services and lower margin on these huge system contracts that eventually create install base and services. I think that effect will become less.
The target is, of course, to start to improve the margins in drilling technologies going forward.
Okay. Just a follow-up on the first question. Have you seen that proportion of those larger greenfield projects increasing into 2015?
Well, to put it this way, the services grows quite steadily. The services will kind of never increase with 20%, 30% one year. If your top line increase with more than 15%, 20%, it's typically the big greenfield projects or the effect of those projects that drives the revenue growth. And in itself, that will of course have a somewhat diluting effect. In that sense, with the growth we see in Subsea, the product mix as such will not drive margins improvement. Margin improvements have to come from from execution and what we do with our cost base.
Thank you.
Our next question comes from Haley Silverman from Barclays. Please go ahead.
Hello, it's not Hayley. It's Mick Pickup here. Just one final question, please, and thank you for everything in the last one hour and 20 minutes. This quarter and the integrated outcomes report, as well as capital discipline being the theme, I'm pretty certain everyone is gonna talk about the over-engineering of projects. I'm just wondering what conversations you've had with your clients about the over-engineering of projects, and how you see that being solved going forward. Is that too much engineering on your behalf, or is it too much demands being placed on projects by your clients themselves?
That's an excellent question. We actually have defined a program with some key customers like Statoil related to specific projects like the Johan Sverdrup project to improve jointly, and as a joint effort, improvement efficiency. It's not an issue only with us, neither with the customer. It's about how we interact and how we develop a project jointly. Just to mention one example briefly. If you delegate to the project's team to initiate variation orders, it goes without saying that it will drive engineering hours. The decision-making process with respect to changes to concept has to change in order to create more discipline in the projects as such to reduce the amount of hours spent on developing the designs.
Thank you very much.
Our next question comes from Alex Brooks from Canaccord Genuity. Please go ahead.
Yeah. Good morning, everyone. Just a couple of questions on cash. Firstly, you've significantly underspent in terms of CapEx this year, compared to what I think.
picking, and I wonder if you could give us an update on what the plans are for spend for the remainder of this year. Secondly, you've had a very strong working capital performance in the second quarter. I know, like you've already said a couple of times, this is exceptional. But I wonder if you could quantify the scale of that customer payment in the second quarter.
Well, to the last question. The working capital in the new Aker Solutions as reported is NOK 340 million. In the new Aker Solutions, it will mainly be the subsea business tying up working capital, while engineering and MMO is quite cash neutral. Most likely you will see the working capital level increasing with between half a billion NOK and 1 billion NOK in the new Aker Solutions over the coming quarters to get to a more normalized level as we have guided previously. As I also said a couple of times, the working capital level in the other part in Akastor is actually a bit high. Your first question was CapEx. Yes.
The CapEx level so far this year is somewhat below what we have guided previously. It's going to increase in the second half of the year, mainly due to the investments in the new subsea plant in Brazil and the new drilling plant in Brazil as well. The CapEx from those will increase, as I said, in the second half of the year. We have historically guided that the total CapEx R&D investments in 2014 may be up to NOK 3 billion. As it looks now, it will be less than that. Of course, we have made some adjustments in the plans. It will increase, but not in line with what we have previously guided.
Okay. That's very kind. Thank you very much.
Our next question comes from Daniel Råvik from Handelsbanken. Please go ahead.
Yes, good morning. Just coming back to costs a little bit. You spent quite some time with the capital markets today talking about your aim to reduce costs, primarily within direct materials and in structure, where you targeted, I think, 10%-15% cost reductions in direct materials within the first years. I was wondering if you could give us perhaps an update on how this has progressed and where we are in terms of these cost savings as of now. Thank you.
Well, I don't think I can give you an exact number because of course, at the end of the day, some of these cost savings are taken into account when you when you tender. I think it's fair to say that we are following the plans. With the split, of course, these initiatives that goes across the group will mainly be relevant for the new Aker Solutions, and a more focused portfolio will of course make it easier to have full focus on these cost saving programs. All in all, we deliver on the plan that we that we established last year with regards to savings on materials.
That goes for the targets you had in, for example, within structures as well, which you mentioned in the capital markets day, where you targeted some 3% increase in productivity as well for 2014 and 5% in 2015.
Yes. It's going according to plan. Over the last couple of years, we have been struggling a little bit with the fact that the organization has been growing fast. We have been recruiting 2,000-3,000 people per year. That have had a somewhat negative effect on productivity. Now the recruitment level is of course substantially reduced. We will still recruit somewhat in subsea of course, but not in MMO of course. That in itself will also have somewhat positive effect on the productivity on the labor force.
Maybe we should remind ourself about how we're recruiting subsea, because we're actually reallocating some of the most experienced project experts in Aker Solutions to the new subsea hub in Stavanger, rather than recruiting inexperienced new employees to the business. It's a combination, but the slowdown in MMO Norway has created some opportunities to strengthen the subsea team in order to safeguard flawless execution of the projects in the current subsea portfolio.
All right, thank you. That was it for me.
Our next question comes from Amy Wong from UBS. Please go ahead.
Hello, thanks for taking my question. My question was around your subsea and your drilling technologies margins. Can you give us an idea how to think about, you know, the progression of the equipment versus the aftermarket services, as you're reading your margin now, if it's kind of achieved a normalized level yet? Thank you.
Well, both in subsea and drilling, the aftermarket services represents, around 25% of the overall revenue. The remaining is split between these huge greenfield projects and more smaller and brownfield type of contract in subsea, and in drilling, the drilling packages and single equipment. What, what was your question really?
My question is just trying to understand, you know, the mix going forward. I mean, you've supplied quite a few big subsea systems and drilling packages already from-
Yeah.
5, 6 years ago. I'd just like to see whether that aftermarket services come through. Taking into account what you're executing on now and, you know, what that could drive in aftermarket services, how should we think about the evolution of the margin in those two businesses?
Yeah. Well, with regards to growth, it's a steady, it's a steady growth in aftermarket services in both drilling and subsea in a level 10%-15% per year. In drilling, it's of course driven by the fact that we have delivered a lot of drilling packages the last 5 years, and many of those rigs now have to recertify, so we get more service revenues. We expect that growth to continue based on the historically deliveries that we have made. Whether the relative revenues increase from 25% or not, of course, depend on the overall growth of the business area.
Exactly the same thing in subsea, really, that it grows steadily. With regards to margins, both in subsea and in drilling, we also have programs to improve the margins there. Talking about margins in the range 20%-30% on the different type of services, so it's still high. Of course, we also have programs there to improve the margins. The overall margin of subsea should be driven more by, say, quality on execution and what we do with the cost base than the services.
All right, thank you.
Our final question is from Amjad Azmi from Bloomberg. Please go ahead.
Hi, good morning. Most of my questions have been answered, I have two easy questions remaining. My first question is regarding MMO deficit. Can you elaborate on the issues with final project payments, which you've highlighted in the results? It's basically a timing issue, we are going to see payments in the second half of this year. Can you also tell us as to how much of the margin dilution in MMO in the second quarter of this year was due to overcapacity, and how much was due to final settlement issue? Secondly, with regards to drilling technologies, we have seen that the order intake for drilling technologies has not been that strong for the last few quarters. The outlook you are giving for closures that is also not that great.
I just wanted to ask, is it the right time for you to rethink the capacity initiatives you are doing on the drilling technology side? Is it the right time to do it? Thank you.
Well, on the last question, as I already touched upon earlier, we have made some adjustments in the capacity of drilling as such by taking out some hire-ins. I think it's important to understand that our cost base is quite flexible. We are outsourcing production. Only thing we produce internally is the key components, like the top drives. We mainly produce those in Germany. It's not like we have a huge blue-collar base to feed. If you talk about the new drilling site in Brazil, that site is mainly going to build drilling risers, doing fabrication on the contracts that we have signed for Brazil already.
It's not about, increasing the production capacity in drilling as such. Your first question was?
One question was about the margin dilution in MMO and the split between capacity costs and issues related to final settlements on projects about to be finished. As a rough guidance, I would say that the split is 50/50. Capacity costs and issues related to settlement with customers on projects about to be completed.
Yeah.
Final question. The final quality schedule cost is that timing issue, would that diverge in taking half of this year?
Well, as we said, these are issues mainly related to the close out of projects. At the end of the project, you will always have discussions on whether you have reached milestones, discussions on variation orders and so on. We will not have the same effects in the second half of the year, or we do not expect to have the same effects in the second half of the year. There are still a couple of projects where things have not been finally negotiated with the clients.
Thank you. Thank you.
Thank you. Well, that seems to be the end of the questions from our large international audience. Thank you for coming here today.
Thank you.
Have a nice summer.