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Subsea 7 S.A. Announces First Quarter 2021 Results

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Subsea 7 (Uk Service Co) Ltd
·10-min read
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Luxembourg – 29 April 2021 – Subsea 7 S.A. (the Group) (Oslo Børs: SUBC, ADR: SUBCY, ISIN: LU0075646355) announced today results for the first quarter which ended 31 March 2021.

First quarter highlights

  • First quarter 2021 revenue up 33% year-on-year to $1.0 billion

  • Adjusted EBITDA up 50% to $102 million after incurring net Covid-19 costs of approximately $9 million

  • Order intake of $0.8 billion, equating to a book-to-bill of 0.8 times

  • Backlog of $6.0 billion of which 30% in Renewables, with $3.4 billion to be executed in 2021

  • Net cash generated from operations of $71 million in the quarter

  • Cash and cash equivalents of $527 million with net cash at quarter end of $74 million

Three Months Ended

For the period (in $ millions, except Adjusted EBITDA margin and per share data)

31 Mar 2021
Unaudited

31 Mar 2020
Unaudited

Revenue

996

751

Adjusted EBITDA(a)

102

68

Adjusted EBITDA margin(a)

10%

9%

Net operating loss

(9)

(49)

Net income/(loss)

1

(38)

Earnings per share – in $ per share

Basic

0.01

(0.13)

Diluted(b)

0.01

(0.13)

At (in $ millions)

31 Mar 2021
Unaudited

31 Dec 2020
Audited

Backlog - unaudited(c)

6,002

6,214

Cash and cash equivalents

527

512

Borrowings

(203)

(209)

Net cash excluding lease liabilities(d)

324

303

Net cash including lease liabilities(d)

74

49

(a) For explanations and reconciliations of Adjusted EBITDA and Adjusted EBITDA margin refer to Note 8 ‘Adjusted EBITDA and Adjusted EBITDA margin’ to the Condensed Consolidated Financial Statements.

(b) For the explanation and a reconciliation of diluted earnings per share refer to Note 7 ‘Earnings per share’ to the Condensed Consolidated Financial Statements.

(c) Backlog at 31 March 2021 and 31 December 2020 is unaudited and is a non-IFRS measure.

(d) Net cash is a non-IFRS measure and is defined as cash and cash equivalents less borrowings.

John Evans, Chief Executive Officer, said:
In the first quarter of 2021 Subsea 7 delivered solid revenue and EBITDA growth compared with the prior year. Although we experienced a relatively quiet quarter for announced new orders, the Group’s backlog remains robust at $6.0 billion and tendering activity for oil and gas projects has improved in certain regions of the world, with several contracts expected to be awarded to the industry in the coming months. Our high Renewables backlog adds to our revenue visibility and demonstrates the advantage of a diversified energy services strategy. We look ahead with optimism to a recovery in new order flow in our oil and gas business as well as continued, strong growth in our well-established offshore wind business.

Strategy update
Subsea 7’s two-pronged strategy comprised of ‘Subsea Field of the Future’ and ‘Energy Transition – Proactive Participation’ made further progress in the quarter with our first carbon capture and storage award, for the Northern Lights project in Norway, as well as the establishment of a joint venture to develop the Salamander floating offshore wind project in Scotland. These form part of a collection of activities focused on emerging energies that underpin our commitment to enabling lower carbon solutions both for Subsea 7 and our clients.

First quarter operational review
In the first quarter the Subsea and Conventional business unit made good progress on several projects. In the Middle East, Seven Champion was active in Saudi Arabia installing topsides at the 3 PDM project at the Hasbah and Arabiyah fields (CRPO 27) as well as the 28 Jackets project at the Marjan, Zuluf, Safaniya and Ribyan fields (CRPO 47, 48 and 49). In Angola, Seven Arctic and Simar Esperança completed the final phase of the Zinia project, while the Sangomar project in Senegal made good progress in the fabrication of pipelines and subsea equipment. In the Gulf of Mexico, Seven Navica and Seven Pegasus were active on the Ichalkil project, while Seven Oceans and Seven Pacific continued offshore activities on the Mad Dog 2 project. Engineering and fabrication activities continued on the Anchor, King’s Quay and Jack St Malo projects. In Australia, Subsea 7’s scope was completed by Seven Eagle at the West Barracouta field while procurement activity commenced on the Barossa project. The diving support and light construction vessels achieved good utilisation in the North Sea.

In the Renewables business unit we continued work on the Seagreen project, with fabrication of the jackets and inner-array cables making further progress. In Taiwan, winter weather resulted in Seaway Yudin remaining on standby for most of the quarter. Seaway Aimery and Seaway Moxie were in transit to Europe ahead of their campaigns in the North Sea.

Overall, utilisation of Subsea 7’s active fleet was 66% in the first quarter, compared to 63% in the prior year period. The quarter was marked by a number of international transits of some of our global enablers. In addition, Seven Vega incurred significant downtime while in the Gulf of Mexico for equipment repairs to address storm damage. It returned to operation on 14 April and the delay has largely been accommodated by reallocation of work to Subsea 7’s other pipelay vessels. At the quarter end, the active fleet comprised 29 vessels following the release of Harvey Intervention.

First quarter financial review
From January 2021 we combined our SURF and Conventional and Life of Field business units into one business unit, named Subsea and Conventional, which comprises our full portfolio of services and products dedicated to the oil and gas industry. Simultaneously, the Renewables and Heavy Lifting business unit was renamed Renewables and excludes heavy lifting activities relating to the oil and gas industry.

First quarter revenue of $1.0 billion increased by 33% compared to the prior year period, reflecting significantly higher activity in Renewables as well as moderate growth in the Subsea and Conventional business unit as projects deferred from 2020 into 2021 made progress. Adjusted EBITDA of $102 million was up 50% year-on-year driven by good progress on Subsea and Conventional projects, high utilisation of the PLSVs and progress on Seagreen, partially offset by a high level of vessel transit time. After a depreciation and amortisation charge of $110 million, the Group recorded a net operating loss of $9 million. Net income for the quarter was $1 million, after a tax charge of $2 million and other gains and losses of $16 million, including net foreign exchange gains of $9 million.

During the quarter, net cash generated from operations was $71 million despite a $25 million adverse movement in net working capital reflecting the phasing of prepayments on certain large EPCI projects. Capital expenditure was $24 million including costs relating to the conversion of Seaway Phoenix for cable lay, as well as dry docking costs associated with Seven Falcon and continued investment in the Group’s digitalisation initiatives. Overall, cash and cash equivalents increased by $15 million since 31 December 2020 to $527 million and the Group ended the quarter with net cash of $74 million, including lease liabilities of $251 million.

During the first quarter, Subsea 7 booked new orders of approximately $600 million and escalations of approximately $200 million, resulting in a book-to-bill ratio of 0.8. The backlog at the end of March 2021 was $6.0 billion, of which $3.4 billion is expected to be executed during the remainder of 2021.

Outlook for full year 2021
The outlook for oil and gas project awards has seen a gradual improvement during the first quarter, although tendering activity remains focused on certain regions with advantaged economics. The pace of tendering in Brazil has gained momentum with several projects scheduled to be awarded to the industry this year, and early engagement activity in Norway is high, which should drive increased tendering for EPCI projects from the end of the year onwards. The Gulf of Mexico remains an active market for smaller tie-back opportunities. While the offshore phase of these new contracts would fall in the period from late 2023 onwards, Subsea 7’s cost reduction plan is designed to optimise use of the fleet in the interim period. Tendering in Renewables remains active for projects expected to be awarded to the industry in early 2022, including in Asia, Europe and the US.

For the remainder of 2021 Subsea 7 benefits from a high level of visible activity afforded by its backlog, but quarterly results may be adversely impacted by the net costs associated with the Covid-19 pandemic. We continue to expect that revenue in 2021 will exceed the prior year level. While it is difficult to predict the operational and financial impact of Covid-19, Adjusted EBITDA is expected to improve year-on-year and we forecast net operating income to be positive.

Conference Call Information

Date: 29 April 2021

Time: 12:00 UK Time

Access the webcast at subsea7.com or register for the conference call at http://emea.directeventreg.com/registration/8478263.

Advance registration is required.

For further information, please contact:

Katherine Tonks
Head of Investor Relations
email: katherine.tonks@subsea7.com
Telephone: +44 20 8210 5568

Special Note Regarding Forward-Looking Statements
Certain statements made in this announcement may contain ‘forward-looking statements’ (within the meaning of the safe harbour provisions of the U.S. Private Securities Litigation Reform Act of 1995). These statements relate to our current expectations, beliefs, intentions, assumptions or strategies regarding the future and are subject to known and unknown risks that could cause actual results, performance or events to differ materially from those expressed or implied in these statements. Forward-looking statements may be identified by the use of words such as ‘anticipate’, ‘believe’, ‘estimate’, ‘expect’, ‘future’, ‘goal’, ‘intend’, ‘likely’ ‘may’, ‘plan’, ‘project’, ‘seek’, ‘should’, ‘strategy’ ‘will’, and similar expressions. The principal risks which could affect future operations of the Group are described in the ‘Risk Management’ section of the Group’s Annual Report and Consolidated Financial Statements for the year ended 31 December 2020. Factors that may cause actual and future results and trends to differ materially from our forward-looking statements include (but are not limited to): (i) our ability to deliver fixed price projects in accordance with client expectations and within the parameters of our bids, and to avoid cost overruns; (ii) our ability to collect receivables, negotiate variation orders and collect the related revenue; (iii) our ability to recover costs on significant projects; (iv) capital expenditure by oil and gas companies, which is affected by fluctuations in the price of, and demand for, crude oil and natural gas; (v) unanticipated delays or cancellation of projects included in our backlog; (vi) competition and price fluctuations in the markets and businesses in which we operate; (vii) the loss of, or deterioration in our relationship with, any significant clients; (viii) the outcome of legal proceedings or governmental inquiries; (ix) uncertainties inherent in operating internationally, including economic, political and social instability, boycotts or embargoes, labour unrest, changes in foreign governmental regulations, corruption and currency fluctuations; (x) the effects of a pandemic or epidemic or a natural disaster; (xi) liability to third parties for the failure of our joint venture partners to fulfil their obligations; (xii) changes in, or our failure to comply with, applicable laws and regulations (including regulatory measures addressing climate change); (xiii) operating hazards, including spills, environmental damage, personal or property damage and business interruptions caused by adverse weather; (xiv) equipment or mechanical failures, which could increase costs, impair revenue and result in penalties for failure to meet project completion requirements; (xv) the timely delivery of vessels on order and the timely completion of ship conversion programmes; (xvi) our ability to keep pace with technological changes and the impact of potential information technology, cyber security or data security breaches; and (xvii) the effectiveness of our disclosure controls and procedures and internal control over financial reporting;. Many of these factors are beyond our ability to control or predict. Given these uncertainties, you should not place undue reliance on the forward-looking statements. Each forward-looking statement speaks only as of the date of this announcement. We undertake no obligation to update publicly or revise any forward-looking statements, whether as a result of new information, future events or otherwise.


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