Luxembourg – 12 November 2020 – Subsea 7 S.A. (the Group) (Oslo Børs: SUBC, ADR: SUBCY, ISIN: LU0075646355) announced today results for the third quarter which ended 30 September 2020.
Third quarter summary
- EBITDA of $114 million in the quarter after incurring net costs of $20 million relating to Covid-19, equating to a margin of 12%
- Net cash generated from operations of $122 million in the quarter and $423 million in the first nine months of the year, despite challenging conditions
- Anticipated annualised cash cost savings of approximately $400 million by the end of 2021
- Extensions worth $180 million in total for three contracts for pipelay support vessels (PLSVs) in Brazil
- Resilient backlog of $6.8 billion at quarter end, of which 31% in Renewables, with $1.2 billion expected to be executed in the remainder of 2020 and $3.6 billion in 2021
- Conversion of Seven Phoenix under way, to enhance our market leadership in inner-array cable lay for the offshore wind sector, and to accelerate our strategy for proactive participation in Energy Transition
| Third Quarter | Nine Months Ended | ||||
| For the period (in $ millions, except Adjusted EBITDA margin and per share data) | Q3 2020 Unaudited | Q3 2019 Unaudited | 30 Sep 2020 Unaudited | 30 Sep 2019 Unaudited | |
| Revenue | 947 | 951 | 2,452 | 2,768 | |
| Adjusted EBITDA(a), (b) | 114 | 181 | 172 | 462 | |
| Adjusted EBITDA margin(a), (b) | 12% | 19% | 7% | 17% | |
| Net operating income/(loss) excluding goodwill impairment charges | 7 | 59 | (394) | 93 | |
| Goodwill impairment charges | – | – | (578) | – | |
| Net operating income/(loss) | 7 | 59 | (972) | 93 | |
| Net (loss)/income | (43) | 42 | (1,002) | 47 | |
| Earnings per share – in $ per share | |||||
| Basic | (0.14) | 0.15 | (3.33) | 0.17 | |
| Diluted(c) | (0.14) | 0.15 | (3.33) | 0.17 | |
| Adjusted diluted(c) | (0.14) | 0.15 | (1.38) | 0.17 | |
| At (in $ millions) | 30 Sep 2020 Unaudited | 30 June 2020 Unaudited | |||
| Backlog - unaudited(d) | 6,806 | 7,021 | |||
| Cash and cash equivalents | 542 | 483 | |||
| Borrowings | (215) | (221) | |||
| Net cash excluding lease liabilities (e) | 326 | 262 | |||
| Net cash/(debt) including lease liabilities(e) | 53 | (30) | |||
(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) During the nine months ended 30 September 2020 restructuring charges of $99 million were recognised, adversely impacting Adjusted EBITDA and Adjusted EBITDA margin.
(c) For the explanation and a reconciliation of diluted earnings per share and Adjusted diluted earnings per share, which excludes the impact of the goodwill impairment charges, refer to Note 7
‘Earnings per share’ to the Condensed Consolidated Financial Statements.
(d) Backlog at 30 September 2020 and 30 June 2020 is unaudited and is a non-IFRS measure.
(e) 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 third quarter of 2020 Subsea 7 reported Adjusted EBITDA of $114 million, down 37% year-on-year, reflecting reduced activity within the SURF and Conventional business unit, client delays affecting certain Renewables projects in Asia and the impact of the Covid-19 pandemic. The Group generated positive net cash flow and we ended the quarter with a net cash position of $53 million. This balance sheet strength provides a solid foundation from which to preserve the competitiveness of our oil and gas businesses through the current downturn, while advancing our strategy of proactive participation in the Energy Transition.
Accelerating growth in Renewables
Marking a milestone in the growth of our Renewables business, in September we announced an investment of $25 million to convert Seven Phoenix for offshore wind cable lay work. Our existing cable lay vessel, Seaway Aimery, is projected to be fully utilised through 2022 and the Seven Phoenix investment is supported by a backlog of firm work. Conversion is under way and the vessel is due to re-join the active fleet in Q2 2021, enhancing our position as a leading service provider in the offshore wind market.
Strong cash generation and continued capital discipline
Despite the challenging conditions, in the first nine months of 2020 Subsea 7 generated net cash flow of $166 million, resulting in a net cash position of $53 million after deducting lease liabilities of $273 million. Liquidity remains strong with $542 million of cash and cash equivalents, alongside a revolving credit facility of $656 million and a Euro Commercial Paper programme equivalent to $800 million, both of which are unutilised.
Our capital allocation strategy remains unchanged and is focused on three objectives: protecting the balance sheet, reinvesting in the business in a disciplined manner, and returning excess cash to shareholders. Particularly in today’s uncertain environment, a strong balance sheet provides us with the financial stability to ensure the competitiveness of our oil and gas businesses, while affording us the flexibility to capture growth opportunities in the Renewables market. Investment in technology and digitalisation remains a priority.
Update on the cost reduction plan
To address an anticipated reduction in activity in our oil and gas businesses, in April this year we announced plans to cut our active fleet by up to ten vessels and our headcount by approximately 3,000 people, in order to deliver annualised operating cash savings of $400 million by the second quarter 2021. We now anticipate meeting our cost saving target by the end of 2021 due to re-phasing of project execution.
Third quarter financial review
Third quarter revenue of $947 million was broadly unchanged compared to the prior year period, but was an improvement of approximately 26% compared to the first two quarters of 2020, reflecting higher levels of activity in Norway and the Gulf of Mexico, offset by continued low activity in Africa and the Middle East. Adjusted EBITDA of $114 million was adversely impacted by net costs associated with Covid-19 of approximately $20 million and reduced activity levels in SURF and Conventional. The net loss for the quarter was $43 million.
During the quarter, net cash generated from operations was $122 million including a favourable movement in working capital partly due to advance payments on certain projects. Capital expenditure was approximately $20 million. Cash and cash equivalents increased by $58 million. The Group ended the quarter with net cash excluding leases liabilities of $326 million, equating to net cash of $53 million including lease liabilities of $273 million.
In the third quarter of 2020, Subsea 7 booked new orders of approximately $150 million and escalations of approximately $500 million, including extensions worth $180 million in total for three pipelay support vessel (PLSV) contracts in Brazil. Backlog at the end of September was $6.8 billion, of which $1.2 billion is expected to be executed in the remainder of 2020 and $3.6 billion in 2021.
Third quarter operational review
The SURF and Conventional business unit made good progress on several projects in the third quarter. In Norway, Seven Arctic completed the last offshore phase of the Snorre Expansion project, while Seven Oceans installed an Electrically Heat-Traced Flowline at Ærfugl. Front-end engineering continued for Ormen Lange. In the UK, Seven Borealis completed installation activities for the Arran project, before transiting to West Africa to work on the Jubilee Turret Remediation and Zinia projects offshore Ghana and Angola respectively. Fabrication activity continued for the Sangomar project in Senegal. In Brazil, the four pipelay support vessels achieved high utilisation, while Seven Seas continued offshore activities on the Lapa NE project. Front-end engineering work continued for the Bacalhau project. In the Gulf of Mexico, engineering progressed on the Anchor, King’s Quay and Jack St Malo projects and preparations began for installation activity on the Manuel project, ahead of the arrival of Seven Vega in the fourth quarter. Offshore activity continued on the Mad Dog 2 project.
Life of Field achieved high vessel utilisation in the quarter with high levels of activity in the Gulf of Mexico and Norway, and continued activity on the three long-term contracts in the Caspian and the UK and Norwegian sectors of the North Sea.
The Renewables business unit completed work on Triton Knoll in the North Sea, utilising Seaway Strashnov throughout the quarter, but progress on the Yunlin project in Taiwan was delayed due to restricted access, resulting in Seaway Yudin, Seaway Aimery and Seaway Moxie being on client-paid standby for part of the quarter. At the end of the quarter, Seaway Yudin was re-deployed to the Formosa 2 project. During the quarter, fabrication activities commenced on the Seagreen project.
Overall, utilisation of Subsea 7’s active fleet was 84% in the third quarter, compared to 83% in the prior year period, driven by high utilisation of Life of Field vessels and the PLSVs in Brazil. At 30 September 2020, the active fleet comprised 28 vessels.
Outlook for the fourth quarter 2020 and full year 2021
As we head into the closing stages of 2020 the global oil and gas industry remains challenging, but in certain key regions the outlook is more positive. Activity levels are increasing in the Gulf of Mexico, underpinned by a solid backlog of projects involving low-cost tie-backs that leverage existing infrastructure. In Brazil, the extension of our pipelay support vessels provides visibility while tendering activity for pre-salt work, which benefits from favourable oil price breakevens, is robust. Finally, in Norway, tendering activity is improving following the introduction of fiscal incentives. Outside these areas, particularly in the UK, Africa and Asia, prospects remain less certain. The overall timing of certain projects in Saudi Arabia, including Marjan 2, are under review by our client, but we are actively tendering for projects in Qatar.
In Renewables the outlook for near-term activity levels is strong, with progress on the $1.4 billion Seagreen project accelerating into 2021, and high levels of tendering activity for new contracts. The offshore wind turbine installation market continues to be competitive but the market dynamics for inner-array cable lay remain stronger. The Group continues to differentiate itself through its integrated approach encompassing both foundation and inner-array cables, and through a lump-sum turnkey contract offering that leverages our strengths in the management of large, complex projects.
We anticipate that revenue for the full year 2020 will be broadly in line with the prior year, while Adjusted EBITDA after incurring Covid-19 costs of $65 million, net, through September but excluding restructuring costs of $99 million, is expected to be broadly in line with current market expectations. While the impact of a second wave of the Covid-19 pandemic remains difficult to evaluate, we expect an increase in revenue in 2021 partly due to re-phasing of some SURF work from 2020 as well as continued growth in Renewables. EBITDA is expected to improve year-on-year and we forecast net operating income to be positive.
Conference Call Information
Lines will open 15 minutes prior to conference call.
Date: 12 November 2020
Time: 12:00 UK Time
Conference ID: 1743579
| Access details | |
| United Kingdom | 0844 481 9752 |
| United States | 646 741 3167 |
| Norway | 21 56 30 15 |
| International Dial In | +44 20 7192 8338 |
| Webcast and replay | Subsea 7 webcast |
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 2019. 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.
Attachment
