Luxembourg – 3 March 2022 – Subsea 7 S.A. (the Group) (Oslo Børs: SUBC, ADR: SUBCY, ISIN: LU0075646355) announced today results for the fourth quarter and full year which ended 31 December 2021. Unless otherwise stated the comparative period is the full year which ended 31 December 2020.
Fourth Quarter and Full Year 2021 highlights
- Adjusted EBITDA of $143 million in the fourth quarter, equating to a margin of 10%
- Adjusted EBITDA of $521 million in the full year after incurring net costs of approximately $27 million relating to Covid-19, equating to a margin of 10%
- Net cash generated from operations of $227 million in the quarter and $293 million in the full year
- Net debt at year end of $55 million, including lease liabilities of $231 million
- Resilient backlog of $7.2 billion, up 16% year-on-year, with $4.3 billion expected to be executed in 2022
- The Board has decided to adopt a regular dividend policy
- The Board has approved a $100 million return to shareholders in 2022, comprising a regular dividend of NOK 1.00 per share, to be recommended for shareholder approval at the AGM, and share repurchases of approximately $70 million
- Both the regular dividend policy and returns to shareholders mark the Board’s confidence in the financial position and outlook for the Group
| Fourth Quarter | Full Year | ||||
| For the period (in $ millions, except Adjusted EBITDA margin and per share data) | Q4 2021 Unaudited | Q4 2020 Unaudited | 2021 Audited | 2020 Audited | |
| Revenue | 1,365 | 1,014 | 5,010 | 3,466 | |
| Adjusted EBITDA(a) | 143 | 165 | 521 | 337 | |
| Adjusted EBITDA margin(a) | 10% | 16% | 10% | 10% | |
| Net operating income/(loss) excluding goodwill impairment charges | 31 | (35) | 72 | (428) | |
| Goodwill impairment charges | – | (27) | – | (605) | |
| Net operating income/(loss) | 31 | (62) | 72 | (1,034) | |
| Net income/(loss) | 4 | (103) | 36 | (1,105) | |
| Earnings per share – in $ per share | |||||
| Basic | (0.01) | (0.35) | 0.11 | (3.67) | |
| Diluted(b) | (0.01) | (0.35) | 0.11 | (3.67) | |
| At (in $ millions) | 2021 31 Dec | 2020 31 Dec | |||
| Backlog(c) | 7,212 | 6,214 | |||
| Book-to-bill ratio – full year(c) | 1.2 | 1.3 | |||
| Cash and cash equivalents | 598 | 512 | |||
| Borrowings | (422) | (209) | |||
| Net cash excluding lease liabilities(d) | 176 | 303 | |||
| Net (debt)/cash including lease liabilities(d) | (55) | 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 is a non-IFRS measure and is unaudited. Book-to-bill ratio represents total order intake, (excluding amounts related to business combinations), divided by revenue recognised in the year.
(d) Net cash/(debt) is a non-IFRS measure and is defined as cash and cash equivalents less borrowings.
John Evans, Chief Executive Officer, said:
Subsea 7 delivered a solid operational and financial performance in 2021 supported by an improving market, and enabled by work practices that have been adapted to the ongoing challenges posed by the Covid-19 pandemic. Our Subsea and Conventional business experienced an increase in activities associated with the early stages of a recovery in the oil and gas industry, including a sharp upturn in tendering activity and greater demand for our engineering services. Our Renewables business, which proved somewhat more resilient during the global economic downturn of 2020, continued to make progress although issues largely related to Covid-19 delayed certain projects in Taiwan. During the year, a new challenge emerged as global supply chains tightened across many industries. Subsea 7 continued to mitigate the majority of its exposure through a variety of mechanisms including back-to-back supplier contracts and index-linked pricing.
During 2021 we made good progress in our two-fold strategy. Our focus on the subsea field of the future played a significant role in the successful outcome of many recent tenders in the Subsea and Conventional business unit. In 2021, 60% of our contract awards by value featured early engagement, 62% included integrated solutions and 64% leveraged our Carbon Estimator. These statistics support our view that by working closely with our clients from concept through to commissioning we can deliver optimised subsea solutions that maximise clients’ returns, while reducing emissions. Our Subsea Integration Alliance with OneSubsea® continued to lead the integrated SURF-SPS market, with a 76% share by value since January 2020.
In energy transition, we made significant progress in both the established renewables market and emerging energy sectors. The formation of Seaway 7 ASA created a market leader in fixed offshore wind with a comprehensive fleet and experienced management team. Our strategy in emerging energies was reinforced in 2021 through a step up in our participation in floating wind, with the creation of the Salamander floating wind joint venture and the acquisition of a majority holding in Nautilus Floating Solutions. We also succeeded in winning our first carbon capture contract, for the Northern Lights project in Norway.
Enhancing our policy of shareholder returns
2021 saw the capital requirements of our two business units diverge, with Subsea and Conventional entering a phase characterised by low reinvestment, while Renewables increased its commitment to new build installation capacity ahead of the anticipated growth in the fixed offshore wind market.
Listing the Renewables business as Seaway 7 ASA allows us to clearly identify an independent funding strategy for this growth business. It also enables us to establish a policy regarding the allocation of free cash flow from the Subsea and Conventional business unit.
At the AGM on 12 April 2022, the Board will propose that the Group’s commitment to returning capital to shareholders is reaffirmed by formalising the dividend policy of Subsea 7. The Board recognises the merits of establishing a regular dividend at this point in the evolution of the Group and recommends that shareholders approve a regular, annual dividend of NOK 1.00 per share, equivalent to $33 million. The return of excess cash in the form of a special dividend or share repurchase will continue to be assessed by the Board annually. In 2022, reflecting the current valuation of Subsea 7 shares, the Group intends to distribute approximately $70 million through share repurchases.
Full year 2021
In the full year 2021, Group revenue increased 45% to $5.0 billion. Revenue from the Subsea and Conventional business unit increased 33% but the Adjusted EBITDA margin fell to 13%, from 15% in 2020, reflecting the shift in mix toward earlier-stage activities. Revenue in Renewables doubled as activity on the Seagreen project increased, but margins remained low due to challenges in Taiwan. Overall, the Group’s EBITDA increased 55% to $521 million due to lower net direct costs associated with the Covid-19 pandemic and the reversal of some restructuring provisions. The Adjusted EBITDA margin was 10%, broadly in line with the prior year. After taxation of $64 million, equating to an effective tax rate of 64%, net income for the year was $36 million, an improvement from a loss of $1.1 billion in 2020 that included goodwill impairment charges of $605 million and impairment charges related to property, plant and equipment, right-of-use assets and intangible assets of $323 million.
During the year, net cash generated from operations was $293 million despite a $202 million build in working capital due to higher activity in regions with less favourable payment terms as well as the timing of milestone payments on certain projects. Capital expenditure was low relative to prior years at $167 million, following delivery of Seven Vega in 2020 and the low maintenance requirements of our young Subsea and Conventional fleet. Including the utilisation of $200 million from our UK Export Finance facility, cash and cash equivalents increased by $86 million during the year to $598 million, and net debt (including lease liabilities) at year end was $55 million.
Following the recovery in tendering activity, new order intake was strong in 2021 at $6.1 billion, up 38% compared with the prior year. Significant news orders included Bacalhau and Mero-3 in Brazil, and the fast-track development of the Sakarya gas field in Turkey. These were supplemented by the conversion to full EPCI of the Scarborough project in Australia, and several awards in Norway where tax incentives are beginning to yield higher activity. Furthermore, in Brazil we were awarded new three-year contracts for three of our pipelay support vessels, enhancing long-term revenue visibility.
Fourth quarter 2021 operational review
In the fourth quarter, the Subsea and Conventional business unit made good operational progress in the engineering and procurement phases of the SLGC, Sangomar, Barossa, Bacalhau and Sakarya projects. As we entered the winter season in the northern hemisphere, utilisation of the active fleet was 87%, down from 94% in the third quarter but up slightly from 82% in the prior year period. Seven Vega, Seven Oceans, Seven Oceanic and Seven Falcon continued offshore activities on Johan Sverdrup 2 in Norway and operations on Ærfugl Phase 2 were completed. In the Gulf of Mexico, Seven Arctic, Seven Borealis, Seven Navica and Seven Seas were active on King’s Quay, Jack St Malo 4 and Colibri, and our scope on the Manuel project was completed. Seven Champion continued to work throughout the quarter in Saudi Arabia on the Berri-Zuluf (CRPO 36/37) and 28 Jackets (CRPO 47) projects. In Brazil, there were high levels of utilisation of the four PLSVs under long-term contracts with Petrobras.
In the Renewables business unit, Seaway Strashnov worked on the Hollandse Kust Zuid project in the Netherlands, while Seaway Aimery and Seaway Moxie were active on the Hornsea II and Seagreen projects in the UK. During the quarter, we commenced a charter of Maersk Connector to install inner-array cables on the Seagreen project. By year end, 10 of Seagreen’s 114 foundations had been installed, with a further 11 installed in January 2022.
Fourth quarter 2021 financial review
Fourth quarter revenue of $1.4 billion increased by 35% compared to the prior year period, reflecting higher activity in both Subsea and Conventional and Renewables. Adjusted EBITDA of $143 million was down from $165 million in the prior year quarter which benefited from favourable discrete items. In addition, the results of the Renewables business unit include costs recognised in relation to a project in Taiwan whose economic interest was retained by Subsea 7 S.A., although it is being executed by Seaway 7 ASA. All other fixed offshore wind projects were transferred to Seaway 7 ASA on 1 October 2021.
After depreciation and amortisation charges of $113 million, the Group delivered net operating income of $31 million. Net income for the quarter was $4 million, after taxation of $16 million equating to an effective tax rate of 81%.
During the quarter, net cash generated from operating activities was $227 million which included $101 million improvement in net working capital, reflecting a partial reversal of the third quarter build up driven by project milestones as expected. Capital expenditure was $86 million, including investment in the Renewables fleet following the business combination with OHT ASA. The Group also repurchased 2.7 million shares for $21 million. Net debt at the year end was $55 million, including lease liabilities of $231 million, an improvement from $99 million at the end of the third quarter. During the quarter, Subsea 7 utilised $200 million of its $500 million UK Export Finance facility and at year end the Group held cash and cash equivalents of $598 million. At year end, the Group had liquidity of $1.6 billion with $956 million undrawn borrowing facilities.
In the fourth quarter, Subsea 7 booked new awards of $1.4 billion and escalations of approximately $400 million, resulting in a book-to-bill ratio of 1.3. The backlog at the end of December 2021 was $7.2 billion of which $4.3 billion is expected to be executed during 2022, $2.0 billion in 2023 and $0.9 billion in 2024 and thereafter.
Outlook
In 2022, we expect that revenue will be broadly in line with 2021 and that Adjusted EBITDA and net operating income will be in line with or better than 2021. We firmly believe that the market recovery is underway, supported by high levels of tendering in both business units, and with signs of improving pricing and payment terms for new awards. We are confident that our strong pipeline of prospects will translate into new orders during the coming year.
Conference Call Information
Date: 3 March 2022
Time: 12:00 UK Time
Access the webcast at subsea7.com or https://edge.media-server.com/mmc/p/7645zya4
Register for the conference call at http://emea.directeventreg.com/registration/1049589
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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