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Subsea 7 S.A. Announces Fourth Quarter 2020 Results

Subsea 7 S.A. Announces Fourth Quarter 2020 Results

 

Subsea 7 S.A. (the Group) announcedtoday results for the fourth quarter and full year which ended 31 December 2020. Unless otherwise stated the comparative period is the full year which ended 31 December 2019.

Fourth Quarter and Full Year 2020 highlights:

  Fourth Quarter   Full Year  
For the period (in $ millions, except Adjusted EBITDA margin and per share Q4 2020 Unaudited Q4 2019 Unaudited 2020 Audited 2019 Audited
Revenue 1,014 889 3,466 3,657
Adjusted EBITDA(a) , (b) (unaudited) 165 168 337 631
Adjusted EBITDA margin(a) , (b) (unaudited) 16% 19% 10% 17%
Net operating (loss)/income excluding goodwill impairment charges (35) (16) (428) 77
Goodwill impairment charges (27) (100) (605) (100)
Net operating loss (62) (116) (1,034) (23)
Net (loss)/income excluding goodwill impairment charges (76) (29) (500) 18
Net loss (103) (129) (1,105) (82)
         
Earnings per share – in $ per share        
Basic (0.35) (0.45) (3.67) (0.27)
Diluted(c) (0.35) (0.45) (3.67) (0.27)
Adjusted diluted(c) (0.25) (0.12) (1.64) 0.05
At (in $ millions     2020 31 Dec 2019 31 Dec
Backlog - unaudited(d)     6,214 5,187
Cash and cash equivalents     512 398
Borrowings     (209) (234)
Net cash excluding lease liabilities(e)     303 164
Net cash/(debt) including lease liabilities(e     49 (181)

(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 year ended 31 December 2020 restructuring charges of $86 million were recognised (2019: $nil)  , 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 31 December 2020 and 31 December 2019 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 a challenging twelve months Subsea 7 responded well. The Covid-19 pandemic required radical changes to operations and had an adverse effect on the market for our oil and gas businesses. In response, we booked incremental operating costs, restructured our cost base, and recognised material impairments to goodwill and asset values. Yet, we continued to deliver projects to our clients, generated positive cash flow, reduced debt and increased our backlog.

As a result of the efforts and dedication of our employees, we completed 20   projects in the year for 15   clients in 10 countries. Although we incurred net costs of approximately $70 million associated with the Covid-19 pandemic and restructuring charges of $86 million, Subsea 7 generated Adjusted EBITDA of $337 million in 2020, equating to a margin of approximately 10%. Despite the uncertain environment, we experienced no contract cancellations. Instead, Subsea 7’s backlog of work grew by 20% to $6.2 billion a result of a strong presence in the growing offshore renewables market and our focus on parts of the oil and gas market with advantaged economics.

Among Subsea 7’s key attributes, its strong cash generation, commitment to capital discipline and prudent balance sheet management proved vital in navigating the complexities of 2020. Over the course of the year, cash and cash equivalents increased by $114 million, resulting in a year end balance of $512 million and net cash of $49 million after including lease liabilities of $254 million. Liquidity remained strong with a revolving credit facility of $656 million and a Euro Commercial Paper programme equivalent to $800 million, both of which were unutilised at year end.

Given the improvement in the stability and visibility of   our markets over the past six months, a special dividend payment of NOK 2.00 per share, equivalent to approximately $70 million, i  s to be recommended by the Board for approval by shareholders at the AGM. Subsea 7 has returned $2 billion of excess capital to shareholders over the past decade, and this latest dividend recommendation marks the Board’s confidence in the financial position and outlook for the Group.

Fourth quarter operational review

The SURF and Conventional business unit made good progress on several projects in the fourth quarter. In Angola, Seven Borealis completed its scope of work on Zinia, alongside Seven Arctic and Simar Esperanca, which continued operations into the first quarter of 2021. In the Gulf of Mexico, Seven Oceans and Seven Pacific continued our offshore activities on Mad Dog 2, while in Brazil, Seven Seas completed its scope on Lapa NE and the PLSVs continued to achieve high utilisation. We were also active on several projects in the UK North Sea, with tie-in activity on Arran, the completion of bundle fabrication for Penguins, and the completion of pipelay operations at Blythe. Good progress continues to be made in the engineering and procurement phases of Sangomar in Senegal, as well as Anchor, King’s Quay and Jack St Malo in the Gulf of Mexico. During the quarter, FEED and engineering activities were completed on the Bacalhau project in Brazil. Life of Field achieved high vessel utilisation in the fourth quarter with work in the Gulf of Mexico and the North Sea, as well as  continued activity on the three long-term contracts in the Caspian and the North Sea.

In the Renewables and Heavy Lifting business unit we continued work on the Seagreen project, with fabrication of the jackets and inner array cables well underway. In Taiwan, progress on the Yunlin project was delayed due to restricted site access and environmental constraints. The issues have been resolved by the Client and operations will recommence in the second quarter, with agreement reached on the approach to scheduling the balance of the scope in 2021. Seaway Yudin was also on standby in Taiwan during the quarter on the Formosa II project due to adverse weather conditions.

Overall, utilisation of Subsea 7’s active fleet was 82% in the fourth quarter, compared to 71% in the prior year period, driven by high utilisation of Life of Field vessels and the PLSVs in Brazil. At 31 December 2020, the active fleet comprised 30 vessels.

Fourth quarter financial review

Fourth quarter revenue of $1.0  billion increased 14% compared to the prior year period, reflecting higher activity in Renewables and Heavy Lifting, partially offset by reduced activity in SURF and Conventional. Renewables and Heavy Lifting benefitted from progress on the Seagreen project as well as standby revenue relating to vessels in Taiwan. The decrease in SURF and Conventional revenue was mainly due to lower Conventional activity in West Africa and the Middle East.  

Adjusted EBITDA of $165 million was flat year-on-year and benefited from the close-out of certain projects in SURF and Conventional, partially offset by the impact of net costs associated with Covid-19 of approximately $5 million. During the quarter the Group recorded goodwill impairment charges of $27   million and other asset impairment charges of $94   million, resulting in a net operating loss of $62 million. After a tax charge of $14   million, the net loss for the quarter was $103 million. During the quarter, net cash generated from operations was $24 million including a $97   million adverse movement in net working capital partly due to the timing of payments by clients around the year end. Capital expenditure was approximately $36 million, contributing to an overall decrease in cash and cash equivalents of $30   million during the quarter.

Streamlining our business units

To align with our strategic focus area “subsea field of the future – systems and delivery”, we have combined our SURF and Conventional and Life of Field business units. Since January 2021 one business unit, named Subsea and Conventional, has encompassed our full portfolio of services and products dedicated to the oil and gas industry, allowing us to streamline the organisation and maximise potential synergies between the two areas. This includes greater integration of IRM and well intervention into the integrated field development solutions created by Subsea Integration Alliance to provide a holistic offering across the life cycle of our clients’ fields. It will also enable us to accelerate our drive to digitalise field developments. Also from January 2021, the Renewables and Heavy Lifting business unit has been renamed Renewables and excludes act  ivities relating to the oil and gas industry. In 2020, oil and gas activity represented under $1 million of Renewables and Heavy Lifting revenues.

Outlook for full year 2021

After a brief pause in the first half of the year, tendering for oil and gas projects recommenced at a lower level during the second half of 2020 and continues at this pace in 2021. Regions with greater activity include Norway, where fiscal incentives have stimulated an increase in early-stage engineering activity, the Gulf of Mexico, predominantly focused on low-cost tie-backs, and Brazil, where the large, pre-salt fields have low oil price break-evens that continue to attract capital. In addition, Subsea 7 has been selected as preferred supplier for several projects, including Bacalhau, Scarborough, Pecan and Rovuma and we are optimistic that some of these will progress to award during the year.

Tendering in Renewables remains active for projects expected to be awarded to the industry in nine to twelve months’ time, including in Asia, Europe and the US. While the market for wind turbine installation work remains competitive, Subsea 7 continues to differentiate itself through its integrated and EPCI contract offerings, leveraging a strong track record in the management of large, complex projects across the globe.

Subsea 7’s full year 2021 results are likely to be adversely impacted by costs associated with the Covid-19   pandemic, including more contagious, new variants of the virus. We currently anticipate that revenue in 2021 will exceed the prior year level, predominantly driven by greater activity in Renewables. Revenue in Subsea and Conventional should increase due to the re -phasing of some work from 2020 into 2021.  While it is difficult to predict the operational and financial impact of Covid-19 in 2021, Adjusted EBITDA is expected to improve year-on-year and we forecast net operating income to be positive.

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Published: 25-02-2021

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