Subsea 7 S.A. Announces Third Quarter 2021 Results

Subsea 7 S.A. (the Group) announced today results for the third quarter which ended 30 September 2021. 

Third quarter highlights

• Third quarter 2021 revenue up 53% year-on-year to $1.45 billion  
• Adjusted EBITDA of $185 million equating to a margin of 12.8%
• Cash and cash equivalents of $300 million, and net debt including lease liabilities of $99 million at quarter end
• Order intake of $1.4 billion, equating to a book-to-bill ratio of 1.0, resulting in a backlog of $6.7 billion
• Completion on 1 October of the combination with OHT ASA to create Seaway 7 ASA (Oslo Børs: SEAWY7)
• At 1 October, following the combination, the backlog was $6.9 billion of which 19% in Renewable

John Evans, Chief Executive Officer, said:

Subsea 7 delivered a strong operational and financial performance in the third quarter driven by very high utilisation of the active fleet in both Subsea and Conventional and Renewables, as well as an increased level of engineering and procurement activity relating to recent major awards.

Revenue increased 53% year-on-year due to a significant increase in activity in the Subsea and Conventional and Renewables business units in the UK, Norway, Gulf of Mexico, Brazil and Turkey. After deducting net direct costs related to the Covid-19 pandemic of $9 million, with the benefit of an increased contribution from client settlements, the Adjusted EBITDA margin of 12.8% was up from 12.0% in the prior year quarter. Conversion to cash flow was impacted by an adverse movement in working capital which drove a modest increase in net debt to $99 million from $39 million in the second quarter. We expect working capital requirements to reduce in the fourth quarter.

During the third quarter Subsea 7 made progress in the delivery of its two-fold strategy encompassing “subsea field of the future” and “energy transition”.

Subsea field of the future – integrated SPS and SURFDuring the third quarter Subsea Integration Alliance was awarded contracts for the development of the Sakarya gas field, offshore Turkey. As a result of a strong, collaborative early engagement process with the client and reaping the benefits of a truly integrated solution we expect to deliver the development within an industry-leading timeline from discovery to first gas in 2023. As well as drawing on the breadth and depth of expertise within our Global Project Centre, the project will utilise several Subsea 7 vessels and represents a significant contribution to our operational and financial visibility for 2022. The Sakarya project, along with Bacalhau, Brazil’s first integrated project, and several smaller awards, confirms the industry-leading position of Subsea Integration Alliance and reaffirms integrated solutions as a cornerstone component of our strategy for the subsea field of the future.

Subsea field of the future – systems innovation and enabling products

In October we announced three new contracts for our pipelay support vessels (PLSVs) in Brazil – Seven Rio, Seven Sun and Seven Waves - as well as the transfer of some of our existing contractual commitments to a fourth PLSV - Seven Seas. Along with the continuation of the contract for Seven Cruzeiro, Subsea 7 will have five PLSVs working for Petrobras next year. This is testament to the strong operational performance that our team and vessels have delivered in Brazil, and includes the successful launch of our 4insight® technology. This proprietary innovation, developed by our autonomous subsidiary, 4Subsea, utilises big data harvested from the vessels and their pipelay operations to optimise vessel uptime and maximise overall performance.

Energy transition – offshore wind

In the third quarter Subsea 7 continued to expand its proactive participation in the energy transition. The Group furthered its interest in floating wind through the acquisition of a majority holding in Nautilus Floating Solutions, a developer of technology for this emerging market. Together with our agreement with Simply Blue Energy to develop the Salamander floating wind project, and the creation of Seaway 7 ASA, this acquisition reinforces our industry-leading position across the high growth offshore wind market.

Energy transition – sustainable and efficient operations

Subsea 7 announced new targets to cut its Scope 1 and 2 emissions by half by 2035 and achieve Net Zero by 2050. These targets will utilise solutions available today as well as future cleaner technologies as they become commercially available, and they mark another step in our journey to decarbonise our business.

Third quarter operational review

In the third quarter the Subsea and Conventional business unit made good operational progress in the engineering and procurement phases of the SLGC, Sangomar, Barossa and Bacalhau projects, while engineering commenced for the Sakarya project offshore Turkey. Utilisation of the active fleet was very high resulting in good progress in the installation phase of several projects. Offshore Norway, three reeling vessels, Seven Vega, Seven Oceans and Seven Navica, laid pipelines at the Johan Sverdrup Phase 2 project, while umbilicals were installed by Seven Pacific. Seven Vega was also active on Ærfugl Phase 2 where it successfully completed the installation of the Electrically Heat-Traced Flowline (EHTF). In the Gulf of Mexico, the floating production unit for the Mad Dog 2 project was towed from the yard at Ingleside, Texas to the field, while Seven Seas installed gas export infrastructure and Seven Arctic installed rigid and flexible jumpers. Meanwhile the offshore phase of the Julimar Phase 2 project in Australia was completed by Seven Oceans and Seven Oceanic before these vessels began transiting back to Norway. In Saudi Arabia, Seven Champion was utilised throughout the quarter on the 28 Jackets project (CRPO 47) and on the Berri field (CRPO 36/37).

In the Renewables business unit, Seaway Yudin restarted work on the Formosa 2 project in Taiwan with a reduced crew due to the limited availability of visas. The season’s offshore campaign was completed and the vessel demobilised to Indonesia. It is expected to return in the first quarter of 2022 to complete our scope of the Formosa 2 project. Also in Taiwan, Seaway Phoenix continued laying inner-array cable for the Yunlin project. In Europe, Seaway Aimery, Seaway Moxie and Simar Esperança were fully utilised throughout the quarter installing inner-array cables for the Hornsea II project while Seaway Strashnov installed monopiles at Hollandse Kust Zuid, offshore Netherlands. The Seagreen project reached an important milestone with the installation of the first suction caisson jackets.

Overall, utilisation of Subsea 7’s active fleet of 28 vessels was 94% in the third quarter, compared to 84% in the prior year period, including 92% utilisation of the Subsea and Conventional fleet and 99% utilisation of the Renewables vessels.

Third quarter financial review

Third quarter revenue of $1.45 billion increased by 53% compared to the prior year period, reflecting significantly higher activity in both Subsea and Conventional and Renewables. Adjusted EBITDA of $185 million was up from $114 million in the prior year quarter. The improvement reflects an increased level of engineering and procurement on major projects, combined with high vessel utilisation and some client settlements. After deducting net direct costs related to the Covid-19 pandemic of $9 million (compared with $20 million in the third quarter of 2020) the underlying Adjusted EBITDA margin increased slightly to 12.8% from 12.0%. After depreciation and amortisation of $107 million, the Group recorded net operating income of $78 million. Net income for the quarter was $45 million, after a tax charge of $61 million equating to an effective tax rate of 58%.

During the quarter, the net cash outflow from operating activities was $20 million after a $230 million adverse movement in net working capital that largely related to timing of milestone payments in the Gulf of Mexico, the protracted invoice approval process in the Middle East and delays to the progress of Renewables projects in Taiwan. Capital expenditure was relatively low at $24 million excluding business acquisition costs that amounted to a net $7 million. Overall, cash and cash equivalents decreased by $90 million since 30 June 2021 to $300 million and the Group ended the quarter with net debt of $99 million, including lease liabilities of $208 million.

In the third quarter, Subsea 7 booked new orders of approximately $1.3 billion and escalations of approximately $100 million, resulting in a book-to-bill ratio of 1.0. The backlog at the end of September 2021 was $6.7 billion. Following the completion of the combination with OHT ASA to create Seaway 7 ASA at 1 October, the backlog was $6.9 billion of which $1.4 billion is expected to be executed during the remainder of 2021, $3.5 billion in 2022 and $1.8 billion in 2023 and thereafter.

Outlook for full year 2021 and 2022

The industry recovery in Subsea and Conventional continues to gain momentum. At the end of the third quarter, the value of tenders in-house had increased by approximately 70% compared with the low point in May 2020 and was almost 20% above the pre-Covid levels recorded in December 2019. Our tendering and early engagement teams are active and we have seen an increase in headcount over the past year to meet demand from clients in key areas of the world. We continue to be well-placed in the advantaged markets of Brazil, the Gulf of Mexico and Norway.

While our activity on early-stage projects has increased significantly, we continue to plan a temporary reduction in the active Subsea and Conventional fleet for 2022 before a recovery in offshore activity in 2023. With a healthy backlog and high levels of tendering activity, we remain confident in the outlook for this business unit.

In Renewables, tendering is active for projects expected to be awarded to the industry in 2022, including in Asia, Europe and the US. With an enhanced fleet of cable, foundation and turbine installation vessels, Seaway 7 ASA is well-positioned to capture a fair share of this long-term, high-growth market.

We expect that revenue and Adjusted EBITDA in 2021 will exceed the prior year levels, and that net operating income will be positive. In 2022, we expect that Adjusted EBITDA will be broadly in line with 2021 before returning to growth in 2023.

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