Oslo – 28 July 2022 – Seaway 7 ASA (Euronext Growth: SEAW7) announced today results for the second quarter and first half of 2022 which ended 30 June 2022.
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• Second quarter 2022 revenue down by 17% year-on-year to $260 million.
• In line with performance challenges on several projects highlighted in the June 2022 trading update, second quarter negative Adjusted EBITDA of $16 million equating to a negative margin of 6%.
• Order intake in the second quarter of $49 million resulting in backlog of $0.8 billion at quarter end.
• Signing of preferred contractor positions for two “Very Large” Contracts (Very Large implies value between $500 million and $750 million) in the UK sector, namely with Scottish Power Renewables on the East Anglia THREE project and with SSE Renewables and Total Energies for the Seagreen 1A project.
• Finalisation of long-term charter agreement, with purchase options, for the new build heavy transportation vessel Seaway Swan (formerly Xin Qun 3) with a July 2022 handover.
For the period (in $ Second Quarter Half Year
millions, except
Adjusted EBITDA margin Q2 2022 Q2 2021 1H 2022 1H 2021
and per share data) Unaudited Unaudited Unaudited Unaudited
Revenue 260 315 527 556
Adjusted EBITDA(a) (16) (18) (1) (25)
Adjusted EBITDA margin(a) (6%) (6%) (0%) (4%)
Net operating loss (38) (32) (45) (52)
Net loss (67) (40) (68) (66)
Earnings per share – in $ per share
Basic (0.15) (0.13) (0.16) (0.21)
Diluted(b) (0.15) (0.13) (0.16) (0.21)
30 Jun 2022 31 Mar 2022
At (in $ millions) Unaudited Unaudited
Backlog(c) 803 1,046
Book-to-bill ratio – year-to-date(c) 0.3 0.4
Cash and cash equivalents 11 22
Borrowings (120) (99)
Net debt excluding lease liabilities(d) (109) (77)
Net debt including lease liabilities(d) (122) (96)
(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. Book-to-bill ratio represents total order intake divided by revenue recognised in the year. Comparative figure is for the quarter ended 31 March 2022.
(d) Net debt is a non-IFRS measure and is defined as cash and cash equivalents less borrowings.
Stuart Fitzgerald, Chief Executive Officer, said:
Seaway 7 ASA published a trading update on 13 June 2022 relating to a number of ongoing projects, including the Hollandse Kust Zuid project. The financial impact on this project, which remains in line with the aforementioned trading update, is the primary contributor to the Q2 2022 negative Adjusted EBITDA of $16 million.
Activity levels on the remaining projects in the portfolio were high in the second quarter with significant progress on projects and offshore operations ongoing in UK, Europe, and Taiwan.
In respect of tenders during the quarter, we have been awarded preferred supplier status for Seagreen 1A Offshore Wind Farm and signed a Letter of Exclusivity for the East Anglia THREE Offshore Wind Farm. Both projects will not be recognised in Seaway 7’s backlog until final contractual terms have been agreed and final investment decision has been secured.
There is no change to the Company guidance given to the market in the 13 June 2022 trading update, confirming revenue for the full year 2022 to be in line with previous guidance towards $1 billion with an Adjusted EBITDA margin expected to be approximately 6%.
Second quarter operational review
The Seagreen project, which is significant to the Group’s portfolio, continued to make good progress. Of the 114 foundation jackets, 94 foundation jackets have been delivered in the UK. At 30 June 2022, there were 20 foundation jackets outstanding from the yards in China, and within early August 2022 these jackets are anticipated to be signed off and ready for loadout. Completion of fabrication activities on Seagreen is a major milestone for the project. Heavy transportation vessels are in transit to pick up these remaining foundation jackets. By quarter end, 30 foundation jackets and 21 cables were installed. The S7000 returned to the field on the 1 June 2022 and installed a further 9 foundation jackets before she left the field for another commitment, returning in mid-July to continue to install the remaining Seagreen foundation jackets. This critical activity on the project is on track for completion during 2022.
Seaway Alfa Lift’s delivery schedule, and resultant impacts on the execution of the Doggerbank project, represent a primary ongoing priority for Seaway 7 management. The repairs of the Liebherr crane A-frame continued and are expected to be complete late 2022 and the vessel is expected to sail to Europe at that time. As per the June 2022 trading update, the mission equipment for the upending and lowering of monopiles is the critical path to the vessel’s readiness for operations and this scope is significantly delayed compared to the original planning at project commencement. Mission equipment readiness is now expected in the second half of 2023 and to provide a more robust planning basis we are assuming first use on the Doggerbank project end of Q1 2024. To improve confidence in the vessel delivery program going forward, changes have been implemented within the project organisation and leadership, primarily adding personnel from Subsea 7, with extensive experience in complex mission equipment deliveries.
The installation of foundations for the Dogger Bank A&B project has commenced during July 2022, initially with a third-party vessel. Due to Seaway Alfa Lift’s delivery delay, Seaway Strashnov will now be deployed on the project for a full 2023 campaign. The additional cost of the revised execution planning resulted in an increase to the onerous fixed-price contract provision of approximately $35 million, unchanged from what was advised in the June trading update. The provision increase is reflected as a prior year revision to the fair value exercise of measuring and recognising the identifiable assets acquired and liabilities assumed relating to the business combination to form Seaway 7 ASA and does not affect the Adjusted EBITDA during the quarter.
As advised in the June 2022 trading update, Seaway Strashnov encountered slower progress than anticipated on the Hollandse Kust Zuid project relating primarily to adverse weather conditions and mechanical breakdowns. The associated cost increases resulted in an onerous fixed-price contract provision of approximately $30 million which was recognised in the second quarter of 2022. As also advised in the June trading update, Seaway Yudin encountered reduced progress on the Formosa 2 project in Taiwan, related primarily to lower offshore productivity. As part of the combination to form Seaway 7 ASA, the economic interest in this project is with Subsea 7 S.A. Group. At the current time, with good generally progress since the time of the trading update, both Hollandse Kust Zuid and Formosa 2 are anticipated to complete in accordance with the revised schedules and forecasts.
During the quarter, Seaway Aimery and Seaway Moxie continued cable installation and test & termination works on the Hollandse Kust Zuid project, Netherlands. Seaway Phoenix started working on the Seagreen project, UK. Maersk Connector started her operational activities for our cable lay portfolio in Taiwan.
The heavy transportation vessels maintained their high levels of utilisation, despite two planned dry dockings for Seaway Falcon and Seaway Hawk, and we saw another improvement in the time charter equivalent day rates in the second quarter. In addition, Seaway 7 entered into a 5-year bareboat charter agreement with purchase options for a new heavy transportation vessel in Q2 2022. The vessel was re-named ‘Seaway Swan’ and was delivered to Seaway 7 in good order in Busan, South Korea, on the 8 July. This charter of a state of the art new build vessel re-enforces Seaway 7 strategic positioning, both towards standalone transportation activities where we see market conditions steadily improving, as well as towards broader integrated renewables projects, where heavy transportation increasingly represents a critical and undersupplied element of the value chain.
During Q2 2022, the utilisation of the active fleet was 77%, compared to 65% in the first quarter 2022.
Seaway Ventus has moved into the next phase of construction with keel laying in early June 2022, which is in accordance with the planned construction schedule. The vessel remains on course for delivery in mid-2023.
Second quarter financial review
Second quarter revenue of $260 million decreased by 17% year-on-year and was mainly driven by slower progress than anticipated for the Hollandse Kust Zuid project and less activity on the Seagreen project compared to the prior year period. The negative Adjusted EBITDA margin of 6% remained the same. After depreciation and amortisation of $22 million, the Group recorded a net operating loss of $38 million. Net loss for the quarter was $67 million, after a tax charge of $21 million and finance and other gains and losses of $8 million. The elevated tax charge for the second quarter arises as a result of revised forecasts that indicate a higher negative effective tax rate for the full year. Based on forecast improvement in the second half profitability, it is anticipated that there will be an offsetting tax credit in the remainder of the year.
As communicated in the June trading update, progress on the Seaway Alfa Lift build has encountered delays. The root cause of the delays in the delivery of the vessel is due to the status of the mission equipment, engineering and procurement. These conditions, attributable to OHT ASA, were present on 1 October 2021, the date of the business combination, as a result, the adverse financial impact has been accounted for as an adjustment to the transaction’s purchase price allocation.
During the quarter, net cash used in operating activities was $11 million which was impacted by slower than anticipated progress on projects and delayed client payments linked to commercial discussions concerning Covid-19 impacts and consequential delays in Taiwan. Capital expenditure was $16 million and mainly related to Seaway Alfa Lift, Seaway Ventus and planned dry dockings of the heavy transportation vessels. Net cash generated from financing activities of $16 million included receipt of a $21 million short-term loan from the Group’s ultimate parent undertaking, Subsea 7 S.A. Group, offset by $5 million payment of lease liabilities. Cash and cash equivalents was $11 million as at Q2 2022.
In the second quarter, the Group recognised new awards of $34 million and escalations of $15 million, resulting in a year-to-date book-to-bill ratio of 0.3. The backlog at the end of June 2022 was $0.8 billion, of which $465 million is expected to be executed during the remainder of 2022. Not included in the aforementioned backlog is Seaway 7 preferred Contractor positions, which have been formally announced to the market but remain subject to Contract finalisation and/or Client Final Investment Decision.
Outlook
Forecasts for Offshore Wind activity in the second half of the decade continue to strengthen, driven by ever more pressing climate imperatives, and in recent months increasingly by energy security considerations. However, in recent years a significant number of major players in the renewables sector have seen deterioration and unsustainable financial performance. Supported by favourable market conditions, the industry is now starting to go through a process of revaluating and reallocation of risk and improved pricing, and Seaway 7 is focused on and starting to see this improvement in our future prospects.
For the remainder of 2022, Seaway 7 benefits from a high level of visible activity afforded by its backlog. Further, Seaway 7 pre-backlog positioning, and high levels of ongoing tendering and client engagement give confidence on activity levels and demand for Seaway 7 services going forward.
To support this outlook, we expect to present the financing plan during Q3 2022.
Special Note Regarding Forward-Looking Statements
Forward-Looking Statements: This announcement may contain ‘forward-looking statements’. 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’ section of the Group’s Annual Report. 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) unanticipated delays or cancellation of projects included in our backlog; (v) competition and price fluctuations in the markets and businesses in which we operate; (vi) the loss of, or deterioration in our relationship with, any significant clients; (vii) the outcome of legal proceedings or governmental inquiries; (viii) 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; (ix) the effects of a pandemic or epidemic or a natural disaster; (x) changes in, or our failure to comply with, applicable laws and regulations (including regulatory measures addressing climate change); (xi) operating hazards, including spills, environmental damage, personal or property damage and business interruptions caused by adverse weather; (xii) equipment or mechanical failures, which could increase costs, impair revenue and result in penalties for failure to meet project completion requirements; (xiii) the timely delivery of vessels on order and the timely completion of ship conversion programmes; (xiv) our ability to keep pace with technological changes and the impact of potential information technology, cyber security or data security breaches; and (xv) 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.
Webcast and conference call information:
Date: 28 July 2022
Time: 14:30 CET
Please join the webcast through:
https://channel.royalcast.com/webcast/hegnarmedia/20220728_1
The webcast will also be available through Seaway 7 website
https://www.seaway7.com/investors/results-reports-publications/
Conference call details
Participant Passcode (for all countries): 447972
Participants dial-in numbers:
Norway: +47 21956342
Sweden: +46 406820620
UK: +44 2037696819
USA: +1 6467870157
International dial in: +44 2037696819
Please join the call 5-10 minutes prior to scheduled start time.
For further information, please contact:
Mark Hodgkinson
ir@seaway7.com
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