Subsea 7 S.A. Announces First Quarter 2020 Results
Luxembourg - 30 April 2020 - Subsea 7 S.A. (the Group) (Oslo Børs: SUBC, ADR:
âŚ
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SUBCY, ISIN: LU0075646355) announced today results for the first quarter which
ended 31 March 2020.
First quarter summary
-
Prompt action taken to address the challenges posed by Covid-19 in order to
safeguard the health and wellbeing of our workforce
-
Adjusted EBITDA of $68 million and margin of 9% for the first quarter of
2020, reflecting lower activity levels in the North Sea, an absence of
Conventional activity offshore Africa and the Middle East and increased
costs due to the Covid-19 pandemic
-
Order intake totalled $1.5 billion, equivalent to a book-to-bill ratio of
2.0, with four awards announced in the first quarter
-
Order backlog increased to $5.6 billion at quarter end, with $2.7 billion
expected to be executed in the remainder of 2020
-
Strengthened liquidity position, with cash and cash equivalents of $340
million, $656 million in unutilised revolving credit facilities and a new
Euro Commercial Paper programme equivalent to $740 million to diversify our
sources of liquidity in these unpredictable times
-
Reflecting the deterioration in the outlook for new oil and gas awards,
swift and decisive action has been initiated to re-size the business
targeting the removal of approximately $400 million in annualised cash costs
by the second quarter 2021
Three Months Ended
------------------------
For the period (in $ millions, except Adjusted 31 Mar 2020 31 Mar 2019
EBITDA margin and per share data) Unaudited Unaudited
Revenue 751 859
Adjusted EBITDA((a)) 68 111
Adjusted EBITDA margin((a)) 9% 13%
Net operating loss (49) (10)
Net loss (38) (19)
Earnings per share - in $ per share
Basic (0.13) (0.06)
Diluted((b)) (0.13) (0.06)
31 Mar 2020 31 Dec 2019
At (in $ millions) Unaudited Audited
Backlog - unaudited(Š) 5,648 5,187
Cash and cash equivalents 340 398
Borrowings (228) (234)
Net cash((d)) 112 164
Net debt((d)) (255) (181)
(a) For explanations and reconciliations of Adjusted EBITDA and Adjusted EBITDA
margin refer to Note 8 âAdjusted EBITDA and Adjusted EBITDA marginâ to the
Condensed Consolidated Financial Statements.
(b) For the explanation and a reconciliation of diluted earnings per share refer
to Note 7 âEarnings per shareâ to the Condensed Consolidated Financial
Statements.
Š Backlog at 31 March 2020 and 31 December 2019 is unaudited and is a non-IFRS
measure.
(d) Net cash is a non-IFRS measure and is defined as cash and cash equivalents
less borrowings. Net debt is defined as net cash less lease liabilities.
John Evans, Chief Executive Officer, said:
Subsea 7 had a strong start to 2020, with the announcement of four contract
awards in the SURF and Conventional business unit, including a major integrated
EPCI award for the Sangomar project in Senegal, and the FEED award for the
Bacalhau project in Brazil. Just eight weeks ago, we discussed our positive
outlook for the year, with an expectation of continued momentum in new order
intake and a tightening market for some of our high-end pipelay vessels. The
outlook has changed significantly as a result of the impact of the Covid-19
pandemic on demand for energy and the price of oil. In the near term, our
efforts are now focused on safeguarding the health of the Groupâs 12,000
workforce while we continue to deliver projects for clients under difficult
conditions. We are also implementing longer-term plans to re-shape the business
to reflect the changed outlook for the industry.
Impact of Covid-19 and low oil prices
The combination of the Covid-19 pandemic and a new low oil price environment has
had a dual impact on Subsea 7, both in terms of the execution of current
contracts and on the longer-term outlook for the business.
Our project teams have been quick to adapt our work practices to safeguard the
health and wellbeing of the workforce on our vessels, at our onshore worksites
and in our offices, while negotiating the logistical challenges of keeping
clientsâ projects moving forward. Measures taken to prevent the spread of the
virus have included crew quarantines, extended crew rotations, reduced operating
capacity at onshore sites to enable appropriate social distancing, and remote
working for our engineers and office staff. While we were successful in
minimising cases among our offshore workforce and maintaining operational
continuity in the first quarter, this has inevitably come at a financial cost
that is evident in todayâs results and is likely to be a feature of the coming
quarters. Since the quarter end, we temporarily stopped work on one vessel in
Brazil to manage a number of confirmed Covid-19 cases on board.
Reflecting the deterioration in the macro environment, our SURF and Conventional
clients have been quick to reduce investment plans, cutting budgets for this
year by 20-25% and, for the most part, pausing tendering activity. Subsea 7 was
fortunate to start the year with a strong backlog and has benefitted from $1.5
billion of new orders in the first quarter. This provides us with a degree of
visibility on activity levels this year, but we expect order flow to be low in
the coming months and competition to increase, impacting the outlook for
revenues and margins in the latter part of 2020 and beyond. Our Renewables and
Heavy Lifting business unit has proven somewhat countercyclical and progress is
continuing in tendering for offshore windfarm projects.
Measures to reduce costs and strengthen the balance sheet
In early April, we withdrew our guidance for 2020, reflecting both the risks
posed by the virus to ongoing operations, and the uncertainty in the wider
energy industry. While we cannot fully control the pace of project execution and
revenue recognition in this environment, we are finalising our review of
operating and capital expenses and have formulated various initiatives to
maximise flexibility and cash preservation.
A comprehensive cost reduction programme is being developed and will be
announced in the second quarter. This will allow us to address the current
market conditions while maintaining our competitive position. It is envisaged
that we would make a reduction in our global workforce, the majority of which
would impact the non-permanent workforce but a reduction in permanent employees
would also be necessary. We anticipate that our active fleet would be reduced by
releasing a number of chartered vessels and stacking some owned vessels. These
actions would be implemented over the next twelve months, corresponding to the
phasing of the projected workload, and we aim to achieve a targeted annualised
reduction in cash costs of approximately $400 million by Q2 2021. As a result of
these actions we expect to record a restructuring charge in 2020.
We expect to take delivery in the third quarter of our new-build rigid reel-lay
vessel, Seven Vega, which is scheduled to work on several projects. We have cut
our capital investment plans for this year to $230-250 million, from our prior
guidance of $270-290 million. Subsea 7 operates a modern fleet and investments
in our vessels and onshore assets can be reduced to a minimum with further
reductions in capital expenditure in 2021 and 2022.
Through these initiatives, our aim is to preserve cash and maintain balance
sheet strength. At the end of the first quarter, Subsea 7 had cash and cash
equivalents of $340 million and an undrawn revolving credit facility (RCF) of
$656 million. In April we finalised a new Euro Commercial Paper programme
equivalent to $740 million to further diversify our sources of liquidity in
these unpredictable times.
First quarter review
First quarter revenue of $751 million was 13% lower than the prior year period
reflecting lower activity levels in the North Sea and an absence of Conventional
activity offshore Africa and the Middle East. Adjusted EBITDA of $68 million, a
year-on-year decrease of 39%, at a margin of 9% (Q1 2019: 13%) was adversely
impacted by low levels of Conventional and diving activity and high vessel
transit time, as several global enablers were redeployed for new projects. In
addition, profitability was affected by the impact on operations of the Covid-
19 pandemic which is estimated to have ranged between $15 million and $20
million. The net loss for the quarter was $38 million.
During the quarter, net cash generated from operations was $82 million with a
favourable movement in net operating assets and liabilities of $19 million.
Capital expenditure was $93 million in the quarter, including milestone payments
for Seven Vega. The Group ended the quarter with net debt of $255 million
including IFRS 16 lease liabilities of $367 million.
In early 2020, Subsea 7 was successful in a number of tenders and booked new
orders totalling $1.5 billion, including approximately $70 million of
escalations. In SURF and Conventional, key awards included the Sangomar project,
offshore Senegal, the Barossa project, offshore Australia, the Kingâs Quay
project, in US Gulf of Mexico and FEED for the Bacalhau project, offshore
Brazil. Backlog at the end of March was $5.6 billion, of which $2.7 billion is
expected to be executed in the remainder of 2020. The backlog for execution in
2021 of $2.0 billion is up 40% since the end of 2019.
Utilisation of Subsea 7âs active fleet of 32 vessels was 63% in the first
quarter 2020, compared to 72% in the prior year period, reflecting continued
seasonality in the North Sea, low Conventional activity in Africa and the Middle
East, and intercontinental transiting of certain global enabler vessels. At 31
March 2020, the total fleet comprised 34 vessels, including Seven Vega, which is
due for delivery in the third quarter and one stacked vessel.
Outlook for 2020
Having started the year on a positive note, we are now preparing for a downturn
in SURF and Conventional activity as our clients focus on reducing their capital
expenditure budgets. This will have an impact on the pace of new awards and may
affect the phasing of execution of recent contract awards. While these factors
affect our revenue expectations for 2020 to some extent, the impact on EBITDA is
greater. Rescheduling of higher-margin contracts which were due to start later
this year will have an impact on the EBITDA for the SURF and Conventional
business.
The outlook for Renewables is more positive and our tendering team remains in
active negotiations on a number of projects. The business unit benefits from a
diverse range of clients, many of which are not impacted by low oil prices and
have not needed to make material cuts to near-term investment plans. While, in
the short term, competition for these contracts is high, we are confident that
these clients remain committed to their clean energy initiatives and we continue
to view the offshore wind market as a source of sustainable, profitable growth
for Subsea 7 in the longer term.
Guidance
Given the pace at which the environment continues to change and the low level of
visibility on factors influencing our business we are unable at this stage to
give any revenue or EBITDA guidance for 2020. Uncertainties include the timing
of new contract awards and the conversion of FEED studies to full EPCI projects,
as well as the phasing of projects already underway. This may include the
deferral of some recently awarded, higher-margin work from 2020 to 2021 and
beyond. Finally, the financial cost of addressing the operational inefficiencies
of Covid-19 is yet to be determined, as the duration and extent of the
pandemicâs impact are unknown.
In the near future we expect to announce details of our cost reduction programme
and it is anticipated that a restructuring charge will be recognised in 2020. We
are also assessing whether an impairment of the carrying value of our non-
current assets, including goodwill, is required.
We are taking action to address the elements under our control, with swift and
decisive moves to reduce our cost base and capital expenditure, and to
strengthen our balance sheet. We believe these measures will improve our
resilience to the downturn, while protecting our strong competitive position in
our core markets.
Conference Call Information
Lines will open 15 minutes prior to conference call.
Date: 30 April 2020
Time: 12:00 UK Time
Conference ID: 91740296#
Conference Dial In Numbers
United Kingdom 0800 358 9473
United States 631 913 1422
Norway 23 50 02 43
International Dial In +44 333 300 0804
Replay Facility Details
A replay facility (with conference ID 301307646#) will be available from:
Date: 30 April 2020
Time: 17:00 UK Time
Conference Replay Dial In Numbers
International Dial In +44 333 300 0819
For further information, please contact:
Katherine Tonks
Head of Investor Relations
email: katherine.tonks@subsea7.com (mailto:katherine.tonks@subsea7.com)
Telephone: +44 20 8210 5568
Special Note Regarding Forward-Looking Statements
Certain statements made in this announcement may contain âforward-looking
statementsâ (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 âanticipateâ, âbelieveâ, âestimateâ, âexpectâ,
âfutureâ, âgoalâ, âintendâ, âlikelyâ âmayâ, âplanâ, âprojectâ, âseekâ, âshouldâ,
âstrategyâ âwillâ, and similar expressions. The principal risks which could
affect future operations of the Group are described in the âRisk Managementâ
section of the Groupâs 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.
Kilde
