?Luxembourg - 29 July 2020 - Subsea 7 S.A. (the Group) (Oslo BĂžrs: SUBC, ADR:
SUBCY, ISIN: LU0075646355) announced today results for the second quarter and
first half of 2020 which ended 30 June 2020.
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Second quarter summary
- Order intake totalled $2.0 billion, equivalent to a book-to-bill ratio of
2.7, with six awards announced in the second quarter including orders worth
$1.7 billion in the Renewables business unit
- Order backlog increased to $7.0 billion at quarter end, of which Renewables
represents 31%, with $2.1 billion expected to be executed in the remainder
of 2020
- Negative Adjusted EBITDA of $9 million for the second quarter of 2020,
reflecting a $104 million restructuring charge, the impact of Covid-19 and
low vessel utilisation in certain markets
- Impairment charges relating to property, plant and equipment and right-of-
use assets of $229 million and goodwill impairment charges of $578 million
adversely impacted net operating income in the quarter
- On track to deliver approximately $400 million in annualised cash cost
savings by the second quarter 2021. Active fleet reduced by four vessels to
28 from 32. Employee consultation processes to reduce headcount underway
- Strong cash flow from operations, active working capital management and
disciplined capital expenditure resulted in an increase in cash and cash
equivalent of $144 million
- A two-year extension to September 2023 of the $656 million revolving credit
facility. Both the revolving credit facility and Euro Commercial Paper
programme remain undrawn
Second Quarter Half Year
For the period (in $
millions, except
Adjusted EBITDA
margin and per share Q2 2020 Q2 2019 1H 2020 1H 2019
data) Unaudited Unaudited Unaudited Unaudited
Revenue 754 958 1,505 1,817
Adjusted EBITDA((a)
) (9) 171 59 282
Adjusted EBITDA
margin((a) ) (1%) 18% 4% 16%
Net operating
(loss)/income
excluding goodwill
impairment charges (352) 45 (401) 35
Goodwill impairment
charges (578) - (578) -
Net operating
(loss)/income (930) 45 (979) 35
Net (loss)/income (922) 24 (959) 5
Earnings per share -
in $ per share
Basic (3.06) 0.09 (3.19) 0.03
Diluted((b)) (3.06) 0.09 (3.19) 0.03
Adjusted
diluted((b)) (1.12) 0.09 (1.24) 0.03
30 Jun 2020 31 March 2020
At (in $ millions) Unaudited Unaudited
Backlog -
unaudited(©) 7,021 5,648
Cash and cash
equivalents 483 340
Borrowings (221) (228)
Net cash((d)) 262 112
Net debt((d)) (30) (255)
(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 and
Adjusted diluted earnings per share, which excludes the impact of the goodwill
impairment charges, refer to Note 7 âEarnings per shareâ to the Condensed
Consolidated Financial Statements.
© Backlog at 30 June 2020 and 31 March 2020 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:
In the second quarter of 2020 Subsea 7 reported a negative Adjusted EBITDA of
$9m, reflecting reduced activity within the SURF and Conventional business unit,
the impact of the Covid-19 pandemic, and the recognition of $104 million of
restructuring costs related to the Groupâs resizing programme. Nevertheless, the
quarter was marked by several notable achievements including $1.7 billion of new
orders in Renewables, strong cash generation and progress on the previously
announced cost reduction measures. Each of these played a part in enhancing the
Groupâs resilience to the current downturn in oil and gas while enabling us to
capture opportunities in the offshore wind market and extend our ten-year track
record in renewable energy.
Success in Renewables
Subsea 7 ended the second quarter with a robust backlog of $7.0 billion,
including a record $2.2 billion in Renewables. New orders recorded in backlog
during the quarter included Seagreen, an integrated EPCI project offshore
Scotland, Kaskasi, an integrated contract offshore Germany, and Hollandse Kust
Zuid, an integrated contract for the first planned subsidy free wind farm
project offshore the Netherlands. In total, Subsea 7 is currently executing
contracts for projects representing 4.8 GW of offshore wind power, enough to
power approximately 5.3 million homes.
Strong cash generation, a robust balance sheet and enhanced liquidity
Despite the headwinds of the quarter, the Group increased cash and cash
equivalent by $144 million and increased its net cash balance, excluding lease
liabilities, to $262 million. During the quarter lease liabilities decreased to
$292 million from $367 million. This was achieved through a combination of
robust operating cash flow, active working capital management and disciplined
capital expenditure. Subsea 7âs access to liquidity was reinforced in the
quarter by a two-year extension of the existing $656 million revolving credit
facility (RCF) to September 2023. The RCF and Euro Commercial Paper programme
remain undrawn. These facilities together with a cash balance of $483 million
represent access to diverse sources of liquidity of over $1 billion.
Cost reduction plans on track
In May we announced planned measures to reduce our cost base in anticipation of
a sharp downturn in oil and gas activity driven by low oil prices. The employee
consultation process to reduce the Groupâs headcount by around 3,000
(approximately 1,000 employees and 2,000 non-permanent personnel) is underway.
Progress is also being made to reduce our fleet by up to ten vessels. At the end
of June, two chartered vessels had been released and two further vessels had
been stacked, reducing our active fleet to 28. An additional net reduction of
six vessels is currently planned for the coming twelve months, corresponding to
the phasing of the projected workload. We remain on track to meet our target to
reduce annualised operating costs by $400 million by the end of the second
quarter of 2021. As a result of implementation of the cost reduction plan, a
restructuring charge of $104 million was recorded in the quarter.
An update on Covid-19
During the second quarter, the Covid-19 pandemic adversely impacted EBITDA by
approximately $30 million. Operational impacts due to Covid-19 in the second
quarter included three weeksâ downtime on Seven Sun in Brazil and the temporary
closure of certain onshore facilities. Our project teams were quick to adapt to
new work practices and to date have minimised disruption to our clientsâ
projects. While the challenges persist, we have had no further significant
outbreaks on vessels and our onshore facilities are now operational, albeit with
higher costs and reduced productivity due to quarantine and social distancing
measures.
Second quarter financial review
Second quarter revenue of $754 million was 21% lower than the prior year period,
but broadly in line with the first quarter of 2020, reflecting continued low
activity levels in the North Sea, an absence of conventional activity offshore
Africa and the Middle East, and the rephasing of some recently awarded contracts
due to low oil prices and Covid-19 restrictions. A negative Adjusted EBITDA of
$9 million was adversely impacted by the restructuring charge of $104 million,
incremental costs associated with Covid-19 of approximately $30 million and
relatively low levels of vessel utilisation. Impairment charges totalling $807
million were incurred in the quarter, including $229 million relating to
property, plant and equipment (predominantly vessels) and right-of-use assets
and $578 million relating to the impairment of goodwill. The net loss for the
quarter was $922 million.
During the quarter, net cash generated from operations was $219 million
including a favourable movement in working capital due to reduced receivables.
Capital expenditure was $33 million. Cash and cash equivalents increased by $144
million. The Group ended the quarter with net cash excluding leases liabilities
of $262 million, equating to net debt of $30 million including lease liabilities
of $292 million.
In the second quarter of 2020, Subsea 7 was successful in a number of tenders
and booked new orders totalling $2.0 billion. The level of escalations in the
quarter was not significant. Backlog at the end of June was $7.0 billion, of
which $2.1 billion is expected to be executed in the remainder of 2020. The
backlog for execution in 2021 of $3.4 billion is up 70% since the end of the
first quarter.
Second quarter operational review
The SURF and Conventional business unit made good progress on several projects
in the second quarter. Fabrication of the Electrically Heat-Traced Flowline for
the Manuel project in the Gulf of Mexico was completed and pipelay operations
began for Mad Dog 2. In Norway, Seven Oceans completed the installation of three
pipelines for the Johan Castberg project, while Seven Arctic completed the
installation of a bundle for the Snorre project and began offshore operations
for the Ărfugl project. In the UK, diving activity was lower than usual,
however, good operational progress was made on the Arran project with Seven
Borealis.
The Renewables business unit completed the offshore scope of the Virginia
Coastal Wind project during the quarter and preparations began for the Yunlin
project, with vessels in transit to Taiwan for the offshore scope. An incident
on Seaway Strashnov impacted progress on the Triton Knoll project. The vessel
returned to the field in June and, along with a third party vessel, is now
making good progress towards meeting the original schedule.
Overall, utilisation of Subsea 7âs active fleet was 71% in the second quarter,
compared to 80% in the prior year period, reflecting a subdued market in the UK
North Sea, low conventional activity in Africa and the Middle East, and downtime
on Seven Sun and Seaway Strashnov. At 30 June 2020, the active fleet comprised
28 vessels.
Outlook for 2020
Since March, the operating environment has stabilised to some extent, with a
partial recovery in the price of oil and new work practices relating to Covid-
19 now well-established.
In SURF and Conventional, clientsâ capital expenditure budgets have fallen by
25% to 30% since the beginning of the year and, as a result, some contracts have
been rescheduled and tendering activity for new awards remains low. To date, we
have experienced no contract cancellations. Our plan to resize the fleet and the
cost base is progressing and will help to mitigate the impact of the expected
reduction in activity levels.
In Renewables existing projects have been largely unaffected by the challenging
environment and tendering activity remains robust. Competition for offshore wind
turbine foundation installation work remains high, but the Group continues to
differentiate itself through its integrated approach encompassing both
foundation and inner-array cables, and through a lump-sum turnkey contract
offering that leverages our strengths in the management of large, complex
projects.
In April, we withdrew guidance for the full year given low visibility on several
factors influencing our business including the pace of new awards, rescheduling
of existing work and the impact of Covid-19. While there remains a significant
degree of uncertainty, including the potential impact of a new wave of Covid-19
cases on both our activities and, more broadly, the macro environment,
visibility on our project workload for the remainder of the year has improved.
At present we anticipate that revenue for the full year 2020 will be broadly in
line with the prior year, while Adjusted EBITDA, excluding restructuring costs
of $104 million, is expected to be in line with current market expectations.
Conference Call Information
Lines will open 15 minutes prior to conference call.
Date: 29 July 2020
Time: 12:00 UK Time
Conference ID: 4962887
Access details
United Kingdom 0844 481 9752
United States 646 741 3167
Norway 21 56 30 15
International Dial In +44 20 7192 8338
Subsea 7 webcast (https://edge.media-
Webcast and replay server.com/mmc/p/ppnesfg2)
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.
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