- New awards and escalations totalled US$1.1 billion, raising order backlog to US$5.2 billion
- Revenue of US$859 million and Adjusted EBITDA of US$111 million reflecting continued cost discipline and good execution of awards signed at lower prices during the downturn
- Invested for the future with capital expenditure totalling US$68 million including an extensive dry-docking of the pipelay vessel Seven Borealis and acquisition of diving support vessel (DSV), Seven Pegasus
- Net cash position of US$413 million, excluding IFRS 16 lease liabilities, after US$75 million spent on share repurchases in the first quarter
Jean Cahuzac, CEO, said: “Tendering activity remained robust in the first quarter of 2019. We continued to experience a steady increase in interest from our clients to engage early and create the right solutions for SURF projects on both an integrated and stand-alone basis. Our strong client relationships and track record of reliable delivery helped us to secure a book-to-bill ratio of 1.3 and three FEED (Front End Engineering and Design) awards that are expected to progress to EPIC projects in due course. We are now guiding for 2019 Group revenue to be broadly in line with 2018 as we continue to experience a gradual volume-led recovery in integrated and stand-alone SURF projects. Our guidance on Adjusted EBITDA being lower in 2019 compared to the prior year remains unchanged. We have started to see increased pricing on tenders for major new projects, but this will take time to materialise in our financial results due to an anticipated two to three year time lag, on average, between tender, award and execution.”
SURF and Conventional projects progressed well in the quarter, led by high utilisation of the four pipelay support vessels (PLSVs) working offshore Brazil on long-term contracts. Good progress was made on the Snorre project, offshore Norway, with Pipeline Bundle construction underway at the fabrication yard in Wick, UK. Also offshore Norway, the Aerfugl project progressed with welding and system qualification. Offshore Egypt, work continued on the West Nile Delta Phase Two (GFR) project with preparations for flexible pipelay. In the US Gulf of Mexico, the Katmai and Manuel projects, both Subsea Integration Alliance awards, progressed well with procurement and engineering. Offshore Nigeria, the shallow water PUPP project commenced a pipelay campaign with the vessel Seven Antares.
Life of Field activity improved with ROV Inspection, Repair and Maintenance (IRM) services in the Gulf of Mexico, the North Sea and the Caspian Sea. ROV activity on drill rigs remained low, in line with the global market.
Renewables and Heavy Lifting operations included completion and commissioning activities for the Borkum 2 wind farm project, offshore Germany, and mobilisation for the transport and installation of foundations for the Yunlin project, offshore Taiwan.
Total vessel utilisation was 68% in the quarter, 16 percentage points higher than the prior year period partly due to higher levels of Diving Support and Inspection, Repair and Maintenance (IRM) activity. There were 34 vessels in the fleet at the quarter end following the timely acquisition of a DSV, Seven Pegasus, in January. 2 Subsea 7 S.A.
First quarter revenue of US$859 million and Adjusted EBITDA of US$111 million resulted in an Adjusted EBITDA margin of 13%. The higher revenue in the SURF and Conventional business unit compared to the prior year period more than offset the significantly lower revenue in the Renewables and Heavy Lifting business unit, which declined due to the substantial completion of the EPIC Beatrice wind farm project in 2018. Adjusted EBITDA benefitted by $27 million compared to the prior year period due to the implementation of IFRS 16 ‘Leases’ as of 1 January 2019. Net loss of US$19 million included other gains and losses of US$17 million, mostly due to net foreign currency losses, and a tax credit of US$10 million. Diluted loss per share was US$0.06.
Subsea 7’s financial and liquidity profile remained strong with cash and cash equivalents of US$666 million at 31 March 2019 and net cash of $413 million, excluding IFRS 16 lease liabilities of US$412 million. Cash generated from operating activities of $58 million included a US$6 million increase in net operating liabilities and cash tax paid of US$36 million. Subsea 7 has a structured approach to capital discipline that prioritises investment in the business and financial stability but also commits to return surplus cash to shareholders. In the first quarter, Subsea 7 invested in its fleet with the acquisition of a DSV as well as the ongoing construction of a new-build reel-lay vessel for delivery in early 2020 and an extensive dry docking of the global-enabler vessel, Seven Borealis. In addition, US$75 million was spent on share repurchases. On 17 April 2019, the special dividend of NOK 1.50 per share was approved at the AGM and authority to repurchase and cancel shares was renewed at the EGM.
Order intake and contract awards
At 31 March 2019, order backlog of US$5.2 billion included new awards and escalations totalling US$1.1 billion, resulting in a book-to-bill ratio of 1.3. Announced awards in the first quarter comprised a five year IRM services contract for BP and the Arran project for Shell, both offshore UK, and the Berri-Zuluf project, offshore Saudi Arabia, under the Long Term Agreement with Saudi Aramco. In addition, Subsea 7 announced three FEED contracts for Woodside that are expected to convert to EPIC project awards after final investment decision by the client.
The outlook for offshore oil and gas project awards remains positive with a steady improvement in tendering and award activity in the market, including progress on several large greenfield projects. Subsea 7’s pricing on new tenders has started to improve from a low level and over time is expected to return to more normal levels, supported by value created though proprietary technology, strong relationships and creative and effective solutions. There is a good level of tendering activity for offshore wind farms and Subsea 7 is well placed among strong competition.
Subsea 7’s guidance for the full year 2019 has been updated. Revenue is now expected to be broadly in line with 2018, Adjusted EBITDA is still expected to be lower and net operating income is expected to be positive. Guidance includes the anticipated impact of the implementation of IFRS 16 ‘Leases’, as detailed in note 3 to the Condensed Consolidated Financial Statements.
Read the article online at: https://www.oilfieldtechnology.com/offshore-and-subsea/03052019/subsea-7-announces-1q19-results/
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