Subsea 7 Announces Second Quarter and Half Year 2021 Results

Source: 7/28/2021, Location: Europe

Subsea 7 S.A. announced results for the second quarter and first half of 2021 which ended 30 June 2021.

Second quarter highlights
• Second quarter 2021 revenue up 59% year-on-year to $1.2 billion
• Adjusted EBITDA of $90 million equating to a margin of 7.5%
• Order intake of $1.9 billion, equating to a book-to-bill of 1.6 times
• Backlog of $6.8 billion of which 22% in Renewables, with $2.7 billion to be executed in 2021 and $2.4 billion in 2022
• Cash and cash equivalents of $390 million, after payment of the previously announced dividend of $72 million
• Net debt including lease liabilities of $39 million at quarter end

John Evans, Chief Executive Officer, said:
Subsea 7’s onshore and offshore teams continued to work hard in the second quarter to deliver clients’ projects in spite of the challenges associated with the Covid-19 pandemic. Revenue increased 59% year-on-year due to increased activity in both the Subsea and Conventional and Renewables business units. Adjusted EBITDA margin of 7.5% was adversely impacted by continued delays and Covid-19 affecting renewables projects in Taiwan, as well as low margins in Subsea and Conventional. The latter reflects the level of activity in the Middle East and the execution of SURF contracts won during a competitive pricing environment in 2019 and 2020.

We expect an increase in profitability in the second half of the year with improved margins in both business units. The long-term outlook continues to strengthen with higher tendering activity in both Subsea and Conventional and Renewables. Increased worldwide demand for certain pipelay vessels from late 2023 is supporting positive momentum in the pricing environment for new subsea awards. We also have increased confidence in the forecast step-up in offshore wind farm activity as bidding for several projects is underway.

Unlocking value in offshore wind
This month Subsea 7 announced the proposed combination1 of its Renewables business unit with OHT ASA to form Seaway 7 ASA, a pure-play renewables company focused on the offshore fixed wind industry. With its combined fleet of ten vessels, and two high specification installation vessels under construction, Seaway 7 ASA will be equipped with the enabling assets, engineering expertise and project management track record required to forge an enhanced growth trajectory as a global leader in the offshore fixed wind market. The combination should help accelerate and enhance value creation for Subsea 7 shareholders through a majority ownership of this pure-play entity, listed on the Euronext Growth market in Oslo.

The transaction reflects Subsea 7’s proactive commitment to Energy Transition that is focused on delivering the energy the world needs, with sustainability at its heart. We look forward to supporting the successful growth of Seaway 7 ASA while continuing to nurture, in-house, our businesses in floating wind, carbon capture and other emerging energies.

Second quarter operational review
In the second quarter the Subsea and Conventional business unit made good operational progress in the engineering and procurement phases of the SLGC, Sangomar and Barossa projects. Despite the challenges posed by China’s strict Covid-19 restrictions, the Lingshui project was successfully completed utilising Seven Borealis and Seven Eagle. Elsewhere, offshore activity was centred on the Gulf of Mexico, Norway, Saudi Arabia and Australia. In Norway, Seven Arctic installed umbilicals on Ærfugl Phase 2 and Seven Navica made progress installing gas pipelines on Johan Sverdrup Phase 2. Activity remained high in the Gulf of Mexico on the installation phases of Manuel, King’s Quay and Mad Dog Phase 2, for which Seven Navica was deployed to accommodate the rescheduling of some work from Seven Vega. In Saudi Arabia, Seven Champion continued to execute the 28 Jackets installation project (CRPO 47, 48 and 49) throughout the second quarter, and in Australia, Seven Oceans spent the quarter installing equipment for the Julimar Phase 2 project. After finishing work in the UK, Seven Oceanic began its transit to Australia to assist on the Julimar project.

In the Renewables business unit, in Taiwan, the progress of Seaway Yudin was adversely impacted by restrictions imposed by the government to control the spread of Covid-19. In addition, environmental conditions at the worksite and a number of changes in scope have hampered progress. We are in discussions to recover the incremental costs from our client in accordance with contractual terms. Elsewhere in Renewables, we continued work on the Seagreen project. The first five jackets began their transit from China to Europe, and progress on the remaining 109 jackets by our three suppliers is running to schedule. Good progress was also made in the UK on the Hornsea II project, on which Seaway Aimery, Seaway Moxie and Simar Esperança were fully utilised during the quarter. In June Seaway Strashnov completed an oil and gas heavy lift project and began mobilising for the Hollandse Kust Zuid wind project, offshore Netherlands. Overall, utilisation of Subsea 7’s active fleet was 82% in the second quarter, compared to 71% in the prior year period. At the quarter end, the active fleet comprised 29 vessels.

Second quarter financial review
Second quarter revenue of $1.2 billion increased by 59% compared to the prior year period, reflecting significantly higher activity in both Subsea and Conventional and Renewables. Adjusted EBITDA of $90 million was up from an Adjusted EBITDA loss of $9 million in the prior year quarter. The improvement largely reflects the absence of restructuring charges in 2021 ($104 million in 2020). The underlying margin has declined year-on-year as a consequence of continued delays and Covid-19 affecting renewables projects in Taiwan, and reduced margins in Subsea and Conventional. After depreciation, amortisation and impairment charges of $118 million, the Group recorded a net operating loss of $28 million. The net loss for the quarter was $13 million, after a tax credit of $15 million.

During the quarter, net cash generated from operations was $15 million including a $48 million adverse movement in net working capital largely due to increased activity in the Middle East and movement in non-project related balances. Capital expenditure was $34 million including the payments for the conversion of Seaway Phoenix. The second quarter was also impacted by the distribution of dividends amounting to $72 million. Overall, cash and cash equivalents decreased by $137 million since 31 March 2021 to $390 million and the Group ended the quarter with net debt of $39 million, including lease liabilities of $232 million. During the second quarter, Subsea 7 booked new orders of approximately $1.5 billion and escalations of approximately $400 million, resulting in a book-to-bill ratio of 1.6. The backlog at the end of June 2021 was $6.8 billion, of which $2.7 billion is expected to be executed during the remainder of 2021 and $2.4 billion in 2022.

Outlook for full year 2021
The outlook for oil and gas contract awards has remained robust during the second quarter and continues to be centred on the three key regions with the most attractive project economics. Tendering activity in Brazil remains strong following the award of Bacalhau and Mero 3 to Subsea 7 in the second quarter, with several projects scheduled to be awarded to the industry over the next two years. Early engagement in Norway is beginning to yield awards such as Kobra East Gekko and Hasselmus, and front-end engineering activity is high in preparation for further EPCI prospects. Offshore activity in the Gulf of Mexico should increase in the second half of the year and we are actively tendering for further tie-back opportunities.

To accommodate a higher level of tendering and engineering activity, Subsea 7’s onshore workforce is expected to increase in number, though plans to reduce the size of the active fleet remain in place given the current offshore workload projected for 2022. Demand for certain vessels from late 2023 onwards is driving positive momentum in the pricing environment compared to 2019 and 2020, giving us confidence in the outlook for Subsea and Conventional.

Tendering in Renewables is active for projects expected to be awarded to the industry in 2022, including in Asia, Europe and the US. This has contributed to improved visibility on the forecast step-up in installation activity from 2025 onwards, for which the new Seaway 7 ASA will be well-positioned.

Despite the successful roll-out of Covid-19 vaccinations in some countries, we continue to manage the challenges of operating within the constraints imposed by many governments around the world. Subsea 7 is likely to continue to incur both direct costs relating to travel and quarantine of offshore personnel, as well as indirect adverse impacts on operational efficiency of offshore operations and the supply chain in general.

Nevertheless, absent a deterioration in the impact of the Covid-19 pandemic, we continue to expect that revenue and Adjusted EBITDA in 2021 will exceed the prior year levels, and that net operating income will be positive.

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