Subsea 7 S.A. (the Group) (Oslo Børs: SUBC, ADR: SUBCY, ISIN: LU0075646355) announced today results for the fourth quarter and full year which ended 31 December 2020. Unless otherwise stated the comparative period is the full year which ended 31 December 2019.
Fourth Quarter and Full Year 2020 highlights
- Adjusted EBITDA of $165 million in the quarter after incurring net costs of approximately $5 million relating to Covid-19, equating to a margin of 16%
- Adjusted EBITDA of $337 million in the full year after incurring net costs of approximately $70 million relating to Covid-19 and $86 million charges relating to restructuring, equating to a margin of 10%
- Net cash generated from operations of $24 million in the quarter and $447 million in the full year
- Cash and cash equivalents of $512 million at year end with net cash of $49 million, including lease liabilities of $254 million
- Resilient backlog of $6.2 billion, up 20% year-on-year, of which 32% in Renewables, with $4.0 billion expected to be executed in 2021
- Special dividend of NOK 2.00 per share to be recommended for shareholder approval at the AGM, marking the Board’s confidence in the financial position and outlook for the Group
|Fourth Quarter||Full Year|
|For the period (in $ millions, except Adjusted EBITDA margin and per share data)||Q4 2020
|Q4 2019 Unaudited||2020
|Adjusted EBITDA(a), (b) (unaudited)||165||168||337||631|
|Adjusted EBITDA margin(a), (b) (unaudited)||16%||19%||10%||17%|
|Net operating (loss)/income excluding goodwill impairment charges||(35)||(16)||(428)||77|
|Goodwill impairment charges||(27)||(100)||(605)||(100)|
|Net operating loss||(62)||(116)||(1,034)||(23)|
|Net (loss)/income excluding goodwill impairment charges||(76)||(29)||(500)||18|
|Earnings per share – in $ per share|
|At (in $ millions)||2020
|Backlog – unaudited(d)||6,214||5,187|
|Cash and cash equivalents||512||398|
|Net cash excluding lease liabilities(e)||303||164|
|Net cash/(debt) including lease liabilities(e)||49||(181)|
(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) During the year ended 31 December 2020 restructuring charges of $86 million were recognised (2019: $nil), adversely impacting Adjusted EBITDA and Adjusted EBITDA margin.
(c) 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 ‘Earnings per share’ to the Condensed Consolidated Financial Statements.
(d) Backlog at 31 December 2020 and 31 December 2019 is unaudited and is a non-IFRS measure.
(e) Net cash is a non-IFRS measure and is defined as cash and cash equivalents less borrowings.
John Evans, Chief Executive Officer, said:
In a challenging twelve months Subsea 7 responded well. The Covid-19 pandemic required radical changes to operations and had an adverse effect on the market for our oil and gas businesses. In response, we booked incremental operating costs, restructured our cost base, and recognised material impairments to goodwill and asset values. Yet, we continued to deliver projects to our clients, generated positive cash flow, reduced debt and increased our backlog.
As a result of the efforts and dedication of our employees, we completed 20 projects in the year for 15 clients in 10 countries. Although we incurred net costs of approximately $70 million associated with the Covid-19 pandemic and restructuring charges of $86 million, Subsea 7 generated Adjusted EBITDA of $337 million in 2020, equating to a margin of approximately 10%. Despite the uncertain environment, we experienced no contract cancellations. Instead, Subsea 7’s backlog of work grew by 20% to $6.2 billion a result of a strong presence in the growing offshore renewables market and our focus on parts of the oil and gas market with advantaged economics.
Among Subsea 7’s key attributes, its strong cash generation, commitment to capital discipline and prudent balance sheet management proved vital in navigating the complexities of 2020. Over the course of the year, cash and cash equivalents increased by $114 million, resulting in a year end balance of $512 million and net cash of $49 million after including lease liabilities of $254 million. Liquidity remained strong with a revolving credit facility of $656 million and a Euro Commercial Paper programme equivalent to $800 million, both of which were unutilised at year end.
Given the improvement in the stability and visibility of our markets over the past six months, a special dividend payment of NOK 2.00 per share, equivalent to approximately $70 million, is to be recommended by the Board for approval by shareholders at the AGM. Subsea 7 has returned $2 billion of excess capital to shareholders over the past decade, and this latest dividend recommendation marks the Board’s confidence in the financial position and outlook for the Group.
Fourth quarter operational review
The SURF and Conventional business unit made good progress on several projects in the fourth quarter. In Angola, Seven Borealis completed its scope of work on Zinia, alongside Seven Arctic and Simar Esperanca, which continued operations into the first quarter of 2021. In the Gulf of Mexico, Seven Oceans and Seven Pacific continued our offshore activities on Mad Dog 2, while in Brazil, Seven Seas completed its scope on Lapa NE and the PLSVs continued to achieve high utilisation. We were also active on several projects in the UK North Sea, with tie-in activity on Arran, the completion of bundle fabrication for Penguins, and the completion of pipelay operations at Blythe. Good progress continues to be made in the engineering and procurement phases of Sangomar in Senegal, as well as Anchor, King’s Quay and Jack St Malo in the Gulf of Mexico. During the quarter, FEED and engineering activities were completed on the Bacalhau project in Brazil. Life of Field achieved high vessel utilisation in the fourth quarter with work in the Gulf of Mexico and the North Sea, as well as continued activity on the three long-term contracts in the Caspian and the North Sea.
In the Renewables and Heavy Lifting business unit we continued work on the Seagreen project, with fabrication of the jackets and inner array cables well underway. In Taiwan, progress on the Yunlin project was delayed due to restricted site access and environmental constraints. The issues have been resolved by the Client and operations will recommence in the second quarter, with agreement reached on the approach to scheduling the balance of the scope in 2021. Seaway Yudin was also on standby in Taiwan during the quarter on the Formosa II project due to adverse weather conditions.
Overall, utilisation of Subsea 7’s active fleet was 82% in the fourth quarter, compared to 71% in the prior year period, driven by high utilisation of Life of Field vessels and the PLSVs in Brazil. At 31 December 2020, the active fleet comprised 30 vessels.
Fourth quarter financial review
Fourth quarter revenue of $1.0 billion increased 14% compared to the prior year period, reflecting higher activity in Renewables and Heavy Lifting, partially offset by reduced activity in SURF and Conventional. Renewables and Heavy Lifting benefitted from progress on the Seagreen project as well as standby revenue relating to vessels in Taiwan. The decrease in SURF and Conventional revenue was mainly due to lower Conventional activity in West Africa and the Middle East.
Adjusted EBITDA of $165 million was flat year-on-year and benefited from the close-out of certain projects in SURF and Conventional, partially offset by the impact of net costs associated with Covid-19 of approximately $5 million. During the quarter the Group recorded goodwill impairment charges of $27 million and other asset impairment charges of $94 million, resulting in a net operating loss of $62 million. After a tax charge of $14 million, the net loss for the quarter was $103 million. During the quarter, net cash generated from operations was $24 million including a $97 million adverse movement in net working capital partly due to the timing of payments by clients around the year end. Capital expenditure was approximately $36 million, contributing to an overall decrease in cash and cash equivalents of $30 million during the quarter.
Full year financial review
In the full year 2020, revenue was $3.5 billion representing a decrease of 5% compared to the prior year driven by lower activity in SURF and Conventional in West Africa and the Middle East, partly offset by higher activity in Renewables and Heavy Lifting. Adjusted EBITDA was $337 million, a reduction of 47% year-on-year mainly due to the adverse impact of restructuring charges of $86 million, approximately $70 million of net costs relating to Covid-19, as well as a reduction in SURF and Conventional activity. The Adjusted EBITDA margin was 10%, down from 17% in the prior year. After goodwill impairment charges of $605 million, other asset impairment charges of $323 million and a tax charge of $33 million, the net loss for the year was $1.1 billion. During the year, net cash generated from operations was $447 million including a $192 million improvement in working capital due to active working capital management as well as the timing of milestone payments on certain projects. Capital expenditure was $183 million, slightly lower than expected due to a strong focus on cash preservation. Cash and cash equivalents increased by $114 million and the Group ended the year with net cash, including leases liabilities, of $49 million.
In the full year 2020, Subsea 7 booked new orders of approximately $3.7 billion and escalations of approximately $0.7 billion. The backlog at the end of December 2020 was $6.2 billion, of which $4.0 billion is expected to be executed in 2021.
Streamlining our business units
To align with our strategic focus area “subsea field of the future – systems and delivery”, we have combined our SURF and Conventional and Life of Field business units. Since January 2021 one business unit, named Subsea and Conventional, has encompassed our full portfolio of services and products dedicated to the oil and gas industry, allowing us to streamline the organisation and maximise potential synergies between the two areas. This includes greater integration of IRM and well intervention into the integrated field development solutions created by Subsea Integration Alliance to provide a holistic offering across the life cycle of our clients’ fields. It will also enable us to accelerate our drive to digitalise field developments. Also from January 2021, the Renewables and Heavy Lifting business unit has been renamed Renewables and excludes activities relating to the oil and gas industry. In 2020, oil and gas activity represented under $1 million of Renewables and Heavy Lifting revenues.
Outlook for full year 2021
After a brief pause in the first half of the year, tendering for oil and gas projects recommenced at a lower level during the second half of 2020 and continues at this pace in 2021. Regions with greater activity include Norway, where fiscal incentives have stimulated an increase in early-stage engineering activity, the Gulf of Mexico, predominantly focused on low-cost tie-backs, and Brazil, where the large, pre-salt fields have low oil price break-evens that continue to attract capital. In addition, Subsea 7 has been selected as preferred supplier for several projects, including Bacalhau, Scarborough, Pecan and Rovuma and we are optimistic that some of these will progress to award during the year.
Tendering in Renewables remains active for projects expected to be awarded to the industry in nine to twelve months’ time, including in Asia, Europe and the US. While the market for wind turbine installation work remains competitive, Subsea 7 continues to differentiate itself through its integrated and EPCI contract offerings, leveraging a strong track record in the management of large, complex projects across the globe.
Subsea 7’s full year 2021 results are likely to be adversely impacted by costs associated with the Covid-19 pandemic, including more contagious, new variants of the virus. We currently anticipate that revenue in 2021 will exceed the prior year level, predominantly driven by greater activity in Renewables. Revenue in Subsea and Conventional should increase due to the re-phasing of some work from 2020 into 2021. While it is difficult to predict the operational and financial impact of Covid-19 in 2021, Adjusted EBITDA is expected to improve year-on-year and we forecast net operating income to be positive.
Conference Call Information
Date: 25 February 2021
Time: 12:00 UK Time
Access the webcast at subsea7.com or register for the conference call at http://emea.directeventreg.com/registration/4154356. Advance registration is required.
For further information, please contact:
Head of Investor Relations
Telephone: +44 20 8210 5568
Special Note Regarding Forward-Looking Statements
Certain statements made in this announcement may contain ‘forward-looking statements’ (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 ‘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 Management’ section of the Group’s 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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