Subsea 7 S.A. Announces Fourth Quarter and Full Year 2019 Results
Subsea 7 S.A. Announces Fourth Quarter and Full Year 2019 Results
Luxembourg – 26 February 2020 – 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 2019. Unless otherwise stated the comparative period is the full year which ended 31 December 2018.
Fourth Quarter and Full Year 2019 highlights
- Adjusted EBITDA of $631 million and margin of 17% for the full year 2019, reflected good progress on certain projects but lower activity in Renewables and Heavy Lifting
- Goodwill impairment charge of $100 million related to weakness in the wind turbine foundation market
- Order intake totalled $3.9 billion in the year, equivalent to a book-to-bill ratio of 1.1, with eight awards announced in the fourth quarter. Order backlog increased to $5.2 billion at the year end, with $3.3 billion expected to be executed in 2020
- Solid financial and liquidity position at 31 December 2019, with cash and cash equivalents of $398 million, net debt of $181 million including $345 million related to IFRS 16 lease liabilities and $656 million in unutilised credit facilities
- $304 million returned to shareholders in 2019 comprising $250 million in share repurchases and $54 million special dividend
| Fourth Quarter | Full year | ||||
| For the period (in $ millions, except Adjusted EBITDA margin and per share data) | Q4 2019 Unaudited | Q4 2018 Unaudited | 2019 Audited | 2018 (d) | |
| Revenue | 889 | 1,023 | 3,657 | 4,074 | |
| Adjusted EBITDA(a) (unaudited) | 168 | 163 | 631 | 669 | |
| Adjusted EBITDA margin(a) (unaudited) | 19% | 16% | 17% | 16% | |
| Net operating (loss)/income excluding goodwill impairment charge | (16) | 23 | 77 | 200 | |
| Goodwill impairment charge | (100) | – | (100) | – | |
| Net operating (loss)/income | (116) | 23 | (23) | 200 | |
| Net (loss)/income excluding goodwill impairment charge | (29) | 32 | 18 | 165 | |
| Net (loss)/income | (129) | 32 | (82) | 165 | |
| Earnings per share – in $ per share | |||||
| Basic | (0.45) | 0.12 | (0.27) | 0.56 | |
| Diluted(b) | (0.45) | 0.12 | (0.27) | 0.56 | |
| Adjusted diluted(b) | (0.12) | 0.12 | 0.05 | 0.56 | |
| At (in $ millions) | 2019 31 Dec | 2018 31 Dec | |||
| Backlog - unaudited(c) | 5,187 | 4,907 | |||
| Cash and cash equivalents | 398 | 765 | |||
| Borrowings | (234) | (258) | |||
| Net cash (excluding IFRS 16 ‘Leases’ liabilities) | 164 | 507 | |||
| Net debt (including IFRS 16 ‘Leases’ liabilities) | (181) | –(e) | |||
(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. IFRS 16 ‘Leases’ was implemented on 1 January 2019 and comparative figures for 2018 have not been restated, as a result Adjusted EBITDA for the fourth quarter and year ended 31 Dec 2019 benefitted by $24 million and $105 million respectively.
(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 charge, refer to Note 7 ‘Earnings per share’ to the Condensed Consolidated Financial Statements.
(c) Backlog at 31 December 2019 and 31 December 2018 is unaudited and is a non-IFRS measure.
(d) Audited unless otherwise stated.
(e) IFRS 16 ‘Leases’ was implemented on 1 January 2019, comparative figures for 2018 have not been restated, as a result net debt (including IFRS 16 ‘Leases’ liabilities) at 31 December 2018 has not been shown.
John Evans, Chief Executive Officer, said:
‘Subsea 7 delivered solid operational results in 2019 as we continued to progress orders awarded at lower prices during the downturn, and commenced work on projects with more favourable terms. The outlook for SURF and Conventional continues to improve, with the level of tendering increasing year-on-year and pricing recovering gradually. Subsea Integration Alliance, our SPS-SURF partnership with OneSubsea, a Schlumberger company, has made a significant contribution to recent order intake. With the award of the full EPIC scope for the Julimar project following earlier FEED activity and, in recent weeks, the announcement of contracts that further extend our momentum in large greenfield subsea projects, we have reaffirmed our strategy of early engagement and an integrated approach. In Renewables and Heavy Lifting, our cable-lay vessels continue to deliver good utilisation, but the foundations market remains competitive. We have therefore had to record a goodwill impairment charge associated with this business. In the long-term, we remain confident that our client-focused approach and experience managing complex projects leave us well-positioned to create sustainable value in addressing our clients’ transition to lower carbon solutions.
We are committed to reducing our own environmental impact and this year will mark the publication of our first Sustainability Report, which will discuss our sustainability strategy in more detail. The upgrade of our Life of Field vessel, Seven Viking, to hybrid power, was successful, resulting in a 19% reduction in CO2 emissions.
In 2020, Subsea 7 has strengthened its management team with the appointment of three new Executive Vice Presidents. I am confident we have the leadership in place to deliver strong operational and financial performance while continuing to drive the growth of the business.’
Full year 2019
Full year revenue of $3.7 billion was 10% lower than the prior year. Good progress on projects within SURF and Conventional was offset by significantly lower activity levels within Renewables and Heavy Lifting, which reflected the timing of large project awards. Adjusted EBITDA of $631 million was down 6% year-on-year. The margin of 17% benefitted from solid execution offset by low activity levels in Renewables and Heavy Lifting. A goodwill impairment charge of $100 million was recognised in the Renewables and Heavy Lifting business, which reflected weakness in the wind turbine foundations market. Excluding the goodwill impairment charge, net operating income was $77 million and net income was $18 million. Adjusted diluted earnings per share was $0.05 versus $0.56 in 2018. The reduction from the prior year was driven in part by impairment charges totalling $70 million mainly relating to two older vessels that are candidates for disposal.
In 2019, order intake was $3.9 billion including escalations of approximately $0.8 billion, resulting in a book-to-bill ratio of 1.1. Notable successes in the year included contract awards in Saudi Arabia, and new orders for Subsea Integration Alliance that support the strategy of early engagement and an integrated approach.
In line with our commitment to capital discipline, in 2019, Subsea 7 invested $258 million in capital expenditure and returned $304 million to shareholders consisting of $250 million of share repurchases and a special dividend of $54 million. Following the successful conclusion of the Group’s $200 million share repurchase programme on 24 July 2019, the Board of Directors authorised a new share repurchase programme of up to $200 million.
While we are confident of the improving conditions in our markets, in view of current global economic uncertainty and market volatility, combined with a change in law impacting the continuing validity of our advance tax agreement with the Luxembourg authorities, which we are still evaluating, the Board of Directors does not recommend the payment of a special dividend to the shareholders at the Annual General Meeting on the 7 April 2020. Rather, the Group will manage its returns to shareholders through the current $200 million share repurchase programme.
Fourth quarter 2019
Fourth quarter revenue of $889 million was 13% lower than the prior year period reflecting lower activity levels in Africa and Renewables and Heavy Lifting. Adjusted EBITDA of $168 million, a year-on-year increase of 3%, at a margin of 19% was driven by good execution within SURF and Conventional, as well as certain commercial settlements. A goodwill impairment charge of $100 million was recognised in the Renewables and Heavy Lifting business, reflecting near-term weakness in the wind turbine foundations market. Net loss, excluding the goodwill impairment charge, was $29 million. Excluding the goodwill impairment charge, Adjusted diluted earnings per share was a loss of $0.12 compared to earnings per share of $0.12 in the same period last year. The reduction from the prior year was driven by impairment charges totalling $70 million mainly relating to two older vessels that are candidates for disposal.
During the quarter, net cash generated from operations was $162 million with a favourable movement in net operating assets and liabilities of $23 million. Capital expenditure was $81 million in the quarter, mainly relating to the construction of Seven Vega. In addition, the Group acquired 4Subsea. The Group has a solid financial and liquidity position supported by cash and cash equivalents of $398 million at 31 December 2019 and a $656 million Revolving Credit Facility that remains unutilised. Net debt of $181 million at the year end included IFRS 16 lease liabilities of $345 million.
Despite the slippage of some awards into 2020, the backlog was more than replenished in the fourth quarter by orders totalling $1.1 billion, including $184 million of escalations. In SURF and Conventional, key awards included the Julimar Phase 2 and Ærfugl Phase 2 projects, while in Renewables and Heavy Lifting awards included the Formosa 2 and Lingshui projects. Backlog at the year end was $5.2 billion, of which $3.3 billion is expected to be executed in 2020.
The SURF and Conventional business unit made good progress on projects in the fourth quarter and benefitted from some commercial settlements. In Norway, the Yme project was completed, while fabrication work continued on the Snorre Expansion project. In Egypt, the Burullus 9B project has progressed well with the 2019 offshore campaign successfully completed. On the Mad Dog Phase 2 project, the offshore phase has started with light construction works in preparation for the pipelay campaign in 2020. The PRP6 project, offshore Brunei, completed topsides installation works.
Total vessel utilisation was 66% in the fourth quarter 2019, compared to 70% in the prior year period, reflecting greater seasonality in the North Sea and low levels of wind turbine foundation activity in the Renewables and Heavy Lifting business. Utilisation of the cable-lay vessels within Renewables and Heavy Lifting has remained robust since their acquisition by the Group in 2018. The Pipelay Support Vessels (PSLVs) on long-term contracts in Brazil achieved high levels of utilisation in the quarter. At 31 December 2019, the fleet comprised 35 vessels, including Seven Vega, which is under construction, and two stacked vessels.
Outlook
The continued improvement in the deepwater oil and gas markets this year has supported increased tendering activity and a gradual improvement in pricing compared to 2018. Since the year end, the Group has announced a number of greenfield FEED and SURF awards. In addition, the Group is currently working on SURF and Conventional tenders with an estimated value of approximately $11 billion, up from approximately $9 billion at the same time last year.
While demand for offshore wind turbine services is growing in support of the transition to low carbon energy production, continued competition in the foundations market continues to negatively impact pricing. This is expected to improve in the longer-term as the market rebalances.
Guidance for full year 2020 is unchanged with both revenue and Adjusted EBITDA expected to be higher than in 2019, driven by an increase in activity in key markets. The Adjusted EBITDA margin is expected to remain relatively subdued, as projects awarded with competitive pricing progress to offshore execution.
For further information, please contact:
Katherine Tonks
Head of Investor Relations
email:
Telephone: 8
Special Note Regarding Forward-Looking Statements
Certain statements made in this announcement may include ‘forward-looking statements’. These statements may be identified by the use of words like ‘anticipate’, ‘believe’, ‘could’, ‘estimate’, ‘expect’, ‘forecast’, ‘intend’, ‘may’, ‘might’, ‘plan’, ‘predict’, ‘project’, ‘scheduled’, ‘seek’, ‘should’, ‘will’, and similar expressions. The forward-looking statements reflect our current views and are subject to risks, uncertainties and assumptions. The principal risks and uncertainties which could impact the Group and the factors which could affect the actual results are described but not limited to those in the ‘Risk Management’ section in the Group’s Annual Report and Consolidated Financial Statements 2018. These factors, and others which are discussed in our public announcements, are among those that may cause actual and future results and trends to differ materially from our forward-looking statements: actions by regulatory authorities or other third parties; our ability to recover costs on significant projects; general economic conditions and competition in the markets and businesses in which we operate; our relationship with significant clients; the outcome of legal and administrative proceedings or governmental enquiries; uncertainties inherent in operating internationally; the timely delivery of vessels on order; the impact of laws and regulations; and operating hazards, including spills and environmental damage. Many of these factors are beyond our ability to control or predict. Other unknown or unpredictable factors could also have material adverse effects on our future results. Given these factors, you should not place undue reliance on the forward-looking statements.
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