Luxembourg – 26 July 2018 – Subsea 7 S.A. (the Group) (Oslo Børs: SUBC, ADR: SUBCY, ISIN: LU0075646355) announced today results for the second quarter and first half of 2018 which ended 30 June 2018.
Second Quarter highlights
New awards and escalations totalled $1.3 billion with seven awards announced in the quarter; order backlog increased to $5.4 billion at end June 2018
Market activity continued to recover steadily, led by tie-back projects. Subsea 7's competitive position remains differentiated by technology, early engagement and reliable delivery, combined with good commercial positioning
Adjusted EBITDA of $186 million and margin of 16% reflected fewer large projects, lower pricing on new awards and lower activity levels in the Renewables and Heavy Lifting and i-Tech Services Business Units compared to the prior year period
Strategic investment in renewables: acquisition of a cable-laying company and two vessels completed in April
Jean Cahuzac, Chief Executive Officer, said:
‘We achieved good order intake in the second quarter, reflecting our strong competitive position and ability to provide clients with the right solutions to enable projects to proceed. Seven awards were announced in the period with new projects offshore West Africa and Egypt and in the US Gulf of Mexico and North Sea, taking our book-to-bill ratio to 1.2 times. We continue to expect a gradual recovery of offshore oil and gas awards, led initially by tie-back projects and followed by larger greenfield developments.
Reported revenue of $1.2 billion and Adjusted EBITDA of $186 million resulted in Adjusted EBITDA margin of 16%. This represented a three percentage point improvement on the prior quarter, reflecting a seasonal increase in operational activity in the North Sea.
Our strategic focus on strengthening and growing our business has progressed well in the quarter with the successful completion of our acquisition of Siem Offshore Contractors (SOC) and its integration into our Renewables and Heavy Lifting Business Unit. We have made progress towards forming a joint venture with Schlumberger to develop our integrated service offering and we expect to complete this before the end of the year. We have a strong financial and liquidity position that enables us to pursue long-term investment opportunities that create sustainable value for all our stakeholders.'
Second quarter 2018 operational performance
SURF and Conventional projects made good progress in the quarter. Offshore Egypt, the West Nile Delta Phase Two project executed J-lay and S-lay campaigns that included in-line installation of three tees. In the US Gulf of Mexico umbilical installation was completed on the Stampede project. Offshore Brazil, the contract for the PLSV Seven Phoenix was extended, and is now expected to conclude in August. Offshore Norway, the Aasta Hansteen project completed the SPAR tow-in and connection of all steel catenary risers. In the Middle East, the Four Decks and 17 Cranes projects progressed well and pipelay activity continued on the Hasbah project.
Renewables and Heavy Lifting activity on the Beatrice wind farm project, offshore UK, neared completion with 82 of the 84 foundation jackets installed by the quarter end. Offshore Germany, the Borkum II project commenced offshore installation.
i-Tech Services renewed a long-term Inspection, Repair and Maintenance (IRM) contract offshore Norway, demonstrating its market- leading offering and reliable execution. i-Tech Services continued to grow its presence worldwide with the strategic addition of a chartered life of field vessel, MMA Pinnacle, for IRM services offshore Australia and Asia.
Active Vessel Utilisation was 80%, up 22 percentage points from the first quarter reflecting the seasonality of offshore operations in the North Sea. Total Vessel Utilisation was 75%, including two vessels that remained stacked in the quarter. During the second quarter, three vessels were added to the fleet and one vessel was removed for recycling. The new-build reel-lay vessel reached a significant construction milestone in July and will be named Seven Vega.
Technology and innovation differentiate Subsea 7 in a competitive market with complex technical challenges. Subsea 7 and Airborne Oil & Gas have been working together to qualify the use of composite riser solutions in Brazil. Composite risers offer a potentially superior solution for deepwater fields due to their lighter weight and improved corrosion resistant properties.
Financial highlights for the second quarter 2018
Second quarter revenue was $1.2 billion and Adjusted EBITDA was $186 million, up 13% and down 45% respectively compared to the prior year period. Adjusted EBITDA margin of 16% was 17 percentage points lower than the prior year due to fewer large projects completing in the quarter, lower margins on projects signed in the downturn and lower activity levels in the Renewables and Heavy Lifting, and i-Tech Services Business Units.
Subsea 7's new awards and escalations totalled $1.3 billion in the second quarter. Order backlog at the end of June was $5.4 billion, and included $95 million of order backlog from the acquisition of SOC in the second quarter.
In April, Subsea 7 acquired SOC and two associated vessels to complement its Renewables and Heavy Lifting activities. The addition of this cable-lay capability further derisks EPCI balance of plant operations on wind farms and expands Subsea 7's presence in this growing area of offshore energy.
The Group's financial and liquidity position remains strong. Cash and cash equivalents was $614 million at 30 June 2018 and net cash was $343 million. Cash outflow in the period included the payment of a $204 million special dividend and $164 million related to the acquisition of SOC with associated vessels. The Group's $656 million Revolving Credit Facility was unutilised at 30 June 2018.
Awards to the market have increased over the last three quarters as clients have selectively moved ahead with projects sanctioned at the start of the recovery; most of these were tie-back solutions for incremental production. Recent awards have been enabled by early engagement, new technology and simplified solutions and benefitted from lower pricing in an underutilised supply chain. Subsea 7 has received a good share of these awards, reflecting its market-leading capabilities and good commercial positioning.
Tendering activity has increased for oil and gas projects and there is better visibility on the timing of project sanctions. Although project margins on new awards remain under pressure, pricing is expected to improve in the medium-term, linked to the increase in offshore activity.
The awards of certain large wind farm projects have been delayed, but the outlook for the offshore renewables market is unchanged and remains positive with technology and execution efficiency driving lower project costs.
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