Posted by OilVoice Press - OilVoice
Subsea 7 S.A. (the Group) (Oslo Børs: SUBC, ADR: SUBCY, ISIN: LU0075646355) announced today results for the third quarter which ended 30 September 2018.
Third Quarter highlights
Adjusted EBITDA of $217 million and margin of 20% reflected higher vessel utilisation related to project activity and increased demand for life of field services worldwide
New awards and escalations totalled $0.8 billion with four awards announced in the quarter; order backlog was $5.1 billion at the quarter end
Net cash generated from operating activities of $190 million included $8 million decrease in net operating liabilities as the Group's working capital position stabilised
Tendering and awards activity showed continued recovery for the oil and gas market and market growth for renewables
New guidance for 2019 forecasts Revenue and Adjusted EBITDA lower then 2018, with gradual recovery expected from 2020
Jean Cahuzac, Chief Executive Officer, said:
‘Our client-focused mindset and collaborative approach to creating the right solutions have helped to deliver our good operational and financial results this quarter. Our total vessel utilisation was the highest it has been since 2014 with several large projects executing offshore installation campaigns using our key enabling vessels supplemented by vessels from the wider fleet.
Third quarter Revenue and Adjusted EBITDA benefitted from the higher levels of activity in SURF and Conventional projects and Inspection, Repair and Maintenance (IRM) services, which made good progress in the favourable offshore conditions of the summer months in the northern hemisphere. Renewables and Heavy Lifting activity diminished as the Beatrice project was substantially completed; the next wave of large EPCI wind farm projects are not expected to be awarded until 2019.
Subsea 7 is well positioned for the recovery with its differentiated capability, long-standing relationships and market-leading technology. We will continue to focus on cost discipline and efficiency while preparing for the future increase in activity related to the larger greenfield projects that are now being tendered and awarded.'
Third quarter 2018 operational performance
SURF and Conventional projects progressed well in the third quarter. Offshore Egypt, the West Nile Delta Phase Two project achieved key milestones including the installation of two large diameter export pipelines. Offshore Australia, the Sole project commenced offshore installation and the Greater Western Flank project neared completion. The Conventional PUPP project, offshore Nigeria, began offshore operations less than six months after project award. In the Middle East, the 4 Decks project was substantially completed and the Hasbah project progressed with pipelay activities.
Renewables and Heavy Lifting activity diminished in the quarter. The Beatrice wind farm project, offshore UK, was substantially completed with the final six jackets and 33 inter-array cables installed. Offshore Germany, the Borkum II project progressed more slowly than expected due to adverse weather conditions, as a result, additional costs have been incurred. Subsea 7's vessel, Seven Borealis, was mobilised in October to assist with transition piece installation to accelerate execution in the fourth quarter.
i-Tech Services experienced an increase in IRM activity with more interest from clients in all regions. Additional demand is being met with short-term vessel charters matched to meet clients' needs. Demand for ROV services for floating drill rigs remained subdued.
Active Vessel Utilisation was 89%, up 11 percentage points from the prior year period and 9 percentage points higher than in the second quarter. Utilisation was high in all three operational Business Units, reflecting key offshore phases on the West Nile Delta Phase Two, Hasbah and Borkum II projects in addition to increased IRM activity. Offshore activity is expected to be significantly lower in the fourth quarter reflecting the more difficult weather conditions in the North Sea during the winter months. The reel-lay vessel Seven Navica was reactivated in July for activities in the North Sea and Canada, leaving one vessel, Seven Mar, stacked at the quarter end resulting in Total Vessel Utilisation of 85%.
Financial highlights for the third quarter 2018
Third quarter revenue of $1.1 billion was broadly in line with the prior year period and Adjusted EBITDA was $217 million. Adjusted EBITDA margin of 20% was 4 percentage points lower than the prior year period mainly due to lower pricing on projects signed in the downturn and lower contribution from the Renewables and Heavy Lifting Business Unit. Diluted earnings per share was $0.23, a decrease of 32% on the prior year period.
Subsea 7's new awards and escalations totalled $777 million in the third quarter taking the nine month cumulative total to $3.0 billion. New awards included the Buzzard Phase 2 project for Nexen and the Triton Knoll wind farm project, both offshore UK, the Katmai integrated project for Fieldwood in the US Gulf of Mexico and a Conventional project that for commercial reasons remains unnamed. Order backlog at the end of September was $5.1 billion, of which $2.2 billion is due to be recognised as revenue in 2019. Book-to-bill ratio was 0.7 for the third quarter and 1.0 for the first nine months, driven mainly by an increase in SURF awards.
Subsea 7's financial and liquidity position remains strong underpinned by net cash of $468 million and the Group's unutilised $656 million Revolving Credit Facility. Cash and cash equivalents was $732 million at 30 September 2018, an increase of $118 million in the quarter. Cash capital expenditure of $74 million included approximately $50 million towards Seven Vega, the new-build reel lay vessel which is on target to be delivered in early 2020.
Positive momentum in tendering activity has continued in all three of Subsea 7's operational Business Units but pricing on new awards remains under pressure, particularly for short-cycle projects. The majority of new awards in 2018 have been for projects that deliver incremental production for existing developments. Looking ahead to 2019, several large greenfield project awards to market are anticipated, which will improve utilisation of key enabling vessels and drive margin improvement in the medium-term.
Guidance is unchanged for the full year 2018 Revenue and Adjusted EBITDA percentage margin.
Subsea 7's 2019 guidance, set out below, includes the anticipated impact of the implementation of IFRS 16 ‘Leases', which will be effective from 1 January 2019. The 2018 comparatives are not affected by the new standard and will not be restated. It is estimated that the impact of implementing IFRS 16 on the Group's 2019 income statement will be to increase net operating income by between $10 million to $15 million, with the decrease in operating lease expense mostly offset by the lease amortisation charge. Finance costs are expected to increase by between $20 million to $25 million. IFRS 16 is expected to have a positive impact on 2019 Adjusted EBITDA of between $100 million and $110 million, but net income is expected to be adversely impacted by approximately $10 million due to the timing of finance cost recognition.
Revenue in 2019 is expected to be slightly lower than Subsea 7's guidance for 2018 due to a reduction in our renewables and heavy lifting activity. Adjusted EBITDA in 2019, inclusive of the positive impact from the adoption of IFRS 16, is expected to be lower than 2018. The Group expects to achieve a double-digit Adjusted EBITDA percentage margin and positive net operating income for the year.
Given the positive momentum in tendering activity, 2019 is forecast to be the low point in cyclical profitability for Subsea 7, with a recovery expected in utilisation and financial performance from 2020.
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