Subsea 7 S.A. announced today results for the first quarter which ended 31 March 2018.
First Quarter highlights
- Adjusted EBITDA of $103 million, at a margin of 13%, included a seasonal reduction in offshore activity levels
- New awards and escalations totalled $829 million, raising order backlog to $5.3 billion, as tendering activity continued to
- Joint venture proposed with Schlumberger for integrated SPS and SURF solutions and combined Life of Field services
- Targeted investments to enhance early engineering capability with the acquisition of a strategic interest in Xodus Group, and
widen renewables capability with the agreement to acquire a cable-laying company and two vessels
- Strong financial and liquidity position maintained with net cash of $730 million at 31 March 2018, and $656 million unutilised credit facilities
Jean Cahuzac, Chief Executive Officer, said:
‘Market activity maintained momentum this quarter with several awards to market. Our differentiated offering, strong client relationships and early engagement capability helped us to grow order backlog. Our strategic focus on extending our global presence was affirmed with the first contract awarded to Subsea 7 under the acquired long-term agreement (LTA) with Saudi Aramco, offshore Saudi Arabia, and a new Life of Field contract in the Caspian Sea.
Vessel utilisation and offshore activity in the quarter was low, reflecting the seasonality of operations in the North Sea and the impact of fewer large projects. Our engineering, procurement and fabrication activities progressed well in preparation for offshore installation campaigns in the summer months. Adjusted EBITDA margin fell to 13%, despite continued operational excellence and cost discipline. Our full year guidance for revenue as broadly in line and adjusted EBITDA percentage margin as significantly lower compared to 2017, remains unchanged.
The oil price downturn has stimulated industrywide innovation and partnerships as well as counter-cyclical investments in technology. Following on from strategic actions in 2017, we have made targeted investments in renewables and early engineering during the first quarter and affirmed our commitment to integrated SPS and SURF solutions with the announcement that we will form a joint venture with Schlumberger.’
SURF and Conventional projects progressed well and the six active PLSVs offshore Brazil achieved high levels of utilisation. Offshore Egypt, the Atoll project was completed and the West Nile Delta Phase Two project started pipelay operations late in the quarter withSeven Borealis and prepared for umbilical installation. In Australia, fabrication activity continued on the Sole project and in the US Gulf of Mexico the TVEX project was substantially completed. In the North Sea, the seasonally more challenging operating conditions resulted in lower levels of offshore activity. The Oda project progressed with pipeline fabrication at the Vigra spoolbase in Norway and on the Aasta Hansteen project preparations were made for the topside tow-out and connection.
i-Tech Services was awarded a long-term Inspection, Repair and Maintenance (IRM) contract, offshore Azerbaijan, on which activity commenced late in March.
The Beatrice wind farm project, offshore UK, continued to fabricate and install foundation jackets, with installation expected to accelerate in the second quater. The second offshore campaign for cable-lay operations commenced in March and the project remains on schedule for completion later this year. The Borkum II project for wind farm foundations, offshore Germany, progressed with engineering and procurement.
Active vessel utilisation was 58% in the first quarter and total vessel utilisation was 52%. Four vessels have left the fleet in the quarter, with the chartered vessel Lewek Constellation returned to its owner at the end of its operations on the TVEX and OCTP projects, and three older owned vessels, Seven Condor, Rockwater 1 and Seven Osprey were released for recycling. One chartered Life of Field vessel was added to the fleet for IRM activity, offshore Azerbaijan.
First quarter revenue of $809 million and Adjusted EBITDA of $103 million resulted in an Adjusted EBITDA margin of 13%. The lower revenue and Adjusted EBITDA compared to the prior year reflected deterioration in activity levels due to seasonality of northern hemisphere operations and fewer large projects progressing with offshore campaigns. Net loss of $18 million included net foreign currency losses of $22 million, recognised within other gains and losses, and a tax credit of $12 million. Diluted loss per share was 3 cents.
Cash and cash equivalents was $1,007 million at 31 March 2018 and net cash was $730 million. Cash generated from operating activities of $6 million included a $60 million decrease in net operating liabilities. In April, after the end of the first quarter, the Group completed the acquisition of Siem Offshore Contractors and two related vessels, resulting in a cash outflow of approximately $170 million. 675,000 shares were repurchased for an approximate value of $8 milion. The special dividend of NOK 5.00 per share was approved at the AGM in April and will be paid in May.
Order intake and contract awards
At 31 March 2018, order backlog of $5.3 billion included new awards and escalations totalling $829 million, resulting in a book-to-bill ratio of 1.0. Announced awards in the first quarter comprised the Nova and Johan Castberg projects, offshore Norway, a long-term IRM contract offshore Azerbaijan and the 3PDMs project offshore Saudi Arabia. The two project awards announced in April, the Alligin project offshore UK and the PUPP project offshore Nigeria, have not been included in backlog at 31 March 2018.
Subsea 7 guidance for the full year includes the consolidation of the results of Siem Offshore Contractors from 10 April 2018. Revenue for 2018 is still expected to be in line with 2017 and Adjusted EBITDA percentage margin is still expected to be significantly lower.
The oil and gas cycle is gradually recovering from the very low levels of activity experienced in the last three years and awards to market are increasing, however pricing remains challenging in the near term. The outlook for offshore renewables market activity is on a moderate growth trajectory, but with volatility year on year.