Subsea 7 S A : Q2 2020 Results presentation

July 29, 2020 at 02:10 am EDT

Second Quarter 2020 Earnings Presentation

29 July 2020

subsea7.com

Forward-looking statements

This document 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 document. We undertake no obligation to update publicly or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

subsea7.com

Second Quarter 2020

John Evans, CEO

Ricardo Rosa, CFO

Highlights
Financial performance
Strategy
Outlook
Q&A

subsea7.com

Macro environment stabilising

Covid-19

Continued delivery of projects despite Covid-19 restrictions
Covid-19management processes well-established
- Quarantine and PCR testing for crews joining vessels
- Social distancing at onshore bases
- No significant outbreak since Seven Sun
Financial impact of Covid-19 in Q2 approximately $30 million

Oil Price Impact

Tendering activity remains low
Rescheduling by clients continues
- Improved visibility on projects deferred from 2020 to 2021
Activity in the Middle East remains uncertain
Renewables maintaining strong momentum

subsea7.com

Q2 2020 results

FINANCIAL HIGHLIGHTS

Revenue $754 million
Adjusted negative EBITDA $9 million after restructuring charge of $104 million
Goodwill impairment $578 million
Other impairments $229 million
Operating cash flow $219 million
Net increase in cash of $144 million
Net debt of $30 million
RCF extended to September 2023

• Credit facilities remain undrawn

OPERATIONAL HIGHLIGHTS

Active fleet utilisation: 71%
PLSVs achieved good utilisation, excluding downtime due to Covid-19
Good activity in Norway and the Gulf of Mexico
Lower utilisation in Africa, Middle East,
UK

ORDER INTAKE

$2.0 billion order intake
Order backlog $7.0 billion

subsea7.com

Q2 2020 operational spotlight

Mad Dog II (GoM)

Johan Castberg (Norway)

Arran (UK)

Virginia Coastal (US)

PLSVs

Life of Field

Triton Knoll (UK)

Middle East

subsea7.com

Backlog at 30 June 2020

Backlog of $7.0 billion

2022+	2020	SURF and
$1.5bn
Conventional
	$2.1bn	$4.3bn
2021		Renewables &
$3.4bn		Heavy Lifting
		$2.2bn

Life of Field

$0.5bn

Order backlog includes:

$0.4 billion relating to long-term contracts for PLSVs in Brazil
approximately $120 million favourable foreign exchange movement in the second quarter

$2.0 billion awarded in Q2
Book-to-bill:
- 2.7x in the quarter
Seven awards announced in Q2:
- Seagreen (UK)
- HKZ (Netherlands)
- Kaskasi (Germany)
- Anchor (GoM)
- Blythe and Vulcan (UK)
- Hod (Norway)
- SURF project (GoM)

subsea7.com

Q2 2020 income statement summary

Three months ended

	30 June 2020	30 June 2019
In $ millions, unless otherwise indicated	Unaudited	Unaudited
Revenue	754	958

Net operating (loss)/income excluding goodwill impairment	(352)	45

Impairment of goodwill	(578)	-

Net operating (loss)/income(1)	(930)	45

(Loss)/income before taxes	(938)	36

Taxation	17	(13)

Net (loss)/income	(922)	24


Adjusted EBITDA(2)	(9)	171
Adjusted EBITDA margin	(1%)	18%


Diluted earnings per share $	(3.06)	0.09
Weighted average number of shares (millions)	297	308

Net operating loss includes restructuring charge of $104m, goodwill impairment charges of $578m and asset impairment charges of $229m
Adjusted EBITDA defined in Appendix

subsea7.com

Q2 2020 income statement - expense breakdown

Three months ended 30 June 2020

	Reported	Restructuring	Underlying
$ millions	Charge

Operating expenses	(1,031)	(86)	(945)

Administrative expense	(70)	(14)	(56)

Share of net loss of associates and joint ventures	(5)	(4)	(1)

Total		(104)

$104 million charge mainly related to the planned reduction in workforce
The full charge is included in the Corporate segment with no impact on results of the operational business units

subsea7.com

Cost reduction programme on track

Annualised operating cash cost savings of $400 million by Q2 2021 re-confirmed
Net reduction of up to 10 vessels by Q2 2021
- Reduction of 2 chartered vessels: Skandi Acergy and Paul Candies
- 2 owned vessels stacked: Seven Antares and Seven Inagha
3,000 workforce reduction by Q2 2021
- Employee consultation processes have commenced where appropriate
Capex reduction to minimal levels in 2021 and 2022
- 2020: $230-250 million
- 2021-2022:capex less than $130 million per year

subsea7.com

Cost reduction plan - fleet management

	Q2 2020		end Q2 2021

Additions	-		Seven Vega
			(Q3 2020)
Stacked, owned vessels	Seven Antares(1)		Up to 5 more to
	Seven Inagha(1)		be stacked
Released, chartered vessels	Skandi Acergy		Up to 2 more to
	Paul Candies		be released

Active fleet at quarter end	28	22

(1) Owned by Subsea 7's Nigerian joint venture

subsea7.com

Q2 2020 supplementary details

	Three months ended

	30 June 2020	30 June 2019
In $ millions	Unaudited	Unaudited
Administrative expenses	(70)	(61)

Share of net loss of associates and joint ventures	(5)	(3)

Depreciation, amortisation and mobilisation	(113)	(126)

Impairment of property, plant and equipment	(212)	-

Impairment of right-of-use assets	(17)	-

Net operating (loss)/income excluding goodwill impairment	(352)	45
Impairment of goodwill	(578)	-

Net operating (loss)/income	(930)	45
Net finance cost	(5)	(3)

Other gains and losses	(4)	(6)

(Loss)/income before taxes	(938)	36
Taxation	17	(13)

Net (loss)/income (1)	(922)	24

(1) Q2 2020: $911m net loss is attributable to shareholders of the parent company with $11m attributable to non-controlling interests

subsea7.com

Q2 2020 business unit performance

Revenue

Net Operating (Loss)/Income

(excluding impairment charges)

$754m

$958m

($19m)

$45m

$49m

$66m

Renewables & Heavy

$66m

Lifting

Life of Field

$62m

$60m

SURF & Conventional

$842m

$625m

$6m

($26m)

($10m)

($3m)

Q2 2019

Q2 2020

Q2 2019

Q2 2020

Q2 2020 NOL excludes goodwill impairment charges of $578m and impairment charges related to other assets of $195m recognised in SURF and Conventional segment and $14m in Life of Field
Corporate segment not presented: Q2 2020: NOL $130m (Q2 2019: NOL $2m), including restructuring charges of $104m and impairment charges of $20m

subsea7.com

Q2 2020 cash flow

235 (33)

(26)	(6)	(5)	(6)	483

340 (9) (7)

Cash at	EBITDA	Tax paid	Net increase in	Capex	Lease payments	Repayment of	Interest paid	Other	Cash at
1 April 2020			operating			borrowings			30 June 2020
			liabilities

Net debt (including lease liabilities of $292m) of $30 million at 30 June 2020

subsea7.com

Full year 2020

Significant degree of uncertainty remains, including the potential impact of a new wave of Covid-19 cases on both our activities and the macro environment
Revenue expected to be broadly in line with 2019 levels
- Delayed FIDs and postponed awards - Scarborough and other significant target projects
- Rephasing of existing contracts, reduced escalations and spot work:
- - Barossa, Sangomar, Middle East rescheduled
  - Fewer escalations and subdued spot markets in North Sea and Asia Pacific
Adjusted EBITDA, excluding restructuring charge, expected to be in line with current market expectations
Other items:
- Administrative expenses: $230-240 million, including $14 million restructuring charges
- Net finance costs: $15-20 million
- Depreciation and amortisation expense excluding impairment charges: $440-460 million
- Full year tax charge: $10-30 million
Capex: $230-250 million
- Including approximately $80 million for Seven Vega

subsea7.com

Strategy: unchanged

Subsea field of the future:

systems and delivery

Early engagement and partnerships
System innovation and enabling Products
Integrated SPS and SURF
Digital delivery of projects and services

Energy transition:

proactive participation

Oil and gas
Renewables

subsea7.com

Renewables: record quarterly new awards

Activity levels remain robust despite uncertainty in the macro environment
Record quarterly new awards of $1.7 billion
Installation contracts covering ~70% of 425 foundations awarded to date in 2020
Projects in all strategic geographies
- Northern Europe
- Taiwan
- US East Coast
Active and completed projects equating to nearly 8 GW wind power
- approximately 8 million homes

subsea7.com

Renewables: Seagreen award

1.1 GW development located off the east coast of Scotland in water depths of up to 60 metres
Seaway 7 responsible for EPCI of
- 114 foundations
- 330 km of inner-array cables
Contract value: approximately $1.4 billion
Leveraging experience in managing large, complex projects on a lump sum basis to differentiate our offering

subsea7.com

Renewables: Hollandse Kust Zuid award

1.5 GW development located off the coast of the Netherlands in water depths of up to 27m
Seaway 7 responsible for T&I of
- 140 foundations
- 325 km of inner-array cables
Contract value: $150-300 million
First subsidy-free project in the Netherlands
Foundations installation using dynamic positioning
- Increased schedule and cost efficiencies

subsea7.com

Outlook

Active tendering in Renewables
Continued high competition for foundation installation projects
Low tendering activity in SURF and Conventional

Canada and USA

CIP Vineyard (w)
Ørsted US Projects (w)
Shell & EDF-RE Atlantic Shores (w)
Shell & EDF-REMayflower (w)
Equinor Empire (w)
Shell Colibri
Shell Whale

Africa

Chevron SLGC
Aker Energy Pecan (i,f)
ENI Rovuma (f)

Brazil

Petrobras Mero-2
Petrobras Mero-3 2
Equinor Bacalhau (i,f)

Europe

RWE Sofia (w)
Iberdrola East Anglia Hub (w)
Red Rock Inch Cape (w)
EDPR Moray West (w)
Shell Ormen Lange Ph3 (i,f)
AkerBP Noaka
Equinor Northern Lights CO2

Middle East & Asia

WPD Guanyin (w)
Ørsted Greater Changhua 2 (w)
Total Al Khalij
Qatar Petroleum ISND Ph 5-1b
ExxonMobil Central South Dagi (i)

Australia

Woodside Scarborough (i,f)

(i) Integrated SURF-SPS, (w) offshore wind, (f) FEED already awarded, Subsea 7 is preferred EPCI supplier

subsea7.com

Summary

Strong cash flow in Q2 despite challenging conditions
Robust balance sheet with excellent access to liquidity
Leader in Energy Transition
- Strong momentum in Renewables leveraging a ten-year track record
SURF and Conventional backlog projects deferred but not cancelled
Cost reduction programme on track
- Reducing capacity
- Retaining capability
- Flexibility to adapt to the future

subsea7.com

Appendix

Major project progression Track Record

Fleet

Financial summaries

subsea7.com

Major project progression

Continuing projects >$100m between 5% and 95% complete as at 30 June 2020 excluding PLSV and Life of Field day-rate contracts

Sonamet (Angola) Snorre Expansion (Norway)

Nova (Norway) Ærfugl (Norway)

Arran (UK) 3 PDMs (Saudi Arabia)

Manuel (USA) Buzzard Phase 2 (UK)

Zinia (Angola) Mad Dog Phase 2 (USA)

Penguins Redevelopment (UK) Julimar Phase 2 Development (Australia)

Yunlin Offshore Wind Farm (Taiwan) Ærfugl Phase 2 (Norway) Berri/Zuluf (Saudi Arabia)

T&I Formosa 2 OWF (Taiwan) Johan Sverdrup Phase II (Norway)

Sangomar (Senegal)

Announced

size of project

Major (Over $750m)

Very Large ($500-$750m)

Large ($300-$500m)

Substantial ($150-$300m)

Sizeable

($50-$150m)

20%

40%

60%

80%

100%

subsea7.com

• Katmai, Fieldwood

• Vito, Shell

• Mad Dog 2, BP

- Beatrice wind farm,
  BOWL
- Borkum II, Trianel
- Seagreen, SWEL
Shearwater, Shell
Buzzard ph. 2, Nexen
Culzean, Maersk
Alligin, BP
Penguins, Shell
Snorre, Equinor
SCIRM, BP
DSVi, Various

Aasta Hansteen, Statoil
Maria, Wintershall
IRM Services, Equinor
- IRM Services, BP
- - Al-Khalij,Total
  - Hasbah, in consortium with L&T
  - 3 Gas Production Platforms, Saudi Aramco

• TVEX, US Gulf of

Mexico

• Manuel, BP

	• Zinia Phase 2, Total	• Yunlin Offshore Windfarm, WPD

	• WDDM 9b, Burullus
	• West Nile Delta	Phase 2, BP	• EPRS, INPEX/Chevron
	• PUPP, Mobil Producing Nigeria
	• G1/G15, Oil & Natural Gas Corp.
	• OCTP, offshore Ghana
• PLSVs, Petrobras	• Gorgon, Chevron
• SNE Phase 1, Woodside
• Guará-Lula, Petrobras	• Scarborough, Woodside

• BC-10, Shell			• Sole, Cooper
			• West Barracouta, Exxon Mobil

subsea7.com

Fleet - 28 active vessels at end Q2 '20

Under Construction: Seven Vega

Long-term charter from a vessel- owning joint venture

Stacked

Chartered from a third party

Seven Antares and Seven Inagha are owned by Subsea 7's Nigerian joint venture

subsea7.com

Q2 2020 segmental analysis

For the three months ended 30 June 2020

In $ millions (unaudited)	SURF & Conventional	Life of Field	Renewables &	Corporate	TOTAL
Heavy Lifting
Revenue	625	62	66	-	754
Net operating loss excluding goodwill	(189)	(8)	(26)	(130)	(352)
impairment charges

Impairment of goodwill	(578)	-	-	-	(578)

Net operating loss	(767)	(8)	(26)	(130)	(930)
Finance income					1
Other gains and losses					(4)
Finance costs					(6)
Loss before taxes					(938)
For the three months ended 30 June 2019
In $ millions (unaudited)	SURF & Conventional	Life of Field	Renewables &	Corporate	TOTAL
Heavy Lifting

Revenue	842	66	49	-	958

Net operating income/(loss)	60	(3)	(10)	(2)	45
Finance income					4
Other gains and losses					(6)
Finance costs					(7)
Income before taxes					36

subsea7.com

Q2 2020 reconciliation of Adjusted EBITDA

Net operating (loss)/income to Adjusted EBITDA

	Three Months Ended 30 June 2020	Three Months Ended 30 June 2019
For the period (in $millions)	Unaudited	Unaudited

Net operating (loss)/income	(930)	45
Depreciation, amortisation and mobilisation	113	126
Impairment of goodwill	578	-
Impairment of property, plant and equipment	212	-
Impairment of right-of-use assets	17	-
Adjusted EBITDA	(9)	171
Revenue	754	958
Adjusted EBITDA %	(1%)	18%

subsea7.com

Q2 2020 reconciliation of Adjusted EBITDA

Net (loss)/income to Adjusted EBITDA

	Three Months Ended 30 June 2020	Three Months Ended 30 June 2019
For the period (in $millions)	Unaudited	Unaudited
Net (loss)/income	(922)	24
Depreciation, amortisation and mobilisation	113	126
Impairment of goodwill	578	-
Impairment of property, plant and equipment	212	-
Impairment of right-of-use assets	17	-
Finance income	(1)	(4)
Other gains and losses	4	6
Finance costs	6	7
Taxation	(17)	13
Adjusted EBITDA	(9)	171
Revenue	754	958

Adjusted EBITDA margin	(1%)	18%

subsea7.com

Q2 2020 summary balance sheet

	30 June 2020	31 Dec 2019
In $ millions	Unaudited	Audited

Assets

Non-current assets

Goodwill	106	705

Property, plant and equipment	4,116	4,422

Right-of-use asset	258	328

Other non-current assets	178	161

Total non-current assets	4,658	5,616
Current assets

Trade and other receivables	554	605

Construction contracts - assets	349	398

Other accrued income and prepaid	157	169
expenses


Cash and cash equivalents	483	398

Other current assets	65	38

Total current assets	1,608	1,608
Total assets	6,266	7,224

	30 June 2020	31 Dec 2019
In $ millions	Unaudited	Audited

Equity & Liabilities

Total equity	4,344	5,363
Non-current liabilities

Non-current portion of borrowings	197	209

Non-current lease liabilities	197	251

Other non-current liabilities	131	136

Total non-current liabilities	525	596
Current liabilities

Trade and other liabilities	846	858

Current portion of borrowings	25	25

Current lease liabilities	95	94

Construction contracts - liabilities	236	162

Other current liabilities	195	126

Total current liabilities	1,397	1,265
Total liabilities	1,922	1,861
Total equity & liabilities	6,266	7,224

subsea7.com

Q2 2020 changes in cash and cash equivalents

$millions

Cash and cash equivalents at 1 April 2020	340

Net cash generated from operating activities	219	Includes a net increase in operating liabilities of $235 million

Net cash flow used in investing activities	(36)	Includes capital expenditures of $33m

Net cash flow used in financing activities	(37)	Includes $26m in payments related to lease liabilities

Other movements	(3)

Cash and cash equivalents at 30 June 2020	483

•

Net debt of $30 million at 30 June 2020 compared to $255 million at 31 March 2020 Borrowings totalled $221 million at 30 June 2020 compared to $228 million at 31 March 2020

subsea7.com

Contact:

Investor Relations

Email: ir@subsea7.com

Direct Line +44 20 8210 5568 Website www.subsea7.com

subsea7.com

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Subsea 7 SA published this content on 29 July 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 29 July 2020 06:10:05 UTC

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