Subsea 7 has announced the results for the first quarter which ended on 31 March 2014.
Jean Cahuzac, Chief Executive Officer, said:
First quarter 2014
“The Group has had a good start to 2014, with first quarter revenue and Adjusted EBITDA both increasing from the levels achieved in the first quarter of 2013. I am pleased overall with the operational performance in executing our project portfolio.
In line with our expectation, the record order backlog with which we started 2014 declined marginally in the quarter, ending the period at $11.6 billion. In addition to announced contract awards, scope changes and commitments made under frame agreements augmented order intake.
The Seven Waves, the first of the four new-build PLSVs, successfully completed final equipment trials in the first quarter and is expected to commence operations for Petrobras in May this year under a five-year contract. The vessel has been built and commissioned in line with our cost estimates and will be operational three months ahead of schedule.
Cash levels declined somewhat in the quarter, consistent with our expectations, mainly reflecting the timing of milestone payments on vessel construction projects and the continuation of our share repurchase programme.
Operational highlights for the first quarter 2014
In West Africa, the CLOV project offshore Angola achieved key execution milestones with the installation of two Hybrid Riser Towers and associated buoyancy tanks in the first quarter, led by the Seven Borealis. Other projects that progressed significantly included Block 31 GES, offshore Angola, and Erha North, offshore Nigeria.
In Australia, the Gorgon Heavy Lift and Tie-ins project was in its offshore phase throughout the quarter, while in India, the G1 project for ONGC commenced the third phase of its offshore campaign.
The Guará-Lula NE project in Brazil realised a good quarter of operational achievements, with the second and third buoys successfully placed in position and additional risers installed. The previously communicated project timetable remains unchanged and no adjustment has been made to the estimated full-life project loss.
In the North Sea and Canada, the diverse portfolio of work progressed well, with Life-of-Field particularly active.
Vessel utilisation for the Group was 79% (74% in Q1 2013), which was relatively high for a first quarter period and reflected robust activity levels and moderate out of service time due to dry-dockings.
The trend that began in 2013 for many clients to take longer to award subsea contracts continued in the first quarter of 2014. We expect these delays to have an impact on order intake in the near-term, although high tendering activity in all Territories bodes well for the medium-term outlook.
We reiterate our previous guidance for an expected increase in Group revenue for the full year 2014, together with a moderate increase in Group Adjusted EBITDA from the level achieved in 2013 after adding back the full-life project loss provision recognised on the Guará-Lula NE project in 2013 that amounted to $355 million.”
Management Report: Financial Review
First Quarter 2014
Revenue for the quarter was $1.7 billion, an increase of $201 million compared with Q1 2013. The increase primarily reflected higher activity levels in the AFGOM and APME Territories partially offset by decreased revenue in the NSC Territory.
Adjusted EBITDA for the quarter was $264 million, an increase of $23 million or 10% compared to Q1 2013. Adjusted EBITDA margin was 16%, which was in line with Q1 2013.
Net operating income
Net operating income was $166 million, compared with $154 million in Q1 2013. This increase was primarily due to the higher activity levels in the quarter compared with the same prior year period, partially offset by an increase in depreciation expense of $8 million, driven by vessel-related capital expenditures. General administrative expenses for Q1 2013 of $76 million benefitted from the release of a $16 million provision related to the business combination in 2011. Excluding this provision release from the prior year period, Q1 2014 administrative expenses decreased by $11 million compared with Q1 2013.
Net income was $137 million, compared to net income of $132 million in Q1 2013. The increase in net income was primarily due to:
– the increase in net operating income,
– a $20 million decrease in finance costs due to higher levels of capitalised interest on assets under construction in Q1 2014, the absence of interest relating to the $500 million convertible notes which matured in Q4 2013 and costs incurred in Q1 2013 on the early repayment of the Seven Havla loan partially offset by:
– a loss on disposal of property, plant and equipment of $1 million recognised within other gains and losses compared with a $13 million gain in Q1 2013.
The effective tax rate for the quarter was 21.0%, which reflected the benefit of certain discrete items. Discrete items related to changes in prior year tax provision estimates. Excluding these items, the underlying effective tax rate was 27.3%.
Earnings per share
Diluted earnings per share was $0.41 compared to diluted earnings per share of $0.37 in Q1 2013, based on a weighted average number of shares of 376 million and 396 million shares respectively.
Cash and cash equivalents
During the quarter cash and cash equivalents decreased to $538 million from $650 million. The movement in cash and cash equivalents was mainly attributable to expenditure on property, plant and equipment of $288 million (primarily payments on new-build vessels) and share repurchases of $71 million partially offset by cash generated from operating activities of $257 million.
Borrowings increased by $4 million to $916 million during the quarter.
First Quarter 2014
Africa, Gulf of Mexico & Mediterranean (AFGOM)
Revenue was $669 million, an increase of $141 million or 27% compared to Q1 2013. During the quarter there was progress on the CLOV, Lianzi SURF and Block 31 GES projects, offshore Angola the OFON 2, OCIP Phase 2 and Ertia North projects, offshore Nigeria and the Line 60 and Line 67 projects, in the Mexican sector of the Gulf of Mexico. Net operating income was $77 million compared to $86 million in Q1 2013. The decrease was partially due to additional costs incurred on the Line 60 and Line 67 projects mainly related to changes in project schedule currently under discussion with the operator.
Asia Pacific & Middle East (APME)
Revenue was $205 million, an increase of $81 million compared to Q1 2013. There was significant progress on the Gorgon Heavy Lift and Tie-ins and Ningaloo projects, offshore Australia. Net operating income was $11 million, compared to $15 million net operating income in Q1 2013. The decrease in net operating income was mainly due to the timing of cost recognition on projects in Australia partially offset by a contribution from the SapuraAcergy joint venture in relation to the Gumusut-Kakap project, offshore Malaysia.
Revenue for the quarter was $231 million, an increase of $14 million compared to Q1 2013. The offshore phase of the Guará-Lula NE project and the Sapinhoá and Lula NE project continued during the quarter. Net operating income for the quarter was $19 million (Q1 2013: $22 million net operating loss) due to progress on Sapinhoá and Lula NE project and high levels of vessel activity under the long-term PLSV contracts with Petrobras. In Q1 2013 the net operating loss resulted from the cancellation of the offshore scope of the UOTE project and the Seven Oceans being in scheduled dry-dock.
North Sea & Canada (NSC)
Revenue was $558 million compared to $596 million in Q1 2013. In Q1 2014, work progressed on the Knarr, Martin Lingeand Delta S2 projects, offshore Norway, and the Montrose, Western Isles and Laggan Tormore projects, offshore UK. Net operating income was $73 million, a decrease of $12 million compared to Q1 2013 which benefitted from the recognition of the settlement for the Fram project cancellation.
Revenue was $5 million (Q1 2013: $2 million). Net operating loss of $14 million (Q1 2013: $10 million net operating loss), reflected a lower contribution from Seaway Heavy Lifting in the quarter due to the planned dry-docking of the Stanislav Yudin.
Asset Development and Activities – First Quarter 2014
The Group’s investments in Sonamet and Sonacergy continued to be classified as assets held for sale. The partial disposal of the Group’s interests in Sonamet and Sonacergy is conditional upon the completion of certain conditions precedent, none of which are under the control of the Group. There is no indication that the sale will not proceed as anticipated and the Group expects completion during 2014, at which time the businesses will be deconsolidated from the Group’s Consolidated Financial Statements and their future results will be reported as associates in ‘Share of net income of associates and joint ventures’. The Group believes continued disclosure as assets held for sale is appropriate.
Vessel utilisation during the first quarter was 79% compared with 74% in Q1 2013.
New-build vessel programme capital expenditure
The Seven Waves, a new-build flexible pipelay support vessel PLS\^ for Brazil, is scheduled to commence operations in the second quarter of 2014.
Construction continued on:
• the Seven Arctic, a heavy construction vessel, due for delivery in 2016,
• three PLSVs, the Seven Rio, Seven Sun and Seven Cruzeiro, linked to long-term contracts awarded by Petrobras, with delivery expected in 2015 and 2016,
• the Seven Kestrel, a diving support vessel for operation in NSC, with delivery expected in 2015.
The Group had a backlog of $11.6 billion at 31 March 2014, a decrease of $0.2 billion or 2% compared to 31 December 2013. Significant contracts awarded in Q1 2014 included the BC-10 Phase 3 project in Brazil, contracts with Petrobras for remote intervention services by the i-Tech division and a three-year subsea construction services contract with ExxonMobil in Canada.
$9.1 billion of the backlog at 31 March 2014 related to SURF activity, $1.2 billion to Life-of-Field, $0.6 billion to Conventional and Hook-up and $0.7 billion to i-Tech. $4.8 billion of this backlog is expected to be executed in 2014, $3.0 billion in 2015 and $3.8 billion in 2016 and thereafter. Backlog related to associates and joint ventures is excluded from these amounts.