Subsea 7 S.A. (Oslo Børs: SUBC, ADR: SUBCY) announced today results for the fourth quarter and the full year which ended 31 December 2015. Unless otherwise stated, the comparative period is the full year which ended 31 December 2014.
Jean Cahuzac, Chief Executive Officer, said:
Full year 2015
‘Subsea 7 delivered good operational and financial performance in 2015 in a very challenging market. Revenue for the full year 2015 of $4.8 billion (2014: $6.9 billion) reflected lower levels of activity resulting from the industry downturn. Adjusted EBITDA was $1,217 million driven by consistently good project execution and strong cost discipline. Adjusted EBITDA percentage was 26%, five percentage points higher than the prior year in part due to significant progress on several large projects that reached the final stages of execution.
A downward revision of forecast activity levels resulted in an impairment charge of $521 million relating to goodwill and $136 million relating to vessels and equipment. This contributed to a reported net loss for the year of $37 million. Excluding the $521 million goodwill impairment charge, net income was $484 million with both Business Units profitable in the year.
The Group’s liquidity position remains strong with cash and cash equivalents of $947 million and net cash of $423 million as at 31 December. In addition, the Group had unutilised credit facilities totalling $857 million. Working capital discipline contributed towards $1.0 billion of cash generated from operating activities in the year.
The low price of oil and uncertain market outlook resulted in fewer new awards to market in 2015 as clients delayed projects and reduced their expenditure. In this context, Subsea 7 achieved $3.4 billion order intake during 2015, reflecting its strong competitive position and collaborative approach to drive lower cost solutions. In February 2016 Subsea 7 was awarded the West Nile Delta Phase Two project, offshore Egypt, this large award is in addition to the $6.1 billion order backlog reported at 31 December 2015 (2014: $8.2 billion).Subsea 7 implemented a number of initiatives in 2015 to position itself for an extended period of low activity and strengthen itself for when the business environment improves. These initiatives included simplification of the Group’s reporting structure, formation of new alliances with industry leading partners, investment in innovation to drive lower cost solutions through new technology and better ways of working, and reduction of costs by resizing the business.
The cost reduction and resizing programme announced in May 2015 set out plans to deliver approximately $550 million of annualised cost savings through a workforce reduction of 2,500 and the removal of 12 vessels from the active fleet by early 2016. Resizing actions exceeded this guidance and Subsea 7 ended 2015 with a workforce of approximately 9,800 people, down from approximately 13,400 a year earlier, and as at the end of February 13 vessels have been removed from the active fleet, with an additional chartered vessel due to be returned to its owner before the end of the first quarter 2016. The restructuring charge of $136m relating to the resizing programme, included in Adjusted EBITDA, was broadly offset by cost savings delivered by the programme in the same period.
In order to preserve the Group’s financial flexibility during the sustained industry downturn, the Board of Directors will recommend to the shareholders at the Annual General Meeting that no dividend be paid in respect of 2015.
Fourth quarter 2015
Group revenue was $1.0 billion (2014: $1.4 billion) in the fourth quarter of 2015 and Adjusted EBITDA was $310 million, equating to a margin of 30%. The decrease in revenue was mainly due to lower activity levels in the Northern Hemisphere and Life of Field Business Unit and the Adjusted EBITDA reflected successful project execution and a strong cost discipline.
Net operating loss of $415 million included a goodwill impairment charge of $521 million and a $96 million impairment charge relating to vessels and equipment. Excluding the goodwill impairment charge, net operating income of $106 million increased by $5 million compared to the fourth quarter 2014, despite the lower activity levels. There was a strong contribution from projects nearing completion in the Southern Hemisphere and Global Projects Business Unit partly offset by net operating losses in the Northern Hemisphere and Life of Field, and Corporate Business Units.
Order intake of $0.5 billion in the quarter was partly offset by the adverse impact from foreign exchange movements in the quarter of approximately $50 million. New awards announced in the quarter comprised a platform extension and tie-in project for Burullus Gas Company on the West Nile Delta project and an award for the development of the East Nile Delta Phase 3 project, both located offshore Egypt, as the Group built on its strong and growing presence in this important offshore region.
Operational highlights for the fourth quarter 2015
Total vessel utilisation was 62% in the fourth quarter 2015 (2014: 68%). Utilisation was lower in the Northern Hemisphere and Life of Field Business Unit where there was a significant reduction of work for diving support vessels, whereas the Southern Hemisphere and Global Projects Business Unit benefitted from PLSV activity under the long-term day-rate contracts in Brazil. Full year total vessel utilisation was 72% (2014: 82%). Active vessel utilisation, which excludes stacked vessels, was 78% for the full year 2015 and 74% for the fourth quarter.
In the Northern Hemisphere and Life of Field Business Unit the Gullfaks project, offshore Norway, was substantially completed and significant progress was made on the Stones and Dalmatian projects in the US Gulf of Mexico. The Maria project, offshore Norway, and Culzean project, offshore UK, both made progress with engineering and procurement. Life of Field activity remained low with reduced offshore activity levels compared to the fourth quarter 2014.
In the Southern Hemisphere and Global Projects Business Unit the Lianzi SURF project, offshore Angola, was substantially completed and significant progress was made on the TEN project, offshore Ghana, the Lianzi Topside project, offshore Angola and the BC-10 Phase 3 project, offshore Brazil. Also offshore Brazil the PLSVs under long-term contracts continued to operate with high levels of activity, however towards the end of the quarter an incident on Seven Waves resulted in damage to the lay-tower. This vessel has returned to Europe for extensive repairs and once these have been completed the vessel is expected to return to Brazil in 2017.
The low oil and gas price continues to depress industry activity as clients delay and cancel new projects; the timing of market recovery remains highly uncertain. As guided previously, revenue and Adjusted EBITDA percentage margin are expected to be significantly lower in 2016 compared to 2015.
Backlog as at 31 December of $6.1 billion, included $2.2 billion related to 10 long-term contracts for PLSVs, offshore Brazil. There are two third party Brazilian flagged single-lay PLSVs with a top tension capacity of less than 350 tonnes that may be prioritised under Brazilian law over international vessels of a similar specification. As a result, a proportion of the Group’s backlog relating to these contracts could be affected and discussions are in progress with the client regarding this risk.
Despite the difficult near to medium-term outlook, the fundamental long-term outlook for deepwater subsea field developments remains intact and industry activity is expected to recover when the oil and gas market rebalances. Subsea 7 has already implemented a number of initiatives to strengthen its position and will continue to actively adapt to industry conditions without losing its focus on longterm strategic priorities.
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