This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk02: Welcome, everyone, and thank you for joining us on a busy day. With me on the call today are John Evans, our CEO, Mark Foley, our CFO, and Stuart Fitzgerald, CEO of Seaway7. The results press release is available to download on our website, along with the slides that we'll be using during today's call. Please note that some of the information discussed on the call today will include forward-looking statements that reflect our current views. These statements involve risks and uncertainties that may cause actual results or trends to differ materially from our forecast. For more information, please refer to the risk factors discussed in our annual report or at the bottom of today's quarterly press release. I'll now turn the call over to John.
spk13: Thank you, Catherine, and good afternoon, everyone. I will start with a summary of the first quarter before passing over to Mark for more details on the financial results. Turning to slide three, Subsea 7 delivered first quarter adjusted EBITDA of $162 million, up 52% year on year, and with a margin of 12%. This is in line with our expectations for the quarter, and we're on track to meet the four-year guidance. During the quarter, we continue to win high-quality projects, and our backlog remain robust at $10.4 billion. This portfolio of firm work supports our expectations. for strong margin expansion this year, and a goal to achieve an 18 to 20% adjusted EBITDA margin in 2025. Our conversations with clients in both Subsea and Offshore Wind remain very positive, and we are excited about the opportunities for both businesses near term and over the longer term. Slide four shows the backlog by business units. With $4.8 billion of work for execution by the group in 2024, comprising of $3.9 billion in subsea and conventional and $900 million in renewables, we have very high visibility on the year ahead. Our firm work for 2025 continues to grow year on year, with awards worth $4 billion already secured. And now I'll pass over to Mark to run through the financial results.
spk10: Thank you, John, and good afternoon, everyone. I will begin the financial performance review with some details of group and business unit performance in the quarter, before returning to the group cash flow and financial guidance for 2024. Slide 5 summarizes the group's first quarter results. Revenue increased to $1.4 billion, up 12%, compared to the first quarter 2023, driven by large projects in subsea and conventional. Adjusted EBITDA of $162 million was up 52% compared with the prior year, and our margin increased by 300 basis points to 12%. This reflects the strong performance in subsea and conventional portfolio, partly offset by planned off-season vessel maintenance and heightened weather seasonality in the renewables business year. Net finance costs of $14 million a net foreign exchange gain of $49 million driven by movements in non-cash embedded derivatives and taxation of $26 million resulted in a net income of $29 million. This compared with a net loss of $29 million in the prior year period. I will now discuss the drivers for the group performance in the next few slides. Slide 6 presents the key metrics for our sub-seeing convention. Revenue was $1.2 billion, up 12% year-on-year, reflecting execution of the final hookup scope at Sangomar in Senegal, good progress offshore at Bacalao in Brazil, and ongoing engineering and procurement for Yggdrasil in Norway. Adjusted EBITDA was $160 million, equating to a margin of 13.4%, up 430 basis points from the prior year. These financials were underpinned by solid operational portfolio performance, the continued evolution of activity to higher margin contracts, and a $9 million net income contribution from one subsea. Net operating income was $47 million compared to $3 million in the same quarter last year. Selected renewables performance metrics are shown in slide 7. Revenue was $179 million, up 12% year-on-year, reflecting high activity in Taiwan, and Seaway AlphaLift completing the installation of transition pieces at Dollar Bank A, while Seaway Strachnoff was mobilizing for foundations installations at Dollar Bank B. Adjusted EBITDA was $1 million, resulting in an adjusted EBITDA margin of 0.7%. The Yunlin project in Taiwan made a good contribution to adjusted EBITDA in the quarter, but the result was, in part, adversely impacted by planned off-season maintenance for each of the seaway Emery, Phoenix, Moxie and Strasnoff, together with heightened weather seasonality. Similar to 2023, we expect Renewables Business Unit to generate a double-digit adjusted EBITDA margin in the full year. Slide 8 shows the cash flow waterfall for the first quarter. Net cash used in operating activities was $13 million, which included a $157 million adverse movement in working capital. This build is temporary in nature, and movements of this magnitude are to be expected when executing a portfolio with such scale and complexity characteristics. Net cash used in investing activities was $17 million, including capital expenditure of $83 million, partly offset by vessel disposal proceeds of $57 million. Net cash used in financing activities was $118 million, which included lease liability payments of $49 million, scheduled borrowing repayments of $31 million, and share repurchases of $15 million. At the end of the quarter, Cash and cash equivalents was $604 million, and net debt was $782 million. This included lease liabilities of $572 million, which increased by $113 million from the year-end position due to two new vessel charters, Ross Candies and Everthinks, and the extension of the existing Bocca subsea chart. These vessels have been chartered to meet the workload in Norway, Brazil, and the Gulf of Mexico. The group had liquidity of $1.5 billion at the quarter end, which included $860 million of committed, unutilized borrowing facilities. To conclude, slide 9 shows our guidance for the full year. Guidance for all elements remains unchanged. In 2024, we continue to expect revenue to be in a range of $6 to $6.5 billion, while we also continue to expect adjusted EBITDA to be between $950 million and $1 billion. As announced in February, we will pay approximately $170 million in dividends in 2024 and execute $80 million of share repurchases. The first of two equal dividend payments of three kroner per share will be made on Thursday the 14th of May. I will now pass you back to John.
spk13: Thank you, Mark. One of the most regularly asked questions from analyst investors is how can we keep growing the business and maximising our opportunity set? I'll discuss this on slides 10 and 11. Subsea 7 has 28 owned assets and 12 chartered vessels. finding competitive advantages. Our high spec pipe lay vessels are capable of installing complex pipelines and structures in deep and ultra deep water. These global enablers are vital to winning and executing, efficiently and safely, the biggest and most challenging projects in the industry. Optimizing our fleet years. By focusing our global enabling vessels on the most demanding pipeline scopes and outsourcing more commoditized work to the chartered fleet, we will high-grade utilization of our biggest assets and drive an increase in efficiency. Of course the other aspect to ensuring high returns is capital discipline. We will look at selective acquisition of quality capacity where it's clear economic sense and but where we are committed to capital discipline. We have the right assets and the right people to enable us to seize the opportunities in front of us and are excited about the future of the group. On slide 11, we put the fleet strategy into practice, showing the selected capacity we're adding to the coming two years. Ross Candies joins our two other Chartered Jones Act vessels, and the US East Coast. Head of Sphinx is another light construction charter that joined the fleet in Q1 and will be supporting our work for Acker BP in the Norwegian market. In Q1, we also extended the firm period on the Bokker Subsea by an additional year. This complements our existing charter of the Scandi ACG, which is due to join us in 2025. Finally, in Q2 this year, Seaway Ventus joined our fleet of own vessels, and kicks off two years of firm work with turbine installation at the Goldwind 3 field in Germany. Now onto review of our tendering pipeline on slides 10, 12, and 13. Bidding for subsea work remains very active, and our tenders in-house exceed $20 billion. We continue to engage early with clients to help them realize the development plans and their discussions now extend well beyond 2026, in some cases to the end of the decade. As ever, a key market for us is Brazil. We're confident of securing a share of the up-and-coming Buzios bases, and negotiations to extend the long-term charters of our pipeline support vessels are in the final stages. Elsewhere, we have a large portfolio of tie-back opportunities, along with additional phases of work at Sakaria in Turkey, new gas-focused LTA opportunities in Saudi Arabia, and a growing list of prospects in Africa and Asia. We continue to see clients actively engage with the subsea integration lines between subsea 7 and 1 subsea to access our array of integrated surf and SPS solutions. Overall, we're confident that we have a strong tendering pipeline that can support continued momentum in our subsea order intake. On the next slide, we have our wind prospects. The European wind market remains active with prospects in Poland, Germany, and the Netherlands. We remain selective in our bidding and will ensure that the risk-reward of new contracts continues to sustain the improved underlying financial performance in our renewables business. We remain optimistic that the CFD allocation round in the UK this summer will unlock new awards in the world's largest offshore wind market. Although the US market is still in the process of adapting to higher input costs, longer term we expect the US tendering activity to rebound. To conclude, we'll turn to our final slide on page 14. Subsea 7 delivered a strong operational and performance financially in Q1, and we're on track to deliver 30% growth in adjusted EBITDA in 2024. This is underpinned by existing firm work, which also supports our expectations of continued margin expansion in 2025. As I reflect on the positive outlook for the group, I'm encouraged that tendering activity remains high Given our strong track record of successful execution of complex deep-water developments and leveraging our differentiated fleet of modern and highly capable vessels, we're in poor position to secure a portfolio of high-quality awards in the coming year. We expect this to drive significant growth in free cash flow, which combined with our commitment to capital discipline will enable us to return at least $1 billion to our shareholders in the coming four years. And with that, we'll be happy to take your questions.
spk07: Thank you. As a reminder, to ask a question, you will need to press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, you will need to press star 1-1 again. We will now take our first question. Please stand by. And the first question comes from the line of Victoria McCulloch from RBC. Please go ahead. Your line is now open.
spk04: Morning. Thank you very much for your commentary and asking questions. I'll limit them just to two questions. We've seen another quarter of high level of escalations. Just on this one, I mean, maybe I should know the answer to this, so apologies. Where do these escalations come from and how imminent is the work that they are increasing? And is there a geographical, I guess, balance to these, or do they come from one region in particular? And second of all, the colour and charter vessels is really interesting. Do you see that market as being sufficient to have opportunities for you to grow as the market continues to grow? Is there a limit to the right number of charters within your fleet and what they can do within the work that you've been awarded? Thanks very much.
spk13: Thank you, Victoria. I'll take the chartered and the vessel question. Mark will talk about the escalations. We've always spoken about our business model has always been a mixture of strong owned capacity, which we call our global enablers, and then we bring additional chartered tonnage in, and that balances exactly what we're showing on our slides in this presentation. There is ultimately a finite limit to any company in terms of size and scale with its global enablers. But at the moment, we are very comfortable that we can bid all the opportunity sets that are ahead of us and that we can execute the work that's ahead of us in the coming years. It's that balance between chartered and owned. But a lot of our clients are very interested in the key enabling assets being owned rather than chartered. And so, again, we see that as a key important differentiator when we speak to clients. So at the moment, we don't see any impediment to growth. And that was the purpose of showing these slides to everybody today, is that the plan is coming into action, as we've discussed, and we're comfortable here that we have good capacity for the next three to four years. Mark, maybe you can answer the question.
spk10: Yeah, sure. Thank you. Good afternoon, Victoria. Escalations are primarily variation of those to the contracts that we have with our clients. Generally manifests itself in terms of a change to the scope of the contract and or the timing In terms of geographical dispersion, now we see variation orders across our portfolio. And in terms of timing, perspective was very difficult to put an average time in terms of when that work would be executed. Another attribute for us to consider as well is the success of our early engagement, where clients award us fee contracts to start off with. And as we've successfully progressed through the fee then that is accompanied with the main contract award. Those are generally recognised as variation offers as well. So hopefully that provides some colour in terms of shape and contour around the escalations generically that we've recognised in recent quarters.
spk04: Thanks very much.
spk07: Thank you. We will now take our next question. Please stand by. And the next question comes from the line of Richard Dawson from Benenberg. Please go ahead. Your line is now open.
spk09: Good afternoon, and thank you for taking my questions. I was interested in comments from the presentation that you're increasing utilization by reducing vessel transit times. Presumably, this is managed already to an extent. So just interested to hear what additional steps have been taken to reduce these times and what that impact on utilization means. We had sort of 77% in 2023. So we have a high utilization this year. And then secondly, just a clarification on renewables. You mentioned a return to more than 10% margins for the rest of the year in renewables. Do you expect this margin level for the full year or is it just in the next three courses? Thank you.
spk13: So I'll take the transit questions and then Stuart will come in and talk about the renewables. One thing that we've been trying to focus in on the last few years is to make sure that we are in a position where our assets aren't doing unnecessary transits So you've seen that we're doing major projects in Australia. We're doing Scarborough, closely followed by Barossa. In Brazil, we have Bacalao, then we have Merrow 3, then we have Merrow 4, and we have Burgos 8. And then in the North Sea, we have packages of work in Norway and in the UK that allows us to deploy assets and keep them in those locations. So it's about maximizing the assets in certain geographies. don't need to transit them around and then that allows us to sell those additional days back on other projects and then increase our profitability is the main theme of that one. I'll ask Stuart to pick up on the renewables margin.
spk11: Yeah, so that's a full year above 10% to answer that question. I think that the renewables is largely a Northern Hemisphere business, so quarter one with its worse weather conditions is often a a period of lower activity as we get into the current quarter and the next uh and q3 uh things get very busy with the projects and that tends to then drift also into q4 and then in q4 you obviously get to the uh the closing phases of some of the projects so q1 a weaker quarter um 10 anticipated for the full year above 10 percent
spk09: Okay, thanks for the color. And maybe just a follow-up just on the transit time. So could that mean we could expect high utilization this year?
spk13: I think we're seeing the results of our plan come into play, Richard. I think that's the way to think about it. As I've said in my prepared remarks, we're reasonably comfortable that we have this year worked out. We've given the guidance to the market. The plan is being activated and working as we speak. That's great.
spk09: Thank you very much.
spk03: Thank you.
spk07: We will now take our next question. Please stand by. And the next question comes from the line of Kevin Roger from Kepler Chaveau. Please go ahead. Your line is now open.
spk08: Yeah, good afternoon. Thanks for taking the time. I have two questions, if I may. The first one is on the top line guidance. I was wondering if you can share with us what are the key elements for for preventing us to upgrade the guidance. Because when I look at the Q1 top line plus the backlog that you have in hand, you are already at $6.2 billion of revenue that are made. And considering the variation orders, et cetera, it seems that you should easily be above that. So can you give us a bit of color on why the top line is still seeing around $6 to $6.5 billion? That's the first question, please. And the second question is, so you have just taken a lease on a vessel that is a John Sacks I, the Ross Condies. So can you share a bit of information on basically what kind of duration you have embarked on this charter, the workload that you have for this vessel? Because I guess it's not only for the offshore wind in the U.S. as it's a John Sacks I, please.
spk13: Well, good afternoon, Kevin. Thank you. On the guidance, we're comfortable where we are at the moment at this time of the year. One of the key challenges for us in this industry, as we well know, is the arrival of FPSOs so that we can hook up the FPSOs. And this year is quite an intensive year for us, where we are bringing a number of large fields into play. And we just need to be sure that we achieve the percentage complete that we expect as So for us, we're comfortable with the guidance that we've got. Let's see how the next quarter develops. Let's see how the windows close down with our clients. But it's not been unheard of that FBOs are delayed and such like, and therefore then we can't achieve the revenue and the percentage complete we expect on the projects. So at the moment, we're comfortable with the guidance and we will work with you over the next two quarters if there's anything to adjust in there. In terms of the Jones Act, As you know, you require Jones Act for certain asset classes in the U.S. That work is two different types of work. We do a lot of inspection, repair, and maintenance work for our key clients in the Gulf of Mexico. As you know, we do roughly 50% of the CAPEX work in the U.S., and that then follows on that we do quite a bit of inspection, repair, and maintenance work. Most of that work is in our backlog at the moment, or we have clarity of the drawdowns that will secure that. Then Stewart's Business has one project in the U.S. that will use one of our Jones Act assets in the pool, and as we discussed, we have three of those assets to support its work this year. Okay, understood.
spk07: Thank you. We will now take our next question. Please stand by. The next question comes from the line of Kate Somerville from J.P. Morgan. Please go ahead. Your line is now open.
spk05: Hi, good afternoon. Thank you so much for taking my questions. I have two, please. The first is on the renewables business. Previously, I believe you said that in the midterm, you expect the market to grow well above current capacity. I was just wondering if you're seeing from your competitors any more capacity come onto the market. So in other words, are you still anticipating a tight market in renewables over the next few years? And then my second question is on you potentially being in terms of capacity acquisition. Given the high level of utilization globally, I'm just wondering where you see this potentially coming from. And I'm assuming that the favorable economics will be from higher margins offsetting potentially a higher price. Any color around that would be great. Thank you.
spk13: I'll ask Stuart to take the renewables question. Stuart?
spk11: Yeah. So I think in terms of mid-term capacity and discipline amongst the current participants in terms of new assets, the answer is we are seeing the established players exercising capital discipline. I think that everyone recognises the need for this business to show sustainable profitability. and is holding back on new investment. I would say the turbine sector is a little bit different. There's a little bit more speculation in that sector, but in our main segments, which is foundations and cables, a very clear picture of capital discipline and restraint in terms of adding new capacity.
spk01: And Kate, could I ask you just to repeat the second question, please?
spk05: Of course. So I need... In your prepared remarks, you talked about potentially selectively acquiring more capacity. I was just wondering, given the high utilization of vessels globally, just wondering where that could potentially be sourced from. And that whatever price you pay, I imagine it will be probably richer than it was a few years ago. And I'm assuming that would be offset by higher margins. Yeah, that's great.
spk13: Understood. OK, sorry. I understand the question. Thank you. Yeah, for us, I think we've said this on a number of these calls. We track every single vessel in the industry, and there are all sorts of vessels tucked away in different countries, working for different clients. There's a number of vessels which are recently built, well-built. quite significantly and again for us it's about the economics of a three-year charter versus an acquisition if it made sense economically but that's the only thing that we would look at for us it's about chartering provides flexibility it allows us to write the cycles up and down so it's all about just knowing where every single asset in the industry is and just keeping an eye on it and at different times some of that tonnage becomes available
spk01: Understood.
spk07: Thanks so much. Thank you. We will now take our next question. Please stand by. The next question comes from the line of Kate O'Sullivan from Citi. Please go ahead. Your line is now open.
spk03: Hello. Thank you for taking my questions. Your slide on subsea prospects for the next 12 months, it shows a number of prospects offshore Africa. And admittedly, further out in terms of timeline, but how are you thinking about positive news flow coming out of Namibia and positioning yourself for potential future opportunities in this region? And then secondly, apologies if I missed it, but the PLSC tender in Brazil, is there any sources update on that one? Thank you very much.
spk13: Okay, we'll take the PLSC first. In my prepared remarks, Kate, And we're reasonably comfortable here that the process should conclude with our assets being redeployed. So for us at the moment, that process is underway, but not yet concluded. But I would expect by the time we're here in Q2, that's all behind us. Namibia, myself and our leadership team in Africa, a number of export members went to Namibia in December, met the government, met the clients, met the energy ministry. A lot of buzz, a lot of excitement there. I think for us, we're seeing our opportunity sets being towards the end of this decade as to when these projects will kick off, probably 28, 29. But a very interesting visit for us. I enjoyed the visit down there. And again, we're making our plans for that location and how we're ready to support our clients as they put their development plans together.
spk03: Brilliant. Thank you so much for the call.
spk07: Thank you. We will now take our next question. Please stand by. The next question comes from the line of Christopher Muller-Locken from Spare Bank One Markets. Please go ahead. Your line is now open.
spk06: Thank you. It's not an easy name. It's Christopher Mollerlock in Spare Bank One Markets. Just one question regarding Petrobras. Especially around February, there were increased concerns in the market about increased political interference of the business in Petrobras, especially regarding its dividend announcement or lack of in February. Have you, as a key supplier, seen any change in the customer behavior of Petrobras this year? Thank you.
spk13: Christopher, good afternoon. No, we haven't. Petrobras, I think it's public knowledge that Bujios 9, Bujios 10, and Bujios 7 FBSOs are already under audit. and they need to bring heavy-duty subsea contractors in to provide the work for their subsea packages associated with those three major FPSOs. The PLSVs, again, are going at a planned rate. So we've seen no change in direction from Petrobras. They're very clear they have a large workload ahead of them, and they're looking forward to engaging with the market and securing the right capacity and capability that they need.
spk01: Thank you. Thank you.
spk07: We will now take our next question. Please stand by. And the next question comes from the line of Mark Wilson from Jefferies. Please go ahead. Your line is now open.
spk12: Yeah, thank you for that. My first question is, you've got a new category of supermajor contract in your outlook over $1.25 billion. I just wonder how much of a change is that? Have they always been there? It's just the manner of how you disclose it. And that would be the first question. Are there any in the portfolio at the moment of that level? And I suppose the second follow-on question from that is, is there a new category of super margin contract? Thank you very much.
spk13: So Supermajor was just us reviewing, as we are on a sort of reasonably regular basis, are we providing the right information to the market in terms of categorization and such like. We've seen some of these larger projects in Brazil, some of the projects such as Idrisil in Norway do meet the requirements, and our major project table at the back It was just designed that we were finding that 7.50 is a cutoff point on some of the very larger sub-sheet projects is probably a bit low. So again, we felt it was important to give the market clarity that there are projects below 7.50, between 7.50 and 1.25, and now that we're seeing ones that go above that. I'm sorry, Mark, you asked the second question.
spk12: Yeah, the second question was whether there's a category of super margin contracts in there.
spk13: If only I could tell you. I think the main message that we've given consistently in all our quarterly results is that the direction of travel is okay. We've guided for this year. We told you we were aiming for next year. And I think the message that we're very clear on, and some of our clients are talking to us about work towards the end of the decade, we're very enthusiastic about the fact But the direction of travel is good.
spk12: That's great. And if I could permit one follow-up question. Obviously, the market is very good and the award's coming, but you seemed quite immune from discussion regarding Aramco's pullback of work, even though you are part of the LTA work in the Gulf over there. Could you speak to any kind of impact you've seen there on the forward plan?
spk13: Well, I think the important message that Saudi Aramco gave was that they were adjusting their oil production. And that did lead to a number of projects that were under tender at the moment to be withdrawn. And that's had an impact for some drillers and some of the LTA players that are in the mix at the moment. But equally, Saudi are currently in the market for some gas projects again. So again, it's not all stopping Saudi in any way, shape or form. So, again, we continue to bid our opportunity sets there. We have a business that's a certain size and certain scale in Saudi that we're comfortable with and Saudi Aramco are comfortable with. And we expect that we'll get a share of our work to continue there. It may be much more gas-focused than oil-focused, but that's the nature of decisions clients make strategically.
spk01: Thank you very much. I'll hand it over. Thank you.
spk07: As there are no further questions, I would like to hand back to John Evers for closing remarks. Please go ahead.
spk13: Well, thank you very much for joining us on what is a very, very busy day for the industry. I hope that the messages were loud and clear. We've had a good and a solid start to the first quarter of this year. Direction of travel is very good, and we expect to continue along this path this year. And we look forward to talking to you again in Q2. As you know, a number of you have said yes to joining us for a visit to our VIGRA school base in June. The idea is to spend a day together talking about our subsea and conventional business, where we can talk about the market, the scaling, our equipment, our technologies, our offering, and then in the afternoon then walk through the VIGRA school base that is working on the Idrisil project for ACCA BP. We'll also be joined by a member of the ACCA BP executive to talk about what it feels like to work in an alliance with Subsea 7 As a client. So again, we look forward to that day. A number of you have said yes to joining that. If you haven't been able to say yes, please speak to Catherine. We look forward to hopefully meeting a number of you then. If not, we will talk to everybody in the market with our Q2 earnings. With that, thank you very much for joining us. Goodbye.
Disclaimer