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spk00: Welcome everyone and thank you for joining us. 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 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 forecasts. For more information, please refer to the risk factors discussed in Subsea 7's 2023 annual report or today's quarterly press release. I'll now turn the call over to John.
spk03: Thank you, Catherine, and good afternoon, everyone. I will start with a summary of the second quarter before passing over to Mark for more details of the financial results. Turning to slide three, Subsea 7 delivered year-on-year and with a margin of 17%. We're on track to meet EBITDA guidance, which has been revised upwards by 5%. The second quarter was a record for Subsea 7, both in terms of order intake and backlog. The addition of more high-quality projects support our expectations of strong margins in the remainder of 2024 and over 20% in 2026. Our tendering pipeline in both subsea and wind remains robust, and we're confident in a positive outlook for both businesses. Turning to slide four, order intake in the second quarter was $4 billion, reflecting new awards in Brazil, Turkey, UK, and the Gulf of Mexico. Our book to build for the quarter was 2.3 times and 1.7 times first half. With a high book-to-bill, we continued to drive strong growth in our backlog, and at the end of the first half, we had $12.5 billion of firm work, a record high. Slide 6 shows the backlog by business units. After recent awards and sub-team conventional, including Bujo four billion dollars already secured for 2026 and beyond in renewables the backlog is roughly flat as we remain selective in our tendering approach to support future margins and returns and now i'll pass over to mark to run through the financial results thank you john and good afternoon everyone i'll begin the financial performance review with some details of group and business unit performance in the quarter
spk04: before returning to the group cash flow and financial guidance for 2024. Slide seven summarizes the group's second quarter results. Revenue increased to $1.7 billion, up 15% compared to the second quarter of 2023, largely driven by a subseeing convention. Adjusted EBITDA of $292 million was up 80% compared with the prior year, and our margin increased by over 600 basis points to 17%. Net finance costs of $24 million, a net foreign exchange loss of $8 million, and taxation of $41 million resulted in net income of $63 million compared with $14 million in the prior year period. I'll now discuss the drivers of the group's performance in the next few slides. Slide eight presents the key metrics for subsea and conventional. Revenue was $1.4 billion, up 21% year-on-year, reflecting good progress on fabrication of ervigra, wick, and bintan spillbases, as well as the execution of offshore scopes in Guyana, Brazil, Australia, and Norway. Adjusted EBITDA was $247 million, equating to a margin of 17.2%, an increase of approximately 700 basis points from the prior year. This result was underpinned by the continued mixed shift to higher margin projects, high utilization of the global enabler vessels, as well as a $9 million net income contribution from one subsea. Net operating income was $126 million, compared to a loss of $10 million, in the same quarter last year. Selected renewables performance metrics are shown in slide 9. Revenue was $281 million, broadly flat year-on-year, reflecting ongoing activity installing foundations and transition pieces at Dogger Bank, as well as cable lay projects in the UK and Taiwan, and our first turbine installation project in Germany. Adjusted EBITDA was $38 million, resulting in a margin of 13.6%. We continue to expect the renewables business unit to generate a double-digit adjusted EBITDA margin in the full year. Slide 10 shows a cash waterfall for the second quarter. Net cash generated by operating activities was $187 million, which included a modest $12 million adverse movement in working capital. Net cash used in investing activities was $202 million, including capital expenditure of $55 million, and the second of two payments for our investment in 1C amounting to $153 million. Net cash used in financing activities was $213 million, which included dividend payments of $82 million, share repurchases of $19 million, and lease payments of $55 million. Restricted cash increased by $83 million related to the purchase of African Inspiration, a 250-pound crane-class construction vessel. The purchase was completed on the 18th of July, and the vessel will be renamed 7 Merlin. At the end of the quarter, cash and cash equivalents was $290 million, and net debt was $1 billion, which included lease liabilities of $533 million. The group had liquidity of $1.1 billion at the quarter end, which included $860 million of committed unutilized borrowing facilities. At the 24th of July, the company had utilized $52 million or 65% of the $80 million allocated to share repurchases as part of their $250 million shareholder returns in 2024. To conclude, Slide 11 shows our guidance for the full year. We have raised our expectation for revenue and adjusted EBITDA slightly, as well as reflecting the purchase of 7 Merlin in capital expenditure. In 2024, we now expect revenue to be in a range between 6.5 and 6.8 billion dollars, with adjusted EBITDA being between 1 and 1.05 billion dollars. This reflects the good progress on our existing portfolio projects. Our capital expenditure guidance now includes the purchase of 7 Merlin of $83 million. The underlying capital expenditure guidance has not changed. I will now pass you back to John.
spk03: Thank you, Mark. On the next three slides, we have a few highlights from the last quarter, starting on slide 12 with our gas to energy project in Guyana. This was our first project in Guyana and involved the fabrication and SLA of 119 kilometers of rigid pipeline using the CERN Borealis. The pipeline scope was successfully completed 10 days ahead of schedule, and the CERN Borealis is now mobilizing to Saudi Arabia for work on Aramco's Zuluk field. Slide 13 continues a theme from our recent investor day of enabling products, including our range of flow line solutions. As we discussed in June, The Alliance framework and early engagement with APA BP allows a very open dialogue about the solutions that could be used to optimize their field developments. At Vigra, we saw the fabrication of high-performance, corrosion-resistant, rigid pipelines for hydrosil. While across the water at Wick in Scotland, our spool base is also working on hydrosil, fabricating pipeline bundles. As you can see in the image, these bundles combine several proprietary to Subsea 7. As we explained in June, these solutions are part of a suite of enabling products and capabilities that keep us at the forefront of the Subsea industry. When combined with the benefits of early engagement, they have been key to unlocking reserves and optimizing value both to clients and Subsea 7. Turning to slide 14, in March we took delivery of the Seaway Ventus, our new built turbine installation jacket. And on the second of July, we completed our inaugural contract of Gold Wind 3 in Germany. After installing the turbines on our project, the Seaway Ventus moved to Borkum and Rifgren 3, where we continue to install project installation turbines on that project. This winter, 2016. Bidding for subsidy work remains very active and our tenders in-house exceed $21 billion. The outlook for incremental work in Brazil remains very good with several projects on the bidding horizon valued at multiple billions. Elsewhere, there's a wide range of small and medium-sized projects in deep-water markets in the US, Gulf of Mexico, West Africa, Turkey and beyond. Overall, we are confident intake. On the next slide we have our winning prospects. The recent licensing round of the Netherlands was a success with two 2 gigawatt developments being awarded to consortiums including SSE and Vattenfall. For both these clients we have delivered substantial and similar project scopes recently and have good track record and relationships. Likewise in Germany our energies. So continental Europe, the market is functioning well with regular bidding and prospects for SeaWave 7. In the UK we're optimistic that the changing government will provide continued support to offshore wind with potentially increased volumes. This is expected to support strong activity in current and future CFD rounds and we expect SeaWave 7 to remain one of the leaders in this market. Although there is political uncertainty in the US, both Atlantic Shores 1 and 2 and New England 1 and 2, together representing 5.4 gigawatts, have received final governmental approval and bidding activities for future prospects continue. Overall, we remain confident that the long-term outlook for offshore wind is strong and that through selective bidding, we can continue to deliver good financial performance in our renewables business. To conclude, we turn to our final slide on page 17. As discussed during our investor day last month, we have a strong suite of solutions, vessels, and technologies that unlock opportunities for sub-C7 and create high barriers of entry. You heard from ACA BP last month about the benefits of early engagement and alliances in optimizing field development design. This goes hand in hand with the ability of our experienced project team We are very clear that there is an energy transition happening and we are very much involved in it. Our offshore wind business is profitable and growing and we have a well-developed strategy to address CCS. Financial strength starts with good project delivery and good risk management. These are fundamental to delivering profitability and maintain the balance sheet strength that enables us to win super major projects. Finally, we intend to be a tier one player in subsea and offshore wind in 2030, 2040 and 2050 and beyond. And as part of that goal, we will be considering the long-term reinvestment needs of our fleet. But we're very clear that shareholder returns are a priority and are underpinned by a commitment to return at least $1 billion in 2024 to 2027 as a minimum. And with that, we'll be happy take your questions.
spk09: Thank you. If you would like to ask a question you will need to press star 1 and 1 on your telephone and wait for your name to be announced. Until we draw your question please press star 1 and 1 again. We will now take our first question. First question today is from the line of Guillaume Levy from Morgan Stanley. Please go ahead.
spk06: hi good morning thanks for taking my question um the first one in on offshore wind i was wondering if you could say a few words on um the competitive environment for the different activities that the company does um in this um in this business um if you could say a few words on what you're seeing on cables foundations and wind turbines um and also um into the long term, what type of margin profile should we see in these different segments of the market? That would be great. Thank you.
spk03: I'll ask Stuart to pick up the wind questions.
spk02: Yep. So as you know, the segments that we participate in are cables, foundations, and turbines. I would say in the cables and the foundation segments, we see High barriers to entry, and we see high demand for our services, so active bidding and a relatively tight market, particularly as we head towards 27, 28 and beyond. Turbines, lower barriers of entry, I would say. More speculative capacity coming into the market. I would say, less tight market there. As you know, with the Ventus, we've equipped that ship or that vessel to be able to do either foundations or turbines. So we will allocate the ship into the segment where we see the best returns in 2025. That will be foundations. And beyond that, we'll basically go after the segment that provides us the best option.
spk06: Thank you. Sorry.
spk02: Yeah, and then I think on the second point in relation to margin evolution, we're basically seeing margins improving as the quality of the jobs that we take in improves. We're selective in the bidding, making sure we have the right risk profile and the right pricing, so we see an upward trend in the margin delivery out of offshore wind.
spk06: Thank you. And a second one, if I may, the company acquired a new vessel for the conventional business recently. I was just wondering if you could also comment on other opportunities that you see to expand the fleet from here.
spk03: Well, thank you. You know, we always look at what is out there in the market. We are regular charters of challenges. our big pipe layers and as we've discussed many times we are aware of every vessel in the world that can meet our needs this happened to be a vessel that was owned by a company that got into financial distress and the investment for us is not too dissimilar to the three to four year charter we ended up buying the asset for the same amount of money that we spent on a charter so for us that was quite a speculative opportunity that came our way but equally we were in the market for a three future be called the set in Merlin. So for ourselves, it's about keeping a very close eye on what's out there. And when the right opportunity comes, the strength of our balance sheet and our understanding of the market allows us to move relatively quickly to pick up on where we're at at the moment. So that's the way to think about it is cost of charter versus acquisition in an asset plant that we use quite regularly in the fleet.
spk06: Perfect. Thank you.
spk09: Thank you. We'll now take our next question. This is from Christopher Moller-Locken from Spare Bank One Markets. Please go ahead.
spk01: Yes, good afternoon. With the acquisition of Seven Merlin, will this result in a release of a chartered vessel or do you plan to add one additional vessel to your fleet? Thank you.
spk03: At the moment, we have work allocated So at the moment, we would not be releasing anything that we have on the contract at the moment. Again, the flexibility of having quite a bit of chartered tonnage in is that we can flex up and down as we see, and we also have options on a number of those charters. So we will take it as we see the market, but the acquisition was backed by the work that we had for the asset.
spk01: Thank you.
spk09: Thank you. We'll now take our next question. This is from Cato Sullivan from Citi. Please go ahead.
spk08: Hi. Thank you for taking my questions. The first one is on the subsea prospect slide. It indicates you've many more significant project opportunities in Brazil. So just wondering at what point could you see your exposure to Brazil being relatively full, that geographical exposure? And in terms of capacity to win new awards in subsea and conventional of the scale of the recent Brazil awards, could you help me understand how much capacity you have to do this? So do they get added to the back of the queue for 2027 as such? And related to that, if you could just give an update on outlook for opportunities over the rest of the year for awards. Thank you very much.
spk03: OK. Yeah, the prospect page that we show in the hopper at the moment, and they're in house for tender, a number of those as we speak. Again, some of these work sequentially. So as we finish something like Bacalao, we would be looking to start the new award that we have, Bujios 9. So we need to remember that these projects cover multiple years. So for us at the moment, we are working our way through how they fit together So for ourselves, we're in a good dialogue with Petrobras about the timing at which they're doing it, and also we have a supply chain that needs to work behind us, or our competitors also need the same supply chain. So the timing of how the UJOS 10, 11, Azabu 2, Sepia 2 fit together is probably work in progress for the industry. But again, we are certainly putting our front foot forward there on those opportunities. I think in terms of between now and the year end, one comment I'd make, up and down in terms of volume of work that's coming in but we again see opportunities for Stewart's wind business to bring some good quality backlog in before the year end as well as some further subsidy opportunities coming into the market and will be awarded to the market by the end of the year so for ourselves we were reasonably comfortable
spk09: Thank you very much. Thank you. Then I'll take our next question. This is from Victoria McCulloch from RBC. Please go ahead.
spk07: Hi there. Thanks very much for taking questions. First one on the sub-team conventional business. How much of, you talk about this being a mixed shift in getting the higher margins. How much do you consider to still be lower margin work within the portfolio of backlog that the subsidy business is working on? And second one, maybe a slightly bigger picture for John. What's the biggest challenge in managing this record backlog and how do you plan to mitigate that for the business on a medium term basis? Thanks very much.
spk03: So, Victoria, I think your second question was one that was asked at the VIGRA investor day that we did last month. And as we answered the question a month ago, we have decades-long relationship with our supply chain. We have long-term relationships with each of these vendors that are important to us. And we also very much bring them involved during the tender and in the run-up to these tenders to make sure we understand their capability, their capacity, their ability to meet the specifications. So again, working our supply chain closely with us, having a clear understanding of what drives them and what drives us In terms of assets, we own the vast bulk of our assets. So therefore, that asset allocation of our own fleet is within our gift to do that. So a very strong relationship with a good supply chain is the key. And we continue to find that long-term investment in relationships and alignment of objectives is what's good for us and good for our clients and good for our suppliers. So for us at the moment, that's how we view the supply chain and the biggest challenge there for us. Could you just repeat your first question again for me, just to make sure I answer it correctly?
spk07: Sure, just on the subsea and conventional business, you talk about the mixed shift on moving margins higher. How much of the remaining work in that portfolio do you see as lower margin, or is it simply an evolution of it incrementally moving higher?
spk03: Well, just to give you a sort of rough indication out of our 12 and a half billion of backdoor, only half a billion was awarded to us 2021 and before that. So again, we're starting now, the vast bulk of our backlog is 22, 23, 24 vintage. And as we've discussed quarter on quarter, the quality gets better as each new slice of work comes in.
spk09: Thanks very much. Thank you. As a reminder, if you would like to ask a question, you'll need to press star one and one on your telephone and wait for your name to be announced. We will now take our next question. This is from Richard Dawson from Berenberg. Please go ahead.
spk05: Hi, and thank you for taking my questions. Just following up on that margin comment, when you look at the new projects that are coming into your backlog now and then also on the bidding prospects, are you still seeing those margins increasing? Just trying to get a sense of sort of how high margins can go, because given obviously guidance of margins above 20% in 2026, is there still sort of further we can go on these new projects? There may be just a question on the order intake, obviously very strong for the quarter. Escalations maybe took a bit of a dip lower. I appreciate this has been discussed in prior calls, but if you could maybe give us some sort of color on what was driving the escalations a bit lower for this quarter, and is that sort of a more normal level going forwards? Thank you.
spk03: Every bid that we submitted, discussion we have with the client and it allows us to understand the way we go. At the moment, we still are in a place where there's three very large players in this sector and each of us are taking on substantial volumes of work. So the pricing is strong and good in the market as we see. to again see if we can get those to sanction now with a very firm supplier involvement through the Subsidiary Integration Alliance. So I think the answer is every opportunity that we have to understand what our pricing abilities are is what we will do and will continue to do so. In terms of escalations, escalations is about timing of different projects, different mechanisms we have in contracts to get inflation indices to kick in and such like and they anniversary of different contracts and such like. So I'm not unduly concerned about it. It will always be a bit lumpy as to how those come through. And they're generally contractual mechanisms or changes that we agree with clients as we go through. So for ourselves, we don't look at that too tightly each quarter because it's just the facts and circumstances of the particular quarter that we're in allows us then to either conclude those escalations or not. That's very helpful, thank you.
spk09: Thank you. And just as a reminder, if there are any further questions, you'll need to press star one and one on your keypad. That's star one and one if there are any further questions. There are no further questions at this time, so I will hand back to the speakers. Thank you.
spk03: Well, thank you very much. I know today's a very, very busy day with all three of us announcing our figures today. And I'm sure there's a lot of activity from the analysts and our shareholders today. But thank you very much for joining Subsea 7 for our Q2. Most of you also joined us at our investor day last month. So thank you again for making the time to join us. That was an exciting and interesting day for all of us to share our plans and what we can deliver for this market. We will again talk to you in Q3 and give you an update of how we're seeing both our markets, which we see as being very strong, continue to develop. So hopefully you have some time off this summer and we'll talk again in our Q3 focus. Thank you very much.
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