Subsea 7 S.A.

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 that we'll be using during today's call. And 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 risk 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 in today's quarterly press release. And now I'll turn the call over to John.

Thank you, Catherine, and good morning, everyone. I will start with a summary of the third quarter before passing over to Mark for more details of the financial results. Turning to slide three, Subsea 7 delivered third-quarter adjusted EBITDA of $321 million, a margin of 18%, up from 13% last year. We're on track to meet full-year EBITDA guidance, which we have revised upwards for the second time this year, and we have introduced new guidance for 2025 that implies continued growth in EBITDA, supported by a firm backlog of high-quality contracts. We remain confident in the longer-term outlook based on a robust tender pipeline and positive conversations with our clients. Against this optimistic backdrop and with the prospect of strong cash generation, we're committed to returning at least $1 billion in the four years from 2024 to 2027. Turning to slide four, after an exceptional second quarter, order intake in the third quarter was 0.6 of a billion dollars Overall, our order intake for the first nine months of this year was a healthy $5.9 billion. Slide 5 shows details of our backlog. At the beginning of the third quarter, we had a group backlog of $11.3 billion, of which $1.8 billion is due to be executed in the fourth quarter, and $5.3 billion in 2025. We have good visibility on the years ahead, including high utilization of our major subsidy vessels in the remainder of 2024, 2025 and into 2026. 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 morning, everyone. I'll begin with some details of group and business unit performance in the quarter. before turning to the group cash flow and financial guidance of 2024 and 2025. Slide six summarizes the group's third quarter results. Revenue was $1.8 billion, up 16% compared to the third quarter of 2023, driven by strong performances in both business units as major projects made good progress. Adjusted EBITDA of $321 million was up 59% compared with the prior year, and their margin increased by over 450 basis points to 18%. After depreciation and amortization of $158 million, net finance costs $20 million, and taxation of $70 million, net income was $98 million, compared with $36 million in the prior year period. I will now discuss the drivers of the group's performance in the next few slides. Slide seven presents the key metrics for subsea and conventional. Revenue was $1.4 billion, up 12% year on year, reflecting good progress on Nero 3 in Brazil, Yggdrasil in Norway, and the Gas to Energy project in Guyana. Adjusted EBITDA was $252 million, equating to a margin of 17.5%, an increase of 330 basis points from the prior year. This result reflects the continued evolution of the backlog mix towards higher quality contracts, as well as a $10 million net income contribution from one subsea. Net operating income was $127 million, compared to $76 million in the same quarter last year. Selected renewables performance metrics are shown in slide eight. Revenue was $376 million, up 40% year on year, reflecting good progress at Dogger Bank B in the UK, as well as projects in the US and Taiwan. Adjusted EBITDA was $62 million, double that in the prior year, equating to a margin of 16.4%. This was driven by very high asset utilization, with all seven vessels executing work in the quarter. Slide 9 shows the cash waterfall for the third quarter. Net cash generated by operating activities was $270 million, which included a minor movement in working capital. Capital expenditure was $132 million, including $83 million relating to the acquisition of Seven Mellon. Net cash used in financing activities was $78 million, which included share repurchases of $20 million and lease payments of $60 million. At the end of the quarter, cash and cash equivalents increased by $150 million, to $440 million. Net debt was $857 million, including lease liabilities, $495 million. The group had liquidity of $1.1 billion at the end of the quarter. As of today, the company had returned approximately $250 million to shareholders this year, composed of $80 million of share repurchases and approximately $170 million of dividends. To conclude, slide 10 shows our guidance for the full year. In 2024, we expect revenue to be at the upper end of the range from $6.5 to $6.8 billion, with adjusted EBITDA of $1025 to $1075 million. For 2025, we anticipate revenue to be between $6.8 and $7.2 billion, with an adjusted EBITDA margin ranging from 18% to 20%. Capital expenditure in the year is expected to be between $360 and $380 million. Finally, in 2026, we continue to expect an adjusted EBITDA margin of over 20%.

I will now pass you back to John. Thank you, Mark. On the next two slides, we'll review the latest developments in the offshore wind industry and progress specific to Seaway 7. Starting on slide 11 with our existing contracts, this summer we achieved a strong operational performance in the installation of monopiles on Dogger Bank A and Dogger Bank B projects. Completion is now at 95% with final monopiles anticipated to be installed before the year In 2025, we will move on to Dogger Bank C project with the same well-proven assets and execution strategy. At the same time, Cable A projects on Moray West in the UK, Chang Fang Zidao in Taiwan, as well as turbine installation on Godwin III in Germany have been completed. After a positive CFD allocation round this year in the UK, we were pleased to be successful in our bids for two new projects covering Cable A at Hornsea III and East Anglia II. Recent operational performance and the high grading of our backlog underpins our view that we will achieve an adjusted EBITDA margin in renewables of between 14% and 16% in 2025 and beyond. This represents a further step up in our expectations on financial performance within this segment and its contribution to the group results. Slide 12 summarizes our view of the offshore wind industry today. While the industry remains dynamic, overall we're seeing improvements in the macro environment for projects over the course of 2024. After an extended period of uncertainty, there has been a stable of new projects. In four key historical and future markets, the UK, Germany, Netherlands and Taiwan, we see good momentum and we have a strong track record, operating presence and ongoing project activity in each of these geographies, which position us well. In the US market, we've always been cautious and selective on our exposure. We do expect the recent election outcomes to lead to a downward revision in the projection for offshore wind developments, but see no risk for ongoing revolution cable project, which is currently executed offshore. Now onto a review of our tendering pipeline on slides 13 and 14. Bidding for subsea work remains very active, and our tenders in-house amend to approximately $20 billion. The outlook for Brazil remains very good, with several projects on the 12-month horizon, each valued at over $1.25 billion. While we have recently seen an additional bidder in this region, the industry dynamic remains in our favor, and we are confident of winning our fair share of this market. Elsewhere, there are a wide range of projects in deep-order markets in the U.S., Gulf of Mexico, West Africa, Turkey, and beyond. Overall, we are confident that we have a strong tendering pipeline that can support continued momentum in our subsea water intake. On the next slide, we have our wind prospects. In continental Europe, a large number of prospects in Germany, the Netherlands, and Poland are due to open for bidding in the coming year. After a successful licensing round in the Netherlands, two of our existing clients have towards the bidding phase of their substantial developments. In the UK, we're optimistic that the new government will support the domestic offshore wind industry with potentially increased volumes in next year's CFD allocation rent. We expect Seaway 7 to remain one of the leaders in this market. Despite the evolution of the US market, we remain confident that the long-term To conclude, we turn to our final slide on page 15. As we've outlined today, we have increased our guidance for 2024, reaffirmed guidance for 2025 and 2026, including confirmation of materially higher margins in our offshore wind business. Overall, Subsea 7 is on track to deliver strong EBITDA growth this year and next, doubling our 2023 results in 2025. Our optimism is supported by an $11 billion backlog of firm work and an active tender pipeline from both sub-seed.

Please continue to stand by. Your conference will resume shortly. Yes, you can be heard. Please proceed.

Well, hopefully you caught the final wrap-up from our section, but I'll just go through the very last slide again. So we go to slide 10. in terms of where we're at, in terms of a final conclusion of where we're at as a business. As we've outlined today, we've increased our guidance for 2024 and reconfirmed guidance for 2025 and 2026, including confirmation of materially higher margins in our offshore wind business. Overall, Subsea 7 is on track to deliver strong EBITDA growth this year and next, doubling our 2023 results in 2025. Our optimism is supported by an $11 billion backlog of firm work and an active pipeline of projects and opportunities in subsea and wind. Management is focused on achieving high conversion of this EBITDA into cash flow and is committed to allocating a substantial portion of this to shareholder returns. In 2024, we have delivered the first tranche of these returns with at least a further $750 million in the coming three years.

and with that hopefully we have everybody back online and we're happy to take your questions thank you as a reminder to ask a question you will need to press star one and one on your telephone and wait for your name to be announced to withdraw your question please press star one and one again we will take our first question Your first question comes from the line of Guillaume Levy from Morgan Stanley. Please go ahead. Your line is open.

Hi. Good morning, everyone, and thank you for taking my questions. I have two, please. The first one, looking at the CAPEX guidance for next year, can you walk us through the increase year on year that you expect for 2025? And also, how should we think about your recurring underlying CAPEX level from here? and also related to new investments on offshore wind specifically, with the increased visibility that you're now seeing in terms of utilization rates and the higher margins for the coming years. Is that enough for you to consider edging new capacity again in this segment? Thank you.

I'll ask Mark to ask the first one, and I'll answer the second, which is you. Thank you.

Thank you, Guilherme. Yes, we've provided CAPEX guidance for next year in the region of $360 to $380 million. What we see next year is a switch in CAPEX, slightly more allocated towards non-investments. That would be a real estate portfolio, including our spillbases and our operational bases, as well as investments in equipment. to allow us to achieve productivity opportunities offshore. What we have seen in the recent years has been an increase in costs associated with the supply chain. As you know, we have 29 owned vessels within our fleet, and we've seen increases in costs in terms of original equipment manufacturers. materials. Similarly, the costs associated with dried offerings have increased too. It's incredibly important that we maintain the availability of our vessels by making these investments so that we have the high utilization that allows us to execute the work that we have in the backlog, as well as having vessels available to access the opportunity sets presented by the pipeline prospects presented by the market. So this year, the characteristic there is slightly more of a proportion associated with non-vessels compared to vessels as we had this year and last year.

On the wind question that you asked, I guess the important message that we wanted to give here today is that we are seeing improved margins and a very good performing business and we have a nice portfolio of work ahead. I think it's fair to say that the ambitions in the market from many countries that we work in far outweighs the capacity that's in the sector towards the end of this decade. But interestingly enough, there are a number of clients who are very much engaged in discussions with suppliers like ourselves. about how they could put some commitments behind future investments. So for us at the moment, we will entertain those type of discussions to understand any form of client-backed investment. We would like to understand those and see if there's an opportunity there for us. I think on-spec building is not something that we'd be doing in this market. But equally, we are open for dialogues with our clients, and we'll see how that develops over the coming year or so. Perfect, thank you.

Thank you. We will take our next question. Your next question comes from the line of Richard Dawson from Berenberg. Please go ahead, your line is open.

Hi, good morning and thank you for taking my question. My first question is also on offshore wind. Looking back across most of your recent awards, they tend to be transportation and installation of inter-air cables. Do you see a shift at all to larger foundation-based work or Are the risk dynamics still not really favorable to bid in those types of work? And then secondly, you mentioned in the release that about 75% of the 2015, sorry, 2025 revenue guidance was already booked. Do you expect the remaining 25% to be mainly short cycles, sort of book-and-turn type work, or will this be coming from sort of future large awards that fill the gap?

Thank you. If I take the 2025 question, I'll ask Stuart to come back on the wind question you raised. We have a number of projects, for example, DSVI, which is a call-off arrangement with multi-clients in the North Sea, where every year at the start of the year they call that backlog off with us, which then commits one or one and a half of our diving ships to work. So we do pretty much know where that work will come from, Richard. It just needs to go through the call-off arrangements that our different clients use. There is some spot work that gathers right up to the

And I can take the first question there, Richard. So I think the recent awards, as you say, have been inner array cables award. I wouldn't read too much into that. We're actively tendering foundation scopes that are within the capabilities of our current fleet. So it's more the timing of awards than any significant trend to read into that.

Thank you for the color and maybe just a quick follow-up on that final question when you say your tendering escapes would this tend to be this side of Christmas or is it probably more 2025 for those awards? I would say both.

We still have ongoing tenders which could award this side of Christmas and then obviously tenders ongoing on a longer time frame as well. Great. Thank you very much.

Thank you. We will take our next question. Your next question comes from the line of Hakon Amundsen from ABG Sundor Collier. Please go ahead. Your line is open.

Hi, guys. Thank you. Two questions for me. First of all, it's been a little bit more volatile in the oil service industry in terms of how the sector has developed the quarter. And the order intake is a bit down, both on escalations and new awards. Just wondering, is there any change in the behavior from your clients in terms of either the escalation side on existing projects or the timing of actually sanctioning new awards? So that's my first question. And the second one, improving renewables margins. but keeping the overall group range guidance. Is there any kind of movement on that range from improving renewables margins? Any color on how that impacts your kind of total expectation? Thanks.

Thank you, Hakan. Yeah, I think, you know, we said it at the time three months ago that we had a blockbuster Q2 and we didn't expect to repeat it. You know, our order intake is coming in as we expect. The discussions we're having with our clients continue to be very positive about what they're trying to achieve and where they're trying to go to. Yes, there's a lot of volatility in the world per se today, but the conversations we're in remain positive and remain future focused. In terms of escalations, as you know, we have certain escalation mechanisms in some of our large projects in Brazil. So at the anniversary of those projects, we get some escalations mechanisms that kick in to cover inflation. And generally for us, Q4 is also an interesting period of time which we talk quite often about where clients try to settle their accounts for a particular year. So variation orders either get settled or moved into the next year for debate and discussion. So for us at the moment, we would expect to carry on the path that we're on. But at the moment, there's no major signals there that's causing us a concern in terms of the tone and the messaging that we're seeing. As we know, all these big projects that we sign up are very, very large pieces of business, and they take quite a bit of time for our clients to get their alignments as to how to get them over the line. Equally, in my travels in the last month or so, we've spoken to many clients. I've been in Brazil, I've been to Turkey, I've been to the US, and we've been to Norway. Again, conversations are very positive. Our Turkish client in Turkish Petroleum are looking at the third phase of SACAREA being bid to the market early part of next year. So again, there are parts of the world that didn't used to be on the list where there are opportunities opening up. In terms of renewables, when we were putting our figures together for the view of next year, we had in mind that we could see our renewables business starting to stabilize and deliver those margins. The work that Stuart has brought in just recently, again in this quarter, has again given us reinforcement for that. So we just felt that since the market has asked us repeatedly what do we think the underlying percentages would be that's baked in to the overall group numbers but we feel comfortable today that the 14 to 16 percent EBITDA is a reasonably good run rate for that business over a period of say a year each year going ahead all right thank you that's very clear thanks thank you we will take our next question

Your next question comes from the line of Kate O'Sullivan from Citi. Please go ahead. Your line is open. Hi.

Thank you for taking my questions. Firstly, through this year, you've had multiple upgrades to your EBITDA guidance. And today, you've provided new FY25 revenue guidance, maintained your margin guide. I just appreciate some comments on how conservative this FY25 guidance is. in which scenarios you can most likely anticipate having upgrades to next year's guidance. Secondly, on the subsea prospect side with South America Block 58 Suriname, a couple of your competitors have had recent awards here. Is there scope for more surf SPS as part of the current Grand Margaux development, or are you anticipating future expansion opportunities within this block? Thanks very much.

I guess in terms of how this year has played out, like every year, we have a plan to deliver and certain opportunities come our way, certain things fall rightly into place for us. So again, we will go into 2025. We've given our best estimate of where we think we'll be in 2025. There's a lot of work to liquidate in 2025. The vast majority is on our books, so we know what we need to do. And generally, as we progress through each quarter, we give the market an update of how we're doing and how we're liquidating the opportunities that are ahead of us. So again, we feel we've given you our best view of 25 at this point. And as we progress through the year, we will come back to the market if we feel it's appropriate to adjust accordingly. In South America, we see opportunities two. We will continue to bid on all the projects that are available to bid in that part of the world. And we would expect as we get into 2025, there'll be some opportunities to bid in Namibia, which again is another area of new opportunity. As I touched on in my previous answer, Turkey continues to provide a lot of opportunity in the Black Sea. Phase three, which we show on that subsidy prospect, is a very, very, very large subsidy phase one and phase two together. So again, a very large opportunity set of deep water will come from multiple geographies next year.

Thank you. Thank you. We will take our next question. Your next question comes from the line of Kevin Roger from Kepler Chevrolet. Please go ahead. Your line is open.

Yes. Good morning. Thanks for taking the questions. I would have a first one. One of your peers recently mentioned that there is quite a big stress on the vessel for capacity available over the next two to three years and that now clients are ready to pay reservation fees before making the decision on their project, the official FID. So I was wondering if you do see the same trend on your side with clients ready to pay reservation fees before the the final decision. You just mentioned Sakharia, for example. Would it be something that could materialize? That's the first question. And the second one, you mentioned in your remark that in Brazil you have a new bidder that has emerged, that has been welcomed. But if I'm not making a mistake, I think they do not have the EPC capabilities for doing those kind of big FPS or sub-C workflows. So can you comment a bit on here how it impacts the bidding environment, the capabilities of all the players in Brazil, please?

Yeah, thank you, Kevin. So let's look at the capacity in the OPUs. I think it's fair to say that a lot of our client discussions main 321 players in the sector. As you know, for example, we have been selected by Equinor for both Beta Nord and Vistin as preferred contractors to work on those and associated with that commitment that if the project goes ahead, we would get the work. There is a vessel commitment mechanism that goes behind that. So we have some vessel commitments that go into the next decade around those mechanisms. So to answer your question, a number of clients who have large volumes of work are very much interested in those types of discussions. How you monetize that and how you record that through contract mechanisms varies by different clients. We're always interested in pragmatic solutions that allow us to give clients the opportunity to FID their projects or has given us the opportunity then to be the preferred bidder post the award. So there are a number of mechanisms that are discussed in the industry, and we're not alone, and our peers have also talked about that as well. When we come back to Brazil, as I said, there are four major projects in a hopper which Petrobras have publicly declared and are out for bid at the moment, Búzios 10, Búzios 11, Atapau 2, and Sepia 2. So these are the opportunity sets that's ahead share and I remain very confident that we'll get our fair share of the Petrobras scopes. What Petrobras has seen though, and we've certainly been part of those earlier discussions, that projects that link in FPSO moorings, a lot of flexible works, are very complicated to administer because a lot of the flex lay vessels of course are tied in on other contracts with Petrobras. So some of the later packages are cleaner. They're primarily rigid pipelake. with Petrobras. So again, those four packages are cleaner in terms of its engineering of pipelines, procurement of pipelines, and installation of pipelines, which has allowed Petrobras to open up to the trunkline guys, such as Allseas, who are very confident in what they do in the trunkline space. So again, we've never believed that we would get everything in Brazil. We've never planned our business. We can't do everything in Brazil. And so for us, over that list, we expect to get our share and we remain confident of that. Okay, thanks a lot.

Thank you. We will take our next question. Your next question comes from the line of Christopher Moller-Lockham from SpareBank One Markets. Please go ahead, your line is open.

Yes, good morning or afternoon, and thank you for taking my question. Briefly on share buybacks versus dividends, is it fair to still assume that the dividend level will be kept unchanged coming forward and the remaining shareholder distribution will be through share buybacks, or do you see that the nominal dividend level will likely increase going forward? Thank you.

The eternal debate, Christopher. What we can say is that we have executed the first tranche, approximately $250 million this year of at least $1 billion that we will return to shareholders going out to 2027. I think many on the call are familiar with our approach. We canvass a large number of shareholders in terms of their preference for how the company returns excess cash in terms of share repurchases and dividends. As you would expect, each constituent has a particular preference, and as much as possible, we reflect those preferences to the board of directors who ultimately decide the combination of the shareholder returns. So I'm not in a position now to reveal whether there'll be any significant deviation from the $80 million that we have returned through share the purchases this year and approximately $170 million in two tranches of the cash dividend. But we clearly will engage as we have in previous years with our shareholders to understand the preferences and that we will present that to the board for them to make a decision

Thank you.

Thank you. We will take our next question. Your next question comes from the line of Daniel Thompson from BNP Paribas. Please go ahead. Your line is open.

Hi, good morning. Just one question left on my list. And it's just on the Middle East markets. This year, I think from Subsea 7, we've seen relatively quiet sort of commercial momentum in that area, but we are coming off the Marjan 2 sort of execution. So just wondering, are the vessels that are on that project at the moment, are they booked for a follow-up project at the moment, or are you looking to redeploy them outside Saudi Arabia? Just sort of wondering on any colleague can provide, are you seeing the terms and conditions in Saudi Arabia and in the area in general? Are they still up to what you'd expect? Are they still attractive? Thank you.

Thank you, Daniel. As you know, we have a relatively small Middle East business, but it's a presence and we are part of the Saudi Aramco long-term agreement framework opportunity. We are liquidating Marshan, as you said, and getting towards the end of that scope, which has been a very large piece of business. We also have Zuluf to do next year, which we're under contract to work with our partners, Larsen and Tuberon, on Zuluf. So Zuluf will take us into next year. We use a mixture of vessels, such as the Champion, which is a regional vessel, shallow water, for the specific water depths in the Middle East. But we've also used the Borealis this year, both in Saudi, but also both in Guyana, You may be touching it at the start there. There was quite a big reprofiling of Serbia-RAMCO's focus in February when the country decided to reset its ambitions. So there was a reset on the CRPO's and what their priority was, so there's been some delay in awards there. But we're now seeing the CRPO packages come back out again in a reformatted manner in terms of scope, but the terms and conditions are pretty much where they've always been with Serbia-RAMCO. So again, we will continue to bid

Okay, thanks, John. Appreciate it.

Thank you. Once again, if you wish to ask a question, please press star 1 and 1 on your telephone. We will take our next question. Your next question comes from the line of Mark Wilson from Jefferies. Please go ahead. Your line is open.

Thank you. Good morning. Most questions have been answered, but I was wondering if we could touch on the 1 sub C combine, if there's any particular update to give their sale integration or products and at the same time is there any specific market communication or investor day on that business planned in the coming year thank you very much thank you mark it's probably an interesting time it's just over years since we made our investment and the combination came together on the first of October 2023 and

As you know, it is consolidated through SLV, so SLV provides the main market focus there. But we are very pleased to be part of the ownership structure of that business, but also, as you know, through the Subsintegration Alliance, you know, the partners for the integrated surf and SPS opportunity that come to the market. The business has done well. It's had a good first year. It's tracking in line with what we had already If you look at the press releases from 1Sub-C, they have done very well in picking up a number of key SPS hardware orders in the market. So again, we feel comfortable that we have a good investment there and a very good relationship. It's important to remember our relationship with 1Sub-C goes right the way back to 2015. So this is nearly a decade long relationship that we've had of working with each other. And then if we look at Norway, a lot of activity in Norway is used as well. So for us, we are very much in a place where we're very comfortable with the setup there. I'm not aware of a capital market state, but that will come through the SLP announcements in due course if that will take place, Mark.

Thank you. This concludes today's question and answer session. I'll now hand back to John Evans, CEO, for closing remarks.

Well, thank you very much from everybody. Very pleased that you could join us. I know it's a busy day. There's some other capital markets days going on here today. So thank you for your questions, as ever. We look forward to speaking to you about our Q4 results early on in 2025. As ever, if you have any other further questions, please contact Catherine or Mark or myself, and we hopefully can help you. But thank you very much. We look forward to another interesting quarter ahead of us in Q4, and we'll talk