Subsea 7 S.A.

Welcome, everyone. 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. 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 SOB C7's annual report or today's quarterly press release. The call today will be focused on our fourth quarter and full year results, and we ask that you limit your questions to this topic. I'll now turn the call over to John.

Thank you, Catherine, and good afternoon, everyone. I will start with a summary of the fourth quarter and the full year before passing over to Mark for more details of financial results. Turning to slide three, Subsea 7 delivered a fourth-quarter adjusted EBITDA of $315 million, resulting in a four-year EBITDA of $1090 million, up 50%. This was driven by both top-line growth of 14% and margin expansion of 390 basis points. We reported a strong performance in both subsea and conventional and renewables. After several new awards in the leading to a backlog of $11.2 billion at year end. This backlog of high-quality projects gives us excellent visibility on our revenue guidance for 2025. As a result of this visibility, as well as our optimism in the outlook, the Board proposes that the group will pay a dividend equating to $350 million in 2025, up 40% from the return made last year. Turning to slide four, after a strong fourth quarter, order intake in the full year was $8.2 billion, 10% year-on-year, and equating to a book-to-bill of 1.2 times. Slide five shows growth in the backlogs of both sub-sea and conventional and renewables. We continue to high-grade the backlog through selective bidding, particularly in offshore winds. We have a combined backlog visibility on the year ahead. And now I'll pass over to Mark to run through the financial results.

Thank you John and good afternoon everyone. I'll begin with some details of group and business unit performance in the full year before turning to the group cash flow and financial guidance for 2025 and some comments on shareholder returns. Slide six summarizes the group's results. In the full year, revenue was $6.8 billion, up 14% compared to 2023, driven by strong performances in both business units as major projects made good progress. Adjusted EBITDA of $1.09 billion was up 53% compared to the prior year, and our margin increased by nearly 400 basis points to 16%. After depreciation, amortization and impairments of $645 million, net finance costs of $77 million and an effective tax rate of 41%, net income was $217 million compared with $10 million in the prior year. I will now discuss the drivers of the group's performance in the next few slides. Slide 7 presents the key metrics for subsea and conventional. In the full year 2024, revenue was $5.5 billion, up 12% year on year, reflecting high activity in Brazil, Norway, Australia, and Turkey. Adjusted EBITDA of $897 million, equating to a margin of 16.3%, an increase of 390 basis points from the prior year. This result reflects the continued evolution of the backlog towards a mix of higher quality contracts. Subsea and Conventional benefited from a $36 million net income contribution from OneSubsea in the full year, in line with our expectations. We are pleased with the performance of our investment in OneSubsea and recognise the integration progress achieved in 2021. Net operating income was $404 million, more than double the $196 million reported in the prior year. Selected renewables performance metrics are shown in slide 8. Revenue in the full year was $1.2 billion, up 29% year-on-year, reflected continued activity in our core markets. where we are focused on a small group of clients who are long-term players in the sector. We also benefited from a full-year contribution from Seaway Alphalift and Seaway Ventures. Adjusted EBITDA was $185 million, equating to a margin of 15%, up from 10.8% in 2023. This was a result of high grading our portfolio project combined with solid project execution. Net operating income was $53 million, compared to a loss of $74 million in 2023. Slide nine shows the cash bridge for 2024. Net cash generated from operating activities was $931 million, which included a modest favorable movement in working capital. Capital expenditure was $349 million, including $83 million relating to the acquisition of 7 million. We also made the final payment of our 10% stake in 1 sub C of $153 million. Net cash used in financing activities was $680 million, which included lease liability payments, including principal and interest of $223 million, Net repayment of borrowings of $125 million, reflecting the amortization profile of our borrowing facilities. Dividends paid were $163 million, and sharing purchases of $87 million. At the end of the year, cash and cash equivalents decreased by $176 million to $575 million. Net debt was $602 million, including lease liabilities of $455 million. The group had liquidity of $1.3 billion at year end. To conclude the financials, slide 10 shows our guidance for the full year. In 2025, we expect revenue to be between $6.8 and $7.2 billion, with an adjusted EBITDA margin ranging from 18% to 20%. As profitability in our global operations continues to improve, we expect the effective tax rate to moderate to between 30 and 35%. Capital expenditure in the year is expected to be between $360 and $380 million. In 2026, we continue to expect an adjusted EBITDA margin of over 20%. In terms of the first quarter of 2025, I would like to take the opportunity to remind you that this quarter exhibits seasonality with lower activity in the Northern Hemisphere and also customary vessel planned maintenance. I would highlight among several vessels subject to planned maintenance, three in renewables, Seaway Ventus, AltaLift and Strasnoff, as well as two tightly vessels, Severnaviga and Borealis. The cumulative planned maintenance days in the first quarter of 2025 is expected to be around 600 days. This level is notably higher than the 460 days compared to the same quarter last year. Lastly, reflecting the group's performance, position, and prospects, the board will propose a 13-kroner per share dividend, including the 6-kroner per share regular dividend the annual general meeting on the 8th of may this aggregate level of shareholder sum equivalent to 350 million dollars and the proposed dividend equates to a seven percent dividend yield based on yesterday's closing share price the payments will be made in two equal installments on the 22nd of may and the 6th of november of this year i will now pass you back to john thank you mark

On site 11, we take a look at our track record in Turkey, where we have completed phase one and are working on phase two of the Sakarya gas development. We have completed about one third of our phase and we are preparing for the EPCI bid for phase three. We're optimistic that we'll continue to build on our presence in Turkey, working in close collaboration with our clients, TPAO. Now, onto review of our tendering pipeline on slides 12 and 13. Our tendering teams are very active, and tenders in-house are meant to approximately levels in the region. For the longer term, Petrobras continues to replenish the hopper of prospects, and we're confident in the outlook for Brazil. Elsewhere, there are a wide range of projects in deep water markets of the US, West Africa, Turkey, and beyond. We are making progress with Equinor and partners in re-engineering Badenoord and Vistin, as well as France Soar, where we're working on a feed study. Overall, we are confident that we have a strong tendering pipeline that can support continued momentum in subsea order intake. On the next slide, we have our wind prospects. Our exposure to the US has been very low, and we remain focused on the UK, Europe, and Taiwan, where we continue to see selectiveness in the work that we pursue. We have strong relationships Through mutually beneficial collaborations with our clients, we can plan our resource needs and ensure we approach this market in a disciplined manner that preserves our improved margin and risk profile. To conclude, we'll turn to our final slide on page 14. Through a presence in both traditional and new energy markets, Subsea 7 is well placed to benefit from the growth in energy demand under a range of different transition scenarios. A high backlog, active tendering and strong project execution gives us confidence in the outlook for both businesses. As we look ahead, we are focused on converting growth in EBITDA into free cash flow and into prioritising shareholder returns. And with that, we'll be happy to take your questions.

Thank you. As a reminder, to ask a question, you will need to press star 11 on your telephone keypad and wait for your name to be announced. To withdraw your question, please press star 11 again. We will now take our first question. Please stand by. And the first question comes from Kevin Roger from Kepler Chivre. Please go ahead. Your line is now open.

Yes, good afternoon. Thanks for taking the question. I have two, if I may, that are in a way related. The first one is on the offshore wind margin that came quite strong this quarter, probably the highest level that we had recently. How should we think about this performance Q4 for the upcoming quarter? Is it a kind of one-off, or is it something that you consider repeatable for the upcoming quarter? And the second one is at the end on the ABDM margin and the guidance, because once again, you... a bit the guidance that you raised a few weeks a few months ago but you confirmed the 2025 guidance so is there any implication also should we consider that 2024 you have been performing ahead of your expectations so 2025 you would likely be more on the high end of the range rather than the low end if there is any you know rational being between the two thanks a lot

Thank you, Kevin. So let's take the offshore wind margin question first. We guided at the last quarter that we expect to be able to, over a year, to be reasonably consistent in the 14% to 16% EBITDA range. And we are very clear that we believe that we can meet that in 2025 and moving ahead in that sector. Some quarters give us different margins depending on where we are with projects or completing projects or contingency release, for example. So I would use the 14% to 16% that we guided as a way of modeling our offshore wind business. On EBITDA margin, we have reappraised 2025 and are comfortable to reconfirm that our 18% to 20% is the range that we believe that we can deliver this year. Let us make progress through a couple of quarters here and see how we go. on the books already in quarter one. We've had our usual call-offs on things like DSVI, our diving services contracts. So the remaining elements of the work that we need to win this year are coming in now in terms of call-offs that are done on annual agreements. So at the moment, we're very comfortable with the figures that we've given to you and we'll keep you updated quarter on quarter.

Okay, thanks for the time.

Thank you. We will now take our next question. Please stand by. And the next question comes from Christopher Muller-Locken from Spare Bank One Markets. Please go ahead. Your line is now open.

Yes, good afternoon. Could you please explain a bit what's the reason for the increased level of depreciation in 2025 versus 2024? Thank you.

Yes, good afternoon, Christopher. You're correct. We have guided an uptick seven hundred and twenty million dollars uh that comes off of 645 million for the full year which is slightly inflated because it contains 22 million of impairments that we recognize in the fourth quarter but the main drivers uh if you exclude the compare the impairment and 2024 are related to the scandi acergy which we've signaled to the market that we had taken on at least higher That has an impact of around $50 million. And then elsewhere, as you know, we had the 7 Merlin joining the fleet during 2024. That increases underlying depreciation together with increased depreciation as a result of the capital investment we've made in several vessels over the course of last year to pick out the Cruzeiro and the Ventus as examples. So having these vessels with a state of readiness that we need in order to complete our projects as well as access market opportunities is the key driver for the growing profitability that we expect in the business.

Thank you.

Thank you. We will now take our next question. Please stand by. And the next question comes from Jorgen Land from Danske Bank. Please go ahead. Your line is now open.

Yes, good afternoon. Thank you for taking my question. First off, maybe for you, Mark. You reported a net foreign exchange loss of $69 million in Q4. Can you elaborate on what caused this loss? Is it related to hedging? Is it a clean cash loss? And how should we think about similar losses in the coming quarters?

Yeah, thank you, Jürgen. As you will have noticed, during the course of 2024, on a quarterly basis, we've seen the other gains and losses lying within the income statement being quite volatile. That is driven in two parts, principally due to the embedded derivatives that we have within our contracts. Just to reiterate, these are non-cash and will fully reverse in future periods. So they bring some volatility to our numbers as a result of the strengthening that we had saw, particularly in the latter part of the year, of the US dollar against a range of currencies such as the Brazilian VI, the Norwegian krona, the euro and the pound. Elsewhere, that's offset by what I would call customary elements of FX within a multinational group around working capital balance. cash that we have within the business. So whilst it was $67 million of a loss in the fourth quarter, full year it was zero. It's difficult to predict. It depends upon the movements and the underlying currencies and the balances that we have on the books. So hopefully that provides a degree of further insight.

Okay, thanks. And secondly, just related to the previous question on On higher lease payments in 2025, can you indicate kind of the incremental cash flow impact relative to the 233 million of the payments you actually reported in 2024? What's the kind of the incremental impact for 2025?

So over the entire portfolio, you will see from our cash flow statement for the full year 2024, we had lease liability. principal and interest payments are just short of $230 million. I would expect that we're approaching the upper end of the 200 range for the full year 2025 year. Okay.

Thank you.

Thank you. We will now take our next question. Please stand by. And the next question comes from Victoria McCulloch from RBC. Please go ahead and open.

Morning. Thanks very much for your time today. Just a quick one on Brazil would be helpful. You highlight a strong tender opportunity there. There's been a few headlines about Brazil potentially looking to maybe change its strategy in tendering. We've also seen headlines out suggesting Luzio's 11 has been awarded to Subsea 7. But also, not for you to comment on that specifically, but there's been a very wide tender range of prices. How have discussions with Petrobras been in terms of do they seem happy with the competition? And has there been any change to your outlook on that market in the last quarter? Thanks very much.

Yeah, thank you, Victoria. I happened to be in Brazil two days after we put the Bujo Celeb bid in. So it was interesting to see how that went. I think it's fair to say that there was strong competition for Bujo Celeb. So there was four bidders. Historically, Petrobras, as you know, have used ALSVs for flexibles, and they have 15 vessels doing that work at the moment. But previously in Subsea 7's life, we did what was called hybrid steel, which was effectively an ALSV for steel pipeline. We used the Navica for about six years to do that type of work in its earlier life with us. So again, I know that from my description, one rigid steel pipe layer into a PLSV type model just to give them some flexibility because one of the challenges that exists there is these EPCI contracts are all standalone contracts and then if any of the FPSO windows change then they have to negotiate between one contract and the other. So again I know from my discussions with them they're looking being more than they looked at. And so we're welcome to continue that discussion should they want to go down that path.

Thanks very much. That was really interesting. I could ask a follow-up maybe on that. It would be interesting to hear your views on the global fleet tonnage and maybe a more medium-term view, if that's possible. Do you see risks to more vessels being added to the market Has anything of that scope changed in the last 12 months? I guess, yeah, 12 months would be interesting, but also since the last quarter.

Well, I think we know who put the bids forward in Brazil. They're all existing assets that are being put forward. So again, I think that's the answer to the question, is that the asset pool in the world is there. that's been deployed by different contractors around the world. And we will continue to deploy our pool of assets to win work for Subsea 7. So no major comment on that one to be honest with you.

Okay, thanks very much. Thank you. We will now proceed to our next question. Please stand by. And the next question comes from Lucas Doyle from Arctic Securities. Please go ahead, you're line is now open.

Thank you. Good afternoon. I was just wondering, you deliver a strong set of Q4. You are increasing your shareholder distribution beyond what you indicated a year ago. You announced a groundbreaking merger on Monday and your market cap is lower than what it was a week ago. I was wondering if you have any thoughts on that and how do you or what do you subscribe those developments to?

Lukas, as we said at the start, today is to look at quarter four and Yes, we've had good performance in 2024, and hopefully you've seen that we're pretty confident here we'll have a strong delivery here in 2025.

Okay, sorry, I was a few minutes late into the call, so I probably didn't catch that. So I'll address that next week when we meet. But on the sort of tender pipeline, it still remains at around $20 billion, just a notch below that. so the question is the startup of these projects how do you sort of see them scaling up from 2027 and onwards what is sort of a volume weighted average of the tender pipeline in terms of startup dates I don't think I can go into all the different dates of

to put its portfolio out to the market. I was in Turkey last week and I met the Turkish Energy Minister as well as the senior management of Turkish Petroleum. They're pretty confident that their packages for Phase 3 will be out into the market imminently. And again, there's a major project out there. We continue to see opportunities in the Gulf of Mexico. So again, as we show on the different slides This year is AR7 year in the UK, the world's largest offshore wind market and the British government is making very strong noises and our clients in the UK are very clear that this could be a very large set of developments we'll go through for approval. So for us we see that both parts of our business are very strong opportunity sets that exist there and as ever we will compete fiercely to win our fair share of that market That signals to me that we should be worried in the out years at this point. The world is a bit uncertain at the moment, but certainly our tendering pipelines and our discussions with clients are very much focused on servicing their needs in 27 and 28.

Good. And on that strong performance in renewables, obviously things can swing a bit from quarter to quarter. But, you know, big picture, three years ago, that margin was zero. And now, Now it's, say, 15% on average. What would you say has been the major contributor in that sort of improvement? Is it better contracts or better execution on your side?

I think a combination of both, Lucas. So we definitely have got to the end, if you like, of the lower quality backlog that we had. for a period of time, both in terms of the risk profile and the pricing and some of the teething problems that we had with new assets into the fleet or new methods for larger monopiles. It's quite specific in wind. The evolution of the components has been rapid and that's created more volatility, I would say, in performance. That performance is now stabilised. And we've moved in, if you like, into the backlog that we awarded or that we secured with a strong focus on acceptable risk conditions and better pricing.

So would you say that you have sort of cracked the code of renewables and at the same time the the underlying market got sort of realistic enough of what needs to be sort of done in order to make this work in the long run?

I would say that that's a reasonable assessment. The market is stabilized. Our performance is stabilized. And we continue to be selective in the work that we take into the business.

Okay. Thank you very much.

Thank you. As a reminder, to ask a question, you will need to press star 1-1 on your telephone keypad and wait for your name to be announced. To withdraw your question, please press star 1-1 again. We will now take our next question. Please stand by. And the next question comes from Eric Aspen Foster from Carnegie. Please go ahead. Your line is now open.

Thank you. Good afternoon. I apologise for my bit native language voice, I think. I think the transaction with Saipan has taken its toll on my body this week. I want to build on the questions around Brazil and how their entrance of all season McDermott now into the Brazilian surf market. How does that affect your view on pricing and margins? And to just take an example from my side, When I look at the indicated contract value for BUSOS 11, it seems that the margins and pricing might have already peaked. But I'm, of course, humble to the fact that there's a lot of other factors than the pricing and margins affecting that value. But, yeah, it would be great to hear your take on this.

Yeah, thanks, Eric. I don't think it's probably appropriate at this point since we're in the middle of I think I raised this point on the last earning call. There are some projects in the Petrobras portfolio that suit us better than others because we already have a number of projects already under contract. And certainly on Bujós 10, there were very clear instructions as to if you did have an overlap on the existing contract, how Petrobras wanted the work broken up and done in portions between, for example, 10. That added cost to our bid on the Bourgeois 10 and we priced it according to the instructions we had. Some of the later ones like 11 are cleaner for us in terms of interactions between existing work and therefore then we can price them accordingly. So I think your last comment price our bids according to the set of circumstances we had ahead of us on each particular bid.

Okay. Great. Thank you very much for that.

Thank you. We will now take our next question. Please stand by. And the next question comes from Guillaume Levy from Morgan Stanley. Please go ahead. Your line is now open.

Hi, thank you for taking my question. I have one on the current fleet schedule. Could you perhaps comment on the implied utilization rates that you have over the coming years? And also maybe when you think you might get to a fully contracted position for 2026, 2027? And then the second one on CAPEX, Could you just try to provide us some color in terms of how you think about your CAPEX in 2026, 2027? We saw a small increase year-on-year now for the 2025 guidance that was provided in the third quarter, and I believe that back then There was some non-vessel CAPEX behind the figure, but I was just wondering if you could perhaps provide us with a breakdown in terms of how much of that should be recurring and how much of that is not recurring. Thank you.

I take the utilization questions, and I'll ask Mark to give you more details on the CAPEX. How to think about utilization? I think the comment is fair to say that we're working our fleet quite hard at the moment. Every asset we've got in there is there for a reason and we're working them hard. We have discussed a number of times that moving assets around between different geographies is not as efficient as if we could keep them in the same place. So I would think that you need to be thinking about the utilization rates pretty much in line with where we were in 2024 as we move on into 2025 and 2026. And I think our utilization rates in the empty years will be reasonably the same. We have endeavored to try to keep some of the big pipelines in certain geographies. We've done a number of jobs in Australia, which is coming to an end at the moment. We're doing a number of jobs in Norway, which will continue into this year and into next year. And then certainly in Brazil then, we have pipeline work that takes us into 27. them then with the main vessels. You also know that our PLSBs renew this year, all four of them start their new contracts this year and each of them will sequentially come on at different points this year onto the new contracts with a small stop for some minor CAPEX upgrades to meet the new contract requirements.

I'll keep the CAPEX question then John. As I mentioned before, CAPEX extends beyond vessels, so we have capital expenditure requirements for vessels, vessel equipment, real estate and IT as the principal items. It is of course fair to acknowledge that vessels is the primary component within our capital expenditure. That will vary year on year, given the nature of the maintenance required. for vessels and the number of vessels that are required to undergo such maintenance. So, for instance, a dry docking, a class dry docking for a global enabler clearly will have a greater CapEx requirement than one for a dive support vessel. What I would say is that the range that we've given, $360 to $380 million, This year does contain a degree of non-recurring capital expenditure, and that is related to the implementation of a new SAP system. But looking out to 2026, not prepared to give definitive guidance on that at the moment, but probably around the upper end of the current 2025 range. But that will depend, of course, on any opportunities that we see in the market. We took advantage of what we considered to be a very attractive proposition in bringing the 7 vert in Ireland into the fleet during 2024, which had very favourable economics. So hopefully that additional colour, Gail, will have satisfied your question.

Thank you.

Thank you.

We will now take our next question. Please stand by. And the next question comes from Mick Pickup from Barclays. Please go ahead. Your line is now open.

Good afternoon, everyone. A lot of talk about vessels. Can I move on to people, please? And you put out your annual slide on your cost overview towards the back of your presentation. And your people number costs have gone up 30% in the last three years. Can you talk about egg count in there? And it's a shame that you don't have the 2014 number in it. We do have that at some stage just so we can see the efficiency gains from when you're a similar size. So headcount, people numbers gone from 1.2 to 1.6. So can you just talk about the headcount, please, over the last three years?

Yeah, Mick, as you quite rightly point out, as well as ships, we need great people to deliver these projects for our clients. So we're at a headcount at the year end of just over 15,000 people, which is probably one of the highest we've been in terms of headcount. It's all a function of the number of vessels we have working. The offshore fleet is very flexible. We crew up and crew down to suit where we're at. We also know that with a number of multi-year projects ahead of us that we need to engineer and procure these large jobs there. We're very comfortable that we've got a reasonably good turnover rate in terms of relatively low turnover rate of staff and people joining us, so we're quite comfortable. And we're finding it quite easy to recruit people. The industry is now much more of an appealing industry than it was maybe two or three years ago, where people have now understood when they come and join us, they may be able to work on a gas project, an oil project, or a renewables project. So again, finding the engineering talent we need is good for us. So at the moment, we're in that phase of growing the headcount to suit the size and scale that we're going to be for multiple years ahead of us. I think we sort of stabilized around that headcount. There'll be a bit of up and down with different vessels coming in and out of the fleet. But we're quite comfortable at the moment that we've sort of reached the sort of size and scale that we need to be. We have seen that it's an interesting point in the market that both renewables is looking for people, oil and gas is looking for people, and some places like earth mining is looking for people as well. So again, we're trying to make sure that we have the right in Istanbul, which started out literally as a brand-spanking-new office when we started Sakaria three years ago, is now fully functioning and over 100 people working there. So again, what we are able to see is that we can find talent in many parts of the world, and they really enjoy being part of Subsea 7 and the opportunities that come with it.

Thanks a lot, John.

Thanks, mate.

Thank you. As there are no further questions, I would now like to hand back to John Evans for any closing remarks.

Well, thank you very much. I know it's been a very busy week for everybody, so thanks a lot for joining us. We're doing a series of roadshows and one-on-one meetings, and so hopefully we'll catch up with many of you in the next few weeks. And if not, we will catch up with you again during our Q1 report later this, well, we'll do that in April. So thanks a