Subsea 7 announces fourth quarter and full year 2023 results

Subsea 7 has announced results of Subsea7 Group for the fourth quarter and full year which ended 31 December 2023. Unless otherwise stated the comparative period is the full year which ended 31 December 2022.  

Fourth quarter and full year highlights  

• At least $1 billion of shareholder returns over four years through a combination of dividends and share repurchases
• Full year Adjusted EBITDA of $714 million, up 28% year-on-year, equating to a margin of 12%
• Fourth quarter Adjusted EBITDA of $245 million, a margin of 15%, up 45% on the prior year period
• Full year order intake of $7.4 billion resulted in a book-to-bill of 1.2 times and continued backlog growth to $10.6 billion
• Full year 2024 guidance reconfirmed: Adjusted EBITDA expected to be within a range from $950 million to $1.0 billion
   

(a) For explanations and reconciliations of Adjusted EBITDA, Adjusted EBITDA margin, Backlog, Book-to-bill ratio and Net debt refer to the ‘Alternative Performance Measures’ section of the Condensed Consolidated Financial Statements.

(b) For the explanation and a reconciliation of diluted earnings per share refer to Note 7 ‘Earnings per share’ to the Condensed Consolidated Financial Statements.

John Evans, Chief Executive Officer, said:

'Subsea7 closed 2023 with a strong operational performance in the fourth quarter, resulting in Adjusted EBITDA of $714 million for the year, up 28% on the prior year. After another year of active tendering, the Group secured $7.4 billion of high quality contract awards, taking our backlog to $10.6 billion, a year end level last seen in 2013. With $5.7 billion of firm work for execution in the coming year, the Group has excellent visibility on 2024, and we expect to deliver Adjusted EBITDA growth of at least 33%. Confidence in the Group’s outlook for cash generation in 2024 and beyond, combined with a sharp reduction in capital expenditure following the completion of our two newbuild wind vessels, supports the Board’s recommendation for shareholder returns totalling at least $1 billion over the next four years. This extends Subsea7’s track record of shareholder returns since 2011 to $3 billion and underscores the commitment of both management and the Board to strong capital stewardship.'

Fourth quarter operational highlights

During the fourth quarter, Subsea7 made good progress on its portfolio of Subsea and Conventional projects. In Australia, where environmental permits for both Scarborough and Barossa have been obtained by our clients, we completed the fabrication of pipeline stalks at the Bintan spoolbase and Seven Oceans and Seven Oceanic commenced offshore operations. In Türkiye, we ramped up activity for Sakarya Phase 2a with the commencement of procurement. In Brazil, we progressed engineering on the combined Mero 3&4 while, on Bacalhau, Seven Vega, Seven Pacific and Seven Cruzeiro installed pipelines and umbilicals.

With the North Sea winter off-season underway for the offshore wind industry, Seaway Strashnov was deployed to the Sanha Lean Gas subsea project in Angola, and Seaway Aimery and Seaway Moxie underwent scheduled maintenance in the Netherlands. Seaway Alfa Lift continued to install transition pieces at Dogger Bank A. In Taiwan, Seaway Phoenix continued cable lay activities at Changfang and Xidao and, at Yunlin, one export cable and four inner-array cables were installed by Maersk Connector. The newbuild Seaway Ventus began its transit from the yard in China to Europe.

Fourth quarter financial review

Revenue of $1.6 billion increased 26% compared to the prior year period. Adjusted EBITDA of $245 million equated to an Adjusted EBITDA margin of 15%, up from 13% in Q4 2022. This reflected the third consecutive quarter of double-digit margins in Renewables and a strong performance in Subsea and Conventional across our portfolio of projects.

Depreciation and amortisation charges were $142 million. In addition, we recognised a net impairment charge of $48 million, including $74 million of impairment charges, relating to i) Seaway Alfa Lift monopile installation equipment, owing to a contractual dispute in relation to which Subsea7 intends to use all legal resources available to reach a satisfactory outcome, and ii) a loss on Seaway Yudin disposal. These were partly offset by impairment reversals of $26 million. Net operating income was $55 million compared to $109 million in the prior year period. Net finance costs of $18 million and a net foreign exchange loss of $28 million, resulted in net loss for the quarter of $11 million compared with net income of $27 million in the prior year period.

Net cash generated from operating activities in the fourth quarter was $529 million, including a better than expected $306 million improvement in net working capital, equating to a cash conversion of 2.2 times. Net cash used in investing activities was $374 million mainly related to the final payments for Seaway Ventus and the first instalment of $153 million for the Group’s investment in OneSubsea. Net cash generated from financing activities was $62 million with net proceeds from borrowings of $119 million partly offset by lease payments of $42 million. Overall, cash and cash equivalents increased by $221 million to $751 million at 31 December 2023 and net debt was $552 million, including lease liabilities of $458 million.

Fourth quarter order intake was $1.2 billion comprising new awards of $0.6 billion and escalations of $0.6 billion resulting in a book-to-bill ratio of 0.8 times. Backlog at the end of December was $10.6 billion, of which $5.7 billion is expected to be executed in 2024, $3.8 billion in 2025 and $1.1 billion in 2026 and beyond.

Commitment to shareholder returns

Reflecting its confidence in the outlook and the expected financial performance of Subsea7, the Board of Directors proposes that the Company returns at least $1 billion to shareholders over four years, from 2024 to 2027.

At the Annual General Meeting on 2 May 2024, the Board of Directors will propose that shareholders approve a cash dividend of NOK 6.00 per share, equating to approximately $170 million, payable in two equal instalments in May and November 2024. The Company’s dividend policy will be revised to reflect an increase in the regular dividend to NOK 6.00 from NOK 1.00 per share to be paid in two equal instalments.

The Company has also committed to repurchase approximately $80 million of its own shares in 2024, resulting in shareholder returns of approximately $250 million.

Outlook

We anticipate that revenue in 2024 will be between $6.0 billion and $6.5 billion, while Adjusted EBITDA is expected to be within a range from $950 million to $1.0 billion. Our expectation for capital expenditure in 2024 has increased slightly to $300-320 million (from $280-300 million) driven by spend deferred from 2023 into 2024. As the mix of activity continues to shift to projects won in a favourable environment, our Adjusted EBITDA margin is expected to be within an 18-20% range in full year 2025.

Longer term, we continue to see a positive outlook for demand for our Subsea and Conventional business, supported by a tender pipeline of $21 billion. As a source of reliable energy, the hydrocarbon industry is likely to remain a key contributor to global production under plausible ranges of energy transition scenarios. We are confident that our focus on the deepwater subsea market, with attractive economics, will enable us to maximise the return on the significant historical investments made in our modern subsea fleet.

In Renewables, last year’s project delays and cancellations put many countries’ clean energy ambitions under pressure and prompted a swift response in countries such as the UK and US, with positive indications for our tender pipeline in 2024. While the growth trajectory for the offshore wind market may not be smooth it is certainly clear that long-term demand is set to significantly exceed the current fleet capacity of the industry. With a strong focus on achieving an equitable risk-return balance, we believe our offshore wind business will deliver sustainable value creation for shareholders.

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Source: Subsea 7