AI assistant
Subsea 7 — Earnings Release 2013
Mar 5, 2014
6244_rns_2014-03-05_16fa528b-2511-46d3-b7c5-2d6aa39b9c95.pdf
Earnings Release
Open in viewerOpens in your device viewer
Subsea 7 S.A. Announces Fourth Quarter and Full Year 2013 Results
Luxembourg - 5 March 2014 - Subsea 7 S.A. (the Group) (Oslo Børs: SUBC) announced today results for the fourth quarter and the full year which ended on 31 December 2013. The Group's reporting segments are set out in Note 6 'Segment information'.
| Fourth Quarter | Full Year | ||||
|---|---|---|---|---|---|
| For the period (in \$ millions, except Adjusted EBITDA margin, share and per share data) | Q4 2013 Unaudited |
Q4 2012 Unaudited |
2013 Audited |
2012 Audited |
|
| Revenue | 1,586 | 1,611 | 6,297 | 6,297 | |
| Adjusted EBITDA 1 | 242 | 270 | 981 | 1,139 | |
| Adjusted EBITDA margin 1 | 15% | 17% | 16% | 18% | |
| Net operating income | 109 | 180 | 573 | 808 | |
| Gain on disposal of NKT Flexibles | 244 | ||||
| Net income | 72 | 149 | 350 | 847 | |
| Backlog | 11,770 | 9,086 | 11,770 | 9,086 | |
| Cash and cash equivalents | 650 | 1,288 | 650 | 1.288 | |
| Borrowings | 912 | 1,535 | 912 | 1.535 | |
| Earnings per share $-$ in \$ per share | |||||
| Basic | 0.24 | 0.43 | 1.04 | 2.49 | |
| Diluted | 0.22 | 0.38 | 0.99 | 2.23 | |
| Adjusted diluted 1 | 0.22 | 0.38 | 0.99 | 1.59 | |
| Weighted average number of common shares | 377.8m | 394.5m | 374.7m | 380.2m |
For explanations and a reconciliation of Adiusted diluted earnings per share and, Adiusted EBITDA and Adiusted EBITDA margin please refer to Notes 8 and 9 respectively of the Condensed $\overline{1}$ Consolidated Financial Statements included herein. Adjusted diluted earnings per share excludes the gain on disposal of NKT Flexibles in 2012.
Jean Cahuzac, Chief Executive Officer, said:
Full year 2013
'In 2013, Subsea 7 delivered strong operational performance through successful execution across its business portfolio, with the exception of the Guará-Lula NE project in Brazil.
Revenue for the full year 2013 was \$6.3 billion, which matched that achieved in 2012. The Group's profitability for the year, as reflected in Adjusted EBITDA of \$981 million, was impacted by an additional full-life project loss provision of \$355 million taken in the year on the Guará-Lula NE project, of which \$49 million was recognised in the fourth quarter.
We were successful in winning business in 2013, which was reflected in the quality of our order intake and focus on contracts with an acceptable risk profile.
Reflecting the robust financial position and good long-term prospects of the Group, and in addition to the continuing \$200 million share repurchase programme that commenced in the final quarter of 2013, the Board of Directors has recommended that shareholders approve a special dividend of NOK 3.60 per share at the next Annual General Meeting on 27 June 2014.
Fourth quarter 2013
The Group's revenue in the fourth quarter of 2013 was moderated by lower vessel capacity and utilisation in the North Sea compared with the same prior year period.
The additional full-life project loss provision of \$49 million on the Guará-Lula NE project was due largely to the decision to mobilise an extra vessel on the project to accelerate project execution during the Brazilian summer season. It also included a provision for costs related to the revised risers installation schedule.
The record backlog we had achieved at the end of Q3 2013 was maintained in the quarter. Major project awards in the fourth quarter included the TEN project, offshore Ghana, and the renewal of two long-term PLSV contracts with Petrobras.
Operational highlights for the fourth quarter 2013
In the North Sea and Canada, good progress was made on a number of projects. In the UK sector, the Otter project was completed. In the Norwegian sector, the Knarr and Oseberg Delta S2 projects progressed significantly. The Terra Nova contract in Canada was completed successfully. Life-of-Field work continued with a high level of activity for Shell, BP, Total and the operator consortium DSVi.
In Angola, the CLOV project progressed well with the successful installation of two hybrid riser towers during the offshore campaign led by the Seven Borealis. The Block 31 PSVM project neared completion in the quarter, while Block 31 GES entered the early part of its offshore phase.
The Guará-Lula NE project in Brazil reached a number of operational milestones in the quarter, with the installation of the first buoy and some associated risers as well as the mobilisation offshore of the second buoy. Separately, the offshore phase of the Sapinhoá project was completed in the quarter using the Seven Seas.
Activity in Australia was dominated by the Gorgon Heavy Lift and Tie-ins project, with efforts in the fourth quarter concentrated on preparing to mobilise for the offshore phase.
Outlook
Conflicting pressures on the use of capital by major oil and gas companies, combined with a flat oil price and cost inflation, resulted in a lower level of tendering and market award activity for large EPIC contracts in the latter part of 2013. Life-of-Field and smaller project work in the North Sea remains relatively stable and is increasing in the Gulf of Mexico, albeit from a low level.
Tendering activity in early 2014 has increased for SURF projects in Africa. While this is encouraging, it must be remembered that there is typically a two-year period between tendering and the start of the offshore phase of such projects. The trend for market awards for large SURF projects to be postponed, for a variety of reasons, is continuing. We therefore expect our order backlog to decline during the first half of 2014.
In light of this environment, the Group's revenue for 2014 is nevertheless expected to increase from that realised in 2013. Adjusted EBITDA for 2014 is anticipated to increase moderately from that achieved in 2013 after adding back the full-life project loss provision recognised on the Guará-Lula NE project in 2013.
We remain positive about the medium and long-term prospects for our business, which is supported by a strong fundamental outlook for deepwater subsea field developments. To support this view, our vessel construction programme with six new-build vessels (four of which are committed on long-term contracts in Brazil), is proceeding on schedule and within our cost estimates. Owing to the phasing of vessel construction payments, the Group's capital expenditure for 2014 will be higher than in 2013'.
Conference Call Details
Conference Call Information
Lines will open 15 minutes prior to conference call.
Date: 5 March 2014
Time: 12:00 UK Time
Conference ID: 75028234
| OUTION OF DUITE THAN HOURS | |
|---|---|
| United Kingdom | 0800 694 0257 |
| United States | 1 631 510 7498 |
| Norway | 2156 3013 |
| International Dial In | +44 (0) 1452 555 566 |
Replay Facility Details
A replay facility (same Conference ID as above) will be available for the following period:
Date: 5 March 2014 Time: 17:00 UK Time Date: 2 April 2014 Time: 17:00 UK Time
International Dial In
Conference Replay Dial In Numbers +44 (0) 1452 550 000
Conference Dial In Numbers
Alternatively, a live webcast and a playback facility will be available on our website www.subsea7.com
For further information, please contact:
Keith Russell
Subsea 7 S.A. Email: [email protected] Telephone: +44 (0) 20 8210 5568
If you no longer wish to receive our press releases please contact: [email protected]
Special Note Regarding Forward-Looking Statements
Certain statements made in this announcement may include 'forward-looking statements'. These statements may be identified by the use of words like 'anticipate', 'believe', 'could', 'estimate', 'expect', 'forecast', 'intend', 'may', 'might', 'plan', 'predict', 'project', 'scheduled', 'seek', 'should', 'will', and similar expressions. The forward-look risks, uncertainties and assumptions. The principal risks and uncertainties which could impact the Group and the factors which could affect the actual results are described but not limited to those in the 'Risk factors' section in the Group's Annual Report and Consolidated Financial Statements for the year ended 31 December 2012. These factors, and others which are discussed in our public announcements, are among those that may cause actual and future results and trends to differ materially from our forward-looking statements: actions by regulatory authorities or other third parties; our ability to recover costs on significant projects; the general economic conditions and competition in the markets and businesses in which we operate; our relationship with significant clients; the outcome of legal and administrative proceedings or governmental enquiries; uncertainties inherent in operating internationally; the timely delivery of vessels on order and the timely completion of vessel conversion programmes; the impact of laws and regulations; and operating hazards, including spills and environmental damage. Many of these factors are beyond our ability to control or predict. Other unknown or unpredictable factors could also have material adverse effects on our future results. Given these factors, you should not place undue reliance on the forward-looking statements.
Management Report: Financial Review
Fourth Quarter 2013
Revenue
Revenue for the quarter was \$1.6 billion which was in line with Q4 2012 primarily reflecting increased activity levels in the AFGOM and APME Territories offset by decreased activity levels in the NSC and Brazil Territories.
Adjusted EBITDA
Adjusted EBITDA for the quarter was \$242 million, a decrease of \$28 million or 10% compared to Q4 2012. This included a further fulllife project loss provision of \$49 million recognised on the Guará Lula-NE project. Adjusted EBITDA margin was 15% compared to 17% in Q4 2012.
Net operating income
Net operating income was \$109 million, compared with \$180 million in Q4 2012. This decrease was primarily due to:
- a decrease of \$43 million in the Group's share of net income of associates and joint ventures mainly due to a reduced contribution from Seaway Heavy Lifting as its vessel the Stanislav Yudin was in dry-dock
- a partial impairment of \$29 million on the Seven Polaris' carrying value
Net income
Net income was \$72 million, compared to net income of \$149 million in Q4 2012. The decrease in net income was primarily due to:
• the decrease in net operating income
partially offset by:
• foreign currency gains within other gains and losses of \$14 million compared with \$2 million in Q4 2012.
The effective tax rate for the quarter was 37%, which reflected the benefit of certain discrete items. Discrete items included changes in tax provision estimates and contingencies.
Earnings per share
Adjusted diluted earnings per share was \$0.22 compared to adjusted diluted earnings per share of \$0.38 in Q4 2012, based on a weighted average number of shares of 378 million and 394 million shares respectively, with the 2013 convertible notes being antidilutive in Q4 2013.
Year ended 31 December 2013
Revenue
Revenue of \$6.3 billion was comparable with 2012, primarily reflecting increased activity levels in the AFGOM and APME Territories offset by a decrease in activity in the Brazil and NSC Territories.
Adiusted EBITDA
Adjusted EBITDA was \$981 million, a decrease of \$158 million or 14% compared to 2012. The Adjusted EBITDA margin fell by 2 percentage points to 16% in 2013 with the reduction in margin largely attributable to the additional full-life project loss provision of \$355 million recognised on the Guará-Lula NE project. Margins improved across the remaining project portfolio driven by good project performance and a reduction in work executed at lower margins on projects awarded in prior years.
Net operating income
Net operating income decreased by \$235 million to \$573 million largely due to:
- the \$355 million additional full-life project loss provision recognised on the Guará-Lula NE project
- impairments of property, plant and equipment of \$37 million mainly in relation to the Seven Polaris
partially offset by:
- a decrease in administrative expenses of \$77 million to \$296 million (2012: \$373 million), driven by an absence of integration costs and the release of \$21 million of provisions, recognised at the date of the business combination in 2011, due to certain legal cases being settled in the Group's favour
- an increase of \$41 million in the Group's share of net income of associates and joint ventures to \$127 million (2012: \$86 million). The increase was primarily attributable to strong contributions from Seaway Heavy Lifting, due to high levels of activity in renewables in the North Sea, and SapuraAcergy, due to the successful execution of the offshore phase of the Gumusut-Kakap project, offshore Malaysia.
Net income
Net income was \$350 million, a decrease of \$497 million or 59% compared to 2012, primarily due to:
- the decrease in net operating income
- an increase in finance costs of \$26 million mainly as a result of the accretion of the 2017 convertible bonds issued in October 2012 and reduced capitalised interest on assets under construction reflecting the relative stage of completion of the new vessel construction programme
- net losses within other gains and losses of \$14 million compared with a net gain of \$40 million in 2012. This was as a result of foreign currency exchange losses of \$27 million in 2013 (2012: \$40 million gain), partially offset by a gain on disposal of property, plant and equipment of \$12 million mainly related to the disposal of the Acergy Harrier
- the recognition in 2012 of a \$244 million gain on disposal of the Group's interest in NKT Flexibles
partially offset by:
• a \$61 million decrease in the tax charge compared to 2012, which was primarily the result of certain discrete items recognised in the year, rather than the reduction in the Group's income before tax. Discrete items include changes in tax provision estimates and contingencies. No tax benefit was recognised in respect of the additional full-life project loss provision on the Guará-Lula NE project.
Earnings per share
Earnings per share for the year was \$1.04 (diluted: \$0.99) compared to earnings per share of \$2.49 (diluted: \$2.23) in 2012. Adjusted diluted earnings per share, which excludes the 2012 gain on disposal of the Group's interest in NKT Flexibles, was \$0.99 (2012: \$1.59).
Cash and cash equivalents
Cash and cash equivalents decreased from \$1.3 billion to \$650 million. The movement in cash and cash equivalents was mainly attributable to:
- expenditure on property, plant and equipment of \$739 million
- the \$337 million partial redemption for cash of the \$500 million 2.25% convertible notes at maturity
- the payment of dividends amounting to \$199 million and the repurchase of shares totalling \$83 million
- the early repayment of the \$158 million Seven Havila loan
- the provision of funding totalling \$115 million to the Group's Eidesvik Seven joint venture
partially offset by:
• cash generated from operating activities of \$981 million.
Borrowings
Borrowings decreased by \$623 million to \$912 million during 2013. The reduction during the year was largely due to the maturity of the \$500 million 2.25% convertible notes and the \$158 million early repayment of the Seven Havila loan.
Territory highlights
Fourth Quarter 2013
Africa, Gulf of Mexico & Mediterranean (AFGOM)
Revenue was \$673 million, an increase of \$62 million or 10% compared to Q4 2012. During the quarter there was progress on the CLOV, Lianzi SURF, Block 31 GES and Block 31 PSVM projects, offshore Angola, the Erha North project, offshore Nigeria and the Line 60 and Line 67 projects, in the Mexican sector of the Gulf of Mexico. Net operating income was \$89 million compared to \$97 million in Q4 2012.
Asia Pacific & Middle East (APME)
Revenue was \$160 million, an increase of \$105 million compared to Q4 2012. There was significant progress on the Gorgon Heavy Lift and Tie-ins and Gorgon Umbilicals projects, offshore Australia. Net operating income was \$9 million, compared to \$18 million net income in Q4 2012. The decrease was mainly due to a strong contribution from the SapuraAcergy and Subsea 7 Malaysia joint ventures during Q4 2012.
Brazil (BRAZIL)
Revenue for the quarter was \$206 million, a decrease of \$35 million compared to Q4 2012. The offshore phase of the Guará-Lula NE and Sapinhoá and Lula NE projects continued during the quarter. Net operating loss was \$13 million (Q4 2012: \$29 million loss) due to improved project margins across the project portfolio excluding the Guará-Lula NE project. Losses of \$49 million were recognised on the Guará-Lula NE project in Q4 2013, compared to \$53 million in Q4 2012.
North Sea & Canada (NSC)
Revenue was \$544 million compared to \$699 million in Q4 2012, the decrease was partly due to the cancellation of the Fram project. The Terra Nova project, offshore Canada, the Otter project, offshore UK, and the Svalin project, offshore Norway, were completed in the quarter. Work progressed during the quarter on the Martin Linge and Knarr projects, offshore Norway, and the Laggan Tormore project, offshore UK. Net operating income was \$63 million, a decrease of \$25 million compared to Q4 2012 due to higher than normal levels of vessel utilisation in Q4 2012.
Corporate (CORP)
Revenue was \$4 million (Q4 2012; \$5 million). Net operating loss of \$39 million (Q4 2012; \$8 million net income), reflecting the \$29 million partial impairment of the Seven Polaris and lower contribution from Seaway Heavy Lifting in the quarter due to planned vessel dry-docking.
Year ended 31 December 2013
Africa, Gulf of Mexico & Mediterranean (AFGOM)
Revenue was \$2.5 billion, an increase of \$272 million or 12% compared with 2012, due mainly to the timing of the offshore execution of major projects. Work commenced on the Lianzi project, offshore Angola, the Erha North project, offshore Nigeria, and the Line 60 and Line 67 projects, in the Mexican sector of the Gulf of Mexico. There was significant progress on the Block 31 PSVM, Block 31 GES, and CLOV projects, offshore Angola, and the MPN Trunk and OFON projects, offshore Nigeria. Net operating income at \$402 million was \$26 million or 6% lower than 2012. The associated margin of 16% decreased compared to 20% in 2012 mainly due to certain projects being executed at low margins.
Asia Pacific & Middle East (APME)
Revenue was \$498 million, an increase of \$220 million or 79% compared to 2012. The Fletcher Finucane and Gorgon Umbilical projects, offshore Australia, were completed during the year. There was significant progress on the Gorgon Heavy Lift and Tie-ins project, offshore Australia. Net operating income was \$86 million (2012: \$46 million), largely due to the successful execution and completion of the offshore phase of the Gumusut-Kakap project, offshore Malaysia by the SapuraAcergy joint venture.
Brazil (BRAZIL)
Revenue was \$814 million, a decrease of \$173 million or 18%, reflecting the phasing of the Guará-Lula NE project. Net operating loss was \$318 million (2012: net operating loss \$26 million). Results were impacted by the \$355 million additional full-life project loss provision recognised on the Guará-Lula NE project. The Guará-Lula NE project entered the offshore phase in the second quarter of 2013. Delays were experienced as a result of supply chain challenges, delayed commencement of pipeline fabrication, due largely to customs clearance issues, and adverse weather conditions which prolonged the offshore installation phase. Progress was achieved towards the end of 2013 with the commencement of the installation of the second submerged buoy. The offshore phase is expected to be completed during 2014.
Vessels on long-term service agreements with Petrobras operated throughout the year at high levels of utilisation.
North Sea & Canada (NSC)
Revenue was \$2.5 billion, a decrease of \$324 million or 11% compared to 2012, reflecting lower utilisation due to the cancellation of the Fram project and lower vessel capacity due to the transfer of the Seven Oceans to Brazil. In 2013, the Terra Nova project, offshore Canada, the Otter and B11 projects, offshore UK, and the Svalin project, offshore Norway, were completed. Work commenced on the Martin Linge project, offshore Norway, and there was significant progress on the Knarr project, offshore Norway, and the Laggan Tormore project, offshore UK. Life-of-Field services continued under the BP and Shell frame agreements, offshore UK, and the Statoil frame agreement, offshore Norway. Net operating income was \$395 million compared to \$364 million in 2012 reflecting improved margins in the North Sea as contracts awarded at lower margins in prior years were completed.
Corporate (CORP)
Revenue for the year was \$17 million (2012: \$12 million), mainly related to the provision of services to joint ventures. Net operating income was \$8 million compared with a \$4 million operating loss in 2012. The improved results were driven largely by the absence of integration costs, the release of \$21 million of provisions, recognised at the date of the business combination in 2011, due to certain legal cases being settled in the Group's favour, and an increased contribution from Seaway Heavy Lifting, partially offset by the \$29 million partial impairment of the Seven Polaris.
Asset Development and Activities - Fourth Quarter 2013
The Group's investments in Sonamet and Sonacergy continued to be classified as assets held for sale. The partial disposal of the Group's interests in Sonamet and Sonacergy is conditional upon the completion of certain conditions precedent, none of which are under the control of the Group. There is no indication that the sale will not proceed as anticipated and the Group expects completion during 2014, at which time the businesses will be deconsolidated from the Group's Consolidated Financial Statements and their future results will be reported as associates in 'Share of results of associates and joint ventures'. The Group believes continued disclosure as assets held for sale is appropriate.
The Seven Waves, a flexible pipelay support vessel (PLSV) for Brazil, successfully completed its sea trials during the quarter. The vessel is on schedule for delivery in the second quarter of 2014. Construction continued on:
- the Seven Arctic, a heavy construction vessel, due for delivery in 2016
- . three new-build PLSVs, linked to contracts awarded by Petrobras, with delivery expected in 2015 and 2016
- the Seven Kestrel, a diving support vessel for operation in NSC, with delivery expected in 2015.
New-build vessel programme capital expenditure
Actual and forecast expenditure on the Group's new vessel programme as at 31 December 2013 was:
| Actual expenditure by year | Forecast expenditure by vear | ||||||
|---|---|---|---|---|---|---|---|
| (in \$ millions) | 2012 | 2013 | 2014 | 2015 | 2016 | Total | |
| Totar | O E ∵ |
ヘラペ $\cdot$ |
$-\neg$ ◡ ◡ |
െറ OUL |
10 c YU |
- - ں ، |
This includes the four PLSVs being constructed to operate under long-term contracts with Petrobras in Brazil (including the Seven Waves), construction of the Seven Arctic and the Seven Kestrel. Amounts include an estimate for interest which will be capitalised during construction as part of the initial cost of the vessels.
Vessel utilisation during the fourth quarter was 80% compared with 82% in Q4 2012.
Backlog
The Group had a record backlog of \$11.8 billion at 31 December 2013, an increase of \$2.7 billion or 30% compared to 31 December 2012. The increase was mainly attributable to the renewal of PLSV contracts and awards for the operation of three new-build PLSVs in Brazil. Other significant contracts awarded in 2013 included Aasta Hansteen, offshore Norway, TEN, offshore Ghana and Erha North, offshore Nigeria.
\$9.6 billion of the backlog at 31 December 2013 related to SURF activity, \$1.0 billion to Life-of-Field, \$0.6 billion to Conventional and Hook-up and \$0.6 billion to i-Tech. \$5.8 billion of this backlog is expected to be executed in 2014, \$2.5 billion in 2015 and \$3.5 billion in 2016 and thereafter. Backlog related to associates and joint ventures is excluded from these amounts.
Since 31 December 2013, contract awards in excess of \$165 million have been secured. These included contracts with Petrobras for remote intervention services by the i-Tech division and a three-year subsea construction services contract with ExxonMobil in Canada.
Risks and uncertainties
The principal risks and uncertainties which could materially adversely impact the Group's reputation, operations and/or financial performance and position are noted on pages 28 to 29 of Subsea 7 S.A.'s Annual Report and Consolidated Financial Statements 2012. The Executive Management Team has considered the principal risks and uncertainties and concluded that these have not changed significantly in the twelve month period ended 31 December 2013.
Responsibility statement
We confirm that, to the best of our knowledge, the financial statements for the year ended 31 December 2013 have been prepared in accordance with current applicable accounting standards and give a true and fair view of the assets, liabilities, financial position and results of the Company and the Group taken as a whole. We also confirm that, to the best of our knowledge, this report includes a fair review of the development and performance of the business and the position of the Group, together with a description of the principal risks and uncertainties facing the Group.
Listian/lier Kristian Siem
Chairman
شتشقيكم Jean Cabuzac Chief Executive Officer
Condensed Consolidated Income Statement
| 2013 2013 2012 31 Dec 31 Dec 31 Dec Unaudited Unaudited Audited (in \$ millions, except per share data) 1,585.7 1,610.7 6,297.1 Revenue (1,396.2) (5,554.7) Operating expenses (1,368.0) 189.5 242.7 742.4 Gross profit Administrative expenses (80.7) (105.8) (296.1) 0.6 43.5 127.1 Share of net income of associates and joint ventures 109.4 180.4 573.4 Net operating income 6.1 Finance income 3.5 22.1 Gain on disposal of subsidiary Gain on distribution 13.6 2.7 (13.8) Other gains and losses (12.7) (18.6) (70.9) Finance costs 113.8 170.6 510.8 Income before taxes Taxation (42.0) (160.9) (21.8) 71.8 Net income 349.9 148.8 Net income attributable to: 79.2 140.9 347.6 Shareholders of the parent company 7.9 (7.4) 2.3 Non-controlling interests 71.8 148.8 349.9 \$ \$ \$ per share per share per share Earnings per share 0.24 0.43 1.04 Basic Diluted 0.22 0.38 0.99 |
Three Months Ended | Year Ended | ||
|---|---|---|---|---|
| 2012 | ||||
| 31 Dec Audited |
||||
| 6,296.6 | ||||
| (5,201.6) | ||||
| 1,095.0 | ||||
| (373.1) | ||||
| 86.3 | ||||
| 808.2 | ||||
| 15.8 | ||||
| 243.6 | ||||
| 5.6 | ||||
| 40.4 | ||||
| (44.8) | ||||
| 1,068.8 | ||||
| (221.6) | ||||
| 847.2 | ||||
| 830.4 | ||||
| 16.8 | ||||
| 847.2 | ||||
| S per share |
||||
| 2.49 | ||||
| 2.23 | ||||
| 0.38 0.99 0.22 Adjusted diluted 1 |
1.59 |
1 For explanations and a reconciliation of Adjusted diluted earnings per share please refer to Note 8 to the Condensed Consolidated Financial Statements included herein. Adjusted diluted
earnings per share excludes the gai
Condensed Consolidated Statement of Comprehensive Income
| Three Months Ended | Year Ended | ||||
|---|---|---|---|---|---|
| (in \$ millions) | 2013 31 Dec Unaudited |
2012 31 Dec Unaudited |
2013 31 Dec Audited |
2012 31 Dec Audited |
|
| Net income | 71.8 | 148.8 | 349.9 | 847.2 | |
| Other comprehensive income | |||||
| Items that may be reclassified to the income statement in subsequent periods: |
|||||
| Foreign currency translation | 28.9 | 9.1 | (32.1) | 99.3 | |
| Reclassification adjustments relating to disposal of foreign subsidiaries | (18.9) | (18.9) | |||
| Cash flow hedges: | |||||
| Net fair value gains arising | 5.3 | 17.0 | 14.2 | 19.5 | |
| Reclassification adjustments for amounts recognised in the Consolidated Income Statement |
(1.5) | (2.9) | (5.8) | 1.0 | |
| Adjustments for amounts transferred to the initial carrying amounts of hedged items |
0.8 | 3.3 | 3.0 | 8.1 | |
| Share of other comprehensive income/(loss) of associates and joint ventures |
1.0 | (3.8) | 9.5 | (3.5) | |
| Tax relating to components of other comprehensive income which may be reclassified |
4.2 | (1.7) | 16.9 | (5.4) | |
| Items that will not be reclassified to the income statement in subsequent periods: |
|||||
| Remeasurement gains/(losses) on defined benefit pension schemes | 5.5 | (7.2) | 5.5 | (7.2) | |
| Tax relating to remeasurement (gains)/losses on defined benefit pension schemes |
(1.3) | 1.8 | (1.3) | 1.8 | |
| Other comprehensive income/(loss) | 42.9 | (3.3) | 9.9 | 94.7 | |
| Total comprehensive income | 114.7 | 145.5 | 359.8 | 941.9 | |
| Total comprehensive income attributable to: | |||||
| Shareholders of the parent company | 122.2 | 137.3 | 357.3 | 925.0 | |
| Non-controlling interests | (7.5) | 8.2 | 2.5 | 16.9 | |
| 114.7 | 145.5 | 359.8 | 941.9 |
Condensed Consolidated Balance Sheet
| oonachsca oonsonaatca Dalamoc | 2013 31 Dec |
2012 31 Dec |
|---|---|---|
| As at (in \$ millions) | Audited | Audited |
| Assets | ||
| Non-current assets | ||
| Goodwill | 2,584.6 | 2,574.8 |
| Intangible assets | 24.6 | 24.4 |
| Property, plant and equipment | 4,098.0 | 3,748.3 |
| Interest in associates and joint ventures | 310.7 | 223.1 |
| Advances and receivables | 136.3 | 47.4 |
| Derivative financial instruments | 18.1 | 20.5 |
| Retirement benefit assets | 0.3 | |
| Deferred tax assets | 48.4 | 35.4 |
| 7,220.7 | 6,674.2 | |
| Current assets | ||
| Inventories | 43.5 | 59.3 |
| Trade and other receivables | 1,008.0 | 1,090.3 |
| Derivative financial instruments | 41.8 | 53.5 |
| Assets classified as held for sale | 394.8 | 317.6 |
| Construction contracts - assets | 575.0 | 541.3 |
| Other accrued income and prepaid expenses | 404.0 | 471.0 |
| Restricted cash | 20.0 | |
| Cash and cash equivalents | 649.5 | 1,287.9 |
| 3,136.6 | 3,820.9 | |
| Total assets | 10,357.3 | 10,495.1 |
| Equity | ||
| Issued share capital | 703.6 | 703.6 |
| Treasury shares | (356.9) | (443.9) |
| Paid in surplus | 3,841.6 | 3,881.8 |
| Equity reserve | 248.5 | 359.2 |
| Translation reserve | 31.9 | 44.0 |
| Other reserves | (59.5) | (81.3) |
| Retained earnings | 2,156.5 | 1,861.1 |
| Equity attributable to shareholders of the parent company | 6,565.7 | 6,324.5 |
| Non-controlling interests | 46.5 | 43.8 |
| Total equity | 6,612.2 | 6,368.3 |
| Liabilities | ||
| Non-current liabilities | ||
| Non-current portion of borrowings | 636.3 | 1,040.9 |
| Retirement benefit obligations | 19.1 | 23.4 |
| Deferred tax liabilities | 169.7 | 111.6 |
| Provisions | 35.5 | 38.2 |
| Contingent liability recognised | 6.8 | 27.8 |
| Derivative financial instruments | 12.6 | 6.7 |
| Other non-current liabilities | 14.6 | 9.0 |
| 894.6 | 1,257.6 | |
| Current liabilities | ||
| Trade and other liabilities | 1,637.4 | 1,452.0 |
| Derivative financial instruments | 9.1 | 31.6 |
| Current tax liabilities | 111.2 | 201.1 |
| Current portion of borrowings | 275.4 | 494.5 |
| Liabilities directly associated with assets classified as held for sale | 194.5 | 167.3 |
| Provisions | 19.0 | 11.8 |
| Construction contracts - liabilities | 600.7 | 434.1 |
| Deferred revenue | 3.2 | 76.8 |
| 2,850.5 | 2,869.2 | |
| Total liabilities | 3,745.1 | 4,126.8 |
| Total equity and liabilities | 10,357.3 | 10,495.1 |
Condensed Consolidated Statement of Changes in Equity
For the year ended 31 December 2013
| (in \$ millions) | Issued share capital |
Treasury shares |
Paid in surplus |
reserve | Equity Translation reserve |
Other reserves |
Retained earnings |
Total | Non- controlling interests |
Total equity |
|---|---|---|---|---|---|---|---|---|---|---|
| Balance at 1 January 2013 | 703.6 | $(443.9)$ 3,881.8 | 359.2 | 44.0 | (81.3) | 1,861.1 | 6,324.5 | 43.8 | 6,368.3 | |
| Comprehensive income | ||||||||||
| Net income | 347.6 | 347.6 | 2.3 | 349.9 | ||||||
| Exchange differences | (32.3) | (32.3) | 0.2 | (32.1) | ||||||
| Cash flow hedges | 11.4 | 11.4 | 11.4 | |||||||
| Share of other comprehensive income of associates and joint ventures |
9.5 | 9.5 | 9.5 | |||||||
| Remeasurement gains on defined benefit pension schemes |
5.5 | 5.5 | 5.5 | |||||||
| Tax relating to components of other comprehensive income |
20.2 | (4.6) | 15.6 | 15.6 | ||||||
| Total comprehensive income | (12.1) | 21.8 | 347.6 | 357.3 | 2.5 | 359.8 | ||||
| Transactions with owners | ||||||||||
| Shares repurchased | (91.2) | (91.2) | (91.2) | |||||||
| Redemption of convertible notes | 175.1 | 175.1 | $\overbrace{\phantom{12322111111111111111111111111111111111$ | 175.1 | ||||||
| Dividends declared and paid | (199.3) | (199.3) | $\overline{\phantom{0}}$ | (199.3) | ||||||
| Equity component of convertible notes | (110.7) | 110.7 | ||||||||
| Addition of non-controlling interest | 0.2 | 0.2 | ||||||||
| Share-based compensation | $\overline{\phantom{0}}$ | 8.1 | 8.1 | 8.1 | ||||||
| Vesting of share-based payments | (48.1) | 48.1 | ||||||||
| Shares reissued | 3.1 | 3.1 | 3.1 | |||||||
| Loss on reissuance of treasury shares | (11.7) | (11.7) | (11.7) | |||||||
| Tax effects | (0.2) | (0.2) | (0.2) | |||||||
| Total transactions with owners | - | 87.0 | (40.2) | (110.7) | - | - | (52.2) | (116.1) | 0.2 | (115.9) |
| Balance at 31 December 2013 | 703.6 | $(356.9)$ 3,841.6 | 248.5 | 31.9 | (59.5) | 2,156.5 | 6,565.7 | 46.5 | 6,612.2 |
Condensed Consolidated Statement of Changes in Equity continued
For the year ended 31 December 2012
| Issued share |
Treasury | Paid in | Equity Translation | Other | Retained | Non- controlling |
||||
|---|---|---|---|---|---|---|---|---|---|---|
| (in \$ millions) | capital | shares | surplus | reserve | reserve | reserves | earnings | Total | interests Total equity | |
| Balance at 1 January 2012 | 703.6 | $(278.5)$ 4,185.5 | 278.6 | (36.3) | (95.6) | 1,023.7 | 5,781.0 | 51.5 | 5,832.5 | |
| Comprehensive income | ||||||||||
| Net income | 830.4 | 830.4 | 16.8 | 847.2 | ||||||
| Exchange differences | 99.2 | 99.2 | 0.1 | 99.3 | ||||||
| Cash flow hedges | 28.6 | 28.6 | 28.6 | |||||||
| Recycling of exchange differences on disposal of subsidiaries |
(18.9) | (18.9) | $\overline{\phantom{0}}$ | (18.9) | ||||||
| Share of other comprehensive income | ||||||||||
| of associates and joint ventures | (3.5) | (3.5) | $\overline{\phantom{0}}$ | (3.5) | ||||||
| Actuarial losses on defined benefit | ||||||||||
| pension schemes | (7.2) | (7.2) | (7.2) | |||||||
| Tax relating to components of other | ||||||||||
| comprehensive income | (3.6) | (3.6) | (3.6) | |||||||
| Total comprehensive income | 80.3 | 14.3 | 830.4 | 925.0 | 16.9 | 941.9 | ||||
| Transactions with owners | ||||||||||
| Shares repurchased | (200.0) | (200.0) | $\overline{\phantom{0}}$ | (200.0) | ||||||
| Dividends declared and paid | (279.7) | (279.7) | (19.5) | (299.2) | ||||||
| Equity component of convertible bonds | 80.6 | 80.6 | 80.6 | |||||||
| Purchase of non-controlling interest | (6.0) | (6.0) | (6.0) | |||||||
| Reclassification of non-controlling interest |
5.1 | 5.1 | (5.1) | |||||||
| Share-based compensation | 12.5 | 12.5 | 12.5 | |||||||
| Vesting of share-based payments | (35.0) | 35.0 | $\overline{\phantom{000000000000000000000000000000000000$ | |||||||
| Shares reissued | 34.6 | 34.6 | $\overline{\phantom{0}}$ | 34.6 | ||||||
| Loss on reissuance of treasury shares | (27.1) | (27.1) | $\overline{\phantom{0}}$ | (27.1) | ||||||
| Tax effects | (1.5) | (1.5) | (1.5) | |||||||
| Total transactions with owners | - | (165.4) | (303.7) | 80.6 | 7.0 | (381.5) | (24.6) | (406.1) | ||
| Balance at 31 December 2012 | 703.6 | $(443.9)$ 3,881.8 | 359.2 | 44.0 | (81.3) | 1,861.1 | 6,324.5 | 43.8 | 6,368.3 |
Condensed Consolidated Cash Flow Statement
| 2013 | 2012 |
|---|---|
| 31 Dec For the year ended (in \$ millions) Audited |
31 Dec Audited |
| Net cash generated from operating activities 980.5 |
515.1 |
| Cash flows from investing activities | |
| Proceeds from disposal of property, plant and equipment 18.6 |
0.9 |
| (739.3) Purchases of property, plant and equipment |
(708.7) |
| Purchases of intangible assets (2.4) |
(3.9) |
| Net cash flows from disposal of subsidiary | 344.2 |
| 22.1 Interest received |
14.2 |
| 23.7 Dividends received from associates and joint ventures |
51.0 |
| Purchase of non-controlling interest | (6.0) |
| Investment in associates and joint ventures (1.4) |
(45.3) |
| Net cash used in investing activities (678.7) |
(353.6) |
| Cash flows from financing activities | |
| (42.8) Interest paid |
(28.7) |
| Proceeds from borrowings | 698.9 |
| (158.1) Repayments of borrowings |
(12.2) |
| Cost of share repurchases (82.6) |
(200.0) |
| Dividends paid to equity shareholders of the parent company (199.3) |
(199.4) |
| Cash distributed within dividend-in-kind | (11.8) |
| Shareholder loan to joint ventures (115.3) |
(1.2) |
| 21.6 Loan repayments from joint ventures |
5.0 |
| (337.2) Redemption of convertible notes |
|
| Proceeds from reissuance of treasury shares 1.8 |
7.2 |
| Dividends paid to non-controlling interests (2.9) |
|
| (914.8) Net cash (used)/generated in financing activities |
257.8 |
| Net (decrease)/increase in cash and cash equivalents (613.0) |
419.3 |
| 1,287.9 Cash and cash equivalents at beginning of period |
803.4 |
| (9.7) Effect of foreign exchange rate movements on cash and cash equivalents |
(12.8) |
| (20.0) (Increase)/decrease in restricted cash balances |
52.7 |
| Decrease in cash balances classified as assets held for sale 4.3 |
25.3 |
| 649.5 Cash and cash equivalents at end of period |
1,287.9 |
1. General information
Subsea 7 S.A. is a company registered in Luxembourg whose common shares trade on the Oslo Børs and over-the-counter as American Depositary Receipts (ADRs) in the US. The address of the registered office is 412F, route d'Esch, L-2086 Luxembourg. The Condensed Consolidated Financial Statements were authorised for issue by the Board of Directors on 4 March 2014.
2. Basis of preparation
The Condensed Consolidated Financial Statements for the period 1 January 2013 to 31 December 2013 for Subsea 7 S.A. have been prepared on a going concern basis and in accordance with International Accounting Standard (IAS) 34 'Interim Financial Reporting' as issued by the International Accounting Standards Board (IASB) and as adopted by the European Union (EU). The Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements for the year ended 31 December 2012 which have been prepared in accordance with International Financial Reporting Standards (IFRSs) as issued by the IASB and as adopted by the EU.
The Condensed Consolidated Financial Statements are unaudited.
3. Accounting policies
Basis of accounting
The accounting policies adopted in the preparation of the Condensed Consolidated Financial Statements are consistent with the Consolidated Financial Statements for the year ended 31 December 2012, except as noted below.
Interim Financial Reporting and Impairment
In accordance with International Financial Reporting Interpretation Committee (IFRIC) interpretation 10, the Group shall not reverse an impairment loss recognised in a previous interim period in respect of goodwill or an investment in either an equity instrument or a financial asset carried at cost.
The following new and amended International Financial Reporting Standards and interpretations have been adopted from 1 January 2013:
Presentation of Items of Other Comprehensive Income (Amendments to IAS 1)
The amendments to IAS 1 changed the grouping of items presented in other comprehensive income. Items that could be reclassified (or 'recycled') to the income statement at a future point in time (for example, exchange differences on translation of foreign operations and net movement on cash flow hedges) must be presented separately from items that will never be reclassified (for example, actuarial gains and losses on defined benefit plans). The amendments affect presentation only and had no impact on the Group's financial position or performance.
Revisions to IAS 19 'Employee Benefits'
The amendments to IAS 19 range from fundamental changes such as removing the corridor mechanism and the concept of expected returns on plan assets to simple clarifications and re-wording. The impact of these amendments was not significant for the Group as actuarial gains and losses were already recognised in full in other comprehensive income. The impact on the net benefit expense due to the expected return on plan assets being calculated using the same interest rate as applied for the purpose of discounting the benefit obligation was not significant.
IFRS 13 'Fair Value Measurement'
IFRS 13 establishes a single source of quidance under IFRS for all fair value measurements. IFRS 13 does not change when an entity is required to use fair value, but rather provides guidance on how to measure fair value under IFRS when fair value is required or permitted. The application of IFRS 13 did not materially impact the fair value measurements carried out by the Group.
IFRS 13 also requires detailed disclosures on fair values. Some of these disclosures are specifically required by IAS 34 and are detailed in Note 19.
Improvements to IFRSs 2009-2011
Improvements to IFRSs 2009 – 2011 contains amendments to some standards and the related Basis for Conclusions. The amendments which impacted the Group were:
- IAS 1 'Presentation of Financial Statements': The difference between voluntary additional comparative information and the minimum required comparative information is clarified. In addition, the opening balance sheet must be presented in the following circumstances: when an entity changes its accounting policies; makes retrospective restatements or makes reclassifications, and that change has a material effect on the balance sheet.
- IAS 16 'Property, Plant and Equipment': This amendment clarifies that major spare parts and servicing equipment that meet the definition of property, plant and equipment are not inventory.
- IAS 32 'Financial Instruments: Presentation': This amendment removes existing income tax requirements from IAS 32 and requires the Group to apply the requirements in IAS 12 to any income tax arising from distributions to shareholders of the parent company.
- IAS 34 'Interim Financial Reporting': Total assets and liabilities for a particular reportable segment need to be disclosed only when the amounts are regularly provided to the Chief Operating Decision Maker and there has been a material change in the total amount disclosed in the Group's previous annual financial statements for that reportable seament.
The impact of these amendments was not significant for the Group.
| FULTILE THEE THUITING ENGEL ST DECENTDENT ZU 13 (in \$ millions) |
AFGOM | APME | BRAZIL | NSC | CORP | Total |
|---|---|---|---|---|---|---|
| Revenue | 672.9 | 159.7 | 205.7 | 543.8 | 3.6 | 1,585.7 |
| Net operating income/(loss) from operations | 89.3 | 8.5 | (12.7) | 63.3 | (39.0) | 109.4 |
| Finance income | 3.5 | |||||
| Other gains and losses | 13.6 | |||||
| Finance costs | (12.7) | |||||
| Income before taxes | 113.8 | |||||
| For the three months ended 31 December 2012 | ||||||
| (in \$ millions) | AFGOM | APME | BRAZIL | NSC | CORP | Total |
| Revenue | 610.7 | 54.8 | 240.8 | 699.1 | 5.3 | 1.610.7 |
| Net operating income/(loss) from operations | 96.5 | 17.6 | (29.4) | 88.1 | 7.6 | 180.4 |
| Finance income | 6.1 | |||||
| Other gains and losses | 2.7 | |||||
| Finance costs | (18.6) | |||||
| Income before taxes | 170.6 |
For the year ended 31 December 2013
| (in \$ millions) | AFGOM | APME | BRAZIL | NSC | CORP | Total |
|---|---|---|---|---|---|---|
| Revenue | 2,453.6 | 498.1 | 814.1 | 2,514.0 | 17.3 | 6,297.1 |
| Net operating income/(loss) from operations | 402.2 | 86.1 | (317.5) | 394.9 | 7.7 | 573.4 |
| Finance income | 22.1 | |||||
| Other gains and losses | (13.8) | |||||
| Finance costs | (70.9) | |||||
| Income before taxes | 510.8 | |||||
| For the year ended 31 December 2012 | ||||||
| (in \$ millions) | AFGOM | APME | BRAZIL | NSC | CORP | Total |
| Revenue | 2,182.4 | 277.5 | 986.5 | 2,837.8 | 12.4 | 6,296.6 |
| Net operating income/(loss) from operations | 428.0 | 46.0 | (25.4) | 363.8 | (4.2) | 808.2 |
| Finance income | 15.8 | |||||
| Other gains and losses | 289.6 | |||||
| Finance costs | (44.8) | |||||
| Income before taxes | 1,068.8 |
7. Guará-Lula NE project loss
During 2013, the Group recognised an additional full-life project loss on the Guará-Lula NE project, offshore Brazil. The full-life project loss increased by \$355 million. The net operating income for the year ended 31 December 2013 reflected the impact of this additional full-life project loss.
8. Earnings per share
Basic and diluted earnings per share
Basic earnings per share is calculated by dividing the net income attributable to shareholders of the parent company by the weighted average number of common shares in issue during the period, excluding common shares purchased by the Group and held as treasury shares.
Diluted earnings per share is calculated by adjusting the weighted average number of common shares outstanding to assume conversion of all dilutive potential common shares.
The income and share data used in the calculation of basic and diluted earnings per share were as follows:
| Three Months Ended | Year Ended | |||
|---|---|---|---|---|
| (in \$ millions, except share and per share data) | 31 Dec 2013 Unaudited |
31 Dec 2012 Unaudited |
31 Dec 2013 Audited |
31 Dec 2012 Audited |
| Net income attributable to shareholders of the parent company Interest on convertible bonds and convertible notes (net of amounts |
79.2 | 140.9 | 347.6 | 830.4 |
| capitalised) | 4.7 | 9.5 | 24.8 | 17.8 |
| Earnings used in the calculation of diluted earnings per share | 83.9 | 150.4 | 372.4 | 848.2 |
| Three Months Ended | Year Ended | ||||
|---|---|---|---|---|---|
| (Number of shares) | 31 Dec 2013 Unaudited |
31 Dec 2012 Unaudited |
31 Dec 2013 Audited |
31 Dec 2012 Audited |
|
| Weighted average number of common shares used in the calculation | |||||
| of basic earnings per share | 335,815,389 | 331.510.586 | 332,942,490 | 333,837,742 | |
| Convertible bonds and convertible notes | 41,265,693 | 62.127.616 | 40,717,826 | 44,877,456 | |
| Share options, performance shares and restricted shares | 758.191 | 846.314 | 1,036,804 | 1,463,286 | |
| Weighted average number of common shares used in the | |||||
| calculation of diluted earnings per share | 377,839,273 | 394,484,516 | 374.697.120 | 380.178.484 |
| Three Months Ended | Year Ended | ||||
|---|---|---|---|---|---|
| (in \$ per share) | 31 Dec 2013 Unaudited |
31 Dec 2012 Unaudited |
31 Dec 2013 Audited |
31 Dec 2012 Audited |
|
| Basic earnings per share | 0.24 | ว.43 | 1.04 | 2.49 | |
| Diluted earnings per share | 0.22 | 0.38 | 0.99 | 2.23 |
The following shares that could potentially dilute the earnings per share were excluded from the calculation of diluted earnings per share due to being anti-dilutive for the period:
| Three Months Ended | Year Ended | ||||
|---|---|---|---|---|---|
| 31 Dec 2013 Unaudited |
31 Dec 2012 Unaudited |
31 Dec 2013 Audited |
31 Dec 2012 Audited |
||
| Convertible notes | 1.814.186 | 17.972.898 | |||
| Share options, performance shares and restricted shares | 2.400.327 | 2.008.356 | 2.338.737 | 2.266.216 |
8. Earnings per share continued
Adjusted diluted earnings per share
Adjusted diluted earnings per share represents diluted earnings per share adjusted to exclude the gain recognised on the disposal of the Group's share of NKT Flexibles in 2012.
The income and share data used in the calculation of adiusted diluted earnings per share were as follows:
| Three Months Ended | Year Ended | |||
|---|---|---|---|---|
| (in \$ millions, except share and per share data) | 31 Dec 2013 Unaudited |
31 Dec 2012 Unaudited |
31 Dec 2013 Audited |
31 Dec 2012 Audited |
| Net income attributable to shareholders of the parent company | 79.2 | 140.9 | 347.6 | 830.4 |
| Less: Gain on disposal of NKT Flexibles | (243.6) | |||
| Interest on convertible bonds and convertible notes (less amounts capitalised) |
4.7 | 9.5 | 24.8 | 17.8 |
| Earnings used in the calculation of adjusted diluted earnings per share | 83.9 | 150.4 | 372.4 | 604.6 |
| Weighted average number of common shares used in the calculation of diluted earnings per share (as above) |
377,839,273 | 394,484,516 | 374,697,120 | 380.178.484 |
| Adjusted diluted earnings per share | 0.22 | 0.38 | 0.99 | 1.59 |
9. Adjusted EBITDA and Adjusted EBITDA margin
Adjusted earnings before interest, taxation, depreciation and amortisation (Adjusted EBITDA) is a non-IFRS measure that represents net income before additional specific items that are considered to impact the comparison of the Group's performance either vear-on-vear or with other businesses. The Group calculates Adjusted EBITDA as net income plus finance costs, taxation, depreciation, amortisation and mobilisation and adjusted to exclude finance income, other gains and losses and impairment charges or reversals. Adjusted EBITDA margin is defined as Adjusted EBITDA divided by revenue.
The items excluded from Adjusted EBITDA represent items which are individually or collectively material but which are not considered representative of the performance of the business during the periods presented. Other gains and losses principally relate to disposals of investments, property, plant and equipment and net foreign exchange gains or losses. Impairments of assets represent the excess of the assets' carrying amount over the amount that is expected to be recovered from their use in the future or their sale.
Adjusted EBITDA and Adjusted EBITDA margin have not been prepared in accordance with IFRS as issued by the IASB as adopted for use in the EU. These measures exclude items that can have a significant effect on the Group's income or loss and therefore should not be considered as an alternative to, or more meaningful than, net income (as determined in accordance with IFRS) as a measure of the Group's operating results or cash flows from operations (as determined in accordance with IFRS) as a measure of the Group's liquidity.
Management believes that Adjusted EBITDA and Adjusted EBITDA margin are important indicators of the operational strength and the performance of the business. These non-IFRS measures provide management with a meaningful comparative for its various Territories, as they eliminate the effects of financing, depreciation and taxation. Management believes that the presentation of Adjusted EBITDA is also useful as it is similar to measures used by companies within Subsea 7's peer group and therefore believes it to be a helpful calculation for those evaluating companies within Subsea 7's industry. Adjusted EBITDA margin may also be a useful ratio to compare performance to its competitors and is widely used by shareholders and analysts following the Group's performance. Notwithstanding the foregoing, Adjusted EBITDA and Adjusted EBITDA margin as presented by the Group may not be comparable to similarly titled measures reported by other companies.
Reconciliation to net operating income:
| Three Months Ended | Year Ended | |||
|---|---|---|---|---|
| 2013 | 2012 | 2013 | 2012 | |
| For the period (in \$ millions) | 31 Dec Unaudited |
31 Dec Unaudited |
31 Dec Audited |
31 Dec Audited |
| Net operating income | 109.4 | 180.4 | 573.4 | 808.2 |
| Depreciation, amortisation and mobilisation | 96.5 | 86.7 | 359.0 | 333.4 |
| Impairment/(impairment reversal) | 36.0 | 2.8 | 48.3 | (2.7) |
| Adjusted EBITDA | 241.9 | 269.9 | 980.7 | 1.138.9 |
| Revenue | 1.585.7 | 1.610.7 | 6.297.1 | 6,296.6 |
| Adjusted EBITDA % | 15.3% | 16.8% | 15.6% | 18.1% |
Reconciliation to net income:
| Three Months Ended | Twelve Months Ended | |||
|---|---|---|---|---|
| 2013 31 Dec |
2012 31 Dec |
2013 31 Dec |
2012 31 Dec |
|
| For the period (in \$ millions) | Unaudited | Unaudited | Audited | Audited |
| Net income | 71.8 | 148.8 | 349.9 | 847.2 |
| Depreciation, amortisation and mobilisation | 96.5 | 86.7 | 359.0 | 333.4 |
| Impairment/(impairment reversal) | 36.0 | 2.8 | 48.3 | (2.7) |
| Finance income | (3.5) | (6.1) | (22.1) | (15.8) |
| Other gains and losses | (13.6) | (2.7) | 13.8 | (289.6) |
| Finance costs | 12.7 | 18.6 | 70.9 | 44.8 |
| Taxation | 42.0 | 21.8 | 160.9 | 221.6 |
| Adjusted EBITDA | 241.9 | 269.9 | 980.7 | 1,138.9 |
| Revenue | 1.585.7 | 1.610.7 | 6.297.1 | 6,296.6 |
| Adjusted EBITDA % | 15.3% | 16.8% | 15.6% | 18.1% |
10. Dividends
A final dividend of \$0.60 per common share related to the year ended 31 December 2012 was approved by the shareholders on 28 June 2013 and recognised in shareholders' equity in June 2013. The total dividend of \$199.3 million was paid in July 2013 to shareholders of record as of 5 July 2013.
11. Goodwill
The movement in goodwill during the period was as follows:
| Year Ended | ||
|---|---|---|
| 2013 | 2012 | |
| 31 Dec | 31 Dec | |
| (in \$ millions) Audited |
Audited | |
| At 1 January 2,574.8 |
2,566.6 | |
| Derecognised on distribution of business $\overline{\phantom{a}}$ |
(43.4) | |
| Exchange differences 9.8 |
51.6 | |
| At 31 December 2,584.6 |
2,574.8 |
12. Property, plant and equipment
Significant additions to property, plant and equipment for the year ended 31 December 2013 were as follows:
- \$84 million purchase of the Simar Esperança
- \$145 million of construction costs on the Seven Waves
- \$167 million expenditure to date on the construction of the three new-build PLSVs
- \$54 million of expenditure incurred on the construction of the heavy construction vessel, the Seven Arctic.
Following completion of its contract with Petrobras, the Lochnagar PLSV was disposed during the third quarter.
13. Assets classified as held for sale
Investments in Sonamet and Sonacergy
On 23 July 2009, the Group entered into a sale agreement to dispose of 19% of its ownership interest in each of Sonamet Industrial, S.A (Sonamet) and Sonacergy - Servicos E Construcoes Petroliferas Lda (Zona Franca Da Madeira) (Sonacergy), Sonamet operates a fabrication yard for clients, including Subsea 7, supporting the offshore oil and gas industry in Angola. Sonacergy provides overseas logistics services and support to Sonamet.
The disposal of a 19% interest in each of Sonamet and Sonacergy will result in a reduction of the 55% ownership interest the Group held in each at 31 December 2013, to 36% at which point the investments will be equity accounted. The finalisation of this sale is conditional upon the completion of certain conditions precedent, none of which are in the control of the Group. There is no indication that the sale will not proceed as anticipated at the agreed price and the Group expects completion during 2014. The Group believes that continued disclosure as assets held for sale is appropriate.
During the quarter, net income of the subsidiaries resulted in an increase in the carrying value of the net assets of Sonamet and Sonacergy. There was no associated increase in the expected disposal proceeds and as a result an impairment of \$6.9 million was recognised. The cumulative impairment for the year ended 31 December 2013 was \$11.6 million (2012; \$3.7 million impairment reversal). The impairment was recognised in the Condensed Consolidated Income Statement in operating expenses. The cumulative impairment charge at 31 December 2013 was \$19.0 million (2012: \$7.4 million).
14. Borrowings
Borrowings decreased by \$624 million to \$912 million during 2013. The reduction during the year was largely due to the maturity of the \$500 million 2.25% convertible notes maturing in Q4 2013 and the \$158 million early repayment of the Seven Havila loan.
15. Treasury shares
At 31 December 2013, the Group owned 14,193,786 common shares as treasury shares, representing 4.0% of the total number of issued shares. These shares were owned as treasury shares through Subsea 7 S.A.'s indirect subsidiary, Subsea 7 Investing (Bermuda) Limited. A further 1,526,200 common shares were held by an employee benefit trust to satisfy performance shares under the Group's 2009 Long-term Incentive Plan and 684,097 shares were held in a separate employee benefit trust to support the Subsea 7 Inc. restricted stock award plan and other specified share option awards.
A total of 218,371 share options were exercised (2012: 509,986), generating proceeds of \$1.8 million (2012: \$7.2 million). All share options exercised during 2013 were satisfied by delivering treasury shares. A further 419,001 treasury shares were used to satisfy share-based awards which vested during the period (2012: 957,957). No new common shares were issued.
7,763,453 shares were used to satisfy the part redemption of the 2013 Notes.
16. Share repurchase plan
During the fourth quarter 2013, the Group commenced a \$200 million share repurchase programme. As at 31 December 2013, the Group had repurchased 4,650,376 shares for a total consideration of \$91.2 million.
| rear Eilueu | ||
|---|---|---|
| 2013 31 Dec |
2012 31 Dec |
|
| For the year ended (in \$ millions) | Audited | Audited |
| Cash flow from operating activities: | ||
| Net income before taxes | 510.8 | 1,068.8 |
| Adjustments for non-cash items: | ||
| Depreciation of property, plant and equipment | 339.8 | 314.5 |
| Net impairment/(impairment reversal) | 48.3 | (2.7) |
| Amortisation of intangible assets | 9.4 | 13.2 |
| Mobilisation costs | 9.8 | 5.7 |
| Adjustments for investing and financing items: | ||
| Share in net income of associates and joint ventures | (127.1) | (86.3) |
| Finance income | (22.1) | (15.8) |
| Finance costs | 70.9 | 44.8 |
| (Gain)/loss on disposal of property, plant and equipment | (12.1) | 0.2 |
| Gain on disposal of subsidiary | (243.6) | |
| Gain on distribution | (5.6) | |
| Adjustments for equity items: | ||
| Share-based payments | 8.1 | 12.5 |
| Reclassification of exchange differences relating to the disposal of foreign subsidiaries | (18.9) | |
| 835.8 | 1,086.8 | |
| Changes in operating assets and liabilities: | ||
| Decrease/(increase) in inventories | 13.9 | (12.0) |
| Increase in operating receivables | (11.5) | (451.3) |
| Increase in operating liabilities | 327.2 | 107.7 |
| 329.6 | (355.6) | |
| Income taxes paid | (184.9) | (216.1) |
| Net cash generated from operating activities | 980.5 | 515.1 |
19. Fair value and financial instruments
Except as detailed in the following table, the carrying value of the Group's financial assets and financial liabilities recorded at amortised cost in the Condensed Consolidated Financial Statements approximate their fair values:
| As at (in \$ millions) | 31 Dec 2013 Carrying amount |
31 Dec 2013 Fair value |
31 Dec 2012 Carrving amount |
31 Dec 2012 Fair value |
|---|---|---|---|---|
| Financial liabilities | ||||
| Borrowings – convertible bonds and convertible notes– Level 2 | (911.7) | (923.7) | (1.377.7) | (1,398.8) |
Borrowings - convertible bonds and convertible notes
The fair value of the liability components of convertible bonds and convertible notes is determined by matching the maturity profile of the bonds to market interest rates available to the Group. At the balance sheet date the interest rates available ranged from 0.8% to 3.3%. (2012: 2.1% to 3.7%).
Fair value measurements
Fair value hierarchy
The Group classifies fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy has the following levels:
- Quoted prices (unadjusted) in active markets for identical assets or liabilities. $|$ evel 1
- Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly Level 2 (i.e. as prices) or indirectly (i.e. derived from prices).
Inputs for the asset or liability that are not based on observable market date (unobservable inputs). Level 3
Recurring and non-recurring fair value measurements
Recurring fair value measurements are those that IFRSs require at the end of each reporting period and non-recurring fair value measurements are those that IFRSs require or permit in particular circumstances.
Assets and liabilities which are measured at fair value in the Condensed Consolidated Balance Sheet and their level of the fair value hierarchy were as follows:
| 31 Dec 2013 | 31 Dec 2013 | 31 Dec 2012 | 31 Dec 2012 | |
|---|---|---|---|---|
| As at (in \$ millions) | Level 2 | Level 3 | Level 2 | Level 3 |
| Recurring fair value measurements | ||||
| Financial assets: | ||||
| Financial assets at fair value through profit or loss - derivative instruments | 33.5 | 53.9 | ||
| Derivative instruments in designated hedge accounting relationships | 26.4 | 20.1 | ||
| Financial liabilities: | ||||
| Financial liabilities at fair value through profit or loss -derivative instruments | (17.2) | (30.2) | ||
| Derivative instruments in designated hedge accounting relationships | (4.5) | (8.1) | ||
| Non-recurring fair value measurements | ||||
| Assets classified as held for sale | 200.3 | 150.3 |
During the year ended 31 December 2013 there have been no transfers between levels of the fair value hierarchy. The Group accounts for transfers between levels of the fair value hierarchy from the date of the event or change in circumstance that caused the transfer.
Fair value techniques and inputs
Financial assets and liabilities at fair value through profit or loss
The Group's financial assets and liabilities fair value through profit or loss comprised:
• Forward foreign exchange contracts
The fair value of outstanding forward foreign exchange contracts was calculated using quoted foreign exchange rates and yield curves derived from quoted interest rates matching maturities of the contract.
• Interest rate swap
The fair value of the Group's interest rate swap was calculated using quoted 3 month US Dollar LIBOR rates. At the balance sheet date the three month US Dollar LIBOR rate was 0.25%.
Non-recurring fair value measurements
The Group's investments in Sonamet and Sonacergy, as described in Note 13 'Assets classified as held for sale' were valued at fair value less costs to sell in accordance with IFRS 5. The agreed consideration is discounted based on the estimated timing of the receipt of such proceeds using the Group's weighted average cost of capital. There was no change to the valuation policies and procedures in the quarter. Further information on the income statement impact for the quarter is included within Note 13. Changes in fair value are recorded in the Condensed Consolidated Income Statement as impairment charges within operating expenses.
20. Related party transactions
The Group is an associate of Siem Industries Inc. and is equity accounted for within Siem Industries Inc.'s consolidated financial statements. Siem Offshore Inc. is an associate of Siem Industries Inc. and has Subsea 7 S.A. directors Mr Eriksrud and Mr Siem as its chairman and a board member respectively. During the year ended 31 December 2013, in addition to normal trading transactions, the Group purchased the construction vessel, the Seven Sisters from a subsidiary of Siem Offshore Inc. The vessel was renamed the Simar Esperanca.
During the year ended 31 December 2013 the Group provided a loan of NOK 672 million (\$115.3 million) to its joint venture Eidesvik Seven to fund the construction of the Seven Viking. The loan was made on arms-length commercial terms.
21. Facilities
Multi-currency revolving credit facilities
During Q4 2013 the Group signed three \$100 million multi-currency revolving credit facility agreements, each with a separate bank. These facilities are exclusively available for cash drawings.
22. Post balance sheet events
Share repurchase plan At 28 February 2014, the Group had repurchased a further 1,276,413 shares for a total consideration of \$23.1 million.
Dividend
The Board of Directors has recommended that shareholders approve a special dividend of NOK 3.60 per share at the next Annual General Meeting on 27 June 2014.