Subsea 7 — Earnings Release 2020

Apr 30, 2020

Subsea 7 S.A. Announces First Quarter 2020 Results

Subsea 7 S.A. Announces First Quarter 2020 Results

Subsea 7 S.A. Announces First Quarter 2020 Results

Luxembourg - 30 April 2020 - Subsea 7 S.A. (the Group) (Oslo Børs: SUBC, ADR:

SUBCY, ISIN: LU0075646355) announced today results for the first quarter which

ended 31 March 2020.

First quarter summary

* Prompt action taken to address the challenges posed by Covid-19 in order to

safeguard the health and wellbeing of our workforce

* Adjusted EBITDA of $68 million and margin of 9% for the first quarter of

2020, reflecting lower activity levels in the North Sea, an absence of

Conventional activity offshore Africa and the Middle East and increased

costs due to the Covid-19 pandemic

* Order intake totalled $1.5 billion, equivalent to a book-to-bill ratio of

2.0, with four awards announced in the first quarter

* Order backlog increased to $5.6 billion at quarter end, with $2.7 billion

expected to be executed in the remainder of 2020

* Strengthened liquidity position, with cash and cash equivalents of $340

million, $656 million in unutilised revolving credit facilities and a new

Euro Commercial Paper programme equivalent to $740 million to diversify our

sources of liquidity in these unpredictable times

* Reflecting the deterioration in the outlook for new oil and gas awards,

swift and decisive action has been initiated to re-size the business

targeting the removal of approximately $400 million in annualised cash costs

by the second quarter 2021

Three Months Ended

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For the period (in $ millions, except Adjusted 31 Mar 2020 31 Mar 2019

EBITDA margin and per share data)     Unaudited Unaudited

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Revenue     751 859

Adjusted EBITDA((a))     68 111

Adjusted EBITDA margin((a))     9% 13%

Net operating loss     (49) (10)

Net loss     (38) (19)

Earnings per share - in $ per share

Basic     (0.13) (0.06)

Diluted((b))     (0.13) (0.06)

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31 Mar 2020 31 Dec 2019

At (in $ millions)     Unaudited Audited

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Backlog - unaudited((c))     5,648 5,187

Cash and cash equivalents     340 398

Borrowings     (228) (234)

Net cash((d))     112 164

Net debt((d))     (255) (181)

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(a) For explanations and reconciliations of Adjusted EBITDA and Adjusted EBITDA

margin refer to Note 8 'Adjusted EBITDA and Adjusted EBITDA margin' to 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.

(c) Backlog at 31 March 2020 and 31 December 2019 is unaudited and is a non-IFRS

measure.

(d) Net cash is a non-IFRS measure and is defined as cash and cash equivalents

less borrowings. Net debt is defined as net cash less lease liabilities.

John Evans, Chief Executive Officer, said:

Subsea 7 had a strong start to 2020, with the announcement of four contract

awards in the SURF and Conventional business unit, including a major integrated

EPCI award for the Sangomar project in Senegal, and the FEED award for the

Bacalhau project in Brazil. Just eight weeks ago, we discussed our positive

outlook for the year, with an expectation of continued momentum in new order

intake and a tightening market for some of our high-end pipelay vessels. The

outlook has changed significantly as a result of the impact of the Covid-19

pandemic on demand for energy and the price of oil. In the near term, our

efforts are now focused on safeguarding the health of the Group's 12,000

workforce while we continue to deliver projects for clients under difficult

conditions. We are also implementing longer-term plans to re-shape the business

to reflect the changed outlook for the industry.

Impact of Covid-19 and low oil prices

The combination of the Covid-19 pandemic and a new low oil price environment has

had a dual impact on Subsea 7, both in terms of the execution of current

contracts and on the longer-term outlook for the business.

Our project teams have been quick to adapt our work practices to safeguard the

health and wellbeing of the workforce on our vessels, at our onshore worksites

and in our offices, while negotiating the logistical challenges of keeping

clients' projects moving forward. Measures taken to prevent the spread of the

virus have included crew quarantines, extended crew rotations, reduced operating

capacity at onshore sites to enable appropriate social distancing, and remote

working for our engineers and office staff. While we were successful in

minimising cases among our offshore workforce and maintaining operational

continuity in the first quarter, this has inevitably come at a financial cost

that is evident in today's results and is likely to be a feature of the coming

quarters. Since the quarter end, we temporarily stopped work on one vessel in

Brazil to manage a number of confirmed Covid-19 cases on board.

Reflecting the deterioration in the macro environment, our SURF and Conventional

clients have been quick to reduce investment plans, cutting budgets for this

year by 20-25% and, for the most part, pausing tendering activity. Subsea 7 was

fortunate to start the year with a strong backlog and has benefitted from $1.5

billion of new orders in the first quarter. This provides us with a degree of

visibility on activity levels this year, but we expect order flow to be low in

the coming months and competition to increase, impacting the outlook for

revenues and margins in the latter part of 2020 and beyond. Our Renewables and

Heavy Lifting business unit has proven somewhat countercyclical and progress is

continuing in tendering for offshore windfarm projects.

Measures to reduce costs and strengthen the balance sheet

In early April, we withdrew our guidance for 2020, reflecting both the risks

posed by the virus to ongoing operations, and the uncertainty in the wider

energy industry. While we cannot fully control the pace of project execution and

revenue recognition in this environment, we are finalising our review of

operating and capital expenses and have formulated various initiatives to

maximise flexibility and cash preservation.

A comprehensive cost reduction programme is being developed and will be

announced in the second quarter. This will allow us to address the current

market conditions while maintaining our competitive position. It is envisaged

that we would make a reduction in our global workforce, the majority of which

would impact the non-permanent workforce but a reduction in permanent employees

would also be necessary. We anticipate that our active fleet would be reduced by

releasing a number of chartered vessels and stacking some owned vessels. These

actions would be implemented over the next twelve months, corresponding to the

phasing of the projected workload, and we aim to achieve a targeted annualised

reduction in cash costs of approximately $400 million by Q2 2021. As a result of

these actions we expect to record a restructuring charge in 2020.

We expect to take delivery in the third quarter of our new-build rigid reel-lay

vessel, Seven Vega, which is scheduled to work on several projects. We have cut

our capital investment plans for this year to $230-250 million, from our prior

guidance of $270-290 million. Subsea 7 operates a modern fleet and investments

in our vessels and onshore assets can be reduced to a minimum with further

reductions in capital expenditure in 2021 and 2022.

Through these initiatives, our aim is to preserve cash and maintain balance

sheet strength. At the end of the first quarter, Subsea 7 had cash and cash

equivalents of $340 million and an undrawn revolving credit facility (RCF) of

$656 million. In April we finalised a new Euro Commercial Paper programme

equivalent to $740 million to further diversify our sources of liquidity in

these unpredictable times.

First quarter review

First quarter revenue of $751 million was 13% lower than the prior year period

reflecting lower activity levels in the North Sea and an absence of Conventional

activity offshore Africa and the Middle East. Adjusted EBITDA of $68 million, a

year-on-year decrease of 39%, at a margin of 9% (Q1 2019: 13%) was adversely

impacted by low levels of Conventional and diving activity and high vessel

transit time, as several global enablers were redeployed for new projects. In

addition, profitability was affected by the impact on operations of the Covid-

19 pandemic which is estimated to have ranged between $15 million and $20

million. The net loss for the quarter was $38 million.

During the quarter, net cash generated from operations was $82 million with a

favourable movement in net operating assets and liabilities of $19 million.

Capital expenditure was $93 million in the quarter, including milestone payments

for Seven Vega. The Group ended the quarter with net debt of $255 million

including IFRS 16 lease liabilities of $367 million.

In early 2020, Subsea 7 was successful in a number of tenders and booked new

orders totalling $1.5 billion, including approximately $70 million of

escalations. In SURF and Conventional, key awards included the Sangomar project,

offshore Senegal, the Barossa project, offshore Australia, the King's Quay

project, in US Gulf of Mexico and FEED for the Bacalhau project, offshore

Brazil. Backlog at the end of March was $5.6 billion, of which $2.7 billion is

expected to be executed in the remainder of 2020. The backlog for execution in

2021 of $2.0 billion is up 40% since the end of 2019.

Utilisation of Subsea 7's active fleet of 32 vessels was 63% in the first

quarter 2020, compared to 72% in the prior year period, reflecting continued

seasonality in the North Sea, low Conventional activity in Africa and the Middle

East, and intercontinental transiting of certain global enabler vessels. At 31

March 2020, the total fleet comprised 34 vessels, including Seven Vega, which is

due for delivery in the third quarter and one stacked vessel.

Outlook for 2020

Having started the year on a positive note, we are now preparing for a downturn

in SURF and Conventional activity as our clients focus on reducing their capital

expenditure budgets. This will have an impact on the pace of new awards and may

affect the phasing of execution of recent contract awards. While these factors

affect our revenue expectations for 2020 to some extent, the impact on EBITDA is

greater. Rescheduling of higher-margin contracts which were due to start later

this year will have an impact on the EBITDA for the SURF and Conventional

business.

The outlook for Renewables is more positive and our tendering team remains in

active negotiations on a number of projects. The business unit benefits from a

diverse range of clients, many of which are not impacted by low oil prices and

have not needed to make material cuts to near-term investment plans. While, in

the short term, competition for these contracts is high, we are confident that

these clients remain committed to their clean energy initiatives and we continue

to view the offshore wind market as a source of sustainable, profitable growth

for Subsea 7 in the longer term.

Guidance

Given the pace at which the environment continues to change and the low level of

visibility on factors influencing our business we are unable at this stage to

give any revenue or EBITDA guidance for 2020. Uncertainties include the timing

of new contract awards and the conversion of FEED studies to full EPCI projects,

as well as the phasing of projects already underway. This may include the

deferral of some recently awarded, higher-margin work from 2020 to 2021 and

beyond. Finally, the financial cost of addressing the operational inefficiencies

of Covid-19 is yet to be determined, as the duration and extent of the

pandemic's impact are unknown.

In the near future we expect to announce details of our cost reduction programme

and it is anticipated that a restructuring charge will be recognised in 2020. We

are also assessing whether an impairment of the carrying value of our non-

current assets, including goodwill, is required.

We are taking action to address the elements under our control, with swift and

decisive moves to reduce our cost base and capital expenditure, and to

strengthen our balance sheet. We believe these measures will improve our

resilience to the downturn, while protecting our strong competitive position in

our core markets.

Conference Call Information

Lines will open 15 minutes prior to conference call.

Date: 30 April 2020

Time: 12:00 UK Time

Conference ID: 91740296#

Conference Dial In Numbers

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United States   631 913 1422

Norway   23 50 02 43

International Dial In   +44 333 300 0804

Replay Facility Details

A replay facility (with conference ID 301307646#) will be available from:

Date: 30 April 2020

Time: 17:00 UK Time

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For further information, please contact:

Katherine Tonks

Head of Investor Relations

email: katherine.tonks@subsea7.com (mailto:katherine.tonks@subsea7.com)

Telephone: +44 20 8210 5568

Special Note Regarding Forward-Looking Statements

Certain statements made in this announcement may contain 'forward-looking

statements' (within the meaning of the safe harbour provisions of the U.S.

Private Securities Litigation Reform Act of 1995). These statements relate to

our current expectations, beliefs, intentions, assumptions or strategies

regarding the future and are subject to known and unknown risks that could cause

actual results, performance or events to differ materially from those expressed

or implied in these statements. Forward-looking statements may be identified by

the use of words such as 'anticipate', 'believe', 'estimate', 'expect',

'future', 'goal', 'intend', 'likely' 'may', 'plan', 'project', 'seek', 'should',

'strategy' 'will', and similar expressions. The principal risks which could

affect future operations of the Group are described in the 'Risk Management'

section of the Group's Annual Report and Consolidated Financial Statements for

the year ended 31 December 2019. Factors that may cause actual and future

results and trends to differ materially from our forward-looking statements

include (but are not limited to): (i) our ability to deliver fixed price

projects in accordance with client expectations and within the parameters of our

bids, and to avoid cost overruns; (ii) our ability to collect receivables,

negotiate variation orders and collect the related revenue; (iii) our ability to

recover costs on significant projects; (iv) capital expenditure by oil and gas

companies, which is affected by fluctuations in the price of, and demand for,

crude oil and natural gas; (v) unanticipated delays or cancellation of projects

included in our backlog; (vi) competition and price fluctuations in the markets

and businesses in which we operate; (vii) the loss of, or deterioration in our

relationship with, any significant clients; (viii) the outcome of legal

proceedings or governmental inquiries; (ix) uncertainties inherent in operating

internationally, including economic, political and social instability, boycotts

or embargoes, labour unrest, changes in foreign governmental regulations,

corruption and currency fluctuations; (x) the effects of a pandemic or epidemic

or a natural disaster; (xi) liability to third parties for the failure of our

joint venture partners to fulfil their obligations; (xii) changes in, or our

failure to comply with, applicable laws and regulations (including regulatory

measures addressing climate change); (xiii) operating hazards, including spills,

environmental damage, personal or property damage and business interruptions

caused by adverse weather; (xiv) equipment or mechanical failures, which could

increase costs, impair revenue and result in penalties for failure to meet

project completion requirements; (xv) the timely delivery of vessels on order

and the timely completion of ship conversion programmes; (xvi) our ability to

keep pace with technological changes and the impact of potential information

technology, cyber security or data security breaches; and (xvii) the

effectiveness of our disclosure controls and procedures and internal control

over financial reporting;. Many of these factors are beyond our ability to

control or predict. Given these uncertainties, you should not place undue

reliance on the forward-looking statements. Each forward-looking statement

speaks only as of the date of this announcement. We undertake no obligation to

update publicly or revise any forward-looking statements, whether as a result of

new information, future events or otherwise.