Subsea 7 — Earnings Release 2019

Feb 26, 2020

Subsea 7 S.A. Announces Fourth Quarter and Full Year 2019 Results

Subsea 7 S.A. Announces Fourth Quarter and Full Year 2019 Results

Subsea 7 S.A. Announces Fourth Quarter and Full Year 2019 Results

Luxembourg - 26 February 2020 - Subsea 7 S.A. (the Group) (Oslo Børs: SUBC, ADR:

SUBCY, ISIN: LU0075646355) announced today results for the fourth quarter and

full year which ended 31 December 2019. Unless otherwise stated the comparative

period is the full year which ended 31 December 2018.

Fourth Quarter and Full Year 2019 highlights

* Adjusted EBITDA of $631 million and margin of 17% for the full year 2019,

reflected good progress on certain projects but lower activity in Renewables

and Heavy Lifting

* Goodwill impairment charge of $100 million related to weakness in the wind

turbine foundation market

* Order intake totalled $3.9 billion in the year, equivalent to a book-to-bill

ratio of 1.1, with eight awards announced in the fourth quarter. Order

backlog increased to $5.2 billion at the year end, with $3.3 billion

expected to be executed in 2020

* Solid financial and liquidity position at 31 December 2019, with cash and

cash equivalents of $398 million, net debt of $181 million including $345

million related to IFRS 16 lease liabilities and $656 million in unutilised

credit facilities

* $304 million returned to shareholders in 2019 comprising $250 million in

share repurchases and $54 million special dividend

Fourth Quarter Full year

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For the period (in $

millions, except

Adjusted EBITDA margin  2019 2018 ((d))

and per share data) Q4 2019 Unaudited Q4 2018 Unaudited Audited

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Revenue 889 1,023 3,657 4,074

Adjusted EBITDA((a)

)(unaudited) 168 163 631 669

Adjusted EBITDA

margin((a) )(unaudited) 19% 16% 17% 16%

Net operating

(loss)/income excluding

goodwill impairment

charge (16) 23 77 200

Goodwill impairment

charge (100) - (100) -

Net operating

(loss)/income (116) 23 (23) 200

Net (loss)/income

excluding goodwill

impairment charge (29) 32 18 165

Net (loss)/income (129) 32 (82) 165

Earnings per share - in

$ per share

Basic (0.45) 0.12 (0.27) 0.56

Diluted((b)) (0.45) 0.12 (0.27) 0.56

Adjusted diluted((b)) (0.12) 0.12 0.05 0.56

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2019 2018

At (in $ millions)     31 Dec 31 Dec

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Backlog -

unaudited((c))     5,187 4,907

Cash and cash

equivalents     398 765

Borrowings     (234) (258)

Net cash (excluding

IFRS 16 'Leases'

liabilities)     164 507

Net debt (including

IFRS 16 'Leases'

liabilities)     (181) -((e))

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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. IFRS 16 'Leases' was implemented on

1 January 2019 and comparative figures for 2018 have not been restated, as a

result Adjusted EBITDA for the fourth quarter and year ended 31 Dec 2019

benefitted by $24 million and $105 million respectively.

(b) For the explanation and a reconciliation of diluted earnings per share and

Adjusted diluted earnings per share, which excludes the impact of the goodwill

impairment charge, refer to Note 7 'Earnings per share' to the Condensed

Consolidated Financial Statements.

(c) Backlog at 31 December 2019 and 31 December 2018 is unaudited and is a non-

IFRS measure.

(d) Audited unless otherwise stated.

(e) IFRS 16 'Leases' was implemented on 1 January 2019, comparative figures for

2018 have not been restated, as a result net debt (including IFRS 16 'Leases'

liabilities) at 31 December 2018 has not been shown.

John Evans, Chief Executive Officer, said:

'Subsea 7 delivered solid operational results in 2019 as we continued to

progress orders awarded at lower prices during the downturn, and commenced work

on projects with more favourable terms. The outlook for SURF and Conventional

continues to improve, with the level of tendering increasing year-on-year and

pricing recovering gradually. Subsea Integration Alliance, our SPS-SURF

partnership with OneSubsea, a Schlumberger company, has made a significant

contribution to recent order intake. With the award of the full EPIC scope for

the Julimar project following earlier FEED activity and, in recent weeks, the

announcement of contracts that further extend our momentum in large greenfield

subsea projects, we have reaffirmed our strategy of early engagement and an

integrated approach. In Renewables and Heavy Lifting, our cable-lay vessels

continue to deliver good utilisation, but the foundations market remains

competitive. We have therefore had to record a goodwill impairment charge

associated with this business. In the long-term, we remain confident that our

client-focused approach and experience managing complex projects leave us well-

positioned to create sustainable value in addressing our clients' transition to

lower carbon solutions.

We are committed to reducing our own environmental impact and this year will

mark the publication of our first Sustainability Report, which will discuss our

sustainability strategy in more detail. The upgrade of our Life of Field vessel,

Seven Viking, to hybrid power, was successful, resulting in a 19% reduction in

CO2 emissions.

In 2020, Subsea 7 has strengthened its management team with the appointment of

three new Executive Vice Presidents. I am confident we have the leadership in

place to deliver strong operational and financial performance while continuing

to drive the growth of the business.'

Full year 2019

Full year revenue of $3.7 billion was 10% lower than the prior year. Good

progress on projects within SURF and Conventional was offset by significantly

lower activity levels within Renewables and Heavy Lifting, which reflected the

timing of large project awards. Adjusted EBITDA of $631 million was down 6%

year-on-year. The margin of 17% benefitted from solid execution offset by low

activity levels in Renewables and Heavy Lifting. A goodwill impairment charge of

$100 million was recognised in the Renewables and Heavy Lifting business, which

reflected weakness in the wind turbine foundations market. Excluding the

goodwill impairment charge, net operating income was $77 million and net income

was $18 million. Adjusted diluted earnings per share was $0.05 versus $0.56 in

2018. The reduction from the prior year was driven in part by impairment charges

totalling $70 million mainly relating to two older vessels that are candidates

for disposal.

In 2019, order intake was $3.9 billion including escalations of approximately

$0.8 billion, resulting in a book-to-bill ratio of 1.1. Notable successes in the

year included contract awards in Saudi Arabia, and new orders for Subsea

Integration Alliance that support the strategy of early engagement and an

integrated approach.

In line with our commitment to capital discipline, in 2019, Subsea 7 invested

$258 million in capital expenditure and returned $304 million to shareholders

consisting of $250 million of share repurchases and a special dividend of $54

million. Following the successful conclusion of the Group's $200 million share

repurchase programme on 24 July 2019, the Board of Directors authorised a new

share repurchase programme of up to $200 million.

While we are confident of the improving conditions in our markets, in view of

current global economic uncertainty and market volatility, combined with a

change in law impacting the continuing validity of our advance tax agreement

with the Luxembourg authorities, which we are still evaluating, the Board of

Directors does not recommend the payment of a special dividend to the

shareholders at the Annual General Meeting on the 7 April 2020. Rather, the

Group will manage its returns to shareholders through the current $200 million

share repurchase programme.

Fourth quarter 2019

Fourth quarter revenue of $889 million was 13% lower than the prior year period

reflecting lower activity levels in Africa and Renewables and Heavy Lifting.

Adjusted EBITDA of $168 million, a year-on-year increase of 3%, at a margin of

19% was driven by good execution within SURF and Conventional, as well as

certain commercial settlements. A goodwill impairment charge of $100 million was

recognised in the Renewables and Heavy Lifting business, reflecting near-term

weakness in the wind turbine foundations market. Net loss, excluding the

goodwill impairment charge, was $29 million. Excluding the goodwill impairment

charge, Adjusted diluted earnings per share was a loss of $0.12 compared to

earnings per share of $0.12 in the same period last year. The reduction from the

prior year was driven by impairment charges totalling $70 million mainly

relating to two older vessels that are candidates for disposal.

During the quarter, net cash generated from operations was $162 million with a

favourable movement in net operating assets and liabilities of $23 million.

Capital expenditure was $81 million in the quarter, mainly relating to the

construction of Seven Vega. In addition, the Group acquired 4Subsea. The Group

has a solid financial and liquidity position supported by cash and cash

equivalents of $398 million at 31 December 2019 and a $656 million Revolving

Credit Facility that remains unutilised. Net debt of $181 million at the year

end included IFRS 16 lease liabilities of $345 million.

Despite the slippage of some awards into 2020, the backlog was more than

replenished in the fourth quarter by orders totalling $1.1 billion, including

$184 million of escalations. In SURF and Conventional, key awards included the

Julimar Phase 2 and Ærfugl Phase 2 projects, while in Renewables and Heavy

Lifting awards included the Formosa 2 and Lingshui projects. Backlog at the year

end was $5.2 billion, of which $3.3 billion is expected to be executed in 2020.

The SURF and Conventional business unit made good progress on projects in the

fourth quarter and benefitted from some commercial settlements. In Norway, the

Yme project was completed, while fabrication work continued on the Snorre

Expansion project. In Egypt, the Burullus 9B project has progressed well with

the 2019 offshore campaign successfully completed. On the Mad Dog Phase 2

project, the offshore phase has started with light construction works in

preparation for the pipelay campaign in 2020. The PRP6 project, offshore Brunei,

completed topsides installation works.

Total vessel utilisation was 66% in the fourth quarter 2019, compared to 70% in

the prior year period, reflecting greater seasonality in the North Sea and low

levels of wind turbine foundation activity in the Renewables and Heavy Lifting

business. Utilisation of the cable-lay vessels within Renewables and Heavy

Lifting has remained robust since their acquisition by the Group in 2018. The

Pipelay Support Vessels (PSLVs) on long-term contracts in Brazil achieved high

levels of utilisation in the quarter. At 31 December 2019, the fleet comprised

35 vessels, including Seven Vega, which is under construction, and two stacked

vessels.

Outlook

The continued improvement in the deepwater oil and gas markets this year has

supported increased tendering activity and a gradual improvement in pricing

compared to 2018. Since the year end, the Group has announced a number of

greenfield FEED and SURF awards. In addition, the Group is currently working on

SURF and Conventional tenders with an estimated value of approximately $11

billion, up from approximately $9 billion at the same time last year.

While demand for offshore wind turbine services is growing in support of the

transition to low carbon energy production, continued competition in the

foundations market continues to negatively impact pricing. This is expected to

improve in the longer-term as the market rebalances.

Guidance for full year 2020 is unchanged with both revenue and Adjusted EBITDA

expected to be higher than in 2019, driven by an increase in activity in key

markets. The Adjusted EBITDA margin is expected to remain relatively subdued, as

projects awarded with competitive pricing progress to offshore execution.

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 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-looking statements reflect our

current views and are subject to 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 Management' section in the Group's Annual Report and Consolidated

Financial Statements 2018. 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; 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; 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.