SUBSEA 7 INC. REPORT FOR THE THIRD QUARTER UNAUDITED. 26 October 2010

Transcription

1 SUBSEA 7 INC. REPORT FOR THE THIRD QUARTER UNAUDITED 26 October 2010 Subsea 7 Inc. (Oslo Stock Exchange: SUB) today reports the third quarter results for PERFORMANCE SUMMARY Quarter Highlights Strong project execution in all regions. Announced major contracts with a value in excess of USD 400 million during the quarter. Anti-trust clearance granted from the relevant US and Norwegian authorities in respect of the proposed combination of the Company with Acergy S.A. Financial Results The Group s accounts are prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union. Three months ended Nine months ended 30/09/ /09/ /09/ /09/2009 In USD millions Unaudited Unaudited Unaudited Unaudited Revenue , ,901.1 Adjusted EBITDA Net operating profit Profit before tax Profit attributable to equity shareholders Earnings per share, in USD per share Basic Diluted

2 OPERATIONS North Sea During the quarter, offshore installation continued on BP s Skarv and Valhall Re-development projects in the Norwegian sector of the North Sea. Both the Troll B Gas Injection and Njord Riser installation projects were completed for Statoil in Norway. Procurement, engineering and project management continued on BP s Andrew and Apache s Bacchus pipeline bundles, with fabrication of the latter commencing at the Wick facility. These projects are scheduled for offshore installation in Project management and engineering commenced on Total s Laggan Tormore deepwater gas field development, West of Shetland. Life-of-Field operations continued on Shell, ConocoPhillips, Total and BP frame agreements. Africa Operations continued on BP s Block 18 Life-of-Field project, offshore Angola. BP s Block 18 Gas Export Line project progressed well with pipeline production ongoing at the Luanda spoolbase. Offshore installation is scheduled to commence during the fourth quarter of BP s Block 31 project continued with the Seven Seas mobilising in Europe towards the end of the quarter. Offshore installation on this project is scheduled to commence in Angola during the fourth quarter of Brazil Offshore operations commenced during the quarter in respect of Petrobras P-56 project. Project management and engineering continued on the project, with a pre-lay survey being carried out and the Seven Oceans commencing spooling activities. Pipe fabrication for Petrobras P-55 project is due to commence in the fourth quarter of The Lochnagar, K3000 and Normand Seven continued to support Petrobras on day-rate operations. North America The Skandi Neptune continued to support BP in the Macondo field, Gulf of Mexico, until the end of the quarter when the vessel was released from her support duties at the location. Phase 1 of Anadarko s Caesar Tonga project progressed well, with the offshore scope being completed during the quarter with the support of the Seven Oceans. Asia Pacific BHP s Stybarrow project in Australia continued to progress well during the quarter with preparatory works ongoing in Europe and Asia Pacific. The Rockwater 2 completed an emergency pipeline repair during the period in Malaysia. 2

3 INVESTMENTS Third quarter 2010 The Company continued to hold 1,094,004 shares in Acergy S.A. At 30 September 2010, these available-for-sale financial assets were marked-to-market in the balance sheet, giving rise to an increase in their carrying value during the quarter of USD 4.0 million. This increase in the quarter has been reflected directly in shareholders equity. Nine months ended 30 September 2010 In addition to the above, other significant investing activities for the nine months ended 30 September 2010 include the following: During the first quarter 2010, the Company sold 3,488,881 of the shares held in Acergy S.A. for USD 61.4 million and recognised a gain of USD 4.3 million in respect of these shares. This gain was transferred from equity to the income statement and is included within finance income. During the first quarter 2010, the Company also sold its entire holding of the debt securities in Acergy S.A. for USD million. Over the entire period of ownership, the Company realised a profit of USD 7.0 million in respect of these investments. FINANCING Third quarter 2010 In August 2010, the Company repurchased USD 20 million (par value) of its USD 300 million 2.8% coupon Subsea 7 Inc. convertible notes due 2011 (the 2011 Notes ) for USD 19.9 million, or 99.6% of the par value. The Company now holds USD 71 million (par value) of the 2011 Notes which remain outstanding and have not been cancelled. Nine months ended 30 September 2010 In addition to the above, other significant financing activities for the nine months ended 30 September 2010 include the following: In February 2010, the Company repurchased USD 11 million (par value) of the 2011 Notes for USD 11.1 million. On 29 June 2010, the holders of USD million (par value) of the USD 175 million zero coupon Subsea 7 Inc. convertible notes due 2017 (the 2017 Notes ) exercised their option to redeem the notes at their accreted principal amount of USD million. In July 2010, the Company cancelled its USD 40.5 million (par value) holding of the 2017 Notes leaving USD 3.4 million (par value) of the 2017 Notes outstanding. 3

4 FINANCIALS Third quarter 2010 Revenue for the third quarter 2010 was USD million compared to USD million for the same period in The decrease in revenue is mainly due to reduced activity levels in Brazil in the third quarter 2010 compared to the same period in 2009 during which there were a number of significant projects in their offshore phases. In addition, there were lower activity levels in the North Sea during the third quarter 2010 as compared to the same period in Net operating profit for the third quarter 2010 was USD 76.3 million compared to USD million for the same period in Net operating margins as a percentage of revenue were 14.1% in the third quarter 2010 compared to 16.3% in the same period in Net financial income for the third quarter 2010 was USD 2.0 million compared to USD 11.4 million for the same period in One reason for this difference is gains in the marking-to-market of derivative financial instruments of USD 10.5 million during the third quarter 2010 compared to gains of USD 14.9 million in the same period in In addition, there were lower net currency gains of USD 0.8 million for the third quarter 2010 compared to USD 3.3 million in the same period in 2009 and a greater finance expense of USD 11.4 million in the third quarter 2010 compared to a finance expense of USD 8.7 million in the same period in Taxation expense for the third quarter 2010 was USD 25.3 million which equates to an effective rate of 32.2%. Net profit attributable to equity shareholders for the third quarter 2010 was USD 53.4 million, or USD 0.36 per share, compared to USD 86.6 million, or USD 0.59 per share, for the same period in Nine months ended 30 September 2010 Revenue for the nine months ended 30 September 2010 was USD 1.5 billion compared to USD 1.9 billion for the same period in The decrease in revenue was mainly due to reduced activity levels in Brazil in the nine months ended 30 September 2010 compared to the same period in 2009 during which there were a number of significant projects in their offshore phases, including Shell s BC-10 development. In addition, there were lower levels of activity in the North Sea and Africa in the nine months ended 30 September 2010 compared to the same period in 2009, offset to some extent by an increase in activity in Asia Pacific. Net operating profit for the nine months ended 30 September 2010 was USD million compared to USD million for the same period in 2009, representing an increase in net operating margins as a percentage of revenue for the nine months ended 30 September from 16.2% in 2009 to 16.4% in Net financial expense for the nine months ended 30 September 2010 was USD 52.5 million compared to net financial income of USD 7.0 million for the same period in The main reason for this difference is losses in the marking-tomarket of derivative financial instruments during the nine months ended 30 September 2010 of USD 8.5 million compared to gains of USD 50.1 million in the same period in Taxation expense for the nine months ended 30 September 2010 was USD 65.6 million which equates to an effective rate of 33.4% compared to a taxation expense of USD 96.4 million and an effective rate of 30.1% in Net profit attributable to equity shareholders for the nine months ended 30 September 2010 was USD million, or USD 0.89 per share, compared to USD million, or USD 1.52 per share in Cash and cash equivalents at 30 September 2010 were USD million compared to USD million at 30 September Shareholders equity at 30 September 2010 totalled USD 1.3 billion compared to USD 1.0 billion at 30 September

5 CAPITAL EXPENDITURE The Seven Pacific has successfully completed her sea trials and is currently at Huisman s yard in Schiedam, the Netherlands. The main crane and vertical pipelay system have been installed and final commissioning is ongoing. The completed vessel is on schedule to be delivered during the fourth quarter of SHARE CAPITAL During the quarter, 2,500 share options were exercised under the Company s share option plan at a strike price of NOK per share. The Company had 147,242,380 shares issued and outstanding at 30 September BACKLOG The Group was awarded new contracts, including commitments under frame agreements, of an aggregate amount of approximately USD 0.6 billion during the quarter. The worldwide order book of the Group at 30 September 2010 was approximately USD 2.9 billion, comprised of approximately USD 1.9 billion of day-rate contracts and USD 1.0 billion of lump-sum contracts. MAJOR NEW CONTRACT AWARDS SINCE 1 JULY 2010 In July 2010, the Company announced the award of a contract by Petrobras in Brazil, through its i-tech business. The contract is for the provision of ROV and underwater survey services onboard an ROV support vessel and is valued in the region of USD 50 million. In August 2010, the Company announced the award of a contract in the UK sector of the North Sea. The contract is for the engineering, fabrication, installation and commissioning of a pipeline bundle system and is valued in excess of USD 100 million. Offshore installation of the bundle is scheduled for the first half of On 1 October 2010, the Company announced the award of a major engineering, procurement, installation and commissioning (EPIC) contract by Total E&P UK Limited for the Laggan Tormore deepwater gas field development, West of Shetland in the North Sea. The contract, which was signed on 30 September 2010, is valued in excess of USD 250 million. PROPOSED COMBINATION OF SUBSEA 7 AND ACERGY The Company and Acergy S.A. are continuing to work on the various approvals that are required in respect of the proposed combination of the two companies that was announced in June On 28 September 2010, the Company announced that anti-trust clearance had been granted from the relevant US and Norwegian authorities. Extraordinary General Meetings of both the Company and Acergy S.A. to approve the combination are scheduled for 9 November Completion is currently anticipated for January 2011, subject to shareholder approvals, regulatory approvals and other customary completion conditions, as outlined in the Information Circular issued to shareholders, dated 22 September OUTLOOK Market indicators continue to point to a positive market in the medium to longer term. Tendering activity remains at high levels, with a number of major contracts expected to be awarded in the remainder of 2010 and the first half of The North Sea is particularly active with a number of significant projects being progressed for execution in 2012 and Activity in the Gulf of Mexico has been affected by the accident in the Macondo field. The embargo imposed by the US government has been lifted and it is expected that activity levels will recover over the next year. On behalf of the Board of Directors of Subsea 7 Inc. 26 October 2010 Kristian Siem, Chairman 5

6 CONSOLIDATED INCOME STATEMENT Three months ended Nine months ended Year ended 30/09/ /09/ /09/ /09/ /12/2009 (Amounts in USD 1,000) Unaudited Unaudited Unaudited Unaudited Audited Revenue 540, ,043 1,513,556 1,901,100 2,439,278 Project and vessel expenses (416,721) (509,131) (1,123,222) (1,469,282) (1,861,990) Other operating expenses (15,745) (13,908) (44,241) (41,522) (57,223) Depreciation and amortisation (33,312) (30,244) (100,300) (83,288) (117,214) Profit on disposal of property, plant and equipment 1,280-2, ,160 Net operating profit 76, , , , ,011 Changes in fair value of derivative financial instruments 10,473 14,909 (8,476) 50,054 47,755 Net currency gain/(loss) 814 3,308 (9,568) (3,786) 4,767 Finance income 2,082 1,849 10,890 7,321 8,896 Finance expense (11,378) (8,675) (45,394) (46,567) (59,955) Net financial items 1,991 11,391 (52,548) 7,022 1,463 Share of post-tax profit from joint ventures 489 1, ,960 5,652 Share of post-tax (loss)/profit from associates (207) ,074 Profit before tax 78, , , , ,200 Taxation expense (25,272) (34,687) (65,626) (96,350) (123,849) Profit for the period 53,284 86, , , ,351 Attributable to: Equity shareholders 53,391 86, , , ,351 Non-controlling interests (107) - (298) ,284 86, , , ,351 Earnings per share attributable to equity shareholders (in USD per share) Basic Diluted Weighted average number of issued shares (1,000) Basic 147, , , , ,941 Diluted 163, , , , ,586 6

7 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME Three months ended Nine months ended Year ended 30/09/ /09/ /09/ /09/ /12/2009 (Amounts in USD 1,000) Unaudited Unaudited Unaudited Unaudited Audited Profit for the year 53,284 86, , , ,351 Currency translation differences 58,923 (6,273) (3,948) 79,773 97,012 Available-for-sale financial assets fair value adjustment 4,004 16,694 13,656 44,151 56,743 gains reclassified to income statement - - (4,321) - - losses reclassified to income statement - - 8, Other comprehensive income 62,927 10,421 13, , ,755 Total comprehensive income 116,211 97, , , ,106 Attributable to: Equity shareholders 116,318 97, , , ,106 Non-controlling interests (107) - (298) ,211 97, , , ,106 7

8 CONSOLIDATED BALANCE SHEET At 30/09/2010 At 30/09/2009 At 31/12/2009 (Amounts in USD 1,000) Unaudited Unaudited Audited ASSETS Non-current assets Property, plant and equipment 1,158,201 1,167,391 1,189,389 Goodwill 98,139 98,533 98,533 Other intangible assets Derivative financial instruments 128 2, Deferred tax assets 10,805 18,069 11,849 Investment in joint ventures 3,808 11,497 2,958 Investment in associates 2,826 2,231 2,675 1,274,202 1,301,200 1,306,219 Current assets Inventories 35,154 27,439 32,981 Trade and other receivables 740, , ,978 Available-for-sale financial assets 20, , ,443 Derivative financial instruments - 9,386 5,337 Cash and cash equivalents 496, , ,251 1,291,917 1,187,023 1,207,990 TOTAL ASSETS 2,566,119 2,488,223 2,514,209 EQUITY AND LIABILITIES Equity Share capital 1,472 1,470 1,470 Share premium reserve 273, , ,664 Shares held by Employee Share Trust (9,430) (9,430) (9,430) Other reserves (75,422) (113,099) (43,603) Retained earnings 1,146, , ,187 Shareholders equity 1,336,162 1,039,866 1,187,288 Non-controlling interests (298) - - Total equity 1,335,864 1,039,866 1,187,288 Non-current liabilities Borrowings 237, , ,540 Deferred tax liabilities 100,152 99, ,577 Retirement benefit obligations 127 1, Derivative financial instruments 4, Other non-current liabilities 305 4, , , ,742 Current liabilities Borrowings 223, , ,465 Trade and other payables 631, , ,098 Current tax liabilities 29,813 56,903 40,368 Derivative financial instruments 2, , ,767 1,000, ,179 Total liabilities 1,230,255 1,448,357 1,326,921 TOTAL EQUITY AND LIABILITIES 2,566,119 2,488,223 2,514,209 8

9 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (Amounts in USD 1,000) Share capital Share premium Shareholders equity Shares held by Employee Share Trust Other reserves Retained earnings Total Noncontrolling interest Total equity At 1 January 2010 (Audited) 1, ,664 (9,430) (43,603) 967,187 1,187,288-1,187,288 Foreign currency translation (3,948) - (3,948) - (3,948) Available-for-sale financial assets fair value adjustment ,656-13,656-13,656 gains reclassified to income statement (4,321) - (4,321) - (4,321) losses reclassified to income statement ,246-8,246-8,246 Other comprehensive expense ,633-13,633-13,633 Net result for the period , ,980 (298) 130,682 Total comprehensive (expense)/income , , ,613 (298) 144,315 Share based payments 3,017 3,017-3,017 Shares issued exercise of options 2 1, ,450-1,450 Redemption of convertible notes (35,973) 35, Repurchase of convertible notes (6,539) 6,333 (206) - (206) Depreciation on re-valued assets (2,940) 2, At 30 September 2010 (Unaudited) 1, ,112 (9,430) (75,422) 1,146,430 1,336,162 (298) 1,335,864 At 1 January 2009 (Audited) 1, ,238 (9,430) (225,650) 652, , ,666 Foreign currency translation ,773-79,773-79,773 Available-for-sale financial assets fair value adjustment ,151-44,151-44,151 Other comprehensive income , , ,924 Net result for the period , , ,883 Total comprehensive income , , , ,807 Share based payments ,308 3,308-3,308 Shares issued exercise of options Repurchase of convertible notes (8,435) 7,289 (1,146) - (1,146) Depreciation on re-valued assets (2,938) 2, At 30 September 2009 (Unaudited) 1, ,468 (9,430) (113,099) 889,457 1,039,866-1,039,866 9

10 CONSOLIDATED CASH FLOW STATEMENT Nine months ended Year ended 30/09/ /09/ /12/2009 (Amounts in USD 1,000) Unaudited Unaudited Audited Cash flows from operating activities Cash generated from operations 159, , ,977 Finance income received 6,370 3,707 4,551 Finance expense paid (11,276) (6,802) (11,941) Taxation paid (74,986) (75,482) (90,998) Net cash from operating activities 80, , ,589 Cash flows from investing activities Deferred consideration (2,500) - - Proceeds from sale of property, plant and equipment 2, ,413 Purchase of property, plant and equipment (80,632) (181,208) (246,331) Proceeds from sale of available-for-sale financial assets 173, Investment in joint venture (49) - - Dividends received 230 7,136 16,336 Net cash from/(used in) investing activities 92,665 (173,257) (228,582) Cash flows from financing activities Net proceeds from issue of ordinary share capital 1, Repayment of loans - (50,000) (150,000) Proceeds from issue of convertible notes ,902 Redemption of convertible notes (134,881) - - Repurchase of convertible notes (30,994) (11,025) (75,486) Net cash (used in)/from financing activities (164,425) (60,794) 47,843 Effects of exchange rate changes ,335 Net increase in cash and cash equivalents 9,081 81, ,185 Cash and cash equivalents at start of period 487, , ,066 Cash and cash equivalents at end of period 496, , ,251 10

11 NOTES TO THE FINANCIAL INFORMATION 1. Basis of preparation The condensed consolidated financial information for the period 1 January to 30 September 2010 has been prepared in accordance with International Accounting Standard (IAS) 34 Interim Financial Reporting as adopted by the European Union, but has not been audited or reviewed. The condensed consolidated financial information should be read in conjunction with the annual financial statements for the year ended 31 December 2009 which have been prepared in accordance with IFRSs as adopted by the European Union. 2. Accounting policies The accounting policies adopted in the preparation of the condensed consolidated financial information are consistent with the annual financial statements for the year ended 31 December 2009, as described in those annual financial statements. In addition the following new standards, amendments to standards and interpretations have been adopted from 1 January 2010: IFRS 3 Business Combinations (Revised) and IAS 27 Consolidated and Separate Financial Statements (Amended) IFRS 3 (Revised) introduces significant changes in the accounting for business combinations occurring after implementation. Changes affect the valuation of non-controlling interest, the accounting for transaction costs, the initial recognition and subsequent measurement of a contingent consideration and business combinations achieved in stages. These changes will impact the amount of goodwill recognised, the reported results in the period that an acquisition occurs and future reported results. IAS 27 (Amended) requires that a change in the ownership interest of a subsidiary (without loss of control) is accounted for as a transaction with owners in their capacity as owners. Therefore, such transactions will no longer give rise to goodwill, nor will it give rise to a gain or loss. Furthermore, the amended standard changes the accounting for losses incurred by the subsidiary as well as the loss of control of a subsidiary. The changes made by IFRS 3 (Revised) and IAS 27 (Amended) will affect future acquisitions or loss of control of subsidiaries and transactions with non-controlling interests. The changes in accounting policy will be applied prospectively. In addition, the changes to IAS 27 have impacted the basis of consolidation used by the Group. The main impact is in the accounting for non-controlling interests. Prior to 1 January 2010 losses incurred by the Group were allocated to non-controlling interests until that balance was reduced to nil. Any further losses were attributable to the Group. From 1 January 2010 losses are attributable to the non-controlling interest even if that results in a deficit balance. Losses attributable to the non-controlling interest incurred prior to 1 January 2010 are not reclassified. The adoption of the following standards, amendments to standards and interpretations had no impact on the reported income or net assets of the Group in the quarter. Title Effective Date Improvements to IFRSs 2009 Various IFRS 2 Share-based Payment: Group Cash-settled Share-based Payment Transactions 1 January 2010 IAS 39 Financial Instruments: Recognition and Measurement Eligible hedged items 1 July 2009 IFRIC 17 Distributions of Non-Cash Assets to Owners 1 July 2009 IFRIC 18 Transfers of Assets from Customers 1 July

12 3. Segment reporting North Sea Africa Brazil North America Asia Pacific Global Total (Amounts in USD 1,000) Third quarter 2010 (Unaudited) Revenue 293,645 73, ,778 31,727 21, ,781 Profit/(loss) before tax 44,064 15,993 19,323 2,971 2,491 (6,286) 78,556 Third quarter 2009 (Unaudited) Revenue 334,191 65, ,738 27,313 29, ,043 Profit before tax 74,099 23,643 7,098 8,545 4,786 3, ,286 Year to date 2010 (Unaudited) Revenue 748, , ,083 82, ,300-1,513,556 Profit/(loss) before tax 98,434 56,116 52,042 13,597 48,370 (72,251) 196,308 Year to date 2009 (Unaudited) Revenue 858, , ,304 78,733 53, ,901,100 Profit/(loss) before tax 175,295 76,520 46,452 28,569 (1,332) (5,271) 320,233 The Global segment comprises the global support functions, including the vessel and equipment management group which is responsible for the management and maintenance of the vessels and equipment. Finance income and expense, derivative instrument fair value changes, net currency items, profits or losses on disposals of property, plant and equipment and share of profits from associates are also allocated to this segment. 4. Cash flow from operating activities Nine months ended Year ended 30/09/ /09/ /12/2009 (Amounts in USD 1,000) Unaudited Unaudited Audited Net profit 130, , ,351 Adjustments for: Taxation charge 65,626 96, ,849 Depreciation and amortisation 100,300 83, ,214 Profit on disposal of property, plant and equipment (2,839) (613) (1,160) Share based payment charge 3,017 3,308 4,595 Deferred government grant income (15) (15) (20) Finance income (10,890) (7,321) (8,896) Finance expense 45,394 46,567 59,955 Gain on embedded derivative within convertible loan notes (3,100) (29,752) (34,284) Share of post tax profit from joint ventures (73) (4,960) (5,652) Share of post tax profit from associates (151) (630) (1,074) Changes in working capital (excluding the effects of acquisitions and disposals of subsidiaries): Increase in inventories (2,173) (4,872) (10,414) (Increase)/decrease in receivables (229,829) (147,243) 149,804 Increase/(decrease) in payables 63, ,121 (42,291) Cash generated from operations 159, , ,977 12

13 5. Adjusted EBITDA Three months ended Nine months ended 30/09/ /09/ /09/ /09/2009 (Amounts in USD 1,000 except percentages) Unaudited Unaudited Unaudited Unaudited Net profit 53,284 86, , ,883 Adjustments: Taxation expense 25,272 34,687 65,626 96,350 Net financial items (1,991) (11,391) 52,548 (7,022) Depreciation and amortisation 33,312 30, ,300 83,288 Profit on disposal of property, plant and equipment (1,280) - (2,839) (613) Adjusted EBITDA 108, , , ,886 Revenue 540, ,043 1,513,556 1,901,100 Adjusted EBITDA % 20.1% 21.2% 22.9% 20.8% The Company calculates "Adjusted EBITDA" (adjusted earnings before interest, taxation, depreciation and amortisation) as net profit adjusted for taxation, net financial items, depreciation, amortisation, impairments and profits or losses on disposals of property, plant and equipment. 6. Contingent liabilities The Group is party to indemnities, legal actions and claims that arise in the ordinary course of business. Whilst the outcome of such legal proceedings cannot be readily foreseen, management believes that they will be resolved without material effect on the Group s results, financial position or liquidity. 7. Events occurring after the balance sheet date There were no subsequent events between the balance sheet date and the date the condensed consolidated financial information was authorised for issue that require disclosure. 13