Oslo-listed, Subsea 7, has seen its profits rise for the first quarter (Q1) which ended on March 31, 2015 on improved operating income and foreign currency gains.
The UK-based offshore engineering company, recorded net income of $151 million in the quarter, compared to $131 million in Q1 2014. Diluted earnings per share was $0.44 in the quarter compared to $0.41 in Q1 2014.
Subsea 7’s revenue for the quarter was $1.2 billion, a decrease of $487 million compared with Q1 2014. The decrease reflected lower activity levels in both business units and was adversely impacted by the strengthening of the US dollar against major currencies during the quarter.
Adjusted EBITDA for the quarter was $281 million, an increase of $18 million compared to Q1 2014. Adjusted EBITDA margin was 24%, compared with 16% in Q1 2014 which reflected improved margins in the Southern Hemisphere and Global Projects Business Unit as certain projects successfully completed their offshore phases.
Net operating income was $176 million, an increase of $16 million compared to Q1 2014.
Jean Cahuzac, Subsea 7 Chief Executive Officer, said: “Subsea 7 has started the year well compared with the prior year quarter, with an increase in Adjusted EBITDA in the first quarter of 2015 despite the difficult market environment and decline in revenue. Operational performance has remained strong with good execution and cost control discipline. Vessel utilisation in the period was 68%, in line with the fourth quarter 2014. Adjusted EBITDA margin of 24% reflected increased contribution from projects nearing completion, including the Guará-Lula NE project in Brazil where there was a further $29 million reduction in the full-life project loss.”
The company reported a backlog of $7.6 billion as at 31 March 2015, a decrease of $0.6 billion compared with 31 December 2014. New awards and project escalations amounting to $1.0 billion were recorded in the quarter.
$5.6 billion of the backlog at 31 March 2015 related to SURF activity, which included $2.5 billion for the long-term PLSV contracts in Brazil, $1.5 billion related to Life of Field and i-Tech and $0.5 billion related to Conventional and Hook-up. $3.1 billion of this backlog is expected to be executed in 2015, $2.0 billion in 2016 and $2.5 billion in 2017 and thereafter.
“The continuation of challenging market conditions resulted in subdued order intake and order backlog declined to $7.6 billion by the period end which included an adverse foreign exchange impact of $0.4 billion. New orders and escalations totalled $1.0 billion and included the Persephone project for Woodside, offshore Australia, and the extension of two Life of Field contracts for Shell, offshore UK, both announced in the quarter. Unannounced order intake included fabrication work for Sonamet in Angola and an award for the i-Tech division, offshore Australia. Since the quarter end, a two-year PLSV contract has been awarded offshore Brazil for Seven Seas,” Cahuzac said.
Subsea 7 believes that despite the slowdown in contract awards, the company is positioned competitively for the projects that are still expected to be awarded to the market in 2015. However, the company noted that visibility on the timing of SURF awards remains low but that it expects improvements in Life of Field activity in the second quarter.
The company expects revenue to be significantly lower in 2015 compared to the record level reported last year and adjusted EBITDA margin is expected to decrease compared to 2014.
Furthermore, the company said it will implement additional cost reduction measures in 2015 to more closely align Subsea 7’s cost base to current market conditions.