Release Date: July 25, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Subsea 7 SA (ACGYF, Financial) delivered a strong second quarter adjusted EBITDA of $292 million, up 80% year-on-year, with a margin of 17%.
- The company achieved a record order intake of $4 billion in the second quarter, with a book-to-bill ratio of 2.3x.
- Subsea 7 SA (ACGYF) has a robust backlog of $12.5 billion, providing good visibility for future projects.
- Revenue increased by 15% year-on-year to $1.7 billion, driven by strong performance in subsea and conventional segments.
- The company has raised its revenue and adjusted EBITDA guidance for the full year 2024, reflecting strong project execution and new vessel acquisition.
Negative Points
- Net finance costs amounted to $24 million, with a net foreign exchange loss of $8 million and taxation of $41 million.
- Net cash used in investing activities was $202 million, including significant capital expenditure and payments for investments.
- Net debt stood at $1 billion at the end of the quarter, including lease liabilities of $533 million.
- The renewables business unit's revenue remained flat year-on-year, indicating limited growth in this segment.
- Political uncertainty in the US could impact future offshore wind projects, despite recent governmental approvals.
Q & A Highlights
Q: Can you provide insights into the competitive environment for offshore wind activities and the long-term margin profile for different segments?
A: (Stuart Fitzgerald, CEO of Seaway 7) We participate in cables, foundations, and turbines. Cables and foundations have high barriers to entry and high demand, leading to a tight market, especially towards 2027-2028. Turbines have lower barriers and more speculative capacity, resulting in a less tight market. We will allocate our vessel, Ventus, to the segment with the best returns. Margins are improving as we selectively bid on high-quality jobs with the right risk profile and pricing.
Q: What are the opportunities for expanding the fleet following the acquisition of a new vessel for the conventional business?
A: (John Evans, COO) We regularly charter tonnage of this class and are aware of every vessel that meets our needs. The recent acquisition was opportunistic, as the vessel's owner faced financial distress. The investment was similar to a three- to four-year charter cost. We keep a close eye on the market and move quickly when the right opportunity arises.
Q: With the acquisition of Seven Merlin, will you release a chartered vessel or add it to your fleet?
A: (John Evans, COO) We have work allocated for the new vessel for the next two and a half to three years, so we won't release any current charters. We have flexibility with our charters and options to adjust as needed based on market conditions.
Q: How do you manage the geographical exposure and capacity for new awards in Brazil, given the significant project opportunities?
A: (John Evans, COO) We manage projects sequentially, fitting them into our capability and asset allocation. We are in good dialogue with Petrobras about timing. We see opportunities for both subsea and wind businesses to bring in quality backlog before year-end, supporting our profiles for 2026-2028.
Q: How much of the subsea and conventional business portfolio still consists of lower-margin work, and what are the biggest challenges in managing the record backlog?
A: (John Evans, COO) Only $500 million of our $12.5 billion backlog was awarded before 2021. The quality of work improves with each new award. The biggest challenge is managing the supply chain, which we address through long-term relationships and alignment of objectives with our suppliers.
Q: Are margins for new projects still increasing, and what drove the lower escalations this quarter?
A: (John Evans, COO) We see strong pricing in the market with three large players taking substantial volumes of work. Escalations depend on project timing and contractual mechanisms, so they can be lumpy. We don't focus too tightly on quarterly fluctuations.
Q: What is the outlook for opportunities over the rest of the year for awards in subsea and conventional?
A: (John Evans, COO) We see opportunities for both subsea and wind businesses to bring in quality backlog before year-end. We are confident in replenishing work and taking on projects that suit our profiles for 2026-2028.
Q: How do you plan to mitigate challenges in managing the record backlog on a medium-term basis?
A: (John Evans, COO) Managing the supply chain is crucial. We have long-term relationships with our suppliers and involve them early in the tender process. We own most of our assets, allowing us to allocate them effectively. Strong relationships and alignment of objectives with suppliers are key.
Q: How do you see the margin evolution for the subsea and conventional business?
A: (John Evans, COO) The vast bulk of our backlog is from 2022-2024, with each new slice of work improving in quality. We expect margins to continue improving as we selectively bid on high-quality projects.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
