Subsea 7 plans cost cuts as loss doubles
Subsea 7 has seen red in Q1 2020 on activity drop in the SURF and Conventional business units as well as COVID-19 pandemic.
The Oslo-listed firm posted quarterly loss of $38 million, or $13 cents per diluted share, on revenue of $751 million.
The result compares to loss of $19 million, or $0.6 EPS on revenue of $859 billion same time last year.
The company reported adjusted EBITDA , against $111 million in Q1 2019.
Adjusted EBITDA margin for the quarter was 9 per cent, versus 13 per cent in Q1 2019.
Total vessel utilization was 63 percent, down nine percentage points from the prior-year period.
SURF and Conventional revenue for Q1 2020 was $625 million, down 19 percent from Q1 2019.
Revenue for the Renewables and Heavy Lifting division was up from $53 million in Q1 2019 at $62 million.
Order backlog was $5.6 billion, with order intake totaling $1.5 billion.
$4.6 billion is related to Subsea 7 SURF and Conventional business unit.
$2.7 billion is for execution in the remainder of 2020.
Impact of Covid-19 and low oil prices
Subsea 7 said it is yet to determine the financial cost of addressing the operational inefficiencies of Covid-19.
A comprehensive cost reduction programme is being developed and will be announced in the second quarter.
John Evans, chief executive officer, said:
“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.
The company is also implementing longer-term plans to re-shape the business to reflect the changed outlook for the industry.
Subsea 7 expects 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.
The company also anticipates non-permanent workforce reduction.
However, a reduction in permanent employees might also be necessary.
Subsea 7 expects its active fleet will reduce by releasing a number of chartered vessels and stacking some owned vessels.
These actions would be implemented over the next twelve months.
Therefore, an annualised reduction in cash costs would be approximately $400 million by Q2 2021.
As a result Subsea 7 also expects to record a restructuring charge in 2020.
The company has cut its capital investment plans for 2020 to $230-250 million, from our prior guidance of $270-290 million.
At the end of the first quarter, Subsea 7 had cash and cash equivalents of $340 million.