Earnings Call: Q4 2020

Feb 25, 2021

Welcome, everybody. With me on the call today are John Evans, our CEO and Ricardo Rosa, our CFO. The results press release is available to download on our website along with the presentation slides that we'll be referring to during today's call. May remind you that this call includes forward looking statements that reflect our current views and are subject to risks, uncertainties and assumptions. Similar wording is also found in our press release. I'll now turn the call over to John. Thank you, and good afternoon, everyone. I will start with highlights from the Q4 before passing over to Ricardo to cover the quarterly and full year financial results. Turning to slide 4. In the face of a challenging year with difficult macro conditions, Subsea 7 has delivered well, particularly in the Q4. Our activity levels in Q4 improved sequentially from the Q3, driven mainly by SURF and Conventional. Revenues were up approximately 14% year on year and our EBITDA margins improved to 16%. We ended the year with a strong balance sheet with $512,000,000 of cash and equivalents and net cash of $49,000,000 During the quarter, we mobilized our new vessel 7 Vega to the Gulf of Mexico and it confirms it started its first job a few weeks ago. Bacalhau FEED was completed. And finally, advancing our energy transition goals, We launched the Subsea 7 carbon estimator, which I'll talk more about later. Turning to slide 5 and our operational highlights. In the Q4, we were active in the UK for both an oil major as well as a new generation of independent. For Shell, we executed the offshore installation scope for the Aaron tieback and continued work on the Pierce project as well as the Penguin's redevelopment. For IOG, the 7 Avoca was busy installing pipelines for Phase 1 of the client's Southern North Sea Gas Project at Blythe. In Brazil, CEMCE has completed the installation of flexibles and umbilicals on LAPA Northeast. And in the Gulf of Mexico, along with our partners in the Subsea Integration Alliance, we made good progress on the Mad Dog II project. In Angola, San Borealis and San Arctic were both active, tying back Zinnia to the pass floor FPSO. And this project was over 90% complete at the end of the quarter. Engineering work continued on Sangamo in Senegal, As well as on a variety of projects in the Gulf of Mexico, including Anchor, Kings Quay and Jack St. Marlow. The Life of Field business unit achieved high vessel utilization in the Q4 with work on its 4 sorry, 3 long term contracts in Azerbaijan, UK and Norway as well as activity in the North Sea and the Gulf of Mexico. The Renewables business unit continues to make good progress on Seagreen with fabrication of the jackets and in array cables well underway. Meanwhile work in Taiwan did not resume as planned and some of this activity has now been rephased into 2021. Turning to slide 6. As we've noted before, large new orders in this business can be lumpy. We had a quiet 4th quarter, But intake for the year was a robust $4,400,000,000 resulting in a book to bill ratio for the year of 1.3. Since the quarter end, we've announced 2 contract awards, including our first carbon capture and storage project for Equinor at Northern Lights. At the year end, we had a backlog of $6,200,000,000 and our workload for execution in 2021 is $4,000,000,000 giving us good visibility on the project activity in the coming 12 months. And now I'll pass over to Ricardo, who will run through the financial results in more detail. Thank you, John, and good afternoon, everyone. Slide 7 shows our income statement highlights. 4th quarter revenue was $1,000,000,000 14% higher than the prior year period, reflecting higher levels of activity in our Renewables business. Adjusted EBITDA of $165,000,000 including net costs associated with COVID-nineteen of approximately $5,000,000 was flat year on year. This resulted in an adjusted EBITDA margin of 16%, about 2 60 basis points lower than the margin achieved in the prior year quarter were due to lower activity and fewer project completions in SURF, partly offset by improved activity in Renewables. In the Q4, we recognized asset impairments of $94,000,000 mainly related to vessels, including the 7 Mar, which have been classified as an asset held for sale at the beginning of 2020. In addition, the quarter includes goodwill impairment charges of $27,000,000 split equally between the Life of Field Business Unit and SURF and Conventional. The net loss was $103,000,000 equivalent to a diluted loss per share of $0.35 Turning to the full year. Revenue in 2020 was $3,500,000,000 down 5% year on year due to lower activity levels in SURF and Conventional, partly offset by higher activity in Renewables. Adjusted EBITDA was $337,000,000 after incurring restructuring charges of $86,000,000 and net costs associated with COVID-nineteen of approximately $70,000,000 This equates to an adjusted EBITDA margin for the year of 10%, a reduction of around 7 percentage points compared with the prior year. In the full year, we recognized goodwill impairment charges totaling $605,000,000 as well as asset impairments of $323,000,000 mainly recognized in the Q2 and reflecting the deterioration in outlook for oil and gas markets. The net loss was $1,100,000,000 for the year, equivalent to a diluted loss per share of $3.67 Turning to slide 8 for additional details of the income statement. Administrative expenses in the 4th quarter included $15,000,000 of office lease impairment. Excluding the impairment, 4th quarter administrative expenses diminished by $27,000,000 compared with the prior period. And for the full year, they declined by $40,000,000 compared with for 2019. The reductions were driven by reduced staffing levels, lower tendering activity and travel costs, reflecting our cash cost reduction initiative. For the full year, administrative expenses included $11,000,000 of costs related to the group's resizing program. Full year depreciation and amortization decreased by $42,000,000 compared to of 2019 reflecting the exit of 7 Pelican and 7 Mar from the fleet, partially offset by depreciation associated were the 7 Vega, which entered the fleet in the Q4. The tax charge of $33,000,000 in the full year reflect the fact that we were unable to recognize tax credits on losses incurred in certain jurisdictions, the limited tax relief associated with impairment charges as well as the impact of irrecoverable withholding taxes. On slide 9, We revisit our cost histogram that shows our expenses divided into 4 main categories. In 2018 2019, we highlighted the tight rein we had kept on costs as the offshore recovery got underway. In 2020, you can begin to see the impact of the cost reduction plan as we realigned our business to a new macroeconomic outlook. Vessel and other costs excluding impairment charges fell to approximately $300,000,000 We ended the year with 30 vessels in our active fleet, down from 32 at the end of 2019. We released 2 chartered vessels and stacked 2 of our own vessels during the year. We had planned to stack an additional 2 vessels, But in September, we received an extension of the contract on 7 Sun, and we took the decision to convert 7 Phoenix for use in renewables as a cable lay vessel. Our intention remains to reduce the fleet as activity levels dictate. Our personnel costs fell to approximately $900,000,000 in 2020 as the planned headcount reduction progressed during the second half. Direct project costs are a function of the volume, mix and phasing of our activities and the pricing environment for procurement. In 2020, we saw a slight increase in our procurement costs, driven by the mix and phasing of our portfolio of projects, particularly Seagreen. Supply chain pricing remains stable in 2020. On slide 10, we summarize the performance of our operating business units after excluding all goodwill and asset impairment charges in the current and prior year quarters and for the full year 2020 2019. The SURF and Conventional business unit generated $715,000,000 of revenue in the 4th quarter, 6% below the prior year, mainly due to weaker activity in the Middle East and lower conventional activity in Africa. Our SURF activity in Africa has been more resilient. And this quarter, the Zinnia project in Angola made a significant contribution, as did Sangoma in Senegal. We recorded strong revenue in the Gulf of Mexico, on Mad Dog 2, Kings Key and Itchalkil, and in Brazil from the PLSVs. The UK was also a bright spot this quarter with contributions from the Blythe, Penguins, Pierce and Aran projects. Life of Field revenue in the quarter was broadly in line with last year at $66,000,000 Renewables and Heavy Lifting revenue was $234,000,000 a fourfold increase compared to the prior year, mainly driven by activity on the Seagreen project and it represented 23% of group revenue. Net operating income for SURF and Conventional was $38,000,000 compared to $99,000,000 in the prior year quarter, were mainly due to fewer project completions as well as the impact the adverse impact of COVID-nineteen. Life of Field reported net operating income of $10,000,000 in the quarter, a significant favorable swing from the loss of $3,000,000 in the prior year period. Renewables and Heavy Lifting recorded a net operating loss of $1,000,000 compared with a loss of $26,000,000 in the prior year quarter, were driven mainly by significantly higher revenue related to the Seagreen project. Turning to the full year, SURF and Conventional revenue fell 19% year on year, while revenue from renewables increased nearly threefold and represented 18% of the group total. Seagreen was the largest contributor to the group's revenue in the full year. We've got good contributions as well from Zinnia and Mad Dog 2. Life of Field revenue was broadly flat compared with 2019. Net operating income fell sharply in SURF and Conventional and remained negative in Renewables. But Life of Field reported a $28,000,000 net operating income, A significant improvement year on year driven by successful efforts to right size the organization, increased activity in Brazil and steady IRM work in the North Sea. Slide 11 shows our cash flow waterfall chart for the full year. Net cash generated from operating activities was $447,000,000 including a were $192,000,000 favorable movement in working capital. The latter was driven by the timing of milestone payments on were partially offset by the EPCI projects, including Sea Green and lower working capital requirements due mainly to much reduced activity in the Middle East. Our capital expenditure was $183,000,000 below our guided range of $200,000,000 to $230,000,000 And reflecting our continued focus on capital discipline and preserving cash. We spent approximately $70,000,000 completing the construction of 7 Vega and $5,000,000 on the conversion of 7 Phoenix, which is due for completion in the Q2 of 2021. During the year, we incurred $104,000,000 in lease payments, mainly related to chartered vessels. At the end of the year, we had $512,000,000 in cash and cash equivalents, an increase of $114,000,000 from end 2019. Our net cash position improved to $49,000,000 including lease liabilities of 2 And you are familiar with our 3 objectives: reinvesting in the business, protecting the balance sheet and returning excess cash to shareholders. As I mentioned in the previous slide, we continue to invest in the business in a disciplined manner, with a focus on digitalization and technology, as well as selective investments in renewables. We maintained a strong balance sheet during the year, helped by our swift and decisive action to realign our cost faced with the reality of the new macroeconomic environment. We also enhanced our liquidity position this year were with the addition of a euro commercial paper program equivalent to approximately $800,000,000 This, along with our revolving credit facility of $656,000,000 remained undrawn at the year end. As we announced separately this morning, we have entered into a $500,000,000 5 year amortizing loan facility are backed by a $400,000,000 guarantee from the U. K. Export finance. The group has a 2 year availability period during which to draw on the facility and the facility has a 5 year tenure, which commences at the end of the availability period or when the facility is fully drawn, if earlier. The facility can be used for general corporate purposes, including to provide working capital financing for services provided from the United Kingdom. Finally, marking its confidence in the final position and outlook for the group, the Board has recommended that shareholders approved a dividend per share of NOK 2 equivalent to approximately $70,000,000 This continues our consistent track record of returning excess cash to shareholders, which over the past decade have amounted to nearly $2,000,000,000 To conclude, slide 13 shows our guidance for the full year. Last quarter, we provided guidance on revenue, EBITDA and net operating income for the full year 2021. This remains unchanged and today we provide more color on the outlook for the year. The operational and financial impact of COVID-nineteen have been very difficult to predict, but early indications are that we will likely incur a charge in the Q1 not dissimilar to for Q2 and Q3 of 2020. In addition, we expect the impact of seasonality in the Q1 to be quite pronounced. Turning to the full year and bearing in mind my comments on COVID-nineteen, We expect revenue and adjusted EBITDA to be above 2020 levels, and we expect net operating income to be positive. Our administrative expenses are expected to range between $220,000,000 $240,000,000 Net finance cost is expected to fall between $15,000,000 $20,000,000 while depreciation and amortization expense is expected to be between $430,000,000 $450,000,000 Our tax charge for the year is anticipated to be in the range of $20,000,000 to $30,000,000 Capital expenditure in 2021 is expected to fall within the range of 120,000,000 to $140,000,000 inclusive of the completion of the conversion of 7 Phoenix and drydocking expenditures on the existing fleet. I will now pass you back to John. Thank you, Ricardo. As you know, we clarified our strategy during 2020 and introduced the 2 elements, the subsea field of the future, system and delivery and our proactive participation in the energy transition. Today, I'd like to talk to you about a technology we launched to enable lower carbon developments. And I'll give you an update on our offshore wind activities. Turning to slide 15. In quarter 4, we launched the Subsea 7 Carbon Estimator. This is a proprietary Subsea 7 tool that allows us and our clients to optimize the CO2 emissions associated with their projects. It considers all aspects of the development solution from the impact of various fabrication and procurement options to the contributions made by a combination of vessels and different field layouts. Ultimately, we can refine all the elements of the supply chain and the field design to reduce emissions of each project. It also helps us long term make informed decisions about strategic investments in vessel hybridization, digitalization and remote operations. The carbon estimator has been rolled out globally And we now utilize this on 100 percent of our early engagement studies. Ultimately, it's an important tool in enabling our clients as well as ourselves to achieve the desired sustainability goals. Moving to slide 16 and an update on our progress in renewables. Our $1,400,000,000 EPC contract for the Seagreen offshore wind development is making good progress. At the year end, it was 18% complete and fabrication at all sites was well underway. We're fabricating the jackets at Lamprell's yard in the UAE as well as at 2 yards in China. Between them, They're working on around 15 jackets at any one time. I will begin shipping these to our marshalling site in Scotland in Q2. Seagreen's cables are being manufactured at Hellenic in Greece. At over 300 kilometers, It's our largest cable project to date. Overall, Seagreen is a major undertaking with a complex supply chain, But our successful track record of project and risk management are both part of our differentiating renewables offering. Our operations in Taiwan are suffering the teething issues of an emerging market, but we are confident that this market offers good opportunities for profitable growth. The profitability of the Renewables business unit should improve As we start work on the 2021 execution portfolio of Hornsea 2, Koscazzi, and the initial face of Seagreen. Overall, our backlog for renewables remains high at $2,000,000,000 Including contracts involving the installation of 339 foundations and nearly 1900 kilometers of in array cable. To provide some context, the latter is more than double the quantity of cable we've installed in our entire 10 year history. Of the $2,000,000,000 backlog, over $1,000,000,000 should be executed in 2021. And we're working on replenishing this order book, And we expect awards to the market in 9 to 12 months' time. To conclude, it's our aim to build a sustainable, Robust Renewables business that can deliver revenues in excess of $1,000,000,000 per year with EBITDA margins of over 10%. In 2021, we're making good progress to achieve this goal. On slide 17, We come on to an important topic for many aspects of our business, sustainability. We continue making good progress, both on improving our sustainability of our operations and importantly in our sustainability disclosures. 2020 saw the introduction of new sustainability metrics for measuring and reporting our progress. We've improved our rating with both Dow Jones Sustainability Index and the ISS. The journey will continue with the publication of our second of the sustainability report next month, which will contain more details of our strategy, our KPIs, our targets. And I hope you'll all read it and find it useful. On slide 18, we have a view of the outlook for tendering in the coming 12 months. As you can see, compared with the last quarter, the bid pipeline for oil and gas projects is improving, although it remains centered on those regions with the low oil price breakevens as well as specific projects with advantaged economics. Tendering in Brazil remains active with Mero 3, Buzios 6 and BMC 33 all to be bid in the next year. In parallel, we're also bidding in March the next batch of PLSV opportunities with Petrobras. In quarter 4, we finished the FEED for Bacalhau and we expect conversion to a full EPC in the first half of this year, subject to FID by the client. In Norway, following the introduction of the tax relief for new developments, We're seeing greater activity both in terms of engineering and tendering for FC contracts. Although activity is patchy in Africa, We started work on the tender for the next phase of Clove in Angola. In Australia, we continue to monitor progress towards the sanction of Scarborough, for which we are the preferred supplier. In renewables, we're seeing good opportunities in the longer term in Europe and the U. S. With increasingly ambitious targets for many of our oil and gas clients in expanding their oil and their offshore wind portfolio. We have seen BP, Equinor and Total successfully winning leases in the UK and the U. S. In the last few weeks. As we've noted at the Investor Day that we ran in September last year, a reduction in the market is forecast for 2023, But we expect strong growth from 2024 and 2025 onwards. In floating wind, Whilst commercial scale projects remain some way off, we see growing interest from energy companies in reducing the carbon intensity of the hydrocarbon production. And they do this through electrification of the infrastructure using offshore wind power. To conclude, we'll turn to slide 19. We finished 2020 in a strong position With a resilient backlog of $6,200,000,000 including $4,000,000,000 for execution in 2021. We grew the backlog by 20% in 2020 despite the challenging conditions, Thanks in part to our focus on oil and gas markets with favorable breakevens and our track record in key markets such as Brazil and of course renewables. As Ricardo mentioned, COVID-nineteen remains a concern in 2021 And we're likely to incur continued incremental cost at least in the first half of the year. However, our financial position and outlook has given the Board the confidence to recommend to shareholders a dividend of DKK 2 per share, extending our decade long track record of capital returns. And now we'll be happy to take your questions. Are now open for questions. And your first question is from the line of Michael Alsporod from Citi. Please go ahead. Great. Thanks for taking my questions. I've got a couple, if I could, on renewables, please. Firstly, I was just wondering whether you could talk a little bit more about the opportunity in the pipeline. You mentioned about U. S. Recent auctions. And I just wondered if you could talk a little bit about the opportunities and challenges Of operating in the U. S. And then more broadly, you've made some changes to your reporting lines. I was just wondering what was the reason behind that. And does that mean that you maybe would consider spinning the renewables business out of the group. That was my questions. Thank you. Thank you very much. Two very interesting questions. My reference to the leases is around the fact that we saw some very good lease awards in both in the UK and the U. S, Michael. And we saw that the prime winners of those leases were not the traditional utility companies that we deal with, but our Equinor's, our BPs and Total's. So at the moment, there's a batch of projects which are on the slide that we show, which are out for bid in the U. S. Market. And therefore, leases that were awarded a couple of years ago, with companies such as and Dominion leading that. So So there will be opportunities this year to bid those projects, and we expect probably those to be awarded to the market either at the very back end of this year are at the start of next year. Working in the U. S. Is something we're very familiar with. We've been there for over 35 years. So there are Jones Act requirements in terms of local vessels required and such like. But as you know, we did the demonstrated project Actually for Dominion on that project last year. So again, we have been there. We have executed work in the U. S. So again, we feel comfortable that it's a complex market with its own set of rules, but that's very common in whichever country you work in. In terms of reporting, it was really around the fact that we did very little heavy lift work in oil and gas and it's a very, very small percentage of that work. So we just tidied up our reporting lines to show that it's purely a renewables business. And if we do any heavy lifting work, that will be covered in The other side of our reporting lines, but I hasten to add we've done very little work in the oil and gas space in the last couple of years. In terms of a spin off, At the moment, we're very clear that there is value for SubseaM to keep the two businesses together. I'll come back to the point I made about the fact that our Traditional oil and gas clients are moving very heavily into offshore wind. We also see the benefit of flexing our workforce backwards and forwards across the different projects As well as assets, we're redeploying a couple of assets that we may have stacked in oil and gas into wind this year. So for us at the moment, we're very comfortable that we have a model, Which has 2 different reporting lines, but one common backbone, one common way of working and we can move our resources around. As the markets will grow, we think that's a good place for SubseaM to be. Okay. Thank you very much. Thank you. Your next question is from the line of Nick Konstantigis from Exane. Please go ahead. Hi, guys. Thank you for taking the questions. A couple, if I may. 1 on renewables, actually. Starting there, we had one of your peers this morning Announcing or discussing execution issues on an offshore wind project. Could you just remind us a bit how you're thinking about the risk management, The hardening rate on this business and the safeguards you have in place. I'm thinking, for example, contractual terms or how selective Are you around the operator and the work you're bidding on who is your client? Then the second one, I guess, Ricardo, the €400,000,000 increase on the backlog for 2021, I'm assuming that's Taiwan. Could you just help us understand the moving parts Around the margins year on year. I'm thinking in particular change in mix. Do you have a few projects close to completion? So are the contingency releases, etcetera. Okay. I'll take the first question, Nick, and then I'll ask Ricardo to take the second. What's very important in Subsea 7, whether it's an oil and gas projects or it's a new group projects, it goes through our gated review process where we make sure that we understand the risks and the contractual terms on which we're working under. That's a system we worked for many years and it works Exactly the same whether it's renewables or oil and gas. There are needs sometimes not to take contracts because of the risk profile that you take on board. And so for us we bid that project that's affected and we didn't win it. And it was about contract terms. So for us, we do have a very clear path where we will take work and we have a very clear path where we won't take work. So for me, it's around making sure that we use our governance processes well and we use our judgment well. And that's how we've built this company up over the years. We know that taking fixed price contracts brings in risk. It's about quantifying the risks. And more importantly, whether you can actually influence the risks. If you can't influence the risk, it's a very dangerous place to be taking that. So for us, we use that governance system. We're comfortable with our governance system and that's the way we run our business. I'll hand you over to Ricardo. Yes, Nick. Good afternoon. Taking the first part of your second question, I believe you were referring to the fact that We've increased the level of revenue that we expect to generate from backlog in 2021. That's how I understood your comment. The €400,000,000 we had previously indicated we were expecting to execute €3,600,000,000 We're now saying that we expect to execute €4,000,000,000 in 2021. And the reason for that is, if you like, the uncertainty and the impact of COVID on activity in 2020. This was particularly evident in the Middle East where we had a number of projects that we thought would be delayed, but not to the extent that they have been. And we're seeing them now being the likelihood is that there'll be the execution will take place largely in 2021 rather than in 2020. This has happened to a lesser extent in other regions and on other projects, but the main drivers be in the Middle East. With regard to your second question on margins, and here I hope that I've understood the thrust of your question. Our margin recognition is very much based on the percentage of completion method. We review our projects as they progress throughout the year and make sure that we have that our forecasts of costs and overall profitability of the project through its life are as accurate as we can make them. We as we progress the project and we execute well To the extent that we minimize risks, we're able to adjust our view on the necessary contingencies and the remaining costs. And as a result, you will tend to get a slight hockey stick effect when there are projects to completions. I mean, an upward hockey stick effect As the project reaches the end of its of the execution phase. And this to an extent has explained some of the improvement in profitability that we've seen in the Q4 as compared to the 3rd. And sorry, just on that, do you mind telling us which projects, I guess, would expect to complete in 2021? Just trying to assess, can that offset the higher proportion of renewables, for example, you have year on year? I think I'm not going to run through each individual project, Nick. I think you can determine that from one of the slides in our in the appendix, I think it's slide 22, which shows major project progression. And there you can see those projects, which already have achieved a high level of percentage of completion and therefore likely to be completed in 2021. Excellent. Thank you. Thank you. Your next question is from the line of are Saksikanth Chilukuru from Morgan Stanley. Please go ahead. Hi, good afternoon. I had two questions, please. Essentially relating to what's not in the presentation or today's presentation as opposed to what's in the presentation. The first was related to this the cost savings program. Last quarter, you had mentioned a delay in achieving this annualized cash cost savings of $400,000,000 To end 2021. This quarter, I hardly see a mention of that. I was just wondering, does that target still hold true? And if yes, if you can provide the progress of that target now, that would be helpful. The second one was related to the slide on the opportunity set. I noticed that the Novaka project developed by Aker BP had been taken off the list of opportunities in today's presentation. I was just wondering why that was, Thank you. I'll take the second and the first and then Ricardo can talk a bit more about the cost saving. I think Ricardo did make mention of the cost saving in his prepared remarks, and he will give you more clarity on that. Noaka is still alive. We were just trying to give a list of where we think there were tenders in the next 12 months. Noaka is a project which will Really be pushing in the second half of next year to attempt to get sanctioned at the end of 2022. So no ACA will be sanctioned, we believe, at the back end of next year. So it is very much something that we're working on In the partnership arrangement we have with Aker BP. I'll pass you over to Ricardo just to talk a bit further on the cost savings. Thank you, John, and good afternoon, Ceci. I would draw your attention again to slide 9, where we show our cost histograms over time. And if you look at the composition of 2019 2020, you can already see that we are are on the right track in terms of reducing our cost structure. You can see the impact already on our people costs, which are down $100,000,000 And on vessel and other costs, which are down $100,000,000 as well. So I mean to be more precise, we believe that in the Course of 2020, we've achieved over $200,000,000 of savings against our target. And this is are inclusive of the fact that the resizing program As far as people are concerned, only really started having effect in the 3rd and 4th quarters of the year. So you have to evaluate it from an annualized perspective. In 2021, I believe In our comments on Q3, we indicated that we were still targeting a total of $400,000,000 in cash cost savings on an annualized basis, But that we would not achieve that until the Q4 of 2021 as opposed to the end of the Q2. And this was purely because of the phasing of our activity, which as I mentioned to another in response to a previous question has resulted in more work being done in 2021 Than in 2020, there's been a slippage there. So I think we have covered that topic sufficiently, if I may. Sure. Very helpful. Thank you very much. Okay. Thank you. Your next question is from the line of Mike Pickup from Barclays. Please go ahead. Good afternoon, everybody. Hopefully, a couple of simple questions from me. Just on the EBITDA guidance, can you just clarify when you say it's going to improve year on year, what we're talking about, what level? Obviously, it's moving parts this year. I know you can't forecast What's the clean number I should be thinking about? And secondly, we've talked about risks here. Obviously, you do about $2,000,000,000 of procurement every year and steel prices have just seen this unprecedented rise. Can you just talk how you're protected from that given the speed of that change in your bidding pipeline? Yes. Thanks, Mick. Good afternoon. I'll do the procurement question and then Ricardo can give clarity on the EBITDA guidance. I think as Ricardo mentioned, interestingly during the year of 2020, we saw supply chain reasonably well controlled and managed. But what we have seen is at the very back end of 2020 and as we're now going into the 1st couple of months of this year, Certainly, we're seeing certain commodity prices moving upwards. We generally have a methodology where we work with our clients as to How that risk is to be managed. If the clients can give us a commitment early enough, we'll lock it down and we might purchase materials in advance of a sanction, where we have protection with the clients of the project as a sanction, they're the proud owners of the material. There's other mechanisms then where we will Work with the supplier, where we will fix the cost, for example, of fabricating the pipe, but we'll have an escalation and de escalation mechanism In the contract that will protect a certain percentage of the total value and that then is referenced to the price of iron ore for example or the price of copper If we're buying power cables and such like. So there are a variety of different mechanisms that we have in our agreements We try to work them in a manner which is collaborative with our clients to make sure here that we pass through the risk backwards and forwards in a manner which works. So that in a nutshell is how we try to do it through 2 or 3 different mechanisms that we have along those lines. And then on the EBITDA, I'll let just Ricardo just clarify that for you. Good afternoon, Mick. And I'll try and give you a straightforward answer to your simple question on this point. I think our reference EBITDA for 2020 is to effectively add back the restructuring Charge, which we see as a one off cost. As we've highlighted, that represents $86,000,000 on 2020. So $86,000,000 plus the $337,000,000 that we reported gives you a reference EBITDA of $423,000,000 We do call out COVID-nineteen costs. But as far as we're concerned, unfortunately, it's part of the reality of our business And so any guidance that we give will include assumptions regarding COVID. I have in my prepared remarks, I did emphasize that this is a variable that we continue to that is a challenge and that we continue to minimize. And John has reemphasized that in his Comments about the first half and the possible impact that it could have. So in essence, I mean, our guidance on EBITDA for 2021 Is inclusive of COVID costs. Okay. Thank you. And just a very quick one. You mentioned renewables being $1,000,000,000 Is that enough to make it positive given where you are phasing wise and the bulk is procurement? We believe we'll be well on the way to our target to you, Mick, is our objective this year. Okay. Thanks. Cheers. Have a good one. Thank you. Thank you. And your next question is from the line of Vlad Sergievski from BofA. Please go ahead. Gentlemen, thanks very much for taking my questions. The first two would be on the backlog phasing, euros 4,000,000,000 execution this year, is there any risk or chances of a material rephrasing of that? Just trying to compare to consensus Revenues for this year, which is only slightly above €4,000,000,000 And also along those lines, also on the project pipeline. On your graph with Piedenso project, you mentioned new phase of Guyana development. Are you going to tender for it? Because obviously, the prior phases were direct towards to one of your competitors. And also, in this sense, A lot of projects are in Brazil in this pipeline. Are you expecting any impact from the Petrobras' leadership change on the timing of are. Thank you, Vlad. There's a number of questions in there. We'll try to answer them for you. If I go backwards and then you can pick me up if I've missed any of your questions. Brazil, yes, is busy at the moment. We are bidding Mero 3. We are bidding the PLSV extensions at the moment. We expect the next phases of Buzios 6 to be out and 7 and 8 will be out at some point in quite close order. So at the moment, we see no change in timing, but it's very early days from the changes that have been made to the leadership of Petrobras. I think as you can see there are orders for SPS. There are orders for FPSOs and things being placed for those projects. So I do think that we should probably see the momentum keep going, despite any changes in senior leadership. Yellowtail is a project, which is the next project for ExxonMobil in Guyana and that is out for bid And we are bidding that at the moment. And that's not a negotiation. That is a market bid. We're after a series of negotiations Exxon have come out to the market. In terms of the phasing of the backlog, I think Ricardo answered in the last question. The impact of COVID and where work will spill over between 1 year and the next is the big unknown. We have quite a large program of work in the Middle East and it's fair to say it's not very easy at the moment to work in the Middle East to get people in, people out of different countries, the whole logistics chain that we have there is a question for us. So I think for us it's around just how COVID impacts the actual distribution of the projects. And I think that will be what will determine how much of that backlog will come in this year and how much stability we'll have around that. Perfect. That's great color. Thanks, John. And if I can squeeze one quick one for Ricardo, please. Any initial thoughts on working capital trajectory during 2021, you are starting some work in the Middle East, Sea Green is progressing. Any other factors to keep in mind here? Yes. Good afternoon, Vlad. It's a good question. I think that My frank answer with regard to 2020 is that I was a little disappointed about our cash balance at the year end. Frankly, we were expecting an even better one. And the reason that there was a bit of a shortfall and our working capital movements were not as positive as we'd hoped it would be It's because a number of clients opted to pay us in the 1st 2 weeks of January rather than in December as we expected. I mean, to give you An idea, I mean, we have been for the last few weeks working with the cash balance much closer to $600,000,000 than to $500,000,000 This being said, you're right to ask the question on working capital. We do expect are there to be a working capital outflows on a number of major projects in the course of 2021, not both on the renewable side where we have a heavy procurement Activity for Sea Green in particular, but also because the Middle East is picking up. And as you know, the payment terms of major clients there tend to result in negative cash flow for the majority of the life of the project. But we're ready for it. We have good cash resources. We have Good access to liquidity and we reinforce that access, thanks to the new loan facility that we've just entered into and that we announced today. Ricardo, good morning, John. Thanks very much. Thank you. Thank you. And your next question is from the line of Frederic Lunde from Carnegie. Are. My question comes back to the backlog. You obviously have very solid coverage for this year And a fairly good backlog position for next year as well. But then we're coming from 6 months with version of orders, But also currently a very strong oil price. I'm just curious how you see timing of awards being critical for filling up backlog for 2022? Thank you, Frederic. I think it's a that's a very prudent question. I guess there's 2 moving parts to that question for me. One is the fact that 2022, when we physically go offshore in 2022 will be the challenge for our industry of not much work awarded in the back end of 2020 and the front end of 2021. So we will need to get our fleet sized and ourselves organized for offshore delivery in 2022 about what exactly we can implement. So that's one side of the equation. The other side of the equation is a brightening, I think, in the distance with our oil and gas clients Around the opportunities that they have, as we've been quite open with the market, there are a number of projects where we are the Preferred bidder such as Bacalhau and Scarborough and longer term projects such as Pecan and Rovuma become economic and get sanctioned, we're also well positioned there. So for us, it's around the timing of which those projects do ultimately get sanctioned and how they fit together And how all that comes together in terms of a backlog portfolio that we'll actually have. The question really will be, which we'll have Over the next 6 months is the appetite of oil and gas clients, whether they feel comfortable to push work further forward. We see the Norwegian market being one where the sanctioning of projects will be the end of 2022, because that's where the cutoff is for the tax benefit. So really, we can see a pickup coming. It's the timing of how all that fits together, I guess, is the puzzle we're all trying to work on at the moment, Frederic. Thank you. And just on the CapEx side, you've been highlighting that you have a fleet suited for the future. But as you see the offshore wind market now picking up speed, do you have any sort of thoughts on future new builds or Thinking of secondhand tonnage for that market? Well, I think, Frederic, as I touched on in my prepared remarks and as we Actually, the renewables has a bit of a dip in 2023 and then it picks up very strongly in 2024 2025. So I think our thinking is around where do we need to be in terms of asset base for 2025 onwards. So that's a piece of thinking we're starting on at the moment. So we'll keep our minds open to that, but it's more around that growth. If you recall in the curve There's quite substantial growth from 2025 onwards. So we will be putting our minds to what we need to look at there. But in the near term, I think we will work our existing fleet plus the Phoenix, which will come in this year to work the workload we see in the next 2022, 2023, 20 24 period. Super. Thanks very much. Thank you. Thank you. And your next question is from the line of Mark Wilson from Jefferies. Please go ahead. Hi, good morning. Thank you for taking my questions. Just one point on 4Q. You mentioned the closeout Of the Brazil LAPA project. I'm just wondering how much that contributed to the very good results in the quarter. And are there any projects That close out in a similar fashion in 2021. And the second point is the lower carbon estimator. I'd just like to note that if you see that as A tangible bidding differentiator or something that all companies are having to include in bids these days? Thank you. Yes. Thank you, Mark. I guess as both Ricardo and I touched on in our prepared remarks, the end of the Generally a number of our clients want to tidy up their accounts, want to finish off. So it's generally to do with projects we've done far earlier than LAPA which concluded in quarter 4 And we won't go into individual projects. So it's really around certain clients will generally in life and make sure that their position at the year end is clear to them and clear to us. So that was one of the benefits we saw in quarter 4 along with good utilization. So I guess one thing to think about for us is as we get into quarter 1, we will Of lower utilization and we won't have any settlements. So we're comfortable with the year, but we will get the bounciness of our quarters. So I would ask everybody to bear that in mind As you think ahead for this year. So I think that's the first question. The carbon estimator is something that we feel If you recall, we showed to the market in one of our technology days and we talked about it previously on one of our earnings called the Subsea Planner, Which is a tool that the Subsea Integration Alliance SlumberGen ourselves have developed, which allows you to take the reservoir, then to lay out different field layouts and get economics and the depletion models run as well as a graphics package that allows you to see what it all looks like. The one piece we felt that was missing out of that was trying to understand the CO2 impact of all that. So we developed on a standalone basis the Subsea 7 Carbon Estimator. So it's about a series of packages that we work with our clients on early engagement to allow them to understand fully You can trade off recovery, you can trade off CapEx cost, you can trade off OpEx cost and you can trade off CO2 emissions. And in life in the future, we believe it will be the combination of those things that will get projects to sanction or not. So for us, it was around trying to have the last piece of the toolkit that we wanted to allow us to have a mature discussion with our clients. We're using it now 100% on all our early engagement studies. And we think there'll be merits in that, whether other people will do that, who knows. But I think it's important that we were there and relevant at the table to help make the right decisions because sometimes it will be CO2 and sometimes it will be CapEx, Sometimes it will be OpEx, sometimes it will be depletion models that will define what a field there looks like. Thank you. And your next question is from the line of Kevin Roger from Kepler of the call please go ahead. Yes, good afternoon. Thanks for taking my question. It's basically related to the fact that John, during the presentation, you mentioned the floating wind. Over the past years, you have focused your job, let's say, work On the 14 wins with the French company, HIDEORLE. Recently, BW Offshore, they have announced that they took a majority stake In Idiol. So I was wondering what are the impacts for you in terms of access to the technology for the floating wind in the next The years in terms of business, etcetera, what are the implications for you, please? Yes. Thank you, Kevin. Yes, we had a very small share in Idiom, and we decided not to make any competing offer to the VW offer that was made to purchase 100% of the company. But it doesn't mean that we're not interested in floating wind. It was part of a portfolio that we had of, A, being involved in projects such as the Equinor. We're doing a number of floating wind studies through EXODUS, our early engagement engineering house, As well as us in house looking at different technologies and where we need to be. So I guess the answer to the question is Subsea 7 is still very interested are in the floating wind arena and we will continue to look at different technologies and where do we need to fit in that ecosystem as that ecosystem Develops over the next few years. But that's the percentage we had. There was no preemption rights. There was nothing with us on that. And we looked at it and decided The best thing to do as a shareholder in Idiol was for BW to purchase their share, Kevin. And sorry for that, but maybe as Follow-up, does it mean that it's well understand it's possible that, let's say, in the next 24 months, we have a news saying that Subsea 7 has developed The new internal technology for the floating wind because you are working on it? We're very open minded to the technology on wind, I think, is the main answer. And we are looking at it very, very carefully. We're looking as to whether or not we can be technology agnostic And therefore use our project and management and engineering skills to run the big Etsy contracts that go with it. Do we need to develop our own technology? Do we need to acquire another technology? We're trying to keep a very open mind as to what we need to do there. We need to this is a race where there are 15 horses running on the And we need to try to work out which horses are going to make it to the end of this journey. So for us that's the process we're going through at the moment Kevin. Okay. Thanks. Have a good day. Thank you. And your next question is from the line of Hakon Amundsen of ABG. Please go ahead. Yes. Thank you, guys. A question a little bit related to some of the previous questions. You have a new announced a new loan facility of $500,000,000 and you say that it will support your strategy of being proactive in the energy transition. So I just wondered if you can put some color on what potential investments or use of proceeds from this increased capacity. Yes. Good afternoon. This is an attractive facility as far as we are concerned. And as we've indicated, It is designed to further strengthen our balance sheet through diversification. It's relatively long term. And what is also attractive about it is that we have a 2 year availability period before drawdown, which gives us a lot of flexibility. It is designed both for in support of any working capital needs that we may have, Particularly, where there are U. K. Exports involved. But at the same time, it's of a sufficient length It could also assist us in with capital investments to the extent that they will support our initiatives in energy transition. At this stage, I don't think we will start we will get specific with regard to particular initiatives or projects that we're involved in. We just see opportunities for growth in renewables and in particular offshore wind farms. And This additional liquidity provides us the reassurance that and flexibility we need to grasp opportunities as they arise. All right. Understood. Thank you. I think we've got time for one more question. Thank you. Your final question today is from the line of Amy Wong from UBS. Please go ahead. Hi, guys. Thanks for squeezing me in. Most of my questions have been asked actually Maybe just one to round out the discussion around order intake, particularly for your oil and gas business. Given I understand the lumpiness and timing is difficult, but would you say oil and gas this year, orders will be up year on year? Yes. We expect our order intake in oil and gas to be up in the next 12 months as we do, Amy. We've indicated, we believe that Scarborough will sanction. We believe Bakulao will sanction. There are a number of other projects that we are tendering at the moment that we believe some of the Brazilian projects will come to the market this year. So we feel reasonably comfortable that that order intake will be higher in oil and gas this year than last year. Great. Thank you very much. I think I'll just hand over to John to wrap up then. Well, thank you very much for Sharing the time on a very busy day today with every one of us all announcing the same day. So thank you very much and we look forward to talking to you again quite soon I expect with the end of quarter 1, 2021 results. Thank you very much.