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Table of Contents

Rpt. 25621145
12-Mar-2015

SUBSEA SECTOR - FAR FROM A RECOVERY 03/12/2015


DNB MARKETS
- MATHISEN, EIRIK RONOLD, ET AL

2 - 69

Rpt. 25358034
02-Feb-2015

SUBSEA 7 S A
SEB EQUITIES
- FATNES, TERJE, ET AL

70 - 105

These reports were compiled using a product of Thomson Reuters

www.thomsonreuters.com

EQUITY RESEARCH
Oil services Subsea sector

12 March 2015

Oil Service - SURF vs OSEBX (12m)

SUBSEA SECTOR
Far from a recovery
While we acknowledge that the subsea sector is better
positioned than other sub-sectors due to lower gearing,
we maintain our negative sector view. We do not see a
v-shaped recovery in the offshore investment cycle but
rather a prolonged down-cycle, and expect negative
backlog and earnings momentum to drive share prices
lower. We reiterate our SELL recommendations on Aker
Solutions, Subsea 7, Technip and Saipem.
Cyclical downturn hampering demand. The subsea sector has significant exposure to
the offshore development cycle, particularly the deepwater cycle, whose economics have
been challenged by the ~50% fall in the oil price since July 2014. Leading indicators for
subsea demand (i.e. the sanctioning of new subsea wells and order intake among
offshore drillers) point to a sharp slowdown in demand for subsea services.

120
110
100
90
80
70
60
50
Mar May Jul
Oil Service -
OSEBX

Sep

Nov

Jan

Mar

Jan

Mar

Source: Factset

BEUOILS vs OSEBX (12m)

120
110
100
90
80
70
60
50
40
Mar

May

Jul

Sep

BEUOILS

Nov

OSEBX

Source: Bloomberg

OSX vs S&P500 (12m)

New competition is real, and due to investment decisions made several years ago when
the demand outlook was more promising, new subsea construction vessels are entering
the market in the midst of a demand slowdown. Vessel utilisation is vital for profitability,
and we expect aggressive bidding to drive prices lower.
We see few contract opportunities for 2015. A handful of large development projects
saved industry order intake in 2014, but we expect weak backlog momentum in 2015 as
development projects are delayed and discretionary spending falls as oil companies
adjust to a low oil price environment. Subsea 7 saw 30% backlog erosion in 2014 and its
implied book-to-bill of 0.1x for H2 2014 was a red flag for the industry.
Brazilian problems could have major spill-over effects. Petrobras financial position
has deteriorated recently due to the oil price collapse and corruption allegations. It is one
of the largest consumers globally of subsea services and lower demand (which we find
likely) would hurt the supply/demand balance in the subsea sector in our view.
Consensus is underestimating the depth of the cyclical downturn, and the negative
effect that backlog erosion, high operational gearing and increased competition is set to
have on earnings. Due to subseas late cyclical nature, we do not expect the full effect of
this slowdown to kick-in before 2016+.
We maintain our negative sector view. We expect a prolonged cyclical downturn
extending beyond 2015. At this stage of the cycle we believe earnings momentum and
backlog momentum would be share price drivers for the subsea stocks, both of which we
believe will remain negative for the next 12 months. On average we are 22% below
consensus on 2016e net profit and we forecast continued erosion in 2017e.
Relative sector positioning. On an absolute level we see downside risk to all subsea
companies and maintain our SELL recommendations on all the stocks covered. On a
relative basis, however, we prefer Technip due to its solid backlog coverage and
diversified exposure, while we see most downside risk at Saipem. We are also concerned
about Subsea 7s backlog erosion in 2014 and low contract coverage for 2016e.
Company
Aker Solutions
Saipem
Subsea 7
Technip
Source: DNB Markets

Cur
NOK
EUR
NOK
EUR

Rec
SELL
SELL
SELL
SELL

Target
30.00
7.00
50.00
47.00

Price
39.43
9.56
70.95
58.73

P/E 15e
9.6
20.5
7.7
10.3

P/E 16e
13.8
11.9
15.3
13.6

P/E 17e
15.8
12.3
15.2
17.5

120
110
100
90
80
70
60
Mar

May Jul
OSX

Sep

Nov Jan
S&P500

Mar

Source: Bloomberg

Crude oil prices (12m)

120
110
100
90
80
70
60
50
40
Mar

May Jul Sep


Brent crude oil

Nov Jan Mar


WTI crude oil

Source: Bloomberg

ANALYSTS
Eirik Ronold Mathisen
eirik.mathisen@dnb.no
+47 24 16 91 91
Sveinung Alvestad
sveinung.alvestad@dnb.no
+47 24 16 91 92
Please see last pages for important information

DNB Markets | Subsea sector


12 March 2015

Contents
Maintaining our negative sector view

Demand not shielded from downturn


Supply new competition is real
Falling backlog set to erode earnings
Earnings momentum set to remain negative
Valuation we do not see a v-shaped recovery

3
6
10
15
17

Relative valuation
Aker Solutions
Saipem
Subsea 7
Technip

20
21
32
43
54

DNB Markets
12 March 2015

Maintaining our negative sector view


We maintain our negative view on the subsea sector, while acknowledging that it is better
positioned than other oil service sub-sectors due to lower gearing. We do not see a v-shaped
recovery in the offshore investment cycle but rather a prolonged down-cycle, and expect
negative backlog and earnings momentum to drive share prices lower. We reiterate our SELL
recommendations on Aker Solutions, Subsea 7, Technip and Saipem.

Demand not shielded from downturn


Significant exposure to deepwater development cycle
The subsea sector has significant exposure to the offshore development cycle, in particular to
the deepwater cycle. Long lead times (from sanctioning to first oil) and hefty investments are
challenging the economics of deepwater field developments, and due to high (relatively
speaking) break-even levels, we do not believe deepwater projects will be the first to be
reactivated when the oil price rebounds. In addition, key deepwater players are the large
international oil companies and Petrobras, which are particularly challenged in this low oil
price environment.
Sub-sector is late cyclical full effect of market slowdown yet to kick-in
A key demand driver for the subsea sector is sanctioning of new subsea wells. In October
2014 (before the oil price collapse) we analysed the sanctioning of subsea wells, and our
conclusion pointed to a 30% decline in the average number of new subsea wells sanctioned
in 20152017 compared with 20102014 (reflecting the fact that the economics of offshore
field developments were already challenged at oil at USD100/bbl). Other leading indicators
i.e. drilling activity and the number of subsea trees awarded also point to a sharp slowdown
in demand for subsea services. According to Quest Offshore, 236 subsea trees were awarded
in 2014 (with virtually none from Petrobras), the lowest level since 2003. We expect the
number of subsea tree awards to remain in the low 200s in 2015. The book-to-bill among the
offshore drillers (ultra-deepwater rigs only) was 0.4x in 2014, which is the lowest level in 10years (although this figure was boosted by dated contracts adjusting for dated contracts the
book to bill ratio was 0.2x). Backlog per ultra-deepwater rig is also at the lowest level since
2005-2006, both fifth- and sixth-generation rigs.
Figure 1: Backlog per UDW rig

Figure 2: Subsea tree awards (# of trees)

70

600

60

500

Rig months

50

400

40

300

30

200

20

100

10

0
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
5G

Source: ODS Petrodata, DNB Markets, Companies

6G

Global awards excluding PBR

PBR awards

Source: Quest Offshore

Petrobras problems could have severe spill-over effects for the subsea sector
Petrobras is a key consumer of deepwater services (i.e. drilling, subsea trees, flowlines, riser
systems and pipelay support vessels), and it accounts for c10% of global offshore spending.
Its financial position has deteriorated rapidly in recent months due to the oil price collapse and
corruption charges levied against the company due to the corruption allegations it has not
yet reported audited Q3 earnings, all senior management has been replaced and its credit
rating was recently downgraded from investment grade by Moodys (which is no small matter
3

DNB Markets
12 March 2015

when the company has net debt of USD106bn, leverage (net debt to EBITDA) of 4.6x and
high capex commitments).
Figure 3: Petrobras Net debt (USDm) and net debt to
EBITDA
120,000

Figure 4: Petrobras investments (USDm)


5.0x

35,000

4.5x
100,000

4.0x

3.5x

80,000

30,000
25,000

3.0x
60,000

2.5x
2.0x

40,000

20,000
15,000

1.5x
1.0x

20,000

0.5x
Sep.06 Nov.07 Jan.09 Mar.10 May.11 Jul.12 Sep.13
Net debt

10,000
5,000

Net debt to EBITDA

Source: Petrobras

Source: Petrobras

22 new production systems are expected to commence operations in Brazil between 2016
and 2018, boosting Petrobras production curve by 3 million bpd. Construction contracts for
16 of these systems have already been awarded, 12 of which will be built locally. The eight
replica FPSOs (P66-P73) are already facing construction delays and the hull yard (Ecovix) is
facing financial challenges. Recent reports also suggest that the yard (QGI) responsible for
the integration of two other FPSOs (P-75 and P-77) has pulled out of its contract with
Petrobras. In other words, there is a real risk of delays (and possibly cancellations) on more
than 50% of the pre-salt FPSOs with 20162018 planned start-up.
Figure 5: Petrobras production growth expectations

Source: Petrobras

So while we acknowledge that Petrobras needs a significant amount of subsea equipment to


meet its production target, delays in the planned start-up of pre-salt FPSOs are likely to
reduce near- to medium-term demand for such services. In the event of long delays, we see a
risk that Petrobras will try to renegotiate existing contracts. Among the subsea companies,
Subsea 7 has the highest direct exposure to Petrobras (~35% of its backlog at Q4 2014), and
4

DNB Markets
12 March 2015

reduced demand from Petrobras would certainly have a negative effect on the global
supply/demand balance for subsea equipment.
Few contract opportunities in 2015e
The subsea industry is not shielded from the cyclical downturn in the offshore oil and gas
industry, and we argue that leading indicators point to a significant slowdown in backlog
momentum in 2015 (although the slowdown started to kick-in in H2 2014). Over recent
months several potential subsea developments have been confirmed as delayed, including
Bonga Southwest, Zinia Phase II, Chissonga, Cameia (until end-2015), Leviathan and Vette.
Several oil companies have highlighted that service costs need to come down before projects
can move forward. We still expect some SURF contracts to move forward in 2015, but do not
see any major awards. In addition, given the limited number of potential contract prospects,
we see a binary outcome for the SURF companies. We expect the following SURF contracts
to be awarded in 2015:

This is one of the reasons that we put


the brakes on sanctioning Cameia at
end-2014. We do not want to get into the
market ahead of what we believe would
be considerable downwards pressure on
costs in 2015 () Cobalt Q4 2014
earnings call

Figure 6: SURF opportunities for 2015


Project

Operator

Country

Expected first
production

Expected SURF
award

USDm *

West Nile Delta


Cameia Mound (phase 1)
Block 15/06 East Hub
Agbami Phase III
Sankofa-Gye Nyame
Rotan Block H
Vashishta and S1
Johan Sverdrup
Maria
Appomattox/Vicksburg
Sum

BP
Cobalt
ENI
Chevron
ENI
Murphy
ONGC
Statoil
Wintershall
Shell

Egypt
Angola
Angola
Nigeria
Ghana
Malaysia
India
Norway
Norway
USA

2017-2018
2018
2017
2016
2017
2018
2016
Late 2019
2018+
2019

2015
2015
2015
2015
2015
2015
2015
2015
2015
2015
2000

800
500
750
200
750
250
300
250
500
300
4,600

Source: Companies, DNB Markets, newswires


* DNB Markets estimates

Offshore phase of new development unlikely to be before 2017+


Another relevant issue is whether the pending large subsea contracts can come quick enough
to have a significant impact on 2016 earnings. As a rule of thumb, the offshore phase of new
large subsea installation contracts starts two years after contract award. In other words, the
offshore phase (in which most of the contract value is generated) on upcoming contracts is
only likely to start in 2017 and beyond.
Figure 7: Lead times from award to offshore phase
Contract
CLOV
Erha North phase II
Lianzi
Egina
Mafumeria Sul
Vladimir Filanovsky
Kizomba phase III
Moho Nord
TEN
Jangkrik
Kaombo
Catcher
Edradour
Stampede

Contractor
Subsea 7
Subsea 7
Subsea 7
Saipem
Saipem
Saipem
Saipem
Technip
Technip
Technip
Technip
Subsea 7
Technip
Subsea 7

Region
West Africa
West Africa
West Africa
West Africa
West Africa
Caspian Sea
West Africa
West Africa
West Africa
Indonesia
West Africa
North Sea
North Sea
US GoM

Awarded
29.07.2010
07.02.2013
15.08.2012
25.06.2013
29.06.2012
19.10.2012
11.03.2013
08.04.2013
31.10.2013
06.03.2014
16.04.2014
21.05.2014
04.07.2014
17.12.2014

Offshore phase
Q2 2012 - Q2 2014
Q1 - Q3 2015
Q3 2014 - Q2 2015
2016 - Q2 2017
Q4/13 - Q2/15
Q2-Q3/14, Q2-Q3/15
Q2 2014 - Q2 2015
2014-2016
mid-2015 - Q2 2016
2016
2016-2017
2015-2016
mid-2016/2017
Q3 2016-Q1 2017

Year 1
Year 2
Year 3
Year 4
Year 5
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
1
1

1
1
1

1
1
1
1

2
2

2
2

= contract award
= offshore phase
Source: Companies, DNB Markets

DNB Markets
12 March 2015

Supply new competition is real


Established tier one players have invested heavily in new assets
The established tier one subsea construction players have invested heavily in new assets
over the past few years, renewing their fleet and constructing new enabling assets. Subsea 7
has added the Seven Borealis and the PLSV Seven Waves, and still has five vessels under
construction three PLSVs (Seven Sun, Seven Rio and Seven Cruzeiro), one new diving
support vessel (Seven Kestrel) and one new construction vessel (Seven Arctic). Technip has
added Deep Energy and Deep Orient, several new PLSVs (in joint ventures) and invested in
new manufacturing facilities (such as the new flexible plant in Brazil). In addition it added two
new pipelayers through the Global Industries acquisition (the S1200 and S1201). Saipem has
added the FDS II and Castorone. At the same time the SURF companies have upgraded their
fleet by divesting older vessels.
Figure 8: Capex Subsea 7 (USDm)
20.0 %

900

18.0 %

800

16.0 %

700

14.0 %

600

12.0 %

500

10.0 %

400

8.0 %

300

6.0 %

200

4.0 %

100

2.0 %

0.0 %

600
500
400

Figure 10: Capex Saipem (EURm)

16.0%

900

14.0%

800

12.0%

700

300

10.0%

300

4.0%

200

2.0%

15.0%

400

6.0%

100

20.0%

500

8.0%

200

25.0%

600

10.0%

5.0%

100

2006
2007
2008
2009
2010
2011
2012
2013
2014e
2015e

2006
2007
2008
2009
2010
2011
2012
2013
2014
2015e

1,000

Figure 9: Capex Technip (EURm)

Capital expenditures (L)

Capital expenditure (R)

Capital expenditure (L)

Capex (% of revenue) (R)

Capex (% of revenues) (L)

CAPEX % of revues (R)

Source: Subsea 7, DNB Markets

Source: Technip, DNB Markets

Source: Saipem, DNB Markets

New competition is real


Strong growth prospects in the subsea market attracted new players to the subsea installation
sector, and over the past few years new entrants (and existing tier two companies) have
invested heavily in new assets in an effort to penetrate the high-end SURF market. New
flagship vessels include Lewek Constellation (EMAS AMC scheduled delivery in 2015),
Petrofac 6000 (Petrofac scheduled delivery in 2017), DLV 2000 (McDermott expected
delivery in 2016) and Ceona Amazonas (Ceona delivered 2015). These flagship vessels are
in addition to other (smaller) vessels that have already been delivered (other newcomers such
as Ocean Installer are targeting medium-sized SURF jobs in core subsea regions such as the
North Sea).

Subsea segment only; note that Technip is building four new PLSVs in a JV with DOF Subsea. The JV (and future capex) is not
consolidated.
2
Offshore Construction segment only

DNB Markets
12 March 2015

Figure 11: Competitive landscape SURF

Source: Companies, DNB Markets

We believe the learning curve will be steep (and brutal) for the newcomers, but having made
the decision to build these vessels, the companies have no alternative but to bid for the larger
jobs. Fleet utilisation is vital for profitability, hence it is vital to secure work for the new
enabling assets. Petrofac and McDermott recently announced they have entered a strategic
alliance for the SURF sector. Under the terms of the 5-year alliance the two companies will
pursue opportunities in the deepwater SURF market.
Less demand and increased competition likely to lead to more competitive pricing
We argue that the combination of reduced demand (we expect a book-to-bill below 1x for all
subsea construction companies in 2015) and increased competition to lead to more
aggressive pricing for new contracts. Oil companies are getting the upper hand in contract
negotiations, and have been vocal about the need for lower contract prices. For instance,
Total was very vocal about this during its Q4 conference call when it explained why it had
postponed the FID for the Zinia phase II project in Angola: For Zinia, what I can tell you is
that the result that we got out of the tender, which tells you that there are still people who
havent got who havent understood what the market looks like was 30% above what
were expecting. While Technip can afford to hold back on new awards, Subsea 7 is highly
dependent on building its backlog over the next 12 months, and given the increased
competition for new work, we see a high risk of low margins on the new backlog.
Fleet of subsea construction vessels has grown 27% since 2010
The subsea construction feet consisted of 604 vessels as of end-2014, up 27% from end2010, and by an 8% CAGR since 2004, while the current order book indicates 7% fleet growth
in 2015e and 5% in 2016e. The strongest growth is seen in light construction vessels such as
ROV support, diving support and multipurpose vessels, which are typically owned by the
lower-tier subsea construction companies and offshore supply companies. We believe the
competitive environment will become tougher as offshore activity falls in the coming years,
increasing pressure on dayrates and utilisation.

DNB Markets
12 March 2015

Figure 12: Fleet overview of subsea vessels


60

800
700

50

600
40

500

30

400
300

20

200
10

100

<100m

100m-124m

>125m

2017e

2015e

2013

2011

2009

2007

2005

2003

2001

1999

1997

1995

1993

1991

1989

1987

1985

1983

1981

1979

1977

1975

1973

1971

Pre-70

Number of vessels (r.h.)

Source: IHS Petrodata

Vessel utilisation has already started to fall


Offshore construction vessel (OCV) utilisation is seasonal given harsh winter conditions in
some regions. Nevertheless, average OCV utilisation has fallen over recent years, with supply
(new capacity coming on-stream) outstripping demand. This decline is most pronounced in
the light construction segment (ROV support and diving support vessels), where average
utilisation slipped from ~90% in 2007 to 6070% in 2014. However, we believe the strong
order book and fading offshore activity will accelerate pressure on utilisation, thus we expect
a further decline in 2015.
Figure 13: Vessel utilisation, OCV

Figure 14: Utilisation has faded (LTM)


100%

90%
85%

90%

80%
75%

80%

70%
70%

65%
60%

60%

55%

50%

50%

45%
40%
Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15

Monthly utilization

Average (LTM)

Source: IHS Petrodata

40%
Jan-08

Jan-09

Jan-10

Diving Support

Jan-11

Jan-12

Jan-13

ROV Support

Jan-14

Jan-15

Pipelay

Source: IHS Petrodata

What about early phase involvement?


As the complexity of subsea field developments increases, early phase involvement,
engineering and technology become more important differentiators to secure contracts. While
all tier one SURF players have significant engineering capabilities and early phase
involvement, Technip has until recently been the only contractor with an in-house
3
independent engineering firm Genesis Oil & Gas consulting. Technip argues that Genesis
is an important enabler for it to help clients reduce costs and is an enabler for winning work. It
is of course very difficult to validate statements like this, but we are impressed by Technips
ability to win subsea work. For instance, it has been more successful than Subsea 7 in terms
of winning new work over the past two years (H1 2013 order intake for Subsea 7 was boosted

Although Genesis is fully owned by Technip it operates as an independent company.

DNB Markets
12 March 2015

by PLSV contracts), and we are starting to believe that its early phase involvement inter alia
through Genesis is an important differentiator.
Figure 15: Book-to-bill (LTM) Subsea 7 vs. Technip (Subsea division only)
2.5x
2.0x

1.5x
1.0x
0.5x
0.0x

Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4
2006

2007

2008

2009

2010

Technip (Subsea division)

2011

2012

2013

2014

Subsea 7

Source: Companies, DNB Markets

Other SURF companies have recently increased their exposure to early phase engineering
work. In October 2014 Saipem announced it had created a new subsea engineering firm,
Xodus Subsea (jointly owned by Xodus Group, Saipem and Chiyoda), and in January 2015
McDermott and GE launched a new, independent oil and gas consultancy firm, io oil & gas
consulting.

10

DNB Markets
12 March 2015

Falling backlog set to erode earnings


Backlog momentum started to fade in H2 2014 and the average book-to-bill for the tier one
SURF companies was ~0.5x in H2 2014. Note Technip was able to maintain a book-to-bill of
around 1.0x in H2 2014, while Subsea 7 in particular saw a rapid deterioration in its backlog.
For 2014 industry order intake was boosted by a couple of major contract awards in H1 2014,
namely Kaombo (Technip) and South Stream (Saipem). Based on the current outlook for the
offshore oil and gas industry, we expect the weak backlog momentum to extend into 2015
and 2016. We forecast a book-to-bill of ~0.7x for the tier one SURF companies in 2015.
Figure 16: Book-to-bill (Q and LTM) tier one SURF average
2.5x

Figure 17: Book-to-bill (A) tier one SURF


2.0x
1.8x

2.0x

1.6x
1.4x

1.5x

1.2x
1.0x

1.0x

0.8x
0.6x

0.5x

0.4x
0.2x

0.0x
Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3
2007

2008

2009

2010

Book to bill (Q)

2011

2012

2013

0.0x
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015e2016e

2014

Saipem

Book to bill (LTM)

Source: Companies

Technip

Subsea 7

Source: Companies, DNB Markets

Aggregated order backlog for the tier one SURF companies peaked in Q2 2014, since when it
has fallen for two consecutive quarters. We expect the backlog erosion to continue in 2015
and well into 2016.
Figure 18: Order backlog tier one SURF (USDm)
45,000
40,000
35,000
30,000
25,000
20,000
15,000

10,000
5,000

Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4

2006

2007

2008

2009

Technip

2010

Subsea 7

2011

2012

2013

2014

Saipem

Source: Companies

Backlog coverage varies significantly between the tier one subsea construction companies.
Technip in particular has very good backlog coverage for 2015e and 2016e, versus Subsea 7
which has low coverage for 2016e.

10

11

DNB Markets
12 March 2015

Figure 19: Backlog coverage Subsea7


(USDm)
6,000

Figure 20: Backlog coverage Technip


(EURm)

90%

78%

5,000

6,000
90%

80%

5,000

70%
4,000

4,000

60%

61%

3,000

50%

3,000
38%
2,000

40%

2,000

30%

1,000

20%
1,000

10%
-

2015e

2015e
Backlog (L)

2016e
DNBe revenue (L)

Coverage (R)
Source: Subsea 7, DNB Markets

Figure 21: Backlog coverage Saipem


(EURm)

100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
-

7,000

80%
72%

6,000

70%
60%

5,000

54%

4,000

40%

3,000

30%

2,000

20%

1,000

10%

2016e

2015e

2016e

Backlog (L)

Backlog (L)

DNBe revenue (L)

DNBe revenue (L)

Coverage (R)

Coverage (R)

Source: Technip, DNB Markets

50%

Source: Saipem, DNB Markets

Unannounced order intake set to decline in 2015


Below we have split order intake at Subsea 7 and Technip (Subsea division only) into three
categories (small contracts, PLSV dayrate contracts and large contracts). The sizeable
smaller orders (i.e. unannounced order intake) in 2011 and 2012 correspond well with the
capex boom witnessed on the UK Continental Shelf and Norwegian Continental Shelf, where
high oil prices made smaller subsea tie-back projects attractive. We expect oil and gas
investments in the UKCS and NCS to fall sharply over the next few years, which we believe
will have a negative effect on subsea order intake in these regions. Furthermore, with the
lower oil price and less development activity, we also believe discretionary awards (i.e.
variation orders) will be negatively affected.
Figure 22: Order intake split Technip and Subsea 7 (USDm)
20,000
18,000
16,000

5,187

14,000

994

12,000

2,708

10,000
8,000
6,000

6,121

330

510
1,613

3,167

5,899

5,037

2009

2010

9,565

4,000
2,000

4,543

6,146

2,794

3,144

9,255
6,713

6,188

5,509

5,509

2013

2014

2015e

2016e

2011
Small- to mid-sized

2012

Larger contracts

PLSV

Source: Companies, DNB Markets

We forecast a significant decline in revenue in subsea in 20152017


We believe backlog erosion will have a negative effect on revenue in 20152017. However, we
see a mixed picture for 2015, with Technip increasing revenue due to solid backlog growth in
2014, but sharp falls in turnover at both Subsea 7 and Saipem (the latter depends on whether
the South Stream project is cancelled or not). For 2016 and 2017 though we expect all SURF
companies to see revenue declines. Note that in the graph below Technip revenue is for the
Subsea division only, and Saipem revenue is for the Offshore Construction segment only.

4
5

Subsea division only


Offshore Construction segment only

11

12

DNB Markets
12 March 2015

Figure 23: Revenue growth SURF companies


50%
40%
30%
20%

10%
-10%
-20%
-30%
2007

2008

2009

Saipem

2010

2011

Technip

2012

2013

Subsea 7

2014e

2015e

2016e

2017e

Average growth rate

Source: Companies, DNB Markets

High operational gearing and weak backlog momentum set to erode earnings
Operational gearing in the subsea construction industry is high due to sizeable fixed costs
associated with the fleet of construction vessels, highlighting the importance of maintaining
high fleet utilisation. In addition to utilisation, profitability in the SURF business depends on: 1)
embedded margin at contract signing; 2) project execution; and 3) optimisation of fleet
utilisation (i.e. demand is strong across regions so companies do not have to steam vessels
from region to region chasing work). In a bad market (as we are now entering), all factors are
turning for the worse: increased (and more desperate) competition lowers embedded
margins, contractors accept more risk in new projects, utilisation falls (inter alia due to less
spot work), and fleet utilisation becomes less optimal as regional demand falls. Hence, we
believe weak backlog momentum and high operational gearing are set to erode earnings over
the next few years.
Tougher competition could increase execution risk in new awards
In a bad market, more intense (and desperate) competition leads to lower embedded margins
in new contract awards. In addition we believe execution risk in new projects increases as
contractors accept more risk and reduce the contingencies they build into the cost base they
bid the projects at. When these projects enter the offshore phase a couple of years out in
time, there is a high risk of project losses if execution has not been flawless. We saw this
effect in 2013 when all tier one SURF companies issued a profit warning due to increased
costs related to projects awarded in a more adverse market (Technip issued a profit warning
in December 2013, but the earnings hit was not taken before Q1 2014).
Figure 24: EBITDA margin tier one SURF companies
35.0%

30.0%
25.0%
20.0%
15.0%
10.0%
5.0%
-5.0%
-10.0%

-15.0%
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2007

2008

2009

Saipem (Offshore Construction)

2010

2011

2012

Technip (Subsea division)

2013

2014
Subsea 7

Source: Companies

12

13

DNB Markets
12 March 2015

2015e earnings are not the problem but 2016e and 2017e earnings are
While we are concerned that backlog erosion will lead to significant earnings erosion, we
highlight that there is a time-lag between prices and margins. Due to this time-lag (which we
estimate is roughly two years), we believe 2015 earnings will be fairly resilient (in addition, even
Subsea 7 has decent backlog coverage for the current year). This effect was particularly clear in
the North Sea in the aftermath of the financial crisis. The graph below shows Subsea 7s
reported EBIT margin for the North Sea and Canada region since 2007 (LTM) versus the bookto-bill ratio in the same region. Even though order intake collapsed in H2 2008 (and resulted in
significant pricing pressure that lasted in 2009 and 2010), margins were resilient well into 2010
(and did not collapse before 2011). We expect to see the same in 2015 (note that Q4 2014
margins were very strong due to the close-out of projects awarded in a better market).
Figure 25: Margin and book-to-bill for Subsea 7's North Sea and Canada region
25.0 %

2.0x
1.8x

20.0 %

1.6x

1.4x
15.0 %

1.2x
1.0x

10.0 %

0.8x
0.6x

5.0 %

0.4x
0.2x

0.0 %

0.0x

2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q
2008

2009

2010

EBIT margin LTM (l.h.)

2011

2012

2013

2014

Book to bill ratio LTM (r.h.)

Source: Subsea 7

How fast can the subsea companies cut costs?


The key question now is how fast the subsea companies can cut costs to adjust the cost base to
lower activity levels. In its Q4 presentation Subsea 7 provided more information about its cost
base, in particular it quantified procurement costs (including the hire of third-party vessels) at
USD2.8bn (~47% of its total cost base in 2014 when stripping out the goodwill impairment). Staff
costs accounted for ~33%. Procurement costs are directly correlated with revenue, and roughly
a third of its employees are hired-in contractors (hence flexible near-term). We argue that
Subsea 7s cost split is a reasonable proxy for that of its subsea peers. In other words, there is
clearly potential to reduce the cost base over the next few years (lower revenues alone would
drive procurement costs down), but we do not believe the subsea companies will be able to cut
costs quick enough to defend margins in 20162017. However, margins could surprise on the
upside in 2015 as projects awarded in a better market are completed and as the first effects of
cost-cutting efforts filter through. This is in line with what we saw in 2009, but we see a limited
share price effect of any near-term margin beat as long as the market does not improve.

13

14

DNB Markets
12 March 2015

Figure 26: Cost base, 2014 Subsea 7 (USDm)


8,000
7,000

6,000
5,000
4,000
3,000
2,000

1,000
People

Procurement Lease costs

D&A

Asset imp.

Goodwill
imp.

Other costs

Cost base

Source: Subsea 7, DNB Markets

And what could the long-term consequences of cost cutting be?


In our opinion the subsea companies face some tough decisions over the next few years:
should they cut costs to the bone to defend earnings in 2016 and 2017, or retain base-line
capacity to be able to ramp-up quickly (and without significant cost increases) when the cycle
turns? We acknowledge that the need to cut costs differs between the various subsea
companies depending on the size of the order backlog and coverage for 2015e and 2016e.
Technip is best positioned in our view, while we have concerns about Subsea 7s low backlog
coverage for 2016e and beyond; hence, we believe it needs to cut costs more aggressively
than Technip, which could hamper its ability to win work when the market eventually turns.

14

15

DNB Markets
12 March 2015

Earnings momentum set to remain negative


Earnings momentum
The earnings cycle has been negative since the start of 2013, but accelerated significantly in
H2 2014. Note that aggregated 2013 and 2014 net profit was depressed by low earnings at
Saipem, but the earnings cycle was negative for all SURF companies during this time.
Aggregated net profit for 2014 was below 2011 and 2012, and current consensus for 2015e
and 2016e sees no improvement.
Figure 27: Earnings revisions and market cap. for SURF sector (USDm)
4,500

50,000

4,000

45,000

3,500

40,000
35,000

3,000

30,000

2,500

25,000

2,000

20,000

1,500

15,000

1,000

10,000

500

5,000

Market cap

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

Source: DNB Markets, Bloomberg

Negative earnings revisions over the past year vary between the different SURF companies.
2015e and 2016e earnings have collapsed for both Subsea 7 and Saipem (the former due to
its inability to build its order backlog, the latter due to execution issues and no margin on
several contracts). While expectations for Technip have moderated, 2015e and 2016e
consensus is only down 12% and 27% YOY, respectively.
Figure 28: Changes to earnings
forecasts Subsea 7
2015e

Figure 29: Changes to earnings


forecasts Technip
2015e

2016e

-10%

-5%

-20%

2016e

-10%

-3%

-10%
-15%

-40%

-20%

-12%

-30%

-14%

-35%
-20%

-34%

-40%
-39%

-46%
-25%

-60%
-70%

2015e

2016e

-22%

-30%

-50%

Figure 30: Changes to earnings


forecasts Saipem

-50%
-50%

-62%

-30%

-27%

-60%

-57%

Changes since 12.03.2014

Changes since 12.03.2014

Changes since 12.03.2014

Changes since 31.12.2014

Changes since 31.12.2014

Changes since 31.12.2014

Source: Subsea 7, DNB Markets, Bloomberg

Source: Technip, DNB Markets, Bloomberg

Source: Saipem, DNB Markets, Bloomberg

Despite the significant earnings revisions over the past year, we do not believe the negative
earnings cycle has troughed, and we still see significant downside risk to 2016 estimates in
particular. We forecast a prolonged cyclical downturn in the subsea sector, which is likely to
depress order intake over the next few years. Consensus for 2017 is not yet available, but we
expect earnings erosion to extend into 2017. The notable exception is Saipem, as earnings
are currently depressed by zero-margin work due to be completed by 2017. Where we believe
consensus is wrong is the duration of the current downturn and the effect backlog erosion,
high operational leverage and increased competition will have on earnings over the next few
15

16

DNB Markets
12 March 2015

years. In addition, due to its late cyclical nature, we do not believe the full effect of the
slowdown will kick-in before 20162017.
Figure 31: DNB revenue forecasts versus consensus for
20152016e
2%

Figure 32: DNB net profit forecasts versus consensus for


20152016e
-

1%

1%

1%

-5%

-1%

-10%

-2%

-15%

-5%

-6%

-6%

-10%

-3%

-20%

-3%

-4%

-20%

-4%

-5%

-6%

-30%

-7%

-6%

-7%

-35%

-8%
-9%
2015e

-21%

-22%

-25%

-5%

-8%
2016e

Subsea 7

-37%

-40%

2015e

2016e

2015e

Technip

2016e

2015e

Saipem

2016e

2015e

2016e

2015e

Subsea 7

Aker Solutions

2016e

2015e

Technip

2016e

Saipem

2015e

2016e

Aker Solutions

Net profit

Revenue
Source: DNB Markets, Bloomberg consensus

Source: DNB Markets, Bloomberg consensus

While we are some way below consensus on 2016e net profit for Subsea 7, consensus does
imply a sharp fall in earnings in 2015 and 2016. The situation is different for Technip where
consensus assumes peak earnings extend into 2016. Saipem is in a different situation, as
earnings over the past two years have been hampered by one-off losses and zero margins on
several E&C contracts awarded in the market trough of 2009 and 2010.
Figure 33: Net profit Subsea 7 (USDm)

Figure 34: Net profit Technip (EURm)

Figure 35: Net profit Saipem (EURm)

900

800

1,000

800

700

800

700

600

600

600

500
400

500

400
400

200

300

300
200

200

100

100

-200

-400

DNB

Cons.

Source: Subsea 7, DNB Markets, Bloomberg consensus

DNB

Cons.

Source: Technip, DNB Markets, Bloomberg consensus

DNB

Cons.

Source: Saipem, DNB Markets, Bloomberg consensus

16

17

DNB Markets
12 March 2015

Valuation we do not see a v-shaped recovery


Earnings multiples
As investor focus has shifted from 2015e earnings to 2016e earnings, we believe it makes
more sense to look at 2-year forward multiples rather than 1-year forward metrics. On 2-year
forward EV/EBIT the SURF companies (Subsea 7, Technip and Saipem) are trading in line
with historical multiples (consensus estimates), but on our forecasts the sector is trading at a
30% premium to historical multiples. We do not believe 2016 will be trough year earningswise, hence in our view current 2-year forward earnings multiples are too high.
Figure 36: 2-year forward EV/EBIT SURF companies
16.0x

Figure 37: 2-year forward EV/EBIT SURF companies


20.0x
18.0x
16.0x
14.0x
12.0x
10.0x
8.0x
6.0x
4.0x
2.0x
-

14.0x
12.0x

10.0x
8.0x
6.0x

4.0x
2.0x
Jan.06

Jan.08

Jan.10

2-yrs fwd multiple (8.0x)


DNB estimate (10.8x)

Jan.12

Jan.14

Avg 2-yrs fwd multiple (8.3x)

Source: DNB Markets, Bloomberg consensus

Subsea 7 (6.4x)

Technip (6.6x)

Saipem (11.1x)

Subsea 7 DNBe (10.7x)

Technip DNBe (7.9x)

Saipem DNBe (13.8x)

Source: DNB Markets, Bloomberg consensus

We see the same trend for 2-year forward P/Es. On consensus estimates the sector is trading
at a slight discount to historical multiples, versus a small premium on our forecasts.
Figure 38: 2-year forward P/E SURF companies

Figure 39: 2-year forward P/E SURF companies

25.0x

25.0x
20.0x

20.0x

15.0x
15.0x
10.0x

10.0x
5.0x

5.0x
-

Jan.06

Jan.08

Jan.10

2-yrs fwd multiple (11.0x)


DNB estimate (14.2x)
Source: DNB Markets, Bloomberg consensus

Jan.12

Jan.14

Avg 2-yrs fwd multiple (12.4x)

Subsea 7 (10.5x)
Saipem (10.2x)
Technip DNBe (14.6x)

Technip (12.4x)
Subsea 7 DNBe (15.8x)
Saipem DNBe (12.1x)

Source: DNB Markets, Bloomberg consensus

Does P/B provide a floor for share prices?


P/Bs have fallen fairly dramatically over the past few years for the subsea construction
companies, particularly for Subsea 7 and Saipem (which are now trading at 0.5x and 1.0x,
respectively).

17

18

DNB Markets
12 March 2015

Figure 40: P/Bs SURF companies

Figure 41: Price to tangible book SURF companies


5.0x

9.0x
4.5x

8.0x

4.0x

7.0x

3.5x

6.0x
5.0x

3.0x

4.0x

2.5x

3.0x

2.0x

2.0x

1.5x

1.0x

1.0x

0.5x

Aug.06
Subsea 7 (0.5x)

Technip (1.6x)

Saipem (1.0x)

Aug.08

Aug.10

Subsea 7 (0.7x)

Source: DNB Markets, Bloomberg consensus

Aug.12

Technip (1.6x)

Aug.14

Saipem (1.0x)

Source: DNB Markets, Bloomberg consensus

In our view low P/Bs reflect significant deterioration in the return profile for several of the subsea
construction companies. As can be seen below, ROEs for both Subsea 7 and Saipem have
collapsed since the 20072008 peak, and we expect them to remain subdued over the next few
years. We forecast a ROE of c5% for Subsea 7 in 20152016 (broadly in line with the return
profile over the past few years), with a COE above 10%, and believe the stock should be trading
at a P/B significantly below 1x. Technip has been able to maintain its ROE at around 14% over
the past five years, but as the cyclical downturn extends, we see its ROE trending towards 10%
(2014 ROE was depressed by low profitability in Q1 2014 in the US GoM).
Figure 42: ROE Subsea 7

Figure 43: ROE Technip

40.0%

16.0 %

35.0%

14.0 %

30.0%

Figure 44: ROE Saipem


50.0%
40.0%

12.0 %

25.0%

30.0%

20.0%

10.0 %

15.0%

8.0 %

20.0%

10.0%

6.0 %

10.0%

4.0 %

Return on equity
Source: Subsea 7, DNB Markets

2016e

2014

2015e

2013

2012

2011

2010

2009

Return on equity

Return on equity
Source: Technip, DNB Markets

2008

2006

2016e

2014

2015e

2013

2012

2011

2010

2009

2008

-10.0%

2006

2016e

2014

2015e

2013

2012

2011

2010

2009

0.0 %
2008

-10%
2007

2.0 %
2006

-5%

2007

2007

5.0%

Source: Saipem, DNB Markets

What is implied in the current share price?


While the negative earnings momentum has continued YTD, the share price performance of
most subsea companies has been positive so far in 2015. In other words, falling estimates
have been offset by multiples expansion. In addition, despite the oil price falling c35% since
the end of October 2014, share prices for most of the subsea companies are flat; hence last
time share prices were at these levels, the oil price was at USD8090/bbl. Hence we argue
current share prices imply a v-shaped recovery in the offshore investment cycle, which we do
not see happening.

18

19

DNB Markets
12 March 2015

Figure 45: Share price performance YTD

Figure 46: Oil price versus subsea company share prices

25%

120
20%

20%

110

16%

15%

100
10%
90

10%

5%

80

1%

70

-5%

Source: DNB Markets, Bloomberg

SUBC (-2%)

TEC (3%)

AKSO (-9%)

Brent (-35%)

Feb-15

Feb-15

Feb-15

Jan-15

Feb-15

Jan-15

Jan-15

Jan-15

Jan-15

Dec-14

Dec-14

Dec-14

Dec-14

Nov-14

Nov-14

-15%

Nov-14

-11%

Nov-14

50

Oct-14

-10%

60

-4%

-5%
-7%

SPM (-23%)

Source: DNB Markets, Bloomberg

We maintain our negative view on the sector


Our continued negative view on the subsea sector reflects our negative macro view. We
forecast a prolonged cyclical downturn and do not believe 2016 will mark the earnings trough
of this cycle. At this stage in the cycle we believe earnings momentum and backlog
momentum are key share price drivers, both of which we believe will remain negative for the
next 12 months. We acknowledge that relatively speaking the subsea companies balance
sheets are healthier than other oil service companies, but we do not see this as a reason to
own the stocks. In addition, in a potential v-shaped recovery scenario for the entire oil and
gas sector (which is not our base case) we believe leveraged and early cyclical names would
benefit more than the late-cyclical subsea stocks with low gearing.
Where could we be wrong?
We believe the main risk to our SELL recommendations in the subsea sector is on the macro
level, i.e. that we are actually witnessing a v-shaped recovery in the offshore investment cycle
(triggered by a significant improvement in the oil price). In the event, we would expect to see
significant multiples expansion, in line with that at the beginning of 2009. Below we show the
historical 1-year forward P/E and 1-year forward net profit estimate for Subsea 7. Note that
while forward estimates continued to trend down until end-2009, multiples expansion kickedin at the start of 2009.
Figure 47: 1-year forward P/E multiple versus 1-year forward net profit (USDm) Subsea 7
800

30.0x

700

25.0x

600

20.0x

500
400

15.0x

300

10.0x

200
5.0x

100
Jan-06

Jan-07

Jan-08

Jan-09

Jan-10

Jan-11

1Y forward net profit (L)

Jan-12

Jan-13

Jan-14

Jan-15

1Y forward PE (R)

Source: DNB Markets, Bloomberg

19

20

DNB Markets
12 March 2015

Best investments ideas


We maintain our SELL recommendations on Subsea 7, Aker Solutions, Saipem and Technip.
On a relative basis we prefer Technip due to its diversified business model and solid backlog
coverage. Our least preferred subsea names are Saipem (due to too-high gearing and
significant exposure to the offshore rig market) and Subsea 7 (its backlog coverage for 2016e
looked too low entering 2015). Aker Solutions has decent backlog coverage for 2015e in its
Subsea and Engineering divisions, but we are not comfortable with the concentrated project
risk in the subsea backlog (due to the Kaombo project in Angola).

Relative valuation
Figure 48: Valuation versus other oil service peers
CAGR 14-16e
Company

Sales EBITDA

EBIT

EV/Sales
EPS

EV/EBITDA

EV/EBIT

P/E

P/B

(14e)

(15e)

(16e)

(14e)

(15e)

(16e)

(14e)

(15e)

(16e)

(14e)

(15e)

(16e)

(cur.)

2015 multiples versus sector average


EV/sales EV/EBITDA EV/EBIT

P/E

Aker Solutions

-7%

-8%

-11%

-14%

0.4x

0.4x

0.5x

4.4x

5.1x

6.3x

5.7x

6.9x

9.2x

8.0x

9.6x

13.8x

1.9x

-63%

-19%

-35%

-29%

FMC

-4%

-5%

-4%

-5%

1.2x

1.2x

1.2x

7.1x

7.3x

7.1x

8.8x

8.6x

8.7x

13.1x

14.0x

14.3x

3.5x

2%

15%

-19%

3%

Cameron

-11%

-12%

-13%

-20%

1.1x

1.2x

1.2x

7.0x

7.8x

8.1x

8.9x

10.6x

10.7x

11.2x

14.3x

15.7x

1.9x

3%

23%

-1%

5%

NOV

-16%

-20%

-20%

-24%

0.9x

1.0x

1.1x

4.3x

5.6x

5.9x

5.2x

6.9x

7.1x

8.3x

12.9x

14.9x

1.0x

-11%

-12%

-35%

-5%

Subsea 7

-17%

-22%

-33%

-38%

0.5x

0.6x

0.7x

2.3x

3.4x

4.3x

neg.

6.1x

11.3x

4.0x

7.7x

15.3x

0.5x

-46%

-47%

-43%

-44%

Technip

-2%

3%

3%

3%

0.4x

0.5x

0.5x

3.8x

4.1x

4.7x

5.1x

5.4x

6.6x

11.3x

10.3x

13.6x

1.6x

-57%

-35%

-49%

-24%

Saipem

-8%

4%

11%

16%

0.6x

0.7x

0.7x

6.7x

6.5x

5.3x

neg.

16.9x

11.2x

neg

20.5x

11.9x

1.0x

-35%

2%

58%

51%

Schlumberger

-7%

-9%

-12%

-13%

2.3x

2.6x

2.6x

8.2x

10.3x

9.7x

11.5x

15.6x

14.5x

14.7x

22.1x

19.9x

2.7x

128%

62%

46%

63%

Baker Hughes

-8%

-11%

-16%

-19%

1.2x

1.3x

1.3x

6.4x

7.9x

7.2x

10.5x

17.3x

13.6x

15.6x

high

23.5x

1.4x

14%

24%

62%

Halliburton

-4%

-8%

-11%

-19%

1.2x

1.4x

1.3x

5.7x

7.9x

6.3x

8.0x

11.7x

9.6x

10.5x

23.6x

18.1x

2.2x

22%

24%

9%

-11%

-14%

-27%

-35%

1.1x

1.4x

1.3x

5.7x

8.1x

7.0x

10.5x

high

18.1x

12.4x

high

high

1.4x

18%

28%

n.a.

Amec

22%

21%

20%

15%

1.0x

0.6x

0.6x

10.9x

7.2x

7.0x

13.4x

9.3x

8.8x

10.8x

10.2x

9.7x

2.6x

-44%

13%

-13%

-25%

Wood Group

-4%

-5%

-4%

-7%

0.5x

0.5x

0.5x

6.5x

6.8x

6.7x

8.9x

9.1x

9.0x

9.6x

10.5x

10.6x

1.4x

-54%

7%

-15%

-23%

Petrofac

11%

9%

7%

1%

0.8x

0.8x

0.7x

5.9x

6.0x

5.1x

8.2x

8.7x

7.3x

7.8x

9.4x

7.8x

2.4x

-35%

-5%

-18%

-31%

McDermott

13%

#N/A

n.m.

n.m.

0.5x

0.4x

0.4x

high

7.6x

5.1x

neg.

21.4x

11.7x

n.a.

n.a.

high

0.5x

-68%

20%

100%

Weatherford

Oceaneering

-4%

-5%

-11%

-12%

1.4x

1.6x

1.5x

6.2x

7.1x

6.9x

8.4x

11.1x

10.7x

13.0x

16.0x

15.5x

3.1x

36%

11%

4%

CGG Veritas

-32%

-10%

8%

n.m.

1.2x

1.4x

1.3x

4.0x

4.4x

4.1x

neg.

high

15.7x

n.a.

n.a.

high

0.4x

20%

-31%

n.a.

73%

18%

PGS

-3%

-6%

-19%

-24%

1.5x

2.2x

2.1x

3.0x

4.8x

4.5x

10.7x

high

21.8x

11.4x

high

18.3x

0.6x

87%

-25%

n.a.

TGS

-10%

-10%

-14%

-16%

2.3x

2.9x

2.9x

2.8x

3.5x

3.5x

5.9x

8.6x

8.1x

9.1x

13.2x

12.3x

1.7x

148%

-45%

-19%

-3%

WorleyParsons

-16%

-14%

-15%

-17%

0.3x

0.4x

0.5x

4.8x

5.8x

6.0x

5.9x

7.4x

7.6x

8.9x

9.8x

10.8x

1.1x

-62%

-8%

-31%

-28%

Average

1.0x

1.2x

1.1x

5.6x

6.4x

6.0x

8.5x

10.7x

11.1x

10.6x

13.6x

14.5x

1.6x

Median

1.0x

1.1x

1.1x

5.7x

6.7x

6.1x

8.6x

9.1x

10.1x

10.8x

12.9x

14.3x

1.5x

Max

2.3x

2.9x

2.9x

10.9x

10.3x

9.7x

13.4x

21.4x

21.8x

15.6x

23.6x

23.5x

3.5x

Min

0.3x

0.4x

0.4x

2.3x

3.4x

3.5x

5.1x

5.4x

6.6x

4.0x

7.7x

7.8x

0.4x

European oil service

0.9x

1.0x

1.0x

5.0x

5.3x

5.2x

8.0x

8.7x

10.6x

9.0x

11.2x

12.4x

1.4x

US oil service

1.2x

1.3x

1.3x

6.3x

7.7x

7.0x

9.0x

12.9x

11.6x

12.4x

17.1x

17.4x

2.0x

SURF companies

0.5x

0.6x

0.7x

4.3x

4.7x

4.8x

5.1x

9.5x

9.7x

7.7x

12.8x

13.6x

1.0x

Source: DNB Markets, Bloomberg consensus

20

21

DNB Markets
12 March 2015

SELL

AKER SOLUTIONS
Still no light in the tunnel

TP: NOK30.0

We forecast earnings erosion in 2016 and 2017, and


negative earnings and backlog momentum to prevail as
the cyclical downturn unfolds. Against this backdrop we
view the valuation (14x 2016e earnings) as excessive,
and we maintain our SELL recommendation. We have
lowered our target price to NOK30 (32).
Weak backlog momentum set to hamper activity. The global subsea tree awards
totalled 236 in 2014, the lowest level since 2003, and we expect tree orders to remain
subdued in 2015. Aker Solutions order backlog momentum started to fade in H2 2014
(book-to-bill of 0.6x despite positive FX effects), and we expect the backlog to
continue to fall in 2015. We estimate backlog coverage of 39% for 2016, which we find
uncomfortable low given the current macro environment. We see lower activity going
forward, and forecast revenue to fall by 7% and 11% in 2015 and 2016, respectively.
Aker Solutions is a derivative of activity on the NCS, and consequently we worry
about the expected 15% and 7% fall in investments in 2015e and 2016e (estimates
from Norwegian Petroleum Directorate). The order backlog in Norway fell by 25% in
H2 2014, and we do not believe the NOK4.5bn Johan Sverdrup engineering contract
(awarded in Q1 2015) is sufficient to stop the backlog erosion in Norway in 2015.
High execution risk in subsea backlog. Aker Solutions tripled its global market
share in 2013 and 2014 (in terms of subsea tree awards) and its record-high subsea
backlog is concentrated in a handful of large greenfield development projects (above
all the NOK14bn Kaombo project in Angola). We are not comfortable with this
concentrated project risk and see significant earnings risk in 20152017.
SELL reiterated. We forecast significant earnings erosion in 20152017, as well as
negative earnings and backlog momentum over the next 12 months. In addition, we
see no immediate turn in the offshore investment cycle. Against this backdrop we find
the valuation unjustified and reiterate our SELL recommendation. The antithesis to our
SELL recommendation is an M&A scenario, but we do not see Aker Solutions (or part
of Aker Solutions) being sold in this depressed market.
Year-end Dec
Revenue (NOKm)
EBITDA adj (NOKm)
EBIT adj (NOKm)
PTP (NOKm)
EPS rep (NOK)
EPS adj (NOK)
DPS (NOK)
Revenue growth (%)
EBITDA growth adj (%)
EPS growth adj (%)
3-year EPS CAGR (%)
EBITDA margin adj (%)
EV/Sales adj (x)
EV/EBITDA adj (x)
EV/EBIT adj (x)
P/E adj (x)
P/Book (x)
ROE (%)
ROCE (%)
Dividend yield (%)
FCFF yield (%)
Source: Company, DNB Markets

2011
22,081
1,607
1,306
743
1.68
3.21
0.00
nm
nm
nm
nm
7.3

nm
nm
nm
nm

2012
28,345
2,220
1,863
1,724
4.54
4.47
0.00
28.4
38.1
39.0
17.3
7.8

22.6
24.0
nm
nm

2013
29,058
2,079
1,580
1,577
4.31
4.31
0.00
2.5
-6.4
-3.5
-2.8
7.2

21.2
17.6
nm
nm

2014
32,971
2,675
2,080
1,817
4.71
5.19
1.45
13.5
28.7
20.4
-12.9
8.1
0.36
4.4
5.7
8.0
1.99
20.7
21.5
3.5
13.6

2015e
30,640
2,514
1,874
1,691
4.11
4.11
1.23
-7.1
-6.0
-20.9
-21.7
8.2
0.42
5.2
6.9
9.7
1.68
17.8
19.7
3.1
-10.4

2016e
27,190
1,982
1,347
1,179
2.85
2.85
0.86
-11.3
-21.2
-30.6
nm
7.3
0.46
6.3
9.3
13.9
1.58
11.3
13.9
2.2
5.1

2017e
25,390
1,766
1,160
1,032
2.49
2.49
0.75
-6.6
-10.9
-12.5
nm
7.0
0.48
6.9
10.6
15.9
1.48
9.3
11.5
1.9
3.1

AKSO versus OSEBX (12m)

70
65
60
55
50
45
40
35
30
Sep Oct
Nov Dec
Jan Feb
Aker Solutions
OSEBX (Rebased)
Source: Factset

SUMMARY
Recommendation (prev.)
SELL (SELL)
Share price (NOK)
39.7
Target price (previous) (NOK)
30.0 (32.0)
Upside/downside potential (%)
-24
Tickers
AKSO NO, AKSO.OL
CAPITAL STRUCTURE
No. of shares (m)
272.0
No. of shares fully dil. (m)
272.0
Market cap. (NOKm)
10,795
NIBD adj end-2015e (NOKm)
2,183
Enterprise value adj (NOKm)
12,978
Net debt/EBITDA adj (x)
0.94
NAV per share (NOK)
36.4
SHARE PRICE PERFORMANCE
Abs. 1/3/12m (%)
6/10/-39
Rel. 1/3/12m (%)
6/-2/-50
High/Low 12m (NOK)
65/32
Free float (%)
53
Source: Company, DNB Markets

UPCOMING EVENTS
Q1 2015

07/05/2015

ESTIMATE CHANGES (NOK)


Year-end Dec
2015e
EPS (old)
4.09
EPS (new)
4.11
Change (%)
0.3
Consensus
3.73

2016e
3.06
2.85
-6.7
3.64

2017e
2.69
2.49
-7.3

Sales (old)
Sales (new)
Change (%)
Consensus

27,640
27,190
-1.6
28,910

26,140
25,390
-2.9

30,640
30,640
0.0
29,035

Source: DNB Markets, * Bloomberg consensus (11.03.2015)

ANALYSTS
Eirik Ronold Mathisen
eirik.mathisen@dnb.no
+47 24 16 91 91
Sveinung Alvestad
sveinung.alvestad@dnb.no
+47 24 16 91 92
Please see last pages for important information

21

22

DNB Markets
12 March 2015

Investment case overview


Share price performance, DNB Markets target price, bear- and bull-case scenarios

Our new target price of NOK30


values Aker Solutions at 8x 2016e
EBIT and net debt per year-end
2015e. Our target price implies a
2015e and 2016e P/E of 7x and 11x,
respectively, which we find fair given
the earnings outlook.

68

58

NOK49 (23%)

48

Target price methodology

NOK40

Our DCF analysis supports a fair


value per share of NOK37.

38
NOK30 (-24%)

28

Our SOTP analysis, based on


current peers trading multiples,
implies a value per share of NOK36
(based on 2016e multiples).

NOK22 (-45%)

18
Sep 2014

Jan 2015

May 2015

Historical Share Price Performance

Sep 2015

Price Target (Mar 16)

Jan 2016
Current Share Price

Source: FactSet, DNB Markets

Source: DNB Markets

Downside risks to our investment


case
Increased costs on the Kaombo
subsea project in Angola.

DNB Markets investment case and


how we differ from consensus
We expect weak backlog momentum
to hamper activity and margins going
forward.

Aker Solutions is not able to cut costs


fast enough and margins fall
significantly in 2015.

Aker Solutions is a derivative of the


activity level on the NCS, in our view,
where investments are expected to
fall by 15% in 2015 and 7% in 2016
(NPD estimates).

Level of order intake in H2 2014


continues in 2015.
Our bear-case scenario sees 20%
downside to 2016e EBIT and values
Aker Solutions at 8x 2016e EBIT.

We are not comfortable with the


execution risk in the subsea backlog.

Source: DNB Markets

Upside risks to our investment case


V-shaped recovery in the offshore
investment cycle.
M&A scenario where Aker Solutions
(or parts of Aker Solutions) is
acquired.
Better than expected order intake in
2015 and better than expected
margins.

We do not see Aker Solutions being


sold in this depressed market.

Our bull-case scenario is based on


our SOTP analysis, where we value
Aker Solutions on 2015e EBITDA and
peers earnings multiples.

Source: DNB Markets

Source: DNB Markets

EBITDA bridge 2014e2016e (NOKm)


2,880
2,680

-189

28

2,480

-283

2,280

-249

2,080

1,880

1,680
1,480

2,675

2,514

1,982

2016e

Other

Margin expansion

Volume growth

2015e

Other

Margin expansion

Volume growth

2014e

1,280

Source: DNB Markets, company

22

23

DNB Markets
12 March 2015

Forecast changes P&L


2015e
30,640

New
2016e
27,190

2017e
25,390

2015e
30,640

Old
2016e
27,640

2017e
26,140

2015e
0

Change
2016e
-450

2017e
-750

-28,126
2,514
2,514
8.2

-25,208
1,982
1,982
7.3

-23,624
1,766
1,766
7.0

-28,135
2,505
2,505
8.2

-25,583
2,058
2,058
7.4

-24,278
1,863
1,863
7.1

9
9
9
0.0

375
-75
-75
-0.2

654
-96
-96
-0.2

Depreciation
Impairment of PPE
EBITA

-592
0
1,922

-584
0
1,398

-553
0
1,214

-587
0
1,918

-574
0
1,483

-566
0
1,296

-5
0
4

-9
0
-85

14
0
-82

Amortisation
EBIT
EBIT adj

-48
1,874
1,874

-51
1,347
1,347

-54
1,160
1,160

-48
1,870
1,870

-51
1,433
1,433

-53
1,243
1,243

0
4
4

-1
-85
-85

-1
-83
-83

Net interest
FX gains
Net financial items
Non-recurring items
PBT

-183
0
-183
0
1,691

-168
0
-168
0
1,179

-128
0
-128
0
1,032

-183
0
-183
0
1,687

-168
0
-168
0
1,264

-130
0
-130
0
1,114

0
0
0
0
4

1
0
1
0
-85

2
0
2
0
-81

Taxes
Minorities
Discontinued operations
Net profit
Adjustments to net profit
Net profit adj

-558
-19
0
1,114
0
1,114

-389
-16
0
774
0
774

-341
-15
0
677
0
677

-557
-20
0
1,111
0
1,111

-417
-17
0
830
0
830

-367
-16
0
731
0
731

-1
0
0
3
0
3

28
1
0
-56
0
-56

27
1
0
-54
0
-54

Per share data (NOK)


EPS
EPS adj
DPS

4.11
4.11
1.23

2.85
2.85
0.86

2.49
2.49
0.75

4.09
4.09
1.23

3.06
3.06
0.92

2.69
2.69
0.81

0.01
0.01
0.00

-0.21
-0.21
-0.06

-0.20
-0.20
-0.06

Other key metrics (%)


Revenue growth
EBIT adj growth
EPS adj growth

-7.1
-9.9
-20.9

-11.3
-28.1
-30.6

-6.6
-13.9
-12.5

-7.1
-10.1
-21.1

-9.8
-23.4
-25.3

-5.4
-13.2
-12.0

0.0
0.2
0.2

-1.5
-4.7
-5.2

-1.2
-0.7
-0.6

-1,343
1,309
2,183

-862
1,371
1,698

-812
1,588
1,445

-1,338
1,316
2,193

-887
1,526
1,835

-769
1,633
1,362

-5
-7
-10

25
-155
-137

-43
-45
83

(NOKm)
Revenues
Operating expenses
EBITDA
EBITDA adj
EBITDA margin (%)

Capex
Working capital
NIBD adj
Source: DNB Markets

23

24

DNB Markets
12 March 2015

Quarterly numbers
(NOKm)
Revenues

Q1 2014
7,437

Q2 2014
8,043

Q3 2014
8,271

-6,814
623

-7,459
587

-7,654
617

-8,369
786

-7,513
695

-7,384
686

-6,846
604

-6,382
530

-6,420
514

-131
0
492

-128
0
459

-146
0
471

-148
-70
568

-148
0
546

-148
0
538

-148
0
456

-148
0
382

-146
0
368

-10
482

-11
448

-11
460

-11
557

-12
535

-12
526

-12
444

-12
370

-13
355

Net interest
FX gains
Net financial items
Non-recurring items
PBT

-27
-106
-133
0
349

-17
73
56
0
504

-2
-32
-34
0
426

-92
116
24
-105
476

-43
0
-43
0
492

-50
0
-50
0
476

-47
0
-47
0
396

-43
0
-43
0
327

-44
0
-44
0
311

Taxes
Minorities
Discontinued operations
Net profit
Adjustments to net profit
Net profit adj

-108
-2
0
239
0
239

-137
-5
0
362
-2
360

-155
-6
0
265
31
296

-117
-7
0
352
128
480

-162
-5
0
325
0
325

-157
-5
0
314
0
314

-131
-5
0
261
0
261

-108
-4
0
215
0
215

-103
-4
0
204
0
204

-394

0.88
0.88
0.00

1.33
1.32
0.00

0.97
1.09
0.00

1.30
1.77
0.00

1.20
1.20
0.00

1.16
1.16
0.00

0.96
0.96
0.00

0.79
0.79
0.00

0.75
0.75
0.00

nm
nm
nm

8.1
nm
nm

2.8
nm
nm

10.7
nm
nm

-10.3
10.4
36.2

-1.7
0.3
-12.6

-7.7
-9.9
-11.7

-7.2
-24.5
-55.3

0.3
-15.5
-37.2

nm
8.4
-1.8
6.5
3.2

nm
7.3
-1.6
5.5
4.6

nm
8.0
-1.8
6.1
3.3

nm
8.6
-1.6
6.8
3.9

nm
8.5
-1.8
6.5
4.0

nm
8.5
-1.8
6.5
4.0

nm
8.1
-2.0
6.0
3.6

nm
7.7
-2.1
5.3
3.2

nm
7.4
-2.1
5.1
3.0

Operating expenses
EBITDA
Depreciation
Impairment of PPE
EBITA
Amortisation
EBIT

Dividend paid
Per share data (NOK)
EPS
EPS adj
DPS
Growth and margins (%)
Revenues, QOQ growth
Revenues, YOY growth
EPS adj, YOY growth
Gross margin
EBITDA adj margin
Depreciation/revenues
EBIT adj margin
Net profit margin

Q4 2014 Q1 2015e Q2 2015e Q3 2015e Q4 2015e Q1 2016e


9,155
8,208
8,070
7,450
6,912
6,934

Source: Company, DNB Markets

24

25

DNB Markets
12 March 2015

Adjustments to quarterly numbers


(NOKm)
EBITDA
Gains and losses
Other EBITDA adjustments
EBITDA adj

Q1 2014
623
0
0
623

Q2 2014
587
-3
0
584

Q3 2014
617
0
43
660

Q4 2014 Q1 2015e Q2 2015e Q3 2015e Q4 2015e Q1 2016e


786
695
686
604
530
514
0
0
0
0
0
0
0
0
0
0
0
0
786
695
686
604
530
514

EBITA
Gains and losses
Other EBITA adjustments
EBITA adj

492
0
0
492

459
-3
0
456

471
0
43
514

568
0
0
568

546
0
0
546

538
0
0
538

456
0
0
456

382
0
0
382

368
0
0
368

EBIT
Gains and losses
Other EBIT adjustments
EBIT adj

482
0
0
482

448
-3
0
445

460
0
43
503

557
0
0
627

535
0
0
535

526
0
0
526

444
0
0
444

370
0
0
370

355
0
0
355

Net profit
Gains and losses
Other EBIT adjustments
Tax adjustments
Other adjustments
Net profit adj

239
0
0
0
0
239

362
-3
0
1
0
360

265
0
43
-12
0
296

352
0
0
-47
0
480

325
0
0
0
0
325

314
0
0
0
0
314

261
0
0
0
0
261

215
0
0
0
0
215

204
0
0
0
0
204

Q1 2014

Q2 2014

Q3 2014

4,060
862
2,583
-24

4,660
904
2,546
-50

5,049
851
2,403
-28

5,461
1,281
2,474
-61

5,100
988
2,160
-40

5,080
950
2,080
-40

4,620
950
1,920
-40

4,200
912
1,840
-40

4,238
950
1,786
-40

252
83
153
36

404
79
49
-63

400
90
53
-84

417
134
86
-80

402
96
62
-25

400
92
59
-25

328
87
53
-25

265
79
51
-25

248
83
50
-25

6.2%
9.6%
5.9%

8.7%
8.7%
1.9%

7.9%
10.6%
2.2%

7.6%
10.5%
3.5%

7.9%
9.7%
2.9%

7.9%
9.7%
2.8%

7.1%
9.2%
2.8%

6.3%
8.6%
2.8%

5.8%
8.7%
2.8%

362
91
167
45

519
84
59
-54

531
103
73
-91

584
191
102
-91

536
109
76
-25

533
105
73
-25

462
100
67
-25

399
91
64
-25

381
95
62
-25

EBITDA margin
Subsea
Engineering
MMO

8.9%
10.6%
6.5%

11.1%
9.3%
2.3%

10.5%
12.1%
3.0%

10.7%
14.9%
4.1%

10.5%
11.0%
3.5%

10.5%
11.0%
3.5%

10.0%
10.5%
3.5%

9.5%
10.0%
3.5%

9.0%
10.0%
3.5%

Assumptions
Order intake
Order backlog
Book to bill

5,897
39,572
0.79

21,407
53,914
2.66

3,629
48,986
0.44

6,203
48,289
0.68

9,625
49,720
1.17

5,125
46,735
0.64

5,125
44,370
0.69

5,125
42,543
0.74

3,500
30,171
0.50

Source: Company, DNB Markets

Quarterly numbers by segment and assumptions


(NOKm)
Revenues
Subsea
Engineering
MMO
Other
EBIT
Subsea
Engineering
MMO
Other
EBIT margin
Subsea
Engineering
MMO
EBITDA
Subsea
Engineering
MMO
Other

Q4 2014 Q1 2015e Q2 2015e Q3 2015e Q4 2015e Q1 2016e

Source: Company, DNB Markets

25

26

DNB Markets
12 March 2015

Annual P&L
(NOKm)
Revenues

2011
22,081

2012
28,345

2013
29,058

2014
32,971

2015e
30,640

2016e
27,190

2017e
25,390

-21,074
1,009

-26,125
2,248

-26,979
2,079

-30,296
2,675

-28,126
2,514

-25,208
1,982

-23,624
1,766

-261
0
748

-317
0
1,931

-459
0
1,620

-552
-70
2,053

-592
0
1,922

-584
0
1,398

-553
0
1,214

Amortisation
EBIT

-40
708

-40
1,891

-40
1,580

-43
2,010

-48
1,874

-51
1,347

-54
1,160

Net interest
FX gains
Net financial items
Non-recurring items
PBT

11
24
35
0
743

-156
-11
-167
0
1,724

-183
180
-3
0
1,577

-139
51
-88
-105
1,817

-183
0
-183
0
1,691

-168
0
-168
0
1,179

-128
0
-128
0
1,032

-253
34
-34
0
456
419
875

-479
28
-10
0
1,235
-20
1,215

-397
25
-7
0
1,173
0
1,173

-516
28
-21
0
1,280
128
1,408

-558
33
-19
0
1,114
0
1,114

-389
33
-16
0
774
0
774

-341
33
-15
0
677
0
677

-394

-334

-232

1.68
3.21
0.00

4.54
4.47
0.00

4.31
4.31
0.00

4.71
5.19
1.45

4.11
4.11
1.23

2.85
2.85
0.86

2.49
2.49
0.75

nm
nm

28.4
39.0

2.5
-3.5

13.5
20.4

-7.1
-20.9

-11.3
-30.6

-6.6
-12.5

nm
4.6
7.3
-1.2
3.2
5.9
3.4
2.2

nm
7.9
7.8
-1.1
6.7
6.6
6.1
4.4

nm
7.2
7.2
-1.6
5.4
5.4
5.4
4.1

nm
8.1
8.1
-1.7
6.1
6.3
5.5
3.9

nm
8.2
8.2
-1.9
6.1
6.1
5.5
3.7

nm
7.3
7.3
-2.1
5.0
5.0
4.3
2.9

nm
7.0
7.0
-2.2
4.6
4.6
4.1
2.7

Operating expenses
EBITDA
Depreciation
Impairment of PPE
EBITA

Taxes
Effective tax rate (%)
Minorities
Discontinued operations
Net profit
Adjustments to net profit
Net profit adj
Dividend paid
Per share data (NOK)
EPS
EPS adj
DPS
Growth and margins (%)
Revenue growth
EPS adj growth
Gross margin
EBITDA margin
EBITDA adj margin
Depreciation/revenues
EBIT margin
EBIT adj margin
PBT margin
Net profit margin
Source: Company, DNB Markets

26

27

DNB Markets
12 March 2015

Adjustments to annual P&L


(NOKm)
EBITDA
Gains and losses
Other EBITDA adjustments
EBITDA adj

2011
1,009
-2
600
1,607

2012
2,248
-28
0
2,220

2013
2,079
0
0
2,079

2014
2,675
0
0
2,675

2015e
2,514
0
0
2,514

2016e
1,982
0
0
1,982

2017e
1,766
0
0
1,766

EBITA
Gains and losses
Other EBITA adjustments
EBITA adj

748
-2
600
1,346

1,931
-28
0
1,903

1,620
0
0
1,620

2,053
0
0
2,053

1,922
0
0
1,922

1,398
0
0
1,398

1,214
0
0
1,214

EBIT
Gains and losses
Other EBIT adjustments
EBIT adj

708
-2
600
1,306

1,891
-28
0
1,863

1,580
0
0
1,580

2,010
0
0
2,080

1,874
0
0
1,874

1,347
0
0
1,347

1,160
0
0
1,160

Net profit
Gains and losses
Other EBIT adjustments
Tax adjustments
Other adjustments
Net profit adj

456
-2
600
-179
0
875

1,235
-28
0
8
0
1,215

1,173
0
0
0
0
1,173

1,280
0
0
-47
0
1,408

1,114
0
0
0
0
1,114

774
0
0
0
0
774

677
0
0
0
0
677

Per share data (NOK)


EPS
Recommended adjustment
EPS adj

1.68
1.53
3.21

4.54
-0.07
4.47

4.31
0.00
4.31

4.71
0.48
5.19

4.11
0.00
4.11

2.85
0.00
2.85

2.49
0.00
2.49

Source: Company, DNB Markets

27

28

DNB Markets
12 March 2015

Cash flow
(NOKm)
Net profit
Depreciation and amortisation
Other non-cash adjustments
Change in net working capital
Cash flow from operations (CFO)

2011
456
301
155
-309
603

2012
1,235
357
482
-660
1,414

2013
1,173
499
122
865
2,659

2014
1,280
595
-108
869
2,645

2015e
1,114
640
19
-1,996
-223

2016e
774
635
16
-62
1,364

2017e
677
606
15
-218
1,080

Capital expenditure
Acquisitions
Divestments
Cash flow from investing (CFI)

-464
-165
3
-626

-1,269
-65
22
-1,312

-1,494
-619
5
-2,108

-1,370
0
0
-1,370

-1,343
0
0
-1,343

-862
0
0
-862

-812
0
0
-812

-23

102

551

1,275

-1,566

502

268

Net change in debt


Dividends paid
Share issue (repurchase)
Other
Cash flow from financing (CFF)

-2
0
0
-980
-982

2,666
0
0
-2,880
-214

-136
0
0
893
757

281
0
0
-2,680
-2,399

-749
-394
0
0
-1,143

-9
-334
0
0
-343

0
-232
0
0
-232

Total cash flow (CFO+CFI+CFF)

-1,005

-112

1,308

-1,124

-2,709

158

36

FCFF calculation
Free cash flow
Less: net interest
Less: tax shields/other
Less: acquisitions
Less: divestments
Free cash flow to the firm

-23
-11
-90
165
-3
38

102
156
-511
65
-22
-210

551
183
-340
619
-5
1,008

1,275
139
177
0
0
1,591

-1,566
183
15
0
0
-1,369

502
168
-1
0
0
668

268
128
4
0
0
400

Growth (%)
CFO
CFI
FCF
CFF
FCFF

nm
nm
nm
nm
nm

134.5
-109.6
543.5
78.2
-657.4

88.0
-60.7
440.2
453.7
578.7

-0.5
35.0
131.4
-416.9
57.9

-108.4
2.0
-222.8
52.4
-186.0

711.3
35.8
132.0
70.0
148.8

-20.8
5.7
-46.6
32.4
-40.1

Free cash flow (FCF)

Source: Company, DNB Markets

28

29

DNB Markets
12 March 2015

Balance sheet
(NOKm)
Assets

2011
17,181

2012
20,238

2013
25,774

2014
27,867

2015e
24,232

2016e
23,836

2017e
24,026

Inventories
Trade receivables
Other receivables
Current financial assets
Cash and cash equivalents
Current assets

498
7,239
289
266
3,267
11,559

612
9,322
494
96
3,155
13,679

588
11,041
371
698
4,463
17,161

862
12,518
188
1,187
3,339
18,094

691
11,059
188
1,187
630
13,756

653
10,317
188
1,187
789
13,133

635
10,283
188
1,187
825
13,117

1,894
3,427
11
290
5,622

2,365
3,833
11
350
6,559

3,072
5,080
17
444
8,613

3,603
5,763
27
380
9,773

3,820
6,249
27
380
10,476

3,723
6,573
27
380
10,703

3,644
6,858
27
380
10,909

Total assets

17,181

20,238

25,774

27,867

24,232

23,836

24,026

Equity and liabilities

17,181

20,238

25,774

27,867

24,232

23,836

24,026

Total equity to the parent


Minority interests

6,167
166

4,424
154

6,313
156

5,677
216

6,397
235

6,837
252

7,282
266

Total equity

6,333

4,578

6,469

5,893

6,633

7,089

7,548

Trade payables
Other payables and accruals
Short-term debt
Total current liabilities

7,036
1,118
505
8,659

8,696
1,629
644
10,969

10,976
2,980
14
13,970

13,551
3,204
674
17,429

9,953
3,176
674
13,803

9,141
3,145
674
12,961

8,887
3,131
674
12,691

Long-term debt
Deferred tax liabilities
Pension liabilities
Other non-current liabilities
Total non-current liabilities

747
742
640
60
2,189

3,063
1,033
520
75
4,691

3,533
1,203
524
75
5,335

3,154
699
670
22
4,545

2,405
699
670
22
3,796

2,396
699
670
22
3,787

2,396
699
670
22
3,787

Total liabilities

10,848

15,660

19,305

21,974

17,599

16,748

16,478

Total equity and liabilities

17,181

20,238

25,774

27,867

24,232

23,836

24,026

Key metrics
Net interest bearing debt
Invested capital

-2,153
7,795

455
9,501

-1,022
12,207

398
12,461

2,358
15,160

2,190
15,449

2,154
15,872

Property, plant and equipment


Goodwill
Investments in associates
Defferred tax assets
Non-current assets

Source: Company, DNB Markets

29

30

DNB Markets
12 March 2015

Valuation ratios
(NOKm)
Enterprise value
Share price (NOK)
Number of shares (m)
Market capitalisation
Net interest bearing debt
Adjustments to NIBD
Net interest bearing debt adj
EV
EV adj
Valuation
EPS
EPS adj
DPS
P/E
P/E adj
P/B
Average ROE
Dividend yield
Free cash flow yield
EV/SALES
EV/SALES adj
EV/EBITDA
EV/EBITDA adj
EV/EBIT
EV/EBIT adj
EV/capital employed
EV/NOPLAT

2011

2012

2013

272.0

272.0

272.0

-2,153
155
-1,998

455
143
598

-1,022
139
-883

1.68
3.21
0.00

4.54
4.47
0.00

4.31
4.31
0.00

22.6%

21.2%

2014

2015e

2016e

2017e

41.55
272.0
11,303
398
200
598
11,701
11,901

39.68
272.0
10,795
2,358
-174
2,183
13,152
12,978

39.68
272.0
10,795
2,190
-492
1,698
12,985
12,493

39.68
272.0
10,795
2,154
-710
1,445
12,949
12,239

4.71
5.19
1.45
8.8
8.0
1.99
20.7%
3.5%
11.1%

4.11
4.11
1.23
9.7
9.7
1.68
17.8%
3.1%
-14.2%

2.85
2.85
0.86
13.9
13.9
1.58
11.3%
2.2%
4.5%

2.49
2.49
0.75
15.9
15.9
1.48
9.3%
1.9%
2.4%

0.35
0.36
4.4
4.4
5.8
5.7
1.3
8.2

0.43
0.42
5.2
5.2
7.0
6.9
1.4
9.9

0.48
0.46
6.6
6.3
9.6
9.3
1.3
13.6

0.51
0.48
7.3
6.9
11.2
10.6
1.2
15.7

Source: Company, DNB Markets

30

31

DNB Markets
12 March 2015

Key accounting ratios


2011

2012

2013

2014

2015e

2016e

2017e

6.6
24.0
19.8

5.1
17.6
15.6

4.8
21.5
17.5

4.3
19.7
16.8

3.2
13.9
12.6

2.8
11.5
10.8

8.6
2.0
283.3

8.3
3.2
298.3
38.5
22.3
27.1
15.7

10.6
0.6
238.0
25.3
14.9
17.8
10.5

10.9
-2.1
264.6
29.7
16.6
20.6
11.6

12.5
4.3
202.1
24.6
13.9
17.0
9.6

13.7
5.0
176.0
15.7
9.1
10.8
6.2

14.4
6.3
160.0
13.6
7.8
9.2
5.3

-0.1

0.4

1.9

2.7

5.0

9.2

130.0
7.0
-220.4
2.1
177.8
0.0

111.4
12.9
-9.1
4.5
400.3
0.0

178.0
19.0
111.5
5.1
325.5
0.0

3.9
11.3
8.0
23.4
193.1
15.2
-87.8
4.2
248.2
30.8

-5.1
-14.5
-0.7
-2.1
-16.6
-1.6
-243.1
4.4
226.9
30.0

1.8
4.6
5.0
12.6
158.2
10.5
20.5
3.2
147.7
30.0

1.1
2.5
4.3
10.0
133.0
8.5
5.3
3.2
147.0
30.0

5.52
4.45
8.47
-91.73
-2.13
0.07

9.07
8.80
8.85
14.41
0.20
0.18

6.94
6.72
6.89
11.36
-0.49
0.14

10.17
9.85
10.06
19.24
0.15
0.14
0.25
0.22

8.45
8.25
8.46
13.75
0.94
0.13
0.22
0.18

7.35
7.25
7.53
11.83
1.11
0.13
0.22
0.18

7.80
7.64
7.99
13.84
1.22
0.13
0.22
0.18

124.4

126.4

143.3

140.7

134.0

141.0

150.5

Profitability (%)
ROA
ROCE
ROCE after tax
Return on invested capital (%)
Net PPE/revenues
Working capital/revenues
Revenues/invested capital (pre-GW)
Pre-tax ROIC (pre-goodwill)
Pre-tax ROIC (incl. goodwill)
After-tax ROIC (pre-goodwill)
After-tax ROIC (incl. goodwill)
Cash flow ratios (%)
FCF/revenues
FCF/market capitalisation
CFO/revenues
CFO/market capitalisation
CFO/capex
CFO/current liabilities
Cash conversion ratio
Capex/revenues
Capex/depreciation
Total payout ratio
Leverage and solvency (x)
Interest cover
EBIT/interest payable
EBITA adj/interest payable
Cash coverage
Net debt/EBITDA
Total debt/total capital (BV)
Total debt/total capital (MV)
LTD / (LTD + equity (MV))
Cash conversion cycle
Receivables turnover days
Source: Company, DNB Markets

31

32

DNB Markets
12 March 2015

SAIPEM
Expect yet another challenging year
At 21x 2015e earnings, you need strong conviction in
its long-term earnings recovery to become bullish on
Saipem. 2015 is set to become yet another challenging
year and we believe a net debt to EBITDA at 3.7x is not
the best starting point heading into a cyclical downturn.
The offshore rig market continues to worsen and we
believe Offshore Drilling will be a drag on group
earnings in 2016 and 2017. New target is EUR7.0.
Earnings recovery story is falling apart. The earnings recovery story in Saipem is
falling apart as macro- and company-specific risks continue to increase and we argue
that the worst downturn in a decade is not the best time to rebuild earnings. In addition
Saipem is geared towards large field development projects (which are likely to suffer
in a cyclical downturn). Earnings have been negative for two consecutive years and
Saipem expects 2015 to be challenging as well.
Offshore drilling turning into a liability. Offshore drilling rates are collapsing due to
a large oversupply of offshore rigs and we forecast a prolonged downturn for the rig
sector. Saipem has a fleet of 16 offshore rigs and we forecast significant earnings
erosion in the Offshore Drilling segment (~50% of group EBITDA in 2014) as the
drilling rigs roll over on new contracts in 20152017. While we forecast a drop in
utilisation and rates, we have not assumed any scrapping of rigs.
Too highly geared entering a cyclical downturn. We argue that a net debt to
EBITDA of 3.7x (per year end 2014) is too high entering a cyclical downturn, and it
should be a red flag that it does not expect net debt to normalise (at EUR2.0bn) before
year-end 2018. Pending revenue from legacy contracts is EUR1.1bn and 80% of this
is related to four contracts.
SELL reiterated as we see no reason to change our negative view. The earnings
recovery story is faltering as market fundamentals continue to deteriorate and 2015 is
set to be yet another challenging year. The offshore rig market is collapsing and we
expect investor focus to gradually turn towards potential downside risk to 2016 and
2017 earnings (and net debt progression) as Saipems offshore rigs roll off contract.
Year-end Dec
Revenue (EURm)
EBITDA adj (EURm)
EBIT adj (EURm)
PTP (EURm)
EPS rep (EUR)
EPS adj (EUR)
DPS (EUR)
Revenue growth (%)
EBITDA growth adj (%)
EPS growth adj (%)
EBITDA margin adj (%)
EV/Sales adj (x)
EV/EBITDA adj (x)
EV/EBIT adj (x)
P/E adj (x)
P/Book (x)
ROE (%)
ROCE (%)
Dividend yield (%)
Source: Company, DNB Markets

2011
12,631
2,135
1,493
1,379
2.10
2.10
0.70
13.0
16.3
9.1
16.9
1.40
8.3
11.8
15.6
3.06
20.5
18.2
2.1

2012
13,386
2,207
1,481
1,349
2.05
2.05
0.68
6.0
3.4
-2.3
16.5
1.29
7.8
11.7
14.3
2.38
17.4
15.4
2.3

2013
12,433
871
147
-30
-0.36
-0.36
0.00
-7.1
-60.5
nm
7.0
0.93
13.3
nm
nm
1.47
nm
1.4
0.0

2014
12,882
1,212
55
-120
-0.52
-0.52
0.00
3.6
39.2
nm
9.4
0.63
6.7
nm
nm
0.87
nm
0.6
0.0

2015e
11,043
1,250
482
333
0.47
0.47
0.00
-14.3
3.1
nm
11.3
0.74
6.5
16.9
20.6
0.91
4.5
5.0
0.0

2016e
10,934
1,475
692
551
0.80
0.80
0.00
-1.0
18.0
72.7
13.5
0.71
5.3
11.3
11.9
0.85
7.2
6.8
0.0

2017e
10,450
1,443
658
534
0.77
0.77
0.26
-4.4
-2.1
-3.6
13.8
0.69
5.0
10.9
12.4
0.80
6.5
6.6
2.7

SELL
TP: EUR7.00
SPM versus OSEBX (12m)

22
20
18
16
14
12
10
8
6
Mar May
Saipem

Jul Sep Nov Jan


OSEBX (Rebased)

Mar

Source: Factset

SUMMARY
Recommendation (prev.)
SELL (SELL)
Share price (EUR)
9.60
Target price (previous) (EUR)
7.00 (7.60)
Upside/downside potential (%)
-27
Tickers
SPM IM, SPM.MI
CAPITAL STRUCTURE
No. of shares (m)
441.4
No. of shares fully dil. (m)
441.9
Market cap. (EURm)
4,238
NIBD adj end-2015e (EURm)
3,932
Enterprise value adj (EURm)
8,151
Net debt/EBITDA adj (x)
3.24
SHARE PRICE PERFORMANCE
Abs. 1/3/12m (%)
9/17/-44
Rel. 1/3/12m (%)
8/-1/-50
High/Low 12m (EUR)
21/7
Free float (%)
57
Source: Company, DNB Markets

UPCOMING EVENTS
Q1 2015
Q2 2015

27/04/2015
28/07/2015

ESTIMATE CHANGES (EUR)


Year-end Dec
2015e
EPS (old)
0.46
EPS (new)
0.47
Change (%)
0.4
Consensus
0.62

2016e
0.81
0.80
-1.3
0.91

2017e
0.92
0.77
-16.2
1.11

Sales (old)
Sales (new)
Change (%)
Consensus

11,088
10,934
-1.4
11,416

10,751
10,450
-2.8
11,392

11,119
11,043
-0.7
11,830

Source: DNB Markets, * Bloomberg consensus as of 10.03.2015

ANALYSTS
Eirik Ronold Mathisen
eirik.mathisen@dnb.no
+47 24 16 91 91
Sveinung Alvestad
sveinung.alvestad@dnb.no
+47 24 16 91 92
Please see last pages for important information

32

33

DNB Markets
12 March 2015

Investment case overview


Share price performance, DNB Markets target price, bear- and bull-case scenarios

Target price methodology


Our target price values the E&C
business at 9x 2016e EBIT and the
offshore
and
onshore
drilling
segments at GAV (we value the
former and the latter at EUR2.4bn and
EUR1.1bn, respectively).

19.0

15.0
EUR12.4 (29%)

Our target price implies a 2015e P/E


of 16x and 2015e EV/EBIT of 15x and
2016 P/E of 9x and EV/EBIT of 10x.

EUR9.6

11.0

7.0

EUR7.0 (-27%)

Our DCF analysis supports a fair


value per share of EUR11.0.

EUR4.8 (-50%)

3.0
Mar 2014

Jul 2014

Nov 2014

Mar 2015

Historical Share Price Performance

Jul 2015

Price Target (Mar 16)

Nov 2015
Current Share Price

Source: FactSet, DNB Markets

Source: DNB Markets

Downside risks to our investment


case
Write-down of working capital would
put additional strain on an already
stretched balance sheet.
Further
deterioration
of
legacy
contracts and low order intake in 2015
could hamper 2015 earnings. Shortterm earnings visibility is very low and
we could see 1520% downside risk to
our 2015e EBIT without assuming any
large project specific losses.

DNB Markets investment case and


how we differ from consensus
The earnings recovery story in Saipem
is falling apart as macro- and
company-specific risks continue to
increase. Earnings visibility is very low
for 2015e2016e.

Upside risks to our investment case

Saipem is not capitalised to meet a


prolonged cyclical downturn, in our
view, and we worry about a net debt to
EBITDA of 3.7x (YE 2014).

No write-down of working capital and


Saipem is able to lower its debt
position significantly during 2015
(removing the fear of a dilutive equity
issue).

We forecast a cyclical downturn that


will extend into 2017e, hampering
backlog, utilisation and earnings.

Our bear case scenario sees 20%


downside to EBIT for 2015 and 2016
(E&C divisions only) and values the
E&C business at 9.0x 2016 EBIT.
Source: DNB Markets

Source: DNB Markets

South Stream project is reactivated


again, which would be accretive to
2015e2016e earnings (note that
consensus estimates for 2015 assume
that the project is reactivated).

Our bull case scenario values the E&C


businesses at 15x 2016 EBIT.

Source: DNB Markets

EBIT bridge 20142016 (EURm)


800.0

0.0

700.0
600.0

0.0

500.0

-4.7

214.3

400.0

300.0

55.0

-7.9

435.0

EBITDA expansion

100.0

Volume growth

200.0
482.2

691.7

2016

Other

EBITDA expansion

Volume growth

2015

Other

2014

0.0

Source: DNB Markets, company

33

34

DNB Markets
12 March 2015

Forecast changes P&L


(EURm)
Revenues

2015e
11,043

New
2016e
10,934

2017e
10,450

2015e
11,119

Old
2016e
11,088

2017e
10,751

2015e
-76

Change
2016e
-153

2017e
-302

Operating expenses
EBITDA
EBITDA adj
EBITDA margin (%)

-9,792
1,250
1,250
11.3

-9,460
1,475
1,475
13.5

-9,006
1,443
1,443
13.8

-9,874
1,245
1,245
11.2

-9,615
1,473
1,473
13.3

-9,221
1,530
1,530
14.2

81
5
5
0.1

155
2
2
0.2

215
-87
-87
-0.4

-768
0
482

-783
0
692

-785
0
658

-764
0
481

-781
0
692

-785
0
745

-4
0
1

-2
0
0

0
0
-87

0
482
482

0
692
692

0
658
658

0
481
481

0
692
692

0
745
745

0
1
1

0
0
0

0
-87
-87

12
-162
0
0
-150
0
333

15
-156
0
0
-141
0
551

15
-139
0
0
-124
0
534

12
-162
0
0
-150
0
331

15
-150
0
0
-135
0
557

15
-133
0
0
-118
0
627

0
0
0
0
0
0
1

0
-7
0
0
-7
0
-7

0
-7
0
0
-7
0
-93

Taxes
Minorities
Discontinued operations
Net profit
Adjustments to net profit
Net profit adj

-98
-30
0
204
0
204

-162
-35
0
353
0
353

-158
-36
0
340
0
340

-98
-30
0
204
0
204

-164
-35
0
358
0
358

-185
-36
0
406
0
406

0
0
0
1
0
1

2
0
0
-5
0
-5

28
0
0
-66
0
-66

Per share data (EUR)


EPS
EPS adj
DPS

0.47
0.47
0.00

0.80
0.80
0.00

0.77
0.77
0.26

0.46
0.46
0.00

0.81
0.81
0.00

0.92
0.92
0.31

0.00
0.00
0.00

-0.01
-0.01
0.00

-0.15
-0.15
-0.05

Other key metrics (%)


Revenue growth
EBIT adj growth
EPS adj growth

-14.3
776.7
nm

-1.0
43.5
72.7

-4.4
-4.8
-3.6

-13.7
774.6
-188.5

-0.3
43.8
75.7

-3.0
7.7
13.5

-0.6
2.0
nm

-0.7
-0.3
-3.0

-1.4
-12.5
-17.2

Avg. number of shares (m)


Capex
Working capital
NIBD adj

440
-650
816
3,932

440
-650
949
3,578

440
-664
818
2,985

440
-650
819
3,940

440
-660
957
3,599

440
-685
831
2,966

0
0
-3
-8

0
10
-9
-21

0
21
-14
19

Depreciation
Impairment of PPE
EBITA
Amortisation
EBIT
EBIT adj
Associated companies
Net interest
FX gains
Other financial items
Net financial items
Non-recurring items
PBT

Source: DNB Markets

34

35

DNB Markets
12 March 2015

Forecast changes By segment and assumptions


2015e

New
2016e

2017e

2015e

Old
2016e

2017e

2015e

Change
2016e

2017e

5,950
3,225
1,152
705
11

5,300
3,800
1,140
684
11

4,800
3,990
967
682
10

5,900
3,300
1,203
705
11

5,200
4,000
1,186
691
11

4,800
4,200
1,051
689
11

50
-75
-51
0
0

100
-200
-46
-7
0

0
-210
-84
-7
0

EBIT
Offshore E&C
Onshore E&C
Offshore drilling
Onshore drilling
Other

335
-200
277
70
0

316
76
255
45
0

352
160
103
44
0

329
-201
279
74
0

304
80
251
57
0

352
168
161
64
0

6
2
-2
-4
0

12
-4
4
-12
0

0
-8
-58
-20
0

EBIT margin
Offshore E&C
Onshore E&C
Offshore drilling
Onshore drilling

5.6%
-6.2%
24.1%
9.9%

6.0%
2.0%
22.4%
6.5%

7.3%
4.0%
10.6%
6.5%

5.6%
-6.1%
23.2%
10.5%

5.8%
2.0%
21.2%
8.2%

7.3%
4.0%
15.3%
9.3%

0.0%
-0.1%
0.9%
-0.6%

0.1%
0.0%
1.2%
-1.7%

0.0%
0.0%
-4.7%
-2.8%

EBITDA
Offshore E&C
Onshore E&C
Offshore drilling
Onshore drilling

655
-164
537
222

636
114
525
200

672
200
373
199

649
-165
539
222

624
120
522
207

672
210
442
206

6
2
-2
0

12
-6
3
-7

0
-11
-69
-7

11.0%
-5.1%
46.6%
31.5%
4,000
9,211
3,500
6,978

12.0%
3.0%
46.1%
29.2%
4,000
7,911
4,000
7,178

14.0%
5.0%
38.5%
29.2%
4,525
7,636
2,683
5,871

11.0%
-5.0%
44.8%
31.5%
3,800
9,061
3,500
6,903

12.0%
3.0%
44.0%
29.9%
3,800
7,661
4,250
7,153

14.0%
5.0%
42.0%
29.9%
4,320
7,181
3,227
6,180

0.0%
-0.1%
1.8%
0.0%
200.0
150.0
0.00
75.00

0.0%
0.0%
2.1%
-0.8%
200.0
250.0
-250.0
25.00

0.0%
0.0%
-3.5%
-0.8%
205.0
455.0
-544.0
-309.0

(EURm)
Revenues
Offshore E&C
Onshore E&C
Offshore drilling
Onshore drilling
Other

EBITDA margin
Offshore E&C
Onshore E&C
Offshore drilling
Onshore drilling
Intake Offshore E&C
Backlog Offshore E&C
Intake Onshore E&C
Backlog Onshore E&C
Source: DNB Markets

35

36

DNB Markets
12 March 2015

Quarterly numbers
(EURm)
Revenues

Q3 2013
3,524

Q4 2013
3,306

Q1 2014
2,893

Q2 2014
3,077

Q3 2014
3,512

-3,131
393

-2,964
342

-2,590
303

-2,725
352

-3,175
337

-3,180
220

-2,545
302

-2,549
327

-2,402
321

-2,298
300

-184
0
209

-181
0
161

-176
0
127

-186
0
166

-187
0
150

-198
-410
-388

-192
0
110

-192
0
135

-192
0
129

-192
0
108

Amortisation
EBIT

0
209

0
161

0
127

0
166

0
150

0
-388

0
110

0
135

0
129

0
108

Net financial items


Non-recurring items
PBT

-54
4
159

-44
1
118

-49
12
90

-61
5
110

-52
13
111

-37
-6
-431

-41
3
72

-41
3
97

-40
3
93

-40
3
72

Taxes
Minorities
Discontinued operations
Net profit
Adjustments to net profit
Net profit adj

-50
-8
0
101
0
101

-41
-7
0
70
0
70

-29
0
0
61
0
61

-35
0
0
75
0
75

-35
0
0
76
0
76

-19
8
0
-442
0
-442

-21
0
0
51
0
51

-29
0
0
68
0
68

-27
0
0
65

-21
0
0
51
0
51

Avg. number of shares (m)

440

440

440

440

440

440

440

440

440

440

Per share data (EUR)


EPS
EPS adj

0.23
0.23

0.16
0.16

0.14
0.14

0.17
0.17

0.17
0.17

-1.01
-1.01

0.11
0.11

0.16
0.16

0.15

0.11
0.11

68.0
-0.8
-59.5

-6.2
-3.5
-61.1

-12.5
-6.4
-44.5

6.4
46.7
nm

14.1
-0.3
-24.8

-3.2
2.8
nm

-16.3
-1.6
-17.2

1.0
-6.6
-9.1

-5.3
-22.5
nm

-4.6
-23.6
nm

nm
11.2
-5.2
5.9
3.1

nm
10.3
-5.5
4.9
2.3

nm
10.5
-6.1
4.4
2.1

nm
11.4
-6.0
5.4
2.4

nm
9.6
-5.3
4.3
2.2

nm
6.5
-5.8
nm
nm

nm
10.6
-6.7
3.9
1.8

nm
11.4
-6.7
4.7
2.4

nm
11.8
-7.1
4.7
2.4

nm
11.6
-7.4
4.2
1.9

Operating expenses
EBITDA
Depreciation
Impairment of PPE
EBITA

Growth and margins (%)


Revenues, QOQ growth
Revenues, YOY growth
EPS adj, YOY growth
Gross margin
EBITDA adj margin
Depreciation/revenues
EBIT adj margin
Net profit margin

Q4 2014 Q1 2015e Q2 2015e Q3 2015e Q4 2015e


3,400
2,846
2,875
2,723
2,598

Source: Company, DNB Markets

36

37

DNB Markets
12 March 2015

Adjustments to quarterly numbers


(EURm)
EBITDA
EBITDA adj

Q3 2013
393
393

Q4 2013
342
342

Q1 2014
303
303

Q2 2014
352
352

Q3 2014
337
337

Q4 2014 Q1 2015e Q2 2015e Q3 2015e Q4 2015e


220
302
327
321
300
220
302
327
321
300

EBITA
Other EBITA adjustments
EBITA adj

209
0
209

161
0
161

127
0
127

166
0
166

150
0
150

-388
0
-388

110
0
110

135
0
135

129
0
129

108
0
108

EBIT
Other EBIT adjustments
EBIT adj

209
0
209

161
0
161

127
0
127

166
0
166

150
0
150

-388
0
-388

110
0
110

135
0
135

129
0
129

108
0
108

Net profit
Other EBIT adjustments
Tax adjustments
Net profit adj

101
0
0
101

70
0
0
70

61
0
0
61

75
0
0
75

76
0
0
76

-442
0
0
-442

51
0
0
51

68
0
0
68

65
0

51
0
0
51

Source: Company, DNB Markets

Quarterly numbers by segment and assumptions


(EURm)
Revenues
Offshore E&C
Onshore E&C
Offshore drilling
Onshore drilling
Other

Q3 2013

Q4 2013

Q1 2014

Q2 2014

Q3 2014

Q4 2014 Q1 2015e Q2 2015e Q3 2015e Q4 2015e

1,646
1,404
284
188
2

1,400
1,426
285
192
3

1,505
935
284
167
2

1,679
955
272
169
2

2,022
981
322
184
3

1,996
894
314
194
2

1,450
925
293
176
3

1,600
800
295
178
3

1,500
750
295
176
3

1,400
750
270
176
3

EBIT
Offshore E&C
Onshore E&C
Offshore drilling
Onshore drilling

96
-5
92
26

86
-45
95
25

60
-29
79
17

120
-52
76
22

113
-84
96
25

-18
-246
-151
27

80
-65
76
19

96
-57
76
20

85
-47
75
16

74
-32
50
16

EBIT margin
Offshore E&C
Onshore E&C
Offshore drilling
Onshore drilling

5.8%
-0.4%
32.4%
13.8%

6.1%
-3.2%
33.3%
13.0%

4.0%
-3.1%
27.8%
10.2%

7.1%
-5.4%
27.9%
13.0%

5.6%
-8.6%
29.8%
13.6%

-0.9%
-27.5%
-48.1%
13.9%

5.5%
-7.0%
25.9%
10.7%

6.0%
-7.1%
25.9%
11.0%

5.7%
-6.2%
25.4%
9.0%

5.3%
-4.2%
18.5%
9.0%

EBITDA
Offshore E&C
Onshore E&C
Offshore drilling
Onshore drilling

173
3
156
61

162
-39
159
60

126
-19
142
54

201
-43
136
58

188
-75
162
62

217
-236
172
67

160
-56
141
57

176
-48
141
58

165
-38
140
54

154
-23
115
54

EBITDA margin
Offshore E&C
Onshore E&C
Offshore drilling
Onshore drilling

10.5%
0.2%
54.9%
32.4%

11.6%
-2.7%
55.8%
31.3%

8.4%
-2.0%
50.0%
32.3%

12.0%
-4.5%
50.0%
34.3%

9.3%
-7.6%
50.3%
33.7%

10.9%
-26.4%
54.8%
34.5%

11.0%
-6.0%
48.1%
32.3%

11.0%
-6.0%
48.0%
32.3%

11.0%
-5.0%
47.5%
30.7%

11.0%
-3.0%
42.6%
30.7%

Assumptions
Order intake
Order backlog
Intake Offshore E&C
Backlog Offshore E&C
Intake Onshore E&C
Backlog Onshore E&C

1,410
19,520
711.0
9,731
220.0
5,472

2,092
17,514
911.0
8,447
390.0
4,436

3,949
18,526
2,752
9,657
975.0
4,467

9,232
24,215
5,527
13,374
3,355
6,552

1,856
22,562
1,056
12,408
154.0
5,725

2,983
22,147
749.0
11,161
1,872
6,703

3,264
22,567
1,884
11,595
875.0
6,653

2,085
21,780
705.3
10,700
875.0
6,728

2,095
21,155
705.3
9,906
875.0
6,853

2,095
20,655
705.3
9,211
875.0
6,978

Source: Company, DNB Markets

37

38

DNB Markets
12 March 2015

Annual P&L
(EURm)
Revenues

2008
10,138

2009
10,319

2010
11,177

2011
12,631

2012
13,386

2013
12,433

2014
12,882

2015e
11,043

2016e
10,934

2017e
10,450

Operating expenses
EBITDA

-8,701
1,437

-8,723
1,596

-9,341
1,836

-10,496
2,135

-11,179
2,207

-11,562
871

-11,670
1,212

-9,792
1,250

-9,460
1,475

-9,006
1,443

Depreciation
Impairment of PPE
EBITA

-353
0
1,084

-440
0
1,156

-514
-3
1,319

-608
-34
1,493

-726
0
1,481

-724
0
147

-747
-410
55

-768
0
482

-783
0
692

-785
0
658

Amortisation
EBIT

0
1,084

0
1,156

0
1,319

0
1,493

0
1,481

0
147

0
55

0
482

0
692

0
658

Associated companies
Net interest
FX gains
Other financial items
Net financial items
Non-recurring items
PBT

22
-121
-42
68
-73
207
1,218

7
-58
43
-85
-93
0
1,063

0
-56
-88
34
-110
30
1,239

16
-98
36
-71
-117
3
1,379

17
-124
-98
74
-131
-1
1,349

13
-146
4
-48
-177
0
-30

20
-184
55
-70
-179
4
-120

12
-162
0
0
-150
0
333

15
-156
0
0
-141
0
551

15
-139
0
0
-124
0
534

Taxes
Effective tax rate (%)
Minorities
Discontinued operations
Net profit
Adjustments to net profit
Net profit adj

-285
23
-18
0
915
0
915

-288
27
-43
0
732
0
732

-345
28
-50
0
844
0
844

-392
28
-66
0
921
0
921

-393
29
-54
0
902
0
902

-106
-353
-23
0
-159
0
-159

-118
-98
8
0
-230
0
-230

-98
30
-30
0
204
0
204

-162
30
-35
0
353
0
353

-158
30
-36
0
340
0
340

Dividend paid
Avg. number of shares

-192
442

-239
440

-263
441

-297
440

-352
440

-375
440

-44
440

0
440

0
440

0
440

Per share data (EUR)


EPS
EPS adj
DPS

2.10
2.10
0.55

1.68
1.68
0.55

1.93
1.93
0.63

2.10
2.10
0.70

2.05
2.05
0.68

-0.36
-0.36
0.00

-0.52
-0.52
0.00

0.47
0.47
0.00

0.80
0.80
0.00

0.77
0.77
0.26

5.6
4.8

1.8
-19.9

8.3
14.6

13.0
9.1

6.0
-2.3

-7.1
nm

3.6
nm

-14.3
nm

-1.0
72.7

-4.4
-3.6

nm
14.2
14.2
-3.5
10.7
10.7
12.0
9.2

nm
15.5
15.5
-4.3
11.2
11.2
10.3
7.5

nm
16.4
16.4
-4.6
11.8
11.8
11.1
8.0

nm
16.9
16.9
-4.8
11.8
11.8
10.9
7.8

nm
16.5
16.5
-5.4
11.1
11.1
10.1
7.1

nm
7.0
7.0
-5.8
1.2
1.2
nm
nm

nm
9.4
9.4
-5.8
0.4
0.4
nm
nm

nm
11.3
11.3
-7.0
4.4
4.4
3.0
2.1

nm
13.5
13.5
-7.2
6.3
6.3
5.0
3.5

nm
13.8
13.8
-7.5
6.3
6.3
5.1
3.6

Growth and margins (%)


Revenue growth
EPS adj growth
Gross margin
EBITDA margin
EBITDA adj margin
Depreciation/revenues
EBIT margin
EBIT adj margin
PBT margin
Net profit margin
Source: Company, DNB Markets

38

39

DNB Markets
12 March 2015

Adjustments to annual P&L


(EURm)
EBITDA
EBITDA adj

2008
1,437
1,437

2009
1,596
1,596

2010
1,836
1,836

2011
2,135
2,135

2012
2,207
2,207

2013
871
871

2014
1,212
1,212

2015e
1,250
1,250

2016e
1,475
1,475

2017e
1,443
1,443

EBITA
Other EBITA adjustments
EBITA adj

1,084
0
1,084

1,156
0
1,156

1,319
0
1,319

1,493
0
1,493

1,481
0
1,481

147
0
147

55
0
55

482
0
482

692
0
692

658
0
658

EBIT
Other EBIT adjustments
EBIT adj

1,084
0
1,084

1,156
0
1,156

1,319
0
1,319

1,493
0
1,493

1,481
0
1,481

147
0
147

55
0
55

482
0
482

692
0
692

658
0
658

Net profit
Other EBIT adjustments
Tax adjustments
Net profit adj

915
0
0
915

732
0
0
732

844
0
0
844

921
0
0
921

902
0
0
902

-159
0
0
-159

-230
0
0
-230

204
0
0
204

353
0
0
353

340
0
0
340

Per share data (EUR)


EPS
Recommended adjustment
EPS adj

2.10
0.00
2.10

1.68
0.00
1.68

1.93
0.00
1.93

2.10
0.00
2.10

2.05
0.00
2.05

-0.36
0.00
-0.36

-0.52
0.00
-0.52

0.47
0.00
0.47

0.80
0.00
0.80

0.77
0.00
0.77

2008
915
353
171
658
2,096

2009
732
440
128
-331
967

2010
844
514
186
-220
1,324

2011
921
608
194
-174
1,549

2012
902
726
55
-1,434
224

2013
-159
724
-341
202
426

2014
-230
747
333
301
1,151

2015e
204
768
20
33
1,025

2016e
353
783
22
-133
1,026

2017e
340
785
23
131
1,280

-2,031
-3
350
-1,684

-1,601
0
204
-1,397

-1,533
-4
138
-1,399

-1,100
0
71
-1,029

-1,002
-1
9
-994

-893
0
435
-458

-694
-2
47
-649

-650
0
0
-650

-650
0
0
-650

-664
0
0
-664

412

-430

-75

520

-770

-32

502

375

376

616

Net change in debt


Dividends paid
Share issue (repurchase)
Other
Cash flow from financing (CFF)

-203
-192
-50
-703
-1,148

219
-239
7
31
18

259
-263
35
-48
-17

20
-297
11
-155
-421

1,419
-352
29
-30
1,066

525
-375
0
-91
59

-304
-44
0
-87
-435

-333
0
0
0
-333

-568
0
0
0
-568

-488
0
0
0
-488

Total cash flow (CFO+CFI+CFF)

-736

-412

-92

99

296

27

67

42

-192

128

FCFF calculation
Free cash flow
Less: net interest
Less: acquisitions
Less: divestments

412
121
3
-350

-430
58
0
-204

-75
56
4
-138

520
98
0
-71

-770
124
1
-9

-32
146
0
-435

502
184
2
-47

375
162
0
0

376
156
0
0

616
139
0
0

97.4
-40.8
407.5
-217.4
nm

-53.9
17.0
-204.4
101.6
nm

36.9
-0.1
82.6
-194.4
nm

17.0
26.4
793.3
-2376.5
nm

-85.5
3.4
-248.1
353.2
nm

90.2
53.9
95.8
-94.5
nm

170.1
-41.7
1667.2
-837.3
nm

-10.9
-0.2
-25.2
23.4
nm

0.1
0.1
0.3
-70.6
nm

24.8
-2.2
63.8
14.1
nm

Source: Company, DNB Markets

Cash flow
(EURm)
Net profit
Depreciation and amortisation
Other non-cash adjustments
Change in net working capital
Cash flow from operations (CFO)
Capital expenditure
Acquisitions
Divestments
Cash flow from investing (CFI)
Free cash flow (FCF)

Growth (%)
CFO
CFI
FCF
CFF
FCFF
Source: Company, DNB Markets

39

40

DNB Markets
12 March 2015

Balance sheet
(EURm)
Assets

2008
13,993

2009
14,113

2010
15,028

2011
15,852

2012
17,195

2013
17,043

2014
15,897

2015e
15,784

2016e
15,339

2017e
15,029

Inventories
Trade receivables
Other receivables
Current financial assets
Cash and cash equivalents
Current assets

1,397
4,255
0
758
1,434
7,844

1,071
4,040
0
654
1,022
6,787

791
4,330
0
565
930
6,616

1,353
3,504
0
832
1,029
6,718

2,332
3,252
0
897
1,325
7,806

2,297
3,286
26
940
1,352
7,901

2,188
2,781
0
815
1,419
7,203

1,765
3,199
0
773
1,461
7,198

1,859
2,952
0
793
1,269
6,874

1,672
2,821
0
781
1,397
6,672

Property, plant and equipment


Other intangible assets
Investments in associates
Defferred tax assets
Non-current financial assets
Non-current assets

5,171
755
42
94
19
6,149

6,295
756
118
113
44
7,326

7,403
760
115
90
44
8,412

8,024
752
109
100
149
9,134

8,254
756
116
88
175
9,389

7,972
758
126
132
154
9,142

7,480
759
177
139
139
8,694

7,362
759
187
139
139
8,586

7,229
759
200
139
139
8,466

7,107
759
213
139
139
8,357

Total assets

13,993

14,113

15,028

15,852

17,195

17,043

15,897

15,784

15,339

15,029

Equity and liabilities

13,993

14,113

15,028

15,852

17,195

17,043

15,897

15,784

15,339

15,029

Total equity to the parent


Minority interests

2,757
21

3,434
61

4,060
94

4,709
114

5,405
148

4,652
92

4,407
40

4,611
70

4,965
105

5,305
141

Total equity

2,778

3,495

4,154

4,823

5,553

4,744

4,447

4,681

5,070

5,446

Trade payables
Other payables and accruals
Short-term debt
Total current liabilities

6,370
687
2,620
9,677

5,735
466
2,147
8,348

5,814
422
1,329
7,565

5,341
900
1,722
7,963

4,982
472
2,140
7,594

5,280
389
3,257
8,926

4,758
428
2,415
7,601

4,744
428
1,394
6,566

4,479
428
1,394
6,301

4,280
428
1,394
6,102

Long-term debt
Deferred tax liabilities
Pension liabilities
Other non-current liabilities
Total non-current liabilities

1,106
25
173
234
1,538

1,796
64
182
228
2,270

2,887
55
193
174
3,309

2,576
79
200
211
3,066

3,543
122
217
166
4,048

2,859
81
233
200
3,373

3,428
26
221
174
3,849

4,116
26
221
174
4,537

3,548
26
221
174
3,969

3,060
26
221
174
3,481

Total liabilities

11,215

10,618

10,874

11,029

11,642

12,299

11,450

11,103

10,270

9,583

Total equity and liabilities

13,993

14,113

15,028

15,852

17,195

17,043

15,897

15,784

15,339

15,029

2,292
5,480

2,921
6,837

3,286
7,917

3,269
8,756

4,358
10,636

4,764
10,121

4,424
9,475

4,049
9,232

3,673
9,226

3,057
8,949

Key metrics
Net interest bearing debt
Invested capital
Source: Company, DNB Markets

40

41

DNB Markets
12 March 2015

Valuation ratios
(EURm)
Enterprise value
Share price (EUR)
Number of shares (m)
Market capitalisation
Net interest bearing debt
Adjustments to NIBD
Net interest bearing debt adj
EV
EV adj

2008

2009

2010

2011

2012

2013

2014

2015e

2016e

2017e

11.82
435.1
5,142
2,292
-21
2,271
7,434
7,413

24.10
435.8
10,502
2,921
-57
2,864
13,423
13,366

36.84
437.7
16,125
3,286
-21
3,265
19,411
19,390

32.85
438.3
14,397
3,269
5
3,274
17,666
17,671

29.30
439.4
12,875
4,358
32
4,390
17,233
17,265

15.56
439.5
6,838
4,764
-34
4,730
11,602
11,568

8.77
439.5
3,852
4,424
-137
4,287
8,276
8,139

9.60
439.5
4,219
4,049
-117
3,932
8,268
8,151

9.60
439.5
4,219
3,673
-95
3,578
7,892
7,797

9.60
439.5
4,219
3,057
-72
2,985
7,276
7,204

Valuation
EPS
EPS adj
DPS
P/E
P/E adj
P/B
Average ROE
Earnings yield adj
Dividend yield
Free cash flow yield

2.10
2.10
0.55
5.6
5.6
1.87
36.0%
17.5%
4.7%
8.0%

1.68
1.68
0.55
14.3
14.3
3.06
23.3%
6.9%
2.3%
-4.1%

1.93
1.93
0.63
19.1
19.1
3.97
22.1%
5.2%
1.7%
-0.5%

2.10
2.10
0.70
15.6
15.6
3.06
20.5%
6.4%
2.1%
3.6%

2.05
2.05
0.68
14.3
14.3
2.38
17.4%
7.0%
2.3%
-5.9%

-0.36
-0.36
0.00
-43.0
-43.0
1.47
-3.1%
-2.3%
0.0%
-0.5%

-0.52
-0.52
0.00
-16.8
-16.7
0.87
-5.0%
-6.0%
0.0%
12.9%

0.47
0.47
0.00
20.6
20.6
0.91
4.5%
4.8%
0.0%
8.7%

0.80
0.80
0.00
11.9
11.9
0.85
7.2%
8.4%
0.0%
8.7%

0.77
0.77
0.26
12.4
12.4
0.80
6.5%
8.1%
2.7%
14.1%

EV/SALES
EV/SALES adj
EV/EBITDA
EV/EBITDA adj
EV/EBIT
EV/EBIT adj
EV/capital employed
EV/NOPLAT

0.73
0.73
5.2
5.2
6.9
6.8
1.1
9.9

1.30
1.30
8.4
8.4
11.6
11.6
1.9
16.8

1.74
1.73
10.6
10.6
14.7
14.7
2.4
21.3

1.40
1.40
8.3
8.3
11.8
11.8
2.1
16.8

1.29
1.29
7.8
7.8
11.6
11.7
1.6
16.9

0.93
0.93
13.3
13.3
78.9
78.7
1.2
114.4

0.64
0.63
6.8
6.7
150.5
148.0
0.9
25.8

0.75
0.74
6.6
6.5
17.1
16.9
0.8
24.9

0.72
0.71
5.4
5.3
11.4
11.3
0.8
16.5

0.70
0.69
5.0
5.0
11.1
10.9
0.7
16.0

Source: Company, DNB Markets

41

42

DNB Markets
12 March 2015

Key accounting ratios


2008

2009

2010

2011

2012

2013

2014

2015e

2016e

2017e

7.1
17.0

5.2
17.0

5.8
17.4

6.0
18.2

5.5
15.4

-0.9
1.4

-1.4
0.6

1.3
5.0

2.3
6.8

2.2
6.6

Return on invested capital (%)


Net PPE/revenues
Working capital/revenues
Revenues/invested capital (pre-GW)
Pre-tax ROIC (incl. goodwill)
After-tax ROIC (incl. goodwill)

51.0
-6.0
185.0
22.3
15.4

61.0
-3.7
150.9
18.8
13.0

66.2
-4.3
141.2
17.9
12.4

63.5
-3.1
144.3
17.9
12.6

61.7
8.7
125.9
15.3
10.5

64.1
8.5
122.8
1.4
1.0

58.1
6.6
136.0
0.6
3.3

66.7
7.4
119.6
5.2
3.6

66.1
8.7
118.5
7.5
5.2

68.0
7.8
116.8
7.2
5.0

Cash flow ratios (%)


FCF/revenues
FCF/market capitalisation
CFO/revenues
CFO/market capitalisation
CFO/capex
CFO/current liabilities
Cash conversion ratio
Capex/revenues
Capex/depreciation
Total payout ratio

4.1
8.0
20.7
40.8
103.2
21.7
-80.4
20.0
575.4
26.2

-4.2
-4.1
9.4
9.2
60.4
11.6
-56.3
15.5
363.9
32.7

-0.7
-0.5
11.8
8.2
86.4
17.5
-10.9
13.7
298.2
32.7

4.1
3.6
12.3
10.8
140.8
19.5
10.7
8.7
180.9
33.3

-5.8
-6.0
1.7
1.7
22.4
2.9
32.8
7.5
138.0
33.1

-0.3
-0.5
3.4
6.2
47.7
4.8
-17.0
7.2
123.3
0.0

3.9
13.0
8.9
29.9
165.8
15.1
-28.9
5.4
92.9
0.0

3.4
8.9
9.3
24.3
157.7
15.6
20.7
5.9
84.6
0.0

3.4
8.9
9.4
24.3
157.9
16.3
-54.3
5.9
83.0
0.0

5.9
14.6
12.2
30.3
192.8
21.0
37.7
6.4
84.6
33.0

Leverage and solvency (x)


Interest cover
EBIT/interest payable
EBITA adj/interest payable
Cash coverage
Net debt/EBITDA
Total debt/total capital (BV)
Total debt/total capital (MV)
LTD / (LTD + equity (MV))

5.63
5.21
5.21
11.88
1.59
0.27
0.42
0.18

13.92
13.60
13.60
27.52
1.83
0.28
0.27
0.15

20.73
20.61
20.61
32.79
1.79
0.28
0.21
0.15

13.03
12.87
12.87
21.79
1.53
0.27
0.23
0.15

10.69
10.58
10.58
17.80
1.97
0.33
0.31
0.22

1.01
0.86
0.86
5.97
5.47
0.36
0.47
0.29

0.31
0.29
0.29
6.59
3.65
0.37
0.60
0.47

2.89
2.84
2.84
7.74
3.24
0.35
0.57
0.49

4.15
4.07
4.07
9.44
2.49
0.32
0.54
0.46

4.40
4.31
4.31
10.36
2.12
0.30
0.51
0.42

Cash conversion cycle


Receivables turnover days

153.2

142.9

141.4

101.3

88.7

97.2

78.8

105.7

98.6

98.6

Profitability (%)
ROA
ROCE

Source: Company, DNB Markets

42

43

DNB Markets
12 March 2015

SELL

SUBSEA 7
Backlog coverage is too low

TP: NOK50.0

Subsea 7 is in a tough situation as its order backlog fell


30% in 2014 and it has significantly lower contract
coverage in 2016e versus peers. We expect revenue to
fall 23% in 2015 and 15% in 2016, which combined with
high operational gearing is set to erode earnings in 2016
and 2017. Earnings and backlog momentum is set to
stay negative. We reiterate our SELL recommendation.
Backlog erosion is a red flag. Order backlog was down 30% in 2014 and we
forecast continued backlog erosion in 2015 as the cyclical downturn unfolds. As of Q4
2014 Subsea 7 had contract coverage of 38% for 2016e on our revenue estimates,
which is significantly lower than its subsea peers (Technip and Saipem). In addition,
we have concerns about its high backlog exposure to Petrobras (~35% in Q4 2014).
We see significant pricing pressure on new awards. There are still some contract
opportunities in 2015 (above all the West Nile Delta project in Egypt), but we expect
strong competition to put significant pressure on prices. In addition, most of the
offshore phase on new large contracts will be in 2017e and beyond with limited
earnings contribution in 2015e and 2016e.
High operational gearing set to erode earnings. We forecast revenue to decline
23% in 2015e and 15% in 2016e and the key question is how quickly can costs be
cut? Subsea 7 faces some tough decisions: should it cut costs to the bone and defend
earnings in 20162017 (but be less prepared for a potential rebound), or should it
maintain baseline capacity through the downcycle to be better prepared for a rebound.
We are not overly worried about 2015e earnings, but we forecast a collapse in
earnings in 2016e and 2017e.
Reiterate our SELL recommendation. We forecast weak earnings and backlog
momentum over the next 12 months and see no immediate rebound in the macro
environment. Trough multiples support a share price of NOK8090 on 2016e
earnings, but we do not expect 2016 to be the trough year for earnings and we are not
willing to price it on trough multiples before we see signs of the cycle turning. We have
cut our target price to NOK50 (NOK55) and maintain our SELL recommendation.
Year-end Dec
Revenue (USDm)
EBITDA adj (USDm)
EBIT adj (USDm)
PTP (USDm)
EPS rep (USD)
EPS adj (USD)
DPS (USD)
Revenue growth (%)
EBITDA growth adj (%)
EPS growth adj (%)
EBITDA margin adj (%)
EV/Sales adj (x)
EV/EBITDA adj (x)
EV/EBIT adj (x)
P/E adj (x)
P/Book (x)
ROE (%)
ROCE (%)
Dividend yield (%)
FCFF yield (%)
Source: Company, DNB Markets

2011
5,476
1,003
641
627
1.31
1.30
0.60
131.2
79.4
53.1
18.3
1.18
6.4
10.1
14.3
1.09
12.0
15.3
3.2
-0.9

2012
6,297
1,139
808
1,069
2.49
1.75
0.60
15.0
13.5
35.1
18.1
1.30
7.2
10.1
13.5
1.24
13.6
11.0
2.5
-3.0

2013
6,297
981
573
511
1.04
2.11
0.60
0.0
-13.9
20.4
15.6
1.07
6.8
11.7
9.1
0.98
5.4
7.4
3.1
3.5

2014
6,870
1,437
-243
-218
-1.04
2.56
0.00
9.1
46.6
21.5
20.9
0.49
2.3
nm
4.0
0.60
nm
nm
0.0
15.9

2015e
5,300
970
540
524
1.13
1.13
0.00
-22.9
-32.5
-55.9
18.3
0.63
3.4
6.1
7.7
0.48
6.4
8.5
0.0
-14.7

2016e
4,500
722
277
261
0.57
0.57
0.00
-15.1
-25.6
-49.8
16.0
0.70
4.4
11.4
15.4
0.46
3.1
4.2
0.0
5.3

2017e
4,250
735
280
262
0.57
0.57
0.30
-5.6
1.7
0.5
17.3
0.70
4.1
10.7
15.3
0.45
3.0
4.1
3.4
5.2

SUBC versus OSEBX (12m)

130
120
110
100
90
80
70
60
Mar May
Subsea 7

Jul Sep Nov Jan


OSEBX (Rebased)

Mar

Source: Factset

SUMMARY
Recommendation (prev.)
SELL (SELL)
Share price (NOK)
71.4
Target price (previous) (NOK)
50.0 (55.0)
Upside/downside potential (%)
-30
Tickers
SUBC NO, SUBC.OL
CAPITAL STRUCTURE
No. of shares (m)
326.4
No. of shares fully dil. (m)
328.4
Market cap. (NOKm)
23,303
NIBD adj end-2015e (USDm)
471
Enterprise value adj (USDm)
3,316
Net debt/EBITDA adj (x)
0.52
SHARE PRICE PERFORMANCE
Abs. 1/3/12m (%)
-9/-5/-51
Rel. 1/3/12m (%)
-3/-5/-32
High/Low 12m (NOK)
173/68
Free float (%)
86
Source: Company, DNB Markets

UPCOMING EVENTS
Q1 2015

30/04/2015

ESTIMATE CHANGES (USD)


Year-end Dec
2015e
EPS (old)
1.26
EPS (new)
1.13
Change (%)
-9.9
Consensus
0.88

2016e
0.72
0.57
-20.6
1.04

2017e
0.62
0.57
-7.7

Sales (old)
Sales (new)
Change (%)
Consensus

4,500
4,500
0.0
5,189

4,250
4,250
0.0

5,550
5,300
-4.5
4,902

Source: DNB Markets, Consensus from Bloomberg (11.03.2015)

ANALYSTS
Eirik Ronold Mathisen
eirik.mathisen@dnb.no
+47 24 16 91 91
Sveinung Alvestad
sveinung.alvestad@dnb.no
+47 24 16 91 92
Please see last pages for important information

43

44

DNB Markets
12 March 2015

Investment case overview


Share price performance, DNB Markets target price, bear- and bull-case scenarios

Target price methodology


Our target price of NOK50 values
Subsea 7 at 9x 2016e EBIT and net
debt per year-end 2015e and it
implies a 2015e and 2016e P/E of
5.5x and 10.9x, respectively.

126

106
NOK95 (33%)
86
NOK71
66
NOK50 (-30%)

46

NOK35 (-51%)

26
Mar 2014

Jul 2014

Nov 2014

Mar 2015

Historical Share Price Performance

Jul 2015

Price Target (Mar 16)

Nov 2015
Current Share Price

Forward EV/EBIT of 9x is in-line with


the historical multiples and ahead of
current 1-year forward multiple of 5x.
Premium to current multiples is fair
as we see 2016e EBIT ~50% below
2015e EBIT. We are not willing to
price Subsea 7 at trough multiples
(>12x) as we expect a book to bill of
0.8x in 2015e and we see a flat
earnings YOY trend in 2017.
Our DCF supports a fair value per
share of NOK90.

Source: FactSet, DNB Markets

Source: DNB Markets

Downside risks to our investment


case
Cancellation/renegotiations of PLVS
contracts in Brazil.

DNB Markets investment case and


how we differ from consensus
Our key worry is the 30% backlog
erosion in 2014 and a soft outlook for
order intake in 2015 (and 2016). It has
too low a backlog coverage for 2016
and we expect significant pricing
pressure on new awards.

Failure to secure two large SURF


contracts in 2015e (>USD500m).
Execution issues.
Our bear case scenario values
Subsea 7 with ~15% downside risk to
our 2016e EBIT and values Subsea 7
at 8x 2016e EBIT.

The backbone of 2016 and 2017


earnings is the PLSV fleet in Brazil,
which accounts for ~35% of backlog.

Source: DNB Markets

Source: DNB Markets

Consensus underestimates the depth


of the current downturn.

Upside risks to our investment case


V-shaped recovery in the offshore
investment cycle.
Subsea 7 is able to cut costs faster
and more than we expect and at the
same time increase its order intake.
Some tier-two SURF companies go
bankrupt.
Our bull case scenario sees 20%
upside to our 2016e EBIT and values
Subsea 7 at 13x 2016e EBIT.
Source: DNB Markets

Adjusted EBITDA bridge 20142016 (USDm)


1,620
1,420
-313

1,220

-124

1,020

-30
-141

820

-88

-20

620
420
220

1,437

970

722

2016

Share from JV change

Margin expansion

Revenue growth

2015

Share from JV change

Margin expansion

Revenue growth

2014

20

Source: DNB Markets, company

44

45

DNB Markets
12 March 2015

Forecast changes P&L


(USDm)
Revenues
Cost of sales
Gross profit

2015e
5,300

New
2016e
4,500

2017e
4,250

2015e
5,550
-4,272
1,278

Old
2016e
4,500
-3,460
1,041

2017e
4,250
-3,266
984

2015e
-250

Change
2016e
0

2017e
0

Operating expenses
EBITDA
EBITDA adj
EBITDA margin (%)

-4,369
931
970
17.6

-3,797
703
722
15.6

-3,545
706
735
16.6

-4,562
988
1,027
17.8

-3,735
765
789
17.0

-3,528
723
752
17.0

194
-57
-57
-0.2

-62
-62
-67
-1.4

-17
-17
-17
-0.4

-430
0
501

-445
0
258

-455
0
251

-430
0
558

-445
0
320

-450
0
273

0
0
-57

0
0
-62

-5
0
-22

Amortisation
Impairment of intangibles
EBIT
EBIT adj

0
0
501
540

0
0
258
277

0
0
251
280

0
558
597

0
320
344

0
0
273
302

0
-57
-57

0
-62
-67

0
0
-22
-22

Associated companies
Net interest
Other financial items
Net financial items
Non-recurring items
PBT

39
-16
0
23
0
524

19
-16
0
3
0
261

29
-18
0
12
0
262

39
-15

24
-15

0
-1

-5
-1

24

-1

-6

581

329

-57

-68

Taxes
Minorities
Discontinued operations
Net profit
Adjustments to net profit
Net profit adj

-155
0
0
369
0
369

-76
0
0
185
0
185

-76
0
0
186
0
186

-171
0

-95
0

410
0
410

Per share data (USD)


EPS
EPS adj
DPS

1.13
1.13
0.00

0.57
0.57
0.00

0.57
0.57
0.30

Other key metrics (%)


Revenue growth
EBIT adj growth
EPS adj growth

-22.9
nm
-55.9

-15.1
-48.7
-49.8

Avg. number of shares (m)


Capex
Working capital
NIBD adj

354
-925
-234
471

354
-445
-223
305

Depreciation
Impairment of PPE
EBITA

29
-18
0
11
0
284

0
0
0
0
0
-22

17
0

20
0

233
0
233

-82
0
0
202
0
202

-41
0
-41

-48
0
-48

6
0
0
-15
0
-15

1.26
1.26
0.00

0.72
0.72
0.00

0.62
0.62
0.30

-0.12
-0.12
0.00

-0.15
-0.15
0.00

-0.05
-0.05
0.00

-5.6
0.9
0.5

-19.2
-346.1
-223.9

-18.9
-42.3
-43.1

-5.6
-12.3
-13.6

-3.6
nm
168.0

3.8
-6.3
-6.8

0.0
13.2
14.1

354
-404
-154
147

354
-925
-265
399

354
-545
-223
318

354
-404
-154
150

0
0
32
72

0
100
0
-13

0
0
0
-3

Source: DNB Markets

45

46

DNB Markets
12 March 2015

Quarterly numbers
(USDm)
Revenues
Cost of sales
Gross profit

Q3 2013
1,564
-1,179
384

Q4 2013
1,586
-1,264
322

Q1 2014
1,668
-1,341
327

Q2 2014
1,905
-1,413
492

Q3 2014
1,902
-1,414
488

-1,254
310

-1,344
241

-1,421
247

-1,480
425

-1,500
402

-1,101
294

0
1,300

0
1,425

0
1,450

0
1,125

Depreciation
Impairment of PPE
EBITA

-88
0
220

-97
0
109

-97
0
150

-98
0
323

-99
0
300

-107
-1,183
-1,085

-105
0
1,195

-105
0
1,320

-110
0
1,340

-110
0
1,015

Amortisation
Impairment of intangibles
EBIT

0
-3
220

0
-36
109

0
1
150

0
-4
323

0
-3
300

0
-89
-1,085

0
0
1,195

0
0
1,320

0
0
1,340

0
0
1,015

Associated companies
Net interest
Other financial items
Net financial items
Non-recurring items
PBT

49
-12
-38
-1
0
219

1
-9
0
-9
14
114

16
-1
9
23
0
173

27
2
11
40
0
362

24
-2
-34
-12
0
288

2
2
39
43
0
-1,042

-4
-3
0
-7
0
1,188

26
-4
0
22
0
1,342

21
-4
0
17
0
1,357

-4
-5
0
-9
0
1,006

Taxes
Minorities
Discontinued operations
Net profit
Adjustments to net profit

-60
-8
0
152

-42
7
0
79

-36
16
0
153

-98
6
0
270

-83
4
0
210

65
9
0
-968

-32
0
0
1,156

-53
0
0
1,289

-49
0
0
1,307

-20
0
0
987

0.46
0.46
0.00

0.24
0.38
0.60

0.46
0.46
0.00

0.82
0.82
0.00

0.64
0.64
0.00

-2.95
0.66
0.00

0.24
0.24
0.00

0.39
0.39
0.00

0.36
0.36
0.00

0.14
0.14
0.00

-6.9
-10.3
-4.4

1.4
-1.6
-10.2

5.2
13.7
13.5

14.2
13.4
-6.0

-0.2
21.6
38.8

-26.7
-12.0
71.9

-6.8
-22.1
-48.6

9.6
-25.2
-52.3

1.8
-23.8
-43.0

-22.4
-19.3
-77.9

24.6
23.0
-5.6
17.2
10.2

20.3
15.3
-6.1
6.9
4.5

19.6
15.7
-5.8
9.9
8.2

25.8
23.7
-5.1
18.4
13.9

25.7
22.4
-5.2
17.0
10.8

26.9
21.3
-7.7
nm
nm

100.0
99.7
-8.1
91.6
88.9

100.0
101.8
-7.4
94.5
90.4

100.0
101.4
-7.6
93.9
90.2

100.0
99.6
-9.8
89.9
87.7

Operating expenses
EBITDA

Per share data (USD)


EPS
EPS adj
DPS
Growth and margins (%)
Revenues, QOQ growth
Revenues, YOY growth
EPS adj, YOY growth
Gross margin
EBITDA adj margin
Depreciation/revenues
EBIT adj margin
Net profit margin

Q4 2014 Q1 2015e Q2 2015e Q3 2015e Q4 2015e


1,395
1,300
1,425
1,450
1,125
-1,020
0
0
0
0
375
1,300
1,425
1,450
1,125

Source: Company, DNB Markets

46

47

DNB Markets
12 March 2015

Adjustments to quarterly numbers


(USDm)
EBITDA
Gains and losses
Other EBITDA adjustments
EBITDA adj

Q3 2013
310
0
49
359

Q4 2013
241
0
1
242

Q1 2014
247
0
16
262

Q2 2014
425
0
27
452

Q3 2014
402
0
24
426

Q4 2014 Q1 2015e Q2 2015e Q3 2015e Q4 2015e


294
1,300
1,425
1,450
1,125
0
0
0
0
0
2
-4
26
21
-4
297
1,296
1,451
1,471
1,121

EBITA
Gains and losses
Other EBITA adjustments
Impairment of intangibles
EBITA adj

220
0
49
3
269

109
0
1
36
109

150
0
16
-1
166

323
0
27
4
350

300
0
24
3
324

-1,085
0
2
89
-1,082

1,195
0
-4
0
1,191

1,320
0
26
0
1,346

1,340
0
21
0
1,361

1,015
0
-4
0
1,011

EBIT
Gains and losses
Other EBIT adjustments
Impairment of intangibles
EBIT adj

220
0
49
3
269

109
0
1
36
109

150
0
16
-1
166

323
0
27
4
350

300
0
24
3
324

-1,085
0
2
89
-1,082

1,195
0
-4
0
1,191

1,320
0
26
0
1,346

1,340
0
21
0
1,361

1,015
0
-4
0
1,011

Net profit
Gains and losses
Other EBIT adjustments
Impairment of intangibles

152
0
49
3

79
0
1
36

153
0
16
-1

270
0
27
4

210
0
24
3

-968
0
2
89

1,156
0
-4
0

1,289
0
26
0

1,307
0
21
0

987
0
-4
0

Q1 2014

Q2 2014

Q3 2014

666
997
5

863
1,038
4

943
960
-1

614
781
0

550
750
0

700
725
0

750
700
0

500
625
0

EBIT
Northern Hemisphere and Life of Fields
Southern Hemisphere and Global projects
Corporate

24
152
-10

129
194
27

97
212
15

91
116
-106

27
105
-20

76
109
0

67
105
0

4
88
-20

EBIT margin
Northern Hemisphere and Life of Fields
Southern Hemisphere and Global projects

3.6%
15.2%

14.9%
18.7%

10.3%
22.1%

14.8%
14.9%

4.9%
14.0%

10.8%
15.0%

8.9%
15.0%

0.8%
14.0%

1,450
0.87
11,552

1,550
0.81
11,197

134.9
0.07
9,430

199.9
0.14
8,235

800.0
0.62
7,735

1,058
0.74
7,368

1,058
0.73
6,977

1,058
0.94
6,910

Source: Company, DNB Markets

Quarterly numbers by segment and assumptions


(USDm)
Q3 2013 Q4 2013
Revenues
Northern Hemisphere and Life of Fields
Southern Hemisphere and Global projects
Corporate

Assumptions
Order intake
Book to bill
Order backlog

2,943
1.88
11,800

1,556
0.98
11,770

Q4 2014 Q1 2015e Q2 2015e Q3 2015e Q4 2015e

Source: Company, DNB Markets

47

48

DNB Markets
12 March 2015

Annual P&L
(USDm)
Revenues

2008
2,522

2009
2,209

2010
2,369

2011
5,476

2012
6,297

2013
6,297

2014
6,870

2015e
5,300

2016e
4,500

2017e
4,250

-2,012
510

-1,770
439

-1,885
485

-4,577
900

-5,244
1,053

-5,444
854

-5,502
1,368

-4,369
931

-3,797
703

-3,545
706

-110
0
398

-131
0
294

-119
0
361

-338
0
537

-333
0
722

-359
0
446

-401
-1,183
-312

-430
0
501

-445
0
258

-455
0
251

Amortisation
Impairment of intangibles
EBIT

0
-2
398

0
-15
294

0
-4
361

0
-25
537

0
3
722

0
-48
446

0
-95
-312

0
0
501

0
0
258

0
0
251

Associated companies
Net interest
Other financial items
Net financial items
Non-recurring items
PBT

63
-31
62
95
0
492

49
-31
50
68
0
361

75
-29
-8
38
0
399

104
-20
6
90
0
627

86
-29
42
99
248
1,069

127
-49
-40
38
26
511

69
1
24
93
0
-218

39
-16
0
23
0
524

19
-16
0
3
0
261

29
-18
0
12
0
262

-163
33
-6
-23
301
0
301

-103
28
-21
7
245
0
245

-131
33
-48
45
265
0
265

-176
28
-27
0
424
0
424

-222
21
-17
0
830
-245
585

-161
32
-2
0
348
355
703

-152
-70
35
0
-335
0
-335

-155
30
0
0
369
0
369

-76
29
0
0
185
0
185

-76
29
0
0
186
0
186

-38

-40

-42

0
366

-199
380

-199
375

-195
359

0
354

0
354

0
354

0.98
0.98
0.22

0.92
0.92
0.23

0.85
0.85
0.00

1.31
1.30
0.60

2.49
1.75
0.60

1.04
2.11
0.60

-1.04
2.56
0.00

1.13
1.13
0.00

0.57
0.57
0.00

0.57
0.57
0.30

4.8
3.7

-12.4
-6.0

7.3
-8.0

131.2
53.1

15.0
35.1

0.0
20.4

9.1
21.5

-22.9
-55.9

-15.1
-49.8

-5.6
0.5

nm
20.2
22.7
-4.4
15.8
18.3
19.5
12.2

nm
19.9
22.1
-5.9
13.3
15.5
16.4
12.0

nm
20.5
23.6
-5.0
15.3
18.4
16.9
13.2

nm
16.4
18.3
-6.2
9.8
11.7
11.5
8.2

nm
16.7
18.1
-5.3
11.5
12.8
17.0
13.5

nm
13.6
15.6
-5.7
7.1
9.1
8.1
5.6

nm
19.9
20.9
-5.8
nm
nm
nm
nm

nm
17.6
18.3
-8.1
9.5
10.2
9.9
7.0

nm
15.6
16.0
-9.9
5.7
6.2
5.8
4.1

nm
16.6
17.3
-10.7
5.9
6.6
6.2
4.4

Operating expenses
EBITDA
Depreciation
Impairment of PPE
EBITA

Taxes
Effective tax rate (%)
Minorities
Discontinued operations
Net profit
Adjustments to net profit
Net profit adj
Dividend paid
Avg. number of shares
Per share data (USD)
EPS
EPS adj
DPS
Growth and margins (%)
Revenue growth
EPS adj growth
Gross margin
EBITDA margin
EBITDA adj margin
Depreciation/revenues
EBIT margin
EBIT adj margin
PBT margin
Net profit margin
Source: Company, DNB Markets

48

49

DNB Markets
12 March 2015

Adjustments to annual P&L


(USDm)
EBITDA
Gains and losses
Other EBITDA adjustments
EBITDA adj

2008
510
0
63
573

2009
439
0
49
488

2010
485
0
75
559

2011
900
0
104
1,003

2012
1,053
0
86
1,139

2013
854
0
127
981

2014
1,368
0
69
1,437

2015e
931
0
39
970

2016e
703
0
19
722

2017e
706
0
29
735

EBITA
Gains and losses
Other EBITA adjustments
Impairment of intangibles
EBITA adj

398
0
63
2
461

294
0
49
15
343

361
0
75
4
436

537
0
104
25
641

722
0
86
-3
808

446
0
127
48
573

-312
0
69
95
-243

501
0
39
0
540

258
0
19
0
277

251
0
29
0
280

EBIT
Gains and losses
Other EBIT adjustments
Impairment of intangibles
EBIT adj

398
0
63
2
461

294
0
49
15
343

361
0
75
4
436

537
0
104
25
641

722
0
86
-3
808

446
0
127
48
573

-312
0
69
95
-243

501
0
39
0
540

258
0
19
0
277

251
0
29
0
280

Net profit
Gains and losses
Other EBIT adjustments
Impairment of intangibles
Other adjustments
Net profit adj

301
0
63
2
0
301

245
0
49
15
0
245

265
0
75
4
0
265

424
0
104
25
0
424

830
0
86
-3
-245
585

348
0
127
48
355
703

-335
0
69
95
0
-335

369
0
39
0
0
369

185
0
19
0
0
185

186
0
29
0
0
186

Per share data (USD)


EPS
Recommended adjustment
EPS adj

0.98
0.00
0.98

0.92
0.00
0.92

0.85
0.00
0.85

1.31
-0.01
1.30

2.49
-0.74
1.75

1.04
1.07
2.11

-1.04
3.60
2.56

1.13
0.00
1.13

0.57
0.00
0.57

0.57
0.00
0.57

Source: Company, DNB Markets

49

50

DNB Markets
12 March 2015

Cash flow
(USDm)
Net profit
Depreciation and amortisation
Other non-cash adjustments
Change in net working capital
Cash flow from operations (CFO)

2008
301
110
0
173
609

2009
245
131
0
58
442

2010
265
119
0
-105
240

2011
424
338
-128
-103
579

2012
830
333
-302
-356
515

2013
348
359
-104
330
981

2014
-335
401
-118
268
1,450

2015e
369
430
-23
-349
427

2016e
185
445
-3
-11
616

2017e
186
455
-12
-68
561

Capital expenditure
Acquisitions
Divestments
Cash flow from investing (CFI)

-293
0
0
-293

-172
0
0
-172

-504
0
0
-504

-673
-1
10
-663

-709
-51
345
-415

-739
-1
9
-732

-861
0
1
-860

-925
0
0
-925

-445
0
0
-445

-404
0
0
-404

316

270

-264

-84

100

249

590

-498

171

158

Net change in debt


Dividends paid
Share issue (repurchase)
Other
Cash flow from financing (CFF)

30
-38
0
-317
-326

-4
-40
0
109
65

20
-42
0
-136
-159

9
0
-52
-13
-56

687
-199
-200
97
384

-643
-199
80
-125
-887

-337
-195
-164
29
-667

0
0
0
16
16

0
0
0
11
11

-118
0
0
16
-102

Total cash flow (CFO+CFI+CFF)

-10

335

-423

-140

485

-638

-77

-482

182

55

316
31
-127
0
0
220

270
31
52
0
0
353

-264
29
23
0
0
-212

-84
20
13
1
-10
-61

100
29
-76
51
-345
-240

249
49
-54
1
-9
235

590
-1
-50
0
-1
538

-498
16
-12
0
0
-494

171
16
-18
0
0
169

158
18
-17
0
0
158

179.8
-19.2
1225.3
-205.4
94.0

-27.5
41.3
-14.7
119.9
60.6

-45.8
-193.3
-198.0
-345.2
-160.1

141.9
-31.6
68.3
64.8
71.4

-11.1
37.4
219.6
786.2
-296.2

90.4
-76.4
148.2
-330.8
198.1

47.9
-17.5
137.1
24.9
128.3

-70.5
-7.6
-184.4
102.4
-191.8

44.2
51.9
134.4
-30.6
134.3

-8.9
9.3
-7.9
-1027.7
-6.5

Free cash flow (FCF)

FCFF calculation
Free cash flow
Less: net interest
Less: tax shields/other
Less: acquisitions
Less: divestments
Free cash flow to the firm
Growth (%)
CFO
CFI
FCF
CFF
FCFF
Source: Company, DNB Markets

50

51

DNB Markets
12 March 2015

Balance sheet
(USDm)
Assets

2008
2,471

2009
2,833

2010
2,990

2011
9,248

2012
10,495

2013
10,357

2014
8,624

2015e
8,467

2016e
8,634

2017e
8,675

Inventories
Trade receivables
Other receivables
Current financial assets
Cash and cash equivalents
Current assets

39
355
234
132
573
1,332

22
298
213
302
908
1,743

24
382
242
271
484
1,403

57
773
898
382
803
2,914

59
1,090
1,012
371
1,288
3,821

44
1,008
979
457
650
3,137

59
840
662
28
573
2,162

34
698
643
28
91
1,493

34
720
598
28
273
1,653

32
765
581
28
328
1,734

Property, plant and equipment


Goodwill
Other intangible assets
Investments in associates
Defferred tax assets
Non-current financial assets
Non-current assets

908
0
4
140
40
48
1,139

822
0
9
190
19
49
1,090

1,279
0
6
215
23
63
1,586

3,352
2,567
35
264
41
75
6,334

3,748
2,575
24
223
35
68
6,674

4,098
2,585
25
311
48
154
7,221

4,565
1,322
21
374
48
132
6,463

5,060
1,322
21
389
48
132
6,973

5,060
1,322
21
397
48
132
6,981

5,009
1,322
21
409
48
132
6,941

Total assets

2,471

2,833

2,990

9,248

10,495

10,357

8,624

8,467

8,634

8,675

Equity and liabilities

2,471

2,833

2,990

9,248

10,495

10,357

8,624

8,467

8,634

8,675

Total equity to the parent


Minority interests

788
14

1,068
31

1,203
57

5,781
52

6,325
44

6,566
47

5,587
-25

5,956
-32

6,142
-32

6,328
-32

Total equity

801

1,099

1,259

5,833

6,368

6,612

5,562

5,924

6,109

6,295

Trade payables
Other payables and accruals
Short-term debt
Total current liabilities

652
453
10
1,114

624
597
0
1,221

673
517
0
1,191

1,219
1,040
13
2,272

1,452
923
495
2,869

1,637
938
275
2,851

1,674
527
2
2,203

1,260
405
2
1,667

1,215
417
2
1,633

1,190
399
2
1,591

Long-term debt
Deferred tax liabilities
Pension liabilities
Other non-current liabilities
Total non-current liabilities

409
56
21
69
556

416
50
27
20
513

435
44
29
32
540

881
133
29
100
1,143

1,041
112
23
82
1,258

636
170
19
70
895

576
117
21
145
860

592
117
21
145
875

608
117
21
145
891

506
117
21
145
789

Total liabilities

1,670

1,734

1,730

3,415

4,127

3,745

3,063

2,542

2,525

2,380

Total equity and liabilities

2,471

2,833

2,990

9,248

10,495

10,357

8,624

8,467

8,634

8,675

-154
889

-492
810

-49
1,372

90
5,815

248
6,498

262
6,543

6
5,305

503
6,150

337
6,161

179
6,178

Key metrics
Net interest bearing debt
Invested capital
Source: Company, DNB Markets

51

52

DNB Markets
12 March 2015

Valuation ratios
(USDm)
Enterprise value
Share price (USD)
Number of shares (m)
Market capitalisation
Net interest bearing debt
Adjustments to NIBD
Net interest bearing debt adj
EV
EV adj

2008

2009

2010

2011

2012

2013

2014

2015e

2016e

2017e

5.57
182.8
1,018
-154
14
-140
865
878

15.87
183.2
2,907
-492
31
-461
2,415
2,446

24.60
183.9
4,525
-49
57
8
4,476
4,533

18.60
338.7
6,300
90
52
142
6,390
6,442

23.74
331.6
7,872
248
44
291
8,119
8,163

19.10
335.4
6,407
262
47
309
6,669
6,715

10.33
326.4
3,371
6
-25
-20
3,377
3,352

8.72
326.4
2,845
503
-32
471
3,348
3,316

8.72
326.4
2,845
337
-32
305
3,182
3,149

8.72
326.4
2,845
179
-32
147
3,024
2,992

Valuation
EPS
EPS adj
DPS
P/E
P/E adj
P/B
Average ROE
Earnings yield adj
Dividend yield
Free cash flow yield

0.98
0.98
0.22
5.7
5.7
1.29
37.2%
26.1%
3.9%
30.6%

0.92
0.92
0.23
17.2
17.2
2.72
25.8%
8.4%
1.4%
9.2%

0.85
0.85
0.00
29.0
29.0
3.76
22.5%
5.2%
0.0%
-5.8%

1.31
1.30
0.60
14.2
14.3
1.09
12.0%
6.5%
3.2%
-1.3%

2.49
1.75
0.60
9.5
13.5
1.24
13.6%
6.7%
2.5%
1.3%

1.04
2.11
0.60
18.3
9.1
0.98
5.4%
10.2%
3.1%
3.9%

-1.04
2.56
0.00
-10.0
4.0
0.60
-5.5%
23.2%
0.0%
17.6%

1.13
1.13
0.00
7.7
7.7
0.48
6.4%
12.5%
0.0%
-17.7%

0.57
0.57
0.00
15.4
15.4
0.46
3.1%
6.5%
0.0%
6.1%

0.57
0.57
0.30
15.3
15.3
0.45
3.0%
6.6%
3.4%
5.6%

EV/SALES
EV/SALES adj
EV/EBITDA
EV/EBITDA adj
EV/EBIT
EV/EBIT adj
EV/capital employed
EV/NOPLAT

0.34
0.35
1.7
1.5
2.2
1.9
0.7
3.8

1.09
1.11
5.5
5.0
8.2
7.1
1.6
7.2

1.89
1.91
9.2
8.1
12.4
10.4
2.8
16.2

1.17
1.18
7.1
6.4
11.9
10.1
1.0
17.2

1.29
1.30
7.7
7.2
11.2
10.1
1.0
16.5

1.06
1.07
7.8
6.8
14.9
11.7
0.9
23.3

0.49
0.49
2.5
2.3
-10.8
-13.8
0.5
4.6

0.63
0.63
3.6
3.4
6.7
6.1
0.5
9.5

0.71
0.70
4.5
4.4
12.3
11.4
0.5
17.6

0.71
0.70
4.3
4.1
12.1
10.7
0.4
17.2

Source: Company, DNB Markets

52

53

DNB Markets
12 March 2015

Key accounting ratios


2008

2009

2010

2011

2012

2013

2014

2015e

2016e

2017e

12.3
38.4

9.2
25.5

9.1
27.9

6.9
15.3

8.4
11.0

3.3
7.4

-3.5
-3.5

4.3
8.5

2.2
4.2

2.2
4.1

Return on invested capital (%)


Net PPE/revenues
Working capital/revenues
Revenues/invested capital (pre-GW)
Pre-tax ROIC (pre-goodwill)
Pre-tax ROIC (incl. goodwill)
After-tax ROIC (pre-goodwill)
After-tax ROIC (incl. goodwill)

36.0
-10.9
283.8
42.9
42.9
24.8
24.8

37.2
-15.0
272.9
34.6
34.6
39.5
39.5

54.0
-9.6
172.6
33.1
33.1
25.4
25.4

61.2
-5.1
94.2
23.2
14.9
16.1
10.3

59.5
0.3
96.9
20.1
11.7
13.7
8.0

65.1
-4.6
96.2
11.3
6.8
7.3
4.4

66.4
-8.5
129.5
-7.8
-5.3
18.4
12.3

95.5
-4.4
86.2
11.4
8.8
8.0
6.1

112.4
-4.9
73.0
5.3
4.2
3.7
2.9

117.9
-3.6
68.8
5.2
4.1
3.6
2.8

Cash flow ratios (%)


FCF/revenues
FCF/market capitalisation
CFO/revenues
CFO/market capitalisation
CFO/capex
CFO/current liabilities
Cash conversion ratio
Capex/revenues
Capex/depreciation
Total payout ratio

12.5
31.1
24.1
59.8
208.0
54.7
-3.2
11.6
265.3
22.4

12.2
9.3
20.0
15.2
257.0
36.2
136.6
7.8
131.1
24.9

-11.2
-5.8
10.1
5.3
47.5
20.1
-159.5
21.3
422.0
0.0

-1.5
-1.3
10.6
9.2
86.2
25.5
-33.0
12.3
199.3
45.8

1.6
1.3
8.2
6.5
72.7
18.0
58.3
11.3
212.6
24.1

3.9
3.9
15.6
15.3
132.6
34.4
-183.7
11.7
206.0
57.5

8.6
17.5
21.1
43.0
168.3
65.8
22.9
12.5
214.7
0.0

-9.4
-17.5
8.1
15.0
46.2
25.6
-130.4
17.5
215.1
0.0

3.8
6.0
13.7
21.7
138.5
37.7
98.3
9.9
100.0
0.0

3.7
5.5
13.2
19.7
139.0
35.3
29.7
9.5
88.7
52.6

Leverage and solvency (x)


Interest cover
EBIT/interest payable
EBITA adj/interest payable
Cash coverage
Net debt/EBITDA
Total debt/total capital (BV)
Total debt/total capital (MV)
LTD / (LTD + equity (MV))

13.04
13.04
15.11
16.72
-0.30
0.17
0.29
0.29

9.35
9.35
10.91
13.99
-1.12
0.15
0.13
0.13

12.59
12.59
15.20
16.88
-0.10
0.15
0.09
0.09

14.10
13.59
16.22
46.14
0.10
0.10
0.12
0.12

16.47
16.11
18.04
36.29
0.24
0.15
0.16
0.12

6.61
6.29
8.09
17.53
0.31
0.09
0.12
0.09

-15.55
-16.57
-12.90
-2736.40
0.00
0.07
0.15
0.15

23.30
23.05
24.85
56.98
0.54
0.07
0.17
0.17

12.12
11.87
12.75
43.17
0.48
0.07
0.18
0.18

9.76
9.42
10.52
40.14
0.25
0.06
0.15
0.15

Cash conversion cycle


Receivables turnover days

85.1

84.4

96.2

111.4

121.9

115.2

79.8

92.3

106.9

115.6

Profitability (%)
ROA
ROCE

Source: Company, DNB Markets

53

54

DNB Markets
12 March 2015

SELL

TECHNIP
Elevated expectations

TP: EUR47.0

While forecasts have come down recently, consensus


for 2016e earnings is still ~25% above the 20112014
average, which is an ill fit in the context of the most
severe cyclical downturn in the sector in a decade. Our
SELL recommendation reflects too-high expectations
and prospects of backlog- and earnings erosion over the
next few years. SELL.
Better positioned than peers, but not shielded from downturn. We were impressed
by Technips ability to build order backlog during 2014 and it has healthy backlog
coverage for 2015e and 2016e, particularly in the Subsea division (90% for 2015 and
61% contract coverage for 2016 on our estimates). In addition we believe its vertical
integration (manufacturing and Genesis) is a competitive advantage. However, we do
not believe Technip is shielded from the cyclical downturn and argue the collapse in oil
and gas investments will have a negative effect on its backlog and earnings.
Margin challenge in onshore EPC likely to persist. Profitability in the EPC division
has been declining since H2 2012 and the Q4 EBIT margin was the lowest since Q4
2007, reflecting more aggressive client behaviour in terms of negotiating variation orders
and dilution from early stage projects (Yamal). Technip guided a 2015 EBIT margin of 4
5%, the lowest since 2008, and we see no quick fix as the cyclical downturn unfolds.
Uncomfortable with Petrobras exposure. Brazil is currently a sweet spot for Technip
as FPSOs coming on-stream in 2016e require flexible pipes, but we are becoming
increasingly concerned about Petrobras financial situation (due to the corruption
allegations). We see a risk of delays (and cancellations) of more than 50% of the pre-salt
FPSOs with planned start-up in 20162018 (the locally built FPSOs).
SELL reiterated. Technip is up 20% YTD however, the last time the shares touched
EUR60, oil was at USD8090/bbl. Consensus has come down in recent months, but it
still expects 2016 earnings ~25% higher than the 20112014 average, which is an ill fit
with the current market. Our SELL recommendation reflects too-high expectations,
prospects of backlog and earnings erosion over the next few years, and medium-term
uncertainty in Brazil. We maintain our target price of EUR47.
Year-end Dec
Revenue (EURm)
EBITDA adj (EURm)
EBIT adj (EURm)
PTP (EURm)
EPS rep (EUR)
EPS adj (EUR)
DPS (EUR)
Revenue growth (%)
EBITDA growth adj (%)
EPS growth adj (%)
EBITDA margin adj (%)
EV/Sales adj (x)
EV/EBITDA adj (x)
EV/EBIT adj (x)
P/E adj (x)
P/Book (x)
ROE (%)
ROCE (%)
Dividend yield (%)
FCFF yield (%)
Source: Company, DNB Markets

2011
6,813
884
710
711
4.70
4.80
1.58
12.0
15.4
21.3
13.0
1.06
8.2
10.2
15.1
2.15
14.8
13.1
2.2
6.0

2012
8,204
1,017
822
748
4.91
4.97
1.68
20.4
15.1
3.6
12.4
1.14
9.2
11.4
17.5
2.38
14.0
13.8
1.9
1.3

2013
9,336
1,076
845
761
5.07
5.06
1.85
13.8
5.9
1.8
11.5
0.73
6.4
8.1
13.8
1.87
13.8
13.3
2.6
12.2

2014
10,725
1,108
825
623
3.91
4.38
2.00
14.9
2.9
-13.5
10.3
0.40
3.8
5.1
11.3
1.26
10.2
12.2
4.0
11.3

2015e
11,410
1,286
986
906
5.72
5.72
2.10
6.4
16.1
30.6
11.3
0.47
4.2
5.5
10.4
1.39
13.9
13.8
3.5
0.7

2016e
10,400
1,055
760
687
4.33
4.33
2.21
-8.9
-18.0
-24.2
10.1
0.49
4.8
6.7
13.7
1.32
9.8
10.4
3.7
6.1

2017e
9,300
884
594
533
3.36
3.36
2.32
-10.6
-16.1
-22.5
9.5
0.54
5.7
8.4
17.7
1.26
7.3
8.3
3.9
0.3

TECF versus OSEBX (12m)

85
80
75
70
65
60
55
50
45
Mar May
Technip

Jul Sep Nov Jan


OSEBX (Rebased)

Mar

Source: Factset

SUMMARY
Recommendation (prev.)
SELL (SELL)
Share price (EUR)
59.4
Target price (previous) (EUR)
47.0 (47.0)
Upside/downside potential (%)
-21
Tickers
TEC FP, TECF.PA
CAPITAL STRUCTURE
No. of shares (m)
111.8
No. of shares fully dil. (m)
125.0
Market cap. (EURm)
6,633
NIBD adj end-2015e (EURm)
-1,240
Enterprise value adj (EURm)
5,394
Net debt/EBITDA adj (x)
-0.66
SHARE PRICE PERFORMANCE
Abs. 1/3/12m (%)
6/28/-15
Rel. 1/3/12m (%)
5/10/-21
High/Low 12m (EUR)
83/46
Source: Company, DNB Markets

UPCOMING EVENTS
Q1 2015
Q2 2015

23/04/2015
24/07/2015

ESTIMATE CHANGES (EUR)


Year-end Dec
2015e
EPS (old)
5.64
EPS (new)
5.72
Change (%)
1.4
Consensus
6.06

2016e
4.37
4.33
-0.8
5.39

2017e
3.48
3.36
-3.5

Sales (old)
Sales (new)
Change (%)
Consensus

10,100
10,400
3.0
10,798

9,150
9,300
1.6

11,250
11,410
1.4
11,312

Source: DNB Markets, Bloomberg consensus

ANALYSTS
Eirik Ronold Mathisen
eirik.mathisen@dnb.no
+47 24 16 91 91
Sveinung Alvestad
sveinung.alvestad@dnb.no
+47 24 16 91 92
Please see last pages for important information

54

55

DNB Markets
12 March 2015

Investment case overview


Share price performance, DNB Markets target price, bear- and bull-case scenarios

Target price methodology


Our target price of EUR47 values
Technip at 56x 2016e EBIT and net
debt at end-2015e.

86

76

EUR76 (28%)

Our target price implies a 2015e P/E


of 8x and 11x for 2016e.

66

Our DCF analysis supports a fair


value per share of EUR58.

EUR59
56

Our SOTP analysis supports a fair


value per share of EUR54.

EUR47 (-21%)

46

EUR40 (-33%)

36
Mar 2014

Jul 2014

Nov 2014

Mar 2015

Historical Share Price Performance

Jul 2015

Price Target (Mar 16)

Nov 2015
Current Share Price

Source: FactSet, DNB Markets

Source: DNB Markets

Downside risks to our investment


case
Execution issues in the subsea
backlog. 20152017 margins should
reveal whether recent order intake
success was driven by pricing.

DNB Markets investment case and


how we differ from consensus
Although Technip is better positioned
than oil service peers due to its
high(er) order backlog and solid
backlog coverage for 2015e and
2016e, we do not believe it is shielded
from the cyclical downturn and we see
backlog and earnings erosion over the
next few years.

Downscaling or suspendsion of the


Yamal LNG project (~20% of the
current order backlog).
A significant slowdown in demand for
subsea services in Brazil due to the
financial situation of Petrobras.

We are not comfortable with the high


exposure to Brazil (Petrobras) and
concentrated project risk in the Yamal
LNG project.

Our bear-case scenario sees 20%


downside to our 2016e EBIT and
values Technip at 5.5x.

We expect the margin challenge in


onshore EPC to persist.

Source: DNB Markets

Source: DNB Markets

Upside risks to our investment case


The key upside risk is on the macro
level, i.e. that we see a v-shaped
recovery in the offshore investment
cycle, which would trigger multiples
expansion.
Technip sustains the solid backlog
momentum.
The group is able to cut costs faster
than we expect which could boost
2015 profitability.
Our bull-case scenario values Technip
at 10x 2016e EBIT.

Source: DNB Markets

EBITDA bridge bridge 20142016 (EURm)


0
107

-114

71

-118

2016

Other

Margin expansion

1,055

Volume growth

2015

Other

Margin expansion

1,286

Volume growth

1,108

2014

1,350
1,300
1,250
1,200
1,150
1,100
1,050
1,000
950
900
850

Source: DNB Markets, company

55

56

DNB Markets
12 March 2015

Forecast changes P&L


2015e
11,410

New
2016e
10,400

2017e
9,300

2015e
11,250

Old
2016e
10,100

2017e
9,150

2015e
160

Change
2016e
300

2017e
150

-10,124
1,286
1,286
11.3

-9,345
1,055
1,055
10.1

-8,416
884
884
9.5

-9,975
1,275
1,275
11.3

-9,039
1,061
1,061
10.5

-8,246
904
904
9.9

-148
12
12
-0.1

-306
-6
-6
-0.4

-170
-20
-20
-0.4

Depreciation
EBITA

-280
1,006

-275
780

-270
614

-280
995

-275
786

-270
634

0
12

0
-6

0
-20

Amortisation
EBIT
EBIT adj

-20
986
986

-20
760
760

-20
594
594

-20
975
975

-20
766
766

-20
614
614

0
12
12

0
-6
-6

0
-20
-20

Associated companies
Net interest
Other financial items
Net financial items
Non-recurring items
PBT

0
-60
-20
-80
0
906

0
-53
-20
-73
0
687

0
-42
-20
-62
0
533

0
-61
-20
-81

0
-53
-20
-73
0
692

0
-42
-20
-62
0
552

0
1
0
1

0
0
0
0
0
-6

0
0
0
0
0
-19

Taxes
Minorities
Discontinued operations
Net profit
Adjustments to net profit
Net profit adj

-267
0
0
639
0
639

-203
0
0
484
0
484

-157
0
0
375
0
375

-264
0

-163
0
0
389
0
389

-4
0

630
0
630

-204
0
0
488
0
488

9
0
9

2
0
0
-4
0
-4

6
0
0
-14
0
-14

Per share data (EUR)


EPS
EPS adj
DPS

5.72
5.72
2.10

4.33
4.33
2.21

3.36
3.36
2.32

5.64
5.64
2.10

4.37
4.37
2.21

3.48
3.48
2.32

0.08
0.08
0.00

-0.04
-0.04
0.00

-0.12
-0.12
0.00

Other key metrics (%)


Revenue growth
EBIT adj growth
EPS adj growth

6.4
19.6
30.6

-8.9
-23.0
-24.2

-10.6
-21.8
-22.5

4.9
18.2
28.9

-10.2
-21.4
-22.5

-9.4
-19.8
-20.3

1.5
1.4
1.8

1.4
-1.5
-1.7

-1.2
-2.0
-2.2

-325
-2,432
-1,240

-269
-2,239
-1,557

-431
-2,071
-1,623

-325
-2,420
-1,220

-269
-2,196
-1,510

-431
-2,049
-1,611

0
-11
-20

0
-43
-47

0
-21
-12

(EURm)
Revenues
Operating expenses
EBITDA
EBITDA adj
EBITDA margin (%)

Capex
Working capital
NIBD adj

894

12

Source: DNB Markets

56

57

DNB Markets
12 March 2015

Forecast changes By segment and assumptions


Old
2016e

2017e

2015e

5,350
5,900

4,600
5,500
0

4,200
4,950
0

495
185
-85

811
252
-88

573
278
-85

12.1%
4.9%

11.2%
3.8%

15.2%
4.3%

1,085
289
-88

822
318
-85

745
225
-85

EBITDA margin
Subsea
EPC

20.1%
4.8%

17.5%
5.6%

Assumptions
Order intake
Order backlog
Book to bill
Order intake Subsea
Order intake EPC
Order backlog Subsea
Order backlog EPC

7,300
16,826
0.64
3,300
4,000
7,618
9,208

9,300
15,726
0.89
3,300
6,000
6,218
9,508

(EURm)
Revenues
Subsea
EPC
Corporate
EBIT
Subsea
EPC
Corporate
EBIT margin
Subsea
EPC
EBITDA
Subsea
EPC
Corporate

2015e

New
2016e

2017e

2015e

Change
2016e

2017e

5,410
6,000
0

4,700
5,700
0

4,400
4,900
0

60
100

100
200
0

200
-50
0

825
249
-88

567
278
-85

463
236
-85

14
-3
0

-6
0
0

32
-52
0

15.3%
4.2%

12.5%
5.0%

11.0%
4.8%

0.1%
-0.1%

-0.4%
-0.2%

0.2%
-1.0%

1,071
292
-88

828
318
-85

713
276
-85

14
-3
0

-6
0
0

32
-52
0

16.9%
4.6%

20.0%
4.9%

18.0%
5.8%

17.0%
5.6%

0.0%
-0.1%

-0.5%
-0.2%

0.0%
-1.0%

7,750
14,176
0.83
4,250
3,500
6,068
8,108

7,250
16,936
0.64
3,250
4,000
7,628
9,308

6,800
13,636
0.67
3,300
3,500
6,328
7,308

9,500
13,986
1.04
4,500
5,000
6,628
7,358

50.00
-110.0
0.00
50.00
0.00
-10.00
-100.0

2,500
2,090
0.22
0.00
2,500
-110.0
2,200

-1,750
190.0
-0.20
-250.0
-1,500
-560.0
750.0

Source: DNB Markets

57

58

DNB Markets
12 March 2015

Quarterly numbers
(EURm)
Revenues

Q3 2013
2,412

Q4 2013
2,485

Q1 2014
2,469

Q2 2014
2,615

Q3 2014
2,825

-2,127
285

-2,213
272

-2,288
181

-2,312
303

-2,520
305

-2,497
319

-2,515
285

-2,585
345

-2,530
350

-2,493
307

Depreciation
EBITA

-60
225

-62
210

-56
125

-58
245

-59
247

-91
228

-65
220

-65
280

-70
280

-80
227

Amortisation
EBIT

-3
222

-3
207

-5
120

-5
240

-5
242

-5
223

-5
215

-5
275

-5
275

-5
222

Associated companies
Net interest
Other financial items
Net financial items
Non-recurring items
PBT

1
-10
-19
-29
0
193

0
-10
-26
-36
0
172

3
-12
-14
-24
0
96

0
-13
-5
-18
-7
216

0
-14
-5
-19
-34
189

0
-14
-54
-68
-33
122

0
-15
-5
-20
0
195

0
-15
-5
-20
0
254

0
-15
-5
-20
0
255

0
-15
-5
-20
0
202

Taxes
Minorities
Discontinued operations
Net profit
Adjustments to net profit
Net profit adj

-42
-2
0
150
0
150

-33
-4
0
135
0
135

-26
-2
0
67
0
67

-59
1
0
158
5
162

-55
-2
0
132
24
155

-39
-3
0
80
23
104

-58
0
0
137
0
137

-75
0
0
179
0
179

-75
0
0
179
0
179

-60
0
0
143
0
143

Per share data (EUR)


EPS
EPS adj

1.35
1.35

1.21
1.21

0.60
0.60

1.41
1.45

1.18
1.39

0.72
0.93

1.23
1.23

1.60
1.60

1.61
1.61

1.28
1.28

Growth and margins (%)


Revenues, QOQ growth
Revenues, YOY growth
EPS adj, YOY growth

-0.5
15.6
0.6

3.0
8.0
-9.9

-0.7
22.5
-42.5

6.0
7.9
-0.8

8.0
17.1
2.8

-0.3
13.3
-23.3

-0.6
13.4
104.0

4.6
12.0
10.4

-1.7
2.0
15.5

-2.8
-0.6
37.7

Gross margin
EBITDA adj margin
Depreciation/revenues
EBIT adj margin
Net profit margin

nm
11.8
-2.5
9.2
6.3

nm
10.9
-2.5
8.3
5.6

nm
7.3
-2.3
4.8
2.8

nm
11.6
-2.2
9.2
6.0

nm
10.8
-2.1
8.5
4.7

nm
11.3
-3.2
7.9
2.9

nm
10.2
-2.3
7.7
4.9

nm
11.8
-2.2
9.4
6.1

nm
12.1
-2.4
9.5
6.2

nm
11.0
-2.9
7.9
5.1

Operating expenses
EBITDA

Q4 2014 Q1 2015e Q2 2015e Q3 2015e Q4 2015e


2,816
2,800
2,930
2,880
2,800

Source: Company, DNB Markets

58

59

DNB Markets
12 March 2015

Adjustments to quarterly numbers


(EURm)
EBITDA
Other EBITDA adjustments
EBITDA adj

Q3 2013
285
0
285

Q4 2013
272
0
272

Q1 2014
181
0
181

Q2 2014
303
0
303

Q3 2014
305
0
305

Q4 2014 Q1 2015e Q2 2015e Q3 2015e Q4 2015e


319
285
345
350
307
0
0
0
0
0
319
285
345
350
307

EBITA
Other EBITA adjustments
EBITA adj

225
0
225

210
0
210

125
0
125

245
0
245

247
0
247

228
0
228

220
0
220

280
0
280

280
0
280

227
0
227

EBIT
Other EBIT adjustments
EBIT adj

222
0
222

207
0
207

120
0
120

240
0
240

242
0
242

223
0
223

215
0
215

275
0
275

275
0
275

222
0
222

Net profit
Other EBIT adjustments
Tax adjustments
Other adjustments
Net profit adj

150
0
0
0
150

135
0
0
0
135

67
0
0
0
67

158
0
-2
7
162

132
0
-10
34
155

80
0
-10
33
104

137
0
0
0
137

179
0
0
0
179

179
0
0
0
179

143
0
0
0
143

Source: Company, DNB Markets

Quarterly numbers by segment and assumptions


(EURm)
Revenues
Subsea
EPC
Corporate

Q3 2013

Q4 2013

Q1 2014

Q2 2014

Q3 2014

1,094
1,318
0

963
1,522
0

1,009
1,459
0

1,233
1,383
0

1,348
1,476
0

1,290
1,526
0

1,300
1,500
0

1,430
1,500
0

1,380
1,500
0

1,300
1,500
0

161
87
-26

130
102
-25

55
86
-21

189
73
-22

193
70
-21

198
48
-23

186
51
-22

246
51
-22

223
74
-22

171
74
-22

14.7%
6.6%

13.5%
6.7%

5.5%
5.9%

15.3%
5.3%

14.3%
4.7%

15.3%
3.1%

14.3%
3.4%

17.2%
3.4%

16.2%
4.9%

13.1%
4.9%

214
97
-26

183
113
-25

107
95
-21

243
82
-22

247
80
-21

286
56
-23

246
61
-22

306
61
-22

288
84
-22

246
84
-22

EBITDA margin
Subsea
EPC

19.5%
7.4%

19.0%
7.4%

10.6%
6.5%

19.7%
5.9%

18.3%
5.4%

22.1%
3.7%

18.9%
4.1%

21.4%
4.1%

20.9%
5.6%

18.9%
5.6%

Assumptions
Order intake
Order backlog
Book to bill
Order intake Subsea
Order intake EPC
Order backlog Subsea
Order backlog EPC
Utilization

3,142
15,851
1.30
1,757
1,386
7,982
7,869
0.75

3,188
16,581
1.28
1,596
1,591
8,642
7,939
0.69

2,780
15,357
1.13
2,057
723.4
8,406
6,951
0.69

7,077
19,860
2.71
2,238
4,839
9,519
10,341
0.88

2,211
19,306
0.78
1,272
939.0
9,462
9,844
0.86

3,227
20,936
1.15
1,271
1,956
9,728
11,208
0.74

1,825
20,336
0.00
1,200
1,000
9,628
10,708
0.00

1,825
19,106
0.00
700.0
1,000
8,898
10,208
0.00

1,825
17,926
0.00
700.0
1,000
8,218
9,708
0.00

1,825
16,826
0.00
700.0
1,000
7,618
9,208
0.00

EBIT
Subsea
EPC
Corporate
EBIT margin
Subsea
EPC
EBITDA
Subsea
EPC
Corporate

Q4 2014 Q1 2015e Q2 2015e Q3 2015e Q4 2015e

Source: Company, DNB Markets

59

60

DNB Markets
12 March 2015

Annual P&L
(EURm)
Revenues

2008
7,481

2009
6,456

2010
6,082

2011
6,813

2012
8,204

2013
9,336

2014
10,725

2015e
11,410

2016e
10,400

2017e
9,300

-6,667
814

-5,564
892

-5,316
766

-5,930
884

-7,187
1,017

-8,260
1,076

-9,617
1,108

-10,124
1,286

-9,345
1,055

-8,416
884

Depreciation
EBITA

-147
667

-196
696

-133
633

-162
721

-184
833

-215
861

-263
845

-280
1,006

-275
780

-270
614

Amortisation
EBIT

-10
657

-20
677

-13
620

-12
710

-11
822

-17
845

-20
825

-20
986

-20
760

-20
594

Associated companies
Net interest
Other financial items
Net financial items
Non-recurring items
PBT

2
-10
-1
-9
0
648

5
-10
-51
-56
-248
373

0
6
-26
-20
-6
595

0
-13
30
17
-16
711

1
-40
-25
-64
-10
748

1
-40
-44
-83
0
761

3
-53
-78
-129
-74
623

0
-60
-20
-80
0
906

0
-53
-20
-73
0
687

0
-42
-20
-62
0
533

Taxes
Effective tax rate (%)
Minorities
Discontinued operations
Net profit
Adjustments to net profit
Net profit adj

-194
30
-6
0
448
0
448

-195
52
-8
0
170
173
344

-179
30
2
0
418
4
422

-209
29
5
0
507
11
518

-205
27
-3
0
540
7
546

-191
25
-7
0
563
0
563

-180
29
-6
0
437
52
488

-267
30
0
0
639
0
639

-203
30
0
0
484
0
484

-157
30
0
0
375
0
375

Dividend paid

-125

-128

-144

-156

-173

-186

-207

-223

-224

-169

Per share data (EUR)


EPS
EPS adj
DPS

4.28
4.28
1.20

1.60
3.23
1.35

3.92
3.96
1.45

4.70
4.80
1.58

4.91
4.97
1.68

5.07
5.06
1.85

3.91
4.38
2.00

5.72
5.72
2.10

4.33
4.33
2.21

3.36
3.36
2.32

Growth and margins (%)


Revenue growth
EPS adj growth

-5.1
47.4

-13.7
-24.4

-5.8
22.4

12.0
21.3

20.4
3.6

13.8
1.8

14.9
-13.5

6.4
30.6

-8.9
-24.2

-10.6
-22.5

Gross margin
EBITDA margin
EBITDA adj margin
Depreciation/revenues
EBIT margin
EBIT adj margin
PBT margin
Net profit margin

nm
10.9
10.9
-2.0
8.8
8.8
8.7
6.1

nm
13.8
13.8
-3.0
10.5
10.5
5.8
2.8

nm
12.6
12.6
-2.2
10.2
10.2
9.8
6.8

nm
13.0
13.0
-2.4
10.4
10.4
10.4
7.4

nm
12.4
12.4
-2.2
10.0
10.0
9.1
6.6

nm
11.5
11.5
-2.3
9.0
9.0
8.2
6.1

nm
10.3
10.3
-2.5
7.7
7.7
5.8
4.1

nm
11.3
11.3
-2.5
8.6
8.6
7.9
5.6

nm
10.1
10.1
-2.6
7.3
7.3
6.6
4.7

nm
9.5
9.5
-2.9
6.4
6.4
5.7
4.0

Operating expenses
EBITDA

Source: Company, DNB Markets

60

61

DNB Markets
12 March 2015

Adjustments to annual P&L


(EURm)
EBITDA
Gains and losses
Other EBITDA adjustments
EBITDA adj

2008
814
0
0
814

2009
892
0
0
892

2010
766
0
0
766

2011
884
0
0
884

2012
1,017
0
0
1,017

2013
1,076
0
0
1,076

2014
1,108
0
0
1,108

2015e
1,286
0
0
1,286

2016e
1,055
0
0
1,055

2017e
884
0
0
884

EBITA
Gains and losses
Other EBITA adjustments
EBITA adj

667
0
0
667

696
0
0
696

633
0
0
633

721
0
0
721

833
0
0
833

861
0
0
861

845
0
0
845

1,006
0
0
1,006

780
0
0
780

614
0
0
614

EBIT
Gains and losses
Other EBIT adjustments
EBIT adj

657
0
0
657

677
0
0
677

620
0
0
620

710
0
0
710

822
0
0
822

845
0
0
845

825
0
0
825

986
0
0
986

760
0
0
760

594
0
0
594

Net profit
Gains and losses
Other EBIT adjustments
Tax adjustments
Other adjustments
Net profit adj

448
0
0
0
0
448

170
0
0
-74
248
344

418
0
0
-2
6
422

507
0
0
-5
16
518

540
0
0
-3
10
546

563
0
0
0
0
563

437
0
0
-22
74
488

639
0
0
0
0
639

484
0
0
0
0
484

375
0
0
0
0
375

Per share data (EUR)


EPS
Recommended adjustment
EPS adj

4.28
0.00
4.28

1.60
1.63
3.23

3.92
0.04
3.96

4.70
0.10
4.80

4.91
0.06
4.97

5.07
-0.01
5.06

3.91
0.47
4.38

5.72
0.00
5.72

4.33
0.00
4.33

3.36
0.00
3.36

Source: Company, DNB Markets

61

62

DNB Markets
12 March 2015

Cash flow
(EURm)
Net profit
Depreciation and amortisation
Other non-cash adjustments
Change in net working capital
Cash flow from operations (CFO)

2008
448
157
39
-227
455

2009
170
215
-30
262
634

2010
418
146
-22
-501
38

2011
507
174
106
-131
652

2012
540
195
146
-439
445

2013
563
232
94
421
1,319

2014
437
283
43
105
868

2015e
639
300
5
-645
299

2016e
484
295
-11
-193
576

2017e
375
290
-45
-169
452

Capital expenditure
Acquisitions
Divestments
Cash flow from investing (CFI)

-401
-15
5
-411

-424
-8
3
-429

-389
-141
22
-508

-357
-604
4
-958

-519
-248
44
-723

-623
-8
79
-552

-376
-96
86
-385

-325
5
0
-320

-269
-36
0
-306

-431
-128
0
-559

43

205

-470

-306

-279

767

482

-21

271

-106

Net change in debt


Dividends paid
Share issue (repurchase)
Other
Cash flow from financing (CFF)

79
-125
1
6
-40

84
-128
0
90
47

894
-144
-2
171
919

133
-156
0
32
9

-40
-173
-108
80
-241

525
-186
-40
-150
149

80
-207
-45
222
51

-129
-223
0
0
-352

-264
-224
0
0
-487

-513
-169
0
0
-682

Total cash flow (CFO+CFI+CFF)

252

449

-297

-519

916

533

-373

-217

-789

43
10
75
15
-5
138

205
10
-306
8
-3
-86

-470
-6
-47
141
-22
-403

-306
13
125
604
-4
432

-279
40
154
248
-44
119

767
40
115
8
-79
850

482
53
-49
96
-86
496

-21
60
9
-5
0
43

271
53
-9
36
0
351

-106
42
-47
128
0
16

-44.9
-135.8
-93.3
93.8
-72.1

39.5
-4.3
372.4
215.9
-162.2

-94.0
-18.3
-329.0
1871.9
-369.4

1601.3
-88.6
34.8
-99.0
207.2

-31.8
24.5
9.0
-2745.1
-72.4

196.5
23.7
375.1
162.1
612.6

-34.2
30.2
-37.1
-66.2
-41.6

-65.5
16.9
-104.3
-797.6
-91.3

92.6
4.5
1400.2
-38.3
709.2

-21.5
-82.8
-139.4
-40.0
-95.4

Free cash flow (FCF)

FCFF calculation
Free cash flow
Less: net interest
Less: tax shields/other
Less: acquisitions
Less: divestments
Free cash flow to the firm
Growth (%)
CFO
CFI
FCF
CFF
FCFF
Source: Company, DNB Markets

62

63

DNB Markets
12 March 2015

Balance sheet
(EURm)
Assets

2008
8,132

2009
8,570

2010
10,222

2011
11,771

2012
11,581

2013
13,024

2014
14,600

2015e
14,154

2016e
13,823

2017e
13,048

Inventories
Trade receivables
Other receivables
Current financial assets
Cash and cash equivalents
Current assets

226
1,124
748
40
2,405
4,543

215
1,061
666
62
2,656
4,660

222
1,277
1,107
41
3,106
5,751

255
1,264
1,427
36
2,809
5,789

297
1,274
1,344
54
2,289
5,258

275
1,738
1,445
123
3,205
6,787

451
1,505
2,026
76
3,738
7,795

448
1,405
2,010
76
3,365
7,304

416
1,352
1,943
76
3,149
6,935

372
1,209
1,830
76
2,360
5,847

Property, plant and equipment


Other intangible assets
Investments in associates
Defferred tax assets
Non-current financial assets
Non-current assets

945
2,409
7
201
27
3,589

1,195
2,408
9
264
34
3,910

1,472
2,435
0
325
240
4,471

2,194
3,174
0
319
295
5,981

2,413
3,368
6
301
236
6,323

2,346
3,333
118
260
180
6,237

2,693
3,353
158
391
210
6,805

2,708
3,363
178
391
210
6,850

2,678
3,367
241
391
210
6,888

2,817
3,369
414
391
210
7,201

Total assets

8,132

8,570

10,222

11,771

11,581

13,024

14,600

14,154

13,823

13,048

Equity and liabilities

8,132

8,570

10,222

11,771

11,581

13,024

14,600

14,154

13,823

13,048

Total equity to the parent


Minority interests

2,473
22

2,687
30

3,180
22

3,652
22

4,001
13

4,157
17

4,363
12

4,779
12

5,040
12

5,246
12

Total equity

2,496

2,717

3,202

3,673

4,014

4,174

4,375

4,791

5,051

5,257

Trade payables
Other payables and accruals
Short-term debt
Total current liabilities

1,704
2,926
26
4,656

1,476
3,279
28
4,783

1,862
3,130
681
5,673

2,244
3,330
598
6,172

2,095
2,938
400
5,433

2,477
3,490
160
6,126

2,703
4,427
256
7,386

2,576
3,791
127
6,494

2,288
3,734
127
6,150

2,046
3,508
127
5,682

Long-term debt
Deferred tax liabilities
Pension liabilities
Other non-current liabilities
Total non-current liabilities

734
101
41
104
980

845
97
28
100
1,070

1,092
93
51
110
1,347

1,553
138
93
140
1,925

1,706
189
76
162
2,133

2,214
179
69
262
2,724

2,357
202
47
233
2,839

2,387
202
47
233
2,869

2,140
202
47
233
2,622

1,627
202
47
233
2,109

Total liabilities

5,636

5,853

7,020

8,097

7,567

8,849

10,225

9,363

8,772

7,791

Total equity and liabilities

8,132

8,570

10,222

11,771

11,581

13,024

14,600

14,154

13,823

13,048

-1,645
1,631

-1,784
1,661

-1,332
2,381

-657
3,801

-183
5,114

-832
4,800

-1,125
4,881

-851
5,721

-881
5,837

-605
6,091

Key metrics
Net interest bearing debt
Invested capital
Source: Company, DNB Markets

63

64

DNB Markets
12 March 2015

Valuation ratios
(EURm)
Enterprise value
Share price (EUR)
Number of shares (m)
Market capitalisation
Net interest bearing debt
Adjustments to NIBD
Net interest bearing debt adj
EV
EV adj

2008

2009

2010

2011

2012

2013

2014

2015e

2016e

2017e

21.81
104.8
2,286
-1,645
16
-1,629
641
657

49.40
106.3
5,249
-1,784
21
-1,763
3,466
3,487

69.10
106.5
7,357
-1,332
22
-1,310
6,025
6,047

72.62
107.9
7,839
-657
22
-635
7,182
7,204

86.84
109.9
9,542
-183
7
-176
9,359
9,366

69.86
111.3
7,775
-832
-101
-932
6,943
6,843

49.42
111.6
5,516
-1,125
-146
-1,271
4,391
4,245

59.36
111.8
6,633
-851
-389
-1,240
5,783
5,394

59.36
111.8
6,633
-881
-676
-1,557
5,752
5,076

59.36
111.8
6,633
-605
-1,018
-1,623
6,028
5,010

Valuation
EPS
EPS adj
DPS
P/E
P/E adj
P/B
Average ROE
Dividend yield
Free cash flow yield

4.28
4.28
1.20
5.1
5.1
0.92
19.1%
5.5%
1.9%

1.60
3.23
1.35
30.8
15.3
1.95
6.5%
2.7%
3.9%

3.92
3.96
1.45
17.6
17.5
2.31
14.1%
2.1%
-6.4%

4.70
4.80
1.58
15.5
15.1
2.15
14.8%
2.2%
-3.9%

4.91
4.97
1.68
17.7
17.5
2.38
14.0%
1.9%
-2.9%

5.07
5.06
1.85
13.8
13.8
1.87
13.8%
2.6%
9.8%

3.91
4.38
2.00
12.6
11.3
1.26
10.2%
4.0%
8.7%

5.72
5.72
2.10
10.4
10.4
1.39
13.9%
3.5%
-0.3%

4.33
4.33
2.21
13.7
13.7
1.32
9.8%
3.7%
4.1%

3.36
3.36
2.32
17.7
17.7
1.26
7.3%
3.9%
-1.6%

EV/SALES
EV/SALES adj
EV/EBITDA
EV/EBITDA adj
EV/EBIT
EV/EBIT adj
EV/capital employed
EV/NOPLAT

0.09
0.09
0.8
0.8
1.0
1.0
0.2
1.4

0.54
0.54
3.9
3.9
5.1
5.2
1.0
7.3

0.99
0.99
7.9
7.9
9.7
9.7
1.2
13.9

1.05
1.06
8.1
8.2
10.1
10.2
1.2
14.5

1.14
1.14
9.2
9.2
11.4
11.4
1.5
16.3

0.74
0.73
6.5
6.4
8.2
8.1
1.0
11.7

0.41
0.40
4.0
3.8
5.3
5.1
0.6
7.6

0.51
0.47
4.5
4.2
5.9
5.5
0.7
8.3

0.55
0.49
5.5
4.8
7.6
6.7
0.7
10.7

0.65
0.54
6.8
5.7
10.1
8.4
0.7
14.4

Source: Company, DNB Markets

64

65

DNB Markets
12 March 2015

Key accounting ratios


2008

2009

2010

2011

2012

2013

2014

2015e

2016e

2017e

5.5
21.4

2.0
19.8

4.4
14.5

4.6
13.1

4.6
13.8

4.6
13.3

3.2
12.2

4.4
13.8

3.5
10.4

2.8
8.3

Return on invested capital (%)


Net PPE/revenues
Working capital/revenues
Revenues/invested capital (pre-GW)
Pre-tax ROIC (incl. goodwill)
After-tax ROIC (incl. goodwill)

12.6
-33.3
458.8
45.3
31.2

18.5
-42.6
388.6
42.3
28.8

24.2
-38.6
255.4
31.3
21.5

32.2
-38.1
179.2
23.3
16.1

29.4
-25.3
160.4
18.7
12.9

25.1
-25.6
194.5
17.4
11.9

25.1
-28.7
219.7
17.4
12.0

23.7
-21.3
199.5
19.0
13.1

25.8
-21.5
178.2
13.5
9.3

30.3
-22.3
152.7
10.3
7.0

Cash flow ratios (%)


FCF/revenues
FCF/market capitalisation
CFO/revenues
CFO/market capitalisation
CFO/capex
CFO/current liabilities
Cash conversion ratio
Capex/revenues
Capex/depreciation
Total payout ratio

0.6
1.9
6.1
19.9
113.3
9.8
0.7
5.4
272.6
28.1

3.2
3.9
9.8
12.1
149.7
13.3
147.7
6.6
216.5
84.2

-7.7
-6.4
0.6
0.5
9.8
0.7
107.6
6.4
292.4
37.0

-4.5
-3.9
9.6
8.3
182.4
10.6
-58.5
5.2
220.4
33.6

-3.4
-2.9
5.4
4.7
85.7
8.2
-96.2
6.3
282.3
34.2

8.2
9.9
14.1
17.0
211.7
21.5
162.7
6.7
289.5
36.5

4.5
8.7
8.1
15.7
231.0
11.7
122.1
3.5
142.7
51.2

-0.2
-0.3
2.6
4.5
92.1
4.6
-58.4
2.8
116.1
36.7

2.6
4.1
5.5
8.7
214.1
9.4
-44.7
2.6
97.9
50.9

-1.1
-1.6
4.9
6.8
104.9
8.0
-210.1
4.6
159.6
68.9

Leverage and solvency (x)


Interest cover
EBIT/interest payable
EBITA adj/interest payable
Cash coverage
Net debt/EBITDA
Total debt/total capital (BV)
Total debt/total capital (MV)
LTD / (LTD + equity (MV))

17.63
16.89
17.15
80.61
-2.02
0.09
0.25
0.24

15.82
15.04
15.47
89.20
-2.00
0.10
0.14
0.14

12.58
11.47
11.70
-127.65
-1.74
0.17
0.19
0.13

10.26
9.43
9.59
68.49
-0.74
0.18
0.22
0.17

9.30
8.72
8.84
25.42
-0.18
0.18
0.18
0.15

9.76
9.20
9.38
26.84
-0.77
0.18
0.23
0.22

9.32
8.90
9.12
20.80
-1.02
0.18
0.32
0.30

10.21
9.80
10.00
21.39
-0.66
0.18
0.27
0.26

8.69
8.27
8.49
19.98
-0.84
0.16
0.25
0.24

8.38
7.94
8.20
21.14
-0.68
0.13
0.21
0.20

Cash conversion cycle


Receivables turnover days

91.3

97.6

143.0

144.1

116.5

124.4

120.1

109.2

115.6

119.3

Profitability (%)
ROA
ROCE

Source: Company, DNB Markets

65

66

DNB Markets
12 March 2015

Important Information
This report has been prepared by DNB Markets, a division of DNB Bank ASA. DNB Bank ASA is a part of the
DNB Group. This report is based on information obtained from public sources that DNB Markets believes to be
reliable but which DNB Markets has not independently verified, and DNB Markets makes no guarantee,
representation or warranty as to its accuracy or completeness. Any opinions expressed herein reflect DNB
Markets judgement at the time the report was prepared and are subject to change without notice.

Recommendation structure and risk classification


DNB Markets recommendations are based on absolute performance:
Buy
Hold
Sell

- indicates an expected return greater than 10% within 12 months


- indicates an expected return between 0 and 10% within 12 months
- indicates an expected negative return within 12 months

The return-requirement bands above may be applied with some degree of flexibility depending on the liquidity and volatility characteristics of the individual share.
High risk
Medium risk
Low risk

- Volatility over 40 percent.


- Volatility from 25 percent to 40 percent.
- Volatility under 25 percent.

Investing in any security is subject to substantial risk. Return on investment may vary greatly.
Careful consideration for possible financial distress should be accounted for before investing in any security.

Recommendation distribution and corporate clients for the last 12 months


Buy
Hold
Number
78
53
% of total
42%
28%
DNB Markets client
20%
5%

Sell
54
29%
10%

No rec
1
1%
1%

Total
187
67

Conflict of interest, risk classification and price target history for Subsea 7
DNB Markets/DNB Group may receive compensation for investment banking services or other products/services from Subsea 7.

Share positions in the company:


Number of shares

Analyst*
0

Employees**
124

DNB***
0

Update
12.03.2015

*The analyst or any close associates. **Share positions does not include administration and section FX/Treasury.
***Share positions as part of DNB Group. Holdings as part of DNB Markets investment services activity are not included.
Price, Rating, and Price Target History Subsea 7 (SUBC NO) as of 11-3-15

1-8-14
B : 120

2-5-14
H : 120

16-9-14
H : 100.0

11-11-14
H : 94.0

13-11-14
S : 73.0

25-11-14
S : 67.0

17-12-14
S : 63.0

29-1-15
S : 56.0

5-3-15
S : 55.0

120
110
100
90
80
70
60
50
29-6-14

29-7-14

29-8-14

28-9-14

29-10-14

28-11-14

29-12-14

28-1-15

28-2-15

30-3-15

Source: Factset Estimates (Prices) / DNB (ratings and target price)

Current 6 months volatility rates this security as HIGH risk.


Conflict of interest, risk classification and price target history for Saipem
DNB Markets/DNB Group may receive compensation for investment banking services or other products/services from Saipem.

Share positions in the company:


Number of shares

Analyst*
0

Employees**
0

DNB***
0

Update
12.03.2015

*The analyst or any close associates. **Share positions does not include administration and section FX/Treasury.
***Share positions as part of DNB Group. Holdings as part of DNB Markets investment services activity are not included.

66

67

DNB Markets
12 March 2015

Price, Rating, and Price Target History Saipem (SPM IM) as of 11-3-15

30-7-14
H : 17.6

3-7-14
H : 19.0

13-8-14
H : 17.8

27-10-14
S : 14.0

29-10-14
S : 12.5

25-11-14
S : 10.00

17-12-14
S : 8.00

17-2-15
S : 7.60

22
20

18
16
14
12
10
8
6
29-6-14

29-7-14

29-8-14

28-9-14

29-10-14

28-11-14

29-12-14

28-1-15

28-2-15

30-3-15

Source: Factset Estimates (Prices) / DNB (ratings and target price)

Current 6 months volatility rates this security as HIGH risk.


Conflict of interest, risk classification and price target history for Technip
DNB Markets/DNB Group may receive compensation for investment banking services or other products/services from Technip.

Share positions in the company:


Number of shares

Analyst*
0

Employees**
0

DNB***
0

Update
12.03.2015

*The analyst or any close associates. **Share positions does not include administration and section FX/Treasury.
***Share positions as part of DNB Group. Holdings as part of DNB Markets investment services activity are not included.
Price, Rating, and Price Target History Technip (TEC FP) as of 11-3-15

24-7-14
H : 71.0

3-7-14
S : 71.0

13-8-14
S : 62.0

27-10-14
H : 60.0

24-11-14
S : 52.0

17-12-14
S : 44.0

19-2-15
S : 47.0

85
80
75
70
65
60
55
50
45
40
29-6-14

29-7-14

29-8-14

28-9-14

29-10-14

28-11-14

29-12-14

28-1-15

28-2-15

30-3-15

Source: Factset Estimates (Prices) / DNB (ratings and target price)

Current 6 months volatility rates this security as MEDIUM risk.


Conflict of interest, risk classification and price target history for Aker Solutions
DNB Markets/DNB Group may receive compensation for investment banking services or other products/services from Aker Solutions.

Share positions in the company:


Number of shares

Analyst*
0

Employees**
0

DNB***
0

Update
12.03.2015

*The analyst or any close associates. **Share positions does not include administration and section FX/Treasury.
***Share positions as part of DNB Group. Holdings as part of DNB Markets investment services activity are not included.
Price, Rating, and Price Target History Aker Solutions (AKSO NO) as of 11-3-15

S : 54.0

5-11-14
S : 40.0

25-11-14
S : 36.0

17-12-14
S : 31.0

2-2-15
S : 30.0

16-2-15
S : 32.0

70
65
60
55
50
45
40
35
30
25
29-8-14

28-9-14

29-10-14

28-11-14

29-12-14

28-1-15

28-2-15

30-3-15

Source: Factset Estimates (Prices) / DNB (ratings and target price)

67

68

DNB Markets
12 March 2015

There is not enough historical volatility data to rate the risk of this share.
Legal statement
The analyst hereby certifies that (i) the views expressed in this report accurately reflect that research analysts personal views about the company and the securities that
are the subject of this report, and (ii) no part of the research analysts compensation was, is, or will be, directly or indirectly, related to the specific recommendations or
views expressed by that research analyst in this report. DNB Markets employees, including research analysts, may receive compensation that is generated by overall firm
profitability. Confidentiality rules and internal rules restricting the exchange of information between different parts of DNB Markets/DNB Bank ASA or the DNB Group are in
place to prevent employees of DNB Markets who are preparing this report from utilizing or being aware of information available in the DNB Group that may be relevant to
the recipients decisions. DNB Markets and the DNB Group have incorporated internal rules and regulations in order to avoid any potential conflicts of interest. This report is
for clients only, and not for publication, and has been prepared for information purposes only by DNB Markets - a division of DNB Bank ASA registered in Norway number
NO 984 851 006 (the Register of Business Enterprises) under supervision of the Financial Supervisory Authority of Norway (Finanstilsynet), the Monetary Authority of
Singapore, and on a limited basis by the Financial Conduct Authority and the Prudential Regulation Authority of the UK, and the Financial Supervisory Authority of Sweden.
Details about the extent of our regulation by local authorities outside Norway are available from us on request.
It is issued subject to the General Business Terms for DNB Markets and information about the terms is available at www.dnb.no. For requests regarding the
General Business Terms of the Singapore Branch of DNB Bank ASA, please contact +65 6212 0753. Information about the DNB Group can be found at www.dnb.com.
DNB Markets is a member of The Norwegian Securities Dealers Association, which has issued recommendations and market standards for securities companies.
The Association's Internet address where the recommendations and market standards can be found is: www.nfmf.no. This report is not an offer to buy or sell any security or
other financial instrument or to participate in any investment strategy. No liability whatsoever is accepted for any direct or indirect (including consequential) loss or
expense arising from the use of this report. Distribution of research reports is in certain jurisdictions restricted by law. Persons in possession of this report should seek
further guidance regarding such restrictions before distributing this report. Please contact DNB Markets at 08940 (+47 915 08940) for further information and inquiries
regarding this report, such as ownership positions and publicly available/commonly known corporate advisory performed by DNB Markets etc, in relation to the
Norwegian Securities Trading Act 2007/06/29 no. 75 and the Norwegian Securities Trading Regulation 2007/06/29 no. 876.
Additional information for clients in Singapore
The report has been distributed by the Singapore Branch of DNB Bank ASA. It is intended for general circulation and does not take into account the specific investment
objectives, financial situation or particular needs of any particular person. You should seek advice from a financial adviser regarding the suitability of any product referred
to in the report, taking into account your specific financial objectives, financial situation or particular needs before making a commitment to purchase any such product.
You have received a copy of the report because you have been classified either as an accredited investor, an expert investor or as an institutional investor, as these terms
have been defined under Singapore's Financial Advisers Act (Cap. 110) ("FAA") and/or the Financial Advisers Regulations ("FAR"). The Singapore Branch of DNB Bank
ASA is a financial adviser exempt from licensing under the FAA but is otherwise subject to the legal requirements of the FAA and of the FAR. By virtue of your status as an
accredited investor or as an expert investor, the Singapore Branch of DNB Bank ASA is, in respect of certain of its dealings with you or services rendered to you, exempt
from having to comply with certain regulatory requirements of the FAA and FAR, including without limitation, sections 25, 27 and 36 of the FAA. Section 25 of the FAA
requires a financial adviser to disclose material information concerning designated investment products which are recommended by the financial adviser to you as the
client. Section 27 of the FAA requires a financial adviser to have a reasonable basis for making investment recommendations to you as the client. Section 36 of the FAA
requires a financial adviser to include, within any circular or written communications in which he makes recommendations concerning securities, a statement of the nature
of any interest which the financial adviser (and any person connected or associated with the financial adviser) might have in the securities. Please contact the Singapore
branch of DNB Bank ASA at +65 6212 0753 in respect of any matters arising from, or in connection with, the report. The report is intended for and is to be circulated only
to persons who are classified as an accredited investor, an expert investor or an institutional investor. If you are not an accredited investor, an expert investor or an
institutional investor, please contact the Singapore Branch of DNB Bank ASA at +65 6212 0753. We, the DNB group, our associates, officers and/or employees may have
interests in any products referred to in the report by acting in various roles including as distributor, holder of principal positions, adviser or lender. We, the DNB group, our
associates, officers and/or employees may receive fees, brokerage or commissions for acting in those capacities. In addition, we, the DNB group, our associates, officers
and/or employees may buy or sell products as principal or agent and may effect transactions which are not consistent with the information set out in the report.
In the United States
Each research analyst named on the front page of this research report, or at the beginning of any subsection hereof, hereby certifies that (i) the views expressed in this
report accurately reflect that research analysts personal views about the company and the securities that are the subject of this report; and (ii) no part of the research
analysts compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by that research analyst in this report. The
research analyst(s) named on this report are not registered / qualified as research analysts with FINRA. The research analyst(s) may not be associated persons of DNB
Markets, Inc. and therefore may not be subject to NASD Rule 2711 restrictions on communications with a subject company, public appearances and trading securities held
by a research analyst. This report is being furnished upon request and is primarily intended for distribution to Major U.S. Institutional Investors within the meaning of Rule
15a-6 under the U.S. Securities Exchange Act of 1934. To the extent that this report is being furnished, or will be disseminated, to non-Major U.S. Institutional Investors,
such distribution is being made by DNB Markets, Inc., a separately incorporated subsidiary of DNB that is a U.S. broker-dealer and a member of the
Financial Industry Regulatory Authority and the Securities Investor Protection Corporation. Any U.S. recipient of this report seeking to obtain additional information
or to effect any transaction in any security discussed herein or any related instrument or investment should call or write DNB Markets, Inc., 200
Park Avenue, New York, NY 10166-0396, telephone number +1 212-551-9800.
In Canada
The Report has been distributed in reliance on the International Dealer Exemption pursuant to NI 31-103 subsection 8.18(2) and subsection 8.18(4)(b). Please be advised
that: 1. DNB Bank ASA (DNB Markets) and DNB Markets, Inc. are not registered as a dealer in the local jurisdiction to make the trade. We provide our services in Canada
as an exempt international dealer. 2. The jurisdiction of DNB Bank ASA (DNB Markets) and DNB Markets, Inc.'s head office is Norway. 3. There may be difficulty enforcing
legal rights against DNB Bank ASA (DNB Markets) and DNB Markets, Inc. because all or substantially all of their assets may be situated outside of Canada. 4. The name
and address of the agent for service of process for DNB Bank ASA (DNB Markets) and DNB Markets, Inc. in the local jurisdiction is:
Alberta: Blake, Cassels & Graydon LLP, 855 - 2nd Street S.W., Suite 3500, Bankers Hall East Tower, Calgary, AB T2P 4J8. British Columbia: Blakes Vancouver
Services Inc., 595 Burrard Street, P.O. Box 49314, Suite 2600, Three Bentall Centre, Vancouver, BC V7X 1L3. Manitoba: Aikins, MacAulay & Thorvaldson LLP,
30th Floor, Commodity Exchange Tower, 360 Main Street, Winnipeg, MB R3C 4G1. New Brunswick: Stewart McKelvey, Suite 1000, Brunswick House, 44
Chipman Hill, PO Box 7289, Station A, Saint John, NB E2L 2A9. Newfoundland and Labrador: Stewart McKelvey, Suite 1100, Cabot Place, 100 New Gower Street,
P.O. Box 5038, St. John's, NL A1C 5V3. Nova Scotia: Stewart McKelvey, Purdy's Wharf Tower One, 1959 Upper Water Street, Suite 900, P.O. Box 997, Halifax,
NS B3J 2X2. Northwest Territories: Gerald Stang, Suite 201, 5120-49 Street, Yellowknife, NT X1A 1P8. Nunavut: Field LLP, P.O. Box 1779, Building 1088C,
Iqaluit, NU X0A 0H0. Ontario: Blakes Extra-Provincial Services Inc., Suite 4000, 199 Bay Street, Toronto, ON M5L 1A9. Prince Edward Island: Stewart McKelvey,
65 Grafton Street, Charlottetown, PE C1A 1K8. Qubec: Services Blakes Qubec Inc., 600 de Maisonneuve Boulevard Ouest, Suite 2200, Tour KPMG, Montral,
QC H3A 3J2.
Saskatchewan: MacPherson, Leslie & Tyerman LLP, 1500 Continental Bank Building, 1874 Scarth Street, Regina, SK S4P 4E9. Yukon: Grant
Macdonald, Macdonald & Company, Suite 200, Financial Plaza, 204 Lambert Street, Whitehorse, YK Y1A 3T2.
In Brazil
The analyst or any close associates do not hold nor do they have any direct/indirect involvement in the acquisition, sale, or intermediation of the securities discussed herein.
Any financial interests, not disclosed above, that the analyst or any close associates holds in the issuer discussed in the report is limited to investment funds that do not
mainly invest in the issuer or industry discussed in the report and the management of which these persons cannot influence.

68

69

Oil Services

Company Update

Norway

2 February 2015

Subsea 7

Sell

Key Data (2014E)


Price (NOK)
Target price (NOK)
- changed from (NOK)
Recommendation
Risk

65.90
53.00
67.00
Sell
Normal

Reuters
Bloomberg

Focus on declining utilisation outlook in 2015

Early Q1 utilisation strength likely to disappear


We measure an average vessel utilisation of 59% across Subsea 7s fleet YTD
above the 38% for Technip and 40% for Saipem, but well below historical reported
levels, which have averaged 76% for Subsea 7 in Q1 over the past four years.
Order intake for Subsea 7, which has typically been comparable to Technip
historically, was half as much in 2014, so we see this utilisation spread between
Subsea 7 and Technip closing and reversing during 2015. Recent indications that
development drilling has been delayed on Shells Bonga SW project in Nigeria is
another blow for Subsea 7 we had seen the company well positioned for this, and
the pipeline of opportunities appears to be evaporating rapidly.

2015 orders expected in line with 2014, but new revenue bookings to drop
Consensus EPS estimates for Subsea 7 have fallen by 6% (2015) and 10% (2016)
this year already and we see Q4 triggering further downside as Subsea 7
announces updated backlog scheduling for 2016 alone (first reported in the 2013
annual report but not updated since). Consensus still shows EBITDA margins of
18.5% in 2015/16 a marginal contraction versus the 19.4% we forecast for 2014.
We simply do not believe this is factoring in any risk of deteriorating vessel utisation
which has to be aligned with sharp revenue contraction in 2015 and beyond.

Asset based valuation shows 20% downside


As earnings collapse, multiples are becoming a less relevant valuation metric for
Subsea 7, so we have reverted to asset based fair value calculations to set our
revised target price of NOK 53, down from NOK 67. This is based on a 50%
discount to tangible equity book value and is 20% below the current share price.

SUBC.OL
SUBC NO

Market cap (NOKm)


Market cap (USDm)
Market cap (EURm)
Net debt (USDm)
Net gearing
Net debt/EBITDA (x)

24,333
3,114
2,782
300
4%
0.2
369.2
173.2
90%

Shares fully dil. (m)


Avg daily turnover (NOKm)
Free float

Share Price Performance (%)


-1M
(14)
(16)
(6)

SUBC.OL
Relative Norway
Relative sector

-3M
(11)
(10)
18

-12M
(41)
(45)
0

Share Price (12M)

Financials (USD)
Year end: Dec
Revenues (m)
Operating profit (m)
Pre-tax profit (m)
EPS (reported)
EPS (adjusted)
DPS

130
120
110
100
90
80
70
60
Feb

Apr

Jun

Aug

Oct

Dec Feb

Absolute performance (blue) / Relative to Norway (grey).

Analysts
Andrew Dobbing
(47) 2100 8567
andrew.dobbing@seb.no
Terje Fatnes
(47) 2100 8538
terje.fatnes@seb.no
Harald yen
(47) 2100 8542
harald.oyen@seb.no

2012
6,297
808
1,069
2.23
2.23
0.60

2013
6,297
573
511
0.99
0.99
0.60

2014E
7,270
1,076
1,049
2.20
2.20
0.00

2015E
5,165
348
329
0.64
0.64
0.00

2016E
4,914
313
291
0.57
0.57
0.60

Revenue growth (%)


Operating profit growth (%)
EPS (adjusted) growth (%)

15.0
26.2
84.0

0.0
(29.1)
(55.6)

15.4
87.6
121.4

(29.0)
(67.7)
(70.8)

(4.9)
(9.9)
(11.2)

Operating margin (%)


ROE (%)
ROCE (%)

12.8
14.0
11.2

9.1
5.8
7.7

14.8
11.8
14.0

6.7
3.1
4.4

6.4
2.6
3.8

PER (x)
Free cash flow yield (%)
Dividend yield (%)
P/BV (x)

10.6
(0.4)
2.5
1.26

19.2
4.0
3.2
0.97

3.8
5.2
0.0
0.39

13.2
(13.4)
0.0
0.38

14.8
5.1
7.1
0.37

EV/Sales (x)
EV/EBITDA (x)
EV/EBIT (x)
Operating cash flow/EV (%)
EV/Capital employed (x)

1.55
8.5
12.0
8.9
1.23

1.17
7.5
12.9
13.9
0.98

0.47
2.3
3.2
35.1
0.51

0.70
4.6
10.5
17.6
0.43

0.70
4.4
11.0
19.2
0.40

Source for all data on this page: SEB (estimates) and SIX/Thomson Reuters (prices)

researchonline.sebgroup.com

Important. All disclosure information can be found on pages 34 36 of this document

70

Company Update

Subsea 7

Investment thesis
We see a wave of negative triggers for Subsea 7, including risks of continued weak asset
utilisation, which we do not believe the market is sufficiently aware of. This is particularly
true in the North Sea, historically a more important market for Subsea than for either
Technip or particularly Saipem. We argue this highlights the risk surrounding consensus
revenue forecasts and particularly margin forecasts. We expect a major impairment of
Subsea 7s goodwill (USD 2,578m at 30 September 2014, which arose as a consequence
of the merger between Subsea 7 and Acergy which completed on 7 January 2011). We
acknowledge that there is a very illiquid market for Subsea 7s highly specialised vessels.
However, we believe the tangible book value will ultimately provide some downside
protection to the share price at a time when earnings continue to contract and near term
earnings multiples no longer provide a realistic valuation metric. Whats more, as M&A
remains an important theme in this sector, asset based valuation metrics could prove
particularly appropriate.
Still trading well above prior low on price/book value
Subsea 7 is trading on a consensus price/book value per share of 0.39x (0.41x on our
forecasts) a record low and compared with the previous low of 0.59x in November 2008.
However adjusting for the goodwill, Subsea 7 is trading on a price/tangible book value of
0.63x. We expect the current down-cycle to be much deeper than that in 2008/09, and it is
now more appropriate to question the market value of assets. As such the discount we
apply, both in absolute terms, and relative to the low at the end of 2008 seems appropriate.
Price/equity book value
6

0
Jan-07

Jan-08

Jan-09

Jan-10
SUBC

Jan-11
SPM

Jan-12

Jan-13

Jan-14

Jan-15

TEC

Source: Thomson Datastream

2015 orders expected in line with 2014, but new revenue bookings to drop
The consensus (Bloomberg) revenue forecast for 2015 (USD 5,900m, down from
USD 7,097m in 2014) seems aligned with (i) lower bookings for this year (USD 3,866m at
the end of Q3 2014 is down USD 854m from the USD 4,720m booked for 2014 at the end
of Q3 2013), and (ii) assumptions of weak order intake. However while an unusually high
proportion of order intake in 2014 was from small contracts and scope changes (both of
which tend to offer early execution and hence a short-dated backlog), a return to a more
typical contribution from larger announced contracts will likely mean reduced new 2015
revenue bookings.

SEB Equity Research

02 February 2015

71

Company Update

Subsea 7

Earning revisions
We have revised our revenue forecasts for Subsea 7 on the back of lower order intake
assumptions for 2015 (down from USD 4.5bn to USD 4.0bn) and 2016 (down from
USD 6.5bn to USD 6.0bn). We have also lowered our margin forecasts based on (i) the
historical correlation between profitability and utilisation, and (ii) our analysis of the current
and likely evolution of Subsea 7s fixed and variable cost base. The effect on our estimates
is:

2015 revenues cut by 18%. We have reduced our 2015 revenue forecast from
USD 6,309m to USD 5,165m (-18%), 12% below consensus of USD 5,900m.

2016 revenue cut by 8%. We have reduced our 2016 revenue forecast from
USD 5,359m to USD 4,914m (-8%), 11% below consensus of USD 5,501m.

2015 EBITDA cut by 37%. We have reduced our 2015 EBITDA forecast from
USD 1,263m to USD 793m (-37%), 27% below consensus of USD 1,089m.

2016 EBITDA cut by 28%. We have reduced our 2016 EBITDA forecast from
USD 1,089m to USD 779m (-28%), 23% below consensus of USD 1,013m.

Earnings revision
(USD)
Revenues (m)
Old
New
Change (%)
Operating profit (m)
Old
New
Change (%)
Pre-tax profit (m)
Old
New
Change (%)
EPS (reported)
Old
New
Change (%)
EPS (adjusted)
Old
New
Change (%)

2014E

2015E

2016E

7,270
7,270
0

6,309
5,165
(18)

5,359
4,914
(8)

1,076
1,076
0

817
348
(57)

623
313
(50)

1,049
1,049
0

801
329
(59)

608
291
(52)

2.20
2.20
0

1.59
0.64
(60)

1.21
0.57
(53)

2.20
2.20
0

1.59
0.64
(60)

1.21
0.57
(53)

Source: SEB

SEB Equity Research

02 February 2015

72

Company Update

Subsea 7

Q4 2014 preview
We forecast Q4 2014 revenues of USD 1,795m, down 6% sequentially from USD 1,902m
in Q3 2014, up 13% y-o-y from USD 1,586m in Q4 2013 and 10% above consensus
(Bloomberg) of USD 1,635m. We forecast EBITDA of USD 347m (19.3% margin, and
which does not include any additional provision reversal on Guara-Lula), down 10%
sequentially from USD 386m (20.3% margin, excluding the USD 40m provision reversal on
Guara-Lula), up 19% y-o-y from USD 291m (18.3% margin, excluding the USD 49m
provision on Guara-Lula), and 20% above consensus of USD 289m (17.7% margin). We
forecast order intake of USD 600m in Q4 2014, based on USD 195m of announced orders,
and USD 405m of non-announced orders. Three contracts were announced during Q4: (i)
Baobab Field Phase III development for CNR in Ivory Coast (USD 70m, but this was
included in the Q3 2014 order backlog), (ii) a SURF contract for Shell in the GoM
(USD 75m), and (iii) the Stampede project for Hess in the GoM (USD 120m). We estimate
a year-end 2014 order backlog of USD 8,235m, although this does not include any
currency impact. In its Q3 report Subsea 7 reported a USD 300m negative currency impact
on its backlog, based on the weakening of most relevant currencies against the USD. We
note that during Q4 the USD/NOK dropped by 15% compared with a 5% drop during Q3
2014. As such we see risk of another significant impact on Subsea 7s backlog and revenue
visibility for 2015 and 2016.
We expect there to be focus on bookings for 2016. In its Q3 2014 presentation Subsea 7
announced that 42% its USD 9,430m backlog was for execution in 2016 and beyond. In its
Q4 presentation, Subsea7 will disclose the backlog for execution in 2016 alone. We
estimate this will be USD 1,834m based on an estimated USD 2,126m of the backlog for
execution in 2017 and beyond (which we assume is entirely attributable to the long term
PLSV contracts). However, as we highlight above, this USD 1,834m could be negatively
impacted by foreign currency movements during Q4 2014, and hence this disclosure could
be another negative trigger for 2016 earnings revisions.
Overview of backlog scheduling Subsea 7
Backlog +7% YoY

USD 3,231m
of end Q2/13
backlog for
execution in
2015 and
beyond

USD 4,064m
of end Q2/13
backlog for
execution in
2014

USD 3,126m
of end Q2/13
backlog for
execution in
H2 2013

2,126

773
3,231

4,064

2,458
(2015)

Apparent
improvement
In revenue
visibility

4,032
1,906
(2016)

Backlog for execution


in 2016 down
USD 552m compared
to execution for 2015
measured one year
earlier

3,808

3,360

3,126

Backlog at
Q2 2013

Backlog at
Q2 2014

USD 4,032m
of end Q2/14
backlog for
execution in
2016 and
beyond

USD 3,808m
of end Q2/14
backlog for
execution in
2015

USD 3,360m
of end Q2/14
backlog for
execution in
H2 2014

3,961

USD 3,961m
of end Q3/14
backlog for
execution in
2016 and
beyond

3,866

USD 3,866m
of end Q3/14
backlog for
execution in
2015

1,603

USD 1,603m
of end Q3/14
backlog for
execution in
Q4 2014

2,126

1,834
(2016)

Backlog at
Q3 2014

Source: SEB estimates, Subsea 7

SEB Equity Research

02 February 2015

73

Company Update

Subsea 7

Announced and non-announced order intake - Subsea 7


10,000
9,000
8,000
7,000

USD m

6,000
5,000
4,000
3,000
2,000
1,000
0
2008

2009

2010

2011

Announced order intake

2012

2013

2014E

2015E

2016E

Unannounced

Source: SEB estimates, Subsea 7

Where do we think consensus is wrong?


Our forecasts are significantly below consensus, perhaps most noticeably on our 2015
revenue estimate. Revenue booked for 2015 at the end of Q3 2014 was USD 3,866m,
currently only USD 854m below bookings for 2014 a year earlier. Therefore it is perhaps
logical to think that revenue in 2015 will only be about the same amount lower, particularly
as we believe order intake in 2015 (USD 4bn) will be similar to 2014 (USD 4,038m).
However an usually high proportion of order intake during 2014 was from unannounced
orders. As this consists of small contracts (below USD 50m), and scope changes, this
tends to be short dated backlog, and hence heavily accretive to near term revenue. A good
example of this was in Q1 2014, when USD 1,175m of the total USD 1,450m of order
intake was from non-announced orders and revenue booked for 2014 increased by
USD 753m during the quarter (this ratio of current year bookings to current year orders of
52%, compares to a historical correlation which shows 27%). Our revenue forecasts for
2015 are based on a more normalised mix between announced and non-announced orders
and hence a more normal phasing of the revenue from that backlog.
Current year revenue additions as a percentage of quarterly order intake Subsea 7
60
50
40

30
20
10
0
-10
Q2/11 Q3/11 Q4/11 Q1/12 Q2/12 Q3/12 Q4/12 Q1/13 Q2/13 Q3/13 Q4/13 Q1/14 Q2/14 Q3/14
Additions to current year revenue/quartely EX PLSV order intake

Annual average

Source: Subsea 7, SEB

SEB Equity Research

02 February 2015

74

Company Update

Subsea 7

Quarterly announced and non-announced order intake, additions to revenue bookings


3,000
2,500

USD m

2,000
1,500
1,000
500
0

Announced order intake

Unannounced order intake

Next year revenue added

Q4/14E

Q3/14

Q2/14

Q1/14

Q4/13

Q3/13

Q2/13

Q1/13

Q4/12

Q3/12

Q2/12

Q1/12

Q4/11

Q3/11

Q2/11

Q1/11

-500

Current year revenue added

Source: SEB estimates, Subsea 7

Overview of PLSV adjustments order intake, order backlog and revenue scheduling
Q1/13

Q2/13

Q3/13

Q4/13

Q1/14

Q2/14

Q3/14

283

2,500

2,660

1,170

396
1,160

710

1,175
275

Order intake

Announced orders

883
670

368

Non-announced orders

2,450

350
2,603

600
1,530
493

Order intake

1,450

956

1,553
438

Non-PLSV orders

PLSV orders

-30% YoY

9,539

10,222

9,455

10,421

8,424

7,887

7,765

7,510

5,873

3,376

3.883

3,787

3,687

3,557

11,800

11,770

11,552

11,197

9,430

Order backlog

Non-PLSV backlog

PLSV backlog

-1,044
-1,043

3,493

3,872

4,357

2,036

554

554

Backlog for execution in 2014

4,064

Revenue booked
(backlog execution)

3,313

554

554

Backlog for execution in 2015


-574

3,578

3,253
2,450

4,720

-854

2,589

3,004

Non-PLSV revenue

3,807

3,866

PLSV revenue

Source: Subsea 7 SEB

SEB Equity Research

02 February 2015

75

Company Update

Subsea 7

Order intake outlook Subsea 7


Order intake for Subsea 7, which typically more or less matched that for Technip during
2007-13, collapsed in 2014 to USD 3,438m. This compares with EUR 5,567m or
USD 7,573m for Technip. Subsea 7 has been favourably positioned on a number of
contracts which have slipped most notably Chevrons Gehem Gendalo project in
Indonesia and more recently there are indications that Shells very large Bonga SW field
development project in Nigeria is getting pushed out. Thus, rather than winning back
market share, we see low order intake for both Subsea 7 and Technip this year.
Annual order intake by region (note pre-2011 is Acergy prior to merger with Subsea 7)
10,000
9,000
8,000
7,000

USD m

6,000
5,000
4,000
3,000
2,000
1,000
0
2008
North Sea & Canada

2009
Africa & GoM

2010

2011

Asia Pacific & Middle East

2012
Brazil

2013

2014 YTD

Total non-announced

Source: Subsea 7

Fleet utilisation analysis


Based on our analysis of vessel movements, and port stops, we estimate an average YTD
vessel utilisation of 59% for Subsea 7, compared to reported utilisation of 65% in Q1 2011,
86% in Q1 2012 and 74% in Q1 2013. The first quarter typically shows the lowest utilisation
and profitability due to a seasonal weather related slowdown in demand in the North Sea,
which typically runs from December to February.
While stronger than for both Saipem and Technip, utilisation appears to have been weak
for Subsea 7 YTD, largely due to low activity for the Inspection, Maintenance & Repair
(IMR) vessels. Some of these vessels are operating on long term frame agreements where
the vessels receive income for a minimum number of days. As we have not taken this into
account for all vessels, we may be underestimating actual effective economic utilisation.
For the Subsea Viking we assume full utilisation as it was awarded a five-year contract with
BP on 12 October 2012 for subsea construction and IMR services for the Foinaven and
Schiehallion fields located west of the Shetland Islands. The contract extension is valued at
approximately USD 300m and will run from 2013 until 2017. We assume this contract is for
continual activity (i.e. the vessel is being paid for 365 days a year), as this implies a day
rate of USD 164,000, which appears fair.
While utilisation is just one of many variables that determine overall profitability for
Subsea 7, explaining the poor correlation between the two, it tends to be the most
important single recurring driver of reported margins. Other variables include the level of
procurement income (in turn dependent on the ratio of EPIC to transport and installation or
day rate contracts), project phasing and profit contingency release and contract pricing.

SEB Equity Research

02 February 2015

76

Company Update

Subsea 7

Overall fleet utilisation - Subsea 7


70

Vessel utilisation (%)

60
50
40
30
20
10

19 Jan

21 Jan

23 Jan

25 Jan

27 Jan

29 Jan

31 Jan

21 Jan

23 Jan

25 Jan

27 Jan

29 Jan

31 Jan

17 Jan
17 Jan

19 Jan

15 Jan
15 Jan

13 Jan

11 Jan

09 Jan

07 Jan

05 Jan

03 Jan

01 Jan

Source: MarineTraffic, Bloomberg, company reports, SEB

Vessel utilisation by vessel type Subsea 7


120

Vessel utilisation (%)

100
80
60
40
20

13 Jan

11 Jan

09 Jan

07 Jan

05 Jan

03 Jan

01 Jan

Construction vessels
Construction/Horizontal Flex-lay vessels
Diving vessels

Construction/Vertical Flex-lay vessels


Life-of-field/Light construction vessels
Rigid pipelay/Heavy lift vessels

Source: MarineTraffic, Bloomberg, company reports, SEB

SEB Equity Research

02 February 2015

77

Company Update

Subsea 7

Correlation between fleet utilisation and group gross margin


95
Q3/14Q2/14

90

Q3/12
Q3/13

Q1/12

85

Vessel utilisation (%)

Q3/11
80

Q4/11
Q2/13

Q4/12

Q4/13

Q1/14

75

Q2/12

Q2/11

y = 1.9318x + 48.883
R = 0.422

Q1/13

70
65

Q1/11

60
13

14

15

16

17

18

19

20

21

22

Recurring gross margin (%)


Source: SEB, Subsea 7

We see risk of weak utilisation in Q1, and while it should improve in Q2 and Q3 as normal,
the combination of relatively weak current bookings and a weak outlook for new orders
means we expect the average level in 2015 to remain low. Assuming much of the 28%
revenue decline we forecast in 2015 translates into a reduction in overall vessel utilisation,
we could easily see the 85% average we estimate for FY 2014 (87% implied for 9M 2014
from the 79%, 91% and 91% disclosed for Q1, Q2 and Q3 2014) dropping below 70% this
year. Assuming a fleet utilisation of 70% (a historical low for Subsea 7) implies a gross
margin of 10.9% (compared to the 11.0% we forecast) and an operating margin of 3.5%
(compared to the 6.7% we forecast). Note that the margin analysis we carry out later in this
section, based on the split between fixed and operating costs, indicates an operating
margin of 4.4% in 2015 and 5.0% in 2016.
Correlation between fleet utilisation and group operating margin
95
Q3/14

90

Q2/14

Q3/12
Q4/11

Vessel utilisation (%)

Q2/12
Q3/13

Q1/12

85

Q3/11
Q4/12

y = 1.2942x + 65.422
R = 0.4377

80

Q2/13

Q4/13
Q1/14

75

Q2/11

Q1/13

70
65

Q1/11

60
6

10

12

14

16

18

20

22

Recurring operating margin (%)


Source: SEB, Subsea 7

SEB Equity Research

02 February 2015

78

Company Update

Subsea 7

Correlation between North Sea & Canada (NSC) fleet utilisation & NCS operating margin
100

Q3/12

95
Q4/13

North Sea fleet utilisatoin (%)

90

Q3/14

Q2/14

Q3/13
Q4/11

Q4/12
Q2/12

85

Q3/11
Q1/12

80

Q2/13

Q2/11

75
70
y = 1.4431x + 64.945
R = 0.3964

65

Q1/14
Q1/13

60
55
Q1/11

50
-5

10
NCS operating margin (%)

15

20

25

Source: SEB, Subsea 7

2015 revenue forecasting


For 2015 revenue we use a two stage approach:

Stage 1: the correlation between quarterly order intake and next year backlog
execution to calculate 2015 revenue coverage by the end of 2014.

Stage 2: the correlation between quarterly order intake and current year backlog
execution to calculate 2015 revenue coverage by the end of 2015.

Stage 1 incremental 2016 revenue coverage during Q4 2014


We assume order intake of USD 600m in Q4 2014 (previously USD 1bn).
Year+1 revenue addition = (0.3317 x order intake).
2015 revenue addition = 0.3317 x 600 = USD 199m.
In its Q3 2014 report, Subsea 7 disclosed that 41% (USD 3,866m) of its total backlog
(USD 9,430m) was for execution in 2015.
Thus based on our order intake assumptions above we estimate that by the end of 2014
there will be (3,866 + 199 =) USD 4,065m of backlog for execution during 2015.
Stage 2 incremental 2015 revenue coverage during 2015
We assume order intake of USD 4.0bn during 2015 (previously USD 4.5bn).
Current year revenue addition = (0.2748 x order intake).
2016 revenue addition = 0.2748 x 4,000 = USD 1,099m.
Therefore, based on our order intake assumptions above, we estimate 2016 revenue of
(4,065 + 1,099 =) USD 5,164m. Our actual 2015 revenue forecast is USD 5,165m.

SEB Equity Research

02 February 2015

10

79

Company Update

Subsea 7

2016 revenue forecasting


As before, our 2016 revenue forecast is based on a three stage approach:

Stage 1: the correlation between quarterly order intake and increase to year+2
backlog execution to calculate 2016 revenue coverage by the end of 2014.

Stage 2: the correlation between quarterly order intake and next year backlog
execution to calculate 2016 revenue coverage by the end of 2015.

Stage 3: the correlation between quarterly order intake and current year backlog
execution to calculate 2016 revenue coverage by the end of 2016.

Overview of current 2016 revenue calculations

USD 3,961m
of end Q3
backlog for
execution in
2016+

2,126
(2017+)
3,961

Assumed order intake of


USD 4,000m 2015, of which
USD 1,327m is for execution in
2016 and USD 2,673m is in 2015
and post-2016
4,351

1,834
(2016)

2016 revenue
calculation
USD 4,911m
(actual forecast
USD 4,914m)

2,673
USD 3,866m
of end Q3
backlog for
execution in
2015

1,649

1,327
499
101

USD 1,603m
of end Q3
backlog for
execution in
Q4 2014

1,649

USD 1,649m of 2016 revenue from 2016 orders

1,327

USD 1,327m of 2016 revenue from 2015 orders

3,866

1,603

Period
Order intake (USD m)

USD 4,911 of
2016 revenue

101
1,935

1,834

End Q3/14 Q4/14


600

YE/14

1,834

YE/15

YE/16

4,000

6,000

USD 101m of 2016 revenue from Q4 14 orders


USD 1,834m of 2016 revenue from backlog at
end Q3 14

Source: SEB estimates

Stage 1 incremental 2016 revenue coverage during Q4 2014


We assume order intake of USD 600m in Q4 2014 (previously USD 1bn).
Year+2 revenue addition = (0.1689 x order intake).
2016 revenue addition = 0.1689 x 600 = USD 101m.
In its Q3 2014 report, Subsea 7 disclosed that 42% (USD 3,961m) of its total backlog
(USD 9,430m) was for execution in 2016 and beyond. Based on our detailed analysis of
PLSV contracts we estimate that this backlog includes USD 2,126m of PLSV revenue post
2016, implying USD 1,834m of the USD 3,961m backlog is in 2016.
Thus based on our order intake assumptions above we estimate that by the end of 2014
there will be (1,834 + 101 =) USD 1,935m of backlog is for execution during 2016.

SEB Equity Research

02 February 2015

11

80

Company Update

Subsea 7

Correlation between quarterly order intake and increase to year+2 backlog execution
1,000

Additions to year+2 revenue booking (USD m)

900

Q3/11

800

Q2/11
Q1/13

700

Q3/12

600
500
400
Q2/12

300

Q3/13

Q2/12
Q1/12
Q1/14

Q4/12

200
100

Q2/13

Q4/14

y = 0.1689x
R = 0.0626

Q3/14

-100
-200

Q4/13

-300
Q4/11

-400
-500
0

500

1,000

1,500

2,000

2,500

3,000

3,500

Ex PLSV order intake (USD m)


Source: SEB estimates

Stage 2 incremental 2016 revenue coverage during 2015


We assume order intake of USD 4.0bn in 2015 (previously USD 4.5bn).
Year+1 revenue addition = (0.3317 x order intake).
2016 revenue addition = 0.3317 x 4,000 = USD 1,327m.
Therefore, based on our order intake assumptions above, we estimate that by the end of
2015 there will be (1,935 + 1,327 =) USD 3,262m of backlog for execution during 2016.
Correlation between quarterly order intake and increase to year+1 backlog execution
1,100
Q4/13

Additions to next year revenue booking (USD m)

1,000

Q1/13
Q2/11

Q4/11

900

Q4/12

Q2/14

800

y = 0.3317x
R = 0.438

700

Q3/13

600
500

Q2/13
Q2/12

400

Q1-Q4 2015

Q1/14
Q3/11Q1/12
Q1/11

300
200

Q3/12

100

Q3/14

0
0

500

1,000

1,500

2,000

2,500

3,000

3,500

Ex PLSV order intake (USD m)


Source: SEB estimates

SEB Equity Research

02 February 2015

12

81

Company Update

Subsea 7

Stage 3 incremental 2016 revenue coverage during 2016


We assume order intake of USD 6.0bn during 2016 (previously USD 6.5bn).
Current year revenue addition = (0.2748 x order intake).
2016 revenue addition = 0.2748 x 6,000 = USD 1,649m.
Therefore, based on our order intake assumptions above, we estimate 2016 revenue of
(3,262 + 1,649 =) USD 4,911m. Our actual 2016 revenue forecast is USD 4,914m.
We see some additional revenue risk from the weaker Norwegian krone, and contract
cancellations.
Correlation between quarterly order intake & increase to current year backlog execution
1,000
Q1/12

Additions to current year revenue booking (USD m)

900

Q2/13
Q1/14
Q3/12

800
700

Q1/13
Q2/11

600
500

Q1-Q4 2016

y = 0.2748x
R = 0.1968

Q2/12

400
Q2/12

300
200

Q3/11

Q3/14
Q3/13

100

Q4/11

Q4/12

0
Q4/13

-100
-200
0

500

1,000

1,500

2,000

2,500

3,000

Ex PLSV order intake (USD m)


Source: SEB estimates

SEB Equity Research

02 February 2015

13

82

Company Update

Subsea 7

Margin analysis
Margin sensitivity to revenue forecasts based on fixed/variable cost split
2014E

Base
2015E

2016E
4,914
-5
-260

7,270

Revenue
Revenue growth (%)
Administration expenses

7,270
-314

5,165
-29
-270

Total other operating expenses


% fixed costs (%)
Fixed other operating costs
Variable costs (% of revenue)
Variable other operating costs
Variable costs (% of revenue)
Share of results of associates and jv
EBITDA
EBITDA margin (%)

-5,553
30
-1,666
23
-3,887
53
86
1,489
20.5

-4,148
32
-1,327
26
-2,821
55
46
793
15.4

Depreciation
Impairment
Operating profit
Operating profit margin (%)

-400
-13
1,076
14.8

Revenue
Administration costs (fixed)
Depreciation and amortisation (fixed)
Other fixed costs
Variable costs
Operating profit before associates and jv
Share of results of associates and jv
Operating profit
Administration costs (fixed, %)
Depreciation and amortisation (fixed, %)
Other fixed costs (%)
Total fixed costs (%)
Variable costs (%)

Sensitivity - no revenue change


2014E
2015E
2016E

Sensitivity - with revenue change


2014E
2015E
2016E

4,914
-5
-290

7,270

-314

5,165
-29
-300

-314

6,000
-17
-300

4,400
-27
-290

-3,922
36
-1,412
29
-2,510
51
46
779
15.8

-5,553
30
-1,666
23
-3,887
53
86
1,489
20.5

-4,236
37
-1,550
30
-2,686
52
46
675
13.1

-3,957
38
-1,500
31
-2,457
50
46
713
14.5

-5,553
30
-1,666
23
-3,887
53
86
1,489
20.5

-4,670
33
-1,550
26
-3,120
52
46
1,076
17.9

-3,650
40
-1,450
33
-2,200
50
46
506
11.5

-430
-16
348
6.7

-450
-16
313
6.4

-400
-13
1,076
14.8

-430
-16
230
4.4

-450
-16
248
5.0

-400
-13
1,076
14.8

-430
-16
631
10.5

-450
-16
41
0.9

7,270
-314
-414
-1,666
-3,887
990
86
1,076

5,165
-270
-446
-1,327
-2,821
302
46
348

4,914
-260
-466
-1,412
-2,510
267
46
313

7,270
-314
-414
-1,666
-3,887
990
86
1,076

5,165
-300
-446
-1,550
-2,686
184
46
230

4,914
-290
-466
-1,500
-2,457
202
46
248

7,270
-314
-414
-1,666
-3,887
990
86
1,076

6,000
-300
-446
-1,550
-3,120
585
46
631

4,400
-290
-466
-1,450
-2,200
-6
46
41

5
7
27
38
62

6
9
27
42
58

6
10
30
46
54

5
7
27
38
62

6
9
31
46
54

6
10
32
48
52

5
7
27
38
62

6
8
29
42
58

7
11
33
50
50

Source: SEB estimates

Investment strategy
2015 Backlog contraction, earnings cuts and weak share price outlook
The chart below shows the correlation between the change in the group backlog during a
year, and the change to the following years consensus EPS estimate. In addition, the area
of the circle indicates the absolute total share price return (where blue indicates a share
increase, and green indicates a share decrease). We have six main conclusions:

SEB Equity Research

Earnings revisions are a more important share price driver for Subsea 7 than backlog
growth (although both are important).

Subsea 7 has shown a positive share return every year (2004, 2005, 2006 and 2010)
that the following years EPS estimate has been revised up and the backlog has
expanded.

Subsea 7 has shown a negative share price return in each year (2008 and 2014) that
the following years EPS estimate has been revised down and the backlog has
contracted we believe this scenario is likely in 2015.

There has been no instance where the backlog has contracted and the following years
consensus EPS estimate has been revised up.

However, there have been five years (2007, 2009, 2011, 2012 and 2013) when the
backlog has expanded and the following years consensus EPS estimate has been
revised down. In three of these years (2007, 2009, 2012) the share price return was
positive (in 2009 helped by a strong oil price recovery); in two of the years (2011,
2013) the share price return was negative.

02 February 2015

14

83

Company Update

Subsea 7

Subsea 7s share price in 2009 was driven by an unusually strong re-rating the 12month forward PER increased from 5x at the beginning of the year to 22x by the yearend, largely on the back of a strong oil price, and a broader market recovery post the
financial crisis. While we cannot rule out some multiple recovery this year, we see
much of this being eroded by continued consensus earnings downgrades.

Correlation between backlog growth and earnings revisions*


+100
+80

2004

Backlog growth (%)

+60
+40
2011
2013
2007
+20

2009
2012

-60

-40

y = 0.5467x + 17.232
R = 0.5386

2010

2005
2006

+0

-20

+0

+20

+40

+60

+80

-20

2008
2014

-40
-60
Next year consensus EPS revisions (%)
Source: SEB, Subsea 7; * note circle size indicates total share return (where blue is a positive return and green a negative return).

Backlog, EPS revisions and share price performance Subsea 7


Next year EPS change
SUBC Sector
O/P
(%)
(%)
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014

64
47
42
-8
-45
-38
20
-10
-16
-9
-36

21
45
49
16
-18
-23
0
-4
-11
-20
-31

Yes
Yes
No
No
No
No
Yes
No
No
Yes
No

ACY
USD m
1,026
1,788
2,194
2,587
3,175
2,511
2,848
3,552

SUB
USD m
468
1,242
1,355
3,748
4,215
3,268
2,798
2,800

Backlog
ACY+SUB SUBC Growth Growth
USD m USD m
(%)
1,494 1,026
3,030 1,788
+74
Yes
3,549 2,194
+23
Yes
6,335 2,587
+18
Yes
7,390 3,175
+23
Yes
5,779 2,511
-21
No
5,646 2,848
+13
Yes
6,352 3,552
+25
Yes
8,538
+34
Yes
9,086
+6
Yes
11,770
+30
Yes
8,235
-30
No

Total share return


SUBC Sector
(%)
(%)
73
82
140
64
100
88
53
69
2
25
-68
-56
140
107
59
49
-22
-15
28
10
-9
3
-32
-27

O/P
No
Yes
Yes
No
No
No
Yes
Yes
No
Yes
No
No

12m fwd PER


SUBC Sector
(x)
(x)
8.9
9.8
20.3
12.5
15.6
14.9
15.6
17.0
14.9
16.7
10.5
11.1
13.4
10.4
17.4
14.0
16.4
13.3
13.6
11.4
12.6
12.1
8.6
11.1

Source: Thomson Datastream, SEB

SEB Equity Research

02 February 2015

15

84

Company Update

Subsea 7

Contract overview
Major project progression at end Q3/14
Aasta Hansteen (Norway)
TEN (Ghana)
SLMP (Norway)
Mariner (UK)
Montrose (UK)
Erha North (Nigeria)
Heidelberg (GOM)
Lianzi Topside (Angola)
Western Isles (UK)
Martin Linge (Norway)
Lianzi Surf (Angola)
Gorgon HLTI (Australia)
Ofon 2 (Nigeria)
Enochdhu (UK)
Clair Ridge (UK)
Guar Lula NE (Brazil)
Knarr (Norway)
Eldfisk (Norway)
0

10

20

30

40

50
%

60

70

80

90

100

30

40

50
%

60

70

80

90

100

Source: Subsea 7

Major project progression at end Q2/14


TEN (Ghana)
SLMP (Norway)
Aasta Hansteen (Norway)
Mariner (UK)
Montrose (UK)
Heidelberg (GOM)
Erha North (Nigeria)
Lianzi Topside (Angola)
Western Isles (UK)
Martin Linge (Norway)
Lianzi Surf (Angola)
Enochdhu (UK)
Gorgon HLTI (Australia)
Clair Ridge (UK)
Ofon 2 (Nigeria)
Eldfisk (Norway)
Guar Lula NE (Brazil)
Block 31 GES (Angola)
Knarr (Norway)
Laggan Tormore (UK)
G1-GS15 (India)
Delta S2 (Norway)
CLOV (Angola)
0

10

20

Source: Subsea 7

SEB Equity Research

02 February 2015

16

85

Company Update

Subsea 7

Valuation
Subsea 7 trades on a 12-month consensus PER of 6.4x compared with an average of
13.6x during 2012 and 12.6x during 2013, 8.6x during 2014 and a current average 9.8x for
the sector.
12-month forward consensus EPS and PER - Subsea 7
26

2.5

24
22

2.0

20
18

1.5

14

1.0

12

USD

PER (x)

16

10
0.5

8
6

0.0

4
2

0
-0.5
Sep 02 Sep 03 Sep 04 Sep 05 Sep 06 Sep 07 Sep 08 Sep 09 Sep 10 Sep 11 Sep 12 Sep 13 Sep 14
12m fwd EPS (RHA)

12m fwd PER

Current 12m fwd PER

Sector PER

Source: Thompson Datastream

Consensus EPS revisions Subsea 7


2.5

350
300

2.0
250
1.5

NOK

200
150

1.0

100
0.5
50
0.0
0
Dec 03 Dec 04 Dec 05 Dec 06 Dec 07 Dec 08 Dec 09 Dec 10 Dec 11 Dec 12 Dec 13 Dec 14
2005

2006

2007

2008

2009

2010

2012

2013

2014

2015

2016

Share price

2011

Source: Thomson Datastream, SEB

We note a strong correlation (R-squared of 0.67) for Subsea 7 between the average
consensus PER during a year and the revision to next years consensus EPS during the
same year. Based on this correlation, the current PER of 6.3x implies a downgrade of
some 74% to consensus 2016E EPS, significantly more than the 10% YTD. Thus it now
looks like much of the negative revisions to consensus forecasts are discounted. However
we still expect downgrades to trigger share price downside, as it is hard to argue for any
significant re-rating while there are few prospects of any positive triggers for this stock.

SEB Equity Research

02 February 2015

17

86

Company Update

Subsea 7

Correlation between consensus EPS multiples and EPS revisions Subsea 7


70
2004

EPS revision (next year EPS, %)

50

2005
2006
y = 9.3532x - 134.21
R = 0.665

30
2010
10
2007

2013

2014 YTD

-10

2011

2012
-30
2014

2009
2008

-50
5

11
13
15
17
Average 12-month forward PER (x)
Data point

Current PER

19

21

23

Linear (Data point)

Source: Thomson Datastream, SEB

The rating for Subsea in 2009 was heavily driven by a recovery in earnings revisions
2009 earnings were downgraded by 45% during 2008 and downgraded by only 1% during
2009. An end to the downgrade trend was enough to trigger a re-rating at that time, and the
re-rating correctly appeared to be discounting the upgrades that followed (2010 consensus
EPS was upgraded by 61% during 2010). This rapid reversal in the direction of earnings
revisions was helped by the pace of oil price recovery in 2009. While we forecast a
USD 60/bl average Brent oil price next year, we continue to see demand for subsea work
being negatively impacted by capital constraints amongst international oil companies the
primary client group for Subsea 7. A return to more sustained growth in the subsea
segment will ultimately coincide with a return to investment growth for IOCs, a trend which
we anticipate, but at present there are few signs of this occurring before 2017 at the
earliest.

SEB Equity Research

02 February 2015

18

87

Company Update

Subsea 7

Summary of Subsea 7 contract awards and the phasing of project revenue (USDm)
Contract

Country

Paz Flor
Angola
Cascade/Chinook
US
Deep Panuke
Canada
Pluto
Australia
4-yr frame agreement
Denmark
Gjoa/Morvin
Norway
GSNC (Sul Capixaba)
Brazil
5-yr IRM contract
UK
Block 31 (PSVM)
Angola
IRM
UK
Grove/Alpha
UK
Troll B
Norway
Droshky
US
Skarv (ACY)
Norway
ALNG
Angola
Total 2008
Acergy order intake (2008)
Subsea order intake (2008)
Total actual order intake (2008)

Client
Total
Petrobras
Encana
Woodside
Dong
StatoilHydro
Petrobras
Total
BP
Venture
Centrica
StatoilHydro
Marathon
BP
Angola LNG

Contract

Country

Client

Snorre B riser replacement


Tambau Urugua/P-56 (SUB)
SURF for K5CU dev
MPN platform revamp (ACY)
Valhall Flank
NA (ACY)
Block 18 GEL (SUB)
Flex lay (ACY)
ROV services
Block 18 (SUB)
SURF at Gryphon/Tullich
4-year PLSV contract (SUBC)
Block 17 (ACY)
Casino-Henry (SUB)
EGP3B Escravos (ACY)
P-55 Roncador (SUB)
Caesar/Tonga
Tiffany/Banff
3 year DSV contract (SUB)
Total 2009
Acergy order intake (2009)
Subsea order intake (2009)
Total order intake (2009)

Norway
Brazil
Holland
Nigeria
Norway
Australia
Angola
Brazil
Ghana
Angola
UK
Brazil
Angola
Australia
Nigeria
Brazil
US
UK
UK

StatoilHydro
Petrobras
Total
Mobil
BP
BHP Billiton
BP
Petrobras
Tullow
BP
Maersk
Petrobras
Total
Santos
Chevron
Petrobras
Anadarko
CNR
DSVi

Date
announced
Jan-08
Jan-08
Feb-08
Feb-08
Mar-08
Mar-08
Mar-08
Apr-08
Jul-08
Jul-08
Jul-08
Aug-08
Aug-08
Aug-08
Dec-08

Installation
start
mid-10
Q4 2009
Q2 2010
H2 2009
2008
2009
2009
2008
NA
H2 2008
H2 2009
2009
Q3 2009
H2 2010
Q4 2009

Vessels
employed
Polaris/Queen
NA
Falcon/Discovery
Toisa Proteus
NA
NA
NA
NA
Seas
NA
Navica
NA
Oceans
Acergy
Hawk/Leg/Pol

Value 2010E 2011E 2012E 2013E 2014E 2015E 2016E


(USDm)
700
390
260
0
0
0
0
0
50
25
0
0
0
0
0
0
195
80
80
0
0
0
0
0
150
60
0
0
0
0
0
0
100
60
25
25
0
0
0
0
60
30
0
0
0
0
0
0
200
0
200
0
0
0
0
0
60
12
12
12
0
0
0
0
460
110
150
150
50
0
0
0
67
0
0
0
0
0
0
0
70
0
0
0
0
0
0
0
100
50
0
0
0
0
0
0
45
0
0
0
0
0
0
0
60
50
15
10
0
0
0
0
250
150
25
0
0
0
0
0
2,567 1,017
767
197
50
0
0
0
1,858
1,426
3,285

Date
announced
Mar-09
Mar-09
Apr-09
May-09
Jul-09
Jul-09
Jul-09
Jul-09
Aug-09
Aug-09
Aug-09
Sep-09
Sep-09
Sep-09
Oct-09
Oct-09
Nov-09
Dec-09
Dec-09

Installation
start
2009
2010
Q3 2010
NA
Q3 2010
H2 2009
2010
Q1 2010
Q2 2010
2010
Q4 2009
Q3 2009
Q2 2010
Q4 2009
Q4 2010
Q3 2010
Q3 2009
Q4 2009
2010

Vessels
employed
NA
NA
NA
Orion
NA
Toisa Proteus
NA
Queen
NA
NA
Seven Pelican
Normand Seven
Pol/Hawk/Leg
Navica
NA
NA
NA
Rockwater 1
NA

Value 2010E 2011E 2012E 2013E 2014E 2015E 2016E


(USDm)
17
0
0
0
0
0
0
0
200
200
0
0
0
0
0
0
26
26
0
0
0
0
0
0
190
10
30
150
0
0
0
0
40
20
20
0
0
0
0
0
200
100
0
0
0
0
0
0
150
120
25
25
0
0
0
0
260
65
65
65
65
0
0
0
20
4
4
4
4
4
4
4
150
70
15
0
0
0
0
0
100
60
0
0
0
0
0
0
250
63
63
63
47
0
0
0
110
90
10
0
0
0
0
0
80
50
0
0
0
0
0
0
500
80
230
170
0
0
0
0
200
60
80
40
20
0
0
0
50
0
0
0
0
0
0
0
20
0
0
0
0
0
0
0
200
67
67
67
0
0
0
0
2,763 1,084
608
583
136
4
4
4
2,546
1,969
4,515

Source: Subsea 7, SEB

SEB Equity Research

02 February 2015

19

88

Company Update

Subsea 7

Summary of Subsea 7 contract awards and the phasing of project revenue (USDm)
Contract

Country

Galapagos & Nikita


US
Oso Re (ACY)
Nigeria
ROV services (SUB)
Brazil
Bacchus (SUB)
UK
Andrew (SUB)
UK
5-year ROV services (SUB)
Brazil
Clov (ACY)
Nigeria
Flex lay (ACY)
Brazil
Lagan Tormore
UK
Frame agreement
Norway
Medway (ACY)
Netherlands
Jasmine
UK
Pan Pandora/Katla (SUB)
Norway
Sul-Norte Capixaba GSNC (AC
Brazil
South Arne (SUB)
Denmark
Total 2010
Acergy order intake (2010)
Subsea order intake (2010)
Total order intake (2010)

Client
BP
NA
Petrobras
Apache
BP
Petrobras
Total
Various
Total
BP
Dana Petroleum
ConocoPhillips
Statoil
Petrobras
Hess

Contract

Country

Client

Misc diving
Tambau
B11 Platform
5-yr frame agreement
Tahiti Phase 2
Ensign
Eldfisk
Huntingdon
Guara/Lula
Ekofisk
Tordis
Ormen Lange (Mid North)
G1 Field
Skuld (Fossekall-Dompap)
3 yr LOF
Triton
Siri Caisson
Gorgon umbilicals
Gorgon
Tue backs at Jette field
OFON 2 sealines
Deepwater flexlay vessel
Atla
UOTE Campos Basin
West Franklin

Brazil
Brazil
Brazil
Norway
US
UK
Norway
UK
Brazil
Norway
Norway
Norway
India
Norway
US
UK
Denmark
Australia
Australia
Norway
Nigeria
Brazil
Norway
Brazil
UK

Petrobras
Petrobras
ConocoPhillips
Statoil
Chevron
Centrica
ConocoPhillips
E.ON
Petrobras
ConocoPhillips
Statoil
Shell
ONGC
Statoil
BP
Dana Petroleum
DONG
Chevron
Chevron
DNO
Total
Petrobras
Total
Petrobras
ELF

North Sea & Canada


Africa & GoM
Asia Pacific & Middle East
Brazil
Total 2011
Actual actual order intake (2011)
Calc. order backlog
Calc. backlog for 2012 execution

6,797
3,170

Date
announced
Apr-10
May-10
May-10
Jun-10
Jun-10
Jul-10
Jul-10
Aug-10
Oct-10
Nov-10
Nov-10
Nov-10
Nov-10
Dec-10
Dec-10

Installation
start
Q4 2010
Q1 2011
NA
Q1 2011
Q1 2011
Q3 2010
Q4 2012
NA
Q2 2012
NA
Jul-05
Q2 2012
H1 2012
Q4 2011
Q4 2011

Vessels
employed
Neptune
NA
NA
NA
NA
NA
Borealis/Eagle/Legend
Condor
NA
Viking
NA
NA
NA
Polaris/Harrier
NA

Value 2010E 2011E 2012E 2013E 2014E 2015E 2016E


(USDm)
50
10
40
0
0
0
0
0
120
60
50
10
0
0
0
0
250
80
80
80
80
80
0
0
75
5
70
0
0
0
0
0
135
50
45
25
15
0
0
0
50
0
10
10
10
10
10
0
1,300
0
325
290
555
130
0
0
220
10
55
55
55
45
0
0
250
0
100
50
60
40
0
0
100
0
40
40
20
0
0
0
50
0
50
0
0
0
0
0
100
0
45
35
20
0
0
0
85
0
0
60
25
0
0
0
190
0
30
160
0
0
0
0
55
5
30
20
0
0
0
0
3,030
220
970
835
840
305
10
0
3,073
2,025
5,098

Date
announced
Jan-11
Jan-11
Feb-11
Feb-11
Feb-11
Feb-11
Mar-11
Mar-11
Apr-11
Apr-11
Apr-11
Apr-11
May-11
May-11
May-11
Jun-11
Jun-11
Jul-11
Jul-11
Sep-11
Sep-11
Nov-11
Nov-11
Dec-11
Dec-11

Installation
start
Q1 2011
Q1 2011
2013
Q2 2011
Q3 2011
Q3 2011
NA
2012
H2 2012
2012
2011
Q3 2012
Q4 2011
2012
2011
H2 2011
2H 2011
Q1 2013
2013
Q3 2012
Q3 2013
H2 2014
Q2 2012
H1 2013
Q3 2013
Avg contract
122
230
190
309

Vessels
employed
Harrier
Acergy
NA
NA
Oceans/Neptune
NA
NA
NA
Oceans/Seas/Seven
NA
NA
NA
NA
NA
NA
NA
Havila/Skandi Acergy
Seven Sea
Sapura 3000
NA
Acergy Polaris
Newbuild
NA
NA
NA
Share
34%
15%
12%
40%
100%

Value 2010E 2011E 2012E 2013E 2014E 2015E 2016E


(USDm)
40
0
40
0
0
0
0
0
40
0
40
0
0
0
0
0
75
0
0
35
40
0
0
0
260
0
25
50
50
50
50
25
100
0
20
80
0
0
0
0
60
0
60
0
0
0
0
0
100
0
0
15
45
40
0
0
100
0
0
100
0
0
0
0
1,000
0
350
300
350
0
0
0
150
0
10
140
0
0
0
0
70
0
0
70
0
0
0
0
70
0
0
70
0
0
0
0
50
0
0
20
20
10
0
0
180
0
20
160
0
0
0
0
125
0
25
45
45
10
0
0
50
0
50
0
0
0
0
0
220
0
70
60
90
0
0
0
80
0
0
40
40
0
0
0
440
0
0
20
125
295
0
0
60
0
0
60
0
0
0
0
465
0
0
65
200
200
0
0
500
0
0
0
0
50
100
100
75
0
0
75
0
0
0
0
200
0
0
60
120
20
0
0
185
0
0
90
75
20
0
0
Region
1,580
0
235
875
215
70
50
25
690
0
45
190
245
210
0
0
570
0
0
80
185
305
0
0
1,855
0
430
395
510
70
100
100
4,695
0
710 1,555 1,200
695
150
125
7,714

Actual order backlog


Actual backlog for 2012 execution

8,538
4,269

Source: Subsea 7, SEB

SEB Equity Research

02 February 2015

20

89

Company Update

Subsea 7

Summary of Subsea 7 contract awards and the phasing of project revenue (USDm)
Contract

Country

Fletcher-Finucane
Australia
Claire Ridge
UK
Svalin C
Norway
Lihua-4
China
Terra Nova SURF
Canada
Cheviot
UK
Enochdhu pipeline bundle
UK
Knarr
Norway
Lianzi SURF
Congo/Ang.
Varg gas export contract
Norway
SURF for Julimar development Australia
IRM at Foinaven/Schiehallion
UK
Gullfaks C subsea compression Norway
Martin Linge SURF
Norway
Pipeline replacement
UK
Underwater services
Europe
Lianzi topsides
Congo/Ang.

Client
Santos
BP
Statoil
CNOOC
Suncor
ATP
ConocoPhillips
BG
Chevron
Talisman
Apache
BP
Statoil
Total
NA
Shell
Chevron

Date
announced
Jan-12
Feb-12
Feb-12
NA
Mar-12
Mar-12
Jun-12
Jul-12
Aug-12
Sep-12
Oct-12
Oct-12
Nov-12
Nov-12
Nov-12
Nov-12
Dec-12

North Sea & Canada


Africa & GoM
Asia Pacific & Middle East
Brazil
Total 2012
Actual actual order intake (2012)
Calc. order backlog
Calc. backlog for 2013 execution

6,967
3,066

Contract

Country

Client

Western Isles development


Line 60 project
Pipeline bundle at Fram field
Erha North SURF
Oseberg Delta 2 pipelay
Montrose pipeline bundles
Aasta Hansteen Spar SURF
Flexibles at Sapinhpoa/Lula NE
5-year day rate contract
Line 67 project
SURF for Mariner field
Heidelberg development
5-year day rate contract
5-year day rate contract
3 x 5-year contracts
Riser replacement
SURF for Cardona field
3 year PLSV for Mar/Condor
6 year ROV contract
EPI of TEN flowlines

UK
Mexico
UK
Nigeria
Norway
UK
Norway
Brazil
Brazil
Mexico
UK
US
Brazil
Brazil
Brazil
Norway
US
Brazil
Brazil
Ghana

Dana
Pemex
Shell
Esso
Statoil
Talisman
Statoil
Petrobras
Petrobras
Pemex
Statoil
Anadarko
Petrobras
Petrobras
Petrobras
Statoil
Stone Energy
Petrobras
Petrobras
Tullow

North Sea & Canada


Africa & GoM
Asia Pacific & Middle East
Brazil
Total 2013
Actual order intake
Calc. order backlog
Calc. backlog for 2014 execution

8,556
4,084

Installation
start
Q4 2012
2013
Q2 2013
NA
Q3 2012
2014
2014
Q2 2013
H2 2014
Q2 2013
Q4 2014
2013-17
2015
Q2 2014
Q3 2013
2014-16
H2 2014
Avg contract
218
375
120
0

Vessels
employed
Rockwater 2
NA
NA
NA
NA
NA
NA
NA
Seven Oceans
NA
NA
Subsea Viking
NA
Seven Borealis
NA
NA
NA
Share
70%
20%
10%
0%
100%

Actual order backlog


Actual backlog for 2013 execution
Date
announced
Jan-13
Jan-13
Jan-13
Feb-14
Feb-13
Feb-13
Mar-13
Mar-13
Apr-13
May-13
May-13
Jun-13
Jul-13
Jul-13
Jul-13
Sep-13
Sep-13
Oct-13
Oct-10
Oct-13

Installation
start
2014
Q1 2013
2014
Q1 2015
Q1 2014
2014-15
2015-16
2013
2013
Q4 2013
2015
Q4 2014
Q3 2013
Q4 2013
2016/17
2014-17
Q3 2014
Q4 13/Q3 14
NA
mid 2015
Avg contract
224
283
0
537

Vessels
employed
NA
Seven Borealis
NA
Borealis/Pacific
NA
NA
NA
Seven Seas
Kommandor 3000
Seven Borealis
Various
Seven Borealis
Seven Phoenix
Normand Seven
NA
Various
NA
Seven Mar/Condor
Far Saga
Seven Borealis
Share
22%
24%
0%
53%
100%

Actual order backlog


Actual backlog for 2014 execution

Value 2010E 2011E 2012E 2013E 2014E 2015E 2016E


(USDm)
60
0
0
30
30
0
0
0
100
0
0
10
35
55
0
0
80
0
0
40
40
0
0
0
200
0
0
200
0
0
0
0
100
0
0
100
0
0
0
0
175
0
0
0
0
50
125
0
95
0
0
0
40
55
0
0
400
0
0
0
200
200
0
0
600
0
0
0
180
300
120
0
60
0
0
0
30
30
0
0
100
0
0
0
0
0
100
0
300
0
0
0
60
60
60
60
70
0
0
0
0
0
70
0
800
0
0
0
160
400
240
0
70
0
0
0
35
35
0
0
360
0
0
0
0
120
120
120
150
0
0
0
30
60
60
0
Region
2,610
0
0
100
525
950
615
180
750
0
0
0
210
360
180
0
360
0
0
0
0
0
100
0
0
2
3
4
5
6
7
8
3,720
0
0
380
840 1,365
895
180
6,845
9,086
4,634
Value 2010E 2011E 2012E 2013E 2014E 2015E 2016E
(USDm)
300
0
0
0
15
285
0
0
140
0
0
0
140
0
0
0
135
0
0
0
0
135
0
0
800
0
0
0
160
200
440
0
160
0
0
0
50
110
0
0
285
0
0
0
15
130
140
0
380
0
0
0
0
170
210
0
300
0
0
0
150
150
0
0
350
0
0
0
35
70
70
70
90
0
0
0
90
0
0
0
170
0
0
0
0
10
75
85
100
0
0
0
0
45
55
0
450
0
0
0
45
90
90
90
400
0
0
0
20
80
80
80
1,600
0
0
0
0
0
0
30
140
0
0
0
5
45
45
45
70
0
0
0
0
35
35
0
600
0
0
0
0
125
200
200
60
0
0
0
0
10
10
10
500
0
0
0
0
25
200
275
Region
1,570
0
0
0
85
885
470
130
1,700
0
0
0
390
305
730
275
0
0
0
0
0
0
0
0
3,760
0
0
0
250
525
450
480
7,030
0
0
0
725 1,715 1,650
885
8,981
11,770
5,767

Source: Subsea 7, SEB

SEB Equity Research

02 February 2015

21

90

Company Update

Subsea 7

Summary of Subsea 7 contract awards and the phasing of project revenue (USDm)
Contract

Country

Remote intervention (4 + 4 yrs)


Brazil
3 year constr. Support for Hebro Canada
SURF for BC-10 Phase 3
Brazil
3 year IMR contract
US
SURF for Catcher Developmen
UK
SURF for KOQV/Holstein fields
US
Baobab Field Phase III
Ivory Coast
SURF project
US
Stampede SURF
US
North Sea, Med & Canada
Africa & GoM
Asia Pacific & Middle East
Brazil
Total 2014

Client
Petrobras
ExxonMobil
Shell
BP
Premier Oil
Freeport
CNR
Shell
Hess

Date
announced
Feb-14
Feb-14
Mar-14
May-14
May-14
Jun-14
Oct-14
Nov-14
Dec-14

Installation
start
NA
NA
Q3 2015
Q2 2014
2015
Q4 2015
Q2 2015
Q2 2016
Q3 2016
Avg contract
268
238
0
100

Total revenue from announced contracts


Combined revenue
Coverage (%)

Vessels
employed
Toisa Vigilante/Valiant
NA
Skandi Neptune
Chartered vessels
Various
Seven Sea
Seven Pacific
NA
NA
Share
44%
39%
0%
17%
100%

Value 2010E 2011E 2012E 2013E 2014E 2015E 2016E


(USDm)
90
0
0
0
0
22.5
22.5
22.5
75
0
0
0
0
25
25
25
110
0
0
0
0
0
110
0
160
0
0
0
0
25
50
50
460
0
0
0
0
40
420
0
50
0
0
0
0
20
30
0
70
0
0
0
0
0
70
0
75
0
0
0
0
0
0
75
120
0
0
0
0
0
0
80
Region
535
0
0
0
0
65
445
25
475
0
0
0
0
45
150
205
0
2
3
4
5
6
7
8
200
0
0
0
0
23
133
23
1,210
0
0
0
0
133
658
98
2,321
4,392
53

3,055
5,476
56

3,550
6,297
56

3,791
6,297
60

4,217
7,270
58

3,367
5,165
65

1,292
4,914
26

Source: Subsea 7, SEB

SEB Equity Research

02 February 2015

22

91

Company Update

Subsea 7

Earnings estimates Subsea 7


FY earnings estimates Subsea 7 (USDm)
2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014E

2015E

2016E

1,100
-15
-955
145
13.2

1,483
+35
-1,218
266
17.9

2,124
+43
-1,695
429
20.2

2,406
+13
-1,859
547
22.7

2,522
+5
-1,874
648
25.7

2,209
-12
-1,684
525
23.8

2,369
+7
-1,701
668
28.2

5,476
+131
-4,530
946
17.3

6,297
+15
-5,202
1,095
17.4

6,297
+0
-5,555
742
11.8

7,270
+15
-5,967
1,303
17.9

5,165
-29
-4,593
572
11.1

4,914
-5
-4,387
527
10.7

-111
-1
-9
0
15
38
3.5

-147
6
-7
0
27
145
9.7
+280

-184
-2
-2
0
41
283
13.3
+96

-228
0
0
0
32
352
14.6
+24

-254
3
0
0
63
461
18.3
+31

-231
0
0
0
49
343
15.5
-26

-307
0
0
0
75
436
18.4
+27

-406
-4
0
0
104
641
11.7
+47

-372
-1
0
0
86
808
12.8
+26

-296
0
0
0
127
573
9.1
-29

-314
0
0
0
86
1,076
14.8
+88

-270
0
0
0
46
348
6.7
-68

-260
0
0
0
46
313
6.4
-10

Investment income
Other gains and losses
Finance costs
Income before taxes

4
36
-19
59

4
-15
-4
130

19
4
-4
302

31
1
-39
344

18
44
-31
492

6
44
-31
361

10
-18
-29
399

20
7
-40
627

16
290
-45
1,069

22
-14
-71
511

19
-15
-31
1,049

14
0
-33
329

12
0
-34
291

Taxation
Tax share of PBT (%)
Income from cont ops

-9
16
50

-13
10
117

-74
24
228

-215
63
129

-163
33
330

-103
28
259

-131
33
268

-176
28
451

-222
21
847

-161
31
350

-282
27
767

-99
30
231

-87
30
204

Net (loss)/income from discont ops


Net income

-40
10

33
150

16
244

6
135

-23
307

7
266

45
313

0
451

0
847

0
350

0
767

0
231

0
204

-5
5

-10
140

-7
237

-7
127

-6
301

-21
245

-48
265

-27
424

-17
830

-2
348

30
796

-20
211

-20
184

352
-86
0
0
0
438
18.2

461
-110
0
-2
0
573
22.7

343
-131
0
-12
-3
488
22.1

436
-119
0
1
-5
559
23.6

641
-338
0
-25
0
1,003
18.3

808
-333
0
3
0
1,139
18.1

573
-359
0
-48
0
981
15.6

1,076
-400
0
-13
0
1,489
20.5

348
-430
0
-16
0
793
15.4

313
-450
0
-16
0
779
15.8

Revenue
Revenue growth (%)
Operating expenses
Gross profit
Gross profit margin (%)
Administration expenses
Net other operating income
Impairment of tangible assets
Impairment of goodwill/intangibles
Share of results of associates and jv
Operating income from cont ops
Operating income margin (%)
Growth in operating income (%)

Minority interests
Net income to equity holders
Operating income from cont ops
Depreciation
Mobilisation costs (amortised)
Impairment of long lived assets
Impairment of goodwill/intangible assets
EBITDA
EBITDA margin

-61
-12
-9

-57
-13
-7

120
10.9

221
14.9

283
-59
-15
-2
0
358
16.9

Non recurring charges


Recurring EBITDA
Recurring EBITDA margin

0
120
10.9

0
221
14.9

0
358
16.9

0
438
18.2

0
573
22.7

0
488
22.1

0
559
23.6

-50
1,053
19.2

-52
1,191
18.9

-355
1,336
21.2

75
1,414
19.4

0
793
15.4

0
779
15.8

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014E

2015E

2016E

157.6
1.9
0.0
159.5

191.1
4.4
0.0
195.5

192.7
5.6
2.8
201.1

188.4
4.1
0.0
192.6

184.1
2.1
20.8
207.1

182.9
0.8
22.0
205.7

183.5
1.0
22.2
206.7

323.8
1.8
40.8
366.3

333.8
1.5
44.9
380.2

332.9
1.0
40.7
374.7

330.7
0.8
37.2
368.7

323.5
0.8
23.9
348.1

320.5
0.8
23.9
345.1

5.1
44.9

139.5
-33.1
106.4
0.0
106.4

236.7
-15.8
220.9
1.6
222.5

127.3
-5.7
121.6
0.0
121.6

301.4
22.5
323.9
28.4
352.3

244.9
-7.2
237.7
29.5
267.2

265.4
-44.6
220.8
19.0
239.8

423.7
0.0
423.7
20.5
444.2

830.4
0.0
830.4
17.8
848.2

347.6
0.0
347.6
23.9
371.5

796.3
0.0
796.3
14.2
810.5

210.6
0.0
210.6
13.0
223.6

183.7
0.0
183.7
13.0
196.7

BASIC EPS (c)


Continuing operations
Discontinued operations
Net earnings

0.28
-0.25
0.03

0.56
0.17
0.73

1.15
0.08
1.23

0.65
0.03
0.68

1.76
-0.12
1.64

1.30
0.04
1.34

1.20
0.24
1.45

1.31
0.00
1.31

2.49
0.00
2.49

1.04
0.00
1.04

2.41
0.00
2.41

0.65
0.00
0.65

0.57
0.00
0.57

DILUTED EPS including convertible note (c)


Continuing operations
Discontinued operations
Net earnings

0.28
-0.25
0.03

0.54
0.17
0.71

1.11
0.08
1.18

0.63
0.03
0.66

1.70
-0.11
1.59

1.30
0.04
1.33

1.16
0.22
1.38

1.21
0.00
1.21

1.59
0.00
1.59

0.99
0.00
0.99

2.20
0.00
2.20

0.64
0.00
0.64

0.57
0.00
0.57

Source: SEB estimates

FY EPS estimates Subsea 7 (USDm)


Year end: Dec
Weighted average number of shares (m)
Basic
Share options
Convertible loan notes
Total diluted number of shares
Net income to equity holders
(Income)/loss from discontinued ops
Income from continuing ops
Interest expense on convertible note
Adj net income from continuing ops

Source: SEB estimates

SEB Equity Research

02 February 2015

23

92

Company Update

Subsea 7

FY segmental earnings estimates Subsea 7 (USDm)


Year end: Dec
Revenues
North Sea & Canada (NSC)
Africa & Gulf of Mexico (AFGoM)
Asia Pacific & Middle East (APME)
Brazil (BRAZIL)
Corporate
Total

2011

2012

2013

2014E

2015E

2016E

2,054
2,543
181
686
12
5,476

2,838
2,182
278
987
12
6,297

2,514
2,454
498
814
17
6,297

2,774
2,594
894
995
13
7,270

1,803
1,945
626
776
15
5,165

1,713
1,751
582
854
15
4,914

+38
-14
+54
+44
+2
+15

-11
+12
+80
-17
+40
+0

+10
+6
+79
+22
-23
+15

-35
-25
-30
-22
+12
-29

-5
-10
-7
+10
+0
-5

Revenue growth (%)


North Sea & Canada (NSC)
Africa & Gulf of Mexico (AFGoM)
Asia Pacific & Middle East (APME)
Brazil (BRAZIL)
Corporate
Total
Operating profit
North Sea & Canada (NSC)
Africa & Gulf of Mexico (AFGoM)
Asia Pacific & Middle East (APME)
Brazil (BRAZIL)
Corporate
Total

179
490
18
23
-70
641

364
428
46
-25
-4
808

395
402
86
-318
8
573

429
328
93
201
26
1,076

108
117
38
85
0
348

86
88
29
111
0
313

Operating margin (%)


North Sea & Canada (NSMC)
Africa & Gulf of Mexico (AFGoM)
Asia Pacific & Middle East (APME)
Brazil (BRAZIL)
Total

8.7
19.3
10.1
3.3
11.7

12.8
19.6
16.6
-2.6
12.8

15.7
16.4
17.3
-39.0
9.1

15.5
12.6
10.3
20.2
14.8

6.0
6.0
6.0
11.0
6.7

5.0
5.0
5.0
13.0
6.4

Source: SEB estimates

SEB Equity Research

02 February 2015

24

93

Company Update

Subsea 7

Interim earnings estimates Subsea 7 (USDm)


Year end: Dec

Q3/12

Q4/12

2012

Q1/13

Q2/13

Q3/13

Q4/13

2013

Q1/14

Q2/14

Q3/14 Q4/14E

2014E

Revenues
Revenue growth (%)

1,744
+22

1,611
+14

6,297
+15

1,467
+1

1,681
+13

1,564
-10

1,586
-2

6,297
+0

1,668
+14

1,905
+13

1,902
+22

1,795
+13

Operating expenses
Gross profit
Gross profit margin (%)

-1,429
314.3
18.0

-1,368 -5,202
242.7 1,095.0
15.1
17.4

-1,253
214.3
14.6

-1,636
44.2
2.6

-1,269
294.4
18.8

-1,396
189.5
12.0

-5,555
742.4
11.8

-1,437
230.9
13.8

-1,515
389.8
20.5

-1,516
386.0
20.3

-1,498 -5,967
296.6 1,303.3
16.5
17.9

Administration expenses
Net other operating income/(loss)
Share of results of associates
Net operating income
Net operating margin (%)

-98.3
0.0
12.2
228.2
13.1

-105.8
0.0
43.5
180.4
11.2

-372.3
-0.8
86.3
808.2
12.8

-75.6
0.0
15.5
154.2
10.5

-65.7
0.0
62.1
40.6
2.4

-74.1
0.0
48.9
269.2
17.2

-80.7
0.0
0.6
109.4
6.9

-296.1
0.0
127.1
573.4
9.1

-80.8
0.0
15.7
165.8
9.9

-67.1
0.0
27.1
349.8
18.4

-85.9
0.0
24.1
324.2
17.0

-80.0 -313.8
0.0
0.0
19.1
86.0
235.7 1,075.5
13.1
14.8

Investment income
Other gains and losses
Finance costs
Income before taxes

2.4
25.8
-8.9
247.5

6.1
15.8
2.7
289.6
-18.6
-44.8
170.6 1,068.8

7.1
21.3
-24.7
157.9

6.9
-10.8
-16.7
20.0

4.7
-38.0
-16.8
219.1

3.5
13.6
-12.7
113.8

22.2
-13.9
-70.9
510.8

4.1
8.5
-5.2
173.2

8.9
10.5
-7.0
362.2

3.7
-34.2
-5.5
288.2

2.6
19.3
0.0
-15.2
-13.4
-31.1
225.0 1,048.6

Taxation
Tax share of PBT (%)
Income from continuing ops

-53.3
21.5
194.2

-21.8
12.8
148.8

-221.6
20.7
847.2

-26.0
16.5
131.9

-33.4
167.0
-13.4

-59.5
27.2
159.6

-42.0
36.9
71.8

-160.9
31.5
349.9

-36.4
21.0
136.8

-97.6
26.9
264.6

-82.7
28.7
205.5

-65.2
29.0
159.7

-281.9
26.9
766.6

Net income/(loss) from discont ops


Net income
Minority interests
Net income to equity holders
Net income growth (%)

0.0
194.2
-9.8
184.4
+12

0.0
148.8
-7.9
140.9
+40

0.0
847.2
-16.8
830.4
+96

0.0
131.9
1.7
133.6
+46

0.0
-13.4
-3.9
-17.3
-104

0.0
159.6
-7.5
152.1
-18

0.0
71.8
7.4
79.2
-44

0.0
349.9
-2.3
347.6
-58

0.0
136.8
15.9
152.7
+14

0.0
264.6
5.7
270.3
-1662

0.0
205.5
4.1
209.6
+38

0.0
159.7
4.0
163.7
+107

0.0
766.6
29.7
796.3
+129

BASIC EPS (c)


Continuing operations
Discontinued operations
Net earnings

0.56
0.00
0.56

0.43
0.00
0.43

2.49
0.00
2.49

0.40
0.00
0.40

-0.05
0.00
-0.05

0.46
0.00
0.46

0.24
0.00
0.24

1.04
0.00
1.04

0.46
0.00
0.46

0.82
0.00
0.82

0.64
0.00
0.64

0.50
0.00
0.50

2.41
0.00
2.41

DILUTED EPS including convertible note (c)


Continuing operations
Discontinued operations
Net earnings

0.44
0.00
0.44

0.38
0.00
0.38

1.59
0.00
1.59

0.35
0.00
0.35

-0.04
0.00
-0.04

0.42
0.00
0.42

0.22
0.00
0.22

0.99
0.00
0.96

0.41
0.00
0.41

0.73
0.00
0.73

0.57
0.00
0.57

0.47
0.00
0.47

2.20
0.00
2.20

7,270
+15

Source: SEB estimates

SEB Equity Research

02 February 2015

25

94

Company Update

Subsea 7

Interim segmental earnings estimates Subsea 7 (USDm)


Year end: Dec
Revenues
NSMC
AFGoM
APME
Brazil
Corporate
Total

Q3/12

Q4/12

2012

Q1/13

Q2/13

Q3/13

Q4/13

2013

Q1/14

Q2/14

Q3/14 Q4/14E

847
506
52
338
1
1,744

699
611
55
241
5
1,611

2,838
2,182
278
987
12
6,297

596
529
123
217
2
1,467

705
669
142
159
6
1,681

670
583
73
233
6
1,564

544
673
160
206
4
1,586

2,514
2,454
498
814
17
6,297

558
669
205
231
5
1,668

732
661
243
265
4
1,905

784
624
246
249
-1
1,902

700
640
200
250
5
1,795

2,774
2,594
894
995
13
7,270

+33
-16
+37
+119
+22

+19
+1
+44
+29
+14

+38
-14
+54
+44
+15

+3
+0
+44
-17
+1

-1
+24
+67
+8
+13

-21
+15
+41
-31
-10

-22
+10
+191
-15
-2

-11
+12
+80
-17
+0

-6
+27
+66
+6
+14

+4
-1
+71
+67
+13

+17
+7
+237
+7
+22

+29
-5
+25
+22
+13

+10
+6
+79
+22
+15

Operating profit
NSMC
AFGoM
APME
Brazil
Corporate
Total

105
125
-2
1
-1
228

88
97
18
-29
8
180

364
428
46
-25
-4
808

85
86
15
-22
-10
154

136
133
33
-294
32
41

111
94
30
10
24
269

63
89
9
-13
-39
109

395
402
86
-318
8
573

73
77
11
19
-14
166

156
85
22
57
30
350

109
83
35
88
10
324

91
83
24
38
0
236

429
328
93
201
26
1,076

Operating profit margin (%)


NSMC
AFGoM
APME
Brazil
Total

12.4
24.7
-3.5
0.4
13.1

12.6
15.8
32.1
-12.2
11.2

12.8
19.6
16.6
-2.6
12.8

14.2
16.3
11.8
-10.0
10.5

19.3
19.9
23.2
-184.7
2.4

16.6
16.0
41.3
4.5
17.2

11.6
13.3
5.3
-6.2
6.9

15.7
16.4
17.3
-39.0
9.1

13.0
11.4
5.6
8.2
9.9

21.4
12.9
9.1
21.3
18.4

13.9
13.3
14.2
35.2
17.0

13.0
13.0
12.0
15.0
13.1

15.5
12.6
10.3
20.2
14.8

2,629
2,790
647
2,022
8,088

3,725
2,817
727
1,817
9,086

3,725
2,817
727
1,817
9,086

4,498
3,373
613
1,738
10,222

4,168
3,231
729
2,293
10,421

4,012
2,950
826
4,012
11,800

3,766
2,943
706
4,355
11,770

3,766
2,943
706
4,355
11,770

3,812
2,772
578
4,390
11,552

3,807
2,687
560
4,143
11,197

2,923
2,263
472
3,772
9,430

2,423
2,123
572
3,522
8,235

2,423
2,123
572
3,522
8,235

Q3/14 Q4/14E

2014E

Revenue growth (%)


NSMC
AFGoM
APME
Brazil
Total

Backlog
NSMC
AFGoM
APME
Brazil
Total

2014E

Source: SEB estimates

Interim orders intake analysis Subsea 7 (USDm)


Year end: Dec

Q4/12

2012

Q1/13

Q2/13

Q3/13

Q4/13

2013

Q1/14

Q2/14

Announced order intake


Unannounced orders
Total order intake

1,850
759
2,609

3,720
3,125
6,845

2,500
103
2,603

710
1,170
1,880

2,660
283
2,943

1,160
396
1,556

7,030
1,951
8,981

275
1,175
1,450

670
880
1,550

70
368
438

195
405
600

1,210
2,828
4,038

Announced PLSV orders


Total other others
Total order intake

0
2,609
2,609

0
6,845
6,845

0
2,603
2,603

350
1,530
1,880

2,450
493
2,943

600
956
1,556

3,400
5,581
8,981

0
1,450
1,450

0
1,550
1,550

0
438
438

0
600
600

0
4,038
4,038

Revenue
Revenue growth (%)

1,611
+14

6,297
+15

1,467
+1

1,681
+13

1,564
-10

1,586
-2

6,297
+0

1,668
+14

1,905
+13

1,902
+22

1,795
+13

7,270
+15

PLSV revenue
PLSV revenue growth (%)
Non PLSV revenue

67
+0
1,544

266
+0
6,030

65
-1
1,402

67
+0
1,614

63
-7
1,501

93
+39
1,493

287
+8
6,010

96
+49
1,572

100
+49
1,805

131
+108
1,771

136
+46
1,659

463
+61
6,807

Source: SEB estimates

SEB Equity Research

02 February 2015

26

95

Company Update

Subsea 7

PLSV revenue and backlog summary


Seven Condor
Contract 1
Utilisation (%)
Day rate
Revenue
Backlog
Contract 2 (signed Q4 2013)
Utilisation (%)
Day rate
Revenue
Backlog
Commander 3000
Contract 1 (signed 2006)
Utilisation (%)
Day rate
Revenue
Backlog
Contract 2 (signed Q2 2013)
Utilisation (%)
Day rate
Revenue
Backlog
Seven Mar
Contract 1
Utilisation (%)
Day rate
Revenue
Backlog
Contract 2 (signed Q4 2013)
Utilisation (%)
Day rate
Revenue
Backlog
Normand Seven
Contract 1
Utilisation (%)
Day rate
Revenue
Backlog
Contract 2 (signed Q3 2013)
Utilisation (%)
Day rate
Revenue
Backlog
Seven Phoenix
Contract 1
Utilisation (%)
Day rate
Revenue
Backlog
Contract 2 (signed Q3 2013)
Utilisation (%)
Day rate
Revenue
Backlog

Q2/12

Q3/12

Q4/12

2012

Q1/13

Q2/13

Q3/13

Q4/13

2013

Q1/14

Q2/14

Q3/14 Q4/14E

2014E

100
151
14
117

100
151
14
103

100
151
14
89

100
151
55
89

100
151
13
76

100
151
14
62

100
151
14
48

100
151
14
34

100
151
55
34

100
151
13
21

100
151
14
7

50
151
7
0

0
0
0
0

63
151
34
0

0
0
0
0

0
0
0
0

0
0
0
0

0
0
0
0

0
0
0
0

0
0
0
0

0
0
0
0

0
0
0
300

0
0
0
300

0
0
0
300

0
0
0
300

50
274
13
288

100
274
25
263

38
274
38
263

Q2/12

Q3/12

Q4/12

2012

Q1/13

Q2/13

Q3/13

Q4/13

2013

Q1/14

Q2/14

Q3/14 Q4/14E

2014E

100
114
10
42

100
114
10
31

100
114
10
21

100
114
42
21

100
114
10
10

100
114
10
0

0
0
0
0

0
0
0
0

50
114
21
0

0
0
0
0

0
0
0
0

0
0
0
0

0
0
0
0

0
0
0
0

0
0
0
0

0
0
0
0

0
0
0
0

0
0
0
0

0
0
0
0

0
0
0
351

0
0
0
351

100
192
18
333

25
192
18
333

100
192
17
316

100
192
18
298

100
192
18
280

100
192
18
263

100
192
70
263

Q2/12

Q3/12

Q4/12

2012

Q1/13

Q2/13

Q3/13

Q4/13

2013

Q1/14

Q2/14

Q3/14 Q4/14E

2014E

100
178
16
90

100
178
16
73

100
178
16
57

100
178
65
57

100
178
16
41

100
178
16
25

100
178
16
8

50
178
8
0

88
178
57
0

0
0
0
0

0
0
0
0

0
0
0
0

0
0
0
0

0
0
0
0

0
0
0
0

0
0
0
0

0
0
0
0

0
0
0
0

0
0
0
0

0
0
0
0

0
0
0
0

50
274
13
288

13
274
13
288

100
274
24
263

100
274
25
238

100
274
25
213

100
274
25
188

100
274
100
188

Q2/12

Q3/12

Q4/12

2012

Q1/13

Q2/13

Q3/13

Q4/13

2013

Q1/14

Q2/14

Q3/14 Q4/14E

2014E

100
171
16
86

100
171
16
70

100
171
16
55

100
171
63
55

100
171
15
39

100
171
16
24

100
171
16
8

50
171
8
0

88
171
55
0

0
0
0
0

0
0
0
0

0
0
0
0

0
0
0
0

0
0
0
0

0
0
0
0

0
0
0
0

0
0
0
0

0
0
0
0

0
0
0
0

0
0
0
0

0
0
0
400

50
219
10
390

13
219
10
390

100
219
19
370

100
219
20
350

100
219
20
330

100
219
20
310

100
219
80
310

Q2/12

Q3/12

Q4/12

2012

Q1/13

Q2/13

Q3/13

Q4/13

2013

Q1/14

Q2/14

Q3/14 Q4/14E

2014E

100
114
10
47

100
114
10
36

100
114
10
26

100
114
42
26

100
114
10
16

100
114
10
5

50
114
5
0

0
0
0
0

63
114
26
0

0
0
0
0

0
0
0
0

0
0
0
0

0
0
0
0

0
0
0
0

0
0
0
0

0
0
0
0

0
0
0
0

0
0
0
0

0
0
0
0

0
0
0
0

50
247
11
462

100
247
23
440

38
247
34
440

100
247
22
418

100
247
23
395

100
247
23
372

100
247
23
349

100
247
90
349

Source: SEB estimates

SEB Equity Research

02 February 2015

27

96

Company Update

Subsea 7

PLSV revenue and backlog summary


Seven Waves
Contract 1 (signed Q4 2011)
Utilisation (%)
Day rate
Revenue
Backlog

Q2/12

Q3/12

Q4/12

2012

Q1/13

Q2/13

Q3/13

Q4/13

2013

Q1/14

Q2/14

0
0
0
500

0
0
0
500

0
0
0
500

0
0
0
500

0
0
0
500

0
0
0
500

100
0
0
500

100
0
0
500

50
0
0
500

100
0
0
500

100
0
0
500

Seven Sun
Contract 1 (signed Q3 2013)
Utilisation (%)
Day rate
Revenue
Backlog

Q2/12

Q3/12

Q4/12

2012

Q1/13

Q2/13

Q3/13

Q4/13

2013

Q1/14

Q2/14

0
0
0
0

0
0
0
0

0
0
0
0

0
0
0
0

0
0
0
0

0
0
0
0

0
0
0
533

0
0
0
533

0
0
0
533

0
0
0
533

0
0
0
533

Seven Rio
Contract 1 (signed Q3 2013)
Utilisation (%)
Day rate
Revenue
Backlog

Q2/12

Q3/12

Q4/12

2012

Q1/13

Q2/13

Q3/13

Q4/13

2013

Q1/14

Q2/14

0
0
0
0

0
0
0
0

0
0
0
0

0
0
0
0

0
0
0
0

0
0
0
0

0
0
0
533

0
0
0
533

0
0
0
533

0
0
0
533

0
0
0
533

Seven Cruzeiro
Contract 1 (signed Q3 2013)
Utilisation (%)
Day rate
Revenue
Backlog

Q2/12

Q3/12

Q4/12

2012

Q1/13

Q2/13

Q3/13

Q4/13

2013

Q1/14

Q2/14

0
0
0
0

0
0
0
0

0
0
0
0

0
0
0
0

0
0
0
0

0
0
0
0

0
0
0
533

0
0
0
533

0
0
0
533

0
0
0
533

0
0
0
533

Totals
PLSV revenue
PLSV backlog

Q2/12
67
882

Q3/12
67
815

Q4/12
67
748

2012
266
748

Q1/13
65
683

Q2/13
67
966

Q3/13
63
3,376

Q4/13
93
3,883

2013
287
3,883

Q1/14
96
3,787

Group revenue
Non PLSV revenue

1,484
1,417

1,744
1,677

1,611
1,544

6,297
6,030

1,467
1,402

1,681
1,614

1,564
1,501

1,586
1,493

6,297
6,010

Group backlog
YoY growth (%)
Non PLSV backlog
YoY non PLSV growth (%)

8,285
+5
7,403
+2

8,088
+2
7,273
-1

9,086
+6
8,338
+11

9,086 10,222
+6
+18
8,338 9,539
+11
+23

10,421
+26
9,455
+28

11,800
+46
8,424
+16

11,770
+30
7,887
-5

Backlog for execution next year


Revenue coverage
PLSV backlog for execution next year
Non PLSV backlog for exec next year
Non PLSV revenue coverage

3,645
44
213
3,432
57

3,801
47
213
3,588
60

2,544
28
85
2,459
36

2,544
28
85
2,459
36

4,064
39
193
3,872
57

4,720
40
363
4,357
64

2,589
22
554
2,036
44

3,578
35
85
3,493
51

Q3/14 Q4/14E
100
274
25
475

2014E

100
274
25
450

100
274
50
450

Q3/14 Q4/14E

2014E

0
0
0
533

0
0
0
533

0
0
0
533

Q3/14 Q4/14E

2014E

0
0
0
533

0
0
0
533

0
0
0
533

Q3/14 Q4/14E

2014E

0
0
0
533

0
0
0
533

0
0
0
533

Q2/14
100
3,687

Q3/14 Q4/14E
131
136
3,557 3,421

2014E
463
3,421

1,668
1,572

1,905
1,805

1,902
1,771

1,795
1,659

7,270
6,807

11,770
+30
7,887
-5

11,552
+13
7,765
-19

11,197
+7
7,510
-21

9,430
-20
5,873
-30

8,235
-30
4,814
-39

8,235
-30
4,814
-39

2,589
22
554
2,036
44

3,004
26
554
2,450
53

3,807
34
554
3,253
71

3,866
41
554
3,313
72

Source: SEB estimates

SEB Equity Research

02 February 2015

28

97

Company Update

Subsea 7

Overview
Investment case

We see risks of deteriorating fleet utilisation in 2015, following weak order intake
recently, particularly if we exclude PLSV awards. The backlog for execution in 2015
is below that booked for 2014 a year ago, and with concerns over near-term awards
we see risks increasing that consensus forecasts for next year may need to fall. The
scale of order intake in the next few months, and the contribution those awards
provide to 2015 revenue will be critical in determining the degree of downgrades in
our view.

Company profile

Subsea 7, formed through the merger of Acergy and Subsea 7 in January 2011,
designs, procures, fabricates, installs and maintains subsea pipeline and riser
systems for the global offshore oil and gas industry. With roots dating back to the
1960s and the early days of offshore exploration and production in northern Europe,
Subsea 7 has been servicing the offshore oil and gas industry for more than 30
years. The company offers services to the following segments: subsea, umbilicals,
risers and flowlines (SURF), the conventional installation of platforms and pipelines,
and the inspection, maintenance and repair market (IMR).

Valuation approach

Our NOK 46 target price is based on a 50% discount to tangible equity book
value.50% discount to tangible equity book value.

Target price risks

The main risks to our Sell rating are the scale of near-term order intake and a
potential shift in Subsea 7's backlog execution schedule. More specifically slower
execution during 2014, which may already be reflected in the company's guidance,
could leave revenue visibility for 2015 better than is currently indicated.

Revenues by region

Norway: 16%
Other Europe: 42%
Asia: 0%

Revenues by division

Source: SEB

SEB Equity Research

SURF 72%
Life of Field (IMR) 12%

Other Nordic: 0%
Americas: 12%
RoW: 30%

Conventional 12%
i-Tech/VERIPOS 4%

Source: SEB

02 February 2015

29

98

Company Update

Subsea 7

PER - 12 month forward

P/BV - 12 month forward

35
30
25

(%)

15
10
5
0
2007

2010

2013

2016

2010

2013

PER - 12 month forward


Source: SEB

Source: SEB

EV/Sales - 12 month forward

EV/EBITA - 12 month forward

2.5
2.0

(x)

(x)

1.5
1.0
0.5
0.0
2007

2010

2013

2016

18
16
14
12
10
8
6
4
2
0
2007

2010

Source: SEB

Source: SEB

Net sales & EBITDA margin

EBIT & Operating margin

16,000
14,000
12,000
10,000
8,000
6,000
4,000
2,000
0

2016

4,000

25.0

20.0

3,500
20.0

3,000

(USDm)

15.0
10.0

2,000
1,500

2011

Net sales

2013

5.0

500
0

0.0
2009

10.0

1,000

5.0
2007

15.0

2,500

(%)

(USDm)

2013

EV/EBITA - 12 month forward

EV/Sales - 12 month forward

0.0
2007

2015E

2009

EBITDA margin

2011
EBIT

Source: SEB

Comparison with sector index - 1 year

Comparison with Saipem - 1 year

130

2013

2015E

Operating margin

Source: SEB

160

120
110

140

100

120

90

100

80

80

70
60
Feb 14

2016

P/BV - 12 month forward

(%)

(x)

20

800
700
600
500
400
300
200
100
0
2007

May 14
Subsea 7

Aug 14

Nov 14

Jan 15

Rel European Oil Services

Source: SIX

SEB Equity Research

60
Feb 14

May 14
Subsea 7

Aug 14

Nov 14

Jan 15

Rel Saipem

Source: SIX

02 February 2015

30

99

Company Update

Subsea 7

Profit & loss statement - Subsea 7


(USDm)
Net Sales
Other revenues
Total revenues

2007
2,406
0
2,406

2008
2,522
0
2,522

2009
2,209
0
2,209

2010
2,369
0
2,369

2011
5,476
0
5,476

2012
6,297
0
6,297

2013
6,297
0
6,297

2014E
7,270
0
7,270

2015E
5,165
0
5,165

2016E
4,914
0
4,914

(1,968)
438

(1,949)
573

(1,721)
488

(1,810)
559

(4,473)
1,003

(5,158)
1,139

(5,317)
981

(5,781)
1,489

(4,372)
793

(4,136)
779

Depreciation - Fixed assets


Depreciation - Other assets
Amortisation - Goodwill
Amortisation - Other intangibles
Operating profit

(86)
0
0
0
352

(112)
0
0
0
461

(146)
0
0
0
343

(123)
0
0
0
436

(363)
0
0
0
641

(331)
0
0
0
808

(407)
0
0
0
573

(414)
0
0
0
1,076

(446)
0
0
0
348

(466)
0
0
0
313

Associated companies
Net interest expenses
Foreign exchange items
Other financial items
Value changes - Fixed assets
Value changes - Financial assets
Value changes - Other assets
Reported pre-tax profit

6
(8)
0
1
0
0
0
350

(23)
(13)
0
44
0
0
0
470

7
(25)
0
44
0
0
0
369

45
(19)
0
(18)
0
0
0
444

0
(20)
0
7
0
0
0
627

0
(29)
0
290
0
0
0
1,069

0
(49)
0
(14)
0
0
0
511

0
(12)
0
(15)
0
0
0
1,049

0
(18)
0
0
0
0
0
329

0
(22)
0
0
0
0
0
291

Minority interests
Total taxes
Reported profit after tax

(7)
(215)
127

(6)
(163)
301

(21)
(103)
245

(48)
(131)
265

(27)
(176)
424

(17)
(222)
830

(2)
(161)
348

30
(282)
796

(20)
(99)
211

(20)
(87)
184

Discontinued operations
Extraordinary items
Net Profit

0
0
127

0
0
301

0
0
245

0
0
265

0
0
424

0
0
830

0
0
348

0
0
796

0
0
211

0
0
184

Adjustments:
Discontinued operations
Interest on convertible debt
Minority interests (IFRS)
Value changes
Goodwill/intangibles amortisations
Restructuring charges
Other adjustments
Tax effect of adjustments
Adjusted profit after tax

0
0
0
0
0
0
0
0
127

0
28
0
0
0
0
0
0
330

0
30
0
0
0
0
0
0
274

0
19
0
0
0
0
0
0
284

0
21
0
0
0
0
0
0
444

0
18
0
0
0
0
0
0
848

0
24
0
0
0
0
0
0
372

0
14
0
0
0
0
0
0
811

0
13
0
0
0
0
0
0
224

0
13
0
0
0
0
0
0
197

Margins, tax & returns


Operating margin
Pre-tax margin
Tax rate
ROE
ROCE

14.6
14.5
61.5
31.8
43.2

18.3
18.6
34.6
41.5
36.5

15.5
16.7
27.9
29.6
25.6

18.4
18.7
29.5
9.2
12.9

11.7
11.4
28.1
8.1
10.3

12.8
17.0
20.7
14.0
11.2

9.1
8.1
31.5
5.8
7.7

14.8
14.4
26.9
11.8
14.0

6.7
6.4
30.0
3.1
4.4

6.4
5.9
30.0
2.6
3.8

Growth rates y-o-y (%)


Total revenues
Operating profit
Pre-tax profit
EPS (adjusted)

n.a.
n.m.
n.m.
0.0

4.8
31.1
34.4
140.9

(12.4)
(25.6)
(21.6)
(16.2)

7.3
27.3
20.4
3.1

131.2
46.9
41.3
(11.9)

15.0
26.2
70.5
84.0

0.0
(29.1)
(52.2)
(55.6)

15.4
87.6
105.3
121.4

(29.0)
(67.7)
(68.6)
(70.8)

(4.9)
(9.9)
(11.6)
(11.2)

(USDm)
Net profit
Non-cash adjustments
Cash flow before work cap

2007
127
88
215

2008
301
141
442

2009
245
159
404

2010
265
126
392

2011
424
390
814

2012
830
347
1,178

2013
348
410
757

2014E
796
384
1,180

2015E
211
466
676

2016E
184
486
669

Ch. in working capital / Other


Operating cash flow

52
267

69
511

30
434

(86)
306

(152)
662

(307)
871

266
1,023

17
1,197

(36)
640

(4)
665

Capital expenditures
Asset disposals
L/T financial investments
Acquisitions / adjustments
Free cash flow

(261)
(81)
0
0
(75)

(293)
40
0
0
259

(172)
(33)
0
0
229

(593)
22
0
0
(264)

(669)
(2)
0
0
(9)

(909)
(245)
0
0
(282)

(739)
(196)
0
0
88

(1,035)
0
0
0
162

(1,035)
0
0
0
(395)

(515)
0
0
0
150

Net loan proceeds


Dividend paid
Share issue
Other
Net change in cash

(120)
(39)
0
0
(233)

30
(39)
0
0
249

(4)
(40)
0
0
185

481
(42)
0
(0)
174

(3)
0
0
0
(12)

642
(203)
0
0
157

(624)
(199)
0
0
(735)

(12)
(200)
0
(0)
(50)

100
0
0
0
(295)

0
0
0
0
150

215
0
0
215

442
0
28
470

404
0
30
434

392
0
19
411

814
0
21
834

1,178
(0)
18
1,196

757
(0)
24
781

1,180
0
14
1,194

676
0
13
689

669
0
13
682

Per share information


Cash earnings
Operating cash flow
Free cash flow

1.12
1.39
(0.39)

2.27
2.61
1.39

2.11
2.25
1.26

1.99
1.57
(1.19)

2.28
1.86
0.03

3.14
2.34
(0.7)

2.08
2.8
0.3

3.23
3.28
0.48

1.98
1.87
(1.1)

1.97
1.96
0.47

Investment cover
Capex/sales (%)
Capex/depreciation (%)

10.8
302

11.6
261

7.8
118

25.0
481

12.2
184

14.4
275

11.7
181

14.2
250

20.0
232

10.5
111

Total expenses
Profit before depreciation

Cash flow

Adjustments
C/flow bef chng in work cap
Adjustments
Int on conv debt net of tax
Cash earnings

Source for all data on this page: SEB

SEB Equity Research

02 February 2015

31

100

Company Update

Subsea 7

Balance sheet - Subsea 7


(USDm)
Cash and liquid assets
Debtors
Inventories
Other
Current assets

2007
592
485
0
325
1,402

2008
584
355
0
393
1,332

2009
908
298
0
538
1,743

2010
1,087
584
0
907
2,577

2011
803
773
0
1,338
2,914

2012
1,288
1,090
0
1,443
3,821

2013
670
1,008
0
1,459
3,137

2014E
619
1,164
0
1,685
3,467

2015E
324
827
0
1,197
2,348

2016E
474
787
0
1,139
2,399

Interest bearing fixed assets


Other financial assets
Capitalized development cost
Goodwill
Other intangibles
Fixed tangible assets
Other fixed assets
Fixed assets

0
106
0
0
4
814
101
1,025

0
140
0
0
4
908
88
1,139

0
190
0
0
9
822
69
1,090

0
188
0
2,296
33
3,027
87
5,630

0
264
0
2,567
35
3,352
116
6,334

0
0
0
2,575
24
3,748
327
6,674

0
0
0
2,585
25
4,098
514
7,221

0
0
0
2,585
25
4,720
514
7,842

0
0
0
2,585
25
5,309
514
8,432

0
0
0
2,585
25
5,359
514
8,481

Total assets

2,427

2,471

2,833

8,207

9,248

10,495

10,357

11,310

10,780

10,881

Creditors
Other trade financing
S/T interest bearing debt
Other
Current liabilities

940
0
3
157
1,100

1,035
0
10
69
1,114

1,123
0
0
98
1,221

1,669
0
239
121
2,029

2,069
0
13
190
2,272

2,174
0
495
201
2,869

2,464
0
275
111
2,851

2,845
0
300
128
3,273

2,021
0
300
91
2,412

1,923
0
300
87
2,310

L/T interest bearing debt


Other long-term liabilities
Convertible debt
Pension provisions
Other provisions
Deferred tax
Long term liabilities

387
34
0
50
2
36
508

409
61
0
21
8
56
556

416
9
0
27
11
50
513

658
50
0
23
0
282
1,013

881
77
0
29
23
133
1,143

1,041
44
0
23
38
112
1,258

636
34
0
19
36
170
895

600
34
0
19
35
170
858

700
34
0
19
35
170
958

700
34
0
19
35
170
958

18

14

31

31

52

44

47

17

37

57

801

788

1,068

5,135

5,781

6,325

6,566

7,162

7,372

7,556

Total liabilities and equity

2,427

2,471

2,833

8,207

9,248

10,495

10,357

11,310

10,780

10,881

Net debt (m)


Working capital (m)
Capital employed (m)
Net debt/equity (%)
Net debt/EBITDA (x)
Equity/total assets (%)
Interest cover

(152)
(287)
1,258
(19)
(0.3)
34
9.8

(144)
(356)
1,242
(18)
(0.3)
32
15.7

(465)
(386)
1,542
(42)
(0.9)
39
11.1

(168)
(300)
6,084
(3)
(0.3)
63
15.5

119
(148)
6,755
2
0.1
63
16.3

271
158
7,927
4
0.2
61
18.4

261
(108)
7,543
4
0.3
64
8.4

300
(125)
8,098
4
0.2
63
35.2

695
(89)
8,428
9
0.9
69
11.1

545
(84)
8,632
7
0.7
70
9.5

(USD)

2007

2008

2009

2010

2011

2012

2013

2014E

2015E

2016E

No of shares, fully dil. (y/e)


No of shares, fully dil. avg.

192.6
192.6

207.1
207.1

204.5
205.7

206.9
206.7

347.9
366.3

398.7
380.2

375.2
374.7

369.2
369.2

348.7
348.7

345.7
345.7

Share price, y/e


Share price, high
Share price, low
Share price, avg

119.5
168.0
105.2
132.5

38.4
141.9
25.1
87.9

90.3
91.5
31.0
59.7

140.9
144.3
85.1
106.6

109.4
153.6
97.9
127.0

132.1
152.6
107.2
129.4

116.1
144.0
40.9
126.1

65.9
127.5
63.9
101.8

65.9

65.9

0.66
0.66
1.12
0.21

1.59
1.59
2.27
0.22

1.33
1.33
2.11
0.23

1.38
1.38
1.99
0.00

1.21
1.21
2.28
0.60

2.23
2.23
3.14
0.60

0.99
0.99
2.08
0.60

2.20
2.20
3.23
0.00

0.64
0.64
1.98
0.00

0.57
0.57
1.97
0.60

21
4.2
4.2

4.8
4.2
4.2

13.4
5.8
5.8

23
28
28

18.6
17.8
17.8

24
18.9
18.9

19.7
19.7
19.7

9.2
21
21

10.4
22
22

10.0
23
23

PER (adjusted)
CEM
Dividend yield

33.4
19.8
1.0

3.4
2.4
4.0

11.7
7.4
1.5

17.5
12.1
0.0

15.0
8.0
3.3

10.6
7.5
2.5

19.2
9.1
3.2

3.8
2.6
0.0

13.2
4.3
0.0

14.8
4.3
7.1

EV/EBITDA
EV/EBIT
EV/Sales (x)
Price/Book value
Price/adjusted equity

9.2
11.5
1.70
5.31
5.31

1.8
2.3
0.39
1.30
1.30

5.5
7.8
1.24
2.69
2.69

8.0
10.0
2.03
0.86
0.86

6.4
10.1
1.18
1.03
1.03

8.5
12.0
1.55
1.26
1.26

7.5
12.9
1.17
0.97
0.97

2.3
3.2
0.47
0.39
0.39

4.6
10.5
0.70
0.38
0.38

4.4
11.0
0.70
0.37
0.37

0.1
6.5
3.3

19.2
51.5
0.8

8.1
15.9
1.8

(5.8)
6.4
0.8

(0.1)
10.2
1.0

(0.4)
8.9
1.2

4.0
13.9
1.0

5.2
35.1
0.4

(13.4)
17.6
0.4

5.1
19.2
0.4

Minority interests
Shareholders' equity

Valuation

EPS (reported)
EPS (adjusted)
Cash earnings/share
Dividend/share
Enterprise value/share
Book value/share
Adjusted equity/share

Free cash flow/Market cap (%)


Operating cash flow/EV (%)
EV/Capital employed (x)

Main shareholders
Name
Folketrygdfondet
Siem Industries Inc
Siem Industries Inc

Management
(%) Votes
8.6
6.9
6.8

Capital
8.6
6.9
6.8

Title
COB
CEO
CFO
IR

Company information
Name
Kristian Siem
Jean Cahuzac
Ricardo Rosa
Keith Russell

Contact
Internet
Phone number
Fax number

www.subsea7.com
+44 (0)20 8210 5500
+44 (0)20 8210 5501

Source for all data on this page: SEB

SEB Equity Research

02 February 2015

32

101

Company Update

Subsea 7

Target prices and risks


Target price definition and associated risks
Our target price is the analyst's assessment of what total return an investor should expect
over the coming six to 12 months. The target is based on fundamental equity research and
other factors at the analyst's discretion.
Our current target price of NOK 53 was set today (2 Feb 2015). The main risk to our target
price on Subsea 7 is as follows. The main risks to our Sell rating are the scale of near-term
order intake and a potential shift in Subsea 7's backlog execution schedule. More
specifically slower execution during 2014, which may already be reflected in the company's
guidance, could leave revenue visibility for 2015 better than is currently indicated.
Risk levels
The risk level is the analysts view of the uncertainty in the earnings forecasts based on an
assessment of the companys business model, operating risk as well as financial risk. We
use two risk levels with the following explanations:

SEB Equity Research

Normal risk: All forecasts involve uncertainty and we view companies in this risk level
to have normal forecast risks

High risk: The earnings forecasts are more uncertain than for an average listed
company due to business model, operating risk, financial risk or any other reason at
the analysts discretion. All companies with shorter track record than 12 months as a
listed company are by definition classified as high risk according to SEB.

02 February 2015

33

102

Company Update

Subsea 7

Authors' statement of independence (Analyst Certification)


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recommendation contained in the report. We are not registered or qualified as research analysts, representatives or associated persons
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author's opinion should change or a new analyst with a different opinion becomes responsible for our coverage of the company concerned,
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To the extent permitted by applicable law, no liability whatsoever is accepted by SEB for any direct or consequential loss arising from the
use of this document or its contents.
Distribution
This research report has been prepared by SEB or its affiliates and is being distributed by SEB offices in Stockholm, Copenhagen,
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Addresses and Phone numbers for each office can be found at the end of the report.
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SEBs research reports are prepared in accordance with the industry standards and codes of conduct applicable to financial analysts in the
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Institute also comply with the Code of Ethics of the CFA Institute.

SEB Equity Research

02 February 2015

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103

Company Update

Subsea 7

Prevention and avoidance of conflicts of interest


All research reports are produced by SEBs Research department, which is separated from the rest of its activities by an Information Barrier;
as such, research reports are independent and based solely on publicly available information. Following standard practice,
recommendations and target share prices are removed from research on companies which are the subject of public offers on which SEB is
advising. The remuneration of staff within the Research department is determined exclusively by research management and senior
management and may include discretionary awards based on the firms total earnings, including investment banking income; however, no
such staff receive remuneration based upon specific investment banking transactions. SEBs Compliance department monitors the
production of research and the observance of the group's procedures designed to prevent any potential conflicts of interest from affecting the
content of research; the latter are described in greater detail in the "Statement of Policies for dealing with potential conflicts of interest
surrounding our Research activities" which is available on our Research Online website.
Your attention is also drawn to the fact that:
The current market price of the securities shown in this report is the price prevailing at the close of the business day preceding the date of
publication, save where such price was more than 5% different from the price prevailing as at the time of publication, in which case it is the
latter.
Unless explicitly stated otherwise in this report, SEB expects (but does not undertake) to issue updates to this report following the publication
of new figures or forecasts by the company covered, or upon the occurrence of other events which could potentially have a material effect on
it.
The securities discussed in this research report may not be eligible for sale in all countries, and such securities may not be suitable for all
types of investors. Offers and sales of securities discussed in this research report, and the distribution of this report, may be made only in
countries where such securities are exempt from registration or qualification or have been so registered or qualified for offer and sale, and in
accordance with applicable broker-dealer and agent/salesman registration or licensing requirements.
Any valuations, projections and forecasts contained in this report are based on a number of assumptions and estimates and are subject to
contingencies and uncertainties, and their inclusion in this report should not be regarded as a representation or warranty by or on behalf of
the Group or any person or entity within the Group that they or their underlying assumptions and estimates will be met or realized. Different
assumptions could result in materially different results. Past performance is not a reliable indicator of future performance. Foreign currency
rates of exchange may adversely affect the value, price or income of any security or related investment mentioned in this report. In addition,
investors in securities, such as ADRs, whose values are influenced by the currency of the underlying security, effectively assume currency
risk.
Company specific disclosures and potential conflicts of interest
A member of, or an entity associated with, SEB or its affiliates, officers, directors, employees or shareholders of such members (a) is not,
and has never been, represented on the board of directors or similar supervisory entity of Subsea 7, (b) has from time to time bought or sold
the securities issued by the company or options relating to the company, and (c) SEB or its affiliates beneficially own less than 1% of a class
of common equity securities of Subsea 7 as of 31 Jan 2015.
The analyst(s) responsible for this report (jointly with their closely related persons) hold(s) 0 shares, employees of SEB, Oslo Branch hold
2000 shares, and SEB, Oslo Branch holds 0 shares in Subsea 7 (not including shares held as hedge against derivatives positions).
Current recommendation for Subsea 7 - Sell - was set on 29 Jul 2014, changed from Buy. The dates of previous recommendation changes
in relation to Subsea 7 can be found on our Research Online website.

SEB Equity Research

02 February 2015

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104

SEBs standardised recommendation structure

Buy
Hold
Sell
Unrated

Consolidated distribution
as per 31 Dec 2014 (%)

Investment banking
clients last 12M

51.4
37.5
11.1

10.7
3.6
0.8

Attractive risk/reward - at least 10% upside to target price.


Fairly valued - the shares are trading close to target price.
Unattractive risk/reward - the shares are trading above target price.
Company not covered, or we are not allowed to have a recommendation for compliance reasons

Source: SEB

Please note, in the chart to the right:


1=Buy
2=Hold
3=Sell
The grey spots mark the point where
target prices have been changed. The
price chart is not adjusted for
dividends paid, whereas our
recommendations are based on
expected return including dividends

Target price and recommendation revision history


1

13

180
160
140
120
100
80
60
40
Jan 10

Jan 11

Jan 12

Jan 13

Jan 14

Jan 15

SUBC.OL
Source: Thomson Reuters / SIX / SEB

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105