Isabel Green - Director, IR Jean Cahuzac - CEO Ricardo Rosa - CFO John Evans - COO

James Evans - Exane Rob Pulleyn - Morgan Stanley Michael Rae - Redburn Kevin Roger - Kepler Cheuvreux Amy Wong - UBS Haakon Amundsen - ABG Guillaume Delaby - Societe Generale Frederik Lunde - Carnegie Michael Alsford - Citi James Thompson - JP Morgan

Welcome, everyone, to our third quarter results conference call. With me on the call today are Jean Cahuzac, our Chief Executive Officer; Ricardo Rosa, our Chief Financial Officer; and John Evans, our Chief Operating Officer. The results press release is available to download on our website, along with the presentation slides that we'll be referring to on today's call. Before we start the call, I would like to turn to Slide 2 and remind you that we may include forward-looking statements, which reflect our current views and are subject to risks, uncertainties and assumptions. Similar wording is also included on our press release. And with that, I will now turn the call over to Jean.

Hi. Good afternoon, everybody. I would like to welcome you to our third quarter results conference call today. I will begin with our quarter highlights, Ricardo will present our third quarter financial results, and I will then conclude with an update on our renewable strategy and business outlook. Beginning on Slide 4. Revenue for the quarter was $1.1 billion, slightly higher than the prior year period. The marginal increase was mostly due to higher offshore activity in the quarter, led by SURF operations offshore Egypt and Australia. We reported an adjusted EBITDA of $217 million, 13% lower than the prior year, resulting in an EBITDA percentage margin of 20%. The reduction from the prior year was mostly a reflection of lower pricing on projects awarded in the downturn. Our diluted earnings per share for the quarter was $0.23. We achieved total vessel utilization of 85%, our highest quarter since 2014. The third quarter is usually our busiest operationally due to favorable weather condition in the North Sea. However, the weather offshore Germany has been more challenging than expected, causing some delays on the Borkum II wind farm project. We announced 4 award in the quarter, resulting in $800 million of awards and escalation and book-to-bill ratio of 0.7. Turning to Slide 5 to look at some highlights from our current projects and operation. The West Nile Delta Phase Two GFR project offshore Egypt achieved successful key project milestone with the completion of 2 24-inch pipelines by Seven Borealis and onshore umbilical installation. Seven Seas, Seven Pacific and Seven Eagle have finished their campaigns, with only Simar Esperança remaining in country to complete her scope. In Australia, the Cooper Sole project has commenced its offshore phase, with Seven Oceans transporting 64 kilometers of 12-inch pipeline. Skandi Acergy will install the associated umbilical later in the year. The Greater Western Flank project, also in Australia, made good progress, too. We announced the award as the Aerfugl project offshore Norway late last year. And although offshore operation do not start until '19, good progress has been made in upgrading our Vigra Spoolbase to accommodate Electrically Heat Traced Flowline, one of the new technologies developed by Subsea 7. As you can see on the slide, trials are underway for transporting next year. In the Middle East, we have numerous operations ongoing in the quarter. Executing several project in one location allows for operational optimization of assets, including utilization, including installation vessels, cargo barge, survey vessels and supply boats. In the third quarter, Seven Champion continued to lay pipe on the Hasbah project. And on the slide, we can see a joint of the last 36-inch pipeline being welded. In West Africa, activity has started to increase. In Nigeria, Seven Antares was working on the conventional PUPP project for ExxonMobil. This project was awarded at the start of the second quarter. It shows how the delay between award and execution for some conventional work can be relatively short. In Angola, engineering and procurement activities are ongoing on the Zinia project for Total. The 4 PLSVs working on long-term contract with Petrobras offshore Brazil achieved high levels of utilization in the quarter. We are continually working to increase the efficiency of our PLSV service for Petrobras. At the moment, we are focusing our engineering expertise on automating specific role and umbilical hands-off design and installation procedure. Our low-specification PLSV in Brazil, Seven Phoenix, left the region in mid-August and completed an 11-year campaign. This vessel was stacked at the start of the first quarter as there is currently no work plan for it in 2019. Offshore Germany, the EPCI Borkum II project continued with monopile installation. The progress was hampered by adverse weather. 17 of the 32 piles were installed in the quarter, with Seven Borealis intervening after the quarter end to accelerate operations and mitigate the impact of challenging weather condition. This is a very good example of the versatility of the fleet between SURF and renewables business units, which is one of our competitive advantage. Offshore UK, the final 6 jackets and 33 inter-array cables were installed on the Beatrice wind farm project, which was substantially completed in the year. Commercial discussion with our client on these projects have also been successfully completed. Within our i-Tech Services Business Unit, good progress was made in the quarter on our Life-of-Field contract in the North Sea and offshore diversion. One of our technology focus area is on autonomy and remote ROV operation. Our new onshore pilot centers will be soon operational in Stavanger and Aberdeen. This will enable offshore ROV operation to be piloted for -- by onshore personnel. It will not only have a significant impact on cost reductions for our clients, it's also one of the key components of our sustainability program, which aims at reducing emissions and the potential impact of offshore operation on climate change. Moving on to Slide 6. At the end of September, our order backlog was $5.1 billion net of adverse foreign exchange movement of approximately $50 million in the quarter. Our book-to-bill ratio was 0.7 in the third quarter and 1 for the first 9 months, driven mainly by an increase in SURF award. We have executed over $3.1 billion of work year-to-date and have good visibility for the remainder of the year, with $1 billion of work within our backlog expected to be recognized as revenue in the fourth quarter of 2018. We have $2.2 billion in our backlog for 2019, which cover approximately 60% of the consensus expectation. This level of coverage is relatively low compared to the historical average, but the expected rate of new awards to market and the strong competitive offering give us confidence that market expectation are achievable. The 4 new project announced in the third quarter illustrate the wide range of solutions that Subsea 7 can provide to its clients. The Buzzard Phase 2 project, a bundled solution offshore U.K. was awarded by Nexen. Also, off the coast of the U.K., the Triton Knoll wind farm project was awarded to Subsea 7's Renewables and Heavy Lifting Business Unit. We have also announced the award of a substantial conventional project. However, due to contractual obligation, we are unable to share any further detail on the award at this time. And finally, our Subsea Integration Alliance with OneSubsea was awarded another integrated project during the quarter, the Katmai project in the U.S. Gulf of Mexico by Fieldwood Energy. We continue to see an increased interest from customer for early engagement and integrated solution, and our alliance with OneSubsea continues to deliver this. The formation of an integrated joint venture with OneSubsea is progressing, and we aim to have this operational in the first part of 2019. And now I will hand over to Ricardo.

Thank you, Jean, and good afternoon, everyone. I will begin on Slide 7 with the key highlights from our income statement. Third quarter revenue of $1.1 billion was $19 million higher than the prior year period, with increased revenue from SURF activity offsetting a reduction in revenue from i-Tech Services and Renewables and Heavy Lifting. Adjusted EBITDA was $217 million compared to $250 million in the prior year period. Adjusted EBITDA margin was 20%, down 4 percentage points year-on-year, an improvement compared to the second quarter with more favorable phasing on certain projects and higher vessel utilization. Net operating income for the quarter was $111 million, a decrease in all 3 operational business units, reflecting the lower pricing on projects awarded in the downturn and fewer projects in the final stages of completion. There was less than $1 million impact from currency movements in the quarter, and no material income or loss contributed by our joint ventures and associates. The tax charge for the quarter was $34 million, implying an effective tax rate of 31%. Net income was $76 million. Diluted earnings per share was $0.23, 32% lower than the prior year period. Slide 8 shows the revenue and net operating income by business unit. Our SURF and Conventional Business Unit generated revenue of $865 million, up 15% on the prior year period, reflecting the increased activity from SURF projects as the market starts to gradually recover. This was led by recent awards in the North Sea and improved utilization of our diving fleet. We also saw increased contribution from Conventional projects with the start of the offshore campaign on the PUPP project offshore Nigeria. Net operating income was $93 million, down 10% year-on-year, reflecting the impact of lower pricing on awards signed in the downturn and the phasing of projects. Our i-Tech Services business unit generated $66 million revenue and $4 million in net operating income. Lower activity levels compared to the prior year period reduced the impact of worldwide decline in active rigs on the drilling ROV business, partly offset by an increase in Inspection, Repair and Maintenance activity. Our Life-of-Field vessels capacity is closely aligned with market demand, helped by favorable terms available for new short-term charters. Renewables and Heavy Lifting revenue decreased to $152 million from $232 million in the prior year period as the Beatrice project was substantially completed in the quarter. Net operating income was $17 million, which included allowances for additional weather-related installation delays on the Borkum II contract. This adversely impacted profitability of the project and the business units in the quarter. A $3 million loss was reported in the Corporate Business Unit. I will now turn to clide 9, which provides an overview of cash movements in the quarter. Cash and equivalents was $732 million at the end of September, an increase of $118 million on the position at the end of June. As anticipated, our working capital position stabilized in the third quarter. We generated $190 million in net cash from operations after deducting a small decrease in net operating liabilities of $8 million. Capital expenditure of $74 million included a milestone payment of approximately $50 million relating to Seven Vega, our new reeled pipelay vessel, which is under construction. The vessel is due for delivery early in 2020, in time to meet the increased demand for reeled pipelay campaigns already booked in our backlog. Our financial and liquidity positions remain strong. At the end of September, we had net cash of $468 million and a further $656 million of undrawn committed credit facilities. Our priority for cash is to invest in growing and strengthening our business and maintaining an investment-grade credit profile. Any surplus cash will be returned to shareholders in the form of dividends and buybacks. Our $200 million share repurchase program has a $133 million remaining to execute and is valid until July 2019. Slide 10 shows the expected impact of the new accounting standard, IFRS 16, on 2019's financial statements. This guidance is our best current estimate of the impact. But because its implementation is subject to changes in the composition of our lease commitments, actual results may differ from the details shown here. The purpose of IFRS 16 is to bring long-term lease ability, liabilities onto the balance sheet and distinguish between the operational and financial elements of the lease expense in the net income statement. It applies to leases with a term of over 12 months, which, for Subsea 7, comprise approximately 85% of the annual lease expense. Vessel charters are the main component of the annual lease expense, representing approximately 75% of the total. Based on our preliminary analysis of the standard, we anticipate a reduction in our 2019 lease expense of between $100 million and $110 million. Our adjusted EBITDA will therefore increase by the same amount. In effect, the lease expense will be replaced by an amortization charge relating to the capitalized leases that we estimate will be between $90 million and $100 million and the finance charge that will be between $20 million and $25 million. As a result, our net operating income is forecast to increase by between $10 million and $15 million. Net income, however, is expected to decrease by approximately $10 million. This is due to an earlier recognition of the finance costs embedded within existing leases. On the balance sheet, there will be a right-of-use asset created with the value between $350 million and $450 million and the corresponding lease liability of the same amount. IFRS 16 will have no impact on underlying cash flows. As we expect analysts to reflect this guidance in their models, we have given our 2019 guidance, including the estimated IFRS 16 adjustments. The new standard will be implemented from the 1st of January 2019 and will only impact results from 2019 onwards. 2018 will not be affected, and we will not be restating past results or comparatives. With that in mind, I move now to our guidance, which is summarized on Slide 11. For 2018, we continue to expect revenue to be broadly in line with the revenue reported in 2017, and adjusted EBITDA margin is expected to be significantly lower year-on-year. Administrative expense guidance is still expected to be between $260 million and $280 million. We still forecast net finance cost to be less than $5 million. Our range for depreciation and amortization has been narrowed to between $430 million and $440 million. We have raised our full year effective tax rate by 1 percentage point to reflect changes in the expected geographic mix of our sources of income. We now expect it to fall in the range of 26% to 28%. Our capital expenditure guidance for the year is unchanged with between $250 million and $280 million forecast, including expenditures relating to our new-build vessel. We have $2.2 billion of work in our backlog for execution in 2019, which is approximately $400 million lower than the year-ahead outlook this time last year. Although awards to market are increasing, we expect our revenue in 2019 to be slightly lower than our forecast revenue for 2018 due to a reduction in our Renewables and Heavy Lifting activity. We expect absolute adjusted EBITDA to be lower than 2018 inclusive of the uplift of between $100 million and $110 million applied to 2019 as a result of the implementation of IFRS 16. The forecast reduced adjusted EBITDA reflects the impact of lower pricing on projects signed in the downturn and minimal contribution from Renewables and Heavy Lifting following completion of the Beatrice and Borkum II projects. Nevertheless, as a group, we still expect to achieve double-digit adjusted EBITDA percentage margin and positive net operating income. 2017 was the low point in order intake for Subsea 7 in this prolonged downturn. And since then, there has been a significant increase in SURF awards as the market has begun to recover. Our projects can take 1 to 2 years of engineering and planning before offshore construction commences. So there is normally a delay between the date of contract awards and recovery of revenue and earnings. Projects already awarded and tenders we are working on today give us confidence that 2019 will be the trough year for revenue and profitability, with the recovery expected to start in 2020. I will now pass you back to Jean.

Thank you, Ricardo. Turning to Slide 12. I would like now to provide further insights into our Renewables and Heavy Lifting business. Offshore wind projects follow similar contracting models as the oil and gas industry. Most contracts can be categorized as either an engineering, procurement, construction and installation contract, EPCI, or a transport and installation contract, T&I. Historically, the predominant model has been T&I, but we expect to see more EPCI contracts in the future. This quarter, the Beatrice project was substantially completed. This multiyear EPCI project was the largest to be executed in the North Sea by Subsea 7 at over $1 billion. Its success was confirmed by our clients achieving first power as scheduled in July. We hear from our clients that our ability to project, manage and derisk these last projects, while ensuring on-time delivery, is one of the key differentiators of Subsea 7 in the renewable market. The outlook for 2019 is challenging. For various reasons, last project awards to market have been delayed, and we do not currently expect to be active offshore on any large EPCI renewable project next year. There are some prospect next year for T&I projects, but we are forecasting much lower revenues compared to recent years and low EBITDA. As we have shown previously in our oil and gas business, we are proactive and plan to reduce our capacity in renewables to adapt to these near-term market conditions. Capacity and cost reduction will be achieved while protecting our capability and expertise. This approach will position our renewable business well to capture opportunities when the activity increases in the not-too-distant future. And I remain optimistic regarding medium- and long-term prospects as we are seeing momentum on projects, in particular in the UK, France and Taiwan. In our business model, we anticipate signing one last EPCI project every couple of years. The composition of our reported revenues and profits will fluctuate depending on the type of work we are executing. New EPCI awards won in '19 aren't likely to be executed offshore before second half of 2020. Moving on to Slide 13. The offshore wind market is growing at a healthy pace, with double-digit average growth forecast to Europe and worldwide, supported by the lower levelized cost of energy. The 7-megawatt wind turbine generator, which is the size we installed on the Beatrice field, will be superseded by 10-megawatt turbine that will be available to the market in a few years and even larger turbines under development. Larger turbine sizes require larger foundations. With the top lifting capacity of 5000 tonne, our fleet is well positioned to take advantage as the enlarged scale of these turbine foundations differentiating Subsea 7 from our competitors. I will conclude with a review of our outlook. We have seen continued momentum in tieback projects being awarded to the market throughout 2018. Volume is recovering, and we expect this trend to continue in the years to come. Looking into 2019. Larger greenfield market awards are expected to complement these brownfield development projects. Improved utilization will follow 12 to 24 months after these awards when the offshore phase is commenced, which will translate into pricing and margin improvements. In SURF, we have greater visibility on the timing of greenfield awards as invitations to tender are received. Expected awards to market include the Mero, Sepia and Buzios project offshore Brazil, the Golfinho and Rovuma project offshore Mozambique and the Bonga Southwest project offshore Nigeria. We also expect award to the market of some large tiebacks project in 2019, including the EPIS 2, Scarborough and Julimar projects offshore Australia. We anticipate the next tranche of conventional projects offshore Saudi Arabia to be awarded to the market in the next 2 quarters. In i-Tech Services, the level of tendering has increased for both IRM and ROV services, and the outlook for utilization for '19 is improving. However, near-term activity and pricing remains relatively low. To summarize, Subsea 7 is well positioned for the cyclical recovery of the offshore oil and gas market later in '19 and further structural growth in offshore renewables. We provide our clients with first-class early engagement and engineering to enable them to take profitable investment decision. We have successful alliance and partnership to enable us to win more work on a negotiated basis, and our bespoke technology and efficient cost base enable us to bid competitively and win our first share of market award. Ricardo, John and I will now open the call and take your questions.

[Operator Instructions] Our first question comes from the line of James Evans from Exane. Please go ahead, your line is now open.

Good afternoon and thanks for taking my questions. Jean, thanks for the update on your offshore wind strategy. Obviously, you've talked about pricing being under pressure particularly in the SURF side. I just wondered how you see things developing actually on the renewable side given the lower activity. And you've seen perhaps some of your Dutch competitors have been relatively aggressive so far. So should we think about pricing also being a little bit trickier when we get these awards first coming through? The second one for Ricardo. Construction assets on the balance sheet ticked up quite high in the quarter. It's now the highest relative to revenues, I think, in last 5 or 6 years, certainly since post-merger, and you've been disclosing it. Can you just talk a little about what's driving that? Can you give us any comfort? Obviously, it's not a number that we'd like to see ticking up on EPI -- EPC companies in general. So any comfort you could give there would be great. Thanks.

Oh, thanks, James. To answer your question on renewable, as we said, I mean, the '19 will be a transition year, and there may be some pressure on T&I tenders initially. But while the market see more project being awarded to the industry, I'm confident that we're going to see the same thing as we see on the SURF side, which is a gradual improvement over time.

Yes, James. As far as our receivables position is concerned, your analysis is correct. We believe our receivables position is higher than we believe it should be, with the year-to-date position up about $390 million per my calculations. However, the rate of growth in receivables has slowed significantly in the third quarter, and we are very much focused on reversing it in the fourth quarter such that we aim to swing back into a net operating liability position by year-end. A little additional color on that is that we are seeing -- it's -- the growth in the receivables is driven in part by our operations in the Middle East where payment terms are somewhat different to those that have been traditionally associated with Subsea 7. And furthermore, we've also had -- it's a temporary junction that we've had some -- the timing of certain milestone payments, in particular on new projects in West Africa, have resulted in the growth -- short-term growth in receivables. So we remain focused on improving the situation and confident that we'll get there.

Our next question comes from the line of Rob Pulleyn from Morgan Stanley. Please go ahead.

A few questions if I may. And first one, if I could follow up on your comment on SURF pricing, you said it's still under pressure, which makes sense given the worst downturn in history we've experienced. But my, may I ask, at the margin, is it still getting worse? Is it getting marginally better? Or is it kind of just about the same as it's been for the last few quarters? The second one, if I can have a go at it, is vessel utilization. Obviously, very good in 3Q for the reasons you highlighted. Would you be able to give us a little bit of color as to how the fleet cover and fleet utilization will look next year in light of your guidance? And then lastly, if I could just ask on this issue of tiebacks, obviously, the ones not awarded. How much visibility do you have on when they're actually going to come? I understand the Greenfields, these tenders come out a long time in advance, but are these tiebacks also a long time in advance? Or are they relatively short notice as it were? If you could add some color on that, that would be fantastic.

I will take the first question and will let John answer to the 2 other questions. What we are expecting on the margin is fully in line with what we said previously. I mean, to have the margin improving, we need to see an increase of number of projects to come to the market. We are seeing that in tiebacks. We continue, we expect that to continue on the tiebacks. We have more visibility on the Greenfield. So when the Greenfields are awarded to market, and we expect more of these project being awarded in '19, we will see an improvement at the margin. I would say overall, the trend is going in the right direction. We need more markets award to accelerate the trends of improvement of margin, but it's going in the right direction.

Thanks, Jean. Rob, I guess on the fleet, we are looking to use the same fleet in 2019 as we used in 2018, part of the adjustments for the PLSVs that we retired out of Brazil as their contracts came to a close. In renewables, we will look at the fleet size in quarter 1, depending on how much short-term T&I work we'd pick up, particularly on the heavy lifting side there. We may stack one of the assets, depending on workload, near-term workload in 2019. But otherwise, the rest of the fleet will be pretty much in line with where we're at. Your other question then was the sort of timing at which tiebacks come in. Yes, tiebacks can move quickly. You have seen that we liquidated the Lomond project for Chrysaor, which was a blocked pipeline in the North Sea. We moved very quickly to do that. So there is the ability to move quickly, but again, it's the need of the clients and the speed at which the clients get their projects to us or to the market for us to decide how quickly we can move.

And I would say, John, that we also have an enhanced visibility as we see more and more early engagement with our clients on the engineering side of some of these tiebacks, which, again, position very well, position us very well in terms of scheduling the work and assigning the right resources.

That's very interesting, guys. And apologies, if I can just ask one more follow-up, and that's a bit linking into the guidance. Are you starting to see any cost inflation in your cost lines that whether it be wages or in the procurement items? Just trying to understand the supply chain beneath you guys.

I think regarding our cost structure, I think that we are controlling our cost with the reforms that we've taken over the last years. It's a combination of being very cost focused and continuous improvements that we are working, which lower our overall cost for the projects. We're still seeing significant improvement in this area. In terms of the cost of the supply chain, no doubt that our suppliers are seeing the same thing as we see, which is this trying and going in the right direction post '19. So we are seeing some pressure on the cost. I would say that for the time being, it's limited, but it's something that we are monitoring closely and take into account in our tenders.

Thank you very much guys. I'll turn it over.

Thank you. Our next question comes from the line of Michael Rae from Redburn. Please go ahead. Your line is now open.

Hi, there. Two questions on Renewables if I could. The first is just, what's the expected cost of the capacity reduction in that division, both in cash terms and if there are going to be any right times there? And then second, can you just give just a bit more detail on Borkum II? What's actually sort of going on? How is the progress? Is it just a temporary delay? Or has the whole schedule been through and out? And are we going to be hearing about this project for the next few quarters? When do you expect it to complete? Thank you.

John?

Yes.

John, do you want to take both of them?

I'll take both. I guess, Michael, we don't disclose our costings of our asset base and such like, and we adjust our costs accordingly to the workload that we see. And as I said, we will make those decisions once the workload next year becomes clear. Borkum is a EPCI contract in Germany, in shallow water in Germany. The engineering is complete, the procurement is complete, and there are 32 monopiles and transition pieces to install. We have, as of midnight last night, installed 26 monopiles. The main issue is the weather. The weather is leading to us finding it very slow progress, so we've also taken the Borealis out there. So we have 2 big large heavy lift vessels that can not only one put the pile in, but the other one can put the transition piece in. We do expect to be complete at the end of the fourth quarter, but we are at the mercy of a deteriorating weather window. So generally, we can put a pile in every day, and we can put a transition piece in every day. So when the weather windows open up, we are there, and that's the reason we increased the fleet size, so when the weather windows come. So we would expect, by the time we release our quarter 4 figures, hopefully to have this project behind us.

Yes, we have 6 more pipes to install.

Okay, okay, that's clear. And just to go back on the capacity reduction. It's just that if this happened in the SURF side of the business, which is obviously much larger, it feels like you would get quite a lot of granularity in terms of headcount reduction and so on. But should I interpret what you're saying as it's not really big enough for that, it's not material, it's not really big enough for us to put in the model, et cetera, the cash cost?

Yes. I think this is a discussion purely about the Renewables and Heavy Lift business. We did our investments, as you well know, to the SURF business a long time ago. I think it's just too early to call it at this stage. Our message, I think, is that, as you know, we adjust to markets trends, and we will adjust accordingly at the right time.

And the approach that we took, have taken in SURF has proven to be quite effective during the downturn, which is to adjust capacity, keep expertise. We are not going to change our overall strategy.

Okay. Thank you.

Thank you. Our next question comes from the line of Kevin Roger, Kepler Cheuvreux. Please go ahead. Your line is now open.

Hi, good afternoon. Thanks for taking the question. First, very quickly, a clarification. Jean, at the beginning of the conference call, you said that on Beatrice, the commercial discussion with the client has been completed. Does it mean that you get variation order this quarter that offsets the potential loss on Borkum? And the second question, related. If we move outside the renewable and that we focus ourself on your traditional activity, the SURF and Conventional, it seems that directly, you expect an increase in your revenue for 2019 compared to '18. I was wondering if you can give some granularity regarding your net operating income for 2019 compared to '18, just looking at this business line, please.

Yes. I mean, to answer your first question, I mean, Q3 has included the successful negotiation of the order for Beatrice and the impact in Q3 of the Borkum project. So it's a combination of the 2. Regarding the question on the -- on '19, Ricardo?

Yes, Kevin good afternoon. I think I was pretty -- I think if you read our press release closely and my initial prepared comments, I think we've given very significant guidance about where we expect net operating income to land in 2019. And given the relative size that we expect of SURF versus the other 2 business units, I think you can assume that it's the main driver of profitability next year.

Okay. Thanks.

Thank you. Our next question comes from the line of Amy Wong, UBS. Please go ahead. Your line is now open.

Hi, good afternoon. Two questions from me, please. The first one relates to a little bit of confidence level around that margin improvement from and kind of growth in the SURF business from 2020 onwards based on the kind of tendering activity you're seeing now and into 2019. But realistically, there's clearly still quite a bit of excess capacity out there in the markets. So how can you be so confident that some of the work that will be executed in 2021 will have higher margins than where we are now for that margin recovery to kick in? And my second question just relates to a bit of housekeeping going back to Beatrice. You're saying that the variation order was successfully negotiated in the third quarter. Are there any other related, like, warranty periods or contingencies that we expect to see released on Beatrice after this? Thank you.

John, so on Beatrice, and I'll take your first question.I'll do Beatrice. First, Amy, yes, we are physically complete offshore. We have some minor punch-list items, which we've agreed with the client that we will sort out in quarter 2 next year when the weather starts again to be suitable. That doesn't need any of the big heavy construction vessels, just crew boats to do some minor punch-list items. So there is nothing substantial left to do on Beatrice as we stand here today.

Yes. And I will comment, I mean, regarding the -- our expected improvement of margin over time post-'19 is based on what we mentioned before. It's a combination of the existing ongoing work and growing work on tiebacks that pick up as conventional, in particular in Africa, with sustained operation in -- or increasing operation in Middle East, and the number of project or greenfield projects, which will be in execution in '21, '22, in our view from what we know on the market here. When you look at the activity and the project in '21, '22, I would be more optimistic than you are about the situation of demand and supply. I think there will be a lot of activity there and not so many companies which can actually do it. And even from a fleet utilization perspective, on the enabling asset, we see more activity, definitely more activity in these years after '20.

Okay. Just to follow up on that last point. That sounded like you're going to be gaining a bit more share on that kind of top-tier global kind of work. Is that -- should we interpret it that way?

No, I would say that we are quite competitive in all type of work. We can cover all the range of technology, as you know. And there are a number of factors. When you look at some of the differentiator of Subsea 7, which relates to the early engagement, where we see a growing trend of early engagement, the success that we are having on small projects, but there will be bigger projects to come with the alliance with OneSubsea, and the technology that we're introducing, I think we have some differentiator, which will allow us to win a good share of the market. And we have decreased our cost base. We have decreased our cost base in the past years, which also position us very well.

Our next question comes from the line of Haakon Amundsen from ABG. Please go ahead, your line is now open.

Yes, thank you guys and thanks for the specifics on '19. I have 2 questions, please. One is if it's possible to give some color on the negative impact from Borkum II in this quarter to try to assess what the kind of underlying margin level on Beatrice has been, if that's possible. My second question is on your outlook, and someone has touched upon this earlier as well. But when we think about this potential improvement in financial performance in 2020, you're mentioning improved vessel utilization. Did you also expect that kind of pricing on new projects and new awards will come rapid enough to have a positive impact on 2020? Or will it simply be a utilization issue? Thanks.

Well, on the second point, I mean, it's a bit premature to actually be very specific on '20 as we are just at the end of '18. So there can be some variation on the exact timing. I think the confidence in the trend that we are describing is 2021, '22, it can be -- it can happen a bit -- I mean, there could be a couple of quarter -- a couple of months, sorry, variation on when it happens. So I wouldn't be more specific than that. Regarding the impact on the -- of the project in renewable in Q4, we are not giving specific information on projects. I would just say that we said that the guidance is unchanged for the full year '18 revenue and adjusted EBITDA percent margin for the group. So that give you an idea of where we would be.

Yes. I was thinking a little bit more on how the negative impact from Borkum II have been in Q3 so that we can try to gauge the underlying profitability on Beatrice in the quarter.

Yes. I'm afraid we don't comment on specific projects.

All right, thank you that’s it for me.

Good and less good project, we never do it.

Our next question comes from the line of Guillaume Delaby from Societe Generale. Please go ahead, your line is now open.

Yes, good afternoon, thank you for taking my question. Maybe a question for maybe Jean or John basically on the competitive landscape. When I look at the SURF-only awards, seems at the beginning of the year, basically according to Wood Mackenzie data, you got 6 out of the 12 large SURF-only projects. So clearly, you are gaining market share. My question is, do you see some of your competitors -- for example, TechnipFMC, do you see some of your competitors maybe being less aggressive in terms of pricing for SURF-only projects? Maybe they try to concentrate on other types of projects. So if you could have maybe some -- provide some color about the dynamic -- the competitive dynamics in SURF-only contracts.

Well, Guillaume, what I would like to say that, first, is, for me, it's -- we are definitely very competitive for the reason that I mentioned. Compared with a Tier 1 project, we are, we will win our share of market. Once we decide on any specific project and once the competition decide on any specific, an specific project is part of the medium-term strategy, and it can, they can be more aggressive or less aggressive, depending upon the timing of the project and where the project is. When I look at it from an overall, when I look at it over a long period, I'm confident that we will win a good share of the project. Doesn't mean that we will win all project obviously. And that, so we try to balance our risk between geographical area and type of vessel, et cetera, and competition is doing the same. But I will say there is a good discipline in terms of the approach from our main competitors, and that's encouraging for the longer term and the risk profile of the project and the margins that the industry will, can expect. Q - Guillaume Delaby: And if I can just follow up, this good discipline, is it something new? Or maybe was it already the case, I would say, 6 or 9 months ago?

I'm just staying where I am. I think we are seeing today the, I think the industry has the same view of what's going to happen in the coming years. And I think we are, we have a consistent approach, more or less, but I cannot really comment on any specifics of our competitors one by one.

I would just add, Jean, it all starts with the flow of the large Greenfield projects, which then takes some utilization, which then allows the margins to adjust sort of the discussion for each, the contractor for each project has to go through those cycles with a view of how does it fit with the utilizations. And then from there, then the margin moves.

And when we bid a project, we bid a project with the risk profile which is in line with our approach that we are confident with. And then we haven't changed that. We'll continue to manage the risk in a prudent way.

Our next question comes from the line of Frederik Lunde from Carnegie. Please go ahead.

I was wondering if you could help give us some impression how to think about CapEx going forward. Do you hear me? A - Ricardo Rosa: Yes, Frederick. This is Ricardo. Your question is very straightforward. I think we've given guidance on CapEx this year of about $250 million to $280 million inclusive of the Vega. This is significantly below our depreciation run rate, which is in excess of $400 million. And so we guided to about $420 million. And for the foreseeable future, we don't expect to see a change in that trend. We had a very intensive capital expenditure program back in '13, '12, '13, '14. I think we are obviously going to continue investing in our fleet and in our assets. But it is going to be a function of the growth in activity and making sure that we have filled any gaps in our technical offering. So I don't, I think it's fair to assume that we will continue to spend on CapEx but at the level that is inferior to the level of depreciation that we're incurring at the moment.

So we should expect the medium term to be about harvesting on the investments and the technology and the M&A you already made, it's not sort of big leap changes here on the horizon? A - Ricardo Rosa: I think that's a reasonable assumption, Frederik, yes. I mean, by harvesting, yes, I mean, let's be clear, it's not extreme harvesting. We will continue to reinvest in the business to maintain our competitiveness, whether it's in technology or appropriate asset.

And then the other thing there, Ricardo, which I think we've mentioned on this call before, a lot of the towers and installation equipment on chartered tonnage that we returned 2 years ago, all of those are owned by Subsea 7. They're in storage, they have been maintained. So if the market moves very quickly, we can bring other capacity and buy this charter in tonnage over the market on short term and putting our equipment on. So again, in terms of the very large capital expenditures to build from new capability, we don't foresee that in the near term.

And when you look at our fleet, beginning of '20, when the Vega is delivered, the average of, average age of the fleet in the range of 10 years. So it's one of the most modern fleet in the industry, perfectly instituted for the upturn that we foresee in post-'19.

Great. And just one quick question on utilization. It was very high in the quarter, and normally, this is utilization with the associated strong pricing power. So are you seeing any excitement level on the spot market? Or is this just good planning because there, you have much higher utilization than some of your competitors?

Well, Frederik, our model was, when we adjusted the size of the fleet, we wanted that fleet to be busy. That was the aim of the exercise when we had to tailor the fleet that we thought for what we had. But as Jean and Ricardo talked about, the pricing in the market is driven by the market. And so we got a good utilization, but the pricing was what the market drove at the time.

Okay. Thank you.

Thank you. Our next question comes from the line of Michael Alsford from Citi. Please go ahead. Your line is now open.

Good afternoon. Thanks for taking my questions. I've got 2, please. Firstly, you mentioned in your prepared remarks around the progress on the JV with Schlumberger moving forward. And I guess since that was announced, there's been clearly, your competitors have moved as well and looked to enhance their product offerings. So I just wondered whether your thoughts around how that JV is structured has changed at all in terms of, I guess, personnel, but also, I guess, technical offering that, that JV would provide. And then just secondly, we've obviously talked a little bit about the good vessel utilization in the quarter. But I guess if you look back at 1Q of this year, vessel utilization was really low, given this is the seasonal impact of North Sea work. And I just wondered if you can give us some sense as to, I guess, how bad could it be in 4Q and 1Q, given the, I guess, that environment and given where we are in terms of utilization levels across the industry. Thank you.

I mean, I'll take your first question, and John will answer the second. I mean, regarding the JV, I mean, no change in the approach. It's taking a bit more time than we thought because of some, I would say, technical structure, administrative, tax issue that we are prudently solving. No big concern there. I think what is quite positive is that the alliance has remained very effective, and the fact that it took a bit more time than we took to put the JV has by no means created problems or limited what we could do if we put it in place.

In terms of seasonality, Michael, yes, quarter 4 and quarter 1 are the lowest seasonality periods for us. The weather, we've discussed that is impacting the industry at the moment in the North Sea in particular means that spot work has been delayed by certain clients. For the DSVs, we have, most of those aren't working at the moment. So what you normally see in quarter 4 is if clients see opportunities, whether weather is reasonably okay, we might get some Inspection, Repair and Maintenance work done. The big greenfield and the big CapEx contracts are all behind everybody for the year. So I think we'll see seasonality like we normally see, which is quarter 4 and quarter 1 being relatively quiet.

Thank you. Our next question comes from the line of James Thompson from JP Morgan. Please go ahead. Your line is now open.

Great. Thank you very much. And thank you for taking my questions. I've got 3 if that's okay. Just firstly, in terms of the longer-term outlook, you talked about it improving. I just wondered, on a vessel basis, just in terms of pipelay versus heavy lift, where do you sort of expect the market to improve? Do you expect heavy lift to come tighter ahead of pipelay? Or is it pretty similar in the early part of next decade? Then 2 questions really -- or one question on guidance and another one on consensus. Firstly, thank you very much for giving us what I think is the range on 2019 guidance. So I'd just be interested to know, between the upper and the lower end, what are the kind of key drivers next year to look out for in terms of heading into those? And then finally, in terms of consensus, I guess putting aside actual numbers to one -- for one moment and going back actually to Amy's earlier question. Consensus is calling for about a 25% uplift in EBITDA 2020 over 2019. I just wondered if that sort of rate of recovery was something that you were comfortable with at this stage. Thanks.

Yes. I'm going to take the last question. It's -- and we'll -- I mean, definitely premature to give any indication on '20 and the value of EBITDA. When we have more visibility, we'll be more specific, but it's a bit too early. You want to take the last question, John?

Yes. I think on the question there -- I think, James, on the question about which will come back sooner rather than later. Well, I guess we see a more solid pipeline of SURF-related-type projects through the early engagement that we do and the discussions we're having with clients. As we mentioned many times, renewables is quite a lumpy business. These are quite large transactions which have a lot of local politics and permitting issues to get through, so they're quite lumpy. And we're also seeing opportunities in the U.S. and Taiwan opening up, but again, the speed at which these new market open up. So the view we have is that SURF has some clarity as to all this recovery. And renewables, we do see that there are opportunities for an EPCI -- EPIC award next year for work in 2020 and '21.

Ricardo, you want to take the question on the guidance?

Yes, certainly. James, I think our guidance for 2019 is founded on a number of underlying drivers, which range from obviously order intake, what I would describe as short-cycle order intake, which has been a bit of a characteristic that we have seen in 2018, and we believe that it should strengthen. We do feel that there is some slight improvement in pricing, but I don't want to overplay that. There are certain geographies where pricing is extremely tight, others where it's a little better. We do expect vessel utilization to be reasonably good, and we are quite encouraged by the level of conventional activity that is both present in the Middle East and in West Africa. The PLSV fleet remains working actively throughout 2019 and is one of the bedrocks of our profitability. And we are encouraged by activity opportunities or activity improvement in the North Sea, both the UK and Norway, and some in the U.S. Gulf of Mexico. And in fact, I would extend the U.S. Gulf of Mexico to encompass all countries bordering the Gulf of Mexico. So really, those are the -- it gives you a flavor of the drivers that we've taken into account in coming to this conclusion on '19.

And I would add that I think I'm very pleased with the way we continue to execute overall our portfolio of projects. I think it's been one of the strengths of Subsea 7, and I expect that to continue in '19 and post '19. So with that, I think we'd like to close the call. I would like to thank everybody for your participation and your questions, and look forward to talk to you in face-to-face visits, so at the next coming call. Thank you. Bye.