Subsea 7 SA

OSE:SUBC

Earnings Call Transcript 2019-Q1

[Operator]

Hello, and welcome to the Subsea 7 release of Q1 2019 results call. [Operator Instructions] Just to remind you, this conference call is being recorded. Today, I am pleased to present Isabel Green, Investor Relations Director. Please go ahead with your meeting.

[Isabel Green, Investor Relations Director]

Thank you, and welcome everyone to our first 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 begin, I'd like to turn to Slide 2 and remind you that this call includes forward-looking statements that reflect our current views and are subject to risks, uncertainties and assumptions. Similar wording is also included in our full disclosure on our press release. I'll now hand the call over to Jean.

[Jean P. Cahuzac, CEO & Executive Director]

Thank you, Isabel, and good afternoon, and welcome to our 2019 First Quarter Results Conference Call. I will begin with the highlights of our performance this quarter before handing over to Ricardo who will present our financial results in more detail. I will conclude with a summary of the market and comment on our differentiators. We will have time for questions at the end of the call. Starting with our highlights of the quarter on Slide 4. Our revenue for the quarter was $859 million, $50 million more than the prior year due to an increased contribution from our SURF and Conventional business unit where we saw higher levels of activity in Norway, U.K. and Africa. Adjusted EBITDA was $111 million, giving a margin of 13%. This reflected continued activity on projects won on competitive pricing and the typically lower activity levels in the first quarter of the year. Loss per share was $0.06. Our differentiators delivered a strong competitive position, which was reflected in nearly $1.1 billion of new awards and escalations. As a result, our order backlog increased to $5.2 billion.We maintained a strong financial and liquidity position with net cash of $413 million at the quarter end after 79 -- $75 million of share buybacks were executed in the quarter. Quarterly vessel utilization was good for winter period with total utilization of 68%, 16 percentage points higher from the previous year. It should be noted that our largest vessel, Seven Borealis, was in a planned shipyard for the period undergoing class survey and scheduled maintenance.Strategically, we strengthened our alliance with OneSubsea with the implementation of a dedicated management team reporting to the Subsea Integration Alliance Board, and we took the opportunity to acquire the dive support vessel, Seven Pegasus, at an attractive price. We also invested in Xodus, acquiring the remaining 40% we did not already own as a strong engineering and design company.Turning to Slide 5 to review some of our activities through the first quarter. The Snorre project continued the fabrication of the bundles at our facility in Wick in Scotland. So far, over 100 kilometers of pipe have been welded with a further 80 kilometers due later this week -- this year. The first Snorre bundle is due to be launched at the end of the second quarter and will be the 82 -- sorry, it will be number 82 bundle that we have launched from the facility.The PUPP project continues to execute work in the shallow waters offshore Nigeria. On the slide, we can see the shore approach with a 24-inch pipeline with Seven Antares laying pipe on the horizon. Spools and riser were also installed in the quarter. The Aerfugl project, which is due for offshore operations next year, is an electrically heat traced flowline solution. By electing electrical cables around the pipeline, we are able to improve the flow characteristic of the pipeline following for increase tie-back lines. This quarter, progress was made with pipeline fabrication trials, which are the key milestones in preparation for the exploration next year.The West Nile Delta Phase Two project for BP, off the coast of Egypt, continues to progress well. Seven Seas spooled on flexible flowlines in Europe in the quarter and completed the transit to Egypt where we have commenced installation. The light construction vessel, Simar Esperanca, continued with construction work, including flying lift. In the Middle East, work progressed well on the Hasbah project, which is near completion. In the quarter, pipelay was completed by the Seven Champion. Seaway 7, our renewables and heavy lifting branch, continued to work on the Hornsea One wind farm project of the coast of the U.K. Both our specialty vehicles, Seaway Aimery and Seaway Moxie, were working on this project in the quarter with 28 cables laid. Seaway Aimery later transited to Egypt to complete umbilical installation for the project. In Life of Field, we successfully delivered a hyperbaric welding system for Dolphin Energy emergency repair system allowing for intervention and recovery at short notice on damaged pipelines. We also commenced a 5-year IRM frame agreement offshore Norway for Equinor using our hybrid-powered vessel, Seven Viking.In Brazil, our PLSV fleet remained very active in the quarter with all 4 achieving high utilizations. We are continuously improving the efficiency of our PLSV fleets. Recent business improvements included the ability to automate our installation procedure using our digital installation procedure platform, e7. Our strong execution in Brazil in both our PLSV and Life of Field services was recognized by Petrobras who awarded Subsea 7 best supplier for our work. Moving to Slide 6. We ended the quarter with another backlog of $5.2 billion, $300 million higher than the level reported at the end of 2018. $1.1 billion of work was awarded in the first quarter with nearly $900 million in new awards and over $200 million in escalations. It gave us a book-to-bill of 1.3 for the quarter. Over 80% of our backlog is attributed to SURF and Conventional work as we have seen an increase in awards in line with market recovery trends.We announced 3 awards in the quarter, a 5-year IRM contract for BP for work in their North Sea portfolio, this is a fourth announced award for BP in the 12 months; the Arran project for Shale, which is a 60-kilometer pipe-in-pipe flowline tie-back adding to our growing portfolio of projects for them in the North Sea; and the Berri-Zuluf project under our LTA with Saudi Aramco. Moving to Slide 7. In the first quarter, Subsea Integration Alliance, our integrated offering with OneSubsea, announced 2 FEED contracts by Woodside for greenfield project in Senegal and Australia. A further Woodside award in Australia was also awarded on a stand-alone SURF basis to Subsea 7. Upon FID, this project will be executed by Subsea 7. However, our prudent approach to backlog recognitions means that only the FEED value has been recognized in our backlog today. Had we included the full value, our book-to-bill in the quarter would have been more than 2. I would like to share with you some of the details of this project. SNE Phase 1 is a large greenfield oil development offshore Senegal, a new province. Our flexible riser solutions and specialized [ clad ] reeled flowlines will connect the 23 Christmas trees back to the new FPSO. Scarborough and Julimar are gas fields offshore Australia that will eventually tie back to existing onshore LNG facilities. LNG had become increasingly important on the supply curve as a benefit of gas over heavier oil are recognized. Our solutions are adaptable to either oil or gas production and Subsea 7 has therefore been able to benefit from the increased activity in LNG.Our teams have commenced engineering for all these 3 projects ahead of installation. Installation which is scheduled to commence in '21.I will now pass over to Ricardo.

[Ricardo H. Rosa, Chief Financial Officer]

Thank you, Jean. Good afternoon, everyone. Let's first look at the income statement highlights on Slide 8. First quarter revenue was $859 million, 6% higher compared to the prior year quarter driven by an increase in SURF and Conventional activity that more than offset the significant decline in revenue from Renewables and Heavy Lifting. Adjusted EBITDA of $111 million, 8% higher year-on-year, comparatively benefiting by $27 million due to the changes to lease accounting in 2019. Net operating loss was $10 million in the first quarter. The impact of the changes to lease accounting on the net operating loss was not significant. Therefore, the net operating loss in Q1 2019 was broadly comparable to the first quarter 2018 net operating loss of $8 million.Net loss for the quarter was $19 million and the loss per share was $0.06. Slide 9 provides additional detail behind the income statement. Administrative expense of $58 million was 20% below the prior year period and reflected, amongst other factors, the impact of restructuring initiatives in the Renewables and Heavy Lifting business unit. We are maintaining our cost discipline as the market activity recovers with a focus on innovation and process improvement to drive efficiency gains.Other gains and losses of $17 million included a $24 million loss related to foreign currency movements largely derived from the strengthening of sterling against the U.S. dollar in the quarter. The tax credit of $10 million reported in the quarter was equivalent to an effective tax rate of 35% in line with our guidance for the full year. Slide 10 shows the revenue and net operating income by business unit. In our SURF and Conventional business unit, first quarter revenue of $747 million was almost 30% higher than the prior year period. The improvement on last year reflected various smaller projects underway in the North Sea and U.S. Gulf of Mexico and higher levels of activity for our fleet of diving support vessels. Our fleet of PLSVs offshore Brazil achieved high levels of utilization and several of our larger projects progressed well with engineering, procurement and fabrication.SURF and Conventional net operating income of $4 million was lower compared to the prior year quarter, primarily due to the lower pricing on projects awarded in the downturn and the phasing of larger projects. As is usual for the first quarter, activity levels were adversely impacted by the challenging weather in the winter months in the North Sea. Life of Field revenue was $60 million, $8 million higher than the prior year period. ROV-supported Inspection, Repair and Maintenance activities increased. Activity for ROVs on drill rigs stabilized at low levels. Net operating loss in Life of Field was $3 million for the quarter.Our Renewables and Heavy Lifting Business Unit generated $53 million in revenue compared to $173 million in the prior year period. This significant decline was in line with expectations and reflected lower levels of activity for the heavy-lifting vessels following the substantial completion of the very large Beatrice wind farm project last year. Seaway Moxie and Seaway Aimery are 2 vessels involved in cable laying were utilized in the quarter, making good progress on the Hornsea One wind farm project. The commissioning phase progressed on the Borkum II wind farm project, which is now over 95% complete. The net operating loss for Renewables and Heavy Lifting was $9 million in the quarter. Slide 11 summarizes our cash position and the main cash flows reported in the quarter. Our financial and liquidity positions remained strong. At the end of March, we held $666 million in cash and debt of $253 million. Our lease liability was $412 million and is not included in our net cash of $413 million. In addition, we have a revolving credit facility of $656 million that remained unutilized. In the first quarter, we generated $58 million in cash from operations after deducting cash tax payments totaling $36 million. Working capital-related cash flow was broadly stable with an inflow of $6 million from the increase in operating liabilities. Our capital expenditure in the quarter was $68 million. This included $38 million related to the timely acquisition of a diving support vessel, Seven Pegasus, and also reflected the continued construction of Seven Vega.We also took the opportunity in a quieter period to take Seven Borealis, a key global enabler for our fleet, out of service for a major overhaul and dry dock. This dry docking has since been completed in time for it to return to work for the summer campaign. We had payments related to lease liabilities of $24 million. This was broadly in line with the $24 million amortization charge relating to the $406 million right-of-use asset established and recorded on the balance sheet as a result of the introduction of the new accounting standard, IFRS 16.After investing in the business and maintaining a secure financial liquidity position, we have a strategic commitment to return surplus cash to our shareholders. In February, we completed our 2014 share repurchase program and launched a new program with a 2-year duration and a $200 million limit. In the first quarter, we repurchased 6.6 million shares under these 2 programs with an average price of NOK 98 per share and total cash cost equivalent to $75 million. In addition to the repurchases made in the first quarter, we have spent a further $35 million on the repurchase of 2.7 million shares since the start of April. On 17th of April, shares renewed -- shareholders renewed our authority to repurchase and cancel shares up until October 2021. Today, we are canceling 15 million shares, approximately 5% of the shares outstanding, confirming our commitment to capital discipline and shareholder returns. Also on the 17th of April, shareholders approved a special dividend of NOK 1.50, which will be paid tomorrow, resulting in a cash outflow equivalent to approximately $55 million.Combining our 2019 dividend and share repurchases, we have returned $165 million to shareholders so far this year. The total return since 2011 is close to $1.8 billion.We continue to evaluate various asset and business investment opportunities and we will prioritize these above cash returns if we believe they will create better long-term value for our stakeholders. Slide 12 sets out our 2019 guidance, which includes the impact of the new lease accounting standard, IFRS 16. 2018 was not affected by this new standard and we will not be restating comparatives. We have updated our guidance for 2019. Revenue is now expected to be broadly in line with 2018. Our guidance for adjusted EBITDA is unchanged and still expected to be lower inclusive of the uplift of between $100 million and $110 million applied to 2019 adjusted EBITDA as a result of IFRS 16.Net operating income is expected to be positive for the group.Administrative expenses is expected to range between $260 million and $280 million, unchanged from our previous guidance. Net finance cost guidance is also unchanged and is expected to be between $10 million and $20 million. Depreciation and amortization is still forecast to be between $480 million and $500 million and includes between $90 million and $100 million of amortization charges related to leased right-of-use assets. Our full year tax guidance is unchanged with the effective tax rate forecast between 33% and 35% in line with the underlying rate reported for the first quarter. Capital expenditure for the year is still expected to be between $270 million and $290 million and includes approximately $100 million to be spent on the newbuild reel-lay vessel. I will now pass you back to Jean.

[Jean P. Cahuzac, CEO & Executive Director]

Thank you, Ricardo. Let us now turn to Slide 13. We have recently rephrased our corporate vision, values and differentiators. We related this to show what Subsea 7 can bring to clients that creates sustainable value and ultimately why our clients and people choose to work with Subsea 7. Our vision is to lead the way in the delivery of offshore projects and services for the energy industry. We did this through our values, which define who we are and how we behave. In 2019, we added sustainability as a sixth value having previously included it implicitly within our other five. We are committed to our values in all that we do. In the quarter, we have rolled out a new safety program to 1,200 leaders across the company, including the whole executive team as we seek to make every day a good safety day.Slide 14 illustrates the importance of being the partner of choice for our clients. All our differentiators help us to win work and retain clients who trust us with multiple projects in long-term relationships. Over the last 12 months, for example, we have seen the benefit of our relationship approach with Shell, Woodside and BP, some of the largest clients in the industry in terms of CapEx budget. Between them, they have awarded us 12 projects.Moving to Slide 15. We are a global team with the expertise, passion and commitment to deliver for our clients and make our clients want to work with us. Our culture and commitment to local content enable us to win work in regions such as West Africa. In 2018, we recommenced work in Angola with the Zinia project for Total. Our creative engineers and project teams innovatively design new technology and processes. Our technology developments such as the onshore ROV pilot control centers have aided us to secure contracts such as the Equinor IRM contract in Norway. Our relationship approach help us work and learn together to achieve successful results for all. Our 8 awarded projects within Subsea Integration Alliance and our work with Aker BP are another way that our relationship approach creates values. We are reliable in our performance and execution, making us a trusted partner. Our clients, new and old, choose to work with us based on this reliability.Creating the right solution is fundamental at Subsea 7. Our extensive technology portfolio means that we can deliver the most effective solution for our clients. For example, our Electrically Heated Traced Flowline solution is about to be installed for the first time on the Katmai and Aerfugl projects. Our long-standing pipeline Bundle solution continue to be highly effective with Penguins and Buzzard Phase 2 projects being awarded last year. Moving now on to Slide 16. Our differentiators are why we are confident that we will continue to win work, and over time, improve our margins. We expect the offshore oil and gas market will continue to gradually recover and we agree with Rystad, the prediction of a trough in '19 for subsea pipeline installation. In our own backlog, 2021 is already becoming a busy year for reeled pipelay projects around the world, and in particular, Australia. An industry indicator for offshore installation activity is Christmas tree activity. Pipeline installation lags behind Christmas tree installation with trough in 2017 and has seen increased activity in 2018. In 2019, there are potentially 54 notable projects reaching FID according to market report. And I am confident that our differentiators will allow us to secure a good share of this work. As we build backlog for our key vessels in 2020 and 2021, we have been able to start increasing our pricing for this higher expected activity levels. Moving on to Slide 17, I will conclude with our view of the outlook for market awards by business unit. Starting with the SURF and Conventional outlook. Tendering and award activities continue to steadily improve around the world. We expect some of the larger projects such as Equus 2, Pecan and [indiscernible] to be awarded to market in the second half of the year. Tendering and early engagement activity is already underway on each of these potential awards. In Renewables and Heavy Lifting, there are several projects being tendered and awaiting FID. This includes the HKZ offshore wind farm projects where we have already been selected by Vattenfall, the T&I partner with FID and contract award anticipated later this year. Competition for wind farm awards has intensified with the arrival of some of our peers from an oil and gas background, but we remain confident in our competitive position.For Life of Field, tendering activity for IRM service is increasing, particularly in the U.S. Gulf of Mexico and the North Sea. The demand outlook for global drilling rig support remains at a low level. So to summarize, we remain confident in the gradual oil and gas market recovery. Competition on new set of awards is still challenging, but with volume increase, pricing is starting to show signs of improvement from the very low level in 2018.I'm very confident that our differentiators and values will help us to achieve more than our fair share of awards in all our markets. And now Ricardo, John and I will open the call and take your questions.

[Operator]

[Operator Instructions] And our first question comes from the line of Michael Rae from Redburn.

[Michael Hogarth Rae, Research Analyst]

Just firstly, you flagged the weak pricing in the quarter. But can you just give a rough outline of the impact of having the Borealis in dry dock and also the Seven Seas transiting to Egypt. It just seems like this wasn't a normal operating quarter in terms of vessel availability. So I'm wondering how much of an EBITDA impact that has? And then the second question, just on Brazil, which looks like a rigid market now because of this flexible riser corrosion issue. What does that mean for your PLSVs when they come off contract in a couple of years? Is there enough work in maintaining the installed base of flexibles in Brazil that will keep those vessels utilized? Or will you start to bid them on contracts around the world?

[Jean P. Cahuzac, CEO & Executive Director]

John, I don't know if you want to answer to the questions?

[John Evans, Chief Operating Officer]

Yes. Well, two things to think about in terms of our quarters. We get the seasonality effect of clients not wanting to work in the poorer weather in the North Sea and in the Gulf of Mexico in quarter 1 generally. And yes, you're correct that this quarter we also had 2 of our larger assets, one transiting and one under maintenance so that does have an impact on our returns for the quarter. But I think the messages we've always given is that quarter 1 is generally one of the quieter quarters we have as a company. Turning to Brazil. I think it's important still to reflect on that flexibles are still very, very important to Petrobras. Yes, there are some technical issues, which a lot of work is being done on the design of the very, very high-spec CO2 laid in the fields that they have there. But the message is very clear: you're seeing that Petrobras has been out looking for bids for pipe supply in the last quarter as well. So we still believe that there's going to be a market for flexibles in Brazil from the time our ships are due for renewal in '21. The size and scale of that is what's on everybody's mind at the moment. But certainly, flexibles will be part of the future in Brazil.

[Michael Hogarth Rae, Research Analyst]

Okay. And if I could just follow up briefly on the buyback. I was going to ask you about the termination of shares, but I think you've answered that in the preamble. So did you say that you're going to terminate all of the treasury shares that you hold as of today?

[Ricardo H. Rosa, Chief Financial Officer]

Michael, not sure if you're correct. What we have said is that we are canceling today 15 million shares, which are in treasury. We have approximately 17.3 million shares in treasury as of today. So we're canceling the vast bulk of it -- of them with the residual figure there. And obviously, it's something we'll be looking at on a regular basis, and if we need to cancel more shares, we'll do so.

[Operator]

Our next question comes from the line of Vlad Sergievskii from Bank of America.

[Vladimir Maximovich Sergievskii, Research Analyst]

Just wanted to clarify your comment on improving pricing. So is pricing improvement on the contracts you put into your backlog today or on the contracts, you are basically tendering today, which we awarded later in the year?And secondly, will you be able to give us some idea of whether pool of contracts for this year or for this quarter is margin accretive or margin dilutive compared to your average, let's say, group EBITDA margin, which consensus says it's about 15% for the year.

[Jean P. Cahuzac, CEO & Executive Director]

Yes, what I would say is that what we are seeing is a gradual improvement of the market and we are able to improve the margins for the work being awarded, which are being awarded now and in the months to come. We are still executing projects, which have been awarded at low margin and that impact the results today. We are not back to peak margins at this stage. It's a gradual improvement. Regarding the impact of the pool of projects, it's difficult to answer your question. It all depends where they are and the size of the project and all that. So I would say, in aggregate, the only comment I can make is the trend is going in the right direction, but I cannot be more granular.

[Operator]

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

[Chr. Frederik H. Lunde]

And congratulations on the attractive prices you've been able to buy back shares so far. My questions would be, first, on the receivables. You indicated earlier in Q4 that you expected a reduction in receivables in the first half of this year. So I don't know if that would be good? And also are you seeing more competition in the offshore wind market? Is that on the largely EPC contracts? Or is it more subscope of normal larger contracts?

[Jean P. Cahuzac, CEO & Executive Director]

Yes. I'm going to take the competition on the renewable market and let Ricardo comment on the receivable. What we alluded to in the comment is that some of our competitors from oil and gas have entered the renewable, namely, Saipem and Heerema who decided, in fact, to get out of the oil and gas and go to renewables. So I think they see this time medium- to long-term potential in this business and have the same view on the market, which is a growing market in the years to come. But it's additional competition. I'm convinced that based on our previous experience, we remain quite competitive on that. It's both on EPCI and T&I project. Ricardo, on receivables?

[Ricardo H. Rosa, Chief Financial Officer]

Yes, thank you, Jean. Frederik, we had -- you're quite right. We had predicted an improvement in working capital, and in fact, this quarter the trade receivables are effectively the disappointment. We had expected an earlier improvement than has been achieved this quarter. But we know where the delays are and generally it's due to lengthy administrative processes adopted by some clients. But I can assure you that collectibility is not a concern. Working capital improvement is a priority for us and we expect to see this occurring over the course of the year, but not perhaps to the same extent in the first half as I had predicted, I believe, in Q4.

[Operator]

Our next question comes from the line of Amy Wong from UBS.

[Hin Kin Wong, Executive Director and Analyst]

Couple of questions for me, please. In terms of -- thanks for kind of providing the separate disclosure on the escalations versus the project bookings. When you characterize the escalations that you are booking in this cycle, can you compare some of the characteristics of the previous cycle? It's always been a big area of contention in terms of whether the margins are better on escalations. But could you just give us some color around some of the characteristics around the escalations this cycle around? Then my second question is a simple one, it's just a bit more housekeeping. Can we get scale some guidance on cash taxes paid this year, please?

[Jean P. Cahuzac, CEO & Executive Director]

Ricardo, do you want to start with the housekeeping and then John will answer on the escalation?

[Ricardo H. Rosa, Chief Financial Officer]

Amy, I think, from a cash tax perspective, I think we have a pretty simple profile. You can assume that, by and large, our provision is pretty much in line with the cash taxes that we will pay in the course of the year.

[John Evans, Chief Operating Officer]

And on the escalations, primarily, these we're showing now are ones where we are under contract with the clients and they give us call-offs. So some of our work, IRM work, in the North Sea is done on a call-off basis per quarter or per half a year and its when those get put into the packages that we put them there.

[Jean P. Cahuzac, CEO & Executive Director]

Yes. It also includes, John, some escalations on shallow water work in Nigeria...

[John Evans, Chief Operating Officer]

Correct. Yes.

[Jean P. Cahuzac, CEO & Executive Director]

Where we see a positive trend. It has been a significant part of revenue in the old time in the whole year. We are not get back to that, but it's going in the same direction. So that's quite positive.

[John Evans, Chief Operating Officer]

Yes. Absolutely. But both of these type of elements, Jean, are already work that we have in framework where the clients are calling it off, not additional work at the end around. But as you said, the trend is pointing the right way.

[Operator]

Our next question comes from the line of Henry Tarr from Berenberg.

[Henry Michael Tarr, Analyst]

Firstly, just on Xodus, you've obviously taken control of that entity. What made you do that? And do you think controlling the FEED studies is becoming more important in the market? And then, secondly, just on vessel utilization through the remainder of this year, how would you -- how do you see it sort of trending relative to where we were last year?

[Jean P. Cahuzac, CEO & Executive Director]

Regarding vessel utilization, we see the, I mean, the same trend that we usually see. I mean there's a question mark in Q4. I mean there will be a question of a seasonal effect, it's difficult to predict at this stage what it will be. Based on the activity growing with the clients, it's a possibility that will go in a good direction. And I think on the general utilization of the oil and gas business, I think we'll be in line with our expectation. As we mentioned before on the renewable, '19 will be more challenging and there may be some lower utilization than in previous years on the renewables side.

[John Evans, Chief Operating Officer]

And Jean, maybe on the Xodus, our position on early engagement, as you know, has been part of our strategic direction the last 2 to 3 years to work with our clients to be able to offer that service. We offer it in 2 different ways through, the alliance we have with OneSubsea. We offer very biased solutions, which has all our standard technologies and all our offerings from OneSubsea and Subsea 7. So it's very much for contractor-led solutions. But we're also getting clients seeking client-led traditional FEED design work being done, and that's the role of Xodus. So we believe that having the 2 strands, our work through the alliance with OneSubsea and the work we can do with Xodus, allows us to be able to offer our clients the 2 types of FEED studies they want.

[Jean P. Cahuzac, CEO & Executive Director]

And it's safe to say, John, that we've seen in '18 that if the trend continues this year, the significant increase in the interest, that the clients see what we can offer on the study engineering. We're doing more and more of these studies, which position us very well for the future contract awards.

[Henry Michael Tarr, Analyst]

Okay. And just coming back on the utilization quickly. I mean, I guess total vessel utilization for the quarter was 68%, which obviously is up substantially on Q1 '17 and '18. Maybe it's a mix effect with the Borealis and other bids being out. But yes, we're still not sort of seeing that better utilization come through to the bottom line. There's obviously weakness in Q1 seasonally, but perhaps I shouldn't read too much into that. But you'd see a normal seasonal pattern for utilization through the remainder of the year.

[Jean P. Cahuzac, CEO & Executive Director]

Yes, and I would say that in the first quarter, we had very high utilizations on the smaller vessels. What we also said that we see a significant increase of requirement from the market on the high end of vessel late 2021 when we will see all these large projects being executed.

[Operator]

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

[Robert John Pulleyn, Analyst]

Two questions, if I may. Firstly, if I can come back to pricing and the comment in the outlook statement, highlighting that you expect pricing to return to normal levels over time. Would it be okay to ask what exactly normal pricing is and what does that infer for normalized margins? And the second question in light of the DSV acquisition is can I ask how you see the capital intensity of this market recovery? Will Subsea 7 need to significantly refresh its asset base or can CapEx be limited to around current levels as market activity increases?

[Jean P. Cahuzac, CEO & Executive Director]

When we talk about the margins, when -- what we were referring to is the historical margins. I think you have to go back to previous years before the downturn and the crisis, that's when we believe that this level of margin over time can be reached. Regarding the vessels and what we need to do, I think we've taken advantage of the downturn to actually renew the fleet and we had a very disciplined approach on the CapEx side. But we invested on new vessels. Today, our fleet average age is 10.4 years -- will be 10.4 years old when the Vega is delivered. As you know, we have been focusing on the high end of the vessels from a technical perspective. So in foreseeable future, I don't see significant need -- I don't see a need for significant investment on new vessels. In fact, we have a new fleet also lower the operating CapEx. Less money being spent in the yard -- in shipyards when we have to look for a class and planned maintenance. We're in good shape -- we're in very good shape.

[Operator]

Our next question comes from the line of Guillaume Delaby from Societe Generale.

[Guillaume Delaby, Equity Analyst]

One question. In your remarks as well as during the Q4 call, you mentioned that 2019 is going to be a difficult year for your Renewable business. So difficult year as a whole, but I also understood that H1 is likely to be particularly difficult. And if I understood correctly in the Q4 call, I also understood that, within H1, Q1 was likely to be the most difficult quarter. So could you confirm that Q1 for Renewable in terms of margin was the lowest point of the year?

[Jean P. Cahuzac, CEO & Executive Director]

No, it's very difficult to look at vessels on a quarterly basis. It's true in oil and gas. It's true in renewable. We are today in discussion with clients on a number of projects. Depending upon the timing of these project, which are T&I projects in '19 mainly, the vessels may be working 1 quarter, not the other. It's very -- it really comes down to your question on a quarter basis. No doubt that '19 will remain the lower end of Renewable for Subsea 7. I would also want to mention that the Borkum project is behind us now. I mean, we've completed most of the operations and I think the project is now fully derisked.

[Operator]

Our next question comes from the line of Kevin Roger from Kepler Cheuvreux.

[Kevin Roger, Research Analyst]

One follow-up on the Renewable, please, because, Jean, in the presentation, you say that you are expecting some projects to be sanctioned soon in the Renewable. On those projects that you have bidded on, is there any project for offshore campaign in 2020 that you are looking on? And can you also remember us what you have currently in the backlog for execution in 2020 in the Renewable activity, please?

[Jean P. Cahuzac, CEO & Executive Director]

John, you want to take that?

[John Evans, Chief Operating Officer]

Kevin, I'll take those first. As you know, the U.K. projects that are out for bid -- a number of the U.K. projects that are out for bid go through a contract for difference auction campaign in September of this year with the U.K. government. So there's a lot of bidding going on. But whether the projects will land and get their contracts, the difference will be sorted out in quarter 3 this year. We are bidding work for 2020 in Taiwan where most of that is effectively inside a subsidiary regime, and for us, in 2020, we are doing the cables in Taiwan on Yunlin. We're also doing a few cables in Coastal Virginia and the U.S. And then back in the U.K. then, we're doing the Triton Knoll foundations in 2020. So at the moment, that is our 2020 Renewables portfolio at the high level.

[Kevin Roger, Research Analyst]

So if I well understand currently what you have in the books for 2020, it's mostly onshore work than offshore work?

[John Evans, Chief Operating Officer]

Oh, no. These projects are offshore in 2020. Sorry to put off your question. These projects are offshore 2020. We have about $400 million worth of Renewable backlogs, but roughly 50-50 between '19 and '20, which we showed in the annual report and all this work is transport and install work.

[Operator]

Next question comes from the line of Sahar Islam from Goldman Sachs.

[Sahar Islam, Analyst]

Firstly, just on cost inflation. Can you talk about what you're seeing at the moment and what you're building into your tenders for the projects where pricing is going up in future years, please?

[Jean P. Cahuzac, CEO & Executive Director]

Yes. I think what we are seeing is that our suppliers are seeing the same thing as we see, which is the market is improving all the time. Today, it hasn't really impacted the cost structure. But in some specific case, we are seeing some move from the supplier. As we have done in the past, it's important for us to evaluate this risk and be covered when we can by our clients. But when we actually submit our tender, we take into account the fact that supply chain cost will go up and we are estimating what it is and putting it in our price suite, trying not to take too much risk there.

[Sahar Islam, Analyst]

And then on these projects where pricing is going up and we thought to get more greenfield coming back, can you talk about how the working capital profiles and then terms and conditions vary from what we would have seen last cycle, please?

[Jean P. Cahuzac, CEO & Executive Director]

Depends a lot on the clients and the geographical area, but I'm going to let Ricardo be a bit more specific.

[Ricardo H. Rosa, Chief Financial Officer]

I think, Sahar, that Jean has summed it up very succinctly. I think it's a very client-specific issue, and in general, we will tender on the basis that we want to be either slightly cash positive or cash neutral throughout the life of the project, and that's what we saw historically. And we are still seeing that for a lot of projects and a lot of clients. However, there are a number of clients -- or a small number of clients, I should say, where working capital is an issue. I think it's no secret that the Middle East and Saudi Aramco, in particular, is a case in point. But we are seeing a similar trend potentially affecting Petrobras. We believe therefore that it's important to maintain a strong balance sheet to cope with the challenges from a working capital perspective of these contracts and ensure that we can tender competitively.

[Operator]

Our next question comes from the line of Mick Pickup from Barclays.

[Michael Brennan Pickup, MD & Senior European Oilfield Services Analyst]

Mick here. Just during the quarter, you've obviously had a couple of FEED awards on an integrated basis. Now we're back up and running in the sector. Can you just talk about what the client response has been to integrated versus more conventional type of awarding profiles?

[Jean P. Cahuzac, CEO & Executive Director]

We saw an increased interest from the clients on the integrated approach and also -- and you can agree to our interest with the early engagement and the early engineering part of the project. So we are seeing a significant part of our business going through this model, and I think the recent announcement that we made proved the effectiveness of the alliance with OneSubsea in this area. The majority of the project, however, are still, I believe, on a nonintegrated basis. And I think the approach of Subsea 7 is basically pragmatic and matching what the client wants. When it makes sense to go independently, we go independently. When we see an added value or the clients see an added value, we go integrated, but we are not saying that one solution fits all. And we remain, I think, quite flexible, probably more flexible than some of our competitors.

[Michael Brennan Pickup, MD & Senior European Oilfield Services Analyst]

Okay. And secondly, can you just talk about the Middle East and the market out there? It looks like there's offshore work coming in, in a number of countries. What are you seeing?

[Jean P. Cahuzac, CEO & Executive Director]

I think, Middle East, we see definitely a lot of activity coming up in Saudi obviously, but also in Qatar and to some extent in the Emirates. We are well positioned in Middle East. And the 2 larger competitors, McDermott and Saipem, obviously have a strong position there. But I see our position improving over time in a context, which is not easy. There are today 9 competitors on the LTA for Saudi Aramco. So there is competition there. It's a tough market, but there is room for us and there is room for delivering good results there over time.

[Operator]

Our next question comes from the line of Michael Alsford from Citi.

[Michael J Alsford, Director]

Just to follow on, on that pricing point. I just wondered if you could elaborate a little bit more on the kind of where you're seeing it. Is it broad based? Is it shallow water versus deeper water projects? And if it is, what regions are you particularly seeing that trend happening? And then just, secondly, just on your comment around still we're obviously looking at inorganic opportunities where possible. You mentioned that the fleet's pretty fit for purpose. So I just wondered if you could elaborate a little bit more on what types of opportunity you're looking at. If it's very much technology-driven, if it's regionally wanting to be positioned somewhere where you're not, if you could perhaps give us a bit more of a color as to what sort of opportunities they could be in the future?

[Jean P. Cahuzac, CEO & Executive Director]

Regarding the margins, it's based on 2 things. It's based on the fact that the overall trend of the market is going in the right direction, but that takes time. I mean it's a slow progress. But it's still based on our differentiators. When we are involved early -- when we are involved early on the FEED, when the process of the client is to go to early engineering, we can propose better solutions at that early stage and I think it's a win-win between us and the clients in terms of what can be achieved. I would say there is no rule around the world. I mean there not one area where it would be better than the other. It depends on the project. But all that comes from differentiators and it's technology, it's early engineering, it's the trust that the clients have on our ability to deliver a project, all that is going pretty well. Regarding the fleet, we have invested, always when we look at investment on the fleet, on the high end of the fleet, we are looking at the long term and the decisions are based on how we see the market, but also on the technology. The decision to invest on the Vega was based on our view of long tie-backs, the technology that we can propose associated with the vessels in terms of bigger pipe-in-pipe, in terms of electrically heated pipe. So today, we have, I think, a state-of-the-art fleet, which allows us to do -- to cover all the technical solutions, which will be required in foreseeable future. We had -- in an opportunistic way, we bought the Pegasus, that it was an opportunistic acquisition for a very good vessel. The company was in financial trouble. We had an opportunity to do it. The owner, the previous owner, was in financial trouble. We had an opportunity to buy it. We will always look at this opportunity, but there would be a limited number of such opportunity in the future. So you can expect low CapEx in the years to come. We could have -- sorry, the last one that I forgot, I mean our technology is absolutely key in everything that we do. On a permanent basis, we are also looking at opportunities to acquire technology. It's usually small investments, but that's the kind of thing that we look at on an opportunistic basis. But based on our long-term view of where this market is going, there may be some limited investment in this area, but quite important for us to develop our technology.

[Operator]

Our next question comes from the line of James Thompson from JPMorgan.

[James Thompson, Analyst]

Probably exhausted Q&A on pricing, but that's good to hear as well. So I just wanted to check back, if I may, and just ask a little bit about 2019 guidance. Obviously, you've upgraded revenue guidance for the year, but haven't changed the language on adjusted EBITDA for the year. So I was just really wondering whether the -- how we should think about that change? Should we think about consensus EBITDA moving up in lockstep with the revenue guidance? Or should we be actually thinking about consensus EBITDA sort of staying roughly where it is and actually a little bit of margin deflation to run through in 2019?

[Jean P. Cahuzac, CEO & Executive Director]

Ricardo?

[Ricardo H. Rosa, Chief Financial Officer]

Yes, James, I think we have indicated that our outlook on revenue for the year is a little more positive than we have said before and we now see it as being broadly in line with 2018. And our view is that this adjustment to our guidance is uplift in revenue that we are forecasting does not invalidate the range of our guidance on adjusted EBITDA. And that's why it's remained unchanged and I think there's little to add to that position I think as clearly improving revenue in general is a positive thing. But as I've said, the range for EBITDA is such that you'll have to form your own judgment within that range of where you think will land.

[James Thompson, Analyst]

Okay. That's great. I mean just sticking on the revenue guidance, if I may. Fourth quarter obviously has some uncertainty so should we just be thinking on a quarterly step-wise basis that top line, Q2, Q3 should be stronger. So we're expecting a stronger summer season than consensus is currently thinking rather than sort of a quarter-by-quarter increase in revenue?

[Jean P. Cahuzac, CEO & Executive Director]

We're not really commenting on consensus per quarter. We are looking at the whole year. If we have problem with consensus on the whole year, we will say it, but we don't.

[Operator]

And our last question comes from the line of Mark Wilson from Jefferies.

[Mark Wilson, Oil and Gas Equity Analyst]

I'm just wondering with regard to the current backlog and the timeline to the Seven Vega, there's a number of electric heat treated contracts in there. Is there vessel earmarked for any of the current booked work? Or are such contracts still to be won and therefore some of the pricing effects you speak to can be put against that particular vessel?

[John Evans, Chief Operating Officer]

So Mark, to answer your question, the first 2 projects that we have in the backlog for Electrically Heated Trace Flowlines will be done by the Oceans, our existing vessels. But we have in our technology profile a more efficient ability to install off the Vega in due course. So the Vega is being bid in the outer period, i.e., from the end of quarter 1 next year onwards for electrically heated pipeline systems, but we expect to install the first one over this winter.

[Jean P. Cahuzac, CEO & Executive Director]

I want to say I have no concerns for utilization of Vega when she comes out of the shipyard. We can -- we have good visibility on projects she will work.Okay. I think we have to stop now. I'd like to thank you for your participation to this call, and looking forward to the next conversation in our road show and that Q2 earnings call. Thank you. Bye.

[Operator]

And this now concludes our conference call. Thank you all for attending. You may now disconnect your lines.