Subsea 7 Stock

Good day, and thank you for standing by. Welcome to the Subsea 7 Second Quarter 2026 Results Conference Call. [Operator Instructions]

Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Katherine Tonks, Investor Relations. Please go ahead.

Welcome, everyone, and thank you for joining us. With me on the call today are Stuart Fitzgerald, our CEO; and Mark Foley, our CFO. The results press release is available to download on our website, along with the slides that we'll be using during today's call. Please note that some of the information discussed on the call today will include forward-looking statements that reflect our current views. These statements involve risks and uncertainties that may cause actual results or trends to differ materially from our forecast. For more information, please refer to the risk factors discussed in Subsea 7's annual report or in today's quarterly press release. I'll now turn the call over to Stuart.

Thank you, and good afternoon, everyone.

First, I will talk to the highlights for the second quarter of 2026. This will be followed by a more detailed review of our financial performance by Mark. I will then return to talk about our operations in Norway and our tender pipeline before we open for Q&A.

Turning to Slide 3. In the second quarter, the group delivered adjusted EBITDA of $471 million, representing over 30% growth year-on-year and a margin of 24%. This was underpinned by strong project execution in both business units. We continue to see good order intake with a $2.1 billion backlog booked in the quarter, giving us a robust backlog of $13.6 billion and high visibility for the second half of 2026 and 2027. With 7 months of the year under our belt and a strong operational and financial performance to date, we have raised our guidance for full year EBITDA margin. Slide 4 shows details of our backlog, which continues to increase in quality in terms of both margins and terms and conditions. After strong order intake in the quarter, the backlog for Subsea and Conventional has reached a new all-time high of $11.8 billion. While the order book for renewables was maintained just below $2 billion.

We have a combined backlog for execution in the second half of 2026 of $3.9 billion, giving us excellent visibility over the remainder of the year. And our backlog of $5.9 billion for 2027 supports our positive view of the years ahead. As a reminder, the Middle East accounts for single-digit percentages of our backlog. We are currently commencing the offshore phase of CRPO 153, and this is progressing as planned with all the necessary resources to begin pipelay operations in the Gulf.

This contract represents 1% of our backlog with the vast majority of our Middle East exposure represented by CRPO 148, which is due to go offshore in 2027 with the bulk of operations in 2028. And now I'll hand over to Mark to run through details of our financial performance.

Thank you, Stuart, and good afternoon, everyone. I'll start my review of our financial performance with a look at group and business unit results in the second quarter and then move on to our financial guidance for 2026.

Slide 5 summarizes the group's revenue by quarter and by business unit. The group continued to deliver revenue growth, driven by good project execution across our high-quality portfolio. Second quarter revenue was $1.9 billion, up 10% compared to the same quarter last year, while first half revenue of $3.7 billion was up 13% year-on-year, placing us firmly on track to generate good revenue growth for the full year. Both business units contributed to this success as I'll detail in later slides. Turning to Slide 6. Adjusted EBITDA of $471 million was up 31% compared to the prior year period, and our margin expanded by more than 3 percentage points to 24%.

Other gains and losses were a positive $46 million, driven in part by the gain on foreign exchange forward contracts entered into to mitigate the currency exposure of the $414 million dividend, which was paid in May. Our effective tax rate was 29%, broadly in line with the 28% in the first quarter.

Overall, we reported net income of $254 million, nearly double that of the prior year quarter. I'll discuss the performance of each business unit in the next few slides. Slide 7 presents the key metrics for Subsea and Conventional. Revenue in the second quarter was $1.5 billion, up 9% year-on-year as progress continued across the portfolio, including notable projects such as Burullus 9 and 11 in Brazil, Yggdrasil in Norway and Sakarya 2 and 3 in Turkey.

Adjusted EBITDA was $410 million, equating to a margin of 26%. This represents an increase of 5 percentage points from the prior year period and reflects strong project execution and high vessel utilization as well as the favorable consequence of replenishing the backlog with high-grade order intake. Subsea and Conventional also benefited from a $9 million net income contribution from OneSubsea, in line with our expectations. Net operating income was $291 million, up 76% from the prior year period, equating to a margin of 19%.

Selected Renewables performance metrics are shown on Slide 8. Revenue in the second quarter was $350 million, up 14% year-on-year, mainly relating to continued activity in the North Sea at East Anglia THREE as well as the Ichthys project. Adjusted EBITDA was $69 million, equating to a margin of 20%, up from 17% in Q2 2025 and a net operating income of $39 million. This represented a net operating income margin above 11% and reflects the outcome of selective bidding leading to improved risk reward allocation between us and our clients. Slide 9 shows the cash bridge between the first and second quarters.

Net cash generated from operating activities was $570 million, which included a better-than-expected favorable movement in working capital of $139 million, more than offsetting the outflow of the first quarter. Overall, the first half saw a net inflow from working capital of $85 million, which, as I've noted on previous calls, is expected to reverse in the second half. Within investing activities, capital expenditure was $92 million. We also received a $7 million dividend from OneSubsea. Net cash used in financing activities was $528 million, including $414 million paid to shareholders as dividends in May. The net cash impact of the dividend to the group after including the gain on foreign exchange forward contracts was $403 million.

After this significant cash dividend payment, cash and cash equivalents was just over $1 billion, demonstrating the resilient cash generation profile of the group. Net cash was $190 million, including lease liabilities of $363 million, broadly unchanged from the end of the first quarter. Overall, the group had liquidity of $1.6 billion at quarter end, which included $600 million of committed unutilized borrowing facilities. To conclude the financials, we turn to Slide 10.

Following another strong performance in the second quarter, particularly in terms of continued good project execution across the portfolio and increased clarity on the remainder of the year, we have revised upwards our guidance for the full year 2026. We now expect an adjusted EBITDA margin of approximately 24% from approximately 23% previously. Our guidance for net finance costs has also been favorably revised by $10 million to between $30 million and $40 million from between $40 million and $50 million, driven by higher forecast cash balances. I will now pass you back to Stuart.

Thank you, Mark. During the quarter, we announced an award by Var Energi for the Goliat gas export project in the Barents Sea. The project will connect the Goliat field to the existing Snohvit pipeline system, which will take the gas to the onshore Hammerfest LNG plant. This is the first award under the new strategic partnership with Var that was signed only a few months ago in March. By working closely together, we've been able to optimize the development solution to advance the installation schedule by a year and accelerate first gas. This demonstrable value creation has reinforced the confidence and collaboration between our 2 teams, and we look forward to working together to unlock opportunities across their entire Norwegian Continental Shelf portfolio.

Now on the customary review of our subsea prospects on Slide 12. Tendering activity remains high with a pipeline value of approximately $20 billion, a level we've experienced consistently for the past 2 years, independent of volatility in commodity prices. Clients continue to progress towards FID on multiyear projects supported by fundamental drivers, including a persistent growth in global energy demand, a drive for energy security reinforced by geopolitical supply disruptions and the natural depletion of baseline reserves. With favorable economics and given their strategic importance, deepwater developments rank highly in the portfolios of our clients, adding to the resilience of our target markets. Overall, we are confident in both the near-term and longer-term outlook for Subsea 7, supported by favorable markets and our differentiated offering. To conclude our review of the results, we'll turn to Slide 13.

Subsea 7 finished the second quarter of 2026 with a strong backlog, implying high visibility on revenue this year and next, while a robust tendering pipeline gives us confidence in the longer term. We continue to execute our proven strategy focused on advantaged offshore energy markets, underpinned by the highest safety standards and excellence in project execution. Regulatory processes relating to the proposed merger with Saipem are on track and integration planning is well advanced.

Overall, I'm pleased with the performance of Subsea 7 this quarter and excited by the outlook, both for Subsea 7 today and in the future as part of Saipem 7. We'll now turn over to questions.

[Operator Instructions].

And this question comes from Guilherme Levy from Morgan Stanley.

I have 2, please. Firstly, on execution in the Gulf, you mentioned, of course, that you are now starting the offshore phase of CRPO 153. Can you just remind us how many months that is expected to last? And I know small in the overall scheme of things, but can you share with us any color on the sort of inflation that you are seeing on costs there, if any, compared to the original estimates before the conflict started?

And then secondly, in terms of guidance, perhaps if you could share some color on what has surprised you in terms of execution in the second Q that allowed for the small increasing margin guidance for the year? Any particular projects or region where you had initially built some contingency that now has been released?

Thanks, Guilherme. I'll take the first one and then Mark can comment on the guidance question. So as I said, CRPO 153 commencing in the Gulf with pipelay operations in the very near term with the required assets and equipment within the Gulf. We have additional campaigns coming up over the next 3 to 4 months and would expect to be complete with our operations by the end of the year. So that's the kind of time frame that you're looking at. Within the scale of that project, I would say, not significant inflationary effects. So we are not seeing any notable impact on our expected performance of that project, given its size and the scope that we have.

The other project that we have that you're aware of, CRPO 148, which will go offshore middle of next year and into 2028. There, we're in the early phases of that project with placing orders for different equipment components and with our engineering. And again, there, I would say we're not seeing any material inflation for the activities that are currently ongoing.

Thanks, Stuart. Thank you, Guilherme. Yes, you're right. We increased guidance as communicated from approximately 23% EBITDA margin to approximately 24% -- and as a reminder, that was on the back of the uplift that we announced to the market with the Q1 results moving from 22% to 23%. No specific project or indeed the region that is contributing to Waters. We're very satisfied and encouraged with the performance across the portfolio. And that, together with the results that we've delivered in the first half of the year, together with the clarity that we have for the remainder of the year has given us the confidence to share this upgrade with the market as we've done today. So again, no specific project, no specific region, but we are encouraged by the high level of good execution that we observed across the portfolio.

We are now taking our next question. And this question comes from Victoria McCulloch from RBC.

Can we talk about renewables and the tender outlook there? I noticed you've taken sort of the tender opportunities off, but maybe you could give us some color on what we should be thinking about in the second half of the year and the opportunities and what that tells us about the market? And then secondly, maybe a bit on numbers, Mark, what should we expect working capital wise in the second half of the year? And the OneSubsea dividend, what's your expectation on that for the remainder of the year?

Okay. I'll talk to the tender outlook on renewables. So we've been communicating for some time now that the renewables market is going or is in a lull in terms of project sanctioning associated order intake and that, that will feed through into a weaker market in '28, '29 is our market perspective there. We are actively working, I would say, on tenders in relation to AR7, so awarded projects in AR7, as you know. And then there is a -- the various developers are shaping their bids for AR8. So significant client engagement in preparation for AR8.

In terms of actual awards to market, we think very limited in the second half of the year. Those prospects, if you like, both for AR7, AR8 will be 2027 awards and project FIDs. Outside of the U.K., as you know, markets in Poland and Germany stalled to some degree, some ambitions and objectives stated, but still to see the project flow restart in those 2 key countries. Poland, a better market, some projects under bid now, but really the key as has been for the last period, and we expect to be for the coming year or so is going to be the U.K. market where not much second half of the year, but probably a strong flow next year. Over to Mark.

Victoria, as previously trailed, I expect working capital to unwind in the second half of the year, something in the quantum of around $200 million, Victoria. As you know, we have had a good run in terms of tight working capital management over recent years. So that $200 million should be put into context of where we are today and what we've achieved in 2025 and 2024. As you know, forecasting working capital can be quite tricky, but I do expect something in the region of around $200 million. But of course, we'll be aiming to mitigate that impact. In terms of OneSubsea dividend, just as a reminder, we're a 10% shareholder in OneSubsea. This will be a decision for the Board of OneSubsea, but I would be expecting something in the region of $20-or-so million for the remainder of this year.

We are now going to take our next question. And this question comes from Mick Pickup from Barclays.

A quick one for you, Stuart. Just on the bigger picture, I think in your introduction, you talked about terms and conditions improving and quality of projects improving. And obviously, over the last few months, some of your clients have gone to great lengths to try and document how tight this market is. So is the behavior changing?

What I would say, Mick, is -- so I've spent the last 3 to 4 months, obviously, as part of the handover process with John, traveling to every region and meeting every client and all of our key suppliers, some of the regulators, et cetera. Consistent messages in those visits and in those interactions with clients is, number one, confidence in their forward activity. And number two has been, I would say, a good solid pull on Subsea 7 as a reliable contractor for them that they want to work with. So I would say that is the backdrop for obviously discussions about pricing and discussions about terms and conditions, which we are working under. And if we take the example of the Var contract that we signed in Norway, it's a different way of working where risk balance is different from what it's been in the past and where I would say the risk terms are more favorable than we've seen before. So the general momentum, I wouldn't like to go into specifics, but the general momentum is good client pull on Subsea 7 as a preferred supplier. And with that comes, obviously, improved working conditions.

We are now going to take our next question -- and this question comes from Kevin Roger from Kepler Cheuvreux.

As a kind of follow-up following the question from Mick, where is basically the landing point for your EBITDA margin in the Subsea and Conventional business? Because over the past few quarters, you have continued to positively surprise the Street. So I was wondering if you have the better terms and condition, the bottleneck on the vessel, et cetera, I guess the EBITDA margin should continue to gradually improve. So any sense on where this EBITDA margin could land, please? Because I remember a few times ago, we were saying that the 30% plus number that you had back in 2017, '18 was a kind of one-off effect. But now we are not so far from this level. So any color that you can share with us? And the second one is just to try to understand a bit the '26 top line guidance now because when I make the, in a way, sum up between the H1 plus already what you have in the backlog for execution in '26, we are already in the high end of the range roughly. So is there any risk on those -- on this H2 top line that is preventing any fine-tuning of the top line guidance for '26?

Thanks. I'll let Mark comment on the top line question, and I will -- I'll make some color around the margins without being specific. So obviously, not going to provide any specific guidance on achievable margin. What I would say, though, Kevin, is this is partly market conditions, which we are -- have obviously expressed our confidence in, and that was part of our -- our commentary, do not underestimate the execution side of it. So in terms of our efficiency of execution, consistency of execution and quality of execution, we continue to push hard and the organization continues to perform well there, and that continues to improve, and we will continue to push for further improvement. And then the second thing that we are seeing is in certain geographies as we get portfolio effects really coming through. So there, I'd call out Brazil and I'd call out Norway and I'd call out the Gulf of Mexico, where we get scale, where we get standardization, even if it's with different customers, we're able to expand the margin through, I would say, good portfolio effect. So don't only think about the market when you're thinking about the margin expansion that's happened. I will then hand over to Mark to talk about the top line.

Thanks, Stuart. Thank you, Kevin. So we have maintained our guidance for revenue between $7.4 billion to $7.8 billion. Based on the first half of the year and what we have in backlog, I think it would be fair to look at the upper end of that $7.4 billion to $7.8 billion range. Certainly don't infer any downside risk that we have in the portfolio. So the $7.4 billion to $7.8 billion, think about the upper end of dimension.

We are now going to take our next question from Kate O'Sullivan from Citi.

So first one, just on the merger. One of the strategic attractions is the enhanced exposure to key growth regions, one of those being the Middle East. However, with the region becoming a material larger part of the combined backlog, has the recent disruption prompted any reassessment of the balance between opportunity and risk as you move towards closing? More specifically, have there been any discussions as part of the merger process around how best to manage the increased exposure? And then just secondly, congrats on stepping into the CEO role, Stuart. And while you've only been in the position for about a month, you've obviously not new to the business. So appreciating that a significant amount of management attention is naturally focused on the merger. That aside, could you share your key priorities as CEO over the next 12 months or so? More specifically, since taking on the role, have there been any opportunities or aspects of the business that stood out to you that you believe investors may be underappreciating?

Okay. So obviously, no rediscussion of any merger terms. We see the combined positions of the 2 companies in terms of the complementarity that we have in terms of significant exposure in the 2 very advantaged areas in terms of breakevens in the medium and the longer term, this is all benefit in our mind and positive in our mind. So not -- no discussions that we're not happy with the exposure that we have and that we think this is for the long-term benefit of us and our shareholders.

In terms of my own priorities, very clear and simple, I would say, the first priority, and these are messages that I'm continuously communicating within the organization and to our other stakeholders. First priority is continuity. Subsea 7 has a strong delivery machine, which is performing well, as you see by the results that we have here.

So continuously improve, yes, but don't come in as the new CEO and try and make a whole bunch of changes. So there's a strong continuity piece as the #1 theme, both in our internal delivery model and in terms of what we present as our value proposition to our shareholders.

The second piece, a bit softer, but Subsea 7 in the people and values company. And I feel some responsibility of a custodian as a custodian of that people and values focus that John had and that John had before him. So very focused on people, values, culture.

And then the third piece is really the Saipem merger and doing all that I can within my powers and ensuring the organization is equally focused to ensure that, that merger is a success. So of all of the different inputs that I've had and impressions that I've had over the time leading up to -- from being announced to taking over, it's essentially crystallized to continuity, people and values and making the merger a success.

We are now going to take our next question. And this question comes from Richard Dawson from Berenberg.

Two from my side. Firstly, Mark, your comments suggested that the higher forecasted cash balance drove that improved net interest guidance. So what's driving that higher cash expectations than before? Is that $200 million working capital outflow for H2, is that slightly below what was previously expected, for example? And then secondly, there's a slide on collaborations and alliances on -- particularly for the Goliat award. So just wondering if there's any new partnerships you're looking at in either subsea or renewable markets.

Okay, Richard. You've noted that the cash performance has been good in recent years, and it's been good first half of this year together with the second quarter. So when we put together the guidance in terms of net finance costs later part of last year, earlier this year, we had a cash flow profile and balances associated with that. Now we have surpassed that to date and our expectation is then for the remainder of the year allowed us to bring the range down.

So that takes into consideration the working capital outflow that we are predicting as well. And that is slightly lower than perhaps I would have expected if I look back maybe 3 or 6 months ago. So that provides a bit of color around the rationale for the change in the guidance driven by the dynamics of cash within the business.

And on the second question there, Richard. So within the last 6 months or so, obviously, the Petronas partnership for Suriname, which is at its early stages, but holds obviously promise as that region develops and that client seeks to become a significant player in that country. The Var Energi partnership, which you mentioned, I would say, yes, we have discussions with different clients. They may be collaborations and partnerships in different forms, not necessarily always SIA, not necessarily of similar nature to what we have with Var, but still a number of discussions ongoing with different clients about how we can work closer together, and have the benefit of closer collaboration.

It was one of the observations, I would say, from the different meetings with customers over the last 3 months that there is an attraction for many of our customers to work closer with Subsea 7 on their portfolio. So the answer is nothing imminent to be announced, but we're absolutely engaged in those kind of discussions with different clients.

Are now going to take our next question. And this one comes from Alejandra Magana from JPMorgan.

You've spoken about improving fleet efficiency through project sequencing and optimization. How much further runway do you see from those initiatives before growth becomes more dependent on adding capacity?

Or is the next phase really about moving from project by project optimization toward basin-wide optimization enabled by partnerships? And my second question is, how should we think about the margin profile of the renewables business going forward given the improvements in project risk reward profiles?

So I can comment there. So I think we are starting to -- you talked about basin-wide optimization, we are starting to see that. It's definitely something that we're seeing in Brazil as we get a larger portfolio of similar projects where we can move assets not only from one project to the next, but also as Petrobras -- as client drivers and constraints may come into play, we have the flexibility to adapt our schedules to match their -- whether it's an FPSO early or an FPSO late, we can adapt to that and bring a lot of value to the customer. So I wouldn't want to get specific about how far along the journey of optimizing fleet allocation and where the cap is, but that's absolutely one of the things which is helping us to drive -- to deliver the delivery that you're seeing now in terms of financial performance. I think on the second question, not going to comment on the renewables margin going forward as we get into later in the year, we'll provide the guidance for next year, but we haven't effectively changed. We've had a good quarter this year -- this quarter, sorry, but we're not changing our guidance from the longer term 14% to 16% EBIDTA.

We are now taking our next question. And this one is from Mark Wilson from Jefferies.

Just like to ask on 2 points. I think at the start, Stuart, you mentioned how tender activity is high and your overall outlook for projects, that slide you have of around $20 billion has stayed at the same level for the last couple of years. I'd just like to ask about that because obviously, others show that increasing and your backlog has grown. So just whether you would say that is correct that the opportunities out there has stayed steady or actually has grown.

Then the second point is on the subject of new capacity coming into the market for the high-end Reel-Lay, J-Lay and S-Lay vessels. Is it still the case that we're not seeing any new capacity coming in? Those are my 2 points.

So on the first one, stand by what we communicated there. This is the anticipated tendering that we see over the next period. And that number stayed pretty steady, just above $20 billion for effectively the last 2 years. So I wouldn't change that message that it's going up or down. It's a steady picture. In terms of new capacity into the market, not really going to comment there. We haven't -- there's no specific new build projects that we're seeing. There may be things on the drawing board, but nothing visible to ourselves at the moment.

We are now going to take our last question for today. And this one is for Paul Redman from BNP Paribas.

Two questions. First one is just, could you give us an update on -- or your views on the recent competition authorities on the Saipem 7 deal, so Europe, Australia and Brazil? And then -- could you give us a little bit of information on the Subsea Integration Alliance? You recently won the Angola awards. How much of your revenue, EBITDA is generated from this business now?

I'll take the first one, and Mark can comment on the second one. So on the first one, we're not going to comment on -- we're not giving running commentary. We haven't since the beginning on the status of the different processes that we're in when we announced the merger. What we can say is 8 of the 16 jurisdictions that we needed to file in have now cleared. When we started the process here and announced the merger, we said that we expected these clearances to come through in the second half of 2016 -- 2026, sorry, and we -- that's still our expectation. So wouldn't go into any details there. We haven't in the past, and we don't intend to go into them now either. So Mark, any comment on SIA?

Yes. SIA, a very attractive proposition to our clients and great being able to partner with SLBs OneSubsea very successfully since 2014. And as you know, that alliance extends out to 2033. So again, it's something that is valued by certain of our clients. I don't have revenue data, Paul, but it represents something in the mid-teens of the backlog that we currently have at the moment. And you should be familiar with the SIA projects in our portfolio. So I didn't answer your question, but I've given you another data point that hopefully you will find useful.

There are no further questions for today. I will hand the call back to Stuart for closing remarks.

Yes. So thank you very much, everyone, for taking the time, a strong quarter, which we're very pleased with. And we will speak to you in the Q3 results. And if you're on holiday, thanks for interrupting. And if you haven't gone on holiday yet, then have a good break. All the best. Thanks.

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.

Good day, and thank you for standing by. Welcome to the Subsea 7 Q1 2026 Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your speaker today, Katherine Tonks. Please go ahead.

Welcome, everyone, and thank you for joining us. With me on the call today are John Evans, our CEO; Mark Foley, our CFO; and Stuart Fitzgerald, currently CEO of Seaway 7. The results press release is available to download on our website along with the slides that we'll be using during today's call.

Please note that some of the information discussed on the call today will include forward-looking statements that reflect our current views. These statements involve risks and uncertainties that may cause actual results or trends to differ materially from our forecast. For more information, please refer to the risk factors discussed in Subsea 7's annual report or in today's quarterly press release.

I'll now turn the call over to John.

Thank you, Katherine, and good morning, everyone. I will start with a summary of the first quarter before passing over to Mark for some more details.

Turning to Slide 3. Subsea 7 delivered first quarter adjusted EBITDA of $385 million, representing over 60% growth year-on-year and a margin of 21%. We reported good operational and financial performance in both business units. And as a result, we have revised upwards our full year guidance.

Our order intake remains strong at $1.4 billion with a further $1.3 billion booked in early Q2. This gives us a robust backlog of $13.5 billion and a high visibility on the coming years. Our tendering teams remain busy and the fundamentals for our subsea and offshore wind industries continue to support our confidence in the outlook.

Slide 4 shows growth in the backlogs of both Subsea and Conventional and Renewables, which continue to increase in quality. We have a combined backlog for execution in the remainder of 2026 of $5.5 billion, giving us over 90% visibility on the remainder of the year. Since the year-end, our backlog for 2027 has increased by 17% to $5 billion and visibility on utilization of our global enabling vessels is strong through to 2029.

The Middle East accounts for under 10% of our backlog with most activities focused on engineering and procurement phases of CRPO 148. The offshore activity for this project is scheduled in 2028. In the meantime, we have a small amount of offshore work scheduled in the second half of 2026 with a chartered vessel that is already in the Persian Gulf.

And now I'll hand over to Mark to run through the financial results.

Thank you, John, and good morning, everyone. I'll start with a look at group and business unit performance in the first quarter before turning to our improved financial guidance for 2026.

Slide 5 summarizes the group's revenue and adjusted EBITDA. In the first quarter, revenue was $1.8 billion, up 17% compared to the same quarter last year, driven by solid project progress in both the subsea and offshore wind portfolios. Adjusted EBITDA of $385 million was up 63% compared with the prior year period, and the margin expanded by 6 percentage points to 21%. The margin performance in the quarter reflects a more favorable than expected financial contribution from certain projects progressing towards substantial completion.

Other gains and losses were a negative $67 million, driven primarily by movements in embedded derivatives, reflecting the strengthening of the Brazilian real and the Norwegian kroner against relevant currencies. As I've noted in prior calls, these embedded derivatives are noncash accounting items and are expected to fully reverse in future periods.

Our effective tax rate improved to 28% as higher profitability lessens the impact of recoverable withholding taxes on the effective tax rate. Overall, we reported net income of $97 million, a sixfold increase on prior year.

I'll discuss the performance of each business unit in the next few slides. Slide 6 presents the key metrics for Subsea and Conventional. Revenue in the first quarter was $1.5 billion, up 17% year-on-year, underpinned by good progress at Sakarya 2 and 3 in Turkey, Buzios 9 and 11 in Brazil and Yggdrasil in Norway.

Adjusted EBITDA was $356 million, equating to a margin of 24%. This represents an increase of over 6 percentage points from the prior year, reflecting the quality of our backlog and our predictable performance in executing complex deepwater projects. As mentioned earlier, the quarter also benefited from a favorable uplift from projects progressing towards substantial completion. Subsea and Conventional benefited from a $7 million of net income contribution from OneSubsea, in line with our expectations. Net operating income was $228 million, more than double the $99 million reported in the prior year period.

Selected Renewables performance metrics are shown on Slide 7. Revenue in the first quarter was $282 million, up 15% year-on-year, reflecting continued activity in the North Sea, where Seaway Ventus and Seaway Aimery operated through the winter season. Adjusted EBITDA was $35 million, equating to a margin of 12%, up from 10% in Q1 2025 and the net operating loss was $6 million. It is worth noting that the first quarter of 2026 marked the 12th successive quarter bar 1 of EBITDA margin greater than 10% in Renewables.

Slide 8 shows the cash bridge for the first quarter. Net cash generated from operating activities was $256 million, which included an expected unfavorable movement in working capital of $54 million as I alluded to in the fourth quarter 2025 call. Such movements have been a recurring feature of the first quarter over the past couple of years. Within investing activities, capital expenditure was $53 million, mainly related to the class renewal of dry docks for 3 vessels. We also received a $7 million dividend from the OneSubsea joint venture.

Net cash used in financing activities was $128 million, which included lease payments of -- sorry, of $64 million and a repayment of borrowings of $46 million, reflecting the amortization profile of our facilities. At the end of the quarter, cash and cash equivalents increased by $104 million to $1.1 billion, which was underpinned by around $200 million generated through free cash flow.

Net cash was $198 million, including lease liabilities of $337 million, up from $21 million at the end of 2025. The group had liquidity of $1.7 billion at quarter end, which included $600 million of committed unutilized borrowing facilities.

To conclude the financials, we turn to Slide 9. Following a strong financial performance in the first quarter in terms of both revenue growth and margin expansion and further increased clarity on the remainder of the year, we have revised upwards our guidance for the full year 2026. We now expect revenue of between $7.4 billion and $7.8 billion from $7 billion to $7.4 billion previously. We anticipate adjusted EBITDA margin of approximately 23% from approximately 22% previously.

Our depreciation and amortization guidance has also increased slightly to be between $650 million and $670 million from between $580 million and $600 million, driven by the reclassification of assets no longer held for sale and the addition of a new multipurpose leased vessel.

As a reminder, and as announced in February, the company intends to pay a dividend of NOK 13 per share on the 28th of May, subject to shareholder approval at the Annual General Meeting to be held on the 12th of May. The total dividend payment amounts to approximately $400 million.

I will now pass you back to John.

Thank you, Mark. On Slide 10, we have an update on 1 of our 6 strategic differentiators, collaboration and alliances, which has made more progress in 2026. The alliance structure allows us to work closely with our clients on their portfolios of developments, enabling a more holistic longer-term view that ensures timely access to the right solutions and resources.

In February, we signed a new 5-year framework agreement with Vår Energi. Vår has a growing portfolio on the Norwegian continental shelf with around 30 projects in early phases and Subsea 7 will provide the full SURF EPCI scope for its reel-lay development portfolio, including 6 high-value prospects.

In April, we announced the signing of a strategic collaboration agreement with Petronas. Alongside OneSubsea, we will provide integrated SURF and SPS solutions for multiple prospective projects in Suriname. Through early engagement and integrated execution, the collaboration aims to simplify complex development processes, enhance project economics and unlock opportunities along the portfolio of prospects in Suriname.

Now on to a review of our prospects in subsea and offshore wind on Slides 11 and 12. The conflict in the Middle East has underscored the importance of energy security, which should be supportive for the long-term dynamics of both subsea and offshore wind industries. In the meantime, our clients in both businesses continue to progress their tendering as normal based on their long-term planning assumptions. In Subsea, our focus on long-cycle deepwater projects with an attractive economics dampens our exposure to volatile spot prices and our tendering pipeline remains valued at around $20 billion. Opportunities relating to strategic developments in markets such as Namibia, Suriname, Brazil and parts of Asia give us confidence in the outlook for new awards.

In the offshore wind industry, we have seen some encouraging developments in recent months. The U.K. remains one of the most closely watched and strategic important wind markets. Our negotiations with clients continue regarding work associated with Allocation Round 7 with the process for Allocation Round 8 has commenced. Our clients registered windows for AR 8 is expected to open in July with CfD awards anticipated before year-end. Although installation activities linked to AR7 and AR8 is likely to fall into 2029 and beyond, we're optimistic about securing EPCI scopes, which will sustain our engineering and procurement workload through '27 and '28. Elsewhere in Europe, we see progress in markets such as the Netherlands and Germany, where new subsidy frameworks to support future developments are expected to be introduced.

To conclude, our review of the results, we turn to Slide 13. Subsea 7 finished the first quarter of 2026 with a strong backlog of firm orders valued at $13.5 billion. This gives us over 90% visibility on revenue in the remainder of 2026 and underpins high utilization of our global enablers. This as well as our combined confidence in our execution performance has enabled us to increase our guidance for revenue and margins in the full year '26. Our tendering team in both Subsea and Conventional and Renewables remain busy, and our clients are keen to progress these long-cycle strategically important developments.

Finally, I'll close with some comments on the up-and-coming CEO transition. As announced in March, I will retire as CEO at the end of June with Stuart assuming the role on the 1st of July. Stuart is well known to most of you, having spent nearly 30 years with Subsea 7 in senior positions across Norway, commercial, strategy and most recently, CEO of Seaway 7.

He has also led our integration planning, placing him in an ideal position to guide the group through the upcoming merger. As Stuart steps up into the CEO role, he will be supported in the same strong leadership team that has delivered consistently robust operational and financial performance for the group. At the same time, Lloyd Duthie will take over the role of Seaway 7 CEO following 9 years leading the business across its largest market in the U.K., Ireland and Asia as part of a 25-year career with Subsea 7.

After 40 years with Subsea 7 and its predecessor companies, having joined as a graduate in 1986, this is the right moment to hand over to Stuart as we enter the next phase of the business with the completion of the merger with Saipem. It has been a privilege to lead the organization over the last 6.5 years as CEO and 14 years before that as COO. I greatly valued the meetings with many of you on both the sell side and buy side as the company has grown into the one of the most successful and respected players in the offshore industry. I look forward to joining the Board of Subsea 7 S.A. and continuing to contribute to the group's future success.

And with that, I'll be happy to take your questions.

[Operator Instructions] And our first question comes from the line of Victoria McCulloch from RBC.

Just on the Subsea and Conventional margin to start with. Can you give us some color? Obviously, we've seen higher utilization in that division on a Q1 basis in 2026 versus 2025. Should we see as a result of that, and given your only 1% group increase in margin, a flatter profile in EBITDA margin throughout 2026? And then secondly, on AR7, could you give us an idea of the timing in order to meet the deadline for, I guess, offshore installation in 2029, 2030, when sort of award timings are expected to happen? Is it the second half of this year that we should see these being awarded to the industry?

Thank you, Victoria. I'll take the Subsea and Conventional question and Stuart will take the AR7. We've had a good first quarter, and the margins reflect that. As Mark touched upon in his prepared remarks. There's a couple of other factors going on there. There's some major projects coming to a close, which again allows us to settle the final positions on those projects.

And also as well, we've had very good execution in all our ships. The key enablers are all in the right place at the right time. We completed a huge amount of work in Turkey in the first quarter, and we have our pipeline ships working in Brazil and in Norway now as planned. So a good first quarter. I'm not going to give you quarter-by-quarter views because we generally don't do that, but I think we're very comfortable that our 23% margin guidance is good for the rest of the year. AR7, Stuart?

Yes. So thanks, Victoria. So as John said, we're engaged with a number of clients on the prospect list that goes with AR7. We think that the contractor selections for most of them will be through the second half of this year, but we don't necessarily think the backlog will come at that time. FID is more likely into '27 and the first part of '27. So definitely contractor selections, some long lead items later this year, but final contracts more likely in the first half of 2027.

Our next question comes from the line of Richard Dawson from Berenberg.

I've got 2, please. Firstly, on EBITDA margins. And just trying to think about margins beyond 2026. And I appreciate you haven't given any guidance on this. But is my logic right that if we assume project execution remains pretty solid, there are still several major projects left to complete from the 2022 group. That potentially gets replaced by better price contracts having a positive impact on margins. So when we look at this 23% for 2026, is that not a ceiling? Actually, we could see margins going higher? That's my first question. And then secondly, just on this reclassification of the held-for-sale assets. Is the sales process for that now stopped? Or is it still ongoing? And with that special dividend, is that now going to come from cash rather than the sale of the assets?

Okay. I'll take the margin question again and then hand over to Mark to discuss the assets held for sale. We haven't given guidance into 2027. I don't think I'll start now. But I think we have been very open about the fact that our business is a layer cake of different projects awarded at different times. Each project has a different margin profile that goes with it. But as we have guided to the market, the later work is a very good quality, and we're very pleased with the quality of the work that we are getting. It's also a combination of asset utilization and project profitability leads to our final outturn margin. At this stage, we've guided upwards this year to 23%. And later in this year, we'll give you guidance for 2027 onwards.

Richard, in terms of the asset held for sale at quarter end that no longer met the criteria to be recognized as an asset held for sale. There was less certainty around the disposal process. Regarding the special dividend associated with the merger linked to the permitted transaction, and as a reminder, that is EUR 105 million dividend to Subsea 7 shareholders. That will be paid the earlier of the disposal transaction or the effective date of the merger.

Our next question comes from the line of Sebastian Erskine from Rothschild.

John, best wishes for your retirement. The first question on the Subsea 7 slide deck, you kind of detail your partnerships with operators. I'm curious, are you seeing an increased appetite among your customer base to pursue integrated kind of SURF and SPS work scopes instead of just stand-alone that we've seen in several markets? And if so, is that motivated by cost or time lines? I'm just thinking about, obviously, your partnership with Equinor and then now Petronas in Suriname.

Yes. We've always had a model, Sebastian, working with our clients on whatever suits them and how they want to approach their projects. We have a very large agreement with BP to work on integrated SURF and SPS. We also work with Equinor on both Wisting and Bay du Nord and on board as well and we just announced the initiative in Suriname around that as well.

So again, different drivers for different clients. And our model is to provide what we think the client wants. So it's a mixture. Some clients wanted a standalone ship and some clients wanted a standalone T&I, and some clients wanted SURF and SPS. So for us, it's our dialogue with clients and we try to identify where we believe this type of collaborative model would help. Similar with Vår Energi, we've talked Vår Energi over the last couple of years, they have very large ambitions to grow the business. They have a need for capacity in the future years, as they again in Norway very interesting company for investment.

And again, we put together a similar collaboration agreement, which provides look ahead for us as to what our clients plans are and similarly then for our clients the ability to understand where our assets are and when they're available to make sure they have capability to deliver their projects in a timely manner. So it's a horses for courses approach and it's already done in a very promising way to understand if this the right model for us and for our clients.

Super. That's very helpful, John. And then my second question is you called it in the prepared remarks around the conflict in the Middle East. And I wondered, do you see scope for IOCs and NOCs to accelerate some capital flows kind of offshore and then potentially for some final investment decisions that might have been penciled in later to be brought forward? Is that something you're hearing from your customers? Any detail would be helpful.

Well, the message I gave in the prepared remarks is we're not seeing much fundamental change. The business as usual. The clients are focused on what they are doing in terms of their current plans. So there's no disruption in those plans in terms of what we see. I've been in a couple of discussions where, again, where the energy comes from, the location of different future LNG projects, for example, or replenishment of existing LNG projects have been discussed. We're not seeing it crystallize as yet. But again, it's certainly on people's minds that where you get your sources of energy matters as much as the cost of that energy going into the future as well. But we were very busy before this conflict started, and we continue to be very busy with our clients in dialogues since the events in the Middle East have commenced.

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

Frankly, the questions have been answered. So just the opportunity to wish you all the best, John, and congrats for this last quarter as a CEO, but all the questions have been answered.

Thank you, Kevin. Appreciate the support over the years.

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

Can I add my congrats, John, on retirement, but I'm not sure that's a photograph of you in the presentation 40 years ago. Quick question there on that depreciation change, if it's possible. You said the depreciation is up because of the for sale asset coming back in, but the increase is about $50 million, $90 million at the top end, and that seems a lot for an asset you're selling $105 million. And I think Mark mentioned a new lease vessel. Can you just tell me what that new vessel is? Because I'm just looking at your fleet, there seems to be less vessels now than there was at the end of the year.

No, that's right, Mick. So in April, we brought a new multipurpose vessel to support us in Brazil, that will provide a variety of ancillary support. And as you know, with a lease vessel, if it's greater than a year, under IFRS 16. And as a result, that has an impact on depreciation. So the entirety of the shift in guidance is down to those 2 elements, the reclassification of the asset held for sale and bringing the [ MV Sanmar ] into the fleet for 2 years.

Okay. And John, given it's your last outing here, obviously, Petronas has come in now with a partnership. You've got pretty strong partnerships across the North Sea. If we look at some of the complaints in Brazil, it appears some of your peers like using other competitors of yours quite consistently. So putting your medium-term hat on which you don't have to answer in 5 years' time, somebody else's problem. Do you see this market going down the lines of very tight collaborations between the few operators and the few suppliers so that we tend to be that you always do the work for Petronas, others do the work for Exxon. Is that the way it's going?

Well, I think it has always been and will continue to be quite varied to answer that question, if you know what I mean. People like Petrobras and Saudi Aramco have legal systems that insist that L1, the lowest price wins the projects. We've seen people like Petronas that have followed those type of rules and systems in the past, looking at more collaborative ways of working when they're in an area of new exposure to them and new opportunity for them as well.

So we're seeing a mixture, Mick, and I think we will continue to see a mixture. Some of our clients want to work in a traditional manner, which suits them and suits us. Other clients see the value of working in a collaborative model. And as I mentioned before, our key has always been to offer the clients what they want rather than force fit something that doesn't feel right for us or doesn't feel right for them. So I think it's interesting to see how these relationships change over time. I think certain clients are definitely seeing the value out of them, and it provides a way of working, which is very efficient as an industry.

The other piece we've discussed a lot is about we need to utilize the asset base that we've got more efficiently and to allow that to maximize what can be delivered over the coming years as well. And we find this model certainly helps streamline the relationships and how we plan ahead. So it's horses for courses, as I said earlier, and I think it will continue to be a mixture of L-1 traditional T&I, traditional SURF EPIC as well as integrated projects. And I think what I enjoyed over all the years is we worked in many of those formats and it continues to be a very interesting way to look at how we contract.

Our next question comes from the line of Lukas Daul from Arctic Securities.

John, I was just wondering on your new guidance, you talked previously about $7 billion roughly being the volume of what you can manage with the fleet that you have. Now we are at $7.6 billion. So could you sort of maybe explain the moving parts of how do we get there because your fleet isn't changing that much?

Yes. I think for us, it's a number of different elements. We did a lot of work with Petrobras at the end of last year to resequence the work in Brazil, the multiple projects we have to suit their FPSO arrivals, which helped us get clarity of a run of work, which is continuous that allows one project to feed into the next and the project teams to be optimized. So that's been very helpful for us.

We have a full year of PLSVs coming in, which we knew, but we now have the benefit of a full year of PLSVs. And the PLSVs are working very, very well with a very high uptime in the first quarter. And lastly, our work in Turkey, we said we did a lot of that in the first quarter has gone well, and we've got the extra work from [indiscernible], which was signed as a variation order in quarter 1. But again, that will bring revenue and gross margin into this year, a very fast track piece of work to bring 4 additional wells in to an adjacent field there as well. So a number of moving parts, I guess, Lukas, in terms of what's moving around, but it allows us to have clarity over the revenue this year as well as what we believe the margin will be at the year-end.

And do you believe that you sort of still have some upside to that in the years to come? Or would that further grow basically be subject to you adding additional capacity?

Well, as Mark touched on, we brought an additional vessel into Brazil to help that streamlining of the workload. So as much as we were releasing tonnage, some of the tonnage we released, we touched on that in the last quarter, the Jones Act assets, which were effectively nonconstruction assets, and we found that we couldn't get the economics on all 3 work very well for us. So we returned a number of those type of IRM assets out to the fleet. But then with this new asset we bought in, we increased the construction capability of the fleet as well.

So for us, it's around getting that blend of work that contributes to growing the business that's helped us get to where we are this year. In terms of, could it go better? Well, ultimately, now it's about performance, and we have 9 months ahead of us here to perform. We've had a very good first quarter. I touched on it previously that all the big pipeline ships and the key enablers are all in the right place at the right time for a good run this year. So again, as the quarters develop, we will keep the market updated.

Congrats...

Our next question comes from the line of Guilherme Levy from Morgan Stanley.

Just wanted to wish both John and Stuart all the best in the new stages. But well, by now, most of my questions have been answered. I wanted to ask about CapEx deployment over the coming quarters. In 1Q, there was a little bit slow. So I just wanted to pick the company's brain in terms of pace over the coming quarters.

And then maybe secondly, just thinking about the current state of the industry, perhaps a more long-term question, but we have been in this up cycle now for 4, 5 years and newbuilds they continue to be quite shy. So how do you guys reflect about that over the coming years? What needs to happen for companies to perhaps start investing again, be more comfortable to build new units, particularly as we think about the repercussions and implications of the current developments in the Middle East?

Well, I'll take the first question, and then I'll ask Mark to hand over on the depreciation questions later. If we look at where we're at here, we have spent a lot of time on optimizing where the fleet is, minimizing transits, working in a manner with our clients where we can get the sequencing to it. For example, the discussions we had with Petrobras helps them and helps us and it allows us then to have a very efficient delivery.

So there is still capacity in the industry, I believe, in general, for us to put more capability back in, and that's part of one of the main planks of the arguments for the merger with Saipem, and we've been very vocal about that from day 1 in the merger. And we continue to believe some of the analysis that we provided for the antitrust shows the transiting days for our assets over the last 6 years from both sides.

And there are a lot of days there that these assets are just tumbling around the world going from one place to the other. Similarly, for us, I think we know that these assets can do many, many tasks. And we have spent a lot of time in the last 6 to 9 months just using the global enablers for exactly what they were designed for the very high end and then shedding work further down on to lower capacity tonnage, and then making sure then that the right tonnage is performing the work. We came from a downturn where you'd put a single asset in and it would do everything. But placing mattresses with a high-end pipeline ship is probably not the most efficient use of a pipeline ship in tough times, that's the use of an asset.

In good days, you need to make sure that the pipeline ship is only doing the pipeline work. So there is capacity there. I think coming back to the more general question of investment, it's about return on capital employed. We are now seeing the return on capital employed our shareholders want, but it's been many years of pretty fallow returns in the industry. So again, I believe there needs to be a number of years of very good returns for our shareholders to make sure then that future investments don't end up in a place where, again, we go back to 1% or 0% return on capital employed.

So there are some structural pieces that need to happen in the industry. But let's stand back and look at it. We have always talked about the attractiveness of deepwater and the ability for our clients to make major projects work for them in terms of volumes and reserves. We know a number of our major clients are looking at reserve replacements and deepwater is a very attractive part of that. We know that the big LNG plants around the world will need feeding and more gas to be brought on there as well as continued developments in places like Norway, which have had a new lease of life again and off we go again with future expansion.

Equinor shared with the market that they would like to bring 75 step-outs online in the next 5 years. So again, for us, we do see a lot of good opportunity, but we will do any investments in a very structured and methodical way to make sure that the investment is good for us, our shareholders and our clients.

And on your CapEx question, Guilherme, you will have noted we maintained our CapEx guidance for the year that's between $350 million and $380 million. Equally, you are correct to observe that the $53 million that we incurred in cash CapEx is literally light in respect to the guidance that we have maintained. And I do expect a catch-up in the second quarter. But the key message here is it's lumpy period-on-period within the year. We do not have control over this, this is the dependency of the contractors who are providing services to us, but our CapEx guidance for the year remains between $350 million and $380 million.

Our next question comes from the line of Erik Aspen Fossa from SB1 Markets.

Congrats on the well-deserved retirement, John. I remember when I first met you in 2022, I got the task with asking the question if you would ever be able to get to an EBITDA of $1 billion. That was a bit skeptical, but you thought, yes, maybe just maybe we can do it and look around today. So congrats on that well done.

My question is on pricing and margins levels. I'm thinking if you could give us some color on how that has developed over the last 1, 2 years or maybe since 2024. It seems like there's been some pricing pressure in Brazil, but I guess the rest of the world, maybe it's stable, come down or even increased. So I appreciate if you could give some color on that.

Well, thank you, Erik, for reminding me of those discussions. I do remember them very well. And we had a belief, and it's great to be here today talking to you about what we've been able to develop as a company with a fantastic team of people that we have here. In terms of margins, as I've said many times, every single bid that we put in and every single project that we win is an individual margin, suit that individual project in that individual client location opportunity window that we have.

We get a lot of questions about Brazil, and I've answered them a number of times. There are some projects in the sequence of Petrobras' work that suit us better than others. And therefore, our pricing and our costs vary quite a bit between projects. If I need to mobilize another pipeline ship from halfway around the world and requalify all the welding procedures and redo my supply chain, my cost into Petrobras is different. So we are busy in Brazil, and we have a sequence of projects where resources in terms of vessels and people and supply chains come off one project and go on to the other. So our recent award of Sepia was an example of one of those projects which fit it.

The previous one was one where Petrobras' windows were quite difficult. We did price it, but the windows were quite difficult for us to see. Equally, Brazil has always and will continue to be one of the most competitive markets that we are in. But we always put a price in Brazil or anywhere in the world that we would be comfortable to take the project at that price. So I think just taking a price per meter in Brazil is a relatively straightforward way of running numbers, but it doesn't really get to the crux of where we are in terms of our competitiveness and the profitability inherent in the project.

So again, I'd just be careful taking the rough rule of thumb. I understand why people do it, but it's the sequencing of projects that matter mostly to us. If we can get a project which finishes one existing project finishing and another one starting, it is very important for us in terms of how competitive we can be on our cost and still protect margins that come with it.

Margins vary around the globe. But at the moment, we are comfortable with the margins that we are picking up. And we continue to be very acutely aware that there is competition in just about everywhere that we are working in. And one last item on margins, we picked up work in the Middle East for 153 and 148, 2 CRPOs recently. So we are reasonably comfortable with the workload that we need to keep that capability running.

And as I mentioned in our prepared remarks, most of that work is in 2028 for us. So at the moment, we do not need to replenish that work very quickly. So margins vary, but direction of travel remains positive for us. And we don't see at the moment any major need to go back to where we were 5 or 6 years ago. And the market is behaving rationally. Our competitors are behaving rationally. And there is a lot of work out there, and we expect to get our fair share.

Can I have a quick question to you, Mark, on lease payments. On the last call, I think just looking at how depreciation were developing, I think it looked like lease payments could come down by $100 million from '25 to '26. Now I'm not sure if that picture has changed. You talked about leasing another vessel. Can you give an update either on lease payments or kind of the net effect on depreciation effect on lease?

Yes. I think you asked the same question in Q4, Erik, if I remember correctly. So we exited last year with lease payments of around $293 million and how I answered this previously, there will be a notable reduction this year. Yes, bringing the [ MV Sanmar ] into the fleet will have a modest uptick. But even that being said, it's still a substantial reduction compared to the full year that we recorded in 2025.

Our next question comes from the line of Matt Smith from Bank of America.

A couple of quick clarifications left from me, please. The first one would be around the Middle East. Clearly, you've noted low disruption to the business at this point in time. I just wanted to clarify for the avoidance of doubt, if the situation was to remain in a status quo for months to come. Would that still be the case and your guidance sort of assumption still hold?

And then secondly, coming to working capital, once again, noting a working capital build expected this year. I just wondered if you could remind us of the drivers, speak to the quantum and how that might develop throughout the course of the year, please?

Yes. Thanks, Matt. I think I've touched on it earlier. We have some offshore work to execute at the end of this quarter, start of quarter 3 in Saudi under the LTA agreement 153. We have a chartered vessel working for us on that work and that vessel is already in the region, working on another project at the moment. So we don't expect any disruption there, and we are ready for that project in terms of materials and capability.

The large piece of work we have is 148, which was our newest award under our Saudi Aramco LTA, and we're in the engineering and procurement phase, which is not interrupted by the work at the moment. Barring a major global recession that may come out of this, we don't see any major issue affecting Subsea 7 here in the near term, to answer your question. And Mark, maybe on the working capital.

Yes. Indeed, as I flagged in the Q4 call, we anticipated an unwinding of the favorable run that we have had on working capital that occurred in the first quarter, there was an unfavorable movement of $55 million. As I've shared before, we have grown the business and had a very good outcome in terms of cash management by the focus that's been applied across the group now for several years.

I do expect this year to be one where we have on an annualized basis, an unfavorable movement in working capital. The quantum, as I've shared before, will be something in the region of $100 million to $200 million, but that needs to be set into the context of the very favorable performance that we've had in recent years. As I've said, we've grown the business substantially.

Our next question comes from the line of Alejandra Magana from JPMorgan.

I'd like to echo my best wishes to you in retirement, John. My first question goes back to vessel utilization. It stepped up to 79% versus 75% in 1Q last year and up 6 percentage points versus first quarter in '24. I appreciate that some of that may reflect lower weather downtime and you mentioned your optimization efforts, but what level of utilization should we think of as your new normal going forward? And my second question is you mentioned some closeout effects on margin during the quarter, but more broadly, is there anything else in this quarter's margin besides continued improving mix shifts that you would call out as nonrecurring?

Thank you very much, and thanks for your comments. The second question is, I don't think there's anything nonrecurring in it. It's just business as usual and how we're seeing our projects play out. The utilization figure is one that I know you guys keep a very careful eye on it. We try to time our maintenance and our activities. So these vessels work very hard for us. So we do need to give them time for their maintenance and class dry docks and such like, which, as Mark said, is one that is calendarized by our class societies and secondly, then it's about the availability of yards and such like to do so.

So Q1 was relatively light on that, although we got what we needed done. I don't intend to declare a number for utilization, but it's -- we've had a good first quarter. It shows in the figures. And again, for us, it's around getting the right assets in the right place. And I think I've said a couple of times, we have -- we have for this season, got everything where they need to be, and that's important for us. So I think you can see from the workload that we have ahead that you will expect to see utilization quite high in the fleet.

We are now going to take our last question, and this question comes from the line of Kate O'Sullivan from Citi.

Just some quick follow-ups. But firstly, echoing also the congrats, John, and good luck for you and Stuart in the future moves. So on the new guidance range, are you fairly confident that will carry you through the year now, obviously, upgrading at 1Q? And what variables put you at the upper end of the guidance range? And then secondly, a quick one on order intake. So if you could just give an outlook on the shape of new awards for the remaining quarters, maybe how you see escalations?

Well, the guidance is very much about we have the confidence. Otherwise, we wouldn't have upgraded today. I think I've touched on it before, it's all about performance. We have 9 months ahead of us in terms of performance to achieve it. And any upside of that will come out of performance and how we settle with our clients over time. It's very fine margins now, I think, in terms of where we're at it. The pieces are all clear to us that we need to bring together, and we have them all together now to execute this year. So we're comfortable with the guidance, and it's all about performance and execution. In terms of order intake, we are very -- yes, sorry, go ahead.

Sorry, my point on that is that you're confident that, that guidance will get you through, you might not upgrade again because you do it later in the year? And what would get you at the upper end versus still kind of a broad range?

Performance will get us to the higher end. And again, Stuart and Mark will come back to the market if they see fit to adjust them to change. But today, we've done that review, and we're comfortable with where we're at here.

Order intake, we've discussed many times. We are very lumpy in terms of order intake. You'll see the Q2, of course, Sakarya will be a big part of Q2. We know the moving parts of this year in terms of order intake and how they fit together. So at the moment, we feel comfortable but we will have another productive and good year. Stuart has touched on that Renewables will probably be the area where we are clear for what we want, but we won't have it in the backlog. But we feel comfortable that the oil and gas side of the business will give us a very good footing for having another successful year this year.

So I think you can look at the map that we put on, on Page 11 of the slide deck in terms of what projects are out there and the timing of those are reasonably well known to the market. So again, we're lumpy. I would again advise people not to try to model by quarter. We are pretty good at getting to where we want to be in the year. Quarters can vary quite a bit.

Well, thank you very much, everybody. That is the end of the questions today. Thank you very much over the years for all your challenge and support to myself and Subsea 7. Next quarter, it will be Stuart, Mark and Katherine that will answer your questions, and I will have the luxury, hopefully, if the AGM approves, of sitting as a Director to ask some difficult questions as well. But look forward to supporting Stuart in the transition, and I look forward to meeting you again in due course. Thank you very much. All the best. Bye.

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.

Good day, and thank you for standing by. Welcome to the Subsea 7 Q4 2025 Results Conference Call. [Operator Instructions] Please be advised today's conference is being recorded.

I'd now like to hand the conference over to your first speaker today, Katherine Tonks. Please go ahead.

Welcome, everyone, and thank you for joining us. With me on the call today are John Evans, our CEO; Mark Foley, our CFO; and Stuart Fitzgerald, CEO of Seaway 7.

The press -- the results press release is available to download on our website along with the slides that we'll be using during today's call. Please note that some of the information discussed on the call today will include forward-looking statements that reflect our current views. These statements involve risks and uncertainties that may cause actual results or trends to differ materially from our forecast. For more information, please refer to the risk factors discussed in Subsea 7's annual reports or today's quarterly press release.

I'll now turn the call over to John.

Thank you, Katherine, and good morning and good afternoon, everyone. I will start with a summary of the fourth quarter and full year results before passing over to Mark for more details of our financial performance.

Turning to Slide 3. Subsea 7 delivered fourth quarter adjusted EBITDA of $477 million, resulting in full year EBITDA of USD 1.48 billion, up 36% year-on-year. The combination of revenue growth and margin expansion was driven by a good performance in both Subsea and Conventional and Renewables with continued momentum in new awards and a book-to-bill of 1.3x. We grew our year-end backlog to $13.8 billion.

This order book of high-quality projects gives us excellent visibility on 2026 and beyond. Supported by a robust backlog and tendering pipeline as well as our optimism in the longer-term outlook for the group, the Board proposes that we pay a dividend of NOK 13 per share, equating to approximately USD 400 million.

Turning to Slide 4. After a solid fourth quarter, with new orders of USD 1.9 billion order intake in the full year was $9 billion, up 10% year-on-year and equating to a book-to-bill of 1.3x. We have a combined backlog for execution in 2026 of $6.9 billion, giving us high visibility on the year ahead. Our backlog for 2027 is up 27% from the equivalent position of the last year, giving us over 50% visibility on consensus revenue.

And now I'll pass over to Mark to run through the financial results.

Thank you, John, and good day, everyone. I will begin with some details of group and business unit financial performance in 2025 before turning to the group cash flow bridge, and providing financial guidance of 2026. I will conclude with some comments on shareholder returns.

Slide 5 summarizes the group's headline results. In 2025, revenue was $7.1 billion, up 4% compared to 2024, driven by strong operational and financial performance in both business unit portfolios as major projects continue to progress well. Adjusted EBITDA of $1.5 billion was up 36% compared with the prior year, and our margin increased 5 percentage points to 21% from 16%. Net income was $404 million compared with $217 million in 2024. This bottom line expansion contributed to a further improvement in our return on average invested capital. I'll now discuss business unit performance in the next few slides.

Slide 6 presents the key metrics for Subsea and Conventional with my comments focused on full year 2025. Revenue was $5.8 billion in 2025, up 5% year-on-year, reflecting high activity levels in Brazil through Mero 3 and 4, Buzios 8 and Buzios 9, in Norway contributed by Yggdrasil and in [indiscernible] generated from Sakarya 2. Adjusted EBITDA was $1.3 billion, equating to a margin of 23%, an increase of over 6 percentage points from the prior year.

This performance represents the fifth consecutive year of growth in adjusted EBITDA from Subsea and Conventional, underpinned by high standards of execution and vessel utilization. Net operating income was $762 million, corresponding to a margin of 13%, a significant improvement from the $404 million reported in 2024. This financial outcome is testimony to the favorable effect of higher activity liquidated from quality backlog.

Selected renewables performance metrics are shown on Slide 7. Once again, my comments will be focused on full year 2025. Revenue in 2025 was $1.2 billion, stable year-on-year reflecting continued activity in our core markets of the U.K. and Taiwan, with notable revenue generated from East Anglia 3 and Hai Long, respectively.

Adjusted EBITDA was $202 million, equaling a margin of almost 17%, up from 15% in 2024 and marking a third year of progress. This progress is due to applying a further selective approach to bidding with the consequent high grading of our backlog allied with strong project execution. Net operating income was $75 million, an increase of $22 million compared to the prior year.

Slide 8 shows the cash flow bridge of 2025. Net cash generated from operating activities was $1.5 billion, which included a better-than-expected favorable movement in net working capital of $244 million. Capital expenditure of $281 million was below the lower end of our guidance due to a combination of continued focus on ensuring capital discipline and certain amounts being displaced from 2025 into 2026.

Net cash used in financing activities was $874 million, which included lease principal and interest payments of $292 million, repayment of borrowings of $149 million, reflecting the amortization profile of our facilities and dividends of $376 million. At the end of the year, cash and cash equivalents was $970 million, which was underpinned by almost $1.2 billion generated through free cash flow.

Net cash was $21 million, including lease liabilities of $365 million and the group had liquidity of $1.6 billion at year-end, which included $600 million of unutilized committed facilities.

To conclude the financials, Slide 9 shows our guidance of 2026, including a reiteration of the preliminary metrics that I shared with the market in November last year. We continue to expect revenue to be in the range of $7 billion to $7.4 billion with an adjusted EBITDA margin of approximately 22%. Administrative expense is forecast to be roughly stable year-on-year at between $340 million to $360 million. Depreciation and amortization is anticipated to reduce to between $580 million and $600 million, mainly because of the reduction in the number of leased vessels in our fleet.

The impact of fewer leased vessels can also be noted in our net finance cost, which is expected to reduce to between $40 million and $50 million in 2026. The effective tax rate is projected to be between 30% and 35%. As I communicated in November of last year, capital expenditure is expected to be between $350 million and $380 million, which includes certain amounts displaced from 2025 into 2026, as mentioned some moments ago.

In terms of the first quarter of 2026, I would like to remind you of the seasonally lower activity in Subsea and wind in the Northern Hemisphere, which will be reflected in our financial performance. Lastly, based on the group's solid financial performance, position and prospects, the Subsea 7 S.A. Board of Directors will propose a NOK 13 per share dividend at the Annual General Meeting on the 12th of May to be paid in one installment on the 28th of May. This is equivalent to approximately $400 million of shareholder returns and represents a dividend yield of around 5% based on the yesterday's closing share price.

I will now pass you back to John.

Thank you, Mark. Over the past couple of quarters, we have shared with you some of the technology that differentiates Subsea 7 and our ability to deliver complex subsea projects. Today, we take a look at our track record in the execution of ultra-high pressure deepwater subsea fields in the U.S. Deepwater reservoirs with pressures exceeding 15,000 psi were discovered in the U.S. Gulf in the mid-2000s. But at that time, the industry lacked the hardware and the installation capability to enable their developments. Alongside the development of 20K rated subsea trees the ability to fabricate and install pipelines was key to unlocking these developments.

On the slide, you can see the relative difference in pipeline wall thickness between the standard 10K on the left and a 20K field on the right. Subsea 7's Pipeline Technology Center in the U.K. pioneered the high-specification welding needed for 20K-rated fields and the ability to lay this pipe using our rigid reel fleet. We have been previously involved in 3 of the first such developments in the U.S., starting with Anchor from Chevron followed by Shenandoah from Beacon. We're now working on the scopes for Beacon's Monument field with pipeline installation using [indiscernible] followed in the second half of this year.

Now on to the customary review of our tendering pipeline on Slides 11 and 12. Despite volatility in commodity prices, our tendering pipeline remains as robust as ever as our clients continue to prioritize long-cycle deepwater developments with attractive breakevens. Brazil remains an active market for Subsea 7, and we are confident of winning our fair share of work this year sustaining high levels of activity in the region.

Earlier this year, we were announced as the win bidder for Cepheid 2, and we are in negotiations with Petrobras to convert that into an award later this year. Elsewhere, there continues to be a wide range of exciting opportunities in countries such as Mozambique, Namibia and Suriname with additional opportunities opening up in Asia. We're continuing to work with Equinor and partners in supporting the optimization of Bay du Nord and Wisting developments. Overall, we are confident we have a strong tender win pipeline that can support continued momentum in Subsea order intake.

On the next slide, with the offshore wind projects that won contract for differences in the U.K.'s recent allocation round. With strong client relationships and differentiated offering, both in T&I and EPCI scopes, we believe we are well positioned to win a share of this work. Longer term, we remain focused on the U.K., Europe and Taiwan markets, where we continue to be selective in the work that we pursue.

To conclude, we'll turn to our final slide on Page 13. 2025 was a successful year for Subsea 7, resulting in the delivery of our fifth consecutive year of growth in Subsea and Conventional and our third in renewables. We replenished our backlog with high-quality projects, and we have reaffirmed guidance for the year ahead. With higher visibility of revenue guidance and a high degree of confidence in our ability to execute well, we expect to deliver continued improvements in our financial performance in 2026. Despite some volatility in commodity prices, we remain confident in resilience of our key markets. Our differentiated offering and strong track record position Subsea 7 for continued success.

As ever, we remain focused on converting growth in EBITDA into cash flow and in prioritizing shareholder returns, including a NOK 13 per share dividend in 2026.

And with that, we'll be happy to take your questions.

[Operator Instructions] We will now take our first question. This is from Guilherme Levy from Morgan Stanley.

Firstly, was keen to hear if you have -- if you can update us on the current level of utilization rate of your fleet that is currently contracted in 2027 and 2028, considering the positive evolution of your backlog recently?

And then secondly, if I may, on the M&A with Saipem. Could you share thoughts on the current state of antitrust discussions in Brazil? I understand that their deadline is currently early in November. And I was keen to hear about your own expectations on whether that should be the reasonable time line for us to see a final response or if there is any chance that we get that even sooner than that?

Well, thank you very much. If we take the utilization, as we said in our prepared remarks, our backlog for '26 is reasonably clear to us, '27 is filling out nicely, and we are currently bidding a number of projects for '28 and some even going into '29. We are seeing clarity on where the global enablers, the key assets that we have, where we'll be utilized in '26 and '27. And the discussions we're having with our clients is around how they get access to the global enablers into '28 and '29. So at the moment, we feel very comfortable that it's filling out nicely for us.

And we expect as the first 6 months of this year progresses that we will record backlog that again starts to fit the pieces together for '28 and possibly into '29. So at the moment, utilization is not a concern. It's about picking the right contracts in the right geographies with the right risk profiles with the right clients for us.

In terms of the M&A, as we've discussed many times on these calls, we won't give a running commentary, but we are very comfortable that we will conclude this merger in the second half of 2026. Brazil is progressing as we expected. It's a totally transparent system. You can go on to [indiscernible] website, and you can see all the different submissions and the commentary of the questions and answers. And so we're on the time line that we expected. And so we do very much see this concluding in the second half of 2026.

We'll now take our next question. This is from Kevin Roger, Kepler Cheuvreux.

Yes. I have 2 main ones, please. The first one, we're trying to understand a bit more the '26 top line guidance and why in a sense you guide for top line between $7 billion and $7.4 billion, while you have already $7 billion in ends. So just trying to understand why you should not see in a way, higher income in '26 as a top line, just on the top line?

And the second one is you mentioned Bay du Nord. On Bay du Nord, it has been said that we have been -- several tenders have been issued to the Street. So I was wondering if you can share some, let's say, your view in terms of official award for Subsea 7 and especially the scope, if you do believe that it will be done in several phase or that for you, that's going to be a one-shot big contract? That would be the 2 questions, please.

Okay. I'll take Bay du Nord and Mark can cover the revenue guidance. As you know, we've worked for a number of years as the subsea integration lines, Subsea 7 and OneSubsea supporting Equinor. We've worked with them on optimizing the field labs and sequencing of the field and the cash flows for our clients. So that process is ongoing at the moment. And I'll let Equinor speak to the market about their conclusions as to where they go. We do expect that Equinor will make one of their key decision gates in 2027, which has always been the plan. And we expect to be supporting them up to those decision gates where again, the Equinor Board will decide whether the project goes to the next phase.

So for us, Bay du Nord is continuing to work that we've been doing, a very constructive early engagement example. We're a complex field with multiple different inputs and outputs has allowed us to work very collaboratively with on plan. And then I'll ask Mark to cover the revenue guidance.

Thanks, John. Kevin, we have kept top line revenue guidance constant between $7 billion and $7.4 billion from the preliminary metrics that we shared with the market back in November. We recognize that the coverage percentage is higher than compared to previous years. But this is how we see the year evolving. Of course, we are likely to be the beneficiary of variation of orders in the year, but we don't control or we have significant influence over that is very much driven by clients. And magnitude and timing of such will, of course, have an impact in revenue. So as it stands today, at $7 billion to $7.4 billion is where we see the range. And of course, if there's any material changes in our expectations and the related metrics associated with that, we'll come back and share it with the market.

The next question is from Victoria McCulloch from RBC.

Just firstly, on Subsea and Conventionals. Can you give us a bit of an idea, given the margin progression, the acceleration we've seen over recent years, how much of the revenue or your backlog for execution in 2026 is, I guess, sort of some of the earlier tendered lower-margin projects? Just trying to understand how much higher margin can go into 2026 particularly with the Q4 margin being so far ahead?

And then secondly, in Q3, you mentioned getting 35 days of additional operations for Seven Vega from AI to reduce weather downtime. How has this continued? And do you have an assumption for this as part of your 2026 guidance?

Yes. Thank you, Victoria. Coming back to the general question about margin acceleration and growth. As you know, we run a portfolio of different projects where we spread the work geographically, different risk profiles different clients. So to make sure that we spread our capability to make sure that we can support all our clients on a range of different projects. We gave guidance back in November, and we reaffirm that today, that we believe that the margin -- EBITDA margin for this year will be around 20%, 22%. And the 22%, we believe, is still a very good number for us to use this year. We try to give some balanced guidance at different times of the year.

We still have the year ahead of us. We feel very comfortable. We know how the year fits together. We know that portfolio. We know how it comes together. We just have to execute it. And History tells us that we're pretty good at that, but we have a long way ahead of us this year. As you know as well, the outside world at the moment is an interesting place with a lot of dynamics happening. And a lot of these projects need our clients to be able to provide FPSOs and access windows and real rig access and such like -- so again, at the moment, the 22% margin for EBITDA is how we'd like to guide everybody to, and we feel comfortable with that.

On AI and weather data, again, we shared that with the market as being an example of how we're trying to deploy new technologies to help us. It's an area that we continue to work on. Because for us every day that we have available is another day that we can sell to a different client or the existing clients that we're working with. There are a number of challenges in that in different parts of the world. There are certain codes and certain governing regulators who want you to use codes, which have been in existence for 5, 10, 15 years in the industry.

So as we touched on last time, we are doing quite a bit of work on codes to try to understand whether some of the newer technologies will be permitted in certain jurisdictions as well. So long story short, I think we've got a very good tool. We just need the codes and some of the standards to catch up with some of that capability.

Our next question today is from Sebastian Erskine from Rothschild & Co Redburn.

Just a question on Allocation Round 7 in the renewables business. So great to see a positive outcome there. SSE obviously is securing a CFD for part of the Burke Bank project. Can you maybe talk about the outlook for renewables inbound over the medium term and when we might see an EPC contract materialize on that side? And as it stands today, how does the utilization of your Seaway 7 fleet look like in '26, '27 and 2028?

I can take that one, Sebastian. So as you said, it was very good news for us to see the AR7 allocations. SSE is a client that we've worked with, as you know, for many years through Viatris, Seagreen, Dogger Bank, so well-established delivery partner for SSE. So that gives us a degree of confidence I would say that we can support them also on Berwick Bank. In terms of a time line for that, we think that during the coming 6 months, they will likely select their partner for the Berwick Bank project. Project sanction will come later. So it will not necessarily be a backlog addition. But in terms of the selection of a partner, we expect that to happen in the next 6 months.

In terms of the second question around utilization, so good coverage for '26 and '27. So similar to the Subsea and Conventional business, we've got a strong position between '26 and '27 in terms of vessel utilization, less going into '28. We do see the '28 market outside of the U.K. is more challenging. So work to do to secure utilization in '28. The '26, '27 solid coverage.

Really appreciate the color there. And just a follow-up. I mean RWE is very successful at AR7. Does their existing supplier agreement with a competitor preclude you from participating in upcoming EPC tenders? Or is that the wrong way to think about it? Just curious given the capacity that they've secured.

They have one of their projects where they've secured the capacity and other projects with them are still to come to the market.

Next question today is from the line of Alejandra Magana of JPMorgan.

Looking at your 3Q slides versus 4Q, it appears you completed one major award and a few substantial awards during the quarter. How much of the strong 4Q margin result reflects project closeouts and any related performance incentives versus what you would consider underlying run rate margin? And related to that, as we think about your reiterated 2026 guidance of around 22%, should we view that as conservatism? Or what are the key moving pieces that bring you from a 24% quarter back to that level?

Well, I'll take the second question first. I think I've answered that question before. We're giving a margin EBITDA for the year -- for the full year, and we feel comfortable with the 22% EBITDA guidance for 2026. In terms of the projects that came to a close, it is quite customary in our industry that when we come to closure at the end of the year, most of our clients do want to settle their accounts as do we, so we can start the year cleanly and with clarity for both parties. So again, quarter 4 is quite common for us to see settlements with clients, to allow us then to enter into the new year with a new portfolio of work and without many issues that need to be resolved. So we again saw that happen in Q4 of last year. And so for us, I would take the advice that the 22% throughout the whole year is a good guide.

And how should we think about the margin embedded in your backlog today relative to what you're currently reporting? Are new awards still coming in at or above the current portfolio margin?

Well, as I mentioned in a previous question I answered, we have a very deliberate policy of spreading our business around different geographies, different clients, different technologies and different risk profiles to provide a combined portfolio and that portfolio for 2026, we guide towards a 22% EBITDA margin. So the same answer as the previous one [indiscernible].

We'll now take the next question. This is from Richard Dawson of Berenberg.

Just a question coming back to the renewables margin because we've seen several quarters now where margins are above that 14% to 16% guidance you've given in the past. So is that 14% to 16% still a good expectation going forward? And if so, when we look into 2026, what would cause that step back down to that range? And then secondly, just a quick clarification, Mark. There was a large increase in other losses for Q4, it's about $50 million. Is this mostly FX?

Yes, I can take the renewables question. So still sticking with the 14% to 16% there, Richard. Quarters can be higher as we saw in Q4, and it was the same rationale happened in Renewables that John talked to before with certain project closeouts, contingency releases and commercial settlements. For the year, looking ahead, 14% to 16% is where we sit.

Richard, this is Mark. Yes, indeed, FX-related impacting working capital and noncash embedded derivatives. As you know, the group operates in multi currencies. They have different entities with different functional currencies from the multicurrency contracts that they have. So you do see some volatility in our gains and losses driven by FX on a quarter-to-quarter basis.

And the next question is from Mark Wilson from Jefferies.

I'd like to ask about the really quite interesting slides you have on the 20,000 psi Subsea installations. So thank you for that and the photos. So I can appreciate that the advances in welding in order to weld such fixed deal have been really pivotal to this. But I'd like to ask regarding the vessel side of things because I think there's knock-on questions there. You say you've been also able to install this pipe using Reel-Lay. I would imagine that thick pipe like that doesn't bend quite as readily. And so therefore, you might be able to put less distance on a single vessel or a single trip. And so that would be my first question.

Does this require more -- structurally require more vessel time because of more trips. And along with that, does it also require a certain higher-end vessel type, I'm thinking your Borealis, I'm thinking your Vega is required to do this type of work. That then follows on to are there other areas of the world where such high-pressure pipe installation may be required in the future.

And that leads to my final part of the question, thank you for your patience. Are we seeing such any new capacity at that high end of either Reel-Lay or indeed J-Lay, I don't know if you can do this J-Lay coming into the market. I hope you've got all those. I hope it makes sense.

Well, thank you, Mark. And let me answer your questions. You broke up just a one point, but I think I've got all your questions. The industry has historically worked with a 10,000 tree or a 15,000 tree. And this is about the steps of going up towards a 20,000 and where does it go to. You are right that the weight of the pipe per meter is heavier -- quite a bit heavier. And therefore, then we have to do more trips per kilometer compared to 10,000 tree in terms of how many kilometers we can get on the wheel. But that's then factored into the economics of the price per meter that we offer our clients.

In terms of top tensions, we've been able to install these projects with both the oceans and the Vega. So above our [indiscernible] capacity, but all 3 of these go in via Reel-Lay. And I think the key message here is the industry has brought together Subsea hardware technology and Surf technology to allow our clients to now go look at these different fields. There are a number of these fields outside the U.S. Gulf, but U.S. Gulf has been the pioneers for pushing ahead there.

So for us, we again see that the standard industry fleet over the world between ourselves and our competitors can put these pipelines in at this point. So again, for us, I think it's an exciting opportunity that as we see the market continues to innovate, we try to bring new technologies to the table different parts of the sphere of influence, such as hardware and certain work together to bring these projects online.

So for us, the importance of calling this out is, again, we're opening up opportunities for our clients to bring on reservoirs and reserves that they couldn't have brought on in the past. And I think at the moment, there is a good competitive dynamic in the industry for offering that. The key to us was the welding and also the installation, bending pipe of that size around the wheel is also quite an interesting piece of physics and engineering, but it worked fine for us. But again, it is showing that we continue to innovate and move ahead as a sector.

If you allow me a follow-up. Could I just check again? In terms of Vega level type installation and Reel-Lay, are we seeing any new capacity coming in? I think I asked that last year. I may, as well ask again. That's my first question. And the second one, actually, is there any developments in terms of rigid pipe applications in Brazil that we should be aware of in terms of a move towards a new flex type option?

Well, Brazil is a very interesting market in the sense that we see all 3 Lay Technologies being used there. J-Lay is used, Reel-Lay is used and S-Lay is used by Petrobras. So if you look at the awards, recently, Allseas have picked up 2 major projects there with S-Lay, where Reel-Lay contractors, Saipem and they do J-Lay. So again, Brazil is what I very much say is a truly competitive market for us where all the technologies on the table and where they go.

As you are aware, Petrobras has spent many years developing with a number of suppliers, different types of flexibles. But at the moment, we're still seeing all the future projects that Petrobras have identified in their 5-year plan are heading towards continued use of steel. But Petrobras has a clear intention that towards the end of this decade that they bring a newer caliber of flexibles into place.

So again, our clients and companies like ourselves continue to look at different technologies that's available there as well. So for us, it's a continued opportunity set that moves ahead.

[Operator Instructions] We will now take our next question, and this is from Matt Smith from Bank of America.

And the first was around the Subsea outlook. It looks like tendering activity looks very strong potential bid outlook over the next couple of years. I guess I just wanted to ask a question on timing. How confident are you that some of these offshore projects, these deepwater projects convert into FIDs in '26? Or do you see -- how do you see '27 relative to the near term? So just the cadence of when those orders might flow through? Any color would be interesting.

And then the second question sort of coming back, linking some of the earlier topics in terms of your utilization capacity is really just where do you think you can take your top line revenue number? What is your capacity to continue to grow that beyond 2026, given the high utilization that you have at the moment?

Yes. Thank you. I'll take the first question about the prospects there. One of the benefits we have in our sector is Petrobras are very, very transparent. Every year, they publish an updated 5-year plan, which gives you how many kilometers of umbilicals, how may kilometers of steel lines, how many kilometers of flexibles they're going to have in a 5-year look ahead. So we feel reasonably comfortable with the time line of Petrobras' sequencing of projects that they bring to the market. That's also linked to FPSO awards. Most of our projects here you can link if you see a client is ordering an FPSO or leasing an FPSO, there will be a Surf package to go with it.

We discussed on the previous earnings release that we've seen Norway really come back to life post the tax break. So again, our Norwegian portfolio shown here, we feel reasonably comfortable with. We've always had a good order intake in the U.S., a number of clients that we work with both in the U.S. and Mexico, continue to award work. The Middle East has always been for us a sector where we see Saudi Aramco on a long-term agreement to provide a steady workload into the market. Africa is generally the area where there's more volatility because every project has a story and a political background as to how it gets there, but we've certainly seen real traction in Angola. We are seeing our clients very engaged on opportunities in Nigeria, such as [indiscernible] Southwest with Shell.

And I think it's public knowledge that a client such as Total Energies are looking at being in Namibia. So again, we see that. And last but not least, Asia has come very much to life. We see Indonesia as a great energy opportunity and the alignment of the stars between government policy, our clients' contracts and production sharing agreements and deepwater opportunities is coming to life.

And last but not least, Australia has always been about replenishing these very large LNG plants that are built. You saw in Q3 that we were selected for Gorgon Stage 3 by Chevron and Chevron have a plan to bring Gorgon Stage 4 into their portfolio probably nearly part of next year. So again, for ourselves here, the timing of what we've put in here is pretty genuine. This is how we see it. It may change. But equally, we feel reasonably comfortable in terms of where we're at.

In terms of capacity, our opportunity set to increase our revenue is always around very smart utilization of our global enablers. We're now pretty ruthless that we only deploy those on the specific tasks they have to do, and we use the rest of our fleet and chartered tonnage to take any other work that we can shed off the global enablers. So again the global enablers are the keys to these projects. So we're doing that. We've discussed a number of times, limiting geographic transits of the major assets. So we try to leave them in certain geographies, and we have a nice campaign in Brazil now with the oceans for multiple years with one project after another.

And so for us, it's about how we combine good execution with making sure we put the right assets on the right project and making sure that we share any work that doesn't need to be on the large assets then to other assets in our fleet. So we have growth. We have capacity and capability, but we have to do earn it and build out.

And lastly, then coming back to the weather and the AI that Victoria touched on, it's very, very important for us again, that we, as an industry, become more sophisticated. There are some very sophisticated technologies out there that really -- truly give you real-time weather. We need some of these codes and standards to come up to date with the fact that we can really tell our clients what's going on in real time. And therefore, then we should make the decisions as to how we continue to work or don't continue to work in the weather based on real-time data. So multiple fronts that allow us to provide expansion in our margin opportunities in the future.

Next question is from Mark Wilson from Jefferies.

I appreciate this. I'm going to come back on another question because I think the answers here are absolutely fascinating. To your point on global enablers, John? And yes, clearly, this is hugely important. So I will ask again, are you seeing any new capacity coming into the industry that would be of an equivalent capability of that sort of vessel?

Yes. We've seen the Shenandoah come into the market. We've seen the JSD 6000 come into the market. We've seen the Amazon and the ownership become a real competitor in the sector. So certainly there is tonnage coming into the market, and that tonnage is being deployed through different contracting formats as to how people get access to that tonnage. But there is tonnage available in the market and that tonnage is working today.

But not new builds, certainly, you would say?

Well, the Shenandoah and the JSD were the newbuilds. They are brand assets going to work in.

We'll now take the next question. This is from Victoria McCulloch from RBC.

Apologies. Just have a follow-on question for me. And this is for Mark. We saw working capital inflow -- or material working capital inflow in Q4 compared to the previous quarters. Can you just -- or can you provide any guidance of how you expect working capital to look over the next 12 months? And any fluctuations you're expecting that we should consider?

Yes. Victoria, John ended his prepared remarks talking about how we remain focused on converting growth in EBITDA into cash flow. And I think that's been evident over the last few years. So for instance, so 2022, we've increased the top line revenue by almost $2 billion or almost 40%, whereas working capital remained on a cash basis broadly neutral. So what I would expect is an unwinding of the favorable developments that we've enjoyed through '23, '24 and '25, but not until the second half of this year. And in terms of quantum, something in the low $100 million, $150 million and maybe a slight unfavorable movement in Q1, but I think some of the unwinding is likely to happen in the second half of this year.

Thank you. There are no further questions at this time. So I will now hand the conference back to John for closing comments. Thank you.

Well, thank you very much for your time and questions today, and thank you very much for being part of our Q4 and year-end updates. Well, I'm sure we will meet a number of you over the coming months. So thank you very much, and we'll see you again soon. Thank you.

Thank you. This concludes today's conference call. Thank you for participating, and you may now disconnect. Speakers, please stand by.

Good day, and thank you for standing by. Welcome to the Subsea 7 Q3 2025 Results Conference Call. [Operator Instructions].

Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your speaker today, Katherine Tonks. Please go ahead.

Welcome, everyone. Thank you for joining us. With me on the call today are John Evans, our CEO; Mark Foley, our CFO; and Stuart Fitzgerald, CEO of Seaway 7.

The results press release is available to download on our website, along with the slides that we'll be using during today's call. Please note that some of the information discussed on the call today will include forward-looking statements that reflect our current views. These statements involve risks and uncertainties that may cause actual results or trends to differ materially from our forecast. For more information, please refer to the risk factors discussed in our annual report or in today's quarterly press release.

I'll now turn it over to John.

Thank you, Katherine, and good afternoon, everyone. I will start with a summary of the quarter before passing over to Mark for more details of the financial results.

Turning to Slide 3. Subsea 7 delivered third quarter adjusted EBITDA of $407 million, representing 27% growth year-on-year, and a margin of 22%. The increase in our profitability reflects strong project execution as well as the continued high-grading of our backlog. As Mark will discuss, we now expect to exceed our prior guidance for 2025 and to deliver continued momentum into 2026. Order intake was high in the quarter, at $3.8 billion, resulting in a book-to-bill of 2.1x for the quarter and 1.4x for the first 9 months of the year. Our backlog reached a record high, close to $14 billion.

Slide 4 shows the backlogs of both Subsea and Conventional and Renewables, which continue to increase in quality as we completed work won before 2022 and shift our focus to contracts with more favorable terms. We have a combined backlog for execution in 2026 of $6 billion, giving us over 80% visibility on next year's revenue.

And now I'll pass over to Mark to run through the financial results.

Thank you, John, and good afternoon, everyone. I'll provide selective commentary on group, Subsea and Conventional and Renewables' financial performance in the third quarter before turning to the cash flow and financial guidance for 2025 and 2026.

Slide 5 summarizes the group's revenue and adjusted EBITDA results for the third quarter, set in the context of recent quarterly performance. In the third quarter, revenue was $1.8 billion, in line with the high levels reported in the same quarter of the prior year. Adjusted EBITDA of $407 million, increased by 27% compared with the prior year period. And margin expanded by 460 basis points, to 22%.

Net income was $109 million following depreciation and amortization of $175 million, net foreign exchange losses of $38 million, which were driven by noncash embedded derivatives. Net finance costs of $12 million. And taxation of $73 million. I'll cover the salient points concerning business unit performance in the next few slides.

Slide 6 presents the key metrics for Subsea and Conventional. Revenue in the third quarter was $1.5 billion, representing growth of 6% year-on-year as high activity levels continued in Brazil, Türkiye and Norway. Adjusted EBITDA was $368 million, equating to a margin of 24%, an increase of 680 basis points from the same quarter last year. The margin improvement was underpinned by strong execution performance and high vessel utilization as well as the continued rebalancing of our portfolio towards projects with improved risk and reward characteristics.

The results of Subsea and Conventional include an $11 million net income contribution from OneSubsea, in line with our expectations. Net operating income was $228 million, nearly 80% higher than the prior year period, equating to a net operating income margin of 15.1%.

Selected Renewables performance metrics are shown on Slide 7. Revenue in the third quarter was $302 million, a reduction of 19% when compared with the high levels reported in the prior year period, which were driven by elevated activity in Taiwan, while in line with the second quarter of 2025. Activity progressed during the quarter at Dogger Bank C and East Anglia THREE in the U.K and at Revolution in the U.S. after a delayed start. Adjusted EBITDA was $52 million, equating to a margin of 17%, up 70 basis points from the same quarter last year. Net operating income was $21 million, representing a margin of 7%.

Slide 8 shows the cash bridge for the third quarter. Net cash generated from operating activities was $283 million, which included an expected unfavorable movement in working capital of $82 million. Capital expenditure was $47 million, mainly associated with maintenance on vessels and equipment. Net cash used in financing activities was $123 million, which included lease payments of $79 million.

At the end of the quarter, cash and cash equivalents increased by $132 million, to $546 million. Net debt was $505 million, including lease liabilities of $421 million, equating to a modest net debt to last 12 months adjusted EBITDA of 0.4x. The group had liquidity of $1.1 billion on the 30th of September. On the 6th of November, the company paid the second and last of its SEK 6.5 per share dividends to shareholders. Shareholders' returns this year represented solely by dividends amounted to approximately $376 million.

To conclude the financials, we turn to Slide 7 -- sorry, Slide 9. We have refined certain guidance metrics for 2025. I will highlight the following favorable notable revisions. The upper and lower ends of revenue guidance have been narrowed by $100 million as we now expect revenue to be between $6.9 billion and $7.1 billion in the full year 2025. Given strong results in the first 9 months of the year, combined with high visibility and confidence in our execution performance, we have increased our guidance for adjusted EBITDA margin in 2025 to be between 20% and 21% from between 18% to 20%. We have also reduced our guidance for capital expenditure to a range from $300 million to $320 million. This reflects our continued focus on capital discipline as well as a rephasing of some cash capital expenditure from this year into 2026.

Today, as is customary for Subsea 7 at the third quarter, we introduced initial guidance for next year. In 2026, we expect the group to continue to deliver growth in revenue and adjusted EBITDA. We anticipate revenue to be within a range from $7 billion to $7.4 billion with an adjusted EBITDA margin of approximately 22%. Capital expenditure is forecast to be between $350 million and $380 million, which includes rephasing of some capital expenditure from 2025, as mentioned some moments ago.

Our confidence in this guidance is underpinned by the quality of our backlog which gives us over 80% visibility on revenue as well as the continued high tendering activity and the attractiveness of the prospects pipeline.

I will now pass you back to John.

Thank you, Mark. On the next 2 slides, we have a couple of highlights from our portfolio of technology-led solutions. On Slide 10, we'll take a look at 4insights, developed by our 4Subsea business in Norway. 4insight is software that combines real-time data from vessels and weather feeds and uses advanced algorithms to automate operating decisions on board. The result is an extension of the windows of operability of our vessels and increased performance in project delivery through a reduction in the cost and schedule risks associated with waiting on weather.

By automating the decision-making process, 4insight also enhances collaboration between marine and project crews and maximizes the efficiency of our operations. The software has been rolled out across part of our fleet and has received excellent feedback from our offshore and onshore teams. In 2025 to date, it has added 35 days of operation to Seven Vega, an uplift of over 10% compared to our standard planning assumptions.

Our second highlight slide focuses on our unique bundle pipeline technology. Last quarter, we touched on this when we discussed our activity at Yggdrasil in Norway, which included the launch of a large bundle during the summer. By combining active heating, flow lines and the control systems into one towable bundle, we reduce the complexity of the Subsea architecture and offer a cost-effective alternative to traditional models.

The solution requires the use of our proprietary lining as well as highly specialized welding from our team in Wick in Scotland. Subsea 7 is the only contractor with a proven track record of delivering production system bundles with over 90 installations to date. Repeat orders from clients, including Aker BP, BP, Chevron, Equinor and Shell, are a testament to the success of this unique solution and more broadly to the innovative solutions offered by Subsea 7's advanced engineering and fabrication capabilities.

Now on to a review of our prospects on Slide 12 and 13. In Subsea, tendering activities remain high across our key regions with a combined prospect value of around $21 billion. Most of the projects on this map are long-cycle deepwater developments with favorable economics. Many carry strategic significance to both the operators and their host nations. They will be sanctioned based on a view of commodity prices beyond the next 5 years, sheltering them from the change in spot price of oil and gas. Overall, we are confident in the long-term outlook of our Subsea business with demand for our technology-led solutions expected to remain at high levels.

On next slide, we have a summary of the fixed offshore wind projects that could bid in the U.K.'s Allocation Round 7, AR7. Whilst the maximum strike price of GBP 113 per megawatt hour was well received, the recently announced budget for AR7 was lower than hopeful by the industry. As I said last quarter, the U.K. is the largest single market in global offshore wind sector outside China. And with a number of other markets showing slower-than-anticipated growth, the ultimate outcome of the AR7 process will be a key driver for the medium-term momentum in the industry. Subsea 7 continues to support a number of key clients to optimize the AR7 developments whilst remaining selective in the contracts we pursue to safeguard our future profitability.

To conclude, we'll turn to our final slide on Page 14. Subsea 7 finished the third quarter of 2025 with a record backlog of firm orders valued at nearly $14 billion. We've increased our guidance for 2025 and our guidance for continued growth in 2026 demonstrates our confidence in the outlook. Looking further ahead, we have a high conviction in the resilience of deepwater Subsea market and combined with a differentiated offering and a strong track record of delivery, this positions Subsea 7 for success.

And with that, we'll be happy to take your questions.

[Operator Instructions] We will take our first question, and the question comes from the line of Sebastian Erskine from Rothschild & Co Redburn.

Congratulations on the results today and great to see the backlog at a record level. I'd like to just follow up on the Renewables business. So I guess we can expect a seasonal uplift in Renewables margins in 4Q, which is consistent with the new guide. But how should we think about the original kind of 14% to 16% EBITDA margin guidance into '26? And I guess linked to this, I mean, you mentioned it in the prepared remarks, but could you provide an update on the time lines associated with Allocation Round 7 as there appears to be some stalling progress? So yes, it would be great to get your thinking on that.

I'll ask Stuart to answer both those questions, please.

Yes. So I can answer on the guidance first. So we're maintaining that guidance going forward into 2026. Also, worthwhile to comment about backlog position in terms of visibility through '26 and into '27 is particularly strong. Then on to the Allocation Round 7. So submissions from the developers in terms of the different projects that they put into the allocation round has been happening over the last week. So that milestone is essentially complete as we understand it, and the results of that to be announced around mid-January. So the next key milestone in the time line here is a mid-January announcement of outcomes. But the submissions to the best of our knowledge, are now made.

Appreciate that, Stuart. And just if I can put another question, and I appreciate -- difficult one on the merger. We've seen the admission of kind of several interested third parties into the Brazilian antitrust process. Can you give us an update on that process and when we might expect to hear some ruling from CADE, if you're able to shed any light on that? And any other updates on the kind of geographies that you're submitting to, that would be helpful.

Yes, I'll take those. As we've said many times on these calls, we won't be giving a sort of blow-by-blow account here, but let's stand back. When we announced the merger, initially with the signing of the MoU at the end of February, we targeted the second half of 2026, full completion. The CADE process is following the steps that we had expected it to follow. We make our submissions. Interested parties then identify themselves as interested parties. There is also a wider market consultation, including suppliers, our peers and our clients, and that process is underway.

We will then have an opportunity to discuss with CADE our responses to the different topics that are raised. And then CADE will go into their review process next year. So we continue to believe that the time line for the merger and the critical path is through CADE and Brazil, should allow us to complete by the second half of 2026.

We will take our next question. The next question comes from the line of Victoria McCulloch from RBC.

Starting as well on Renewables. Can you just talk about the contribution for 2026? I appreciate you don't give it specifically, but on the basis of Stuart's commentary, should we then see the driver for the growth coming from the Subsea and Conventional business?

And then, John, maybe a bit sort of larger sort of picture -- views. Can you give us a bit of color about how you've seen the tendering pipeline and engagement with your customers over the last 3 months? It remains a fairly unpredictable macro environment, but it would be interesting to hear the conversations you're having with the engagement you have with customers.

Yes. Just to take the Renewables, Stuart was clear that we are comfortable with a guidance range of 14% to 16% EBITDA in Renewables in 2026. And as he says, he has a high coverage of work already on the books. So again, I don't think we will give any further information on that, Victoria, but we're comfortable that we have a good position in Renewables in '26, and as Stuart alluded to, also going into 2027. So for us, it's more about what it is in '28 and '29, and AR7 will be part of understanding that in the first quarter of next year.

Coming to client interactions, I was down in Brazil at Rio OTC about 3 weeks ago. We've had a number of client discussions, which, as you'd expect, continue. We're seeing very little change in our clients' views. They are clear that they've got a number of large Subsea projects out there for bid or to be bid. The dialogue is all around timing of their bids, timing of their projects, what early commitments do they need to make, vessels availability. It's the traditional questions that we get in a busy market, Victoria.

In Brazil, discussions with Petrobras. We expect to see the Petrobras' 5-year plan, announced in the next week or so, continued focus on Subsea projects being the main engine and the main driver for Petrobras. So their conversations are clear. A lot of other clients are about some big opportunities that they see. We're bidding work in Namibia. We're bidding work in Mozambique. And these were countries that weren't on our radar screen a couple of years ago. And down in Türkiye, in the first week in December. And again, that's about our ships are going in to do Phase 2. As you're aware, we picked up Phase 3, but there are other phases of Sakarya to come as well.

And we continue to work with Equinor as planned on the developments of Wisting and Bay du Nord. The 2 big developments, one in the north of Norway, one in Canada. And they're quietly going on exactly as we had planned with Equinor that we'd be working with them, looking at multiple different scenarios. So long story short, we're not seeing a real change.

And the other thing that we touched on in the last quarter was the pleasant surprise to see a number of new projects coming into Norway. The project with ConocoPhillips, which we expect to get sanctioned here at the end of the year. So there are very creative projects out there with a number of clients, and we remain confident. The only geography where that is not the case is the U.K., but I think everybody is clear that unless something changes in next month's budget, probably the U.K. is a bit out of sorts with the rest of the world.

And maybe just a follow-up on that is, it was interesting to hear, obviously, you've shown us a lots about the pipeline bundles that you've done for Yggdrasil, for Aker BP and how that's optimizing the CapEx and OpEx for your customer. I guess, how much, I guess, new ideas in AI are customers looking for and sort of new wins from that? Because I guess, AI is such a massive theme globally, but how much of that is part of conversations in terms of they're trying to get economics better because of AI?

Yes. Our clients are always interested. Yggdrasil is an interesting example that we're using every single technology Subsea 7 has got, that huge greenfield development. We've got bundles in there. We've got traditional relay in there. We've got heated pipelines. We've got cool pipelines in the system. We've got everything in there. So that's why the customers come to us, is that we have a full toolkit, a full technology capability.

If we come on to 4insight. 4insight is a form of AI technology that uses real-time data, analyzes huge volumes of data to give our offshore crews clarity as to what's going to happen in the next 24 hours and how they should think about whether we continue into the good weather, or do we stop, do we start and such like. Historically, that's all been done in a very static mode. Before we go offshore, we plan different scenarios. We take the scenarios out there. We have a book which tells us what we can and can't do. And if we're inside the parameters, we can work if we're outside the parameters.

What 4insight has been is, say, let's take the actual parameters we got here and the actual parameters forecast and what you've had in the last 24 hours and exactly which way the weather is hitting the ship directionally and such like and can we continue pipeline. And again, as I said in my prepared remarks, we are finding some significant improvements.

So it's a combination of the portfolio of technologies we've got, a real productivity to also just challenge the norms. We're also doing quite a bit of work with some of the regulators and some of the certifying authorities on how we run our DP vessels. dynamic position, rules were written in the 1980s when fuel was free. Nobody worried about emissions. And therefore, today, we are now finding different ways to run these ships, but we need the codes to change to do that. That allows us to improve our fuel efficiency, which our clients pay for, also reduces our emissions, but we need the codes to change to reflect that what was good in the '80s doesn't necessarily have to follow in the 2025 that we're in.

So there's a lot of great things happening, Victoria, a lot of great engagement with our clients and with it, with every client on those type of technologies. So it's a good place that the industry is in. And as we know, deepwater subsea is one of the lowest cost per barrels lifted of any form of oil or gas out there. So I think we're in the right place at the right time.

We will take our next question, and the question comes from the line of Kevin Roger from Kepler Cheuvreux.

The first one is maybe in 2 way because when I look at the backlog execution for 2026, you are telling us that roughly your visibility is up by 13%, but the top line guidance imply only 3% growth in '26 versus '25. So can you give us a bit of color on that why the backlog for execution is up 13%, but the top line guidance is up by 3%? Is it related to the fleet utilization rate that is at the end already fully booked? Just to understand the rationale around the top line.

And the second one, John, you roughly mentioned it, big project from Equinor for 2026. There has been some noise notably this morning saying that Equinor is currently hitting the market for fabrication tools. So just to understand on your side, would it be a kind of full scope, or then it will be phase by phase, meaning that for '26, it will be more than $1 billion as you have identified the projects in the pipeline or a smaller phase because that's going to be done in different phases?

Yes. The backlog in 2026, I guess, which just reflects the fact that we're in a very busy market, and clients have committed to us earlier. We have a finite capacity, which is why the revenue doesn't grow as much. We would expect, of course, next year to have 100% backlog by the end of the year. So it's more of a timing question, Kevin. A lot of our clients have engaged with us early, and that's been going for a number of years now, making commitments to make sure that they have capacity available as they go into '26 and '27. So it's just a timing disconnect more than anything, not a fundamental issue.

This quarter, we're running at 87% utilization. We're getting towards the highest end of what we can do, and we've discussed that a number of times on this call. The key to us is post-merger is to reduce the amount of transits between projects and such like. That's one of the real attractions for a number of our clients, is that there are more days available if you don't move these assets around. But at the moment, we've got the fleet that we've got. We know very well where they're going to be placed next year. So I don't see it as a disconnect. The revenue will be the revenue in the range that we've given. And the backlog is just higher than we would normally expect. But equally, in my memory, when the market gets busy, people secure their assets earlier.

Taking your second question, Bay du Nord is a project that for us is done seasonally over multiple seasons, and we won't be offshore until later on this decade, and that's always been the case. And because of the weather conditions out there, we can do about 100 days per year. So it's a multiyear project. And next year, we'll continue to be in this work mode that we're in, which is working with Equinor on the field layouts and allowing them to go through their different decision gates, DG2 and DG3 that they need to go through.

So for us, Bay du Nord has continued working with them in the mode that we've been in for a couple of years. And so they will make their key decisions, I suspect, in '27 when they have all their information about their fabrication, their local content as well as the SURF packages. What I would say, I think there's been good work between the SIA and Equinor over a couple of years, and there's been some very interesting thinking about how to phase the project and how it comes together.

So coming back to your initial question, Kevin, it was always a phased project because the weather conditions out there and the remoteness of that part of the Atlantic offshore, Canada means that you have to do 100-day slots per year out there. And it's just how you sequence it and how you develop the wells and the reservoir that goes with it is the key to probably unlocking the economics in that field.

Your next question comes from the line of Guilherme Levy from Morgan Stanley.

First one, thinking about your guidance, how much would you say the lower figure this year is driven by activity that might have been -- might have slipped into 2026? And if you can perhaps share with us what sort of activity that is? And then thinking about 2026, is this a reasonable level for us to think about your capital needs over the long term? Or is there any nonrecurring factor in the 2026 figures that we have?

And then second one, thinking about Brazil. Earlier this year, there was a headline saying that Petrobras was keen to do a long-term lease of a vessel to do the installation of rigid pipes in the [ Pre-Salt ] itself. Do you feel like this is a live discussion? Are they actively looking to do that? Or do you feel like that was just a headline that didn't really evolve over the course of the year?

I guess the question -- the first question asking about the sort of guidance between this year and next year on revenue and such like. You're very familiar with our projects. They work on a percentage of completeness at the end of -- completion at the end of each year. It varies big projects, a couple of percentage have quite a large influence on dollars. There's nothing to be concerned about. It's just how the different sequences of our projects are coming into play.

In terms of 2026, as I answered Kevin previously, we're reasonably clear on how it will fit together. We've given you a range of revenues that we are comfortable with giving the market here, a high level of visibility as to how that fits and even the work that isn't in the backlog yet, we're pretty clear in our minds how that will sort of come together. And of course, as we've done consistently, if things change, we will give the market an update on each quarter as we see changes.

Lastly, Petrobras are talking to the market about potentially the long-term lease of a rigid pipelay ship. Interesting enough, we had a contract many years ago, in 2012 to 2017, to do exactly the same, which was called hybrid steel, which was a contract that Subsea 7 had with Petrobras. So I'm old enough to know what those looks like, and we've done it before.

Again, when Petrobras comes to the market, we will respond, and we'd be interested in that. But you just need to remember that the time scale is probably 4 or 5 major projects that need a pipelay each. So again, if they go down this path -- and I do understand. We've been speaking to them. This is about the timing of the arrivals of the FPSO, and the challenges of how you run different projects with different time scales with different arrivals of FPSOs. So maybe the hangoffs of the riser with a vessel more akin to a PLSV, which is more of a day rate contract where they can control it that way.

So I understand fully the logic. It makes a lot of sense, and we will certainly be interested in the opportunity set should that come to the market next year.

The first one, sorry, I was actually just referring to your new CapEx guidance. So yes, just thinking about your 2026 CapEx guidance, is there any reason why 2027 should be materially different from that?

It really is a function of the vessels that have to go through their obligatory dry docking. So as you know, depending on where they are in the cycle, our CapEx increases and decreases. The majority of our CapEx is directed towards vessels and equipment. So I think we provided updated guidance for this year, slightly lower, driven by really strict capital discipline within the organization as well as a late phasing, a displacement of certain cash, capital expenditure into 2026 and then an amount that we've guided to for next year.

So again, it will vary year-on-year depending upon the requirements of the vessels as well as the opportunities that we see in terms of growth, capital expenditure around minor modifications, around supplementary additions to equipment, et cetera. So hopefully, that provides some additional color.

Your next question comes from the line of Alejandra Magana from JPMorgan.

On your SURF and Conventional margin strength, can you give us a sense of how much of the uplift reflects execution outperformance versus the roll-off of older, lower-margin projects? And how much reflects structurally better commercial terms or pricing power on more recent awards? And as the 2026 backlog converts, how do these contracts differ commercially from the ones you've executed this year?

Okay. I won't go into the margin mix. As I said in my prepared remarks, it's a bit of everything. We are taking less projects, taken before 2022 into the portfolio this year, and there are none of those as we get into next year. As we discussed very openly on this market, each project is bid individually and therefore, then there is a mixture of margins in each of the different projects. Sometimes some projects suit us because the availability of equipment, timing and clients' decision-making, potential delays in other projects. So again, there's quite a complex mix in that.

And lastly, as we've discussed, we've had very good execution throughout this year, and I'm very pleased with the execution that we've got. So when all these things come together, we get a very good margin in the business. But we won't discuss the segregation of those items.

As we go into 2026, again, it's about the stack of projects that we've got in there. There is nothing pre-'22 in the mix. So it's the packages of work that we brought in over the last 3 years at the various stages that give us the margin that we expect to see next year. And so we have given you clarity through the guidance as to what revenue range, and we expect to be at around 22% next year EBITDA on the portfolio that we've got.

And just to close out on that, we're reasonably confident in that because we've got over 80% of that margin already in the books. And as I touched on earlier, I'm reasonably sure I know how the remaining 20% will fit. The remaining 20% part of that is elements such as call-off agreements we have with a number of clients where we're already under contract. We know what the margin is, but we haven't received the call offers yet. So confidence level is pretty high here. And we'll just get into '26 and let it run and see how it goes from there.

Very clear. And then on the new Brazil PLSV contracts, can you give us a sense of how the new rates compare with prior agreements? Do you expect a step-up in PLSV earnings over the next few years?

Yes. So they were bid a year ago. That is information where if you go through the press releases that we've released and our competitors have released, it's all public information. You can -- you know that each contract is roughly 1,000 days. So they were better than we had for certain, and all 4 PLSVs are now on the new contracts. Just last week, the fourth of our PLSVs went on their new agreements. So next year, part of the uplift in our margin is around the fact that the mix of work that we've got next year, as we discussed earlier, is a better mix.

So the PLSVs are public domain information. So if you go back and dig through those, you can work the figures out from where we were and where we are now.

[Operator Instructions]. Your next question comes from the line of Erik Aspen Fossa from SB1 Markets.

I have 2 questions at least. First for you, John. I think the understanding so far has been that we should expect a slight increase in activity from '25 to '26. And I'm just wondering how we should think about this into 2027 on a stand-alone basis for Subsea 7? Is there still room for further increases, for example, through fleet optimization and other such things? Or are we kind of plateauing now in terms of how much you can do with the fleet that you have?

Okay, Eric, I think what's interesting for us is that we have a very strong backlog for '27. If you just look at the data we got $3.8 billion of backlog for 2027, which is a very good place for us to be looking this far ahead. There are some changes that we're doing next year. It's also about how we upgrade the margins in our projects. There has been some work that we've been doing, for example, on some Jones Act work that we won't continue next year. So we'll return those chartered vessels to the owners because we can't get the margins that we expect. We've returned the Champion in the Middle East. And so for us, it's also about just being very, very selective about which assets we deploy, how we deploy them and the returns that we get, and the risks that we take to earn those returns.

So there is room for improvement. There's always room. But now it's about taking the asset base that we've got, as Mark said, being pretty brutal about what it's doing, where it's working, what it's returning for us. So you will see some changes in the fleet next year, some -- actually reductions in the size of our fleet next year whilst we're increasing the revenue. That's our task at the moment, is to maximize what we have in the cycles that we work in, Eric.

I think you also sort of started to answer my second question, and that was on the lease costs that decreased, slightly now this quarter. And I'm just wondering how we should view that into 2026, should it come down because of what you actually just explained now, John?

Yes, Eric. We will see a directional downward movement in lease liability cash impact in 2026 as a result of releasing some of the lease vessels that we have in the portfolio today. As you know, out of the 41 vessels, we have 11 leased vessels, and some of those will be going back at the end of the charter period to the owners.

Was that just the Jones Act vessels, or are there any other vessels?

All the vessels fleet, Eric.

Yes. So I discussed the Champion, it was leased, and that was in the Middle East. That has already come back. There will be a couple of Jones Act vessels going back, and there will be at least one -- further one going back, but we're not ready to include that at the moment. But that's the direction of travel, as Mark is saying, that we're working our way through, making sure that if we bring additional tonnage in, first of all, is it adding value in the portfolio and can we -- what we're trying to do here is to grow the revenue, but also make sure we maintain the margin. So that's what this fine-tuning that we're doing is about. But that also brings our lease obligation line down, which again, I know has a lot of high focus in the market as well.

Just lastly, could you give some sort of indication on kind of the level that we could think about next year on the lease payments?

It will be notably lower than we have incurred so far this year, Eric. I think we've spoken about it every quarter. We'll probably just be under $300 million cash out this year, principal plus interest, and we've given a flavor of the vessels that, all other things being equal, we'll leave the fleet. I'll allow you to apply your assumptions in terms of what that means around impact -- favorable impact to cash.

This concludes today's question-and-answer session. I'll now hand back to John Evans for closing remarks.

Well, thank you very much for joining us. We have an interesting story to tell, and we appreciate your continued support and the questions that you ask and the papers that you publish about Subsea 7. We have a very good year ahead of us, I believe, in 2026. We tried to frame that for you and try to give you information to allow you to model it and look ahead. And we continue to be in some very positive discussions.

Stuart has also been very open about the opportunity sets in Renewables in '28 and '29, which will become clearer in Q1 next year. So hopefully, when we meet with our Q4 results at the end of February, early March time, we will be able to give you more updates on how we see AR7 and what that means for Seaway 7.

So as ever, thank you very much for your support and your questions, and we shall see you again soon. Thank you. Goodbye.

This concludes today's conference call. Thank you for participating. You may now disconnect.