er_subsea

Table of Contents

These reports were compiled using a product of Thomson Reuters www.thomsonreuters.com

1

Rpt. 25621145 SUBSEA SECTOR - FAR FROM A RECOVERY 03/12/2015 2 - 69

12-Mar-2015 DNB MARKETS

- MATHISEN, EIRIK RONOLD, ET AL

Rpt. 25358034 SUBSEA 7 S A 70 - 105

02-Feb-2015 SEB EQUITIES

- FATNES, TERJE, ET AL

SUBSEA SECTOR

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

Cyclical downturn hampering demand. The subsea sector has significant exposure to

the offshore development cycle, particularly the deepwater cycle, whose economics have

been challenged by the ~50% fall in the oil price since July 2014. Leading indicators for

subsea demand (i.e. the sanctioning of new subsea wells and order intake among

offshore drillers) point to a sharp slowdown in demand for subsea services.

New competition is real, and due to investment decisions made several years ago when

the demand outlook was more promising, new subsea construction vessels are entering

the market in the midst of a demand slowdown. Vessel utilisation is vital for profitability,

and we expect aggressive bidding to drive prices lower.

We see few contract opportunities for 2015. A handful of large development projects

saved industry order intake in 2014, but we expect weak backlog momentum in 2015 as

development projects are delayed and discretionary spending falls as oil companies

adjust to a low oil price environment. Subsea 7 saw 30% backlog erosion in 2014 and its

implied book-to-bill of 0.1x for H2 2014 was a red flag for the industry.

Brazilian problems could have major spill-over effects. Petrobras’ financial position

has deteriorated recently due to the oil price collapse and corruption allegations. It is one

of the largest consumers globally of subsea services and lower demand (which we find

likely) would hurt the supply/demand balance in the subsea sector in our view.

Consensus is underestimating the depth of the cyclical downturn, and the negative

effect that backlog erosion, high operational gearing and increased competition is set to

have on earnings. Due to subsea’s late cyclical nature, we do not expect the full effect of

this slowdown to kick-in before 2016+.

We maintain our negative sector view. We expect a prolonged cyclical downturn

extending beyond 2015. At this stage of the cycle we believe earnings momentum and

backlog momentum would be share price drivers for the subsea stocks, both of which we

believe will remain negative for the next 12 months. On average we are 22% below

consensus on 2016e net profit and we forecast continued erosion in 2017e.

Relative sector positioning. On an absolute level we see downside risk to all subsea

companies and maintain our SELL recommendations on all the stocks covered. On a

relative basis, however, we prefer Technip due to its solid backlog coverage and

diversified exposure, while we see most downside risk at Saipem. We are also concerned

about Subsea 7’s backlog erosion in 2014 and low contract coverage for 2016e.

Oil Service - SURF vs OSEBX (12m)

Source: Factset

BEUOILS vs OSEBX (12m)

Source: Bloomberg

OSX vs S&P500 (12m)

Source: Bloomberg

Crude oil prices (12m)

Source: Bloomberg

EQUITY RESEARCH 12 March 2015

Oil services – Subsea sector

5060708090

100110120

Mar May Jul Sep Nov Jan MarOil Service -…OSEBX…

40 50 60 70 80 90

100 110 120

Mar May Jul Sep Nov Jan Mar

BEUOILS OSEBX

60

70

80

90

100

110

120


OSX S&P500

40 50 60 70 80 90

100 110 120


Brent crude oil WTI crude oil

Company Cur Rec Target Price P/E 15e P/E 16e P/E 17e

Aker Solutions NOK SELL 30.00 39.43 9.6 13.8 15.8

Saipem EUR SELL 7.00 9.56 20.5 11.9 12.3

Subsea 7 NOK SELL 50.00 70.95 7.7 15.3 15.2

Technip EUR SELL 47.00 58.73 10.3 13.6 17.5

Source: DNB Markets

ANALYSTS

Eirik Ronold Mathisen

[email protected]

+47 24 16 91 91

Sveinung Alvestad

[email protected]

+47 24 16 91 92

Please see last pages for important information

2

DNB Markets | Subsea sector

12 March 2015

2

Contents Maintaining our negative sector view 3

Demand – not shielded from downturn 3 Supply – new competition is real 6 Falling backlog set to erode earnings 10 Earnings momentum – set to remain negative 15 Valuation – we do not see a v-shaped recovery 17

Relative valuation 20

Aker Solutions 21

Saipem 32

Subsea 7 43

Technip 54

3

DNB Markets

12 March 2015

3

Maintaining our negative sector view We maintain our negative view on the subsea sector, while acknowledging that it is better

positioned than other oil service sub-sectors due to lower gearing. We do not see a v-shaped

recovery in the offshore investment cycle but rather a prolonged down-cycle, and expect

negative backlog and earnings momentum to drive share prices lower. We reiterate our SELL

recommendations on Aker Solutions, Subsea 7, Technip and Saipem.

Demand – not shielded from downturn

Significant exposure to deepwater development cycle

The subsea sector has significant exposure to the offshore development cycle, in particular to

the deepwater cycle. Long lead times (from sanctioning to first oil) and hefty investments are

challenging the economics of deepwater field developments, and due to high (relatively

speaking) break-even levels, we do not believe deepwater projects will be the first to be

reactivated when the oil price rebounds. In addition, key deepwater players are the large

international oil companies and Petrobras, which are particularly challenged in this low oil

price environment.

Sub-sector is late cyclical – full effect of market slowdown yet to kick-in

A key demand driver for the subsea sector is sanctioning of new subsea wells. In October

2014 (before the oil price collapse) we analysed the sanctioning of subsea wells, and our

conclusion pointed to a 30% decline in the average number of new subsea wells sanctioned

in 2015–2017 compared with 2010–2014 (reflecting the fact that the economics of offshore

field developments were already challenged at oil at USD100/bbl). Other leading indicators –

i.e. drilling activity and the number of subsea trees awarded – also point to a sharp slowdown

in demand for subsea services. According to Quest Offshore, 236 subsea trees were awarded

in 2014 (with virtually none from Petrobras), the lowest level since 2003. We expect the

number of subsea tree awards to remain in the low 200s in 2015. The book-to-bill among the

offshore drillers (ultra-deepwater rigs only) was 0.4x in 2014, which is the lowest level in 10-

years (although this figure was boosted by dated contracts – adjusting for dated contracts the

book to bill ratio was 0.2x). Backlog per ultra-deepwater rig is also at the lowest level since

2005-2006, both fifth- and sixth-generation rigs.

Figure 1: Backlog per UDW rig Figure 2: Subsea tree awards (# of trees)

Source: ODS Petrodata, DNB Markets, Companies Source: Quest Offshore

Petrobras’ problems could have severe spill-over effects for the subsea sector

Petrobras is a key consumer of deepwater services (i.e. drilling, subsea trees, flowlines, riser

systems and pipelay support vessels), and it accounts for c10% of global offshore spending.

Its financial position has deteriorated rapidly in recent months due to the oil price collapse and

corruption charges levied against the company – due to the corruption allegations it has not

yet reported audited Q3 earnings, all senior management has been replaced and its credit

rating was recently downgraded from investment grade by Moody’s (which is no small matter

0

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2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Rig

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DNB Markets

12 March 2015

4

when the company has net debt of USD106bn, leverage (net debt to EBITDA) of 4.6x and

high capex commitments).

Figure 3: Petrobras – Net debt (USDm) and net debt to

EBITDA Figure 4: Petrobras – investments (USDm)

Source: Petrobras Source: Petrobras

22 new production systems are expected to commence operations in Brazil between 2016

and 2018, boosting Petrobras’ production curve by 3 million bpd. Construction contracts for

16 of these systems have already been awarded, 12 of which will be built locally. The eight

replica FPSOs (P66-P73) are already facing construction delays and the hull yard (Ecovix) is

facing financial challenges. Recent reports also suggest that the yard (QGI) responsible for

the integration of two other FPSOs (P-75 and P-77) has pulled out of its contract with

Petrobras. In other words, there is a real risk of delays (and possibly cancellations) on more

than 50% of the pre-salt FPSOs with 2016–2018 planned start-up.

Figure 5: Petrobras – production growth expectations

Source: Petrobras

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

meet its production target, delays in the planned start-up of pre-salt FPSOs are likely to

reduce near- to medium-term demand for such services. In the event of long delays, we see a

risk that Petrobras will try to renegotiate existing contracts. Among the subsea companies,

Subsea 7 has the highest direct exposure to Petrobras (~35% of its backlog at Q4 2014), and

-

0.5x

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Sep.06 Nov.07 Jan.09 Mar.10 May.11 Jul.12 Sep.13

Net debt Net debt to EBITDA

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DNB Markets

12 March 2015

5

reduced demand from Petrobras would certainly have a negative effect on the global

supply/demand balance for subsea equipment.

Few contract opportunities in 2015e

The subsea industry is not shielded from the cyclical downturn in the offshore oil and gas

industry, and we argue that leading indicators point to a significant slowdown in backlog

momentum in 2015 (although the slowdown started to kick-in in H2 2014). Over recent

months several potential subsea developments have been confirmed as delayed, including

Bonga Southwest, Zinia Phase II, Chissonga, Cameia (until end-2015), Leviathan and Vette.

Several oil companies have highlighted that service costs need to come down before projects

can move forward. We still expect some SURF contracts to move forward in 2015, but do not

see any major awards. In addition, given the limited number of potential contract prospects,

we see a binary outcome for the SURF companies. We expect the following SURF contracts

to be awarded in 2015:

Figure 6: SURF opportunities for 2015

Source: Companies, DNB Markets, newswires

* DNB Markets estimates

Offshore phase of new development unlikely to be before 2017+

Another relevant issue is whether the pending large subsea contracts can come quick enough

to have a significant impact on 2016 earnings. As a rule of thumb, the offshore phase of new

large subsea installation contracts starts two years after contract award. In other words, the

offshore phase (in which most of the contract value is generated) on upcoming contracts is

only likely to start in 2017 and beyond.

Figure 7: Lead times from award to offshore phase

Source: Companies, DNB Markets

Project Operator Country

Expected first

production

Expected SURF

award USDm *

West Nile Delta BP Egypt 2017-2018 2015 800

Cameia Mound (phase 1) Cobalt Angola 2018 2015 500

Block 15/06 East Hub ENI Angola 2017 2015 750

Agbami Phase III Chevron Nigeria 2016 2015 200

Sankofa-Gye Nyame ENI Ghana 2017 2015 750

Rotan Block H Murphy Malaysia 2018 2015 250

Vashishta and S1 ONGC India 2016 2015 300

Johan Sverdrup Statoil Norway Late 2019 2015 250

Maria Wintershall Norway 2018+ 2015 500

Appomattox/Vicksburg Shell USA 2019 2015 300

Sum 2000 4,600

Contract Contractor Region Awarded Offshore phase Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

CLOV Subsea 7 West Africa 29.07.2010 Q2 2012 - Q2 2014 1 2 2 2 2 2 2 2 2

Erha North phase II Subsea 7 West Africa 07.02.2013 Q1 - Q3 2015 1 2 2 2

Lianzi Subsea 7 West Africa 15.08.2012 Q3 2014 - Q2 2015 1 2 2 2 2

Egina Saipem West Africa 25.06.2013 2016 - Q2 2017 1 2 2 2 2 2 2

Mafumeria Sul Saipem West Africa 29.06.2012 Q4/13 - Q2/15 1 2 2 2 2 2 2 2

Vladimir Filanovsky Saipem Caspian Sea 19.10.2012 Q2-Q3/14, Q2-Q3/15 1 2 2 2 2

Kizomba phase III Saipem West Africa 11.03.2013 Q2 2014 - Q2 2015 1 2 2 2 2

Moho Nord Technip West Africa 08.04.2013 2014-2016 1 2 2 2 2 2 2

TEN Technip West Africa 31.10.2013 mid-2015 - Q2 2016 1 2 2 2 2

Jangkrik Technip Indonesia 06.03.2014 2016 1 2 2 2 2

Kaombo Technip West Africa 16.04.2014 2016-2017 1 2 2 2 2 2 2 2 2 2

Catcher Subsea 7 North Sea 21.05.2014 2015-2016 1 2 2 2 2 2

Edradour Technip North Sea 04.07.2014 mid-2016/2017 1 2 2 2 2

Stampede Subsea 7 US GoM 17.12.2014 Q3 2016-Q1 2017 1 2 2 2

= contract award

= offshore phase

Year 1 Year 2 Year 3 Year 4 Year 5

“This is one of the reasons that we put

the brakes on sanctioning Cameia at

end-2014. We do not want to get into the

market ahead of what we believe would

be considerable downwards pressure on

costs in 2015 (…)” – Cobalt Q4 2014

earnings call

6

DNB Markets

12 March 2015

6

Supply – new competition is real

Established tier one players have invested heavily in new assets

The established tier one subsea construction players have invested heavily in new assets

over the past few years, renewing their fleet and constructing new enabling assets. Subsea 7

has added the Seven Borealis and the PLSV Seven Waves, and still has five vessels under

construction – three PLSVs (Seven Sun, Seven Rio and Seven Cruzeiro), one new diving

support vessel (Seven Kestrel) and one new construction vessel (Seven Arctic). Technip has

added Deep Energy and Deep Orient, several new PLSVs (in joint ventures) and invested in

new manufacturing facilities (such as the new flexible plant in Brazil). In addition it added two

new pipelayers through the Global Industries acquisition (the S1200 and S1201). Saipem has

added the FDS II and Castorone. At the same time the SURF companies have upgraded their

fleet by divesting older vessels.

Figure 8: Capex – Subsea 7 (USDm) Figure 9: Capex – Technip1 (EURm) Figure 10: Capex – Saipem

2 (EURm)

Source: Subsea 7, DNB Markets Source: Technip, DNB Markets Source: Saipem, DNB Markets

New competition is real

Strong growth prospects in the subsea market attracted new players to the subsea installation

sector, and over the past few years new entrants (and existing tier two companies) have

invested heavily in new assets in an effort to penetrate the high-end SURF market. New

flagship vessels include Lewek Constellation (EMAS AMC – scheduled delivery in 2015),

Petrofac 6000 (Petrofac – scheduled delivery in 2017), DLV 2000 (McDermott – expected

delivery in 2016) and Ceona Amazonas (Ceona – delivered 2015). These flagship vessels are

in addition to other (smaller) vessels that have already been delivered (other newcomers such

as Ocean Installer are targeting medium-sized SURF jobs in core subsea regions such as the

North Sea).

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

consolidated. 2 Offshore Construction segment only

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DNB Markets

12 March 2015

7

Figure 11: Competitive landscape – SURF


We believe the learning curve will be steep (and brutal) for the newcomers, but having made

the decision to build these vessels, the companies have no alternative but to bid for the larger

jobs. Fleet utilisation is vital for profitability, hence it is vital to secure work for the new

enabling assets. Petrofac and McDermott recently announced they have entered a strategic

alliance for the SURF sector. Under the terms of the 5-year alliance the two companies will

pursue opportunities in the deepwater SURF market.

Less demand and increased competition likely to lead to more competitive pricing

We argue that the combination of reduced demand (we expect a book-to-bill below 1x for all

subsea construction companies in 2015) and increased competition to lead to more

aggressive pricing for new contracts. Oil companies are getting the upper hand in contract

negotiations, and have been vocal about the need for lower contract prices. For instance,

Total was very vocal about this during its Q4 conference call when it explained why it had

postponed the FID for the Zinia phase II project in Angola: “For Zinia, what I can tell you is

that the result that we got out of the tender, which tells you that there are still people who

haven’t got – who haven’t understood – what the market looks like was 30% above what

we’re expecting”. While Technip can afford to hold back on new awards, Subsea 7 is highly

dependent on building its backlog over the next 12 months, and given the increased

competition for new work, we see a high risk of low margins on the new backlog.

Fleet of subsea construction vessels has grown 27% since 2010

The subsea construction feet consisted of 604 vessels as of end-2014, up 27% from end-

2010, and by an 8% CAGR since 2004, while the current order book indicates 7% fleet growth

in 2015e and 5% in 2016e. The strongest growth is seen in light construction vessels such as

ROV support, diving support and multipurpose vessels, which are typically owned by the

lower-tier subsea construction companies and offshore supply companies. We believe the

competitive environment will become tougher as offshore activity falls in the coming years,

increasing pressure on dayrates and utilisation.

8

DNB Markets

12 March 2015

8

Figure 12: Fleet overview of subsea vessels

Source: IHS Petrodata

Vessel utilisation has already started to fall

Offshore construction vessel (OCV) utilisation is seasonal given harsh winter conditions in

some regions. Nevertheless, average OCV utilisation has fallen over recent years, with supply

(new capacity coming on-stream) outstripping demand. This decline is most pronounced in

the light construction segment (ROV support and diving support vessels), where average

utilisation slipped from ~90% in 2007 to 60–70% in 2014. However, we believe the strong

order book and fading offshore activity will accelerate pressure on utilisation, thus we expect

a further decline in 2015.

Figure 13: Vessel utilisation, OCV Figure 14: Utilisation has faded (LTM)

Source: IHS Petrodata Source: IHS Petrodata

What about early phase involvement?

As the complexity of subsea field developments increases, early phase involvement,

engineering and technology become more important differentiators to secure contracts. While

all tier one SURF players have significant engineering capabilities and early phase

involvement, Technip has until recently been the only contractor with an in-house

‘independent’3 engineering firm – Genesis Oil & Gas consulting. Technip argues that Genesis

is an important enabler for it to help clients reduce costs and is an enabler for winning work. It

is of course very difficult to validate statements like this, but we are impressed by Technip’s

ability to win subsea work. For instance, it has been more successful than Subsea 7 in terms

of winning new work over the past two years (H1 2013 order intake for Subsea 7 was boosted

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

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Diving Support ROV Support Pipelay

9

DNB Markets

12 March 2015

9

by PLSV contracts), and we are starting to believe that its early phase involvement inter alia

through Genesis is an important differentiator.

Figure 15: Book-to-bill (LTM) – Subsea 7 vs. Technip (Subsea division only)


Other SURF companies have recently increased their exposure to early phase engineering

work. In October 2014 Saipem announced it had created a new subsea engineering firm,

Xodus Subsea (jointly owned by Xodus Group, Saipem and Chiyoda), and in January 2015

McDermott and GE launched a new, independent oil and gas consultancy firm, io oil & gas

consulting.

0.0x

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2006 2007 2008 2009 2010 2011 2012 2013 2014

Technip (Subsea division) Subsea 7

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Falling backlog set to erode earnings Backlog momentum started to fade in H2 2014 and the average book-to-bill for the tier one

SURF companies was ~0.5x in H2 2014. Note Technip was able to maintain a book-to-bill of

around 1.0x in H2 2014, while Subsea 7 in particular saw a rapid deterioration in its backlog.

For 2014 industry order intake was boosted by a couple of major contract awards in H1 2014,

namely Kaombo (Technip) and South Stream (Saipem). Based on the current outlook for the

offshore oil and gas industry, we expect the weak backlog momentum to extend into 2015

and 2016. We forecast a book-to-bill of ~0.7x for the tier one SURF companies in 2015.

Figure 16: Book-to-bill (Q and LTM) tier one SURF – average Figure 17: Book-to-bill (A) tier one SURF

Source: Companies Source: Companies, DNB Markets

Aggregated order backlog for the tier one SURF companies peaked in Q2 2014, since when it

has fallen for two consecutive quarters. We expect the backlog erosion to continue in 2015

and well into 2016.

Figure 18: Order backlog tier one SURF (USDm)

Source: Companies

Backlog coverage varies significantly between the tier one subsea construction companies.

Technip in particular has very good backlog coverage for 2015e and 2016e, versus Subsea 7

which has low coverage for 2016e.

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DNB Markets

12 March 2015

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Figure 19: Backlog coverage – Subsea7

(USDm)

Figure 20: Backlog coverage – Technip4

(EURm)

Figure 21: Backlog coverage – Saipem5

(EURm)


Unannounced order intake set to decline in 2015

Below we have split order intake at Subsea 7 and Technip (Subsea division only) into three

categories (small contracts, PLSV dayrate contracts and large contracts). The sizeable

smaller orders (i.e. unannounced order intake) in 2011 and 2012 correspond well with the

capex boom witnessed on the UK Continental Shelf and Norwegian Continental Shelf, where

high oil prices made smaller subsea tie-back projects attractive. We expect oil and gas

investments in the UKCS and NCS to fall sharply over the next few years, which we believe

will have a negative effect on subsea order intake in these regions. Furthermore, with the

lower oil price and less development activity, we also believe discretionary awards (i.e.

variation orders) will be negatively affected.

Figure 22: Order intake split Technip and Subsea 7 (USDm)


We forecast a significant decline in revenue in subsea in 2015–2017

We believe backlog erosion will have a negative effect on revenue in 2015–2017. However, we

see a mixed picture for 2015, with Technip increasing revenue due to solid backlog growth in

2014, but sharp falls in turnover at both Subsea 7 and Saipem (the latter depends on whether

the South Stream project is cancelled or not). For 2016 and 2017 though we expect all SURF

companies to see revenue declines. Note that in the graph below Technip revenue is for the

Subsea division only, and Saipem revenue is for the Offshore Construction segment only.

4 Subsea division only

5 Offshore Construction segment only

78%

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14,000

16,000

18,000

20,000

2009 2010 2011 2012 2013 2014 2015e 2016e

Small- to mid-sized Larger contracts PLSV

12

DNB Markets

12 March 2015

12

Figure 23: Revenue growth SURF companies


High operational gearing and weak backlog momentum set to erode earnings

Operational gearing in the subsea construction industry is high due to sizeable fixed costs

associated with the fleet of construction vessels, highlighting the importance of maintaining

high fleet utilisation. In addition to utilisation, profitability in the SURF business depends on: 1)

embedded margin at contract signing; 2) project execution; and 3) optimisation of fleet

utilisation (i.e. demand is strong across regions so companies do not have to steam vessels

from region to region chasing work). In a bad market (as we are now entering), all factors are

turning for the worse: increased (and more desperate) competition lowers embedded

margins, contractors accept more risk in new projects, utilisation falls (inter alia due to less

spot work), and fleet utilisation becomes less optimal as regional demand falls. Hence, we

believe weak backlog momentum and high operational gearing are set to erode earnings over

the next few years.

Tougher competition could increase execution risk in new awards

In a bad market, more intense (and desperate) competition leads to lower embedded margins

in new contract awards. In addition we believe execution risk in new projects increases as

contractors accept more risk and reduce the contingencies they build into the cost base they

bid the projects at. When these projects enter the offshore phase a couple of years out in

time, there is a high risk of project losses if execution has not been flawless. We saw this

effect in 2013 when all tier one SURF companies issued a profit warning due to increased

costs related to projects awarded in a more adverse market (Technip issued a profit warning

in December 2013, but the earnings hit was not taken before Q1 2014).

Figure 24: EBITDA margin tier one SURF companies

Source: Companies

-30%

-20%

-10%

-

10%

20%

30%

40%

50%

2007 2008 2009 2010 2011 2012 2013 2014e 2015e 2016e 2017e

Saipem Technip Subsea 7 Average growth rate

-15.0%

-10.0%

-5.0%

-

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4

2007 2008 2009 2010 2011 2012 2013 2014

Saipem (Offshore Construction) Technip (Subsea division) Subsea 7

13

DNB Markets

12 March 2015

13

2015e earnings are not the problem – but 2016e and 2017e earnings are

While we are concerned that backlog erosion will lead to significant earnings erosion, we

highlight that there is a time-lag between prices and margins. Due to this time-lag (which we

estimate is roughly two years), we believe 2015 earnings will be fairly resilient (in addition, even

Subsea 7 has decent backlog coverage for the current year). This effect was particularly clear in

the North Sea in the aftermath of the financial crisis. The graph below shows Subsea 7’s

reported EBIT margin for the North Sea and Canada region since 2007 (LTM) versus the book-

to-bill ratio in the same region. Even though order intake collapsed in H2 2008 (and resulted in

significant pricing pressure that lasted in 2009 and 2010), margins were resilient well into 2010

(and did not collapse before 2011). We expect to see the same in 2015 (note that Q4 2014

margins were very strong due to the close-out of projects awarded in a better market).

Figure 25: Margin and book-to-bill for Subsea 7's North Sea and Canada region

Source: Subsea 7

How fast can the subsea companies cut costs?

The key question now is how fast the subsea companies can cut costs to adjust the cost base to

lower activity levels. In its Q4 presentation Subsea 7 provided more information about its cost

base, in particular it quantified procurement costs (including the hire of third-party vessels) at

USD2.8bn (~47% of its total cost base in 2014 when stripping out the goodwill impairment). Staff

costs accounted for ~33%. Procurement costs are directly correlated with revenue, and roughly

a third of its employees are hired-in contractors (hence flexible near-term). We argue that

Subsea 7’s cost split is a reasonable proxy for that of its subsea peers. In other words, there is

clearly potential to reduce the cost base over the next few years (lower revenues alone would

drive procurement costs down), but we do not believe the subsea companies will be able to cut

costs quick enough to defend margins in 2016–2017. However, margins could surprise on the

upside in 2015 as projects awarded in a better market are completed and as the first effects of

cost-cutting efforts filter through. This is in line with what we saw in 2009, but we see a limited

share price effect of any near-term margin beat as long as the market does not improve.

0.0x

0.2x

0.4x

0.6x

0.8x

1.0x

1.2x

1.4x

1.6x

1.8x

2.0x

0.0 %

5.0 %

10.0 %

15.0 %

20.0 %

25.0 %

2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q

2008 2009 2010 2011 2012 2013 2014

EBIT margin LTM (l.h.) Book to bill ratio LTM (r.h.)

14

DNB Markets

12 March 2015

14

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

Source: Subsea 7, DNB Markets

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

In our opinion the subsea companies face some tough decisions over the next few years:

should they cut costs to the bone to defend earnings in 2016 and 2017, or retain base-line

capacity to be able to ramp-up quickly (and without significant cost increases) when the cycle

turns? We acknowledge that the need to cut costs differs between the various subsea

companies depending on the size of the order backlog and coverage for 2015e and 2016e.

Technip is best positioned in our view, while we have concerns about Subsea 7’s low backlog

coverage for 2016e and beyond; hence, we believe it needs to cut costs more aggressively

than Technip, which could hamper its ability to win work when the market eventually turns.

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

People Procurement Lease costs D&A Asset imp. Goodwillimp.

Other costs Cost base

15

DNB Markets

12 March 2015

15

Earnings momentum – set to remain negative

Earnings momentum

The earnings cycle has been negative since the start of 2013, but accelerated significantly in

H2 2014. Note that aggregated 2013 and 2014 net profit was depressed by low earnings at

Saipem, but the earnings cycle was negative for all SURF companies during this time.

Aggregated net profit for 2014 was below 2011 and 2012, and current consensus for 2015e

and 2016e sees no improvement.

Figure 27: Earnings revisions and market cap. for SURF sector (USDm)

Source: DNB Markets, Bloomberg

Negative earnings revisions over the past year vary between the different SURF companies.

2015e and 2016e earnings have collapsed for both Subsea 7 and Saipem (the former due to

its inability to build its order backlog, the latter due to execution issues and no margin on

several contracts). While expectations for Technip have moderated, 2015e and 2016e

consensus is ‘only’ down 12% and 27% YOY, respectively.

Figure 28: Changes to earnings

forecasts – Subsea 7


forecasts – Technip


forecasts – Saipem

Source: Subsea 7, DNB Markets, Bloomberg Source: Technip, DNB Markets, Bloomberg Source: Saipem, DNB Markets, Bloomberg

Despite the significant earnings revisions over the past year, we do not believe the negative

earnings cycle has troughed, and we still see significant downside risk to 2016 estimates in

particular. We forecast a prolonged cyclical downturn in the subsea sector, which is likely to

depress order intake over the next few years. Consensus for 2017 is not yet available, but we

expect earnings erosion to extend into 2017. The notable exception is Saipem, as earnings

are currently depressed by zero-margin work due to be completed by 2017. Where we believe

consensus is wrong is the duration of the current downturn and the effect backlog erosion,

high operational leverage and increased competition will have on earnings over the next few

-

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

Market cap 2007 2008 2009

2010 2011 2012 2013

2014 2015 2016

-46%

-62%

-22%

-35%

-70%

-60%

-50%

-40%

-30%

-20%

-10%

-

2015e 2016e

Changes since 12.03.2014


-12%

-27%

-3%

-14%

-30%

-25%

-20%

-15%

-10%

-5%

-

2015e 2016e



-57%

-50%

-39%

-34%

-60%

-50%

-40%

-30%

-20%

-10%

-

2015e 2016e



16

DNB Markets

12 March 2015

16

years. In addition, due to its late cyclical nature, we do not believe the full effect of the

slowdown will kick-in before 2016–2017.

Figure 31: DNB revenue forecasts versus consensus for

2015–2016e

Figure 32: DNB net profit forecasts versus consensus for

2015–2016e

Source: DNB Markets, Bloomberg consensus Source: DNB Markets, Bloomberg consensus

While we are some way below consensus on 2016e net profit for Subsea 7, consensus does

imply a sharp fall in earnings in 2015 and 2016. The situation is different for Technip where

consensus assumes peak earnings extend into 2016. Saipem is in a different situation, as

earnings over the past two years have been hampered by one-off losses and zero margins on

several E&C contracts awarded in the market trough of 2009 and 2010.

Figure 33: Net profit – Subsea 7 (USDm) Figure 34: Net profit – Technip (EURm) Figure 35: Net profit – Saipem (EURm)

Source: Subsea 7, DNB Markets, Bloomberg consensus Source: Technip, DNB Markets, Bloomberg consensus Source: Saipem, DNB Markets, Bloomberg consensus

-5%

-8%

1%

-4%

1%

-7%

-3%

-6%

-9%

-8%

-7%

-6%

-5%

-4%

-3%

-2%

-1%

-

1%

2%

2015e 2016e 2015e 2016e 2015e 2016e 2015e 2016e

Subsea 7 Technip Saipem Aker Solutions

Revenue

-6%

-37%

-6%

-20%

-22%

-10%

-5%

-21%

-40%

-35%

-30%

-25%

-20%

-15%

-10%

-5%

-

2015e 2016e 2015e 2016e 2015e 2016e 2015e 2016e

Subsea 7 Technip Saipem Aker Solutions

Net profit

-

100

200

300

400

500

600

700

800

900

DNB Cons.

-

100

200

300

400

500

600

700

800

DNB Cons.

-400

-200

-

200

400

600

800

1,000

DNB Cons.

17

DNB Markets

12 March 2015

17

Valuation – we do not see a v-shaped recovery

Earnings multiples

As investor focus has shifted from 2015e earnings to 2016e earnings, we believe it makes

more sense to look at 2-year forward multiples rather than 1-year forward metrics. On 2-year

forward EV/EBIT the SURF companies (Subsea 7, Technip and Saipem) are trading in line

with historical multiples (consensus estimates), but on our forecasts the sector is trading at a

30% premium to historical multiples. We do not believe 2016 will be trough year earnings-

wise, hence in our view current 2-year forward earnings multiples are too high.

Figure 36: 2-year forward EV/EBIT SURF companies Figure 37: 2-year forward EV/EBIT SURF companies


We see the same trend for 2-year forward P/Es. On consensus estimates the sector is trading

at a slight discount to historical multiples, versus a small premium on our forecasts.

Figure 38: 2-year forward P/E – SURF companies Figure 39: 2-year forward P/E – SURF companies


Does P/B provide a floor for share prices?

P/Bs have fallen fairly dramatically over the past few years for the subsea construction

companies, particularly for Subsea 7 and Saipem (which are now trading at 0.5x and 1.0x,

respectively).

-

2.0x

4.0x

6.0x

8.0x

10.0x

12.0x

14.0x

16.0x

Jan.06 Jan.08 Jan.10 Jan.12 Jan.14

2-yrs fwd multiple (8.0x) Avg 2-yrs fwd multiple (8.3x)

DNB estimate (10.8x)

-

2.0x

4.0x

6.0x

8.0x

10.0x

12.0x

14.0x

16.0x

18.0x

20.0x

Subsea 7 (6.4x) Technip (6.6x)

Saipem (11.1x) Subsea 7 DNBe (10.7x)

Technip DNBe (7.9x) Saipem DNBe (13.8x)

-

5.0x

10.0x

15.0x

20.0x

25.0x

Jan.06 Jan.08 Jan.10 Jan.12 Jan.14

2-yrs fwd multiple (11.0x) Avg 2-yrs fwd multiple (12.4x)

DNB estimate (14.2x)

-

5.0x

10.0x

15.0x

20.0x

25.0x

Subsea 7 (10.5x) Technip (12.4x)

Saipem (10.2x) Subsea 7 DNBe (15.8x)

Technip DNBe (14.6x) Saipem DNBe (12.1x)

18

DNB Markets

12 March 2015

18

Figure 40: P/Bs SURF companies Figure 41: Price to tangible book SURF companies


In our view low P/Bs reflect significant deterioration in the return profile for several of the subsea

construction companies. As can be seen below, ROEs for both Subsea 7 and Saipem have

collapsed since the 2007–2008 peak, and we expect them to remain subdued over the next few

years. We forecast a ROE of c5% for Subsea 7 in 2015–2016 (broadly in line with the return

profile over the past few years), with a COE above 10%, and believe the stock should be trading

at a P/B significantly below 1x. Technip has been able to maintain its ROE at around 14% over

the past five years, but as the cyclical downturn extends, we see its ROE trending towards 10%

(2014 ROE was depressed by low profitability in Q1 2014 in the US GoM).

Figure 42: ROE – Subsea 7 Figure 43: ROE – Technip Figure 44: ROE – Saipem


What is implied in the current share price?

While the negative earnings momentum has continued YTD, the share price performance of

most subsea companies has been positive so far in 2015. In other words, falling estimates

have been offset by multiples expansion. In addition, despite the oil price falling c35% since

the end of October 2014, share prices for most of the subsea companies are flat; hence last

time share prices were at these levels, the oil price was at USD80–90/bbl. Hence we argue

current share prices imply a v-shaped recovery in the offshore investment cycle, which we do

not see happening.

-

1.0x

2.0x

3.0x

4.0x

5.0x

6.0x

7.0x

8.0x

9.0x

Subsea 7 (0.5x) Technip (1.6x) Saipem (1.0x)

-

0.5x

1.0x

1.5x

2.0x

2.5x

3.0x

3.5x

4.0x

4.5x

5.0x

Aug.06 Aug.08 Aug.10 Aug.12 Aug.14

Subsea 7 (0.7x) Technip (1.6x) Saipem (1.0x)

-10%

-5%

-

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

e

20

16

e

Return on equity

0.0 %

2.0 %

4.0 %

6.0 %

8.0 %

10.0 %

12.0 %

14.0 %

16.0 %

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

e

20

16

e

Return on equity

-10.0%

-

10.0%

20.0%

30.0%

40.0%

50.0%20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

e

20

16

e

Return on equity

19

DNB Markets

12 March 2015

19

Figure 45: Share price performance YTD Figure 46: Oil price versus subsea company share prices

Source: DNB Markets, Bloomberg Source: DNB Markets, Bloomberg

We maintain our negative view on the sector

Our continued negative view on the subsea sector reflects our negative macro view. We

forecast a prolonged cyclical downturn and do not believe 2016 will mark the earnings trough

of this cycle. At this stage in the cycle we believe earnings momentum and backlog

momentum are key share price drivers, both of which we believe will remain negative for the

next 12 months. We acknowledge that relatively speaking the subsea companies’ balance

sheets are healthier than other oil service companies, but we do not see this as a reason to

own the stocks. In addition, in a potential v-shaped recovery scenario for the entire oil and

gas sector (which is not our base case) we believe leveraged and early cyclical names would

benefit more than the late-cyclical subsea stocks with low gearing.

Where could we be wrong?

We believe the main risk to our SELL recommendations in the subsea sector is on the macro

level, i.e. that we are actually witnessing a v-shaped recovery in the offshore investment cycle

(triggered by a significant improvement in the oil price). In the event, we would expect to see

significant multiples expansion, in line with that at the beginning of 2009. Below we show the

historical 1-year forward P/E and 1-year forward net profit estimate for Subsea 7. Note that

while forward estimates continued to trend down until end-2009, multiples expansion kicked-

in at the start of 2009.

Figure 47: 1-year forward P/E multiple versus 1-year forward net profit (USDm) Subsea 7

Source: DNB Markets, Bloomberg

-7%

20%

10%

-5%

1%

-11%

16%

-4%

-15%

-10%

-5%

-

5%

10%

15%

20%

25%

50

60

70

80

90

100

110

120

Oct-

14

No

v-1

4

No

v-1

4

No

v-1

4

No

v-1

4

De

c-1

4

De

c-1

4

De

c-1

4

De

c-1

4

Ja

n-1

5

Ja

n-1

5

Ja

n-1

5

Ja

n-1

5

Ja

n-1

5

Feb

-15

Feb

-15

Feb

-15

Feb

-15

SUBC (-2%) TEC (3%) SPM (-23%)

AKSO (-9%) Brent (-35%)

-

5.0x

10.0x

15.0x

20.0x

25.0x

30.0x

-

100

200

300

400

500

600

700

800

Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15

1Y forward net profit (L) 1Y forward PE (R)

20

DNB Markets

12 March 2015

20

Best investments ideas

We maintain our SELL recommendations on Subsea 7, Aker Solutions, Saipem and Technip.

On a relative basis we prefer Technip due to its diversified business model and solid backlog

coverage. Our least preferred subsea names are Saipem (due to too-high gearing and

significant exposure to the offshore rig market) and Subsea 7 (its backlog coverage for 2016e

looked too low entering 2015). Aker Solutions has decent backlog coverage for 2015e in its

Subsea and Engineering divisions, but we are not comfortable with the concentrated project

risk in the subsea backlog (due to the Kaombo project in Angola).

Relative valuation Figure 48: Valuation versus other oil service peers

Source: DNB Markets, Bloomberg consensus

P/B

Company Sales EBITDA EBIT EPS (14e) (15e) (16e) (14e) (15e) (16e) (14e) (15e) (16e) (14e) (15e) (16e) (cur.) EV/sales EV/EBITDA EV/EBIT P/E

Aker Solutions -7% -8% -11% -14% 0.4x 0.4x 0.5x 4.4x 5.1x 6.3x 5.7x 6.9x 9.2x 8.0x 9.6x 13.8x 1.9x -63% -19% -35% -29%

FMC -4% -5% -4% -5% 1.2x 1.2x 1.2x 7.1x 7.3x 7.1x 8.8x 8.6x 8.7x 13.1x 14.0x 14.3x 3.5x 2% 15% -19% 3%

Cameron -11% -12% -13% -20% 1.1x 1.2x 1.2x 7.0x 7.8x 8.1x 8.9x 10.6x 10.7x 11.2x 14.3x 15.7x 1.9x 3% 23% -1% 5%

NOV -16% -20% -20% -24% 0.9x 1.0x 1.1x 4.3x 5.6x 5.9x 5.2x 6.9x 7.1x 8.3x 12.9x 14.9x 1.0x -11% -12% -35% -5%

Subsea 7 -17% -22% -33% -38% 0.5x 0.6x 0.7x 2.3x 3.4x 4.3x neg. 6.1x 11.3x 4.0x 7.7x 15.3x 0.5x -46% -47% -43% -44%

Technip -2% 3% 3% 3% 0.4x 0.5x 0.5x 3.8x 4.1x 4.7x 5.1x 5.4x 6.6x 11.3x 10.3x 13.6x 1.6x -57% -35% -49% -24%

Saipem -8% 4% 11% 16% 0.6x 0.7x 0.7x 6.7x 6.5x 5.3x neg. 16.9x 11.2x neg 20.5x 11.9x 1.0x -35% 2% 58% 51%

Schlumberger -7% -9% -12% -13% 2.3x 2.6x 2.6x 8.2x 10.3x 9.7x 11.5x 15.6x 14.5x 14.7x 22.1x 19.9x 2.7x 128% 62% 46% 63%

Baker Hughes -8% -11% -16% -19% 1.2x 1.3x 1.3x 6.4x 7.9x 7.2x 10.5x 17.3x 13.6x 15.6x high 23.5x 1.4x 14% 24% 62%

Halliburton -4% -8% -11% -19% 1.2x 1.4x 1.3x 5.7x 7.9x 6.3x 8.0x 11.7x 9.6x 10.5x 23.6x 18.1x 2.2x 22% 24% 9% 73%

Weatherford -11% -14% -27% -35% 1.1x 1.4x 1.3x 5.7x 8.1x 7.0x 10.5x high 18.1x 12.4x high high 1.4x 18% 28% n.a.

Amec 22% 21% 20% 15% 1.0x 0.6x 0.6x 10.9x 7.2x 7.0x 13.4x 9.3x 8.8x 10.8x 10.2x 9.7x 2.6x -44% 13% -13% -25%

Wood Group -4% -5% -4% -7% 0.5x 0.5x 0.5x 6.5x 6.8x 6.7x 8.9x 9.1x 9.0x 9.6x 10.5x 10.6x 1.4x -54% 7% -15% -23%

Petrofac 11% 9% 7% 1% 0.8x 0.8x 0.7x 5.9x 6.0x 5.1x 8.2x 8.7x 7.3x 7.8x 9.4x 7.8x 2.4x -35% -5% -18% -31%

McDermott 13% #N/A n.m. n.m. 0.5x 0.4x 0.4x high 7.6x 5.1x neg. 21.4x 11.7x n.a. n.a. high 0.5x -68% 20% 100%

Oceaneering -4% -5% -11% -12% 1.4x 1.6x 1.5x 6.2x 7.1x 6.9x 8.4x 11.1x 10.7x 13.0x 16.0x 15.5x 3.1x 36% 11% 4% 18%

CGG Veritas -32% -10% 8% n.m. 1.2x 1.4x 1.3x 4.0x 4.4x 4.1x neg. high 15.7x n.a. n.a. high 0.4x 20% -31% n.a.

PGS -3% -6% -19% -24% 1.5x 2.2x 2.1x 3.0x 4.8x 4.5x 10.7x high 21.8x 11.4x high 18.3x 0.6x 87% -25% n.a.

TGS -10% -10% -14% -16% 2.3x 2.9x 2.9x 2.8x 3.5x 3.5x 5.9x 8.6x 8.1x 9.1x 13.2x 12.3x 1.7x 148% -45% -19% -3%

WorleyParsons -16% -14% -15% -17% 0.3x 0.4x 0.5x 4.8x 5.8x 6.0x 5.9x 7.4x 7.6x 8.9x 9.8x 10.8x 1.1x -62% -8% -31% -28%

Average 1.0x 1.2x 1.1x 5.6x 6.4x 6.0x 8.5x 10.7x 11.1x 10.6x 13.6x 14.5x 1.6x

Median 1.0x 1.1x 1.1x 5.7x 6.7x 6.1x 8.6x 9.1x 10.1x 10.8x 12.9x 14.3x 1.5x

Max 2.3x 2.9x 2.9x 10.9x 10.3x 9.7x 13.4x 21.4x 21.8x 15.6x 23.6x 23.5x 3.5x

Min 0.3x 0.4x 0.4x 2.3x 3.4x 3.5x 5.1x 5.4x 6.6x 4.0x 7.7x 7.8x 0.4x

European oil service 0.9x 1.0x 1.0x 5.0x 5.3x 5.2x 8.0x 8.7x 10.6x 9.0x 11.2x 12.4x 1.4x

US oil service 1.2x 1.3x 1.3x 6.3x 7.7x 7.0x 9.0x 12.9x 11.6x 12.4x 17.1x 17.4x 2.0x

SURF companies 0.5x 0.6x 0.7x 4.3x 4.7x 4.8x 5.1x 9.5x 9.7x 7.7x 12.8x 13.6x 1.0x

CAGR 14-16e EV/Sales EV/EBITDA EV/EBIT P/E 2015 multiples versus sector average

21

DNB Markets

12 March 2015

21

AKER SOLUTIONS

Still no light in the tunnel We forecast earnings erosion in 2016 and 2017, and negative earnings and backlog momentum to prevail as the cyclical downturn unfolds. Against this backdrop we view the valuation (14x 2016e earnings) as excessive, and we maintain our SELL recommendation. We have lowered our target price to NOK30 (32).

Weak backlog momentum set to hamper activity. The global subsea tree awards

totalled 236 in 2014, the lowest level since 2003, and we expect tree orders to remain

subdued in 2015. Aker Solutions’ order backlog momentum started to fade in H2 2014

(book-to-bill of 0.6x despite positive FX effects), and we expect the backlog to

continue to fall in 2015. We estimate backlog coverage of 39% for 2016, which we find

uncomfortable low given the current macro environment. We see lower activity going

forward, and forecast revenue to fall by 7% and 11% in 2015 and 2016, respectively.

Aker Solutions is a derivative of activity on the NCS, and consequently we worry

about the expected 15% and 7% fall in investments in 2015e and 2016e (estimates

from Norwegian Petroleum Directorate). The order backlog in Norway fell by 25% in

H2 2014, and we do not believe the NOK4.5bn Johan Sverdrup engineering contract

(awarded in Q1 2015) is sufficient to stop the backlog erosion in Norway in 2015.

High execution risk in subsea backlog. Aker Solutions tripled its global market

share in 2013 and 2014 (in terms of subsea tree awards) and its record-high subsea

backlog is concentrated in a handful of large greenfield development projects (above

all the NOK14bn Kaombo project in Angola). We are not comfortable with this

concentrated project risk and see significant earnings risk in 2015–2017.

SELL reiterated. We forecast significant earnings erosion in 2015–2017, as well as

negative earnings and backlog momentum over the next 12 months. In addition, we

see no immediate turn in the offshore investment cycle. Against this backdrop we find

the valuation unjustified and reiterate our SELL recommendation. The antithesis to our

SELL recommendation is an M&A scenario, but we do not see Aker Solutions (or part

of Aker Solutions) being sold in this depressed market.

SELL TP: NOK30.0

AKSO versus OSEBX (12m)

Source: Factset

Year-end Dec 2011 2012 2013 2014 2015e 2016e 2017e

Revenue (NOKm) 22,081 28,345 29,058 32,971 30,640 27,190 25,390

EBITDA adj (NOKm) 1,607 2,220 2,079 2,675 2,514 1,982 1,766

EBIT adj (NOKm) 1,306 1,863 1,580 2,080 1,874 1,347 1,160

PTP (NOKm) 743 1,724 1,577 1,817 1,691 1,179 1,032

EPS rep (NOK) 1.68 4.54 4.31 4.71 4.11 2.85 2.49

EPS adj (NOK) 3.21 4.47 4.31 5.19 4.11 2.85 2.49

DPS (NOK) 0.00 0.00 0.00 1.45 1.23 0.86 0.75

Revenue growth (%) nm 28.4 2.5 13.5 -7.1 -11.3 -6.6

EBITDA growth adj (%) nm 38.1 -6.4 28.7 -6.0 -21.2 -10.9

EPS growth adj (%) nm 39.0 -3.5 20.4 -20.9 -30.6 -12.5

3-year EPS CAGR (%) nm 17.3 -2.8 -12.9 -21.7 nm nm

EBITDA margin adj (%) 7.3 7.8 7.2 8.1 8.2 7.3 7.0

EV/Sales adj (x) 0.36 0.42 0.46 0.48

EV/EBITDA adj (x) 4.4 5.2 6.3 6.9

EV/EBIT adj (x) 5.7 6.9 9.3 10.6

P/E adj (x) 8.0 9.7 13.9 15.9

P/Book (x) 1.99 1.68 1.58 1.48

ROE (%) nm 22.6 21.2 20.7 17.8 11.3 9.3

ROCE (%) nm 24.0 17.6 21.5 19.7 13.9 11.5

Dividend yield (%) nm nm nm 3.5 3.1 2.2 1.9

FCFF yield (%) nm nm nm 13.6 -10.4 5.1 3.1

Source: Company, DNB Markets

ANALYSTS


[email protected]

+47 24 16 91 91

Sveinung Alvestad

[email protected]

+47 24 16 91 92


303540455055606570

Sep Oct Nov Dec Jan Feb

Aker Solutions OSEBX (Rebased)

SUMMARY

Recommendation (prev.) SELL (SELL)

Share price (NOK) 39.7

Target price (previous) (NOK) 30.0 (32.0)

Upside/downside potential (%) -24

Tickers AKSO NO, AKSO.OL

CAPITAL STRUCTURE

No. of shares (m) 272.0

No. of shares fully dil. (m) 272.0

Market cap. (NOKm) 10,795

NIBD adj end-2015e (NOKm) 2,183

Enterprise value adj (NOKm) 12,978

Net debt/EBITDA adj (x) 0.94

NAV per share (NOK) 36.4

SHARE PRICE PERFORMANCE

Abs. 1/3/12m (%) 6/10/-39

Rel. 1/3/12m (%) 6/-2/-50

High/Low 12m (NOK) 65/32

Free float (%) 53


UPCOMING EVENTS

Q1 2015 07/05/2015

ESTIMATE CHANGES (NOK)

Year-end Dec 2015e 2016e 2017e

EPS (old) 4.09 3.06 2.69

EPS (new) 4.11 2.85 2.49

Change (%) 0.3 -6.7 -7.3

Consensus 3.73 3.64

Sales (old) 30,640 27,640 26,140

Sales (new) 30,640 27,190 25,390

Change (%) 0.0 -1.6 -2.9

Consensus 29,035 28,910

Source: DNB Markets, * Bloomberg consensus (11.03.2015)

22

DNB Markets

12 March 2015

22

Investment case overview Share price performance, DNB Markets’ target price, bear- and bull-case scenarios Target price methodology

Our new target price of NOK30

values Aker Solutions at 8x 2016e

EBIT and net debt per year-end

2015e. Our target price implies a

2015e and 2016e P/E of 7x and 11x,

respectively, which we find fair given

the earnings outlook.

Our DCF analysis supports a fair

value per share of NOK37.

Our SOTP analysis, based on

current peers’ trading multiples,

implies a value per share of NOK36

(based on 2016e multiples).

Source: FactSet, DNB Markets Source: DNB Markets

Downside risks to our investment

case

DNB Markets investment case and

how we differ from consensus

Upside risks to our investment case

Increased costs on the Kaombo

subsea project in Angola.

Aker Solutions is not able to cut costs

fast enough and margins fall

significantly in 2015.

Level of order intake in H2 2014

continues in 2015.

Our bear-case scenario sees 20%

downside to 2016e EBIT and values

Aker Solutions at 8x 2016e EBIT.

We expect weak backlog momentum

to hamper activity and margins going

forward.

Aker Solutions is a derivative of the

activity level on the NCS, in our view,

where investments are expected to

fall by 15% in 2015 and 7% in 2016

(NPD estimates).

We are not comfortable with the

execution risk in the subsea backlog.

We do not see Aker Solutions being

sold in this depressed market.

V-shaped recovery in the offshore

investment cycle.

M&A scenario where Aker Solutions

(or parts of Aker Solutions) is

acquired.

Better than expected order intake in

2015 and better than expected

margins.

Our bull-case scenario is based on

our SOTP analysis, where we value

Aker Solutions on 2015e EBITDA and

peers’ earnings multiples.

Source: DNB Markets Source: DNB Markets Source: DNB Markets

EBITDA bridge 2014e–2016e (NOKm)

Source: DNB Markets, company

NOK40

NOK30 (-24%)

NOK22 (-45%)

NOK49 (23%)

18

28

38

48

58

68

Sep 2014 Jan 2015 May 2015 Sep 2015 Jan 2016

Historical Share Price Performance Price Target (Mar 16) Current Share Price

2,675

-189 28 0

2,514

-283

-249 0

1,982

1,280

1,480

1,680

1,880

2,080

2,280

2,480

2,680

2,880

20

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gro

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an

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er

20

15

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20

16

e

23

DNB Markets

12 March 2015

23

Forecast changes – P&L

New Old Change

(NOKm) 2015e 2016e 2017e 2015e 2016e 2017e 2015e 2016e 2017e

Revenues 30,640 27,190 25,390 30,640 27,640 26,140 0 -450 -750

Operating expenses -28,126 -25,208 -23,624 -28,135 -25,583 -24,278 9 375 654

EBITDA 2,514 1,982 1,766 2,505 2,058 1,863 9 -75 -96

EBITDA adj 2,514 1,982 1,766 2,505 2,058 1,863 9 -75 -96

EBITDA margin (%) 8.2 7.3 7.0 8.2 7.4 7.1 0.0 -0.2 -0.2

Depreciation -592 -584 -553 -587 -574 -566 -5 -9 14

Impairment of PPE 0 0 0 0 0 0 0 0 0

EBITA 1,922 1,398 1,214 1,918 1,483 1,296 4 -85 -82

Amortisation -48 -51 -54 -48 -51 -53 0 -1 -1

EBIT 1,874 1,347 1,160 1,870 1,433 1,243 4 -85 -83

EBIT adj 1,874 1,347 1,160 1,870 1,433 1,243 4 -85 -83

Net interest -183 -168 -128 -183 -168 -130 0 1 2

FX gains 0 0 0 0 0 0 0 0 0

Net financial items -183 -168 -128 -183 -168 -130 0 1 2

Non-recurring items 0 0 0 0 0 0 0 0 0

PBT 1,691 1,179 1,032 1,687 1,264 1,114 4 -85 -81

Taxes -558 -389 -341 -557 -417 -367 -1 28 27

Minorities -19 -16 -15 -20 -17 -16 0 1 1

Discontinued operations 0 0 0 0 0 0 0 0 0

Net profit 1,114 774 677 1,111 830 731 3 -56 -54

Adjustments to net profit 0 0 0 0 0 0 0 0 0

Net profit adj 1,114 774 677 1,111 830 731 3 -56 -54

Per share data (NOK)

EPS 4.11 2.85 2.49 4.09 3.06 2.69 0.01 -0.21 -0.20

EPS adj 4.11 2.85 2.49 4.09 3.06 2.69 0.01 -0.21 -0.20

DPS 1.23 0.86 0.75 1.23 0.92 0.81 0.00 -0.06 -0.06

Other key metrics (%)

Revenue growth -7.1 -11.3 -6.6 -7.1 -9.8 -5.4 0.0 -1.5 -1.2

EBIT adj growth -9.9 -28.1 -13.9 -10.1 -23.4 -13.2 0.2 -4.7 -0.7

EPS adj growth -20.9 -30.6 -12.5 -21.1 -25.3 -12.0 0.2 -5.2 -0.6

Capex -1,343 -862 -812 -1,338 -887 -769 -5 25 -43

Working capital 1,309 1,371 1,588 1,316 1,526 1,633 -7 -155 -45

NIBD adj 2,183 1,698 1,445 2,193 1,835 1,362 -10 -137 83

Source: DNB Markets

24

DNB Markets

12 March 2015

24

Quarterly numbers

(NOKm) Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015e Q2 2015e Q3 2015e Q4 2015e Q1 2016e

Revenues 7,437 8,043 8,271 9,155 8,208 8,070 7,450 6,912 6,934

Operating expenses -6,814 -7,459 -7,654 -8,369 -7,513 -7,384 -6,846 -6,382 -6,420

EBITDA 623 587 617 786 695 686 604 530 514

Depreciation -131 -128 -146 -148 -148 -148 -148 -148 -146

Impairment of PPE 0 0 0 -70 0 0 0 0 0

EBITA 492 459 471 568 546 538 456 382 368

Amortisation -10 -11 -11 -11 -12 -12 -12 -12 -13

EBIT 482 448 460 557 535 526 444 370 355

Net interest -27 -17 -2 -92 -43 -50 -47 -43 -44

FX gains -106 73 -32 116 0 0 0 0 0

Net financial items -133 56 -34 24 -43 -50 -47 -43 -44

Non-recurring items 0 0 0 -105 0 0 0 0 0

PBT 349 504 426 476 492 476 396 327 311

Taxes -108 -137 -155 -117 -162 -157 -131 -108 -103

Minorities -2 -5 -6 -7 -5 -5 -5 -4 -4


Net profit 239 362 265 352 325 314 261 215 204

Adjustments to net profit 0 -2 31 128 0 0 0 0 0

Net profit adj 239 360 296 480 325 314 261 215 204

Dividend paid 0 0 0 0 0 -394 0 0 0


EPS 0.88 1.33 0.97 1.30 1.20 1.16 0.96 0.79 0.75

EPS adj 0.88 1.32 1.09 1.77 1.20 1.16 0.96 0.79 0.75

DPS 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Growth and margins (%)

Revenues, QOQ growth nm 8.1 2.8 10.7 -10.3 -1.7 -7.7 -7.2 0.3

Revenues, YOY growth nm nm nm nm 10.4 0.3 -9.9 -24.5 -15.5

EPS adj, YOY growth nm nm nm nm 36.2 -12.6 -11.7 -55.3 -37.2

Gross margin nm nm nm nm nm nm nm nm nm

EBITDA adj margin 8.4 7.3 8.0 8.6 8.5 8.5 8.1 7.7 7.4

Depreciation/revenues -1.8 -1.6 -1.8 -1.6 -1.8 -1.8 -2.0 -2.1 -2.1

EBIT adj margin 6.5 5.5 6.1 6.8 6.5 6.5 6.0 5.3 5.1

Net profit margin 3.2 4.6 3.3 3.9 4.0 4.0 3.6 3.2 3.0


25

DNB Markets

12 March 2015

25

Adjustments to quarterly numbers


EBITDA 623 587 617 786 695 686 604 530 514

Gains and losses 0 -3 0 0 0 0 0 0 0

Other EBITDA adjustments 0 0 43 0 0 0 0 0 0

EBITDA adj 623 584 660 786 695 686 604 530 514

EBITA 492 459 471 568 546 538 456 382 368


Other EBITA adjustments 0 0 43 0 0 0 0 0 0

EBITA adj 492 456 514 568 546 538 456 382 368

EBIT 482 448 460 557 535 526 444 370 355


Other EBIT adjustments 0 0 43 0 0 0 0 0 0

EBIT adj 482 445 503 627 535 526 444 370 355

Net profit 239 362 265 352 325 314 261 215 204


Other EBIT adjustments 0 0 43 0 0 0 0 0 0

Tax adjustments 0 1 -12 -47 0 0 0 0 0

Other adjustments 0 0 0 0 0 0 0 0 0

Net profit adj 239 360 296 480 325 314 261 215 204


Quarterly numbers by segment and assumptions


Revenues

Subsea 4,060 4,660 5,049 5,461 5,100 5,080 4,620 4,200 4,238

Engineering 862 904 851 1,281 988 950 950 912 950

MMO 2,583 2,546 2,403 2,474 2,160 2,080 1,920 1,840 1,786

Other -24 -50 -28 -61 -40 -40 -40 -40 -40

EBIT

Subsea 252 404 400 417 402 400 328 265 248

Engineering 83 79 90 134 96 92 87 79 83

MMO 153 49 53 86 62 59 53 51 50

Other 36 -63 -84 -80 -25 -25 -25 -25 -25

EBIT margin

Subsea 6.2% 8.7% 7.9% 7.6% 7.9% 7.9% 7.1% 6.3% 5.8%

Engineering 9.6% 8.7% 10.6% 10.5% 9.7% 9.7% 9.2% 8.6% 8.7%

MMO 5.9% 1.9% 2.2% 3.5% 2.9% 2.8% 2.8% 2.8% 2.8%

EBITDA

Subsea 362 519 531 584 536 533 462 399 381

Engineering 91 84 103 191 109 105 100 91 95

MMO 167 59 73 102 76 73 67 64 62

Other 45 -54 -91 -91 -25 -25 -25 -25 -25

EBITDA margin

Subsea 8.9% 11.1% 10.5% 10.7% 10.5% 10.5% 10.0% 9.5% 9.0%

Engineering 10.6% 9.3% 12.1% 14.9% 11.0% 11.0% 10.5% 10.0% 10.0%

MMO 6.5% 2.3% 3.0% 4.1% 3.5% 3.5% 3.5% 3.5% 3.5%

Assumptions

Order intake 5,897 21,407 3,629 6,203 9,625 5,125 5,125 5,125 3,500

Order backlog 39,572 53,914 48,986 48,289 49,720 46,735 44,370 42,543 30,171

Book to bill 0.79 2.66 0.44 0.68 1.17 0.64 0.69 0.74 0.50


26

DNB Markets

12 March 2015

26

Annual P&L

(NOKm) 2011 2012 2013 2014 2015e 2016e 2017e

Revenues 22,081 28,345 29,058 32,971 30,640 27,190 25,390

Operating expenses -21,074 -26,125 -26,979 -30,296 -28,126 -25,208 -23,624

EBITDA 1,009 2,248 2,079 2,675 2,514 1,982 1,766

Depreciation -261 -317 -459 -552 -592 -584 -553

Impairment of PPE 0 0 0 -70 0 0 0

EBITA 748 1,931 1,620 2,053 1,922 1,398 1,214

Amortisation -40 -40 -40 -43 -48 -51 -54

EBIT 708 1,891 1,580 2,010 1,874 1,347 1,160

Net interest 11 -156 -183 -139 -183 -168 -128

FX gains 24 -11 180 51 0 0 0

Net financial items 35 -167 -3 -88 -183 -168 -128

Non-recurring items 0 0 0 -105 0 0 0

PBT 743 1,724 1,577 1,817 1,691 1,179 1,032

Taxes -253 -479 -397 -516 -558 -389 -341

Effective tax rate (%) 34 28 25 28 33 33 33

Minorities -34 -10 -7 -21 -19 -16 -15

Discontinued operations 0 0 0 0 0 0 0

Net profit 456 1,235 1,173 1,280 1,114 774 677

Adjustments to net profit 419 -20 0 128 0 0 0

Net profit adj 875 1,215 1,173 1,408 1,114 774 677

Dividend paid 0 0 0 0 -394 -334 -232


EPS 1.68 4.54 4.31 4.71 4.11 2.85 2.49

EPS adj 3.21 4.47 4.31 5.19 4.11 2.85 2.49

DPS 0.00 0.00 0.00 1.45 1.23 0.86 0.75


Revenue growth nm 28.4 2.5 13.5 -7.1 -11.3 -6.6

EPS adj growth nm 39.0 -3.5 20.4 -20.9 -30.6 -12.5

Gross margin nm nm nm nm nm nm nm

EBITDA margin 4.6 7.9 7.2 8.1 8.2 7.3 7.0

EBITDA adj margin 7.3 7.8 7.2 8.1 8.2 7.3 7.0

Depreciation/revenues -1.2 -1.1 -1.6 -1.7 -1.9 -2.1 -2.2

EBIT margin 3.2 6.7 5.4 6.1 6.1 5.0 4.6

EBIT adj margin 5.9 6.6 5.4 6.3 6.1 5.0 4.6

PBT margin 3.4 6.1 5.4 5.5 5.5 4.3 4.1

Net profit margin 2.2 4.4 4.1 3.9 3.7 2.9 2.7


27

DNB Markets

12 March 2015

27

Adjustments to annual P&L

(NOKm) 2011 2012 2013 2014 2015e 2016e 2017e

EBITDA 1,009 2,248 2,079 2,675 2,514 1,982 1,766

Gains and losses -2 -28 0 0 0 0 0

Other EBITDA adjustments 600 0 0 0 0 0 0

EBITDA adj 1,607 2,220 2,079 2,675 2,514 1,982 1,766

EBITA 748 1,931 1,620 2,053 1,922 1,398 1,214


Other EBITA adjustments 600 0 0 0 0 0 0

EBITA adj 1,346 1,903 1,620 2,053 1,922 1,398 1,214

EBIT 708 1,891 1,580 2,010 1,874 1,347 1,160


Other EBIT adjustments 600 0 0 0 0 0 0

EBIT adj 1,306 1,863 1,580 2,080 1,874 1,347 1,160

Net profit 456 1,235 1,173 1,280 1,114 774 677


Other EBIT adjustments 600 0 0 0 0 0 0

Tax adjustments -179 8 0 -47 0 0 0

Other adjustments 0 0 0 0 0 0 0

Net profit adj 875 1,215 1,173 1,408 1,114 774 677


EPS 1.68 4.54 4.31 4.71 4.11 2.85 2.49

Recommended adjustment 1.53 -0.07 0.00 0.48 0.00 0.00 0.00

EPS adj 3.21 4.47 4.31 5.19 4.11 2.85 2.49


28

DNB Markets

12 March 2015

28

Cash flow

(NOKm) 2011 2012 2013 2014 2015e 2016e 2017e

Net profit 456 1,235 1,173 1,280 1,114 774 677

Depreciation and amortisation 301 357 499 595 640 635 606

Other non-cash adjustments 155 482 122 -108 19 16 15

Change in net working capital -309 -660 865 869 -1,996 -62 -218

Cash flow from operations (CFO) 603 1,414 2,659 2,645 -223 1,364 1,080

Capital expenditure -464 -1,269 -1,494 -1,370 -1,343 -862 -812

Acquisitions -165 -65 -619 0 0 0 0

Divestments 3 22 5 0 0 0 0

Cash flow from investing (CFI) -626 -1,312 -2,108 -1,370 -1,343 -862 -812

Free cash flow (FCF) -23 102 551 1,275 -1,566 502 268

Net change in debt -2 2,666 -136 281 -749 -9 0

Dividends paid 0 0 0 0 -394 -334 -232

Share issue (repurchase) 0 0 0 0 0 0 0

Other -980 -2,880 893 -2,680 0 0 0

Cash flow from financing (CFF) -982 -214 757 -2,399 -1,143 -343 -232

Total cash flow (CFO+CFI+CFF) -1,005 -112 1,308 -1,124 -2,709 158 36

FCFF calculation

Free cash flow -23 102 551 1,275 -1,566 502 268

Less: net interest -11 156 183 139 183 168 128

Less: tax shields/other -90 -511 -340 177 15 -1 4

Less: acquisitions 165 65 619 0 0 0 0

Less: divestments -3 -22 -5 0 0 0 0

Free cash flow to the firm 38 -210 1,008 1,591 -1,369 668 400

Growth (%)

CFO nm 134.5 88.0 -0.5 -108.4 711.3 -20.8

CFI nm -109.6 -60.7 35.0 2.0 35.8 5.7

FCF nm 543.5 440.2 131.4 -222.8 132.0 -46.6

CFF nm 78.2 453.7 -416.9 52.4 70.0 32.4

FCFF nm -657.4 578.7 57.9 -186.0 148.8 -40.1


29

DNB Markets

12 March 2015

29

Balance sheet

(NOKm) 2011 2012 2013 2014 2015e 2016e 2017e

Assets 17,181 20,238 25,774 27,867 24,232 23,836 24,026

Inventories 498 612 588 862 691 653 635

Trade receivables 7,239 9,322 11,041 12,518 11,059 10,317 10,283

Other receivables 289 494 371 188 188 188 188

Current financial assets 266 96 698 1,187 1,187 1,187 1,187

Cash and cash equivalents 3,267 3,155 4,463 3,339 630 789 825

Current assets 11,559 13,679 17,161 18,094 13,756 13,133 13,117

Property, plant and equipment 1,894 2,365 3,072 3,603 3,820 3,723 3,644

Goodwill 3,427 3,833 5,080 5,763 6,249 6,573 6,858

Investments in associates 11 11 17 27 27 27 27

Defferred tax assets 290 350 444 380 380 380 380

Non-current assets 5,622 6,559 8,613 9,773 10,476 10,703 10,909

Total assets 17,181 20,238 25,774 27,867 24,232 23,836 24,026

Equity and liabilities 17,181 20,238 25,774 27,867 24,232 23,836 24,026

Total equity to the parent 6,167 4,424 6,313 5,677 6,397 6,837 7,282

Minority interests 166 154 156 216 235 252 266

Total equity 6,333 4,578 6,469 5,893 6,633 7,089 7,548

Trade payables 7,036 8,696 10,976 13,551 9,953 9,141 8,887

Other payables and accruals 1,118 1,629 2,980 3,204 3,176 3,145 3,131

Short-term debt 505 644 14 674 674 674 674

Total current liabilities 8,659 10,969 13,970 17,429 13,803 12,961 12,691

Long-term debt 747 3,063 3,533 3,154 2,405 2,396 2,396

Deferred tax liabilities 742 1,033 1,203 699 699 699 699

Pension liabilities 640 520 524 670 670 670 670

Other non-current liabilities 60 75 75 22 22 22 22

Total non-current liabilities 2,189 4,691 5,335 4,545 3,796 3,787 3,787

Total liabilities 10,848 15,660 19,305 21,974 17,599 16,748 16,478

Total equity and liabilities 17,181 20,238 25,774 27,867 24,232 23,836 24,026

Key metrics

Net interest bearing debt -2,153 455 -1,022 398 2,358 2,190 2,154

Invested capital 7,795 9,501 12,207 12,461 15,160 15,449 15,872


30

DNB Markets

12 March 2015

30

Valuation ratios

(NOKm) 2011 2012 2013 2014 2015e 2016e 2017e

Enterprise value

Share price (NOK) 41.55 39.68 39.68 39.68

Number of shares (m) 272.0 272.0 272.0 272.0 272.0 272.0 272.0

Market capitalisation 11,303 10,795 10,795 10,795

Net interest bearing debt -2,153 455 -1,022 398 2,358 2,190 2,154

Adjustments to NIBD 155 143 139 200 -174 -492 -710

Net interest bearing debt adj -1,998 598 -883 598 2,183 1,698 1,445

EV 11,701 13,152 12,985 12,949

EV adj 11,901 12,978 12,493 12,239

Valuation

EPS 1.68 4.54 4.31 4.71 4.11 2.85 2.49

EPS adj 3.21 4.47 4.31 5.19 4.11 2.85 2.49

DPS 0.00 0.00 0.00 1.45 1.23 0.86 0.75

P/E 8.8 9.7 13.9 15.9

P/E adj 8.0 9.7 13.9 15.9

P/B 1.99 1.68 1.58 1.48

Average ROE 22.6% 21.2% 20.7% 17.8% 11.3% 9.3%

Dividend yield 3.5% 3.1% 2.2% 1.9%

Free cash flow yield 11.1% -14.2% 4.5% 2.4%

EV/SALES 0.35 0.43 0.48 0.51

EV/SALES adj 0.36 0.42 0.46 0.48

EV/EBITDA 4.4 5.2 6.6 7.3

EV/EBITDA adj 4.4 5.2 6.3 6.9

EV/EBIT 5.8 7.0 9.6 11.2

EV/EBIT adj 5.7 6.9 9.3 10.6

EV/capital employed 1.3 1.4 1.3 1.2

EV/NOPLAT 8.2 9.9 13.6 15.7


31

DNB Markets

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31

Key accounting ratios

2011 2012 2013 2014 2015e 2016e 2017e

Profitability (%)

ROA 6.6 5.1 4.8 4.3 3.2 2.8

ROCE 24.0 17.6 21.5 19.7 13.9 11.5

ROCE after tax 19.8 15.6 17.5 16.8 12.6 10.8

Return on invested capital (%)

Net PPE/revenues 8.6 8.3 10.6 10.9 12.5 13.7 14.4

Working capital/revenues 2.0 3.2 0.6 -2.1 4.3 5.0 6.3

Revenues/invested capital (pre-GW) 283.3 298.3 238.0 264.6 202.1 176.0 160.0

Pre-tax ROIC (pre-goodwill) 38.5 25.3 29.7 24.6 15.7 13.6

Pre-tax ROIC (incl. goodwill) 22.3 14.9 16.6 13.9 9.1 7.8

After-tax ROIC (pre-goodwill) 27.1 17.8 20.6 17.0 10.8 9.2

After-tax ROIC (incl. goodwill) 15.7 10.5 11.6 9.6 6.2 5.3

Cash flow ratios (%)

FCF/revenues -0.1 0.4 1.9 3.9 -5.1 1.8 1.1

FCF/market capitalisation 11.3 -14.5 4.6 2.5

CFO/revenues 2.7 5.0 9.2 8.0 -0.7 5.0 4.3

CFO/market capitalisation 23.4 -2.1 12.6 10.0

CFO/capex 130.0 111.4 178.0 193.1 -16.6 158.2 133.0

CFO/current liabilities 7.0 12.9 19.0 15.2 -1.6 10.5 8.5

Cash conversion ratio -220.4 -9.1 111.5 -87.8 -243.1 20.5 5.3

Capex/revenues 2.1 4.5 5.1 4.2 4.4 3.2 3.2

Capex/depreciation 177.8 400.3 325.5 248.2 226.9 147.7 147.0

Total payout ratio 0.0 0.0 0.0 30.8 30.0 30.0 30.0

Leverage and solvency (x)

Interest cover 5.52 9.07 6.94 10.17 8.45 7.35 7.80

EBIT/interest payable 4.45 8.80 6.72 9.85 8.25 7.25 7.64

EBITA adj/interest payable 8.47 8.85 6.89 10.06 8.46 7.53 7.99

Cash coverage -91.73 14.41 11.36 19.24 13.75 11.83 13.84

Net debt/EBITDA -2.13 0.20 -0.49 0.15 0.94 1.11 1.22

Total debt/total capital (BV) 0.07 0.18 0.14 0.14 0.13 0.13 0.13

Total debt/total capital (MV) 0.25 0.22 0.22 0.22

LTD / (LTD + equity (MV)) 0.22 0.18 0.18 0.18

Cash conversion cycle

Receivables turnover days 124.4 126.4 143.3 140.7 134.0 141.0 150.5


32

DNB Markets

12 March 2015

32

SAIPEM

Expect yet another challenging year At 21x 2015e earnings, you need strong conviction in its long-term earnings recovery to become bullish on Saipem. 2015 is set to become yet another challenging year and we believe a net debt to EBITDA at 3.7x is not the best starting point heading into a cyclical downturn. The offshore rig market continues to worsen and we believe Offshore Drilling will be a drag on group earnings in 2016 and 2017. New target is EUR7.0.

Earnings recovery story is falling apart. The earnings recovery story in Saipem is

falling apart as macro- and company-specific risks continue to increase and we argue

that the worst downturn in a decade is not the best time to rebuild earnings. In addition

Saipem is geared towards large field development projects (which are likely to suffer

in a cyclical downturn). Earnings have been negative for two consecutive years and

Saipem expects 2015 to be challenging as well.

Offshore drilling turning into a liability. Offshore drilling rates are collapsing due to

a large oversupply of offshore rigs and we forecast a prolonged downturn for the rig

sector. Saipem has a fleet of 16 offshore rigs and we forecast significant earnings

erosion in the Offshore Drilling segment (~50% of group EBITDA in 2014) as the

drilling rigs roll over on new contracts in 2015–2017. While we forecast a drop in

utilisation and rates, we have not assumed any scrapping of rigs.

Too highly geared entering a cyclical downturn. We argue that a net debt to

EBITDA of 3.7x (per year end 2014) is too high entering a cyclical downturn, and it

should be a red flag that it does not expect net debt to normalise (at EUR2.0bn) before

year-end 2018. Pending revenue from legacy contracts is EUR1.1bn and 80% of this

is related to four contracts.

SELL reiterated as we see no reason to change our negative view. The earnings

recovery story is faltering as market fundamentals continue to deteriorate and 2015 is

set to be yet another challenging year. The offshore rig market is collapsing and we

expect investor focus to gradually turn towards potential downside risk to 2016 and

2017 earnings (and net debt progression) as Saipem’s offshore rigs roll off contract.

SELL TP: EUR7.00

SPM versus OSEBX (12m)

Source: Factset

Year-end Dec 2011 2012 2013 2014 2015e 2016e 2017e

Revenue (EURm) 12,631 13,386 12,433 12,882 11,043 10,934 10,450

EBITDA adj (EURm) 2,135 2,207 871 1,212 1,250 1,475 1,443

EBIT adj (EURm) 1,493 1,481 147 55 482 692 658

PTP (EURm) 1,379 1,349 -30 -120 333 551 534

EPS rep (EUR) 2.10 2.05 -0.36 -0.52 0.47 0.80 0.77

EPS adj (EUR) 2.10 2.05 -0.36 -0.52 0.47 0.80 0.77

DPS (EUR) 0.70 0.68 0.00 0.00 0.00 0.00 0.26

Revenue growth (%) 13.0 6.0 -7.1 3.6 -14.3 -1.0 -4.4

EBITDA growth adj (%) 16.3 3.4 -60.5 39.2 3.1 18.0 -2.1

EPS growth adj (%) 9.1 -2.3 nm nm nm 72.7 -3.6


EV/Sales adj (x) 1.40 1.29 0.93 0.63 0.74 0.71 0.69

EV/EBITDA adj (x) 8.3 7.8 13.3 6.7 6.5 5.3 5.0

EV/EBIT adj (x) 11.8 11.7 nm nm 16.9 11.3 10.9

P/E adj (x) 15.6 14.3 nm nm 20.6 11.9 12.4

P/Book (x) 3.06 2.38 1.47 0.87 0.91 0.85 0.80

ROE (%) 20.5 17.4 nm nm 4.5 7.2 6.5

ROCE (%) 18.2 15.4 1.4 0.6 5.0 6.8 6.6

Dividend yield (%) 2.1 2.3 0.0 0.0 0.0 0.0 2.7


ANALYSTS


[email protected]

+47 24 16 91 91

Sveinung Alvestad

[email protected]

+47 24 16 91 92


68

10121416182022


Saipem OSEBX (Rebased)

SUMMARY


Share price (EUR) 9.60

Target price (previous) (EUR) 7.00 (7.60)


Tickers SPM IM, SPM.MI

CAPITAL STRUCTURE



Market cap. (EURm) 4,238

NIBD adj end-2015e (EURm) 3,932

Enterprise value adj (EURm) 8,151



Abs. 1/3/12m (%) 9/17/-44

Rel. 1/3/12m (%) 8/-1/-50

High/Low 12m (EUR) 21/7

Free float (%) 57


UPCOMING EVENTS

Q1 2015 27/04/2015

Q2 2015 28/07/2015

ESTIMATE CHANGES (EUR)


EPS (old) 0.46 0.81 0.92

EPS (new) 0.47 0.80 0.77

Change (%) 0.4 -1.3 -16.2

Consensus 0.62 0.91 1.11

Sales (old) 11,119 11,088 10,751

Sales (new) 11,043 10,934 10,450

Change (%) -0.7 -1.4 -2.8

Consensus 11,830 11,416 11,392

Source: DNB Markets, * Bloomberg consensus as of 10.03.2015

33

DNB Markets

12 March 2015

33


Our target price values the E&C

business at 9x 2016e EBIT and the

offshore and onshore drilling

segments at GAV (we value the

former and the latter at EUR2.4bn and

EUR1.1bn, respectively).

Our target price implies a 2015e P/E

of 16x and 2015e EV/EBIT of 15x and

2016 P/E of 9x and EV/EBIT of 10x.


value per share of EUR11.0.



case




Write-down of working capital would

put additional strain on an already

stretched balance sheet.

Further deterioration of legacy

contracts and low order intake in 2015

could hamper 2015 earnings. Short-

term earnings visibility is very low and

we could see 15–20% downside risk to

our 2015e EBIT without assuming any

large project specific losses.

Our bear case scenario sees 20%

downside to EBIT for 2015 and 2016

(E&C divisions only) and values the

E&C business at 9.0x 2016 EBIT.

The earnings recovery story in Saipem

is falling apart as macro- and

company-specific risks continue to

increase. Earnings visibility is very low

for 2015e–2016e.

Saipem is not capitalised to meet a

prolonged cyclical downturn, in our

view, and we worry about a net debt to

EBITDA of 3.7x (YE 2014).

We forecast a cyclical downturn that

will extend into 2017e, hampering

backlog, utilisation and earnings.

South Stream project is reactivated

again, which would be accretive to

2015e–2016e earnings (note that

consensus’ estimates for 2015 assume

that the project is reactivated).

No write-down of working capital and

Saipem is able to lower its debt

position significantly during 2015

(removing the fear of a dilutive equity

issue).

Our bull case scenario values the E&C

businesses at 15x 2016 EBIT.


EBIT bridge 2014–2016 (EURm)


EUR9.6

EUR7.0 (-27%)

EUR4.8 (-50%)

EUR12.4 (29%)

3.0

7.0

11.0

15.0

19.0

Mar 2014 Jul 2014 Nov 2014 Mar 2015 Jul 2015 Nov 2015


55.0-7.9 435.0

0.0

482.2

-4.7 214.3

0.0

691.7

0.0

100.0

200.0

300.0

400.0

500.0

600.0

700.0

800.0

20

14

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EB

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Oth

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20

15

Volu

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EB

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20

16

34

DNB Markets

12 March 2015

34


New Old Change

(EURm) 2015e 2016e 2017e 2015e 2016e 2017e 2015e 2016e 2017e

Revenues 11,043 10,934 10,450 11,119 11,088 10,751 -76 -153 -302

Operating expenses -9,792 -9,460 -9,006 -9,874 -9,615 -9,221 81 155 215

EBITDA 1,250 1,475 1,443 1,245 1,473 1,530 5 2 -87

EBITDA adj 1,250 1,475 1,443 1,245 1,473 1,530 5 2 -87

EBITDA margin (%) 11.3 13.5 13.8 11.2 13.3 14.2 0.1 0.2 -0.4

Depreciation -768 -783 -785 -764 -781 -785 -4 -2 0


EBITA 482 692 658 481 692 745 1 0 -87

Amortisation 0 0 0 0 0 0 0 0 0

EBIT 482 692 658 481 692 745 1 0 -87

EBIT adj 482 692 658 481 692 745 1 0 -87

Associated companies 12 15 15 12 15 15 0 0 0

Net interest -162 -156 -139 -162 -150 -133 0 -7 -7

FX gains 0 0 0 0 0 0 0 0 0

Other financial items 0 0 0 0 0 0 0 0 0

Net financial items -150 -141 -124 -150 -135 -118 0 -7 -7

Non-recurring items 0 0 0 0 0 0 0 0 0

PBT 333 551 534 331 557 627 1 -7 -93

Taxes -98 -162 -158 -98 -164 -185 0 2 28

Minorities -30 -35 -36 -30 -35 -36 0 0 0


Net profit 204 353 340 204 358 406 1 -5 -66


Net profit adj 204 353 340 204 358 406 1 -5 -66

Per share data (EUR)

EPS 0.47 0.80 0.77 0.46 0.81 0.92 0.00 -0.01 -0.15

EPS adj 0.47 0.80 0.77 0.46 0.81 0.92 0.00 -0.01 -0.15

DPS 0.00 0.00 0.26 0.00 0.00 0.31 0.00 0.00 -0.05


Revenue growth -14.3 -1.0 -4.4 -13.7 -0.3 -3.0 -0.6 -0.7 -1.4

EBIT adj growth 776.7 43.5 -4.8 774.6 43.8 7.7 2.0 -0.3 -12.5

EPS adj growth nm 72.7 -3.6 -188.5 75.7 13.5 nm -3.0 -17.2

Avg. number of shares (m) 440 440 440 440 440 440 0 0 0

Capex -650 -650 -664 -650 -660 -685 0 10 21

Working capital 816 949 818 819 957 831 -3 -9 -14

NIBD adj 3,932 3,578 2,985 3,940 3,599 2,966 -8 -21 19

Source: DNB Markets

35

DNB Markets

12 March 2015

35

Forecast changes – By segment and assumptions

New Old Change

(EURm) 2015e 2016e 2017e 2015e 2016e 2017e 2015e 2016e 2017e

Revenues

Offshore E&C 5,950 5,300 4,800 5,900 5,200 4,800 50 100 0

Onshore E&C 3,225 3,800 3,990 3,300 4,000 4,200 -75 -200 -210

Offshore drilling 1,152 1,140 967 1,203 1,186 1,051 -51 -46 -84

Onshore drilling 705 684 682 705 691 689 0 -7 -7

Other 11 11 10 11 11 11 0 0 0

EBIT

Offshore E&C 335 316 352 329 304 352 6 12 0

Onshore E&C -200 76 160 -201 80 168 2 -4 -8

Offshore drilling 277 255 103 279 251 161 -2 4 -58

Onshore drilling 70 45 44 74 57 64 -4 -12 -20

Other 0 0 0 0 0 0 0 0 0

EBIT margin

Offshore E&C 5.6% 6.0% 7.3% 5.6% 5.8% 7.3% 0.0% 0.1% 0.0%

Onshore E&C -6.2% 2.0% 4.0% -6.1% 2.0% 4.0% -0.1% 0.0% 0.0%

Offshore drilling 24.1% 22.4% 10.6% 23.2% 21.2% 15.3% 0.9% 1.2% -4.7%

Onshore drilling 9.9% 6.5% 6.5% 10.5% 8.2% 9.3% -0.6% -1.7% -2.8%

EBITDA

Offshore E&C 655 636 672 649 624 672 6 12 0

Onshore E&C -164 114 200 -165 120 210 2 -6 -11

Offshore drilling 537 525 373 539 522 442 -2 3 -69

Onshore drilling 222 200 199 222 207 206 0 -7 -7

EBITDA margin

Offshore E&C 11.0% 12.0% 14.0% 11.0% 12.0% 14.0% 0.0% 0.0% 0.0%

Onshore E&C -5.1% 3.0% 5.0% -5.0% 3.0% 5.0% -0.1% 0.0% 0.0%

Offshore drilling 46.6% 46.1% 38.5% 44.8% 44.0% 42.0% 1.8% 2.1% -3.5%

Onshore drilling 31.5% 29.2% 29.2% 31.5% 29.9% 29.9% 0.0% -0.8% -0.8%

Intake Offshore E&C 4,000 4,000 4,525 3,800 3,800 4,320 200.0 200.0 205.0

Backlog Offshore E&C 9,211 7,911 7,636 9,061 7,661 7,181 150.0 250.0 455.0

Intake Onshore E&C 3,500 4,000 2,683 3,500 4,250 3,227 0.00 -250.0 -544.0

Backlog Onshore E&C 6,978 7,178 5,871 6,903 7,153 6,180 75.00 25.00 -309.0

Source: DNB Markets

36

DNB Markets

12 March 2015

36

Quarterly numbers

(EURm) Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015e Q2 2015e Q3 2015e Q4 2015e

Revenues 3,524 3,306 2,893 3,077 3,512 3,400 2,846 2,875 2,723 2,598

Operating expenses -3,131 -2,964 -2,590 -2,725 -3,175 -3,180 -2,545 -2,549 -2,402 -2,298

EBITDA 393 342 303 352 337 220 302 327 321 300

Depreciation -184 -181 -176 -186 -187 -198 -192 -192 -192 -192

Impairment of PPE 0 0 0 0 0 -410 0 0 0 0

EBITA 209 161 127 166 150 -388 110 135 129 108

Amortisation 0 0 0 0 0 0 0 0 0 0

EBIT 209 161 127 166 150 -388 110 135 129 108

Net financial items -54 -44 -49 -61 -52 -37 -41 -41 -40 -40

Non-recurring items 4 1 12 5 13 -6 3 3 3 3

PBT 159 118 90 110 111 -431 72 97 93 72

Taxes -50 -41 -29 -35 -35 -19 -21 -29 -27 -21

Minorities -8 -7 0 0 0 8 0 0 0 0

Discontinued operations 0 0 0 0 0 0 0 0 0 0

Net profit 101 70 61 75 76 -442 51 68 65 51


Net profit adj 101 70 61 75 76 -442 51 68 51

Avg. number of shares (m) 440 440 440 440 440 440 440 440 440 440


EPS 0.23 0.16 0.14 0.17 0.17 -1.01 0.11 0.16 0.15 0.11

EPS adj 0.23 0.16 0.14 0.17 0.17 -1.01 0.11 0.16 0.11


Revenues, QOQ growth 68.0 -6.2 -12.5 6.4 14.1 -3.2 -16.3 1.0 -5.3 -4.6

Revenues, YOY growth -0.8 -3.5 -6.4 46.7 -0.3 2.8 -1.6 -6.6 -22.5 -23.6

EPS adj, YOY growth -59.5 -61.1 -44.5 nm -24.8 nm -17.2 -9.1 nm nm

Gross margin nm nm nm nm nm nm nm nm nm nm

EBITDA adj margin 11.2 10.3 10.5 11.4 9.6 6.5 10.6 11.4 11.8 11.6

Depreciation/revenues -5.2 -5.5 -6.1 -6.0 -5.3 -5.8 -6.7 -6.7 -7.1 -7.4

EBIT adj margin 5.9 4.9 4.4 5.4 4.3 nm 3.9 4.7 4.7 4.2

Net profit margin 3.1 2.3 2.1 2.4 2.2 nm 1.8 2.4 2.4 1.9


37

DNB Markets

12 March 2015

37



EBITDA 393 342 303 352 337 220 302 327 321 300

EBITDA adj 393 342 303 352 337 220 302 327 321 300

EBITA 209 161 127 166 150 -388 110 135 129 108

Other EBITA adjustments 0 0 0 0 0 0 0 0 0 0

EBITA adj 209 161 127 166 150 -388 110 135 129 108

EBIT 209 161 127 166 150 -388 110 135 129 108

Other EBIT adjustments 0 0 0 0 0 0 0 0 0 0

EBIT adj 209 161 127 166 150 -388 110 135 129 108

Net profit 101 70 61 75 76 -442 51 68 65 51


Tax adjustments 0 0 0 0 0 0 0 0 0

Net profit adj 101 70 61 75 76 -442 51 68 51




Revenues

Offshore E&C 1,646 1,400 1,505 1,679 2,022 1,996 1,450 1,600 1,500 1,400

Onshore E&C 1,404 1,426 935 955 981 894 925 800 750 750

Offshore drilling 284 285 284 272 322 314 293 295 295 270

Onshore drilling 188 192 167 169 184 194 176 178 176 176

Other 2 3 2 2 3 2 3 3 3 3

EBIT

Offshore E&C 96 86 60 120 113 -18 80 96 85 74

Onshore E&C -5 -45 -29 -52 -84 -246 -65 -57 -47 -32

Offshore drilling 92 95 79 76 96 -151 76 76 75 50


EBIT margin

Offshore E&C 5.8% 6.1% 4.0% 7.1% 5.6% -0.9% 5.5% 6.0% 5.7% 5.3%

Onshore E&C -0.4% -3.2% -3.1% -5.4% -8.6% -27.5% -7.0% -7.1% -6.2% -4.2%

Offshore drilling 32.4% 33.3% 27.8% 27.9% 29.8% -48.1% 25.9% 25.9% 25.4% 18.5%

Onshore drilling 13.8% 13.0% 10.2% 13.0% 13.6% 13.9% 10.7% 11.0% 9.0% 9.0%

EBITDA

Offshore E&C 173 162 126 201 188 217 160 176 165 154

Onshore E&C 3 -39 -19 -43 -75 -236 -56 -48 -38 -23

Offshore drilling 156 159 142 136 162 172 141 141 140 115


EBITDA margin

Offshore E&C 10.5% 11.6% 8.4% 12.0% 9.3% 10.9% 11.0% 11.0% 11.0% 11.0%

Onshore E&C 0.2% -2.7% -2.0% -4.5% -7.6% -26.4% -6.0% -6.0% -5.0% -3.0%

Offshore drilling 54.9% 55.8% 50.0% 50.0% 50.3% 54.8% 48.1% 48.0% 47.5% 42.6%

Onshore drilling 32.4% 31.3% 32.3% 34.3% 33.7% 34.5% 32.3% 32.3% 30.7% 30.7%

Assumptions

Order intake 1,410 2,092 3,949 9,232 1,856 2,983 3,264 2,085 2,095 2,095

Order backlog 19,520 17,514 18,526 24,215 22,562 22,147 22,567 21,780 21,155 20,655

Intake Offshore E&C 711.0 911.0 2,752 5,527 1,056 749.0 1,884 705.3 705.3 705.3

Backlog Offshore E&C 9,731 8,447 9,657 13,374 12,408 11,161 11,595 10,700 9,906 9,211

Intake Onshore E&C 220.0 390.0 975.0 3,355 154.0 1,872 875.0 875.0 875.0 875.0

Backlog Onshore E&C 5,472 4,436 4,467 6,552 5,725 6,703 6,653 6,728 6,853 6,978


38

DNB Markets

12 March 2015

38

Annual P&L

(EURm) 2008 2009 2010 2011 2012 2013 2014 2015e 2016e 2017e

Revenues 10,138 10,319 11,177 12,631 13,386 12,433 12,882 11,043 10,934 10,450


EBITDA 1,437 1,596 1,836 2,135 2,207 871 1,212 1,250 1,475 1,443

Depreciation -353 -440 -514 -608 -726 -724 -747 -768 -783 -785

Impairment of PPE 0 0 -3 -34 0 0 -410 0 0 0

EBITA 1,084 1,156 1,319 1,493 1,481 147 55 482 692 658

Amortisation 0 0 0 0 0 0 0 0 0 0

EBIT 1,084 1,156 1,319 1,493 1,481 147 55 482 692 658

Associated companies 22 7 0 16 17 13 20 12 15 15

Net interest -121 -58 -56 -98 -124 -146 -184 -162 -156 -139

FX gains -42 43 -88 36 -98 4 55 0 0 0

Other financial items 68 -85 34 -71 74 -48 -70 0 0 0


Non-recurring items 207 0 30 3 -1 0 4 0 0 0

PBT 1,218 1,063 1,239 1,379 1,349 -30 -120 333 551 534

Taxes -285 -288 -345 -392 -393 -106 -118 -98 -162 -158

Effective tax rate (%) 23 27 28 28 29 -353 -98 30 30 30

Minorities -18 -43 -50 -66 -54 -23 8 -30 -35 -36


Net profit 915 732 844 921 902 -159 -230 204 353 340

Adjustments to net profit 0 0 0 0 0 0 0 0 0 0

Net profit adj 915 732 844 921 902 -159 -230 204 353 340

Dividend paid -192 -239 -263 -297 -352 -375 -44 0 0 0

Avg. number of shares 442 440 441 440 440 440 440 440 440 440


EPS 2.10 1.68 1.93 2.10 2.05 -0.36 -0.52 0.47 0.80 0.77

EPS adj 2.10 1.68 1.93 2.10 2.05 -0.36 -0.52 0.47 0.80 0.77

DPS 0.55 0.55 0.63 0.70 0.68 0.00 0.00 0.00 0.00 0.26


Revenue growth 5.6 1.8 8.3 13.0 6.0 -7.1 3.6 -14.3 -1.0 -4.4

EPS adj growth 4.8 -19.9 14.6 9.1 -2.3 nm nm nm 72.7 -3.6


EBITDA margin 14.2 15.5 16.4 16.9 16.5 7.0 9.4 11.3 13.5 13.8



EBIT margin 10.7 11.2 11.8 11.8 11.1 1.2 0.4 4.4 6.3 6.3

EBIT adj margin 10.7 11.2 11.8 11.8 11.1 1.2 0.4 4.4 6.3 6.3

PBT margin 12.0 10.3 11.1 10.9 10.1 nm nm 3.0 5.0 5.1

Net profit margin 9.2 7.5 8.0 7.8 7.1 nm nm 2.1 3.5 3.6


39

DNB Markets

12 March 2015

39


(EURm) 2008 2009 2010 2011 2012 2013 2014 2015e 2016e 2017e

EBITDA 1,437 1,596 1,836 2,135 2,207 871 1,212 1,250 1,475 1,443

EBITDA adj 1,437 1,596 1,836 2,135 2,207 871 1,212 1,250 1,475 1,443

EBITA 1,084 1,156 1,319 1,493 1,481 147 55 482 692 658


EBITA adj 1,084 1,156 1,319 1,493 1,481 147 55 482 692 658

EBIT 1,084 1,156 1,319 1,493 1,481 147 55 482 692 658


EBIT adj 1,084 1,156 1,319 1,493 1,481 147 55 482 692 658

Net profit 915 732 844 921 902 -159 -230 204 353 340


Tax adjustments 0 0 0 0 0 0 0 0 0 0

Net profit adj 915 732 844 921 902 -159 -230 204 353 340


EPS 2.10 1.68 1.93 2.10 2.05 -0.36 -0.52 0.47 0.80 0.77

Recommended adjustment 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

EPS adj 2.10 1.68 1.93 2.10 2.05 -0.36 -0.52 0.47 0.80 0.77


Cash flow

(EURm) 2008 2009 2010 2011 2012 2013 2014 2015e 2016e 2017e

Net profit 915 732 844 921 902 -159 -230 204 353 340

Depreciation and amortisation 353 440 514 608 726 724 747 768 783 785

Other non-cash adjustments 171 128 186 194 55 -341 333 20 22 23

Change in net working capital 658 -331 -220 -174 -1,434 202 301 33 -133 131

Cash flow from operations (CFO) 2,096 967 1,324 1,549 224 426 1,151 1,025 1,026 1,280

Capital expenditure -2,031 -1,601 -1,533 -1,100 -1,002 -893 -694 -650 -650 -664

Acquisitions -3 0 -4 0 -1 0 -2 0 0 0

Divestments 350 204 138 71 9 435 47 0 0 0

Cash flow from investing (CFI) -1,684 -1,397 -1,399 -1,029 -994 -458 -649 -650 -650 -664

Free cash flow (FCF) 412 -430 -75 520 -770 -32 502 375 376 616

Net change in debt -203 219 259 20 1,419 525 -304 -333 -568 -488

Dividends paid -192 -239 -263 -297 -352 -375 -44 0 0 0

Share issue (repurchase) -50 7 35 11 29 0 0 0 0 0

Other -703 31 -48 -155 -30 -91 -87 0 0 0

Cash flow from financing (CFF) -1,148 18 -17 -421 1,066 59 -435 -333 -568 -488

Total cash flow (CFO+CFI+CFF) -736 -412 -92 99 296 27 67 42 -192 128

FCFF calculation

Free cash flow 412 -430 -75 520 -770 -32 502 375 376 616

Less: net interest 121 58 56 98 124 146 184 162 156 139

Less: acquisitions 3 0 4 0 1 0 2 0 0 0

Less: divestments -350 -204 -138 -71 -9 -435 -47 0 0 0

Growth (%)

CFO 97.4 -53.9 36.9 17.0 -85.5 90.2 170.1 -10.9 0.1 24.8

CFI -40.8 17.0 -0.1 26.4 3.4 53.9 -41.7 -0.2 0.1 -2.2

FCF 407.5 -204.4 82.6 793.3 -248.1 95.8 1667.2 -25.2 0.3 63.8

CFF -217.4 101.6 -194.4 -2376.5 353.2 -94.5 -837.3 23.4 -70.6 14.1

FCFF nm nm nm nm nm nm nm nm nm nm


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40

Balance sheet

(EURm) 2008 2009 2010 2011 2012 2013 2014 2015e 2016e 2017e

Assets 13,993 14,113 15,028 15,852 17,195 17,043 15,897 15,784 15,339 15,029

Inventories 1,397 1,071 791 1,353 2,332 2,297 2,188 1,765 1,859 1,672

Trade receivables 4,255 4,040 4,330 3,504 3,252 3,286 2,781 3,199 2,952 2,821

Other receivables 0 0 0 0 0 26 0 0 0 0

Current financial assets 758 654 565 832 897 940 815 773 793 781

Cash and cash equivalents 1,434 1,022 930 1,029 1,325 1,352 1,419 1,461 1,269 1,397

Current assets 7,844 6,787 6,616 6,718 7,806 7,901 7,203 7,198 6,874 6,672

Property, plant and equipment 5,171 6,295 7,403 8,024 8,254 7,972 7,480 7,362 7,229 7,107

Other intangible assets 755 756 760 752 756 758 759 759 759 759

Investments in associates 42 118 115 109 116 126 177 187 200 213

Defferred tax assets 94 113 90 100 88 132 139 139 139 139

Non-current financial assets 19 44 44 149 175 154 139 139 139 139

Non-current assets 6,149 7,326 8,412 9,134 9,389 9,142 8,694 8,586 8,466 8,357

Total assets 13,993 14,113 15,028 15,852 17,195 17,043 15,897 15,784 15,339 15,029

Equity and liabilities 13,993 14,113 15,028 15,852 17,195 17,043 15,897 15,784 15,339 15,029

Total equity to the parent 2,757 3,434 4,060 4,709 5,405 4,652 4,407 4,611 4,965 5,305

Minority interests 21 61 94 114 148 92 40 70 105 141

Total equity 2,778 3,495 4,154 4,823 5,553 4,744 4,447 4,681 5,070 5,446

Trade payables 6,370 5,735 5,814 5,341 4,982 5,280 4,758 4,744 4,479 4,280

Other payables and accruals 687 466 422 900 472 389 428 428 428 428

Short-term debt 2,620 2,147 1,329 1,722 2,140 3,257 2,415 1,394 1,394 1,394

Total current liabilities 9,677 8,348 7,565 7,963 7,594 8,926 7,601 6,566 6,301 6,102

Long-term debt 1,106 1,796 2,887 2,576 3,543 2,859 3,428 4,116 3,548 3,060

Deferred tax liabilities 25 64 55 79 122 81 26 26 26 26

Pension liabilities 173 182 193 200 217 233 221 221 221 221

Other non-current liabilities 234 228 174 211 166 200 174 174 174 174

Total non-current liabilities 1,538 2,270 3,309 3,066 4,048 3,373 3,849 4,537 3,969 3,481

Total liabilities 11,215 10,618 10,874 11,029 11,642 12,299 11,450 11,103 10,270 9,583

Total equity and liabilities 13,993 14,113 15,028 15,852 17,195 17,043 15,897 15,784 15,339 15,029

Key metrics

Net interest bearing debt 2,292 2,921 3,286 3,269 4,358 4,764 4,424 4,049 3,673 3,057

Invested capital 5,480 6,837 7,917 8,756 10,636 10,121 9,475 9,232 9,226 8,949


41

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41

Valuation ratios

(EURm) 2008 2009 2010 2011 2012 2013 2014 2015e 2016e 2017e

Enterprise value

Share price (EUR) 11.82 24.10 36.84 32.85 29.30 15.56 8.77 9.60 9.60 9.60

Number of shares (m) 435.1 435.8 437.7 438.3 439.4 439.5 439.5 439.5 439.5 439.5

Market capitalisation 5,142 10,502 16,125 14,397 12,875 6,838 3,852 4,219 4,219 4,219

Net interest bearing debt 2,292 2,921 3,286 3,269 4,358 4,764 4,424 4,049 3,673 3,057

Adjustments to NIBD -21 -57 -21 5 32 -34 -137 -117 -95 -72

Net interest bearing debt adj 2,271 2,864 3,265 3,274 4,390 4,730 4,287 3,932 3,578 2,985

EV 7,434 13,423 19,411 17,666 17,233 11,602 8,276 8,268 7,892 7,276

EV adj 7,413 13,366 19,390 17,671 17,265 11,568 8,139 8,151 7,797 7,204

Valuation

EPS 2.10 1.68 1.93 2.10 2.05 -0.36 -0.52 0.47 0.80 0.77

EPS adj 2.10 1.68 1.93 2.10 2.05 -0.36 -0.52 0.47 0.80 0.77

DPS 0.55 0.55 0.63 0.70 0.68 0.00 0.00 0.00 0.00 0.26

P/E 5.6 14.3 19.1 15.6 14.3 -43.0 -16.8 20.6 11.9 12.4

P/E adj 5.6 14.3 19.1 15.6 14.3 -43.0 -16.7 20.6 11.9 12.4

P/B 1.87 3.06 3.97 3.06 2.38 1.47 0.87 0.91 0.85 0.80

Average ROE 36.0% 23.3% 22.1% 20.5% 17.4% -3.1% -5.0% 4.5% 7.2% 6.5%

Earnings yield adj 17.5% 6.9% 5.2% 6.4% 7.0% -2.3% -6.0% 4.8% 8.4% 8.1%

Dividend yield 4.7% 2.3% 1.7% 2.1% 2.3% 0.0% 0.0% 0.0% 0.0% 2.7%

Free cash flow yield 8.0% -4.1% -0.5% 3.6% -5.9% -0.5% 12.9% 8.7% 8.7% 14.1%

EV/SALES 0.73 1.30 1.74 1.40 1.29 0.93 0.64 0.75 0.72 0.70

EV/SALES adj 0.73 1.30 1.73 1.40 1.29 0.93 0.63 0.74 0.71 0.69

EV/EBITDA 5.2 8.4 10.6 8.3 7.8 13.3 6.8 6.6 5.4 5.0

EV/EBITDA adj 5.2 8.4 10.6 8.3 7.8 13.3 6.7 6.5 5.3 5.0

EV/EBIT 6.9 11.6 14.7 11.8 11.6 78.9 150.5 17.1 11.4 11.1

EV/EBIT adj 6.8 11.6 14.7 11.8 11.7 78.7 148.0 16.9 11.3 10.9

EV/capital employed 1.1 1.9 2.4 2.1 1.6 1.2 0.9 0.8 0.8 0.7

EV/NOPLAT 9.9 16.8 21.3 16.8 16.9 114.4 25.8 24.9 16.5 16.0


42

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42


2008 2009 2010 2011 2012 2013 2014 2015e 2016e 2017e

Profitability (%)

ROA 7.1 5.2 5.8 6.0 5.5 -0.9 -1.4 1.3 2.3 2.2

ROCE 17.0 17.0 17.4 18.2 15.4 1.4 0.6 5.0 6.8 6.6


Net PPE/revenues 51.0 61.0 66.2 63.5 61.7 64.1 58.1 66.7 66.1 68.0

Working capital/revenues -6.0 -3.7 -4.3 -3.1 8.7 8.5 6.6 7.4 8.7 7.8

Revenues/invested capital (pre-GW) 185.0 150.9 141.2 144.3 125.9 122.8 136.0 119.6 118.5 116.8

Pre-tax ROIC (incl. goodwill) 22.3 18.8 17.9 17.9 15.3 1.4 0.6 5.2 7.5 7.2

After-tax ROIC (incl. goodwill) 15.4 13.0 12.4 12.6 10.5 1.0 3.3 3.6 5.2 5.0


FCF/revenues 4.1 -4.2 -0.7 4.1 -5.8 -0.3 3.9 3.4 3.4 5.9

FCF/market capitalisation 8.0 -4.1 -0.5 3.6 -6.0 -0.5 13.0 8.9 8.9 14.6

CFO/revenues 20.7 9.4 11.8 12.3 1.7 3.4 8.9 9.3 9.4 12.2

CFO/market capitalisation 40.8 9.2 8.2 10.8 1.7 6.2 29.9 24.3 24.3 30.3

CFO/capex 103.2 60.4 86.4 140.8 22.4 47.7 165.8 157.7 157.9 192.8

CFO/current liabilities 21.7 11.6 17.5 19.5 2.9 4.8 15.1 15.6 16.3 21.0

Cash conversion ratio -80.4 -56.3 -10.9 10.7 32.8 -17.0 -28.9 20.7 -54.3 37.7

Capex/revenues 20.0 15.5 13.7 8.7 7.5 7.2 5.4 5.9 5.9 6.4

Capex/depreciation 575.4 363.9 298.2 180.9 138.0 123.3 92.9 84.6 83.0 84.6

Total payout ratio 26.2 32.7 32.7 33.3 33.1 0.0 0.0 0.0 0.0 33.0


Interest cover 5.63 13.92 20.73 13.03 10.69 1.01 0.31 2.89 4.15 4.40

EBIT/interest payable 5.21 13.60 20.61 12.87 10.58 0.86 0.29 2.84 4.07 4.31

EBITA adj/interest payable 5.21 13.60 20.61 12.87 10.58 0.86 0.29 2.84 4.07 4.31

Cash coverage 11.88 27.52 32.79 21.79 17.80 5.97 6.59 7.74 9.44 10.36

Net debt/EBITDA 1.59 1.83 1.79 1.53 1.97 5.47 3.65 3.24 2.49 2.12

Total debt/total capital (BV) 0.27 0.28 0.28 0.27 0.33 0.36 0.37 0.35 0.32 0.30

Total debt/total capital (MV) 0.42 0.27 0.21 0.23 0.31 0.47 0.60 0.57 0.54 0.51

LTD / (LTD + equity (MV)) 0.18 0.15 0.15 0.15 0.22 0.29 0.47 0.49 0.46 0.42


Receivables turnover days 153.2 142.9 141.4 101.3 88.7 97.2 78.8 105.7 98.6 98.6


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43

SUBSEA 7

Backlog coverage is too low Subsea 7 is in a tough situation as its order backlog fell 30% in 2014 and it has significantly lower contract coverage in 2016e versus peers. We expect revenue to fall 23% in 2015 and 15% in 2016, which combined with high operational gearing is set to erode earnings in 2016 and 2017. Earnings and backlog momentum is set to stay negative. We reiterate our SELL recommendation.

Backlog erosion is a red flag. Order backlog was down 30% in 2014 and we

forecast continued backlog erosion in 2015 as the cyclical downturn unfolds. As of Q4

2014 Subsea 7 had contract coverage of 38% for 2016e on our revenue estimates,

which is significantly lower than its subsea peers (Technip and Saipem). In addition,

we have concerns about its high backlog exposure to Petrobras (~35% in Q4 2014).

We see significant pricing pressure on new awards. There are still some contract

opportunities in 2015 (above all the West Nile Delta project in Egypt), but we expect

strong competition to put significant pressure on prices. In addition, most of the

offshore phase on new large contracts will be in 2017e and beyond with limited

earnings contribution in 2015e and 2016e.

High operational gearing set to erode earnings. We forecast revenue to decline

23% in 2015e and 15% in 2016e and the key question is how quickly can costs be

cut? Subsea 7 faces some tough decisions: should it cut costs to the bone and defend

earnings in 2016–2017 (but be less prepared for a potential rebound), or should it

maintain baseline capacity through the downcycle to be better prepared for a rebound.

We are not overly worried about 2015e earnings, but we forecast a collapse in

earnings in 2016e and 2017e.

Reiterate our SELL recommendation. We forecast weak earnings and backlog

momentum over the next 12 months and see no immediate rebound in the macro

environment. Trough multiples support a share price of NOK80–90 on 2016e

earnings, but we do not expect 2016 to be the trough year for earnings and we are not

willing to price it on trough multiples before we see signs of the cycle turning. We have

cut our target price to NOK50 (NOK55) and maintain our SELL recommendation.

SELL TP: NOK50.0

SUBC versus OSEBX (12m)

Source: Factset

Year-end Dec 2011 2012 2013 2014 2015e 2016e 2017e

Revenue (USDm) 5,476 6,297 6,297 6,870 5,300 4,500 4,250

EBITDA adj (USDm) 1,003 1,139 981 1,437 970 722 735

EBIT adj (USDm) 641 808 573 -243 540 277 280

PTP (USDm) 627 1,069 511 -218 524 261 262

EPS rep (USD) 1.31 2.49 1.04 -1.04 1.13 0.57 0.57

EPS adj (USD) 1.30 1.75 2.11 2.56 1.13 0.57 0.57

DPS (USD) 0.60 0.60 0.60 0.00 0.00 0.00 0.30

Revenue growth (%) 131.2 15.0 0.0 9.1 -22.9 -15.1 -5.6

EBITDA growth adj (%) 79.4 13.5 -13.9 46.6 -32.5 -25.6 1.7

EPS growth adj (%) 53.1 35.1 20.4 21.5 -55.9 -49.8 0.5


EV/Sales adj (x) 1.18 1.30 1.07 0.49 0.63 0.70 0.70

EV/EBITDA adj (x) 6.4 7.2 6.8 2.3 3.4 4.4 4.1

EV/EBIT adj (x) 10.1 10.1 11.7 nm 6.1 11.4 10.7

P/E adj (x) 14.3 13.5 9.1 4.0 7.7 15.4 15.3

P/Book (x) 1.09 1.24 0.98 0.60 0.48 0.46 0.45

ROE (%) 12.0 13.6 5.4 nm 6.4 3.1 3.0

ROCE (%) 15.3 11.0 7.4 nm 8.5 4.2 4.1

Dividend yield (%) 3.2 2.5 3.1 0.0 0.0 0.0 3.4

FCFF yield (%) -0.9 -3.0 3.5 15.9 -14.7 5.3 5.2


ANALYSTS


[email protected]

+47 24 16 91 91

Sveinung Alvestad

[email protected]

+47 24 16 91 92


60708090

100110120130


Subsea 7 OSEBX (Rebased)

SUMMARY


Share price (NOK) 71.4

Target price (previous) (NOK) 50.0 (55.0)


Tickers SUBC NO, SUBC.OL

CAPITAL STRUCTURE



Market cap. (NOKm) 23,303

NIBD adj end-2015e (USDm) 471

Enterprise value adj (USDm) 3,316



Abs. 1/3/12m (%) -9/-5/-51

Rel. 1/3/12m (%) -3/-5/-32

High/Low 12m (NOK) 173/68

Free float (%) 86


UPCOMING EVENTS

Q1 2015 30/04/2015

ESTIMATE CHANGES (USD)


EPS (old) 1.26 0.72 0.62

EPS (new) 1.13 0.57 0.57

Change (%) -9.9 -20.6 -7.7

Consensus 0.88 1.04

Sales (old) 5,550 4,500 4,250

Sales (new) 5,300 4,500 4,250

Change (%) -4.5 0.0 0.0

Consensus 4,902 5,189

Source: DNB Markets, Consensus from Bloomberg (11.03.2015)

44

DNB Markets

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44


Our target price of NOK50 values

Subsea 7 at 9x 2016e EBIT and net

debt per year-end 2015e and it

implies a 2015e and 2016e P/E of

5.5x and 10.9x, respectively.

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

the historical multiples and ahead of

current 1-year forward multiple of 5x.

Premium to current multiples is fair

as we see 2016e EBIT ~50% below

2015e EBIT. We are not willing to

price Subsea 7 at trough multiples

(>12x) as we expect a book to bill of

0.8x in 2015e and we see a flat

earnings YOY trend in 2017.

Our DCF supports a fair value per

share of NOK90.



case




Cancellation/renegotiations of PLVS

contracts in Brazil.

Failure to secure two large SURF

contracts in 2015e (>USD500m).

Execution issues.

Our bear case scenario values

Subsea 7 with ~15% downside risk to

our 2016e EBIT and values Subsea 7

at 8x 2016e EBIT.

Our key worry is the 30% backlog

erosion in 2014 and a soft outlook for

order intake in 2015 (and 2016). It has

too low a backlog coverage for 2016

and we expect significant pricing

pressure on new awards.

The backbone of 2016 and 2017

earnings is the PLSV fleet in Brazil,

which accounts for ~35% of backlog.

Consensus underestimates the depth

of the current downturn.

V-shaped recovery in the offshore

investment cycle.

Subsea 7 is able to cut costs faster

and more than we expect and at the

same time increase its order intake.

Some tier-two SURF companies go

bankrupt.

Our bull case scenario sees 20%

upside to our 2016e EBIT and values

Subsea 7 at 13x 2016e EBIT.


Adjusted EBITDA bridge 2014–2016 (USDm)


NOK71

NOK50 (-30%)

NOK35 (-51%)

NOK95 (33%)

26

46

66

86

106

126



1,437

-313-124 -30

970

-141-88 -20

722

20

220

420

620

820

1,020

1,220

1,420

1,620

20

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45

DNB Markets

12 March 2015

45


New Old Change

(USDm) 2015e 2016e 2017e 2015e 2016e 2017e 2015e 2016e 2017e

Revenues 5,300 4,500 4,250 5,550 4,500 4,250 -250 0 0

Cost of sales -4,272 -3,460 -3,266

Gross profit 1,278 1,041 984

Operating expenses -4,369 -3,797 -3,545 -4,562 -3,735 -3,528 194 -62 -17

EBITDA 931 703 706 988 765 723 -57 -62 -17

EBITDA adj 970 722 735 1,027 789 752 -57 -67 -17

EBITDA margin (%) 17.6 15.6 16.6 17.8 17.0 17.0 -0.2 -1.4 -0.4

Depreciation -430 -445 -455 -430 -445 -450 0 0 -5


EBITA 501 258 251 558 320 273 -57 -62 -22

Amortisation 0 0 0 0 0

Impairment of intangibles 0 0 0 0 0 0 0 0 0

EBIT 501 258 251 558 320 273 -57 -62 -22

EBIT adj 540 277 280 597 344 302 -57 -67 -22

Associated companies 39 19 29 39 24 29 0 -5 0

Net interest -16 -16 -18 -15 -15 -18 -1 -1 0

Other financial items 0 0 0 0 0

Net financial items 23 3 12 24 9 11 -1 -6 0

Non-recurring items 0 0 0 0 0

PBT 524 261 262 581 329 284 -57 -68 -22

Taxes -155 -76 -76 -171 -95 -82 17 20 6

Minorities 0 0 0 0 0 0 0 0 0

Discontinued operations 0 0 0 0 0

Net profit 369 185 186 410 233 202 -41 -48 -15


Net profit adj 369 185 186 410 233 202 -41 -48 -15

Per share data (USD)

EPS 1.13 0.57 0.57 1.26 0.72 0.62 -0.12 -0.15 -0.05

EPS adj 1.13 0.57 0.57 1.26 0.72 0.62 -0.12 -0.15 -0.05

DPS 0.00 0.00 0.30 0.00 0.00 0.30 0.00 0.00 0.00


Revenue growth -22.9 -15.1 -5.6 -19.2 -18.9 -5.6 -3.6 3.8 0.0

EBIT adj growth nm -48.7 0.9 -346.1 -42.3 -12.3 nm -6.3 13.2

EPS adj growth -55.9 -49.8 0.5 -223.9 -43.1 -13.6 168.0 -6.8 14.1

Avg. number of shares (m) 354 354 354 354 354 354 0 0 0

Capex -925 -445 -404 -925 -545 -404 0 100 0

Working capital -234 -223 -154 -265 -223 -154 32 0 0

NIBD adj 471 305 147 399 318 150 72 -13 -3

Source: DNB Markets

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DNB Markets

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46

Quarterly numbers

(USDm) Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015e Q2 2015e Q3 2015e Q4 2015e

Revenues 1,564 1,586 1,668 1,905 1,902 1,395 1,300 1,425 1,450 1,125

Cost of sales -1,179 -1,264 -1,341 -1,413 -1,414 -1,020 0 0 0 0

Gross profit 384 322 327 492 488 375 1,300 1,425 1,450 1,125

Operating expenses -1,254 -1,344 -1,421 -1,480 -1,500 -1,101 0 0 0 0

EBITDA 310 241 247 425 402 294 1,300 1,425 1,450 1,125

Depreciation -88 -97 -97 -98 -99 -107 -105 -105 -110 -110

Impairment of PPE 0 0 0 0 0 -1,183 0 0 0 0

EBITA 220 109 150 323 300 -1,085 1,195 1,320 1,340 1,015

Amortisation 0 0 0 0 0 0 0 0 0 0

Impairment of intangibles -3 -36 1 -4 -3 -89 0 0 0 0

EBIT 220 109 150 323 300 -1,085 1,195 1,320 1,340 1,015

Associated companies 49 1 16 27 24 2 -4 26 21 -4

Net interest -12 -9 -1 2 -2 2 -3 -4 -4 -5

Other financial items -38 0 9 11 -34 39 0 0 0 0

Net financial items -1 -9 23 40 -12 43 -7 22 17 -9

Non-recurring items 0 14 0 0 0 0 0 0 0 0

PBT 219 114 173 362 288 -1,042 1,188 1,342 1,357 1,006

Taxes -60 -42 -36 -98 -83 65 -32 -53 -49 -20

Minorities -8 7 16 6 4 9 0 0 0 0


Net profit 152 79 153 270 210 -968 1,156 1,289 1,307 987

Adjustments to net profit


EPS 0.46 0.24 0.46 0.82 0.64 -2.95 0.24 0.39 0.36 0.14

EPS adj 0.46 0.38 0.46 0.82 0.64 0.66 0.24 0.39 0.36 0.14

DPS 0.00 0.60 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00


Revenues, QOQ growth -6.9 1.4 5.2 14.2 -0.2 -26.7 -6.8 9.6 1.8 -22.4

Revenues, YOY growth -10.3 -1.6 13.7 13.4 21.6 -12.0 -22.1 -25.2 -23.8 -19.3

EPS adj, YOY growth -4.4 -10.2 13.5 -6.0 38.8 71.9 -48.6 -52.3 -43.0 -77.9

Gross margin 24.6 20.3 19.6 25.8 25.7 26.9 100.0 100.0 100.0 100.0



EBIT adj margin 17.2 6.9 9.9 18.4 17.0 nm 91.6 94.5 93.9 89.9

Net profit margin 10.2 4.5 8.2 13.9 10.8 nm 88.9 90.4 90.2 87.7


47

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47



EBITDA 310 241 247 425 402 294 1,300 1,425 1,450 1,125

Gains and losses 0 0 0 0 0 0 0 0 0 0

Other EBITDA adjustments 49 1 16 27 24 2 -4 26 21 -4

EBITDA adj 359 242 262 452 426 297 1,296 1,451 1,471 1,121

EBITA 220 109 150 323 300 -1,085 1,195 1,320 1,340 1,015

Gains and losses 0 0 0 0 0 0 0 0 0 0

Other EBITA adjustments 49 1 16 27 24 2 -4 26 21 -4

Impairment of intangibles 3 36 -1 4 3 89 0 0 0 0

EBITA adj 269 109 166 350 324 -1,082 1,191 1,346 1,361 1,011

EBIT 220 109 150 323 300 -1,085 1,195 1,320 1,340 1,015

Gains and losses 0 0 0 0 0 0 0 0 0 0

Other EBIT adjustments 49 1 16 27 24 2 -4 26 21 -4


EBIT adj 269 109 166 350 324 -1,082 1,191 1,346 1,361 1,011

Net profit 152 79 153 270 210 -968 1,156 1,289 1,307 987

Gains and losses 0 0 0 0 0 0 0 0 0 0

Other EBIT adjustments 49 1 16 27 24 2 -4 26 21 -4





Revenues

Northern Hemisphere and Life of Fields 666 863 943 614 550 700 750 500

Southern Hemisphere and Global projects 997 1,038 960 781 750 725 700 625

Corporate 5 4 -1 0 0 0 0 0

EBIT

Northern Hemisphere and Life of Fields 24 129 97 91 27 76 67 4

Southern Hemisphere and Global projects 152 194 212 116 105 109 105 88

Corporate -10 27 15 -106 -20 0 0 -20

EBIT margin

Northern Hemisphere and Life of Fields 3.6% 14.9% 10.3% 14.8% 4.9% 10.8% 8.9% 0.8%

Southern Hemisphere and Global projects 15.2% 18.7% 22.1% 14.9% 14.0% 15.0% 15.0% 14.0%

Assumptions

Order intake 2,943 1,556 1,450 1,550 134.9 199.9 800.0 1,058 1,058 1,058

Book to bill 1.88 0.98 0.87 0.81 0.07 0.14 0.62 0.74 0.73 0.94

Order backlog 11,800 11,770 11,552 11,197 9,430 8,235 7,735 7,368 6,977 6,910


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48

Annual P&L

(USDm) 2008 2009 2010 2011 2012 2013 2014 2015e 2016e 2017e

Revenues 2,522 2,209 2,369 5,476 6,297 6,297 6,870 5,300 4,500 4,250


EBITDA 510 439 485 900 1,053 854 1,368 931 703 706

Depreciation -110 -131 -119 -338 -333 -359 -401 -430 -445 -455

Impairment of PPE 0 0 0 0 0 0 -1,183 0 0 0

EBITA 398 294 361 537 722 446 -312 501 258 251

Amortisation 0 0 0 0 0 0 0 0 0 0

Impairment of intangibles -2 -15 -4 -25 3 -48 -95 0 0 0

EBIT 398 294 361 537 722 446 -312 501 258 251


Net interest -31 -31 -29 -20 -29 -49 1 -16 -16 -18

Other financial items 62 50 -8 6 42 -40 24 0 0 0

Net financial items 95 68 38 90 99 38 93 23 3 12

Non-recurring items 0 0 0 0 248 26 0 0 0 0

PBT 492 361 399 627 1,069 511 -218 524 261 262

Taxes -163 -103 -131 -176 -222 -161 -152 -155 -76 -76

Effective tax rate (%) 33 28 33 28 21 32 -70 30 29 29

Minorities -6 -21 -48 -27 -17 -2 35 0 0 0

Discontinued operations -23 7 45 0 0 0 0 0 0 0

Net profit 301 245 265 424 830 348 -335 369 185 186

Adjustments to net profit 0 0 0 0 -245 355 0 0 0 0

Net profit adj 301 245 265 424 585 703 -335 369 185 186

Dividend paid -38 -40 -42 0 -199 -199 -195 0 0 0

Avg. number of shares 366 380 375 359 354 354 354


EPS 0.98 0.92 0.85 1.31 2.49 1.04 -1.04 1.13 0.57 0.57

EPS adj 0.98 0.92 0.85 1.30 1.75 2.11 2.56 1.13 0.57 0.57

DPS 0.22 0.23 0.00 0.60 0.60 0.60 0.00 0.00 0.00 0.30


Revenue growth 4.8 -12.4 7.3 131.2 15.0 0.0 9.1 -22.9 -15.1 -5.6

EPS adj growth 3.7 -6.0 -8.0 53.1 35.1 20.4 21.5 -55.9 -49.8 0.5


EBITDA margin 20.2 19.9 20.5 16.4 16.7 13.6 19.9 17.6 15.6 16.6



EBIT margin 15.8 13.3 15.3 9.8 11.5 7.1 nm 9.5 5.7 5.9

EBIT adj margin 18.3 15.5 18.4 11.7 12.8 9.1 nm 10.2 6.2 6.6

PBT margin 19.5 16.4 16.9 11.5 17.0 8.1 nm 9.9 5.8 6.2

Net profit margin 12.2 12.0 13.2 8.2 13.5 5.6 nm 7.0 4.1 4.4


49

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49


(USDm) 2008 2009 2010 2011 2012 2013 2014 2015e 2016e 2017e

EBITDA 510 439 485 900 1,053 854 1,368 931 703 706

Gains and losses 0 0 0 0 0 0 0 0 0 0

Other EBITDA adjustments 63 49 75 104 86 127 69 39 19 29

EBITDA adj 573 488 559 1,003 1,139 981 1,437 970 722 735

EBITA 398 294 361 537 722 446 -312 501 258 251

Gains and losses 0 0 0 0 0 0 0 0 0 0


Impairment of intangibles 2 15 4 25 -3 48 95 0 0 0

EBITA adj 461 343 436 641 808 573 -243 540 277 280

EBIT 398 294 361 537 722 446 -312 501 258 251

Gains and losses 0 0 0 0 0 0 0 0 0 0



EBIT adj 461 343 436 641 808 573 -243 540 277 280

Net profit 301 245 265 424 830 348 -335 369 185 186

Gains and losses 0 0 0 0 0 0 0 0 0 0



Other adjustments 0 0 0 0 -245 355 0 0 0 0

Net profit adj 301 245 265 424 585 703 -335 369 185 186


EPS 0.98 0.92 0.85 1.31 2.49 1.04 -1.04 1.13 0.57 0.57

Recommended adjustment 0.00 0.00 0.00 -0.01 -0.74 1.07 3.60 0.00 0.00 0.00

EPS adj 0.98 0.92 0.85 1.30 1.75 2.11 2.56 1.13 0.57 0.57


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50

Cash flow

(USDm) 2008 2009 2010 2011 2012 2013 2014 2015e 2016e 2017e

Net profit 301 245 265 424 830 348 -335 369 185 186


Other non-cash adjustments 0 0 0 -128 -302 -104 -118 -23 -3 -12

Change in net working capital 173 58 -105 -103 -356 330 268 -349 -11 -68

Cash flow from operations (CFO) 609 442 240 579 515 981 1,450 427 616 561

Capital expenditure -293 -172 -504 -673 -709 -739 -861 -925 -445 -404

Acquisitions 0 0 0 -1 -51 -1 0 0 0 0

Divestments 0 0 0 10 345 9 1 0 0 0

Cash flow from investing (CFI) -293 -172 -504 -663 -415 -732 -860 -925 -445 -404

Free cash flow (FCF) 316 270 -264 -84 100 249 590 -498 171 158

Net change in debt 30 -4 20 9 687 -643 -337 0 0 -118

Dividends paid -38 -40 -42 0 -199 -199 -195 0 0 0

Share issue (repurchase) 0 0 0 -52 -200 80 -164 0 0 0

Other -317 109 -136 -13 97 -125 29 16 11 16

Cash flow from financing (CFF) -326 65 -159 -56 384 -887 -667 16 11 -102

Total cash flow (CFO+CFI+CFF) -10 335 -423 -140 485 -638 -77 -482 182 55

FCFF calculation

Free cash flow 316 270 -264 -84 100 249 590 -498 171 158

Less: net interest 31 31 29 20 29 49 -1 16 16 18

Less: tax shields/other -127 52 23 13 -76 -54 -50 -12 -18 -17

Less: acquisitions 0 0 0 1 51 1 0 0 0 0

Less: divestments 0 0 0 -10 -345 -9 -1 0 0 0

Free cash flow to the firm 220 353 -212 -61 -240 235 538 -494 169 158

Growth (%)

CFO 179.8 -27.5 -45.8 141.9 -11.1 90.4 47.9 -70.5 44.2 -8.9

CFI -19.2 41.3 -193.3 -31.6 37.4 -76.4 -17.5 -7.6 51.9 9.3

FCF 1225.3 -14.7 -198.0 68.3 219.6 148.2 137.1 -184.4 134.4 -7.9

CFF -205.4 119.9 -345.2 64.8 786.2 -330.8 24.9 102.4 -30.6 -1027.7

FCFF 94.0 60.6 -160.1 71.4 -296.2 198.1 128.3 -191.8 134.3 -6.5


51

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51

Balance sheet

(USDm) 2008 2009 2010 2011 2012 2013 2014 2015e 2016e 2017e

Assets 2,471 2,833 2,990 9,248 10,495 10,357 8,624 8,467 8,634 8,675

Inventories 39 22 24 57 59 44 59 34 34 32

Trade receivables 355 298 382 773 1,090 1,008 840 698 720 765

Other receivables 234 213 242 898 1,012 979 662 643 598 581


Cash and cash equivalents 573 908 484 803 1,288 650 573 91 273 328

Current assets 1,332 1,743 1,403 2,914 3,821 3,137 2,162 1,493 1,653 1,734

Property, plant and equipment 908 822 1,279 3,352 3,748 4,098 4,565 5,060 5,060 5,009

Goodwill 0 0 0 2,567 2,575 2,585 1,322 1,322 1,322 1,322

Other intangible assets 4 9 6 35 24 25 21 21 21 21





Total assets 2,471 2,833 2,990 9,248 10,495 10,357 8,624 8,467 8,634 8,675


Total equity to the parent 788 1,068 1,203 5,781 6,325 6,566 5,587 5,956 6,142 6,328

Minority interests 14 31 57 52 44 47 -25 -32 -32 -32

Total equity 801 1,099 1,259 5,833 6,368 6,612 5,562 5,924 6,109 6,295

Trade payables 652 624 673 1,219 1,452 1,637 1,674 1,260 1,215 1,190

Other payables and accruals 453 597 517 1,040 923 938 527 405 417 399

Short-term debt 10 0 0 13 495 275 2 2 2 2


Long-term debt 409 416 435 881 1,041 636 576 592 608 506




Total non-current liabilities 556 513 540 1,143 1,258 895 860 875 891 789



Key metrics

Net interest bearing debt -154 -492 -49 90 248 262 6 503 337 179

Invested capital 889 810 1,372 5,815 6,498 6,543 5,305 6,150 6,161 6,178


52

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52

Valuation ratios

(USDm) 2008 2009 2010 2011 2012 2013 2014 2015e 2016e 2017e

Enterprise value

Share price (USD) 5.57 15.87 24.60 18.60 23.74 19.10 10.33 8.72 8.72 8.72



Net interest bearing debt -154 -492 -49 90 248 262 6 503 337 179

Adjustments to NIBD 14 31 57 52 44 47 -25 -32 -32 -32

Net interest bearing debt adj -140 -461 8 142 291 309 -20 471 305 147

EV 865 2,415 4,476 6,390 8,119 6,669 3,377 3,348 3,182 3,024

EV adj 878 2,446 4,533 6,442 8,163 6,715 3,352 3,316 3,149 2,992

Valuation

EPS 0.98 0.92 0.85 1.31 2.49 1.04 -1.04 1.13 0.57 0.57

EPS adj 0.98 0.92 0.85 1.30 1.75 2.11 2.56 1.13 0.57 0.57

DPS 0.22 0.23 0.00 0.60 0.60 0.60 0.00 0.00 0.00 0.30

P/E 5.7 17.2 29.0 14.2 9.5 18.3 -10.0 7.7 15.4 15.3

P/E adj 5.7 17.2 29.0 14.3 13.5 9.1 4.0 7.7 15.4 15.3

P/B 1.29 2.72 3.76 1.09 1.24 0.98 0.60 0.48 0.46 0.45

Average ROE 37.2% 25.8% 22.5% 12.0% 13.6% 5.4% -5.5% 6.4% 3.1% 3.0%

Earnings yield adj 26.1% 8.4% 5.2% 6.5% 6.7% 10.2% 23.2% 12.5% 6.5% 6.6%

Dividend yield 3.9% 1.4% 0.0% 3.2% 2.5% 3.1% 0.0% 0.0% 0.0% 3.4%

Free cash flow yield 30.6% 9.2% -5.8% -1.3% 1.3% 3.9% 17.6% -17.7% 6.1% 5.6%

EV/SALES 0.34 1.09 1.89 1.17 1.29 1.06 0.49 0.63 0.71 0.71

EV/SALES adj 0.35 1.11 1.91 1.18 1.30 1.07 0.49 0.63 0.70 0.70

EV/EBITDA 1.7 5.5 9.2 7.1 7.7 7.8 2.5 3.6 4.5 4.3

EV/EBITDA adj 1.5 5.0 8.1 6.4 7.2 6.8 2.3 3.4 4.4 4.1

EV/EBIT 2.2 8.2 12.4 11.9 11.2 14.9 -10.8 6.7 12.3 12.1

EV/EBIT adj 1.9 7.1 10.4 10.1 10.1 11.7 -13.8 6.1 11.4 10.7


EV/NOPLAT 3.8 7.2 16.2 17.2 16.5 23.3 4.6 9.5 17.6 17.2


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53


2008 2009 2010 2011 2012 2013 2014 2015e 2016e 2017e

Profitability (%)

ROA 12.3 9.2 9.1 6.9 8.4 3.3 -3.5 4.3 2.2 2.2

ROCE 38.4 25.5 27.9 15.3 11.0 7.4 -3.5 8.5 4.2 4.1


Net PPE/revenues 36.0 37.2 54.0 61.2 59.5 65.1 66.4 95.5 112.4 117.9

Working capital/revenues -10.9 -15.0 -9.6 -5.1 0.3 -4.6 -8.5 -4.4 -4.9 -3.6


Pre-tax ROIC (pre-goodwill) 42.9 34.6 33.1 23.2 20.1 11.3 -7.8 11.4 5.3 5.2

Pre-tax ROIC (incl. goodwill) 42.9 34.6 33.1 14.9 11.7 6.8 -5.3 8.8 4.2 4.1

After-tax ROIC (pre-goodwill) 24.8 39.5 25.4 16.1 13.7 7.3 18.4 8.0 3.7 3.6



FCF/revenues 12.5 12.2 -11.2 -1.5 1.6 3.9 8.6 -9.4 3.8 3.7

FCF/market capitalisation 31.1 9.3 -5.8 -1.3 1.3 3.9 17.5 -17.5 6.0 5.5

CFO/revenues 24.1 20.0 10.1 10.6 8.2 15.6 21.1 8.1 13.7 13.2


CFO/capex 208.0 257.0 47.5 86.2 72.7 132.6 168.3 46.2 138.5 139.0


Cash conversion ratio -3.2 136.6 -159.5 -33.0 58.3 -183.7 22.9 -130.4 98.3 29.7

Capex/revenues 11.6 7.8 21.3 12.3 11.3 11.7 12.5 17.5 9.9 9.5




Interest cover 13.04 9.35 12.59 14.10 16.47 6.61 -15.55 23.30 12.12 9.76

EBIT/interest payable 13.04 9.35 12.59 13.59 16.11 6.29 -16.57 23.05 11.87 9.42

EBITA adj/interest payable 15.11 10.91 15.20 16.22 18.04 8.09 -12.90 24.85 12.75 10.52

Cash coverage 16.72 13.99 16.88 46.14 36.29 17.53 -2736.40 56.98 43.17 40.14

Net debt/EBITDA -0.30 -1.12 -0.10 0.10 0.24 0.31 0.00 0.54 0.48 0.25



LTD / (LTD + equity (MV)) 0.29 0.13 0.09 0.12 0.12 0.09 0.15 0.17 0.18 0.15




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54

TECHNIP

Elevated expectations While forecasts have come down recently, consensus for 2016e earnings is still ~25% above the 2011–2014 average, which is an ill fit in the context of the most severe cyclical downturn in the sector in a decade. Our SELL recommendation reflects too-high expectations and prospects of backlog- and earnings erosion over the next few years. SELL.

Better positioned than peers, but not shielded from downturn. We were impressed

by Technip’s ability to build order backlog during 2014 and it has healthy backlog

coverage for 2015e and 2016e, particularly in the Subsea division (90% for 2015 and

61% contract coverage for 2016 on our estimates). In addition we believe its vertical

integration (manufacturing and Genesis) is a competitive advantage. However, we do

not believe Technip is shielded from the cyclical downturn and argue the collapse in oil

and gas investments will have a negative effect on its backlog and earnings.

Margin challenge in onshore EPC likely to persist. Profitability in the EPC division

has been declining since H2 2012 and the Q4 EBIT margin was the lowest since Q4

2007, reflecting more aggressive client behaviour in terms of negotiating variation orders

and dilution from early stage projects (Yamal). Technip guided a 2015 EBIT margin of 4–

5%, the lowest since 2008, and we see no quick fix as the cyclical downturn unfolds.

Uncomfortable with Petrobras exposure. Brazil is currently a sweet spot for Technip

as FPSOs coming on-stream in 2016e require flexible pipes, but we are becoming

increasingly concerned about Petrobras’ financial situation (due to the corruption

allegations). We see a risk of delays (and cancellations) of more than 50% of the pre-salt

FPSOs with planned start-up in 2016–2018 (the locally built FPSOs).

SELL reiterated. Technip is up 20% YTD – however, the last time the shares touched

EUR60, oil was at USD80–90/bbl. Consensus has come down in recent months, but it

still expects 2016 earnings ~25% higher than the 2011–2014 average, which is an ill fit

with the current market. Our SELL recommendation reflects too-high expectations,

prospects of backlog and earnings erosion over the next few years, and medium-term

uncertainty in Brazil. We maintain our target price of EUR47.

SELL TP: EUR47.0

TECF versus OSEBX (12m)

Source: Factset

Year-end Dec 2011 2012 2013 2014 2015e 2016e 2017e

Revenue (EURm) 6,813 8,204 9,336 10,725 11,410 10,400 9,300

EBITDA adj (EURm) 884 1,017 1,076 1,108 1,286 1,055 884

EBIT adj (EURm) 710 822 845 825 986 760 594

PTP (EURm) 711 748 761 623 906 687 533

EPS rep (EUR) 4.70 4.91 5.07 3.91 5.72 4.33 3.36

EPS adj (EUR) 4.80 4.97 5.06 4.38 5.72 4.33 3.36

DPS (EUR) 1.58 1.68 1.85 2.00 2.10 2.21 2.32

Revenue growth (%) 12.0 20.4 13.8 14.9 6.4 -8.9 -10.6

EBITDA growth adj (%) 15.4 15.1 5.9 2.9 16.1 -18.0 -16.1

EPS growth adj (%) 21.3 3.6 1.8 -13.5 30.6 -24.2 -22.5


EV/Sales adj (x) 1.06 1.14 0.73 0.40 0.47 0.49 0.54

EV/EBITDA adj (x) 8.2 9.2 6.4 3.8 4.2 4.8 5.7

EV/EBIT adj (x) 10.2 11.4 8.1 5.1 5.5 6.7 8.4

P/E adj (x) 15.1 17.5 13.8 11.3 10.4 13.7 17.7

P/Book (x) 2.15 2.38 1.87 1.26 1.39 1.32 1.26

ROE (%) 14.8 14.0 13.8 10.2 13.9 9.8 7.3

ROCE (%) 13.1 13.8 13.3 12.2 13.8 10.4 8.3

Dividend yield (%) 2.2 1.9 2.6 4.0 3.5 3.7 3.9

FCFF yield (%) 6.0 1.3 12.2 11.3 0.7 6.1 0.3


ANALYSTS


[email protected]

+47 24 16 91 91

Sveinung Alvestad

[email protected]

+47 24 16 91 92


455055606570758085


Technip OSEBX (Rebased)

SUMMARY


Share price (EUR) 59.4

Target price (previous) (EUR) 47.0 (47.0)


Tickers TEC FP, TECF.PA

CAPITAL STRUCTURE



Market cap. (EURm) 6,633

NIBD adj end-2015e (EURm) -1,240

Enterprise value adj (EURm) 5,394

Net debt/EBITDA adj (x) -0.66


Abs. 1/3/12m (%) 6/28/-15

Rel. 1/3/12m (%) 5/10/-21

High/Low 12m (EUR) 83/46


UPCOMING EVENTS

Q1 2015 23/04/2015

Q2 2015 24/07/2015

ESTIMATE CHANGES (EUR)


EPS (old) 5.64 4.37 3.48

EPS (new) 5.72 4.33 3.36

Change (%) 1.4 -0.8 -3.5

Consensus 6.06 5.39

Sales (old) 11,250 10,100 9,150

Sales (new) 11,410 10,400 9,300

Change (%) 1.4 3.0 1.6

Consensus 11,312 10,798

Source: DNB Markets, Bloomberg consensus

55

DNB Markets

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55


Our target price of EUR47 values

Technip at 5–6x 2016e EBIT and net

debt at end-2015e.

Our target price implies a 2015e P/E

of 8x and 11x for 2016e.


value per share of EUR58.

Our SOTP analysis supports a fair

value per share of EUR54.



case




Execution issues in the subsea

backlog. 2015–2017 margins should

reveal whether recent order intake

success was driven by pricing.

Downscaling or suspendsion of the

Yamal LNG project (~20% of the

current order backlog).

A significant slowdown in demand for

subsea services in Brazil due to the

financial situation of Petrobras.

Our bear-case scenario sees 20%

downside to our 2016e EBIT and

values Technip at 5.5x.

Although Technip is better positioned

than oil service peers due to its

high(er) order backlog and solid

backlog coverage for 2015e and

2016e, we do not believe it is shielded

from the cyclical downturn and we see

backlog and earnings erosion over the

next few years.

We are not comfortable with the high

exposure to Brazil (Petrobras) and

concentrated project risk in the Yamal

LNG project.

We expect the margin challenge in

onshore EPC to persist.

The key upside risk is on the macro

level, i.e. that we see a v-shaped

recovery in the offshore investment

cycle, which would trigger multiples

expansion.

Technip sustains the solid backlog

momentum.

The group is able to cut costs faster

than we expect which could boost

2015 profitability.

Our bull-case scenario values Technip

at 10x 2016e EBIT.


EBITDA bridge bridge 2014–2016 (EURm)


EUR59

EUR47 (-21%)

EUR40 (-33%)

EUR76 (28%)

36

46

56

66

76

86



1,108

71

107

0

1,286

-114

-118 0

1,055

850

900

950

1,000

1,050

1,100

1,150

1,200

1,250

1,300

1,350

20

14

Volu

me

gro

wth

Marg

in e

xp

an

sio

n

Oth

er

20

15

Volu

me

gro

wth

Marg

in e

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Oth

er

20

16

56

DNB Markets

12 March 2015

56


New Old Change

(EURm) 2015e 2016e 2017e 2015e 2016e 2017e 2015e 2016e 2017e

Revenues 11,410 10,400 9,300 11,250 10,100 9,150 160 300 150

Operating expenses -10,124 -9,345 -8,416 -9,975 -9,039 -8,246 -148 -306 -170

EBITDA 1,286 1,055 884 1,275 1,061 904 12 -6 -20

EBITDA adj 1,286 1,055 884 1,275 1,061 904 12 -6 -20

EBITDA margin (%) 11.3 10.1 9.5 11.3 10.5 9.9 -0.1 -0.4 -0.4

Depreciation -280 -275 -270 -280 -275 -270 0 0 0

EBITA 1,006 780 614 995 786 634 12 -6 -20

Amortisation -20 -20 -20 -20 -20 -20 0 0 0

EBIT 986 760 594 975 766 614 12 -6 -20

EBIT adj 986 760 594 975 766 614 12 -6 -20

Associated companies 0 0 0 0 0 0 0 0 0

Net interest -60 -53 -42 -61 -53 -42 1 0 0

Other financial items -20 -20 -20 -20 -20 -20 0 0 0

Net financial items -80 -73 -62 -81 -73 -62 1 0 0

Non-recurring items 0 0 0 0 0 0 0

PBT 906 687 533 894 692 552 12 -6 -19

Taxes -267 -203 -157 -264 -204 -163 -4 2 6

Minorities 0 0 0 0 0 0 0 0 0

Discontinued operations 0 0 0 0 0 0 0

Net profit 639 484 375 630 488 389 9 -4 -14


Net profit adj 639 484 375 630 488 389 9 -4 -14


EPS 5.72 4.33 3.36 5.64 4.37 3.48 0.08 -0.04 -0.12

EPS adj 5.72 4.33 3.36 5.64 4.37 3.48 0.08 -0.04 -0.12

DPS 2.10 2.21 2.32 2.10 2.21 2.32 0.00 0.00 0.00


Revenue growth 6.4 -8.9 -10.6 4.9 -10.2 -9.4 1.5 1.4 -1.2

EBIT adj growth 19.6 -23.0 -21.8 18.2 -21.4 -19.8 1.4 -1.5 -2.0

EPS adj growth 30.6 -24.2 -22.5 28.9 -22.5 -20.3 1.8 -1.7 -2.2

Capex -325 -269 -431 -325 -269 -431 0 0 0

Working capital -2,432 -2,239 -2,071 -2,420 -2,196 -2,049 -11 -43 -21

NIBD adj -1,240 -1,557 -1,623 -1,220 -1,510 -1,611 -20 -47 -12

Source: DNB Markets

57

DNB Markets

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57

Forecast changes – By segment and assumptions

New Old Change

(EURm) 2015e 2016e 2017e 2015e 2016e 2017e 2015e 2016e 2017e

Revenues

Subsea 5,410 4,700 4,400 5,350 4,600 4,200 60 100 200

EPC 6,000 5,700 4,900 5,900 5,500 4,950 100 200 -50

Corporate 0 0 0 0 0 0 0

EBIT

Subsea 825 567 495 811 573 463 14 -6 32

EPC 249 278 185 252 278 236 -3 0 -52

Corporate -88 -85 -85 -88 -85 -85 0 0 0

EBIT margin

Subsea 15.3% 12.1% 11.2% 15.2% 12.5% 11.0% 0.1% -0.4% 0.2%

EPC 4.2% 4.9% 3.8% 4.3% 5.0% 4.8% -0.1% -0.2% -1.0%

EBITDA

Subsea 1,085 822 745 1,071 828 713 14 -6 32

EPC 289 318 225 292 318 276 -3 0 -52

Corporate -88 -85 -85 -88 -85 -85 0 0 0

EBITDA margin

Subsea 20.1% 17.5% 16.9% 20.0% 18.0% 17.0% 0.0% -0.5% 0.0%

EPC 4.8% 5.6% 4.6% 4.9% 5.8% 5.6% -0.1% -0.2% -1.0%

Assumptions

Order intake 7,300 9,300 7,750 7,250 6,800 9,500 50.00 2,500 -1,750

Order backlog 16,826 15,726 14,176 16,936 13,636 13,986 -110.0 2,090 190.0

Book to bill 0.64 0.89 0.83 0.64 0.67 1.04 0.00 0.22 -0.20

Order intake Subsea 3,300 3,300 4,250 3,250 3,300 4,500 50.00 0.00 -250.0

Order intake EPC 4,000 6,000 3,500 4,000 3,500 5,000 0.00 2,500 -1,500

Order backlog Subsea 7,618 6,218 6,068 7,628 6,328 6,628 -10.00 -110.0 -560.0

Order backlog EPC 9,208 9,508 8,108 9,308 7,308 7,358 -100.0 2,200 750.0

Source: DNB Markets

58

DNB Markets

12 March 2015

58

Quarterly numbers


Revenues 2,412 2,485 2,469 2,615 2,825 2,816 2,800 2,930 2,880 2,800


EBITDA 285 272 181 303 305 319 285 345 350 307

Depreciation -60 -62 -56 -58 -59 -91 -65 -65 -70 -80

EBITA 225 210 125 245 247 228 220 280 280 227

Amortisation -3 -3 -5 -5 -5 -5 -5 -5 -5 -5

EBIT 222 207 120 240 242 223 215 275 275 222


Net interest -10 -10 -12 -13 -14 -14 -15 -15 -15 -15

Other financial items -19 -26 -14 -5 -5 -54 -5 -5 -5 -5


Non-recurring items 0 0 0 -7 -34 -33 0 0 0 0

PBT 193 172 96 216 189 122 195 254 255 202

Taxes -42 -33 -26 -59 -55 -39 -58 -75 -75 -60

Minorities -2 -4 -2 1 -2 -3 0 0 0 0


Net profit 150 135 67 158 132 80 137 179 179 143


Net profit adj 150 135 67 162 155 104 137 179 179 143


EPS 1.35 1.21 0.60 1.41 1.18 0.72 1.23 1.60 1.61 1.28

EPS adj 1.35 1.21 0.60 1.45 1.39 0.93 1.23 1.60 1.61 1.28


Revenues, QOQ growth -0.5 3.0 -0.7 6.0 8.0 -0.3 -0.6 4.6 -1.7 -2.8

Revenues, YOY growth 15.6 8.0 22.5 7.9 17.1 13.3 13.4 12.0 2.0 -0.6

EPS adj, YOY growth 0.6 -9.9 -42.5 -0.8 2.8 -23.3 104.0 10.4 15.5 37.7




EBIT adj margin 9.2 8.3 4.8 9.2 8.5 7.9 7.7 9.4 9.5 7.9

Net profit margin 6.3 5.6 2.8 6.0 4.7 2.9 4.9 6.1 6.2 5.1


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EBITDA 285 272 181 303 305 319 285 345 350 307


EBITDA adj 285 272 181 303 305 319 285 345 350 307

EBITA 225 210 125 245 247 228 220 280 280 227


EBITA adj 225 210 125 245 247 228 220 280 280 227

EBIT 222 207 120 240 242 223 215 275 275 222


EBIT adj 222 207 120 240 242 223 215 275 275 222

Net profit 150 135 67 158 132 80 137 179 179 143


Tax adjustments 0 0 0 -2 -10 -10 0 0 0 0

Other adjustments 0 0 0 7 34 33 0 0 0 0

Net profit adj 150 135 67 162 155 104 137 179 179 143




Revenues

Subsea 1,094 963 1,009 1,233 1,348 1,290 1,300 1,430 1,380 1,300

EPC 1,318 1,522 1,459 1,383 1,476 1,526 1,500 1,500 1,500 1,500

Corporate 0 0 0 0 0 0 0 0 0 0

EBIT

Subsea 161 130 55 189 193 198 186 246 223 171

EPC 87 102 86 73 70 48 51 51 74 74

Corporate -26 -25 -21 -22 -21 -23 -22 -22 -22 -22

EBIT margin

Subsea 14.7% 13.5% 5.5% 15.3% 14.3% 15.3% 14.3% 17.2% 16.2% 13.1%

EPC 6.6% 6.7% 5.9% 5.3% 4.7% 3.1% 3.4% 3.4% 4.9% 4.9%

EBITDA

Subsea 214 183 107 243 247 286 246 306 288 246

EPC 97 113 95 82 80 56 61 61 84 84

Corporate -26 -25 -21 -22 -21 -23 -22 -22 -22 -22

EBITDA margin

Subsea 19.5% 19.0% 10.6% 19.7% 18.3% 22.1% 18.9% 21.4% 20.9% 18.9%

EPC 7.4% 7.4% 6.5% 5.9% 5.4% 3.7% 4.1% 4.1% 5.6% 5.6%

Assumptions

Order intake 3,142 3,188 2,780 7,077 2,211 3,227 1,825 1,825 1,825 1,825

Order backlog 15,851 16,581 15,357 19,860 19,306 20,936 20,336 19,106 17,926 16,826

Book to bill 1.30 1.28 1.13 2.71 0.78 1.15 0.00 0.00 0.00 0.00

Order intake Subsea 1,757 1,596 2,057 2,238 1,272 1,271 1,200 700.0 700.0 700.0

Order intake EPC 1,386 1,591 723.4 4,839 939.0 1,956 1,000 1,000 1,000 1,000

Order backlog Subsea 7,982 8,642 8,406 9,519 9,462 9,728 9,628 8,898 8,218 7,618

Order backlog EPC 7,869 7,939 6,951 10,341 9,844 11,208 10,708 10,208 9,708 9,208

Utilization 0.75 0.69 0.69 0.88 0.86 0.74 0.00 0.00 0.00 0.00


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Annual P&L

(EURm) 2008 2009 2010 2011 2012 2013 2014 2015e 2016e 2017e

Revenues 7,481 6,456 6,082 6,813 8,204 9,336 10,725 11,410 10,400 9,300


EBITDA 814 892 766 884 1,017 1,076 1,108 1,286 1,055 884

Depreciation -147 -196 -133 -162 -184 -215 -263 -280 -275 -270

EBITA 667 696 633 721 833 861 845 1,006 780 614

Amortisation -10 -20 -13 -12 -11 -17 -20 -20 -20 -20

EBIT 657 677 620 710 822 845 825 986 760 594


Net interest -10 -10 6 -13 -40 -40 -53 -60 -53 -42

Other financial items -1 -51 -26 30 -25 -44 -78 -20 -20 -20

Net financial items -9 -56 -20 17 -64 -83 -129 -80 -73 -62

Non-recurring items 0 -248 -6 -16 -10 0 -74 0 0 0

PBT 648 373 595 711 748 761 623 906 687 533

Taxes -194 -195 -179 -209 -205 -191 -180 -267 -203 -157

Effective tax rate (%) 30 52 30 29 27 25 29 30 30 30

Minorities -6 -8 2 5 -3 -7 -6 0 0 0


Net profit 448 170 418 507 540 563 437 639 484 375


Net profit adj 448 344 422 518 546 563 488 639 484 375

Dividend paid -125 -128 -144 -156 -173 -186 -207 -223 -224 -169


EPS 4.28 1.60 3.92 4.70 4.91 5.07 3.91 5.72 4.33 3.36

EPS adj 4.28 3.23 3.96 4.80 4.97 5.06 4.38 5.72 4.33 3.36

DPS 1.20 1.35 1.45 1.58 1.68 1.85 2.00 2.10 2.21 2.32


Revenue growth -5.1 -13.7 -5.8 12.0 20.4 13.8 14.9 6.4 -8.9 -10.6

EPS adj growth 47.4 -24.4 22.4 21.3 3.6 1.8 -13.5 30.6 -24.2 -22.5


EBITDA margin 10.9 13.8 12.6 13.0 12.4 11.5 10.3 11.3 10.1 9.5



EBIT margin 8.8 10.5 10.2 10.4 10.0 9.0 7.7 8.6 7.3 6.4

EBIT adj margin 8.8 10.5 10.2 10.4 10.0 9.0 7.7 8.6 7.3 6.4

PBT margin 8.7 5.8 9.8 10.4 9.1 8.2 5.8 7.9 6.6 5.7

Net profit margin 6.1 2.8 6.8 7.4 6.6 6.1 4.1 5.6 4.7 4.0


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(EURm) 2008 2009 2010 2011 2012 2013 2014 2015e 2016e 2017e

EBITDA 814 892 766 884 1,017 1,076 1,108 1,286 1,055 884

Gains and losses 0 0 0 0 0 0 0 0 0 0


EBITDA adj 814 892 766 884 1,017 1,076 1,108 1,286 1,055 884

EBITA 667 696 633 721 833 861 845 1,006 780 614

Gains and losses 0 0 0 0 0 0 0 0 0 0


EBITA adj 667 696 633 721 833 861 845 1,006 780 614

EBIT 657 677 620 710 822 845 825 986 760 594

Gains and losses 0 0 0 0 0 0 0 0 0 0


EBIT adj 657 677 620 710 822 845 825 986 760 594

Net profit 448 170 418 507 540 563 437 639 484 375

Gains and losses 0 0 0 0 0 0 0 0 0 0


Tax adjustments 0 -74 -2 -5 -3 0 -22 0 0 0

Other adjustments 0 248 6 16 10 0 74 0 0 0

Net profit adj 448 344 422 518 546 563 488 639 484 375


EPS 4.28 1.60 3.92 4.70 4.91 5.07 3.91 5.72 4.33 3.36

Recommended adjustment 0.00 1.63 0.04 0.10 0.06 -0.01 0.47 0.00 0.00 0.00

EPS adj 4.28 3.23 3.96 4.80 4.97 5.06 4.38 5.72 4.33 3.36


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Cash flow

(EURm) 2008 2009 2010 2011 2012 2013 2014 2015e 2016e 2017e

Net profit 448 170 418 507 540 563 437 639 484 375


Other non-cash adjustments 39 -30 -22 106 146 94 43 5 -11 -45

Change in net working capital -227 262 -501 -131 -439 421 105 -645 -193 -169

Cash flow from operations (CFO) 455 634 38 652 445 1,319 868 299 576 452

Capital expenditure -401 -424 -389 -357 -519 -623 -376 -325 -269 -431

Acquisitions -15 -8 -141 -604 -248 -8 -96 5 -36 -128

Divestments 5 3 22 4 44 79 86 0 0 0

Cash flow from investing (CFI) -411 -429 -508 -958 -723 -552 -385 -320 -306 -559

Free cash flow (FCF) 43 205 -470 -306 -279 767 482 -21 271 -106

Net change in debt 79 84 894 133 -40 525 80 -129 -264 -513

Dividends paid -125 -128 -144 -156 -173 -186 -207 -223 -224 -169

Share issue (repurchase) 1 0 -2 0 -108 -40 -45 0 0 0

Other 6 90 171 32 80 -150 222 0 0 0

Cash flow from financing (CFF) -40 47 919 9 -241 149 51 -352 -487 -682

Total cash flow (CFO+CFI+CFF) 3 252 449 -297 -519 916 533 -373 -217 -789

FCFF calculation

Free cash flow 43 205 -470 -306 -279 767 482 -21 271 -106

Less: net interest 10 10 -6 13 40 40 53 60 53 42

Less: tax shields/other 75 -306 -47 125 154 115 -49 9 -9 -47

Less: acquisitions 15 8 141 604 248 8 96 -5 36 128

Less: divestments -5 -3 -22 -4 -44 -79 -86 0 0 0

Free cash flow to the firm 138 -86 -403 432 119 850 496 43 351 16

Growth (%)

CFO -44.9 39.5 -94.0 1601.3 -31.8 196.5 -34.2 -65.5 92.6 -21.5

CFI -135.8 -4.3 -18.3 -88.6 24.5 23.7 30.2 16.9 4.5 -82.8

FCF -93.3 372.4 -329.0 34.8 9.0 375.1 -37.1 -104.3 1400.2 -139.4

CFF 93.8 215.9 1871.9 -99.0 -2745.1 162.1 -66.2 -797.6 -38.3 -40.0

FCFF -72.1 -162.2 -369.4 207.2 -72.4 612.6 -41.6 -91.3 709.2 -95.4


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Balance sheet

(EURm) 2008 2009 2010 2011 2012 2013 2014 2015e 2016e 2017e

Assets 8,132 8,570 10,222 11,771 11,581 13,024 14,600 14,154 13,823 13,048

Inventories 226 215 222 255 297 275 451 448 416 372

Trade receivables 1,124 1,061 1,277 1,264 1,274 1,738 1,505 1,405 1,352 1,209

Other receivables 748 666 1,107 1,427 1,344 1,445 2,026 2,010 1,943 1,830


Cash and cash equivalents 2,405 2,656 3,106 2,809 2,289 3,205 3,738 3,365 3,149 2,360

Current assets 4,543 4,660 5,751 5,789 5,258 6,787 7,795 7,304 6,935 5,847

Property, plant and equipment 945 1,195 1,472 2,194 2,413 2,346 2,693 2,708 2,678 2,817

Other intangible assets 2,409 2,408 2,435 3,174 3,368 3,333 3,353 3,363 3,367 3,369





Total assets 8,132 8,570 10,222 11,771 11,581 13,024 14,600 14,154 13,823 13,048


Total equity to the parent 2,473 2,687 3,180 3,652 4,001 4,157 4,363 4,779 5,040 5,246


Total equity 2,496 2,717 3,202 3,673 4,014 4,174 4,375 4,791 5,051 5,257

Trade payables 1,704 1,476 1,862 2,244 2,095 2,477 2,703 2,576 2,288 2,046

Other payables and accruals 2,926 3,279 3,130 3,330 2,938 3,490 4,427 3,791 3,734 3,508

Short-term debt 26 28 681 598 400 160 256 127 127 127


Long-term debt 734 845 1,092 1,553 1,706 2,214 2,357 2,387 2,140 1,627




Total non-current liabilities 980 1,070 1,347 1,925 2,133 2,724 2,839 2,869 2,622 2,109



Key metrics

Net interest bearing debt -1,645 -1,784 -1,332 -657 -183 -832 -1,125 -851 -881 -605

Invested capital 1,631 1,661 2,381 3,801 5,114 4,800 4,881 5,721 5,837 6,091


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Valuation ratios

(EURm) 2008 2009 2010 2011 2012 2013 2014 2015e 2016e 2017e

Enterprise value

Share price (EUR) 21.81 49.40 69.10 72.62 86.84 69.86 49.42 59.36 59.36 59.36



Net interest bearing debt -1,645 -1,784 -1,332 -657 -183 -832 -1,125 -851 -881 -605

Adjustments to NIBD 16 21 22 22 7 -101 -146 -389 -676 -1,018

Net interest bearing debt adj -1,629 -1,763 -1,310 -635 -176 -932 -1,271 -1,240 -1,557 -1,623

EV 641 3,466 6,025 7,182 9,359 6,943 4,391 5,783 5,752 6,028

EV adj 657 3,487 6,047 7,204 9,366 6,843 4,245 5,394 5,076 5,010

Valuation

EPS 4.28 1.60 3.92 4.70 4.91 5.07 3.91 5.72 4.33 3.36

EPS adj 4.28 3.23 3.96 4.80 4.97 5.06 4.38 5.72 4.33 3.36

DPS 1.20 1.35 1.45 1.58 1.68 1.85 2.00 2.10 2.21 2.32

P/E 5.1 30.8 17.6 15.5 17.7 13.8 12.6 10.4 13.7 17.7

P/E adj 5.1 15.3 17.5 15.1 17.5 13.8 11.3 10.4 13.7 17.7

P/B 0.92 1.95 2.31 2.15 2.38 1.87 1.26 1.39 1.32 1.26

Average ROE 19.1% 6.5% 14.1% 14.8% 14.0% 13.8% 10.2% 13.9% 9.8% 7.3%

Dividend yield 5.5% 2.7% 2.1% 2.2% 1.9% 2.6% 4.0% 3.5% 3.7% 3.9%

Free cash flow yield 1.9% 3.9% -6.4% -3.9% -2.9% 9.8% 8.7% -0.3% 4.1% -1.6%

EV/SALES 0.09 0.54 0.99 1.05 1.14 0.74 0.41 0.51 0.55 0.65

EV/SALES adj 0.09 0.54 0.99 1.06 1.14 0.73 0.40 0.47 0.49 0.54

EV/EBITDA 0.8 3.9 7.9 8.1 9.2 6.5 4.0 4.5 5.5 6.8

EV/EBITDA adj 0.8 3.9 7.9 8.2 9.2 6.4 3.8 4.2 4.8 5.7

EV/EBIT 1.0 5.1 9.7 10.1 11.4 8.2 5.3 5.9 7.6 10.1

EV/EBIT adj 1.0 5.2 9.7 10.2 11.4 8.1 5.1 5.5 6.7 8.4


EV/NOPLAT 1.4 7.3 13.9 14.5 16.3 11.7 7.6 8.3 10.7 14.4


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2008 2009 2010 2011 2012 2013 2014 2015e 2016e 2017e

Profitability (%)

ROA 5.5 2.0 4.4 4.6 4.6 4.6 3.2 4.4 3.5 2.8

ROCE 21.4 19.8 14.5 13.1 13.8 13.3 12.2 13.8 10.4 8.3


Net PPE/revenues 12.6 18.5 24.2 32.2 29.4 25.1 25.1 23.7 25.8 30.3

Working capital/revenues -33.3 -42.6 -38.6 -38.1 -25.3 -25.6 -28.7 -21.3 -21.5 -22.3


Pre-tax ROIC (incl. goodwill) 45.3 42.3 31.3 23.3 18.7 17.4 17.4 19.0 13.5 10.3



FCF/revenues 0.6 3.2 -7.7 -4.5 -3.4 8.2 4.5 -0.2 2.6 -1.1

FCF/market capitalisation 1.9 3.9 -6.4 -3.9 -2.9 9.9 8.7 -0.3 4.1 -1.6

CFO/revenues 6.1 9.8 0.6 9.6 5.4 14.1 8.1 2.6 5.5 4.9


CFO/capex 113.3 149.7 9.8 182.4 85.7 211.7 231.0 92.1 214.1 104.9


Cash conversion ratio 0.7 147.7 107.6 -58.5 -96.2 162.7 122.1 -58.4 -44.7 -210.1

Capex/revenues 5.4 6.6 6.4 5.2 6.3 6.7 3.5 2.8 2.6 4.6




Interest cover 17.63 15.82 12.58 10.26 9.30 9.76 9.32 10.21 8.69 8.38

EBIT/interest payable 16.89 15.04 11.47 9.43 8.72 9.20 8.90 9.80 8.27 7.94

EBITA adj/interest payable 17.15 15.47 11.70 9.59 8.84 9.38 9.12 10.00 8.49 8.20

Cash coverage 80.61 89.20 -127.65 68.49 25.42 26.84 20.80 21.39 19.98 21.14

Net debt/EBITDA -2.02 -2.00 -1.74 -0.74 -0.18 -0.77 -1.02 -0.66 -0.84 -0.68



LTD / (LTD + equity (MV)) 0.24 0.14 0.13 0.17 0.15 0.22 0.30 0.26 0.24 0.20




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Important Information This report has been prepared by DNB Markets, a division of DNB Bank ASA. DNB Bank ASA is a part of the

DNB Group. This report is based on information obtained from public sources that DNB Markets believes to be

reliable but which DNB Markets has not independently verified, and DNB Markets makes no guarantee,

representation or warranty as to its accuracy or completeness. Any opinions expressed herein reflect DNB

Markets’ judgement at the time the report was prepared and are subject to change without notice.

Recommendation structure and risk classification

DNB Markets recommendations are based on absolute performance:

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

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

Sell - indicates an expected negative return within 12 months

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

High risk - Volatility over 40 percent.

Medium risk - Volatility from 25 percent to 40 percent.

Low risk - Volatility under 25 percent.

Investing in any security is subject to substantial risk. Return on investment may vary greatly.

Careful consideration for possible financial distress should be accounted for before investing in any security.

Recommendation distribution and corporate clients for the last 12 months

Buy Hold Sell No rec Total

Number 78 53 54 1 187

% of total 42% 28% 29% 1%

DNB Markets client 20% 5% 10% 1% 67

Conflict of interest, risk classification and price target history for Subsea 7

DNB Markets/DNB Group may receive compensation for investment banking services or other products/services from Subsea 7.

Share positions in the company: Analyst* Employees** DNB*** Update

Number of shares 0 124 0 12.03.2015

*The analyst or any close associates. **Share positions does not include administration and section FX/Treasury.

***Share positions as part of DNB Group. Holdings as part of DNB Markets investment services activity are not included.

50

60

70

80

90

100

110

120

29-6-14 29-7-14 29-8-14 28-9-14 29-10-14 28-11-14 29-12-14 28-1-15 28-2-15 30-3-15

Price, Rating, and Price Target History Subsea 7 (SUBC NO) as of 11-3-15

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

2-5-14H : 120

1-8-14 B : 120

16-9-14 H : 100.0

11-11-14 H : 94.0

13-11-14 S : 73.0

25-11-14 S : 67.0

17-12-14 S : 63.0

29-1-15 S : 56.0

5-3-15 S : 55.0

Current 6 months volatility rates this security as HIGH risk.

Conflict of interest, risk classification and price target history for Saipem

DNB Markets/DNB Group may receive compensation for investment banking services or other products/services from Saipem.





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6

8

10

12

14

16

18

20

22

29-6-14 29-7-14 29-8-14 28-9-14 29-10-14 28-11-14 29-12-14 28-1-15 28-2-15 30-3-15

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


3-7-14H : 19.0

30-7-14 H : 17.6

13-8-14 H : 17.8

27-10-14 S : 14.0

29-10-14 S : 12.5

25-11-14 S : 10.00

17-12-14 S : 8.00

17-2-15 S : 7.60

Current 6 months volatility rates this security as HIGH risk.

Conflict of interest, risk classification and price target history for Technip

DNB Markets/DNB Group may receive compensation for investment banking services or other products/services from Technip.





40

45

50

55

60

65

70

75

80

85

29-6-14 29-7-14 29-8-14 28-9-14 29-10-14 28-11-14 29-12-14 28-1-15 28-2-15 30-3-15

Price, Rating, and Price Target History Technip (TEC FP) as of 11-3-15


3-7-14S : 71.0

24-7-14 H : 71.0

13-8-14 S : 62.0

27-10-14 H : 60.0

24-11-14 S : 52.0

17-12-14 S : 44.0

19-2-15 S : 47.0

Current 6 months volatility rates this security as MEDIUM risk.

Conflict of interest, risk classification and price target history for Aker Solutions

DNB Markets/DNB Group may receive compensation for investment banking services or other products/services from Aker Solutions.





25

30

35

40

45

50

55

60

65

70

29-8-14 28-9-14 29-10-14 28-11-14 29-12-14 28-1-15 28-2-15 30-3-15

Price, Rating, and Price Target History Aker Solutions (AKSO NO) as of 11-3-15


S : 54.05-11-14 S : 40.0

25-11-14 S : 36.0

17-12-14 S : 31.0

2-2-15 S : 30.0

16-2-15 S : 32.0

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There is not enough historical volatility data to rate the risk of this share.

Legal statement The analyst hereby certifies that (i) the views expressed in this report accurately reflect that research analyst’s personal views about the company and the securities that are the subject of this report, and (ii) no part of the research analyst’s compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by that research analyst in this report. DNB Markets employees, including research analysts, may receive compensation that is generated by overall firm profitability. Confidentiality rules and internal rules restricting the exchange of information between different parts of DNB Markets/DNB Bank ASA or the DNB Group are in place to prevent employees of DNB Markets who are preparing this report from utilizing or being aware of information available in the DNB Group that may be relevant to the recipients’ decisions. DNB Markets and the DNB Group have incorporated internal rules and regulations in order to avoid any potential conflicts of interest. This report is for clients only, and not for publication, and has been prepared for information purposes only by DNB Markets - a division of DNB Bank ASA registered in Norway number NO 984 851 006 (the Register of Business Enterprises) under supervision of the Financial Supervisory Authority of Norway (Finanstilsynet), the Monetary Authority of Singapore, and on a limited basis by the Financial Conduct Authority and the Prudential Regulation Authority of the UK, and the Financial Supervisory Authority of Sweden. Details about the extent of our regulation by local authorities outside Norway are available from us on request. It is issued subject to the General Business Terms for DNB Markets and information about the terms is available at www.dnb.no. For requests regarding the General Business Terms of the Singapore Branch of DNB Bank ASA, please contact +65 6212 0753. Information about the DNB Group can be found at www.dnb.com. DNB Markets is a member of The Norwegian Securities Dealers Association, which has issued recommendations and market standards for securities companies. The Association's Internet address where the recommendations and market standards can be found is: www.nfmf.no. This report is not an offer to buy or sell any security or other financial instrument or to participate in any investment strategy. No liability whatsoever is accepted for any direct or indirect (including consequential) loss or expense arising from the use of this report. Distribution of research reports is in certain jurisdictions restricted by law. Persons in possession of this report should seek further guidance regarding such restrictions before distributing this report. Please contact DNB Markets at 08940 (+47 915 08940) for further information and inquiries regarding this report, such as ownership positions and publicly available/commonly known corporate advisory performed by DNB Markets etc, in relation to the Norwegian Securities Trading Act 2007/06/29 no. 75 and the Norwegian Securities Trading Regulation 2007/06/29 no. 876.

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69

researchonline.sebgroup.com Important. All disclosure information can be found on pages 34 – 36 of this document

Focus on declining utilisation outlook in 2015 ● Early Q1 utilisation strength likely to disappear

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

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

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

Share Price Performance (%)

-1M -3M -12M SUBC.OL (14) (11) (41) Relative Norway (16) (10) (45) Relative sector (6) 18 0

Oil Services

Norway

Company Update

2 February 2015

SellSubsea 7

Key Data (2014E)

Price (NOK)Target price (NOK) - changed from (NOK)RecommendationRisk

ReutersBloomberg

Market cap (NOKm)Market cap (USDm)Market cap (EURm)Net debt (USDm)Net gearingNet debt/EBITDA (x) 0.2

Shares fully dil. (m)Avg daily turnover (NOKm)Free float 90%

3004%

369.2173.2

65.9053.0067.00

Sell

2,782

Normal

SUBC NO

3,11424,333

SUBC.OL

Share Price (12M)

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

60708090

100110120130

Feb Apr Jun Aug Oct Dec Feb

Financials (USD)

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

Year end: Dec 2012 2013 2014E 2015E 2016ERevenues (m) 6,297 6,297 7,270 5,165 4,914Operating profit (m) 808 573 1,076 348 313Pre-tax profit (m) 1,069 511 1,049 329 291EPS (reported) 2.23 0.99 2.20 0.64 0.57EPS (adjusted) 2.23 0.99 2.20 0.64 0.57DPS 0.60 0.60 0.00 0.00 0.60

Revenue growth (%) 15.0 0.0 15.4 (29.0) (4.9)Operating profit growth (%) 26.2 (29.1) 87.6 (67.7) (9.9)EPS (adjusted) growth (%) 84.0 (55.6) 121.4 (70.8) (11.2)

Operating margin (%) 12.8 9.1 14.8 6.7 6.4ROE (%) 14.0 5.8 11.8 3.1 2.6ROCE (%) 11.2 7.7 14.0 4.4 3.8

PER (x) 10.6 19.2 3.8 13.2 14.8Free cash flow yield (%) (0.4) 4.0 5.2 (13.4) 5.1Dividend yield (%) 2.5 3.2 0.0 0.0 7.1P/BV (x) 1.26 0.97 0.39 0.38 0.37

EV/Sales (x) 1.55 1.17 0.47 0.70 0.70EV/EBITDA (x) 8.5 7.5 2.3 4.6 4.4EV/EBIT (x) 12.0 12.9 3.2 10.5 11.0Operating cash flow/EV (%) 8.9 13.9 35.1 17.6 19.2EV/Capital employed (x) 1.23 0.98 0.51 0.43 0.40

Analysts Andrew Dobbing (47) 2100 8567 [email protected] Terje Fatnes (47) 2100 8538 [email protected] Harald Øyen (47) 2100 8542 [email protected]

70

SEB Equity Research

Company Update Subsea 7

2 02 February 2015

Investment thesis We see a wave of negative triggers for Subsea 7, including risks of continued weak asset utilisation, which we do not believe the market is sufficiently aware of. This is particularly true in the North Sea, historically a more important market for Subsea than for either Technip or particularly Saipem. We argue this highlights the risk surrounding consensus revenue forecasts and particularly margin forecasts. We expect a major impairment of Subsea 7’s goodwill (USD 2,578m at 30 September 2014, which arose as a consequence of the merger between Subsea 7 and Acergy which completed on 7 January 2011). We acknowledge that there is a very illiquid market for Subsea 7’s highly specialised vessels. However, we believe the tangible book value will ultimately provide some downside protection to the share price at a time when earnings continue to contract and near term earnings multiples no longer provide a realistic valuation metric. What’s more, as M&A remains an important theme in this sector, asset based valuation metrics could prove particularly appropriate.

Still trading well above prior low on price/book value Subsea 7 is trading on a consensus price/book value per share of 0.39x (0.41x on our forecasts) – a record low and compared with the previous low of 0.59x in November 2008. However adjusting for the goodwill, Subsea 7 is trading on a price/tangible book value of 0.63x. We expect the current down-cycle to be much deeper than that in 2008/09, and it is now more appropriate to question the market value of assets. As such the discount we apply, both in absolute terms, and relative to the low at the end of 2008 seems appropriate.

Price/equity book value

Source: Thomson Datastream

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

0

1

2

3

4

5

6

Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15

SUBC SPM TEC

71

SEB Equity Research


3 02 February 2015

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

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

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

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

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

Earnings revision (USD) 2014E 2015E 2016E Revenues (m) Old 7,270 6,309 5,359 New 7,270 5,165 4,914 Change (%) 0 (18) (8) Operating profit (m) Old 1,076 817 623 New 1,076 348 313 Change (%) 0 (57) (50) Pre-tax profit (m) Old 1,049 801 608 New 1,049 329 291 Change (%) 0 (59) (52) EPS (reported) Old 2.20 1.59 1.21 New 2.20 0.64 0.57 Change (%) 0 (60) (53) EPS (adjusted) Old 2.20 1.59 1.21 New 2.20 0.64 0.57 Change (%) 0 (60) (53) Source: SEB

72

SEB Equity Research


4 02 February 2015

Q4 2014 preview We forecast Q4 2014 revenues of USD 1,795m, down 6% sequentially from USD 1,902m in Q3 2014, up 13% y-o-y from USD 1,586m in Q4 2013 and 10% above consensus (Bloomberg) of USD 1,635m. We forecast EBITDA of USD 347m (19.3% margin, and which does not include any additional provision reversal on Guara-Lula), down 10% sequentially from USD 386m (20.3% margin, excluding the USD 40m provision reversal on Guara-Lula), up 19% y-o-y from USD 291m (18.3% margin, excluding the USD 49m provision on Guara-Lula), and 20% above consensus of USD 289m (17.7% margin). We forecast order intake of USD 600m in Q4 2014, based on USD 195m of announced orders, and USD 405m of non-announced orders. Three contracts were announced during Q4: (i) Baobab Field Phase III development for CNR in Ivory Coast (USD 70m, but this was included in the Q3 2014 order backlog), (ii) a SURF contract for Shell in the GoM (USD 75m), and (iii) the Stampede project for Hess in the GoM (USD 120m). We estimate a year-end 2014 order backlog of USD 8,235m, although this does not include any currency impact. In its Q3 report Subsea 7 reported a USD 300m negative currency impact on its backlog, based on the weakening of most relevant currencies against the USD. We note that during Q4 the USD/NOK dropped by 15% compared with a 5% drop during Q3 2014. As such we see risk of another significant impact on Subsea 7s backlog and revenue visibility for 2015 and 2016.

We expect there to be focus on bookings for 2016. In its Q3 2014 presentation Subsea 7 announced that 42% its USD 9,430m backlog was for execution in 2016 and beyond. In its Q4 presentation, Subsea7 will disclose the backlog for execution in 2016 alone. We estimate this will be USD 1,834m based on an estimated USD 2,126m of the backlog for execution in 2017 and beyond (which we assume is entirely attributable to the long term PLSV contracts). However, as we highlight above, this USD 1,834m could be negatively impacted by foreign currency movements during Q4 2014, and hence this disclosure could be another negative trigger for 2016 earnings revisions.

Overview of backlog scheduling – Subsea 7

Source: SEB estimates, Subsea 7

3,360

3,808

4,032

USD 4,032mof end Q2/14backlog forexecution in2016 andbeyond

USD 3,808mof end Q2/14backlog forexecution in2015

USD 3,360mof end Q2/14backlog forexecution inH2 2014

3,126

4,064

3,231



USD 3,126mof end Q2/13backlog forexecution inH2 2013

Backlog +7% YoY

2,458(2015)

773

1,906(2016)

2,126

Backlog for executionin 2016 downUSD 552m comparedto execution for 2015measured one yearearlier

Backlog atQ2 2013

Backlog atQ2 2014

“Apparent”improvementIn revenuevisibility

1,603

3,866

3,961



USD 1,603mof end Q3/14backlog forexecution inQ4 2014

Backlog atQ3 2014

1,834(2016)

2,126

73

SEB Equity Research


5 02 February 2015

Announced and non-announced order intake - Subsea 7


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

Current year revenue additions as a percentage of quarterly order intake – Subsea 7

Source: Subsea 7, SEB

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

2008 2009 2010 2011 2012 2013 2014E 2015E 2016E

USD

m

Announced order intake Unannounced

-10

0

10

20

30

40

50

60

Q2/11 Q3/11 Q4/11 Q1/12 Q2/12 Q3/12 Q4/12 Q1/13 Q2/13 Q3/13 Q4/13 Q1/14 Q2/14 Q3/14

%

Additions to current year revenue/quartely EX PLSV order intake Annual average

74

SEB Equity Research


6 02 February 2015

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


Overview of PLSV adjustments – order intake, order backlog and revenue scheduling

Source: Subsea 7 SEB

-500

0

500

1,000

1,500

2,000

2,500

3,000

Q1/

11

Q2/

11

Q3/

11

Q4/

11

Q1/

12

Q2/

12

Q3/

12

Q4/

12

Q1/

13

Q2/

13

Q3/

13

Q4/

13

Q1/

14

Q2/

14

Q3/

14

Q4/

14E

USD

m

Announced order intake Unannounced order intake Next year revenue added Current year revenue added

2,500

710

1,1702,660

283

1,160

396

275

1,175

3,376 3.883 3,787

3,4933,872

4,357

554

2,036

554

2,450

Q1/13 Q2/13 Q3/13 Q4/13 Q1/14

3,253 3,313

554 554

Q2/14 Q3/14

-1,043

-1,044

670

883

5,873

3,687 3,557

Order intake

Order backlog

Revenue booked(backlog execution)

Backlog for execution in 2014 Backlog for execution in 2015

10,222 10,421 11,800 11,770 11,552 11,197 9,430

-30% YoY

2,603

1,530

493956

1,450

350 2,450600

1,553

Order intake

Announced orders Non-announced orders

Non-PLSV orders PLSV orders

Non-PLSV backlog PLSV backlog

9,539 9,455 8,424 7,887 7,765 7,510

Non-PLSV revenue PLSV revenue

3,578 4,064 4,720 2,589 3,004 3,807 3,866

-854-574

368

438

75

SEB Equity Research


7 02 February 2015

Order intake outlook – Subsea 7 Order intake for Subsea 7, which typically more or less matched that for Technip during 2007-13, collapsed in 2014 to USD 3,438m. This compares with EUR 5,567m or USD 7,573m for Technip. Subsea 7 has been favourably positioned on a number of contracts which have slipped – most notably Chevron’s Gehem Gendalo project in Indonesia and more recently there are indications that Shell’s very large Bonga SW field development project in Nigeria is getting pushed out. Thus, rather than winning back market share, we see low order intake for both Subsea 7 and Technip this year.

Annual order intake by region (note pre-2011 is Acergy prior to merger with Subsea 7)

Source: Subsea 7

Fleet utilisation analysis Based on our analysis of vessel movements, and port stops, we estimate an average YTD vessel utilisation of 59% for Subsea 7, compared to reported utilisation of 65% in Q1 2011, 86% in Q1 2012 and 74% in Q1 2013. The first quarter typically shows the lowest utilisation and profitability due to a seasonal weather related slowdown in demand in the North Sea, which typically runs from December to February.

While stronger than for both Saipem and Technip, utilisation appears to have been weak for Subsea 7 YTD, largely due to low activity for the Inspection, Maintenance & Repair (IMR) vessels. Some of these vessels are operating on long term frame agreements where the vessels receive income for a minimum number of days. As we have not taken this into account for all vessels, we may be underestimating actual effective economic utilisation. For the Subsea Viking we assume full utilisation as it was awarded a five-year contract with BP on 12 October 2012 for subsea construction and IMR services for the Foinaven and Schiehallion fields located west of the Shetland Islands. The contract extension is valued at approximately USD 300m and will run from 2013 until 2017. We assume this contract is for continual activity (i.e. the vessel is being paid for 365 days a year), as this implies a day rate of USD 164,000, which appears fair.

While utilisation is just one of many variables that determine overall profitability for Subsea 7, explaining the poor correlation between the two, it tends to be the most important single recurring driver of reported margins. Other variables include the level of procurement income (in turn dependent on the ratio of EPIC to transport and installation or day rate contracts), project phasing and profit contingency release and contract pricing.

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

2008 2009 2010 2011 2012 2013 2014 YTD

USD

m

North Sea & Canada Africa & GoM Asia Pacific & Middle East Brazil Total non-announced

76

SEB Equity Research


8 02 February 2015

Overall fleet utilisation - Subsea 7

Source: MarineTraffic, Bloomberg, company reports, SEB

Vessel utilisation by vessel type – Subsea 7

Source: MarineTraffic, Bloomberg, company reports, SEB

0

10

20

30

40

50

60

70

01 J

an

03 J

an

05 J

an

07 J

an

09 J

an

11 J

an

13 J

an

15 J

an

17 J

an

19 J

an

21 J

an

23 J

an

25 J

an

27 J

an

29 J

an

31 J

an

Vess

el u

tilisa

tion

(%)

0

20

40

60

80

100

120

01 J

an

03 J

an

05 J

an

07 J

an

09 J

an

11 J

an

13 J

an

15 J

an

17 J

an

19 J

an

21 J

an

23 J

an

25 J

an

27 J

an

29 J

an

31 J

an

Vess

el u

tilisa

tion

(%)

Construction vessels Construction/Vertical Flex-lay vessels

Construction/Horizontal Flex-lay vessels Life-of-field/Light construction vessels

Diving vessels Rigid pipelay/Heavy lift vessels

77

SEB Equity Research


9 02 February 2015

Correlation between fleet utilisation and group gross margin

Source: SEB, Subsea 7

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

Correlation between fleet utilisation and group operating margin


Q1/11

Q2/11

Q3/11

Q4/11

Q1/12Q2/12

Q3/12

Q4/12

Q1/13

Q2/13Q3/13

Q4/13Q1/14

Q2/14Q3/14

y = 1.9318x + 48.883R² = 0.422

60

65

70

75

80

85

90

95

13 14 15 16 17 18 19 20 21 22

Vess

el u

tilisa

tion

(%)

Recurring gross margin (%)

Q1/11

Q2/11

Q3/11

Q4/11

Q1/12Q2/12

Q3/12

Q4/12

Q1/13

Q2/13Q3/13

Q4/13Q1/14

Q2/14Q3/14

y = 1.2942x + 65.422R² = 0.4377

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6 8 10 12 14 16 18 20 22

Vess

el u

tilisa

tion

(%)

Recurring operating margin (%)

78

SEB Equity Research


10 02 February 2015

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


2015 revenue forecasting For 2015 revenue we use a two stage approach:

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

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

Stage 1 – incremental 2016 revenue coverage during Q4 2014 We assume order intake of USD 600m in Q4 2014 (previously USD 1bn).

Year+1 revenue addition = (0.3317 x order intake).

2015 revenue addition = 0.3317 x 600 = USD 199m.

In its Q3 2014 report, Subsea 7 disclosed that 41% (USD 3,866m) of its total backlog (USD 9,430m) was for execution in 2015.

Thus based on our order intake assumptions above we estimate that by the end of 2014 there will be (3,866 + 199 =) USD 4,065m of backlog for execution during 2015.

Stage 2 – incremental 2015 revenue coverage during 2015 We assume order intake of USD 4.0bn during 2015 (previously USD 4.5bn).

Current year revenue addition = (0.2748 x order intake).

2016 revenue addition = 0.2748 x 4,000 = USD 1,099m.

Therefore, based on our order intake assumptions above, we estimate 2016 revenue of (4,065 + 1,099 =) USD 5,164m. Our actual 2015 revenue forecast is USD 5,165m.

Q1/11

Q2/11

Q3/11

Q4/11

Q1/12

Q2/12

Q3/12

Q4/12

Q1/13

Q2/13

Q3/13Q4/13

Q1/14

Q2/14Q3/14

y = 1.4431x + 64.945R² = 0.3964

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79

SEB Equity Research


11 02 February 2015

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

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

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

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

Overview of current 2016 revenue calculations

Source: SEB estimates

Stage 1 – incremental 2016 revenue coverage during Q4 2014 We assume order intake of USD 600m in Q4 2014 (previously USD 1bn).


2016 revenue addition = 0.1689 x 600 = USD 101m.

In its Q3 2014 report, Subsea 7 disclosed that 42% (USD 3,961m) of its total backlog (USD 9,430m) was for execution in 2016 and beyond. Based on our detailed analysis of PLSV contracts we estimate that this backlog includes USD 2,126m of PLSV revenue post 2016, implying USD 1,834m of the USD 3,961m backlog is in 2016.

Thus based on our order intake assumptions above we estimate that by the end of 2014 there will be (1,834 + 101 =) USD 1,935m of backlog is for execution during 2016.

1,603

3,866

3,961

2,126(2017+)

1,834(2016)

USD 3,961mof end Q3backlog forexecution in2016+

USD 3,866mof end Q3backlog forexecution in2015

USD 1,603mof end Q3backlog forexecution inQ4 2014

1,834

101499

1,935

1,327

2,673

1,834

101

1,327

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

USD 101m of 2016 revenue from Q4 14 orders

USD 1,327m of 2016 revenue from 2015 orders

USD 1,649m of 2016 revenue from 2016 orders

Period

Order intake (USD m)

End Q3/14 Q4/14 YE/14 YE/15 YE/16

600 4,000 6,000

USD 4,911 of2016 revenue

2016 revenuecalculationUSD 4,911m(actual forecastUSD 4,914m)

Assumed order intake ofUSD 4,000m 2015, of whichUSD 1,327m is for execution in2016 and USD 2,673m is in 2015and post-2016

1,6491,649

4,351

80

SEB Equity Research


12 02 February 2015

Correlation between quarterly order intake and increase to “year+2” backlog execution


Stage 2 – incremental 2016 revenue coverage during 2015 We assume order intake of USD 4.0bn in 2015 (previously USD 4.5bn).



Therefore, based on our order intake assumptions above, we estimate that by the end of 2015 there will be (1,935 + 1,327 =) USD 3,262m of backlog for execution during 2016.

Correlation between quarterly order intake and increase to “year+1” backlog execution


Q2/11

Q3/11

Q4/11

Q1/12Q2/12

Q3/12

Q4/12

Q1/13

Q2/13

Q3/13

Q4/13

Q1/14Q2/12

Q3/14

Q4/14 y = 0.1689xR² = 0.0626

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tions

to y

ear+

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venu

e bo

okin

g (U

SD m

)

Ex PLSV order intake (USD m)

Q1/11

Q2/11

Q3/11

Q4/11

Q1/12Q2/12

Q3/12

Q4/12

Q1/13

Q2/13

Q3/13

Q4/13

Q1/14

Q2/14

Q3/14

Q1-Q4 2015

y = 0.3317xR² = 0.438

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81

SEB Equity Research


13 02 February 2015

Stage 3 – incremental 2016 revenue coverage during 2016 We assume order intake of USD 6.0bn during 2016 (previously USD 6.5bn).

Current year revenue addition = (0.2748 x order intake).


Therefore, based on our order intake assumptions above, we estimate 2016 revenue of (3,262 + 1,649 =) USD 4,911m. Our actual 2016 revenue forecast is USD 4,914m.

We see some additional revenue risk from the weaker Norwegian krone, and contract cancellations.

Correlation between quarterly order intake & increase to current year backlog execution


Q2/11

Q3/11

Q4/11

Q1/12

Q2/12

Q3/12

Q4/12

Q1/13Q2/13

Q3/13

Q4/13

Q1/14

Q2/12

Q3/14

Q1-Q4 2016y = 0.2748xR² = 0.1968

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82

SEB Equity Research


14 02 February 2015

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

Base Sensitivity - no revenue change Sensitivity - with revenue change 2014E 2015E 2016E 2014E 2015E 2016E 2014E 2015E 2016E

Revenue 7,270 5,165 4,914 7,270 5,165 4,914 7,270 6,000 4,400 Revenue growth (%) -29 -5 -29 -5 -17 -27 Administration expenses -314 -270 -260 -314 -300 -290 -314 -300 -290

Total other operating expenses -5,553 -4,148 -3,922 -5,553 -4,236 -3,957 -5,553 -4,670 -3,650 % fixed costs (%) 30 32 36 30 37 38 30 33 40 Fixed other operating costs -1,666 -1,327 -1,412 -1,666 -1,550 -1,500 -1,666 -1,550 -1,450 Variable costs (% of revenue) 23 26 29 23 30 31 23 26 33 Variable other operating costs -3,887 -2,821 -2,510 -3,887 -2,686 -2,457 -3,887 -3,120 -2,200 Variable costs (% of revenue) 53 55 51 53 52 50 53 52 50 Share of results of associates and jv 86 46 46 86 46 46 86 46 46 EBITDA 1,489 793 779 1,489 675 713 1,489 1,076 506 EBITDA margin (%) 20.5 15.4 15.8 20.5 13.1 14.5 20.5 17.9 11.5

Depreciation -400 -430 -450 -400 -430 -450 -400 -430 -450 Impairment -13 -16 -16 -13 -16 -16 -13 -16 -16 Operating profit 1,076 348 313 1,076 230 248 1,076 631 41 Operating profit margin (%) 14.8 6.7 6.4 14.8 4.4 5.0 14.8 10.5 0.9

Revenue 7,270 5,165 4,914 7,270 5,165 4,914 7,270 6,000 4,400 Administration costs (fixed) -314 -270 -260 -314 -300 -290 -314 -300 -290 Depreciation and amortisation (fixed) -414 -446 -466 -414 -446 -466 -414 -446 -466 Other fixed costs -1,666 -1,327 -1,412 -1,666 -1,550 -1,500 -1,666 -1,550 -1,450 Variable costs -3,887 -2,821 -2,510 -3,887 -2,686 -2,457 -3,887 -3,120 -2,200 Operating profit before associates and jv 990 302 267 990 184 202 990 585 -6 Share of results of associates and jv 86 46 46 86 46 46 86 46 46 Operating profit 1,076 348 313 1,076 230 248 1,076 631 41

Administration costs (fixed, %) 5 6 6 5 6 6 5 6 7 Depreciation and amortisation (fixed, %) 7 9 10 7 9 10 7 8 11 Other fixed costs (%) 27 27 30 27 31 32 27 29 33 Total fixed costs (%) 38 42 46 38 46 48 38 42 50 Variable costs (%) 62 58 54 62 54 52 62 58 50 Source: SEB estimates

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

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

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

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

● There has been no instance where the backlog has contracted and the following year’s consensus EPS estimate has been revised up.

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

83

SEB Equity Research


15 02 February 2015

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

Correlation between backlog growth and earnings revisions*

Source: SEB, Subsea 7; * note circle size indicates total share return (where blue is a positive return and green a negative return).

Backlog, EPS revisions and share price performance – Subsea 7

Source: Thomson Datastream, SEB

2004

20052006

2007

2008

2009

2010

2011

2012

2013

2014

y = 0.5467x + 17.232R² = 0.5386

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Back

log

grow

th (%

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Next year consensus EPS revisions (%)

SUBC Sector O/P ACY SUB ACY+SUB SUBC Growth Growth SUBC Sector O/P SUBC Sector

(%) (%) USD m USD m USD m USD m (%) (%) (%) (x) (x)

2003 1,026 468 1,494 1,026 73 82 No 8.9 9.8

2004 64 21 Yes 1,788 1,242 3,030 1,788 +74 Yes 140 64 Yes 20.3 12.5

2005 47 45 Yes 2,194 1,355 3,549 2,194 +23 Yes 100 88 Yes 15.6 14.9

2006 42 49 No 2,587 3,748 6,335 2,587 +18 Yes 53 69 No 15.6 17.0

2007 -8 16 No 3,175 4,215 7,390 3,175 +23 Yes 2 25 No 14.9 16.7

2008 -45 -18 No 2,511 3,268 5,779 2,511 -21 No -68 -56 No 10.5 11.1

2009 -38 -23 No 2,848 2,798 5,646 2,848 +13 Yes 140 107 Yes 13.4 10.4

2010 20 0 Yes 3,552 2,800 6,352 3,552 +25 Yes 59 49 Yes 17.4 14.0

2011 -10 -4 No 8,538 +34 Yes -22 -15 No 16.4 13.3

2012 -16 -11 No 9,086 +6 Yes 28 10 Yes 13.6 11.4

2013 -9 -20 Yes 11,770 +30 Yes -9 3 No 12.6 12.1

2014 -36 -31 No 8,235 -30 No -32 -27 No 8.6 11.1

12m fwd PERNext year EPS change Backlog Total share return

84

SEB Equity Research


16 02 February 2015

Contract overview Major project progression at end Q3/14

Source: Subsea 7

Major project progression at end Q2/14

Source: Subsea 7

0 10 20 30 40 50 60 70 80 90 100

Eldfisk (Norway)Knarr (Norway)

Guará Lula NE (Brazil)Clair Ridge (UK)Enochdhu (UK)Ofon 2 (Nigeria)

Gorgon HLTI (Australia)Lianzi Surf (Angola)

Martin Linge (Norway)Western Isles (UK)

Lianzi Topside (Angola)Heidelberg (GOM)

Erha North (Nigeria)Montrose (UK)

Mariner (UK)SLMP (Norway)

TEN (Ghana)Aasta Hansteen (Norway)

%

0 10 20 30 40 50 60 70 80 90 100

CLOV (Angola)Delta S2 (Norway)

G1-GS15 (India)Laggan Tormore (UK)

Knarr (Norway)Block 31 GES (Angola)Guará Lula NE (Brazil)

Eldfisk (Norway)Ofon 2 (Nigeria)Clair Ridge (UK)

Gorgon HLTI (Australia)Enochdhu (UK)

Lianzi Surf (Angola)Martin Linge (Norway)

Western Isles (UK)Lianzi Topside (Angola)

Erha North (Nigeria)Heidelberg (GOM)

Montrose (UK)Mariner (UK)

Aasta Hansteen (Norway)SLMP (Norway)

TEN (Ghana)

%

85

SEB Equity Research


17 02 February 2015

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

12-month forward consensus EPS and PER - Subsea 7

Source: Thompson Datastream

Consensus EPS revisions – Subsea 7


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

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USD

PER

(x)

12m fwd EPS (RHA) 12m fwd PER Current 12m fwd PER Sector PER

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Dec 03 Dec 04 Dec 05 Dec 06 Dec 07 Dec 08 Dec 09 Dec 10 Dec 11 Dec 12 Dec 13 Dec 14

NOK$

2005 2006 2007 2008 2009 2010 2011

2012 2013 2014 2015 2016 Share price

86

SEB Equity Research


18 02 February 2015

Correlation between consensus EPS multiples and EPS revisions – Subsea 7


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

2004

20052006

2007

2008

2009

2010

20112012

2013

2014

2014 YTD

y = 9.3532x - 134.21R² = 0.665

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revis

ion

(nex

t yea

r EPS

, %)

Average 12-month forward PER (x)

Data point Current PER Linear (Data point)

87

SEB Equity Research


19 02 February 2015

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


Contract Country Client Date Installation Vessels Value 2010E 2011E 2012E 2013E 2014E 2015E 2016E

announced start employed (USDm)

Paz Flor Angola Total Jan-08 mid-10 Polaris/Queen 700 390 260 0 0 0 0 0

Cascade/Chinook US Petrobras Jan-08 Q4 2009 NA 50 25 0 0 0 0 0 0

Deep Panuke Canada Encana Feb-08 Q2 2010 Falcon/Discovery 195 80 80 0 0 0 0 0

Pluto Australia Woodside Feb-08 H2 2009 Toisa Proteus 150 60 0 0 0 0 0 0

4-yr frame agreement Denmark Dong Mar-08 2008 NA 100 60 25 25 0 0 0 0

Gjoa/Morvin Norway StatoilHydro Mar-08 2009 NA 60 30 0 0 0 0 0 0

GSNC (Sul Capixaba) Brazil Petrobras Mar-08 2009 NA 200 0 200 0 0 0 0 0

5-yr IRM contract UK Total Apr-08 2008 NA 60 12 12 12 0 0 0 0

Block 31 (PSVM) Angola BP Jul-08 NA Seas 460 110 150 150 50 0 0 0

IRM UK Venture Jul-08 H2 2008 NA 67 0 0 0 0 0 0 0

Grove/Alpha UK Centrica Jul-08 H2 2009 Navica 70 0 0 0 0 0 0 0

Troll B Norway StatoilHydro Aug-08 2009 NA 100 50 0 0 0 0 0 0

Droshky US Marathon Aug-08 Q3 2009 Oceans 45 0 0 0 0 0 0 0

Skarv (ACY) Norway BP Aug-08 H2 2010 Acergy 60 50 15 10 0 0 0 0

ALNG Angola Angola LNG Dec-08 Q4 2009 Hawk/Leg/Pol 250 150 25 0 0 0 0 0

Total 2008 2,567 1,017 767 197 50 0 0 0

Acergy order intake (2008) 1,858

Subsea order intake (2008) 1,426

Total actual order intake (2008) 3,285



Snorre B riser replacement Norway StatoilHydro Mar-09 2009 NA 17 0 0 0 0 0 0 0

Tambau Urugua/P-56 (SUB) Brazil Petrobras Mar-09 2010 NA 200 200 0 0 0 0 0 0

SURF for K5CU dev Holland Total Apr-09 Q3 2010 NA 26 26 0 0 0 0 0 0

MPN platform revamp (ACY) Nigeria Mobil May-09 NA Orion 190 10 30 150 0 0 0 0

Valhall Flank Norway BP Jul-09 Q3 2010 NA 40 20 20 0 0 0 0 0

NA (ACY) Australia BHP Billiton Jul-09 H2 2009 Toisa Proteus 200 100 0 0 0 0 0 0

Block 18 GEL (SUB) Angola BP Jul-09 2010 NA 150 120 25 25 0 0 0 0

Flex lay (ACY) Brazil Petrobras Jul-09 Q1 2010 Queen 260 65 65 65 65 0 0 0

ROV services Ghana Tullow Aug-09 Q2 2010 NA 20 4 4 4 4 4 4 4

Block 18 (SUB) Angola BP Aug-09 2010 NA 150 70 15 0 0 0 0 0

SURF at Gryphon/Tullich UK Maersk Aug-09 Q4 2009 Seven Pelican 100 60 0 0 0 0 0 0

4-year PLSV contract (SUBC) Brazil Petrobras Sep-09 Q3 2009 Normand Seven 250 63 63 63 47 0 0 0

Block 17 (ACY) Angola Total Sep-09 Q2 2010 Pol/Hawk/Leg 110 90 10 0 0 0 0 0

Casino-Henry (SUB) Australia Santos Sep-09 Q4 2009 Navica 80 50 0 0 0 0 0 0

EGP3B Escravos (ACY) Nigeria Chevron Oct-09 Q4 2010 NA 500 80 230 170 0 0 0 0

P-55 Roncador (SUB) Brazil Petrobras Oct-09 Q3 2010 NA 200 60 80 40 20 0 0 0

Caesar/Tonga US Anadarko Nov-09 Q3 2009 NA 50 0 0 0 0 0 0 0

Tiffany/Banff UK CNR Dec-09 Q4 2009 Rockwater 1 20 0 0 0 0 0 0 0

3 year DSV contract (SUB) UK DSVi Dec-09 2010 NA 200 67 67 67 0 0 0 0

Total 2009 2,763 1,084 608 583 136 4 4 4



Total order intake (2009) 4,515

88

SEB Equity Research


20 02 February 2015





Galapagos & Nikita US BP Apr-10 Q4 2010 Neptune 50 10 40 0 0 0 0 0

Oso Re (ACY) Nigeria NA May-10 Q1 2011 NA 120 60 50 10 0 0 0 0

ROV services (SUB) Brazil Petrobras May-10 NA NA 250 80 80 80 80 80 0 0

Bacchus (SUB) UK Apache Jun-10 Q1 2011 NA 75 5 70 0 0 0 0 0

Andrew (SUB) UK BP Jun-10 Q1 2011 NA 135 50 45 25 15 0 0 0

5-year ROV services (SUB) Brazil Petrobras Jul-10 Q3 2010 NA 50 0 10 10 10 10 10 0

Clov (ACY) Nigeria Total Jul-10 Q4 2012 Borealis/Eagle/Legend 1,300 0 325 290 555 130 0 0

Flex lay (ACY) Brazil Various Aug-10 NA Condor 220 10 55 55 55 45 0 0

Lagan Tormore UK Total Oct-10 Q2 2012 NA 250 0 100 50 60 40 0 0

Frame agreement Norway BP Nov-10 NA Viking 100 0 40 40 20 0 0 0

Medway (ACY) Netherlands Dana Petroleum Nov-10 Jul-05 NA 50 0 50 0 0 0 0 0

Jasmine UK ConocoPhillips Nov-10 Q2 2012 NA 100 0 45 35 20 0 0 0

Pan Pandora/Katla (SUB) Norway Statoil Nov-10 H1 2012 NA 85 0 0 60 25 0 0 0

Sul-Norte Capixaba GSNC (AC Brazil Petrobras Dec-10 Q4 2011 Polaris/Harrier 190 0 30 160 0 0 0 0

South Arne (SUB) Denmark Hess Dec-10 Q4 2011 NA 55 5 30 20 0 0 0 0

Total 2010 3,030 220 970 835 840 305 10 0



Total order intake (2010) 5,098



Misc diving Brazil Petrobras Jan-11 Q1 2011 Harrier 40 0 40 0 0 0 0 0

Tambau Brazil Petrobras Jan-11 Q1 2011 Acergy 40 0 40 0 0 0 0 0

B11 Platform Brazil ConocoPhillips Feb-11 2013 NA 75 0 0 35 40 0 0 0

5-yr frame agreement Norway Statoil Feb-11 Q2 2011 NA 260 0 25 50 50 50 50 25

Tahiti Phase 2 US Chevron Feb-11 Q3 2011 Oceans/Neptune 100 0 20 80 0 0 0 0

Ensign UK Centrica Feb-11 Q3 2011 NA 60 0 60 0 0 0 0 0

Eldfisk Norway ConocoPhillips Mar-11 NA NA 100 0 0 15 45 40 0 0

Huntingdon UK E.ON Mar-11 2012 NA 100 0 0 100 0 0 0 0

Guara/Lula Brazil Petrobras Apr-11 H2 2012 Oceans/Seas/Seven 1,000 0 350 300 350 0 0 0

Ekofisk Norway ConocoPhillips Apr-11 2012 NA 150 0 10 140 0 0 0 0

Tordis Norway Statoil Apr-11 2011 NA 70 0 0 70 0 0 0 0

Ormen Lange (Mid North) Norway Shell Apr-11 Q3 2012 NA 70 0 0 70 0 0 0 0

G1 Field India ONGC May-11 Q4 2011 NA 50 0 0 20 20 10 0 0

Skuld (Fossekall-Dompap) Norway Statoil May-11 2012 NA 180 0 20 160 0 0 0 0

3 yr LOF US BP May-11 2011 NA 125 0 25 45 45 10 0 0

Triton UK Dana Petroleum Jun-11 H2 2011 NA 50 0 50 0 0 0 0 0

Siri Caisson Denmark DONG Jun-11 2H 2011 Havila/Skandi Acergy 220 0 70 60 90 0 0 0

Gorgon umbilicals Australia Chevron Jul-11 Q1 2013 Seven Sea 80 0 0 40 40 0 0 0

Gorgon Australia Chevron Jul-11 2013 Sapura 3000 440 0 0 20 125 295 0 0

Tue backs at Jette field Norway DNO Sep-11 Q3 2012 NA 60 0 0 60 0 0 0 0

OFON 2 sealines Nigeria Total Sep-11 Q3 2013 Acergy Polaris 465 0 0 65 200 200 0 0

Deepwater flexlay vessel Brazil Petrobras Nov-11 H2 2014 Newbuild 500 0 0 0 0 50 100 100

Atla Norway Total Nov-11 Q2 2012 NA 75 0 0 75 0 0 0 0

UOTE Campos Basin Brazil Petrobras Dec-11 H1 2013 NA 200 0 0 60 120 20 0 0

West Franklin UK ELF Dec-11 Q3 2013 NA 185 0 0 90 75 20 0 0

Avg contract Share Region

North Sea & Canada 122 34% 1,580 0 235 875 215 70 50 25

Africa & GoM 230 15% 690 0 45 190 245 210 0 0

Asia Pacific & Middle East 190 12% 570 0 0 80 185 305 0 0

Brazil 309 40% 1,855 0 430 395 510 70 100 100

Total 2011 100% 4,695 0 710 1,555 1,200 695 150 125

Actual actual order intake (2011) 7,714

Calc. order backlog 6,797 Actual order backlog 8,538

Calc. backlog for 2012 execution 3,170 Actual backlog for 2012 execution 4,269

89

SEB Equity Research


21 02 February 2015





Fletcher-Finucane Australia Santos Jan-12 Q4 2012 Rockwater 2 60 0 0 30 30 0 0 0

Claire Ridge UK BP Feb-12 2013 NA 100 0 0 10 35 55 0 0

Svalin C Norway Statoil Feb-12 Q2 2013 NA 80 0 0 40 40 0 0 0

Lihua-4 China CNOOC NA NA NA 200 0 0 200 0 0 0 0

Terra Nova SURF Canada Suncor Mar-12 Q3 2012 NA 100 0 0 100 0 0 0 0

Cheviot UK ATP Mar-12 2014 NA 175 0 0 0 0 50 125 0

Enochdhu pipeline bundle UK ConocoPhillips Jun-12 2014 NA 95 0 0 0 40 55 0 0

Knarr Norway BG Jul-12 Q2 2013 NA 400 0 0 0 200 200 0 0

Lianzi SURF Congo/Ang. Chevron Aug-12 H2 2014 Seven Oceans 600 0 0 0 180 300 120 0

Varg gas export contract Norway Talisman Sep-12 Q2 2013 NA 60 0 0 0 30 30 0 0

SURF for Julimar development Australia Apache Oct-12 Q4 2014 NA 100 0 0 0 0 0 100 0

IRM at Foinaven/Schiehallion UK BP Oct-12 2013-17 Subsea Viking 300 0 0 0 60 60 60 60

Gullfaks C subsea compression Norway Statoil Nov-12 2015 NA 70 0 0 0 0 0 70 0

Martin Linge SURF Norway Total Nov-12 Q2 2014 Seven Borealis 800 0 0 0 160 400 240 0

Pipeline replacement UK NA Nov-12 Q3 2013 NA 70 0 0 0 35 35 0 0

Underwater services Europe Shell Nov-12 2014-16 NA 360 0 0 0 0 120 120 120

Lianzi topsides Congo/Ang. Chevron Dec-12 H2 2014 NA 150 0 0 0 30 60 60 0


North Sea & Canada 218 70% 2,610 0 0 100 525 950 615 180

Africa & GoM 375 20% 750 0 0 0 210 360 180 0


Brazil 0 0% 0 2 3 4 5 6 7 8

Total 2012 100% 3,720 0 0 380 840 1,365 895 180

Actual actual order intake (2012) 6,845





Western Isles development UK Dana Jan-13 2014 NA 300 0 0 0 15 285 0 0

Line 60 project Mexico Pemex Jan-13 Q1 2013 Seven Borealis 140 0 0 0 140 0 0 0

Pipeline bundle at Fram field UK Shell Jan-13 2014 NA 135 0 0 0 0 135 0 0

Erha North SURF Nigeria Esso Feb-14 Q1 2015 Borealis/Pacific 800 0 0 0 160 200 440 0

Oseberg Delta 2 pipelay Norway Statoil Feb-13 Q1 2014 NA 160 0 0 0 50 110 0 0

Montrose pipeline bundles UK Talisman Feb-13 2014-15 NA 285 0 0 0 15 130 140 0

Aasta Hansteen Spar SURF Norway Statoil Mar-13 2015-16 NA 380 0 0 0 0 170 210 0

Flexibles at Sapinhpoa/Lula NE Brazil Petrobras Mar-13 2013 Seven Seas 300 0 0 0 150 150 0 0

5-year day rate contract Brazil Petrobras Apr-13 2013 Kommandor 3000 350 0 0 0 35 70 70 70

Line 67 project Mexico Pemex May-13 Q4 2013 Seven Borealis 90 0 0 0 90 0 0 0

SURF for Mariner field UK Statoil May-13 2015 Various 170 0 0 0 0 10 75 85

Heidelberg development US Anadarko Jun-13 Q4 2014 Seven Borealis 100 0 0 0 0 45 55 0

5-year day rate contract Brazil Petrobras Jul-13 Q3 2013 Seven Phoenix 450 0 0 0 45 90 90 90

5-year day rate contract Brazil Petrobras Jul-13 Q4 2013 Normand Seven 400 0 0 0 20 80 80 80

3 x 5-year contracts Brazil Petrobras Jul-13 2016/17 NA 1,600 0 0 0 0 0 0 30

Riser replacement Norway Statoil Sep-13 2014-17 Various 140 0 0 0 5 45 45 45

SURF for Cardona field US Stone Energy Sep-13 Q3 2014 NA 70 0 0 0 0 35 35 0

3 year PLSV for Mar/Condor Brazil Petrobras Oct-13 Q4 13/Q3 14 Seven Mar/Condor 600 0 0 0 0 125 200 200

6 year ROV contract Brazil Petrobras Oct-10 NA Far Saga 60 0 0 0 0 10 10 10

EPI of TEN flowlines Ghana Tullow Oct-13 mid 2015 Seven Borealis 500 0 0 0 0 25 200 275


North Sea & Canada 224 22% 1,570 0 0 0 85 885 470 130

Africa & GoM 283 24% 1,700 0 0 0 390 305 730 275


Brazil 537 53% 3,760 0 0 0 250 525 450 480

Total 2013 100% 7,030 0 0 0 725 1,715 1,650 885

Actual order intake 8,981



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Remote intervention (4 + 4 yrs) Brazil Petrobras Feb-14 NA Toisa Vigilante/Valiant 90 0 0 0 0 22.5 22.5 22.5

3 year constr. Support for Hebro Canada ExxonMobil Feb-14 NA NA 75 0 0 0 0 25 25 25

SURF for BC-10 Phase 3 Brazil Shell Mar-14 Q3 2015 Skandi Neptune 110 0 0 0 0 0 110 0

3 year IMR contract US BP May-14 Q2 2014 Chartered vessels 160 0 0 0 0 25 50 50

SURF for Catcher Developmen UK Premier Oil May-14 2015 Various 460 0 0 0 0 40 420 0

SURF for KOQV/Holstein fields US Freeport Jun-14 Q4 2015 Seven Sea 50 0 0 0 0 20 30 0

Baobab Field Phase III Ivory Coast CNR Oct-14 Q2 2015 Seven Pacific 70 0 0 0 0 0 70 0

SURF project US Shell Nov-14 Q2 2016 NA 75 0 0 0 0 0 0 75

Stampede SURF US Hess Dec-14 Q3 2016 NA 120 0 0 0 0 0 0 80


North Sea, Med & Canada 268 44% 535 0 0 0 0 65 445 25

Africa & GoM 238 39% 475 0 0 0 0 45 150 205


Brazil 100 17% 200 0 0 0 0 23 133 23

Total 2014 100% 1,210 0 0 0 0 133 658 98

Total revenue from announced contracts 2,321 3,055 3,550 3,791 4,217 3,367 1,292

Combined revenue 4,392 5,476 6,297 6,297 7,270 5,165 4,914

Coverage (%) 53 56 56 60 58 65 26

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23 02 February 2015

Earnings estimates – Subsea 7 FY earnings estimates – Subsea 7 (USDm)

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E 2015E 2016E Revenue 1,100 1,483 2,124 2,406 2,522 2,209 2,369 5,476 6,297 6,297 7,270 5,165 4,914 Revenue growth (%) -15 +35 +43 +13 +5 -12 +7 +131 +15 +0 +15 -29 -5 Operating expenses -955 -1,218 -1,695 -1,859 -1,874 -1,684 -1,701 -4,530 -5,202 -5,555 -5,967 -4,593 -4,387 Gross profit 145 266 429 547 648 525 668 946 1,095 742 1,303 572 527 Gross profit margin (%) 13.2 17.9 20.2 22.7 25.7 23.8 28.2 17.3 17.4 11.8 17.9 11.1 10.7

Administration expenses -111 -147 -184 -228 -254 -231 -307 -406 -372 -296 -314 -270 -260 Net other operating income -1 6 -2 0 3 0 0 -4 -1 0 0 0 0 Impairment of tangible assets -9 -7 -2 0 0 0 0 0 0 0 0 0 0 Impairment of goodwill/intangibles 0 0 0 0 0 0 0 0 0 0 0 0 0 Share of results of associates and jv 15 27 41 32 63 49 75 104 86 127 86 46 46 Operating income from cont ops 38 145 283 352 461 343 436 641 808 573 1,076 348 313 Operating income margin (%) 3.5 9.7 13.3 14.6 18.3 15.5 18.4 11.7 12.8 9.1 14.8 6.7 6.4 Growth in operating income (%) +280 +96 +24 +31 -26 +27 +47 +26 -29 +88 -68 -10

Investment income 4 4 19 31 18 6 10 20 16 22 19 14 12 Other gains and losses 36 -15 4 1 44 44 -18 7 290 -14 -15 0 0 Finance costs -19 -4 -4 -39 -31 -31 -29 -40 -45 -71 -31 -33 -34 Income before taxes 59 130 302 344 492 361 399 627 1,069 511 1,049 329 291

Taxation -9 -13 -74 -215 -163 -103 -131 -176 -222 -161 -282 -99 -87 Tax share of PBT (%) 16 10 24 63 33 28 33 28 21 31 27 30 30 Income from cont ops 50 117 228 129 330 259 268 451 847 350 767 231 204

Net (loss)/income from discont ops -40 33 16 6 -23 7 45 0 0 0 0 0 0 Net income 10 150 244 135 307 266 313 451 847 350 767 231 204

Minority interests -5 -10 -7 -7 -6 -21 -48 -27 -17 -2 30 -20 -20 Net income to equity holders 5 140 237 127 301 245 265 424 830 348 796 211 184

Operating income from cont ops 283 352 461 343 436 641 808 573 1,076 348 313 Depreciation -61 -57 -59 -86 -110 -131 -119 -338 -333 -359 -400 -430 -450 Mobilisation costs (amortised) -12 -13 -15 0 0 0 0 0 0 0 0 0 0 Impairment of long lived assets -9 -7 -2 0 -2 -12 1 -25 3 -48 -13 -16 -16 Impairment of goodwill/intangible assets 0 0 0 -3 -5 0 0 0 0 0 0 EBITDA 120 221 358 438 573 488 559 1,003 1,139 981 1,489 793 779 EBITDA margin 10.9 14.9 16.9 18.2 22.7 22.1 23.6 18.3 18.1 15.6 20.5 15.4 15.8

Non recurring charges 0 0 0 0 0 0 0 -50 -52 -355 75 0 0 Recurring EBITDA 120 221 358 438 573 488 559 1,053 1,191 1,336 1,414 793 779 Recurring EBITDA margin 10.9 14.9 16.9 18.2 22.7 22.1 23.6 19.2 18.9 21.2 19.4 15.4 15.8 Source: SEB estimates

FY EPS estimates – Subsea 7 (USDm)

Year end: Dec 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E 2015E 2016E Weighted average number of shares (m) Basic 157.6 191.1 192.7 188.4 184.1 182.9 183.5 323.8 333.8 332.9 330.7 323.5 320.5 Share options 1.9 4.4 5.6 4.1 2.1 0.8 1.0 1.8 1.5 1.0 0.8 0.8 0.8 Convertible loan notes 0.0 0.0 2.8 0.0 20.8 22.0 22.2 40.8 44.9 40.7 37.2 23.9 23.9 Total diluted number of shares 159.5 195.5 201.1 192.6 207.1 205.7 206.7 366.3 380.2 374.7 368.7 348.1 345.1

Net income to equity holders 5.1 139.5 236.7 127.3 301.4 244.9 265.4 423.7 830.4 347.6 796.3 210.6 183.7 (Income)/loss from discontinued ops -33.1 -15.8 -5.7 22.5 -7.2 -44.6 0.0 0.0 0.0 0.0 0.0 0.0 Income from continuing ops 44.9 106.4 220.9 121.6 323.9 237.7 220.8 423.7 830.4 347.6 796.3 210.6 183.7 Interest expense on convertible note 0.0 1.6 0.0 28.4 29.5 19.0 20.5 17.8 23.9 14.2 13.0 13.0 Adj net income from continuing ops 106.4 222.5 121.6 352.3 267.2 239.8 444.2 848.2 371.5 810.5 223.6 196.7

BASIC EPS (c) Continuing operations 0.28 0.56 1.15 0.65 1.76 1.30 1.20 1.31 2.49 1.04 2.41 0.65 0.57 Discontinued operations -0.25 0.17 0.08 0.03 -0.12 0.04 0.24 0.00 0.00 0.00 0.00 0.00 0.00 Net earnings 0.03 0.73 1.23 0.68 1.64 1.34 1.45 1.31 2.49 1.04 2.41 0.65 0.57

DILUTED EPS including convertible note (c) Continuing operations 0.28 0.54 1.11 0.63 1.70 1.30 1.16 1.21 1.59 0.99 2.20 0.64 0.57 Discontinued operations -0.25 0.17 0.08 0.03 -0.11 0.04 0.22 0.00 0.00 0.00 0.00 0.00 0.00 Net earnings 0.03 0.71 1.18 0.66 1.59 1.33 1.38 1.21 1.59 0.99 2.20 0.64 0.57 Source: SEB estimates

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24 02 February 2015

FY segmental earnings estimates – Subsea 7 (USDm)

Year end: Dec 2011 2012 2013 2014E 2015E 2016E Revenues North Sea & Canada (NSC) 2,054 2,838 2,514 2,774 1,803 1,713 Africa & Gulf of Mexico (AFGoM) 2,543 2,182 2,454 2,594 1,945 1,751 Asia Pacific & Middle East (APME) 181 278 498 894 626 582 Brazil (BRAZIL) 686 987 814 995 776 854 Corporate 12 12 17 13 15 15 Total 5,476 6,297 6,297 7,270 5,165 4,914

Revenue growth (%) North Sea & Canada (NSC) +38 -11 +10 -35 -5 Africa & Gulf of Mexico (AFGoM) -14 +12 +6 -25 -10 Asia Pacific & Middle East (APME) +54 +80 +79 -30 -7 Brazil (BRAZIL) +44 -17 +22 -22 +10 Corporate +2 +40 -23 +12 +0 Total +15 +0 +15 -29 -5

Operating profit North Sea & Canada (NSC) 179 364 395 429 108 86 Africa & Gulf of Mexico (AFGoM) 490 428 402 328 117 88 Asia Pacific & Middle East (APME) 18 46 86 93 38 29 Brazil (BRAZIL) 23 -25 -318 201 85 111 Corporate -70 -4 8 26 0 0 Total 641 808 573 1,076 348 313

Operating margin (%) North Sea & Canada (NSMC) 8.7 12.8 15.7 15.5 6.0 5.0 Africa & Gulf of Mexico (AFGoM) 19.3 19.6 16.4 12.6 6.0 5.0 Asia Pacific & Middle East (APME) 10.1 16.6 17.3 10.3 6.0 5.0 Brazil (BRAZIL) 3.3 -2.6 -39.0 20.2 11.0 13.0 Total 11.7 12.8 9.1 14.8 6.7 6.4 Source: SEB estimates

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25 02 February 2015

Interim earnings estimates – Subsea 7 (USDm)

Year end: Dec Q3/12 Q4/12 2012 Q1/13 Q2/13 Q3/13 Q4/13 2013 Q1/14 Q2/14 Q3/14 Q4/14E 2014E Revenues 1,744 1,611 6,297 1,467 1,681 1,564 1,586 6,297 1,668 1,905 1,902 1,795 7,270 Revenue growth (%) +22 +14 +15 +1 +13 -10 -2 +0 +14 +13 +22 +13 +15 Operating expenses -1,429 -1,368 -5,202 -1,253 -1,636 -1,269 -1,396 -5,555 -1,437 -1,515 -1,516 -1,498 -5,967 Gross profit 314.3 242.7 1,095.0 214.3 44.2 294.4 189.5 742.4 230.9 389.8 386.0 296.6 1,303.3 Gross profit margin (%) 18.0 15.1 17.4 14.6 2.6 18.8 12.0 11.8 13.8 20.5 20.3 16.5 17.9 Administration expenses -98.3 -105.8 -372.3 -75.6 -65.7 -74.1 -80.7 -296.1 -80.8 -67.1 -85.9 -80.0 -313.8 Net other operating income/(loss) 0.0 0.0 -0.8 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Share of results of associates 12.2 43.5 86.3 15.5 62.1 48.9 0.6 127.1 15.7 27.1 24.1 19.1 86.0 Net operating income 228.2 180.4 808.2 154.2 40.6 269.2 109.4 573.4 165.8 349.8 324.2 235.7 1,075.5 Net operating margin (%) 13.1 11.2 12.8 10.5 2.4 17.2 6.9 9.1 9.9 18.4 17.0 13.1 14.8 Investment income 2.4 6.1 15.8 7.1 6.9 4.7 3.5 22.2 4.1 8.9 3.7 2.6 19.3 Other gains and losses 25.8 2.7 289.6 21.3 -10.8 -38.0 13.6 -13.9 8.5 10.5 -34.2 0.0 -15.2 Finance costs -8.9 -18.6 -44.8 -24.7 -16.7 -16.8 -12.7 -70.9 -5.2 -7.0 -5.5 -13.4 -31.1 Income before taxes 247.5 170.6 1,068.8 157.9 20.0 219.1 113.8 510.8 173.2 362.2 288.2 225.0 1,048.6 Taxation -53.3 -21.8 -221.6 -26.0 -33.4 -59.5 -42.0 -160.9 -36.4 -97.6 -82.7 -65.2 -281.9 Tax share of PBT (%) 21.5 12.8 20.7 16.5 167.0 27.2 36.9 31.5 21.0 26.9 28.7 29.0 26.9 Income from continuing ops 194.2 148.8 847.2 131.9 -13.4 159.6 71.8 349.9 136.8 264.6 205.5 159.7 766.6 Net income/(loss) from discont ops 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Net income 194.2 148.8 847.2 131.9 -13.4 159.6 71.8 349.9 136.8 264.6 205.5 159.7 766.6 Minority interests -9.8 -7.9 -16.8 1.7 -3.9 -7.5 7.4 -2.3 15.9 5.7 4.1 4.0 29.7 Net income to equity holders 184.4 140.9 830.4 133.6 -17.3 152.1 79.2 347.6 152.7 270.3 209.6 163.7 796.3 Net income growth (%) +12 +40 +96 +46 -104 -18 -44 -58 +14 -1662 +38 +107 +129 BASIC EPS (c) Continuing operations 0.56 0.43 2.49 0.40 -0.05 0.46 0.24 1.04 0.46 0.82 0.64 0.50 2.41 Discontinued operations 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Net earnings 0.56 0.43 2.49 0.40 -0.05 0.46 0.24 1.04 0.46 0.82 0.64 0.50 2.41 DILUTED EPS including convertible note (c) Continuing operations 0.44 0.38 1.59 0.35 -0.04 0.42 0.22 0.99 0.41 0.73 0.57 0.47 2.20 Discontinued operations 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Net earnings 0.44 0.38 1.59 0.35 -0.04 0.42 0.22 0.96 0.41 0.73 0.57 0.47 2.20 Source: SEB estimates

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26 02 February 2015

Interim segmental earnings estimates – Subsea 7 (USDm)

Year end: Dec Q3/12 Q4/12 2012 Q1/13 Q2/13 Q3/13 Q4/13 2013 Q1/14 Q2/14 Q3/14 Q4/14E 2014E Revenues NSMC 847 699 2,838 596 705 670 544 2,514 558 732 784 700 2,774 AFGoM 506 611 2,182 529 669 583 673 2,454 669 661 624 640 2,594 APME 52 55 278 123 142 73 160 498 205 243 246 200 894 Brazil 338 241 987 217 159 233 206 814 231 265 249 250 995 Corporate 1 5 12 2 6 6 4 17 5 4 -1 5 13 Total 1,744 1,611 6,297 1,467 1,681 1,564 1,586 6,297 1,668 1,905 1,902 1,795 7,270

Revenue growth (%) NSMC +33 +19 +38 +3 -1 -21 -22 -11 -6 +4 +17 +29 +10 AFGoM -16 +1 -14 +0 +24 +15 +10 +12 +27 -1 +7 -5 +6 APME +37 +44 +54 +44 +67 +41 +191 +80 +66 +71 +237 +25 +79 Brazil +119 +29 +44 -17 +8 -31 -15 -17 +6 +67 +7 +22 +22 Total +22 +14 +15 +1 +13 -10 -2 +0 +14 +13 +22 +13 +15

Operating profit NSMC 105 88 364 85 136 111 63 395 73 156 109 91 429 AFGoM 125 97 428 86 133 94 89 402 77 85 83 83 328 APME -2 18 46 15 33 30 9 86 11 22 35 24 93 Brazil 1 -29 -25 -22 -294 10 -13 -318 19 57 88 38 201 Corporate -1 8 -4 -10 32 24 -39 8 -14 30 10 0 26 Total 228 180 808 154 41 269 109 573 166 350 324 236 1,076

Operating profit margin (%) NSMC 12.4 12.6 12.8 14.2 19.3 16.6 11.6 15.7 13.0 21.4 13.9 13.0 15.5 AFGoM 24.7 15.8 19.6 16.3 19.9 16.0 13.3 16.4 11.4 12.9 13.3 13.0 12.6 APME -3.5 32.1 16.6 11.8 23.2 41.3 5.3 17.3 5.6 9.1 14.2 12.0 10.3 Brazil 0.4 -12.2 -2.6 -10.0 -184.7 4.5 -6.2 -39.0 8.2 21.3 35.2 15.0 20.2 Total 13.1 11.2 12.8 10.5 2.4 17.2 6.9 9.1 9.9 18.4 17.0 13.1 14.8 Backlog NSMC 2,629 3,725 3,725 4,498 4,168 4,012 3,766 3,766 3,812 3,807 2,923 2,423 2,423 AFGoM 2,790 2,817 2,817 3,373 3,231 2,950 2,943 2,943 2,772 2,687 2,263 2,123 2,123 APME 647 727 727 613 729 826 706 706 578 560 472 572 572 Brazil 2,022 1,817 1,817 1,738 2,293 4,012 4,355 4,355 4,390 4,143 3,772 3,522 3,522 Total 8,088 9,086 9,086 10,222 10,421 11,800 11,770 11,770 11,552 11,197 9,430 8,235 8,235 Source: SEB estimates

Interim orders intake analysis – Subsea 7 (USDm)

Year end: Dec Q4/12 2012 Q1/13 Q2/13 Q3/13 Q4/13 2013 Q1/14 Q2/14 Q3/14 Q4/14E 2014E Announced order intake 1,850 3,720 2,500 710 2,660 1,160 7,030 275 670 70 195 1,210 Unannounced orders 759 3,125 103 1,170 283 396 1,951 1,175 880 368 405 2,828 Total order intake 2,609 6,845 2,603 1,880 2,943 1,556 8,981 1,450 1,550 438 600 4,038 Announced PLSV orders 0 0 0 350 2,450 600 3,400 0 0 0 0 0 Total other others 2,609 6,845 2,603 1,530 493 956 5,581 1,450 1,550 438 600 4,038 Total order intake 2,609 6,845 2,603 1,880 2,943 1,556 8,981 1,450 1,550 438 600 4,038 Revenue 1,611 6,297 1,467 1,681 1,564 1,586 6,297 1,668 1,905 1,902 1,795 7,270 Revenue growth (%) +14 +15 +1 +13 -10 -2 +0 +14 +13 +22 +13 +15 PLSV revenue 67 266 65 67 63 93 287 96 100 131 136 463 PLSV revenue growth (%) +0 +0 -1 +0 -7 +39 +8 +49 +49 +108 +46 +61 Non PLSV revenue 1,544 6,030 1,402 1,614 1,501 1,493 6,010 1,572 1,805 1,771 1,659 6,807 Source: SEB estimates

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PLSV revenue and backlog summary


Seven Condor Q2/12 Q3/12 Q4/12 2012 Q1/13 Q2/13 Q3/13 Q4/13 2013 Q1/14 Q2/14 Q3/14 Q4/14E 2014E

Contract 1

Utilisation (%) 100 100 100 100 100 100 100 100 100 100 100 50 0 63

Day rate 151 151 151 151 151 151 151 151 151 151 151 151 0 151

Revenue 14 14 14 55 13 14 14 14 55 13 14 7 0 34

Backlog 117 103 89 89 76 62 48 34 34 21 7 0 0 0

Contract 2 (signed Q4 2013)

Utilisation (%) 0 0 0 0 0 0 0 0 0 0 0 50 100 38

Day rate 0 0 0 0 0 0 0 0 0 0 0 274 274 274

Revenue 0 0 0 0 0 0 0 0 0 0 0 13 25 38

Backlog 0 0 0 0 0 0 0 300 300 300 300 288 263 263

Commander 3000 Q2/12 Q3/12 Q4/12 2012 Q1/13 Q2/13 Q3/13 Q4/13 2013 Q1/14 Q2/14 Q3/14 Q4/14E 2014E

Contract 1 (signed 2006)

Utilisation (%) 100 100 100 100 100 100 0 0 50 0 0 0 0 0

Day rate 114 114 114 114 114 114 0 0 114 0 0 0 0 0

Revenue 10 10 10 42 10 10 0 0 21 0 0 0 0 0

Backlog 42 31 21 21 10 0 0 0 0 0 0 0 0 0


Utilisation (%) 0 0 0 0 0 0 0 100 25 100 100 100 100 100

Day rate 0 0 0 0 0 0 0 192 192 192 192 192 192 192

Revenue 0 0 0 0 0 0 0 18 18 17 18 18 18 70

Backlog 0 0 0 0 0 351 351 333 333 316 298 280 263 263

Seven Mar Q2/12 Q3/12 Q4/12 2012 Q1/13 Q2/13 Q3/13 Q4/13 2013 Q1/14 Q2/14 Q3/14 Q4/14E 2014E

Contract 1

Utilisation (%) 100 100 100 100 100 100 100 50 88 0 0 0 0 0

Day rate 178 178 178 178 178 178 178 178 178 0 0 0 0 0

Revenue 16 16 16 65 16 16 16 8 57 0 0 0 0 0

Backlog 90 73 57 57 41 25 8 0 0 0 0 0 0 0


Utilisation (%) 0 0 0 0 0 0 0 50 13 100 100 100 100 100

Day rate 0 0 0 0 0 0 0 274 274 274 274 274 274 274

Revenue 0 0 0 0 0 0 0 13 13 24 25 25 25 100

Backlog 0 0 0 0 0 0 0 288 288 263 238 213 188 188

Normand Seven Q2/12 Q3/12 Q4/12 2012 Q1/13 Q2/13 Q3/13 Q4/13 2013 Q1/14 Q2/14 Q3/14 Q4/14E 2014E

Contract 1

Utilisation (%) 100 100 100 100 100 100 100 50 88 0 0 0 0 0

Day rate 171 171 171 171 171 171 171 171 171 0 0 0 0 0

Revenue 16 16 16 63 15 16 16 8 55 0 0 0 0 0

Backlog 86 70 55 55 39 24 8 0 0 0 0 0 0 0


Utilisation (%) 0 0 0 0 0 0 0 50 13 100 100 100 100 100

Day rate 0 0 0 0 0 0 0 219 219 219 219 219 219 219

Revenue 0 0 0 0 0 0 0 10 10 19 20 20 20 80

Backlog 0 0 0 0 0 0 400 390 390 370 350 330 310 310

Seven Phoenix Q2/12 Q3/12 Q4/12 2012 Q1/13 Q2/13 Q3/13 Q4/13 2013 Q1/14 Q2/14 Q3/14 Q4/14E 2014E

Contract 1

Utilisation (%) 100 100 100 100 100 100 50 0 63 0 0 0 0 0

Day rate 114 114 114 114 114 114 114 0 114 0 0 0 0 0

Revenue 10 10 10 42 10 10 5 0 26 0 0 0 0 0

Backlog 47 36 26 26 16 5 0 0 0 0 0 0 0 0


Utilisation (%) 0 0 0 0 0 0 50 100 38 100 100 100 100 100

Day rate 0 0 0 0 0 0 247 247 247 247 247 247 247 247

Revenue 0 0 0 0 0 0 11 23 34 22 23 23 23 90

Backlog 0 0 0 0 0 0 462 440 440 418 395 372 349 349

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PLSV revenue and backlog summary


Seven Waves Q2/12 Q3/12 Q4/12 2012 Q1/13 Q2/13 Q3/13 Q4/13 2013 Q1/14 Q2/14 Q3/14 Q4/14E 2014E


Utilisation (%) 0 0 0 0 0 0 100 100 50 100 100 100 100 100

Day rate 0 0 0 0 0 0 0 0 0 0 0 274 274 274

Revenue 0 0 0 0 0 0 0 0 0 0 0 25 25 50

Backlog 500 500 500 500 500 500 500 500 500 500 500 475 450 450

Seven Sun Q2/12 Q3/12 Q4/12 2012 Q1/13 Q2/13 Q3/13 Q4/13 2013 Q1/14 Q2/14 Q3/14 Q4/14E 2014E


Utilisation (%) 0 0 0 0 0 0 0 0 0 0 0 0 0 0

Day rate 0 0 0 0 0 0 0 0 0 0 0 0 0 0

Revenue 0 0 0 0 0 0 0 0 0 0 0 0 0 0

Backlog 0 0 0 0 0 0 533 533 533 533 533 533 533 533

Seven Rio Q2/12 Q3/12 Q4/12 2012 Q1/13 Q2/13 Q3/13 Q4/13 2013 Q1/14 Q2/14 Q3/14 Q4/14E 2014E


Utilisation (%) 0 0 0 0 0 0 0 0 0 0 0 0 0 0

Day rate 0 0 0 0 0 0 0 0 0 0 0 0 0 0

Revenue 0 0 0 0 0 0 0 0 0 0 0 0 0 0

Backlog 0 0 0 0 0 0 533 533 533 533 533 533 533 533

Seven Cruzeiro Q2/12 Q3/12 Q4/12 2012 Q1/13 Q2/13 Q3/13 Q4/13 2013 Q1/14 Q2/14 Q3/14 Q4/14E 2014E


Utilisation (%) 0 0 0 0 0 0 0 0 0 0 0 0 0 0

Day rate 0 0 0 0 0 0 0 0 0 0 0 0 0 0

Revenue 0 0 0 0 0 0 0 0 0 0 0 0 0 0

Backlog 0 0 0 0 0 0 533 533 533 533 533 533 533 533

Totals Q2/12 Q3/12 Q4/12 2012 Q1/13 Q2/13 Q3/13 Q4/13 2013 Q1/14 Q2/14 Q3/14 Q4/14E 2014E

PLSV revenue 67 67 67 266 65 67 63 93 287 96 100 131 136 463

PLSV backlog 882 815 748 748 683 966 3,376 3,883 3,883 3,787 3,687 3,557 3,421 3,421

Group revenue 1,484 1,744 1,611 6,297 1,467 1,681 1,564 1,586 6,297 1,668 1,905 1,902 1,795 7,270

Non PLSV revenue 1,417 1,677 1,544 6,030 1,402 1,614 1,501 1,493 6,010 1,572 1,805 1,771 1,659 6,807

Group backlog 8,285 8,088 9,086 9,086 10,222 10,421 11,800 11,770 11,770 11,552 11,197 9,430 8,235 8,235

YoY growth (%) +5 +2 +6 +6 +18 +26 +46 +30 +30 +13 +7 -20 -30 -30

Non PLSV backlog 7,403 7,273 8,338 8,338 9,539 9,455 8,424 7,887 7,887 7,765 7,510 5,873 4,814 4,814

YoY non PLSV growth (%) +2 -1 +11 +11 +23 +28 +16 -5 -5 -19 -21 -30 -39 -39

Backlog for execution next year 3,645 3,801 2,544 2,544 3,578 4,064 4,720 2,589 2,589 3,004 3,807 3,866

Revenue coverage 44 47 28 28 35 39 40 22 22 26 34 41

PLSV backlog for execution next year 213 213 85 85 85 193 363 554 554 554 554 554

Non PLSV backlog for exec next year 3,432 3,588 2,459 2,459 3,493 3,872 4,357 2,036 2,036 2,450 3,253 3,313

Non PLSV revenue coverage 57 60 36 36 51 57 64 44 44 53 71 72

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Overview

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

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

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

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

Revenues by region Revenues by division

Source: SEB Source: SEB

Norway: 16% Other Nordic: 0%Other Europe: 42% Americas: 12%Asia: 0% RoW: 30%

SURF 72% Conventional 12%

Life of Field (IMR) 12% i-Tech/VERIPOS 4%

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PER - 12 month forward P/BV - 12 month forward


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Profit & loss statement - Subsea 7(USDm) 2007 2008 2009 2010 2011 2012 2013 2014E 2015E 2016ENet Sales 2,406 2,522 2,209 2,369 5,476 6,297 6,297 7,270 5,165 4,914Other revenues 0 0 0 0 0 0 0 0 0 0Total revenues 2,406 2,522 2,209 2,369 5,476 6,297 6,297 7,270 5,165 4,914

Total expenses (1,968) (1,949) (1,721) (1,810) (4,473) (5,158) (5,317) (5,781) (4,372) (4,136)Profit before depreciation 438 573 488 559 1,003 1,139 981 1,489 793 779

Depreciation - Fixed assets (86) (112) (146) (123) (363) (331) (407) (414) (446) (466)Depreciation - Other assets 0 0 0 0 0 0 0 0 0 0Amortisation - Goodwill 0 0 0 0 0 0 0 0 0 0Amortisation - Other intangibles 0 0 0 0 0 0 0 0 0 0Operating profit 352 461 343 436 641 808 573 1,076 348 313

Associated companies 6 (23) 7 45 0 0 0 0 0 0Net interest expenses (8) (13) (25) (19) (20) (29) (49) (12) (18) (22)Foreign exchange items 0 0 0 0 0 0 0 0 0 0Other financial items 1 44 44 (18) 7 290 (14) (15) 0 0Value changes - Fixed assets 0 0 0 0 0 0 0 0 0 0Value changes - Financial assets 0 0 0 0 0 0 0 0 0 0Value changes - Other assets 0 0 0 0 0 0 0 0 0 0Reported pre-tax profit 350 470 369 444 627 1,069 511 1,049 329 291

Minority interests (7) (6) (21) (48) (27) (17) (2) 30 (20) (20)Total taxes (215) (163) (103) (131) (176) (222) (161) (282) (99) (87)Reported profit after tax 127 301 245 265 424 830 348 796 211 184

Discontinued operations 0 0 0 0 0 0 0 0 0 0Extraordinary items 0 0 0 0 0 0 0 0 0 0Net Profit 127 301 245 265 424 830 348 796 211 184

Adjustments:Discontinued operations 0 0 0 0 0 0 0 0 0 0Interest on convertible debt 0 28 30 19 21 18 24 14 13 13Minority interests (IFRS) 0 0 0 0 0 0 0 0 0 0Value changes 0 0 0 0 0 0 0 0 0 0Goodwill/intangibles amortisations 0 0 0 0 0 0 0 0 0 0Restructuring charges 0 0 0 0 0 0 0 0 0 0Other adjustments 0 0 0 0 0 0 0 0 0 0Tax effect of adjustments 0 0 0 0 0 0 0 0 0 0Adjusted profit after tax 127 330 274 284 444 848 372 811 224 197

Margins, tax & returnsOperating margin 14.6 18.3 15.5 18.4 11.7 12.8 9.1 14.8 6.7 6.4Pre-tax margin 14.5 18.6 16.7 18.7 11.4 17.0 8.1 14.4 6.4 5.9Tax rate 61.5 34.6 27.9 29.5 28.1 20.7 31.5 26.9 30.0 30.0ROE 31.8 41.5 29.6 9.2 8.1 14.0 5.8 11.8 3.1 2.6ROCE 43.2 36.5 25.6 12.9 10.3 11.2 7.7 14.0 4.4 3.8

Growth rates y-o-y (%)Total revenues n.a. 4.8 (12.4) 7.3 131.2 15.0 0.0 15.4 (29.0) (4.9)Operating profit n.m. 31.1 (25.6) 27.3 46.9 26.2 (29.1) 87.6 (67.7) (9.9)Pre-tax profit n.m. 34.4 (21.6) 20.4 41.3 70.5 (52.2) 105.3 (68.6) (11.6)EPS (adjusted) 0.0 140.9 (16.2) 3.1 (11.9) 84.0 (55.6) 121.4 (70.8) (11.2)

Cash flow(USDm) 2007 2008 2009 2010 2011 2012 2013 2014E 2015E 2016ENet profit 127 301 245 265 424 830 348 796 211 184Non-cash adjustments 88 141 159 126 390 347 410 384 466 486Cash flow before work cap 215 442 404 392 814 1,178 757 1,180 676 669

Ch. in working capital / Other 52 69 30 (86) (152) (307) 266 17 (36) (4)Operating cash flow 267 511 434 306 662 871 1,023 1,197 640 665

Capital expenditures (261) (293) (172) (593) (669) (909) (739) (1,035) (1,035) (515)Asset disposals (81) 40 (33) 22 (2) (245) (196) 0 0 0L/T financial investments 0 0 0 0 0 0 0 0 0 0Acquisitions / adjustments 0 0 0 0 0 0 0 0 0 0Free cash flow (75) 259 229 (264) (9) (282) 88 162 (395) 150

Net loan proceeds (120) 30 (4) 481 (3) 642 (624) (12) 100 0Dividend paid (39) (39) (40) (42) 0 (203) (199) (200) 0 0Share issue 0 0 0 0 0 0 0 0 0 0Other 0 0 0 (0) 0 0 0 (0) 0 0Net change in cash (233) 249 185 174 (12) 157 (735) (50) (295) 150

AdjustmentsC/flow bef chng in work cap 215 442 404 392 814 1,178 757 1,180 676 669Adjustments 0 0 0 0 0 (0) (0) 0 0 0Int on conv debt net of tax 0 28 30 19 21 18 24 14 13 13Cash earnings 215 470 434 411 834 1,196 781 1,194 689 682

Per share informationCash earnings 1.12 2.27 2.11 1.99 2.28 3.14 2.08 3.23 1.98 1.97Operating cash flow 1.39 2.61 2.25 1.57 1.86 2.34 2.8 3.28 1.87 1.96Free cash flow (0.39) 1.39 1.26 (1.19) 0.03 (0.7) 0.3 0.48 (1.1) 0.47

Investment coverCapex/sales (%) 10.8 11.6 7.8 25.0 12.2 14.4 11.7 14.2 20.0 10.5Capex/depreciation (%) 302 261 118 481 184 275 181 250 232 111

Source for all data on this page: SEB

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Balance sheet - Subsea 7(USDm) 2007 2008 2009 2010 2011 2012 2013 2014E 2015E 2016ECash and liquid assets 592 584 908 1,087 803 1,288 670 619 324 474Debtors 485 355 298 584 773 1,090 1,008 1,164 827 787Inventories 0 0 0 0 0 0 0 0 0 0Other 325 393 538 907 1,338 1,443 1,459 1,685 1,197 1,139Current assets 1,402 1,332 1,743 2,577 2,914 3,821 3,137 3,467 2,348 2,399

Interest bearing fixed assets 0 0 0 0 0 0 0 0 0 0Other financial assets 106 140 190 188 264 0 0 0 0 0Capitalized development cost 0 0 0 0 0 0 0 0 0 0Goodwill 0 0 0 2,296 2,567 2,575 2,585 2,585 2,585 2,585Other intangibles 4 4 9 33 35 24 25 25 25 25Fixed tangible assets 814 908 822 3,027 3,352 3,748 4,098 4,720 5,309 5,359Other fixed assets 101 88 69 87 116 327 514 514 514 514Fixed assets 1,025 1,139 1,090 5,630 6,334 6,674 7,221 7,842 8,432 8,481

Total assets 2,427 2,471 2,833 8,207 9,248 10,495 10,357 11,310 10,780 10,881

Creditors 940 1,035 1,123 1,669 2,069 2,174 2,464 2,845 2,021 1,923Other trade financing 0 0 0 0 0 0 0 0 0 0S/T interest bearing debt 3 10 0 239 13 495 275 300 300 300Other 157 69 98 121 190 201 111 128 91 87Current liabilities 1,100 1,114 1,221 2,029 2,272 2,869 2,851 3,273 2,412 2,310

L/T interest bearing debt 387 409 416 658 881 1,041 636 600 700 700Other long-term liabilities 34 61 9 50 77 44 34 34 34 34Convertible debt 0 0 0 0 0 0 0 0 0 0Pension provisions 50 21 27 23 29 23 19 19 19 19Other provisions 2 8 11 0 23 38 36 35 35 35Deferred tax 36 56 50 282 133 112 170 170 170 170Long term liabilities 508 556 513 1,013 1,143 1,258 895 858 958 958


Shareholders' equity 801 788 1,068 5,135 5,781 6,325 6,566 7,162 7,372 7,556

Total liabilities and equity 2,427 2,471 2,833 8,207 9,248 10,495 10,357 11,310 10,780 10,881

Net debt (m) (152) (144) (465) (168) 119 271 261 300 695 545Working capital (m) (287) (356) (386) (300) (148) 158 (108) (125) (89) (84)Capital employed (m) 1,258 1,242 1,542 6,084 6,755 7,927 7,543 8,098 8,428 8,632Net debt/equity (%) (19) (18) (42) (3) 2 4 4 4 9 7Net debt/EBITDA (x) (0.3) (0.3) (0.9) (0.3) 0.1 0.2 0.3 0.2 0.9 0.7Equity/total assets (%) 34 32 39 63 63 61 64 63 69 70Interest cover 9.8 15.7 11.1 15.5 16.3 18.4 8.4 35.2 11.1 9.5

Valuation(USD) 2007 2008 2009 2010 2011 2012 2013 2014E 2015E 2016E

No of shares, fully dil. (y/e) 192.6 207.1 204.5 206.9 347.9 398.7 375.2 369.2 348.7 345.7No of shares, fully dil. avg. 192.6 207.1 205.7 206.7 366.3 380.2 374.7 369.2 348.7 345.7

Share price, y/e 119.5 38.4 90.3 140.9 109.4 132.1 116.1 65.9 65.9 65.9Share price, high 168.0 141.9 91.5 144.3 153.6 152.6 144.0 127.5Share price, low 105.2 25.1 31.0 85.1 97.9 107.2 40.9 63.9Share price, avg 132.5 87.9 59.7 106.6 127.0 129.4 126.1 101.8

EPS (reported) 0.66 1.59 1.33 1.38 1.21 2.23 0.99 2.20 0.64 0.57EPS (adjusted) 0.66 1.59 1.33 1.38 1.21 2.23 0.99 2.20 0.64 0.57Cash earnings/share 1.12 2.27 2.11 1.99 2.28 3.14 2.08 3.23 1.98 1.97Dividend/share 0.21 0.22 0.23 0.00 0.60 0.60 0.60 0.00 0.00 0.60

Enterprise value/share 21 4.8 13.4 23 18.6 24 19.7 9.2 10.4 10.0Book value/share 4.2 4.2 5.8 28 17.8 18.9 19.7 21 22 23Adjusted equity/share 4.2 4.2 5.8 28 17.8 18.9 19.7 21 22 23

PER (adjusted) 33.4 3.4 11.7 17.5 15.0 10.6 19.2 3.8 13.2 14.8CEM 19.8 2.4 7.4 12.1 8.0 7.5 9.1 2.6 4.3 4.3Dividend yield 1.0 4.0 1.5 0.0 3.3 2.5 3.2 0.0 0.0 7.1

EV/EBITDA 9.2 1.8 5.5 8.0 6.4 8.5 7.5 2.3 4.6 4.4EV/EBIT 11.5 2.3 7.8 10.0 10.1 12.0 12.9 3.2 10.5 11.0EV/Sales (x) 1.70 0.39 1.24 2.03 1.18 1.55 1.17 0.47 0.70 0.70Price/Book value 5.31 1.30 2.69 0.86 1.03 1.26 0.97 0.39 0.38 0.37Price/adjusted equity 5.31 1.30 2.69 0.86 1.03 1.26 0.97 0.39 0.38 0.37

Free cash flow/Market cap (%) 0.1 19.2 8.1 (5.8) (0.1) (0.4) 4.0 5.2 (13.4) 5.1Operating cash flow/EV (%) 6.5 51.5 15.9 6.4 10.2 8.9 13.9 35.1 17.6 19.2EV/Capital employed (x) 3.3 0.8 1.8 0.8 1.0 1.2 1.0 0.4 0.4 0.4

Main shareholders Management Company informationName (%) Votes Capital Title Name ContactFolketrygdfondet 8.6 8.6 COB Kristian Siem Internet www.subsea7.comSiem Industries Inc 6.9 6.9 CEO Jean Cahuzac Phone number +44 (0)20 8210 5500Siem Industries Inc 6.8 6.8 CFO Ricardo Rosa Fax number +44 (0)20 8210 5501

IR Keith Russell

Source for all data on this page: SEB

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Target prices and risks Target price definition and associated risks Our target price is the analyst's assessment of what total return an investor should expect over the coming six to 12 months. The target is based on fundamental equity research and other factors at the analyst's discretion.

Our current target price of NOK 53 was set today (2 Feb 2015). The main risk to our target price on Subsea 7 is as follows. The main risks to our Sell rating are the scale of near-term order intake and a potential shift in Subsea 7's backlog execution schedule. More specifically slower execution during 2014, which may already be reflected in the company's guidance, could leave revenue visibility for 2015 better than is currently indicated.

Risk levels The risk level is the analyst’s view of the uncertainty in the earnings forecasts based on an assessment of the company’s business model, operating risk as well as financial risk. We use two risk levels with the following explanations:

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

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

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Authors' statement of independence (Analyst Certification) We, the authors of this report, hereby confirm that notwithstanding the existence of any potential conflicts of interest referred to herein, the views expressed in this report accurately reflect our personal views about the companies and securities covered. We further confirm that we have not been, nor are or will be, receiving direct or indirect compensation in exchange for expressing any of the views or the specific recommendation contained in the report. We are not registered or qualified as research analysts, representatives or associated persons under the rules of any US exchange, regulatory organization or State.

This statement affects your rights This report is confidential and may not be reproduced, redistributed or republished by any recipient for any purpose or to any person.

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Use This research report is produced for the private information of recipients - if you are not a client of ours, you are not entitled to this research report, and should destroy it. The document is not, and should not be construed as, an offer to sell or solicitation of an offer to buy any securities. Opinions contained in the report represent the author's present opinion only and may be subject to change. In the event that the author's opinion should change or a new analyst with a different opinion becomes responsible for our coverage of the company concerned, we shall endeavour (but do not undertake) to disseminate any such change, within the constraints of any regulations, applicable laws, internal procedures within SEB, or other circumstances. If you are in doubt as to the meaning of the recommendation system used by SEB in its research, please refer to the "Disclaimer" section of SEB Research Online, to which our clients are granted access.

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Your attention is also drawn to the fact that: The current market price of the securities shown in this report is the price prevailing at the close of the business day preceding the date of publication, save where such price was more than 5% different from the price prevailing as at the time of publication, in which case it is the latter.

Unless explicitly stated otherwise in this report, SEB expects (but does not undertake) to issue updates to this report following the publication of new figures or forecasts by the company covered, or upon the occurrence of other events which could potentially have a material effect on it.

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Any valuations, projections and forecasts contained in this report are based on a number of assumptions and estimates and are subject to contingencies and uncertainties, and their inclusion in this report should not be regarded as a representation or warranty by or on behalf of the Group or any person or entity within the Group that they or their underlying assumptions and estimates will be met or realized. Different assumptions could result in materially different results. Past performance is not a reliable indicator of future performance. Foreign currency rates of exchange may adversely affect the value, price or income of any security or related investment mentioned in this report. In addition, investors in securities, such as ADRs, whose values are influenced by the currency of the underlying security, effectively assume currency risk.

Company specific disclosures and potential conflicts of interest A member of, or an entity associated with, SEB or its affiliates, officers, directors, employees or shareholders of such members (a) is not, and has never been, represented on the board of directors or similar supervisory entity of Subsea 7, (b) has from time to time bought or sold the securities issued by the company or options relating to the company, and (c) SEB or its affiliates beneficially own less than 1% of a class of common equity securities of Subsea 7 as of 31 Jan 2015. The analyst(s) responsible for this report (jointly with their closely related persons) hold(s) 0 shares, employees of SEB, Oslo Branch hold 2000 shares, and SEB, Oslo Branch holds 0 shares in Subsea 7 (not including shares held as hedge against derivatives positions). Current recommendation for Subsea 7 - Sell - was set on 29 Jul 2014, changed from Buy. The dates of previous recommendation changes in relation to Subsea 7 can be found on our Research Online website.

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SEB’s standardised recommendation structure

Consolidated distribution Investment banking as per 31 Dec 2014 (%) clients last 12M Buy Attractive risk/reward - at least 10% upside to target price. 51.4 10.7 Hold Fairly valued - the shares are trading close to target price. 37.5 3.6 Sell Unattractive risk/reward - the shares are trading above target price. 11.1 0.8 Unrated Company not covered, or we are not allowed to have a recommendation for compliance reasons Source: SEB

Target price and recommendation revision history

Source: Thomson Reuters / SIX / SEB

Skandinaviska Enskilda Banken AB (publ). All rights reserved.

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

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