Profitability
Preliminary remark
In contrast to Directional, the construction of Liza Unity (FPSO) and Prosperity (FPSO) contributed to both IFRS Turnkey revenue and gross margin over the period. This is because these contracts are classified as finance leases as per IFRS 16 and are therefore accounted for as a direct sale under IFRS.
The same treatment applied to the construction of FPSO Almirante Tamandaré, FPSO Alexandre de Gusmão and the FPSO for the Yellowtail development project under IFRS, except that revenue recognition on these projects was limited to cost incurred over the period as they have not yet reached the gate progress of completion allowing margin recognition under the Company policy (this gate being formalized by an independent project review mitigating uncertainties related to the cost at completion).
With respect to the construction of FPSO Sepetiba, it fully contributed to both IFRS Turnkey revenue and gross margin over the period given this contract is classified as finance lease (versus a contribution to Directional Turnkey revenue and gross margin limited to the portion of the sale to partners in the special purpose entity, i.e 35.5%).
Revenue
Total Underlying IFRS revenue increased by 12% to US$3,822 million compared with US$3,419 million in 2020.
This increase was driven by the Turnkey segment with the progress of construction activity on the FPSO projects and, to a lower extent, the higher contribution from the renewables and offshore services product lines. This growth in revenue more than offsets the year-on-year decrease resulting from the Johan Castberg Turret Mooring System EPC project delivery in 2020.
Underlying IFRS Lease and Operate revenue decreased by 20% to US$1,345 million compared with US$1,684 million in the year-ago period. This decrease is mainly explained by the extension of the FPSO Espirito Santo lease contract at the end of 2020 which resulted in the classification of the extended lease arrangement as a finance lease, while the previous arrangement was accounted as an operating lease. Due to the finance lease classification, a significant portion of the transaction was recognized as revenue in 2020 for an amount of US$249 million, as if it was a direct sale to the client. Over the rest of the Fleet, the underlying revenue slightly decreased due to the Deep Panuke MOPU decommissioning activities which contributed to the 2020 revenue only.
EBITDA
Underlying EBITDA amounted to US$906 million, representing a 6% decrease compared with Underlying EBITDA of US$966 million in the year-ago period. This resulted from the decreased contribution of the Lease and Operate segment, partially offset by the increased contribution of the Turnkey segment, both impacted by the same drivers as the changes in IFRS revenue. The variation of Underlying EBITDA by segment also resulted from the following items:
- On the Lease and Operate segment (i) an increase in the net incremental costs from the implementation of additional safety measures linked to COVID-19, (ii) some repair costs incurred in 2021 on damaged mooring lines on one Unit (for which compensation from insurance is not yet secured) and (iii) higher maintenance and repair activities, including maintenance campaigns postponed to 2021 due to the COVID-19 new pandemic context in 2020;
- US$(40) million of restructuring costs which impacted the Underlying 2020 Turnkey EBITDA.
Net income
2021 underlying consolidated IFRS net income attributable to shareholders stood at US$405 million, an increase of US$128 million from the previous year. The decrease in the Underlying IFRS EBITDA was more than offset by:
- A decrease in the Underlying IFRS depreciation, amortization and impairment primarily due to (i) the requalification of the FPSO Espirito Santo contract as finance lease following the extension of the contract late 2020 and (ii) the release of impairment on financial assets due to lower credit and counterparty risks;
- An increase in share of profits in associates mainly driven by the additional six years’ extension for the lease and operate contracts of the FPSO Kikeh. As a result of the revised terms and conditions, the lease contract of FPSO Kikeh remained classified as a finance lease under IFRS and the Company recognized a profit of US$76 million corresponding to its share of the increase in the discounted value of future lease payments.