Profitability
Revenue
Total Underlying IFRS revenue increased by 1% to US$3,419 million compared with US$3,391 million in 2019.
This increase was driven by the Lease and Operate segment with (i) L iza Destiny (FPSO) joining the fleet after achieving first oil at the end of 2019 and (ii) the extension of the FPSO Espirito Santo lease contract for a period of 5 years from 2023 to 2028. As a result of the revised terms and conditions as per the new Time Charter and Operate & Maintenance agreements, the new agreements had to be accounted for as a finance lease, while the previous arrangements were accounted as an operating lease. Due to the finance lease classification, the Company has accounted for an amount of US$249 million in revenue. Please refer to note 4.3.15 Finance Lease Receivables.
Underlying IFRS Turnkey revenue decreased by 16% to US$1,735 million compared to US$2,064 million in the year-ago period. Despite three FPSO’s under construction in 2020, the decrease is mostly attributable to: (i) reduced level of activity on Johan Castberg Turret Mooring System EPC project which was nearing completion at the end of 2019; (ii) the completion stage having been reached by the Liza Destiny (FPSO) in 2019; (iii) reduced level of activity on the Liza Unity project and (iv) lower contribution from smaller product lines. This was partially offset by the higher level of activity on the FPSO Sepetiba construction project.
EBITDA
Underlying EBITDA amounted to US$966 million, representing a 4% decrease compared with Underlying EBITDA of US$1,010 million in the year-ago period, mainly driven by an increase of the Lease and Operate segment offset by a decrease in the Turnkey segment both impacted by the same drivers as the changes in IFRS Revenue. Underlying EBITDA was also impacted by the following items:
- The Company entered in December 2020 into a new arrangement, accounted for as a finance lease under IFRS, with its client on the FPSO Espirito Santo. The impact of the transaction was an increase of US$123 million in the Company’s EBITDA in the Lease & Operate segment. Please refer to note 4.3.15 Finance Lease Receivables;
- US$(46) million of severance costs during the current year associated with the restructuring plans completed over 2020.
Note that contrary to Directional Reporting, the Company’s additional percentage of ownership in the Lease and Operate entities related to the five Brazilian FPSO’s following the purchase of additional shares completed in the second half year of 2019 had no impact on IFRS revenue and EBITDA (these entities being subsidiaries consolidated using the full consolidation method as per IFRS 10).
In contrast to Directional, it should also be noted that the construction of Liza Unity (FPSO) contributed to both IFRS Turnkey revenue and gross margin over the period. This is because this contract is classified as finance lease as per IFRS 16 and is therefore accounted for as it were a sale under IFRS. The same treatment applied to the construction of Prosperity (FPSO) under IFRS, except that revenue recognition on this project was limited to cost incurred over the period given the Company policy of not recognizing margin before it could be estimated reliably thanks to substantial progress in engineering activity and the completion of 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. This is because this contract is classified as finance lease and is therefore accounted for as if it was a sale as per IFRS 16 while under directional only the portion of sale to partners in the special purpose entity is recognized.
Net income
Excluding non-recurring items, 2020 underlying consolidated IFRS net income attributable to shareholders stood at US$277 million, a decrease of US$114 million from the previous year. While the growth of the Lease and Operate segment was almost sufficient to absorb the lower contribution from Turnkey projects, the decrease of the Underlying IFRS net profit mainly resulted from (i) restructuring severance costs expensed in 2020 to adapt the Company’s business model to an environment of shorter oil price cycles and increased volatility, (ii) reduced share profits in associates and (iii) higher investment in the Company’s digital initiatives.