Profitability

The Company’s primary business segments are Lease and Operate and Turnkey plus ‘Other’ non-allocated corporate income and expense items. EBITDA and EBIT are analyzed by segment but it should be recognized that business activities are closely related, and that certain costs are not specifically related to either one segment or another. For example, when sales costs are incurred, including significant sums for preparing a bid, it is often uncertain whether the project will be leased or contracted on a turnkey lump sum basis.

The Company’s profitability may be affected by external variables and conditions. Profitability may be sensitive to significant areas of estimation and judgements, and to potential interest rates and currency fluctuations against the US dollar as described in notes 5.2.7 .B (a) and 5.3.29 to the financial statements, respectively.

In recent years, new lease contracts are showing longer duration and are systematically classified under IFRS as finance leases for accounting purposes whereby the fair value of the leased asset is recorded as a Turnkey ‘sale’ during construction. For the Turnkey segment this has the effect of accelerating during the construction period a substantial part of the lease profits which would in the case of an operating lease be recognized through the Lease and Operate segment during the lease period. To address this lease accounting issue and IFRS 10 and 11 standards introduced in 2014, the Company has, in addition to its IFRS reporting, assessed its performance by treating all lease contracts as operating leases and consolidated all JVs related to lease contracts on a proportional basis, referred to as Directional. This provides consistency in segment presentation.

EBITDA Directional (in millions of US$)

Reported 2016 Directional ¹ EBITDA was US$ 725 million compared to US$ 561 million in 2015. Directional¹ EBITDA consisted of US$ 823 million from the Lease and Operate segment compared to US$ 667 million in 2015, and a loss of US$ 14 million from the Turnkey segment compared to profit of US$ 239 million in 2015. Other non-allocated expenses came at US$ 84 million, compared to US$ 345 million in 2015, related mainly to restructuring charges and update of provision related to potential settlement contemplated with the Brazilian authorities and Petrobras.

Adjusted for non-recurring items related to provision for onerous long-term charter contract with the DSCV SBM Installer (US$ 31 million) and the update of the provision for contemplated settlement with Brazilian authorities and Petrobras (US$ 22 million), 2016 underlying Directional¹ EBITDA increased by 8% to US$ 778 million compared to US$ 718 million in 2015. This increase is primarily attributable to the Lease and Operate segment with the three new FPSOs that came into production in 2016 and significant saving on other non-allocated costs of US$ 38 million. The underlying turnkey EBITDA decreased significantly due to the profit recognized in 2015 upon the sale of 45% of Company’s shares in the joint venture leasing and operating the FPSO Turritella while the decline of Turnkey activity year-on-year have been mitigated thanks to strong projects performance, under-recovery monitoring and significant saving on Turnkey overheads.

As a percentage of revenue, Underlying Directional¹ EBITDA was 39% compared to 27% in 2015. Underlying Directional¹ EBITDA margin for the Lease and Operate segment stood at 63% versus 57% in 2015, while Turnkey segment Underlying Directional¹ EBITDA margin decreased to 3% compared to 12% in 2015.

EBITDA IFRS (in millions of US$)

IFRS EBITDA in 2016 came in at US$ 772 million versus US$ 462 million in 2015. Total IFRS EBITDA consisted of US$ 733 million from the Lease and Operate segment compared to US$ 592 million in 2015, and US$ 124 million from the Turnkey segment compared to US$ 215 million in 2015. Other non-allocated expenses came at US$ 84 million with no difference compared to Directional¹. Adjusted for non-recurring items, 2016 underlying IFRS EBITDA increased by 33% to US$ 825 million compared to US$ 619 million in 2015. This is primarily due the Lease and Operate segment and the three new FPSOs that came into production in 2016, while the underlying IFRS turnkey EBITDA, not impacted by the sale of Company’s shares in the joint venture leasing and operating the FPSO Turritella in 2015, remained almost stable.

As a percentage of revenue, IFRS Underlying EBITDA was 36% compared to 23% in 2015. IFRS Underlying EBITDA margin for the Lease and Operate segment stood at 58% versus 55% in 2015, while Turnkey segment EBITDA margin stood at 16% compared to 10% in 2015 driven by project performance and decrease of structural costs.

EBIT Directional (in millions of US$)

Directional¹ EBIT in 2016 amounted to US$ 290 million compared to US$ 191 million in 2015. Adjusted for same non-recurring items as EBITDA, underlying Directional³ 2016 EBIT slightly decreased by 1% to US$ 344 million versus US$ 348 million in 2015. Underlying EBIT variations per segment are the same as for the EBITDA, the increase of Lease and Operate Underlying EBITDA (US$ 191 million) being however partially offset by depreciation charges (US$ 66 million) related to the three new FPSOs that came into production in 2016.

EBIT IFRS (in millions of US$)

IFRS EBIT in 2016 amounted to US$ 564 million compared to US$ 239 million in 2015. Adjusted for non-recurring items underlying 2015 EBIT increased by 56% to US$ 617 million compared to US$ 395 million in 2015.