Saipem Spa

Good morning, this is the Car School Conference Operator. Welcome and thank you for joining the Saipan First Health 2021 Results Conference Call. As a reminder, all participants are in listen-only mode. After the presentation, there will be an opportunity to ask questions. Should anyone need assistance due to the conference call, let me signal an operator by pressing star and zero on the telephone. At this time, I would like to turn the conference over to Alessandro Puliti, CEO of Saipen. Please go ahead.

Good morning and welcome to the presentation of Saipen results for first half of 2024. I'm here with Paolo Calcagnini, our CFO, and with the rest of the top management team. I will start with the key highlights and then Paolo will cover the financial results in more details. I will then wrap up with my closing remarks before starting the Q&A session. Let's start with the key highlights. I'm pleased to report that in the second quarter of 2024 Saipem recorded an acceleration on both order intake and cash flow generation. We also posted the highest quarterly EBITDA since Q4 2019. Revenue stood at 3.4 billion euro, growing by 22% year-on-year and 11% quarter-on-quarter, largely driven by the contribution of our offshore activity. EBITDA stood at 297 million euro, growing by 36% year-on-year and 11% quarter-on-quarter, EBITDA margin stood at 8.8% in line with the level of the first quarter of the year. In the second quarter, we generated 110 million euro of net cash flow in acceleration compared to the 68 million recorded in the first quarter. Net debt has decreased both on a pre and post AFRS basis, notwithstanding a net increase on lease liabilities of about 49 million euro. The deleveraging process is part of our overall de-risking strategy, coupled with specific actions related to the APC model, which we will cover in more details later in the presentation. The order intake in the second quarter was very strong, at 5.1 billion euro, implying a B2B of 1.5 times. Our backlog currently stands at more than 30 billion euro and remains at record levels. We are on track to achieve our 2024 guidance. In particular, in the second part of the year, we expect a further acceleration in the performance of the asset-based services. Let me now give you an update on our commercial activity. Since the beginning of the year, new awards stood at more than 7 billion euro, with a good level of diversification between clients, geographies and type of projects. This reflects both strong market conditions and also our ability to capture opportunities. In Angola, Saipem has been awarded an offshore contract by Azul Energy for the development of the Ndungu field located 180 km off the coast. Our scope of work entices the engineering, fabrication, transportation and installation of 60 kilometers of rigid pipelines, as well as subsea facilities at the water depth of more than 1000 meters. In addition, we will transport and install flexible flow lines, jumpers and 17 kilometers of umbilicals. Still in Angola, Total awarded us the CAMINIO project, which consists of three integrated contracts for the development of CAMEA and GOLFINIO oil fields, which are located 100 km off the coast. The first contract refers to the APC transportation and commissioning of the CAMINIO FPSO vessel. The second contract is for the operation and maintenance of the FPSO for at least 12 years. The third contract relates to the APC plus installation, pre-commissioning, and assistance of the SORF package, which includes 30 kilometers of subsea flow lines, risers, and umbilicals. The Camino Award confirms the competitiveness of our integrated business model. We have a strong presence in Angola where we already operate three FPSOs and where we own and manage iHeart in the city of Ambritz. For the offshore campaigns of both Ndungu and Camino, we will deploy our FDS vessel, which will be operating in Angola in 2026, 2027 and 2028. Moving to the Middle East, we have been awarded two offshore projects by Soliaranco. The first one is the APC of a 50 km crude trunk line for the Abu Sabah field. The second one is related to the production optimization programs of the Berry and Manifa fields. As we already mentioned in the Q1 call, we expect activity in the Middle East to further pick up in the second part of the year. While the awards in Angola and in Saudi Arabia are traditional oil and gas projects, we are also making full progress on our low-carbon offering. In July, we have been awarded an EPC contract in Northern Europe for a large-scale green ammonia storage tank. This tank will be part of a new green energy import terminal. where the stored green ammonia will then be processed to produce green hydrogen. This project further consolidates Saipem's track record in the energy transition. Let me now deep dive on the de-risking of our EPC business. While we are confident in our strategic positioning as contractors, the world we live in has become more complex and volatile than ever. In this light, we have proactively decided to lower the level of risk associated with the traditional APC scheme. We are doing this by moving away from the traditional lump sum model by increasing the portion of our contracts being covered by the risk provisions. This is something we have talked extensively, but today we are pleased to share with you some hard numbers. The risk portion of our APC contract grew from 6% for the pre-2022 awards to the 22% for 2022 and 2023 and 36% for the contracts signed so far in 2024. Some of these de-risking provisions cover the procurement side of the contract, while others cover the construction and fabrication activities. In particular, on the procurement side, we typically include price adjustments clauses. We have clients purchasing directly long-lead items, or we enter into pre-agreements with vendors. On the construction and fabrication side, we typically include reimbursable or remeasurable scope of work, price adjustment clauses, and pre-agreements with subcontractors. Utilization. These are portions for which we take full risk, while the risk in provision relates to areas where we cannot control risk directly, such as procurement and construction. In addition, we are increasing the number of competitive feeds that can evolve into APC contracts as well as increasing our project management consultancy activity, focused specifically on the onshore ENC. In summary, we shifted significantly our approach to EPC and we remain in commitment to continue to apply a significant degree of the risk-taking to all new EPC awards going forward. Together with the derisking of the EPC model, we continue to focus on reducing financial risk and lower our debt. I am pleased to report our net financial position continues to improve at a steady pace. At the end of the second quarter, we recorded a net cash position pre-AFRS of €394 million, which is supported by €1.3 billion of available cash. We now reported four consecutive quarters of positive net cash flow generation, for a total reduction in net debt of €360 million. Cash flow generation has accelerated since the end of June last year, due to the reduction of the weight of the legacy projects and thanks to the growth of our offshore E&C business. The market for both financing and guarantees is wide open for Saipem. In the last two years, we have built the largest backlog ever for Saipem, which currently stands at 30 billion euro. The offshore ENC portion has more than doubled in the last 24 months, and currently stands at 16 billion euro. In particular, the weight of the offshore ENC backlog has grown from 33% to more than 50% of total backlog. In addition, more than 80% of the current backlog relates to projects worn from 2022 onwards. These are projects with a much better condition compared to previous vintages, both in terms of pricing and risk profile, as demonstrated by the increasing portion of the de-risking incorporated in recent contracts. The size and the quality of our current backlog grant us very good visibility on our strategic plan targets. Visibility is also high when it comes to the utilization rate of our fleet. As you can see from the chart on slide 9, the expected level of utilization of our ENC vessels has increased materially in the last 18 months. We are currently fully booked for both 2024 and 2025. and we have a substantial level of expected utilization for 2026. We are also starting to allocate vessels to projects for both 2027 and 2028. This is the result of a very strong market condition for offshore development, both conventional and deepwater, and a sign of market tightness when it comes to availability of vessels. As a reminder, our focus is to utilize as much as possible our own ENC vessels and meet any extra demand with chartered vessels, such as the JSD 6000, which has joined our fleet at the beginning of Q3. Let me now spend some time on Courcelles. The project will allow SIPEM to complete its current track log in wind offshore foundation. So far, we have mainly performed projects based on jackets, while this time we are installing monopiles. As you know, we completed the construction and assembling of the drilling system in Q1. All the 64 monopiles and transition piece are ready. The drilling system is now mobilized on the Volovanje cap vessel and is currently on location. In these very hours, we are doing commissioning of the drilling system on the testing location assigned to us by EDF at Coursales, in order to be ready to drill the first foundation socket. All support vessels are mobilized and ready to start operations. I am confident that we will complete the project successfully by mid-2025. Let me now hand over to Paolo to cover the financials in more details.

Sandro, thank you and good morning to everyone. We will begin from the slide 12 with a summary of the financial results for the first half of 2024. Group revenues increased by 20% year on year, and our EBDA increased by 38%, mainly driven by the performance of our offshore business, both E&C and drilling. In the first half, we also experienced a significant improvement in EBDA margin compared to the last year, with the EBDA margin reaching the level of 8.8%. The higher EBITDA margin is the outcome of a more favorable mix, given the growing relevance of our offshore ENC business. The net result was 118 million euros compared to 40 million euros in the first half of 2023. Operating cash flow was positive for 455 million euros, more than three times the level achieved in the first half of 2023. This is the proof of the progress made in terms of cash flow conversion, as well as the significantly lower impact from the legacy projects compared to the previous years. Let's now go through the different businesses. And let's start from the asset-based services. The division had revenues of 3.4 billion euros in the first half of this year, up 32% from last year. thanks to the performance of the traditional and subsea oil and gas projects, which more than made up for the reduction in wind offshore activity and backlog. ABDA was 391 million euro, up 50% from last year, with ABDA margin at 11.3%, increasing by more than 140 basis points from the first half of the last year. The main reason for the higher ABDA margin was a better project mix, especially the lower share of the wind offshore projects. For the second half of this year, we expect the division to have higher revenues and ABDA than the first half, driven by the schedules of some key large projects in the Middle East, West Africa, Europe and Latin America, only partially offset by the completion of mature projects. Let's have a look at the drilling offshore, page 14 of the presentation. The division reported the revenue of 446 million euros, 24% increase from the same period of the last year, while the ABDA went up by 18% to 166 million euros. The main drivers of the top line growth in the first half were the expansion of the fleet and the higher average day rates, partially offset by the startup costs for jack-up in Saudi Arabia. Growth was supported by the beginning of the operations of the DVD and the Perro Negro 12, by the higher number of operating days for the Perro Negro 11, and by the day rate increase of one of our deep water floaters. The strong operating performance was partially offset by the downtime for the Scarabeo 9, that underwent maintenance, by the startup cost for the Perro Negro 13, and by the impact of the temporary suspensions in Saudi, especially on the Perro Negro 9. As a reminder, the temporary suspension from Saudi Aramco affect three jackups. Two of them started during the second quarter, while the suspension for the third one will begin in the fourth quarter of this year. Our plan for the three jackups remains the one we discussed in April. One jack-up will be returned to the owner in the second part of this year. A second jack-up will go through planned maintenance works. And the third jack-up will most likely replace another unit in a different geographical area. And the replaced unit will be returned to the owner. For the second part of this year, we expect drilling offshore revenue to remain stable and ABDA to slightly decrease compared to the first half. This is mainly due to the Saudi suspensions of the three jackups, as well as the maintenance activity already planned for the second half of this year, partially offset by the positive contribution to the top line of Peronegro 13 and Scarabeo 9. Let's go through the energy carriers on page 15. The revenues increased by 7% year-on-year at €2.5 billion, APDA in the second quarter of 2024 reflected an extra potential loss on the Thai oil project, which were 2.5 billion euro. APDA in the second quarter of 2024 reflected an extra potential loss on the Thai oil project, which was balanced by the one-off positive effects from other projects in our portfolio. As we said before, the division's main goal is to complete the remaining legacy backlog. while we remain very selective when taking on new projects. Completing all legacy and difficult projects is key for improving the division's profitability. I also want to point out that our sustainable infrastructure business continues to perform well in terms of growth, profitability, and cash flow generation. The full income statement for the group is shown at page 16, And we can highlight some items below the ABDA. DNA stood at 310 million euros. This is an increase by 92 million compared to the last year, mainly driven by the higher leases paid on the best sets that we added to our fleet on a capital-like basis. For the full year 2024, we expect DNA in the range of 710, 720 million euros. and as such, 410 million euro for the second half of 2024. The increase from the level of the first half mainly reflects the growth of the fleet on a chartered basis. Financial expenses stood at 73 million euro, decreasing slightly by 14 million euro compared to last year, mainly due to the lower hedging costs, while financing costs, including net interest expenses and leases were stable compared to last year. For the full year 2024, we have budgeted a level of financial expenses in the range of 190, 195 million euros. As such, approximately 120 million euros are expected for the second half of 2024. While the financial expenses will largely depend on the edging cost on certain currencies, our budget on financial expenses might actually prove to be conservative at the end of the year. The results from equity investments was stable year on year, while income taxes decreased slightly by €4 million compared to the last year to €74 million, implying a tax rate of 39%. Finally, the net result was positive for €118 million, increasing by €78 million from the level reported in the first half of 2023. Let's now have a look at the net debt evolution. The company remained very focused on generating cash flow with the goal of reducing our debt and supporting dividend payments to shareholders. The cash flow we generated in the first half of this year improved our net financial position by €178 million on a pre-IFRS basis. This is from a net cash of €216 million to €394 million. and by 113 million euros on a post-IFRS basis. This is from a net debt post-IFRS of 261 million euros to a net debt of 148. We achieved these results by generating 455 million euros of operating cash flow and 271 million of free cash flow. In the second quarter alone, we recorded a net cash flow of 110 million euros. This is an increase from the 68 million euros that we had in the first quarter of this year. In the second half of the year, we expect a net increase in lease liabilities of about 80 million, considering that the fleet is expanding on a chartered basis and that the JSD 6000 has officially entered the fleet in the third quarter of this year. On page 18, you can see the breakdown of our net financial position. As you can see, we hold a comfortable level of liquidity on our balance sheet, which was €3.1 billion at the end of June, including €470 million of unused RCF and almost €1.3 billion of available cash. Available cash grew by more than €200 million only in the second quarter of this year. Our current level of available liquidity fully cover our gross debt maturities up to the full year 2028. Lowering gross debt and extending maturity remain a key priority for Citem with the aim of further de-risking the company and facilitating future credit rating upgrades. Moving to page 19, I would like to give you an overview of the liability management exercise we did in May. During the month of May, we took advantage of the favorable market conditions to issue a six-year bond for 500 million euro. At the same time, we bought back part of the 2025 and 2026 bonds for a total of approximately 360 million euro. The liability management exercise was very successful, and it allowed us to reduce materially our short-term maturities and to increase the average tenor of our debt by more than one year. The tender offer also allowed us to book €3 million of capital gains as the bonds were repurchased below par. As already mentioned, our available cash position currently covers our debt maturities up to the full year 2028. We obviously remain active in looking for opportunities to further optimize our capital structure. I will now hand over to Sandro for his closing remarks.