Sbm Offshore Nv Ord

Good morning, ladies and gentlemen. Thank you for holding, and welcome to the SBM Offshore Half Year 2020 One Results Call. At this moment, all participants are in listen-only mode. After the presentation, there will be an opportunity to ask questions. I would now like to hand over the conference to Mr. Bruno Chabas. Please go ahead, sir.

Thank you, Professor, and welcome to the 2021 Earnings Update Call. My name is Bruno Chabas, CEO of SBM Offshore, and I'm joined today by the Management Board with Philippe Barry, COO, Eric Lachandike, CGCO, and Douglas Wood, CFO. I will present the general update of the company, after which Douglas will talk through the financial. We will welcome any questions at the end of the prepared section of this call. So, as always, You can go through the disclaimer at your leisure. And then we're going to go to the first highlight, to the highlight of the first half of the 2021. So starting with this, SVM Offshore is going through a major growth phase with the announcement of two FPSO awards over the last six months. We now have five years of production. All the five FPSO are building on our fast-forward technology. It shows that the concept is realizing its potential to be a game-changer of our FPSO industry. This growth is shown in our financials with a record backlog of almost $30 billion today. We forecast a net cash generation for lease and operate activity of almost $9 billion today. Our contractual backlog now covers a 30-year period up to 2050. We announced today the launch of a €150 million share-buy-buy program, converting our solid performance for our clients into value to our shareholders. Finally, we are scaling up our portfolio. Key milestones achieved on offshore wind business. I need to emphasize here that our outstanding performance is the achievement of the dedicated SDM offshore teams, contractors, and integrated client teams. Their hard work, also facing the challenges of the continuing pandemic, remains highly appreciated. Now, over to our vision and strategy. At SDM Offshore, we believe the oceans will provide the world with safe, sustainable, and affordable energy for generations to come. We share our experience to make it happen. Our vision is supported by three value platforms, by which we bring value, solutions, Our strategy is to improve on each of these value platforms, and our strategy remains consistent. It is articulated around our optimize, transform, and innovate stream. I will describe in terms the main advantages per platform. Let's first start with our ocean infrastructure one. We're going through a major growth phase, with a contractual backlog providing cash flow visibility until 2050, generating net cash flow through SBM Offshore's long operating performance and track record. Secondly, the growth opportunity of our core business sustained by our transformation program, mainly Fast Forward and Emission Zero, and the lowest carbon footprint. Thirdly, the new energy opportunities, where we can leverage our ocean experience, know-how, and technology, allowing us to play a key role in the ever-changing, evolving energy world, and particularly in the renewable business, such as in the offshore wind, wave energy, as well as in the carbon capture value chain. Before going into more detail on our value platform, I would like to cover an approach on ESG. Environmental, social, and governance matters are the earth of running our business. It is based on what our stakeholders value. and where we can have a significant difference, or we can make a significant difference. As before, we report on the sustainability-related KPIs at year-end. What can be said at mid-year is that we're generally on track and are forecasting a performance that largely meets our target. Although, on some indicators, some hard work remains to be done. For reference, we included the 2021 target in the appendix of our presentation. Our teams are currently working on the final stages of our long-term ambition in sustainability. We are using a science-based methodology in order to land ambitious but also realistic targets. We will come back to this with our full-year earnings presentation. And I'd like to mention a few tangible achievements from our team. We are considered to be a sustainability leader in the industry. This is confirmed by third-party experts in their review of FBM Offshore's sustainability performance. We embedded sustainability in everything that we do, exactly in the same way we integrated environment matter and safety matter in our ways of working. Then I just wanted to highlight a nice example of how the company aims to bring social impact into the countries where we operate. We're working on an agricultural project in Guyana, whereby we aim to bring positive impact to the local farming practices, ensuring supplies of the locally grown food for teams in country, which also aims to develop This project brings healthy food with minimized carbon footprint from the significantly decreased transportation needs versus the import food. Now let's go through our different platform in turn, and let's start with the Ocean Infrastructure Value Platform. Our ocean infrastructure platform is based on our lease and operate portfolio. We currently have 15 units under operation for which we focus on maintaining a solid track record in a time for our clients. This in turn ensures stable cash flow for shareholders. The operational time was just above 99% for the first half of 2021. This is the result of the recovery of over 99%. This achievement is the result of our outstanding performance of our staff still facing the ongoing challenges from the pandemic. Taking into consideration the anticipated future contribution of the five units currently under construction, our fleet will generate until 2050 an average of around $300 million of net cash flow per year after debt servicing and tax. On this net cash flow backlog, it is important to highlight the significant potential to accelerate cash flow. The company successfully demonstrated this principle with the issuance of our first project bond in February this year. Later in this presentation, Douglas will talk about this financial presentation. Now, turning to the shareholder returns. We again like to emphasize the fact that our ocean infrastructure platform continues to generate predictable and significant net cash flow. Looking back, we have created a solid track record of returning money to our shareholders and are looking to further build on this in the future. The first element is a stable and growing dividend over time. With the share buyback, With the share buyback we started this morning, we have returned more than $1.2 billion over the last six-year period, including 2021. This represents more than 40% of the significant number. The current growth phase brings further upside through delivery of additional vessels to our offshore infrastructure platform. Now turning to our growing the core platform. On the execution side, following the award of two FPSO to date, namely Amira Tamandare and Alexandre Guzmão, previously known as Mero4, we now have five SPSO under construction, all at various stages of construction. As with our operation activities, our project teams are facing challenges from the pandemic environment, through travel limitations, yard capacity, and other restrictions. Through strong dedication and collaboration from various contractors, as offshore teams continue to deliver, perform, and maintain execution plans on track. The LASA-Unity topside integration was completed and sailed away to Guyana's schedule in the third quarter of this year, with First Oil's schedule next year. The fast-forward NPF hull for Cepitiba project was successfully delivered Allowing the start of the topside lifting campaign with earth soil scheduled in 2023. Topside fabrication for SPSO Prosperity is ongoing. And the project progress is on schedule with planned delivery in 2024. Finally, SPSO Almirante Armanderes is construction is progressing with planned delivery in 2024. In most expert scenarios, oil will continue to be an important source of energy and remains important to generate economic development and human prosperity. LVM Offshore is proud that it plays a significant role in producing the energy that the world needs, while ensuring that this oil is produced responsibly and reliably. SVM Offshore is assisting clients with the goal objective of lowering emission intensity while at the same time lowering break-even prices and therefore reducing the cost. Our clients concentrate on projects with the lowest carbon intensity and the most attractive break-even prices. They are mostly large water developments. target market. Our solutions offer to the market a double resilience, allowing development with a break-even prices well below $40 per barrel and greenhouse gas emission intensity below the industry average. Emission zero, which is building on our fast forward concept, improves the carbon intensity further. ultimately aiming at a zero net carbon emission in our production. Going through the award market, we see a rebound in activity in 2021. Currently, we have identified around 30 potential awards until 2024. We continue to see opportunity worldwide. However, our key market for large projects complex units being traded on China and Australia. China and America is a stronghold market for SBM offshore. Of the 30 potential awards we have highlighted, the one with a break-even price is below $40 per barrel, which represents our target market for SPSOs are highlighted on this chart. SBM offshore retail rates that we remain selective and disciplined in the selection of the target project. The company continues to carry a capacity of winning two-plus awards per year in order to deliver projects in line with commitment to secure long-term value for our clients and to the SBM offshore stakeholders. This translates to a total phase portfolio of around six FPSO in different phases of construction at any given time. New energy value platform. Through our new energy platform, we aim to innovate, create, and develop solutions, products, or technology for developing safe, sustainable and affordable energy for the ocean. The objective is to capture the opportunity where SBM can play an active and leading role through its experience and know-how. For example, we have built around 600 floating anchor structures worldwide over the past 60 years, more than any company. We're transferring our know-how and moving technology to new energy segments including the floating offshore wind market. We are leveraging our significant experience in capturing and reaging in the growing carbon capture and storage business. Finally, our extensive operating experience and expertise that we nurture throughout the lifecycle of our products bring values, and that we can deliver this value through digitalization for all our products, but also through new digital services. So let's expand on the floating offshore wind. SVM Offshore has taken a position as a co-developer in the floating offshore wind project market. SVM Offshore, in collaboration with strategic partners, seeks to secure seabed rights and relevant permits to develop and implement state-of-the-art technology for the floating offshore wind market activity. What is done on the of two sites in the Celtic Sea for a total of 200 megawatts floating wind electricity generation. The Crown Estate has confirmed its intention to move forward with the list process, with the project award remaining subject to various assessments and consenting process. Through the further development and optimization of this technology, focusing on obtaining cost benefits from enhanced design and scale-up, the company is on the path toward a competitive levelized cost of electricity. In the execution phase, The company is making good progress in the construction of three-footers for a 25-megawatt Provence Grand Large project. We intend to play a role in the development and acceleration of technology entrance into the market. We are therefore targeting rights in various regions of the world. The current total project pipeline covers at least 6 gigawatts capacity for the next decade, which is expected to grow significantly over the next few years. The ambition is to co-develop or participate as a technology or certain provider in 2 gigawatts of these existing global pipelines of projects. Total associated co-development expenditure for SDM offshore over the next seven to eight years is estimated to be around 150 to 200 million U.S. dollars. The investment will be generally phased so that significant de-risking has occurred before the final development period, committing most of the expenditure is taken. About the strengths of our floating technology solution. In summary, the Tension Lake platform offers our clients a solution that brings high output with low occurs. This is a proven technology transferred from the oil and gas activity to the renewable market. This technology offers several benefits, and to highlight some of them now, The sea wood footprint of the sea alpine mooring is reduced compared to others. This makes an easier subsea configuration and optimize the sea bed layout. This is particularly beneficial for the overall wind farm configuration. The system is very stable with limited motion. which enable optimized turbine performance and facilitate more efficient offshore operation. And the CLP concept is scalable to accommodate almost any turbine size and almost allow installation for a wide range of water depths. Then let's turn to the carbon capture, and let's provide a few words on this dynamic market. SVM Offshore has a decades-long experience and has developed various technologies which can be applied to the carbon capture and storage value chain. It is probably not a widely known fact, but presently, SVM Offshore, SPF, rejects carbon capture capacity in the world. with 2 million tons of CO2 re-injected per year in our fleet. Currently, the company is designing a tower loading unit which would connect shore to vessel and vessel to re-injection facilities. SDM Offshore is working together with Carbon Collector, a Dutch firm, and aim to apply this technology on the first carbon capture and storage project in the Netherlands. So let's now turn to the financial. Douglas, the floor is yours.

Thank you, Bruno, and good morning, everybody. So as Bruno mentioned, we're now in a major growth phase with five FTSOs under construction. And from a financial perspective, This has led to significant growth in the value of our ocean infrastructure platform. The order book we have in hand, based on firm contracts with premium clients, is now at a record level, close to $30 billion. And in turn, the net cash this order book is expected to generate has increased to almost $9 billion. During the first half, we made good progress on financing on multiple fronts. For projects under construction, we've closed the prosperity financing, and we're now in the final phase of the Sepertiba financing. We also demonstrated our ability to accelerate equity cash flow from the backlog with the FBSO Ilabela bond refinancing in Brazil. The increased outlook on cash generation plus progress on the project financings and the cash acceleration for the bond allow us to maintain the focus on shareholder returns. with the launch of the €150 million share buyback this morning. The increase in the backlog also gives further line of sight on returns potential going forward. Our core FPSO business has driven the increase in value in our infrastructure platform, with further growth and value upside anticipated in the short term. Then, as you just heard, we're now getting more visibility on the long-term value potential in the new energies platforms. But I'll come back on how we see the potential here and the investment we're making to secure this, plus further details on shareholder returns in a minute. But first, to review the key metrics for the first half on a directional basis. So a bit of a different order than usual, because we feel the key metric to focus on for SPM is the level of the order book and the long-term net cash that this will generate. So starting with this, Our backlog increased by $7.9 billion to $29.5 billion, with the impact of the awards of FBSO's Almirante Tamandere and Alexandre de Jusmao more than upsetting consumption by turnover in the period. Over the next 30 years or so, this backlog is expected to generate a net cash flow of $300 million on average per annum. And we'll look at some of the further details of this in a few slides' time. Then net debt. Now, for many company models, an increase in debt may not always be viewed positively. But in the SBM model, debt is very closely correlated to the generation of value. And this is because of the linkage of debt to specific projects. Effectively, we sell a portion of the future cash flows of our projects to debt investors. And they're investing in our projects as opposed to SBM corporately. This project investment is used to substantively finance the cost of the project, securing future cash flow, or, as we just did with the Illabella bond, to accelerate some of that cash flow. So the increase in net debt you see here to $4.6 billion is supporting the delivery of future cash flow and value. Then to the P&L metrics. Of course, also important as these allow for the monitoring of the delivery and realization of the backlogs. Underlying revenue of around $1.15 billion and underlying EBITDA of around $500 million were broadly stable compared with the prior period, with both lease and operate and turnkey segments delivering a similar performance to the year-ago period. For lease and operate, this reflects the stability in the number of vessels in the fleet. In turnkey, Despite the major growth phase, the balance of activity continues to be more weighted to projects to be transferred to the lease and operate portfolio, with then the revenues and margin to come in that phase. But, of course, the level of turnkey overhead costs, including continuous investment in R&D, remains the same. There was therefore a small decrease in revenue and EBITDA in turnkey. reflecting mainly the comparative effect from the completion of the Johan Casberg Turek EPCI project in the first half last year. And then to note for underlying, here we're adding back an impact of $75 million to revenue and EBITDA linked to the re-delivery of the DeepMove platform. And you'll recall we adjusted the underlying 2020 revenue and EBITDA last year for this, as the cash payment was to come this year. And very good to note that the client opted to pay the full amount early in the first half. Turning to cashflow on a directional basis. Cashflow operations before working capital generated during the first half was sufficient to cover debt, interest and tax, and a good portion of the dividend. This is trending in line with expectations where we expect to see some of the working capital unwind in the second half. On the investment side, you see cash inflow from borrowings exceeded cash out towards investments. That's mainly driven by the proceeds from the refinancing of Ilabella, noting also that the first drawdown on the prosperity loan occurred in July only. Now to spend a bit more time highlighting the link between debt and future growth and value. Now we've updated here a chart we've shown before where we have debt versus the backlog and then the evolution of the gearing of debt to the backlog. This is showing the clear correlation between debt and the backlog and therefore the future cash that will be generated from this. Then to take a different approach, looking at the graphic at the bottom. If we analyze the balance sheet, you see that there is a significant amount there that represents future value not yet reflected in the P&L. Zooming in on debt, you can make a connection between the non-recourse operating debt of around $3 billion we had at the end of June and the circa $1 billion annual EBITDA from lease and operate using 2020 here as a proxy. The ratio of this debt to EBITDA is around 3 to 1. This then points to a significant amount of annual EBITDA to be generated from the committed future cash flow linked to projects under construction and the associated financing in the balance sheet. So if you're wanting to apply EBITDA multiples to assess the value of SBM or benchmark debt levels, it's important to factor in and adjust for this committed feature value that's not yet reflected in the P&L. Now moving to look at some more details of the backlog and the net cash flow to be generated going forward. Again, driven by the two new awards, the backlog increased from $21.6 billion to $29.5 billion, a record level for SBMs. And the backlog here, we're assuming an initially targeted SBM ownership share of 55% in both projects. That's reported in the lease and operate bar. And then the partial divestment to partners of the corresponding 45% share, which is reported in the turnkey component. We're making good progress on bringing in partners. And obviously, this remains subject to final approvals and completion of the requisite agreements. Then to note, the Guyana projects are maintained as per original contract durations. Then if we look at the net cash to be generated, the two new awards on an after-tax basis, average expected net lease and operate cash flow has grown to $300 million per annum for the 29-year period. This compares with $260 million average over 25 years at year-end 2020. And again, This cash flow is underpinned by contracts from premium clients supporting projects with very low operating break-evens. In the appendix to the presentation, you'll also find the usual details of the revenue backlog and associated debt repayment profile and all the supporting assumptions that we've used. And on this slide, we've also made an update on the discounted per share value of the net lease and operate cash flow plus currently assumed cash from the sale of the BOT project. In orange on the chart here, at the range of discount rates we observed being used by the financial community. So you see an increase since last time, the average range increasing to 18 to 21 euros per share compared with 16 to 18 euros last time. So here you see how growth adds value with the two awards adding roughly two to three euros per share in this analysis. And as you saw in Bruno's presentation earlier, we see significant growth potential to be delivered by our growing the core and new energy platforms. The impact of the two new FPSO awards I just mentioned correlates with the broad estimates we have provided in the past of the NPV impact of the new FPSO award being between one and two euros per share per FDSO, size of FDSO and discount rate being important assumptions, and of course, assuming expected project execution and operational performance. Then on the right-hand side, some metrics around new energies, focusing on floating offshore wind. As Bruno mentioned, there's currently a pipeline of opportunities of at least six gigawatts, which is expected to increase in the next few years. Our ambition is to co-develop or participate as a technology or turnkey provider in two gigawatts of this existing global pipeline by leveraging our unique know-how. We've allocated an amount of up to $200 million in our forward planning to support our co-developer ambition. And you can look at it as a kind of internal revolving credit facility, which can be drawn to fund milestones for development projects as these are progressively matured and de-risked. Our model will then be to seek to deploy our technology and projects and to sell down the vast majority of our share before FID. Of course, not all developments will be successful, but with spend controlled by milestones and increasing only as projects are de-risked, we would expect this investment to be recovered as a minimum. Now to put all the pieces we've just discussed together in terms of model for capital allocation and shareholder returns. The foundation is the contracted in-hand net cash flow from our order book. As you just saw with the two new projects, the lease and operate portion is $300 million on average for the next 30 years or $9 billion in aggregate. In the shorter term, the average net cash from lease and operate in the next 10 years is higher at $360 million. And that's before the turnkey part, including BOT. which gives good visibility on the ability of turnkey to be at least self-sufficient. Obviously, we need to bear in mind corporate overheads and investments. It's certainly the case that we do need to invest some cash in FPSO projects, particularly given the higher ownership share of the current portfolio under construction. And then we want to preserve some flexibility for investment in new energy opportunities. However, equity cash flow acceleration through further project equity sell-down or project financing should give the flexibility to cover any investments to the extent necessary. The net cash from the backlog after overhead is the foundation for returns to shareholders. Of course, at all times, we'll ensure we've got the capacity to fund future growth in our two businesses. But there is obviously a great deal of upside. Delivery of projects as anticipated and implementation of further equity cash flow acceleration from the backlog will maximise our ability to deliver dividends and share buybacks. And new awards from growth will bring additional upside potential over and above the current in-hand backlog. Today's buyback of €150 million, which we expect to complete by the end of this year, is indicative of this upside. It's fair to say there seems to be a disconnect between the recent share price and how we and most of the financial community following us assess value, despite all our efforts to explain it. But at the very least, you can say this gives the opportunity for a good investment. Based on yesterday's closing price, we're targeting around 6.5% of the outstanding share capital with our repurchase. And assuming completion, this would increase the dividend yield to around 6.3%. Then in the meantime, what we're focusing on is continuing to deliver on all the elements of our strategy, growing the value of our Asian infrastructure platform, delivering industry-leading shareholder returns. That's it from me. Now back to Bruno for the outlook.