Sbm Offshore Nv Ord

Ladies and gentlemen, thank you for holding and welcome to SBM Offshore Full Year 2021 Earnings Update. At this moment, all participants are in listen-only mode. After the presentation, there will be an opportunity to ask questions. Just to remind you, this conference is being recorded. I would like to hand over the conference to Mr. Bruno Chabas. Go ahead, please.

Thank you very much, operator, and welcome to the SBM Offshore Full Year 2021 Earnings Update call. My name is Bruno Chabas, CEO of SBM Offshore, and I'm joined today by my management board, Philippe Baril, Eric Van Handijk, and Douglas Wood. I will present SBM Offshore's main achievements of 2021 and go through the general strategic update of the company, after which Douglas will talk to you through the financials. We will welcome your questions after the prepared section of this call. So as always, please note the disclaimer. And now let's go to the core of the presentation. And we're going to start by speaking about our business model. We, as SVM Offshore, are not in the energy business. We are in the energy transition business. We are playing a key role in the energy transition. First, through the decarbonization of fossil fuel production. Secondly, through the development of renewable energy solutions. Overall, through our experience, our knowledge of the oceans, and our strategy of optimize, transform, innovate, we are providing safe, sustainable, and affordable energy for generations to come. We play this role through our three-value platform, through which we bring values, solutions, and results to all our stakeholders. Starting with ocean infrastructure, based on our lead and operate portfolio, backed by our strong operational performance, combined with our capacity to reduce existing fleet emissions, and, of course, generating a healthy and predictable cash flow. the growth opportunity of our core business, which is supported by our transformation programs, Fast Forward and Emission Zeros. With these two programs, we address clients' needs for fast, reliable delivery with the lowest carbon footprint. Finally, the new energy business. where we leverage our offshore experience and technology leadership to bring competitive and innovative solutions to the renewables energy market, such as Flood4Winds, which I will tell you a bit more in a moment. This in combination with our digital services, which aim at increasing value throughout our product lifecycle by leveraging our operational data and digital technologies. Now let's turn to the highlight of the year. SVM Offshore, once again, delivered a strong performance despite the continued challenges brought by the pandemic. This success is directly linked to the talent, motivation, and dedication of all SVMers throughout the world. In 2021, we saw a strong delivery across the board. So to highlight a few examples of this. FPSO Liza Yunke is getting ready to deliver its first oil soon. We continue an excellent uptime of our fleet. Our guidance are delivered in line with expectations. And we got two major FPSO awards during the year. 2021 also saw SBM offshore breaking quite few company records. The lowest total recordable enduring frequency rate seen. Again, we should note that we will never take this safety for granted, and we will always remain careful and disciplined. Nevertheless, the performance of this year is quite remarkable. We have a record backlog of around $30 billion, which provides contracted cash flow visibility until 2050. We raised $4.8 billion of financing to support our growth. And our solid performance allows us to return a record-breaking $345 million in cash to our shareholders through dividends and shared repurchase. Third point regarding the energy transition. Our teams have achieved around 30% reduction in flaring over the last five years. or about 10% reduction in absolute emission compared year to last year. We will continue to focus on flaring performance and focus on further improvement going forward. SVM Offshore also commits to be the net zero emission by 2050, which includes COP 1, 2, and 3 for downstream lease assets. Finally, We're proud of the milestone reach in our floating offshore wind business, ensuring that the company is positioned well in this upcoming market. Again, an outstanding performance, which is a major compliment to the SBM offshore teams around the world. Now let's go over to the shareholder return. Our solid performance is translated in an industry-leading shareholder returns. Looking back, we now have created a track record of returning money to our shareholders, and we are looking to further build on this in the future. With a 13% increase year-on-year in dividend per share proposed to be paid in 2022, the company will book its sixth consecutive year of dividend increase, consistent with its stable and growing dividend policies. Over this period, in dividend alone, SEM Offshore has sustained a 30% confirmed annual growth rate in its dividend, which is remarkable, and certainly in our industry in particular during the period that we have lived. Including the 2022 dividend, the company returned around $1.4 billion since 2016. which represent more than half its market capitalization as of 2021 year end. So, before going into more detail in our value platform, I will cover our ESG performance. In 2021, we have aligned overall scoping of our emissions reporting to the Greenhouse Gas Protocol. This results in a reclassification of most of our emissions formally reported under Scope 1 to Scope 3. You can find the further details around this in our new report published today. This reclassification has not impacted SVN ambition with respect to emissions reduction. Therefore, today we report emissions from Scope 1 and Scope 3 which are close to zero thanks to the use of green energy in our site operation. Under Scope 3, the company reports the emissions from the FPSO operated on behalf of clients under the category downstream lease assets, as well as a new voluntary disclosure added this year under the category purchase goods and services to address emissions from the supply chain. As you can see, the vast majority of emissions is produced in our Scope 3 downstream lease asset, which is where SBM supports its clients to reduce their emission intensity. So you could question how we're gonna make this happen. First of all, deepwater oil field development compared to any other source of oil ranks among the best developments with the lowest carbon intensity. Secondly, our program of emission zero in place is aiming at reducing the FPSO emission and offer to the market a near zero emission FPSO. And lastly, on the existing fleet, we managed to achieve significant reduction in emission, for example, through better management of the gas system using digital technology and data analytics. We also have embedded sustainability in all our activities, and we are proud to see our efforts and performance recognized by third-party experts in their review of SBM Offshore's sustainability performance, as the company is identified as a leader and global industry mover. We also report annually on our sustainability-related KPIs at year-end. For the 10 ambitious targets for the year, for which all the details are available again in our annual report, seven of them have been met. For example, our safety performance and money spent in R&D on clean technology. We also have some work ahead of us on some indicators. One of the examples is the creation of a training center in Guyana. which received approval from all stakeholders at the end of 2021 and enabled us to catch up on this target in 2022. We continuously raised the bar by stepping up on our ASG target for 2022, where the company has now added long-term target toward 2030. In addition, We are expanding on sustainability focus and action on material topics such as human rights. We are also adding diversity and inclusion and circularity to the overall program. We're targeting to dedicate at least 50% of the 2022 R&D budget toward EU taxonomy eligible activities. The maturity gain over the years has allowed us to set clear targets at midterms and to meet the company's ambition to reach the net zero by 2050. So now let's go to the different value platforms of the company. We are currently operating 15 units for which our focus is on maintaining a solid track record in uptime for our clients. You can see here that for 2021, we are again above 99% at the end, despite the challenging environment and in line with our historical track record. This performance is reflected by the award we have received from one of our key clients, Petrobras, for the second year in a row about the best oil platform operation. We are also pleased to confirm the company received the six-year lease extension on FPSO Kike, the largest deepwater FPSO in Asia. So turning to the growing the core platform. As previously mentioned, we're going through a major growth phase with five projects under construction, following the award of two FPSO, Almirante Mandaré and Alexandre Guzmão. As with our operation activity, our project team are facing various challenges from the pandemic. but managed to maintain their focus on project delivery and safe execution. On FPSO Sepitiba, the modules fabricated in Brazil have arrived at the yard in China, and the topside modules fabrication in China is progressing. The project targets first soil in 2023. FPSO Prosperity is progressing as planned. The installation of the mooring system is ongoing, and the first topside modules are planned to be completed and lifted in the first quarter of this year. FPSO Almirante Amandare and FPSO Alexandre de Gosmao construction are progressing as per schedule. The sixth MPF hull has been allocated to the Yellowtail development project. Finally, I wanted to draw your attention to SPSO LISA Unity. Everything is on track to achieve first soil after our initial schedule. We're proud of this remarkable achievement for such a complex unit, especially during the COVID-19 crisis. This is the first FPSO under the fast-forward concept, Deliver, as well as the largest to be operated with the 220,000 barrels per day of production capacity. It is also the world's first FPSO with the SDG-linked class notation, Sustain 1. To the market now. With a capacity of two plus FPSO awarded per year, or about six FPSO at various stages of construction, the company will remain selective and disciplined in the positive FPSO market outlook. We identify around 25 potential awards until 2024. On each market of complex FPSOs with low carbon intensity, and low break-even prices remain the most attractive to our clients. Now, let's turn to the new energy value platform. And as I mentioned up front, we are in the energy transition business. So the company in this market segment, the company's strategy is to position itself in the renewable market and the floating offshore wind market, which is a fast-growing market. We are leveraging our experience and capacity in the floating offshore energy solution by investing in technology development, especially in floating offshore wind and wave energy. To enhance the positioning of the company's technology and to continue to stimulate the floating offshore wind market, LVM Offshore moved forward as a co-developer to accelerate the adoption of its technology. Our first development, LEAR, is located in the U.K. and comprising of two offshore sites of up to 200 megawatts each. CADEMO is another co-development project located in California for 60 megawatts. In the execution phase, the company is making good progress on the Provence Grand Large project with the construction of three floaters for a total 25 megawatts for EDF Renewal Labs. We're facing some execution challenges from the fact that we are fabricated for the first time on newly designed components in a COVID environment. These challenges actually bring some interesting learning points that have been integrated in our new version of our floater design and execution. We expect to continue our investment overall in pilot projects to ensure that our technology matures in line with the market dynamics. SVM Offshore is also looking to participate at the EPCI and technology supplier for clients involved in major farm developments, such as in Scotland, France, South Korea, and Japan. Finally, we are building strategic partnerships to support the development of our second generation offshore wind floater, which I would like to discuss next. Our floating technology solution, the tension leg platforms, offers our clients a solution with a high output and lower cost. This technology offers several benefits, but most notably it brings a lower environmental impact and a better layout substance. The capability to scale it to accommodate the largest wind turbine, which is important in order to bring the cost of electricity down. The ability to operate in deeper water and offshore environment to address all markets. Leveraging on this experience, the company is developing a second generation of floaters, which is what we call Float4Win. Offering a competitive solution, achieving lower costs for better and simpler design, which allow mass production and shorter execution. The blueprint under Flood for Winds is really the blueprint that we have been using under Fast Forward. Now let's turn to the market. The floating offshore wind market is developing worldwide, and the current market outlook of capacity to be sanctioned has grown during the year and is forecasted to further grow. The initial forecast now increased to between six to 16 gigawatts to be installed by 2030. With this growing market, the company has the ambition to become a top three floating technology provider. The company also has the ambition of at least two gigawatts of floating offshore wind installed or the construction by 2030. So that concludes the first part of the presentation. So over to Douglas for the financial, for SBM financial. Douglas.

Thank you, Bruno, and good morning, everybody. So the financials for 2021 reflect the strong business performance and the achievement of a number of records. With the two new orders received during the year, the order book approached $30 billion at year end. That's the highest on record and an almost 40% increase versus last year. The level of the order book reflects the growth phase that we're in, with five FPSOs in the construction phase, plus the early work on Yellowtail. Now to support this growth, we raised $4.8 billion of financing during the year, and that's the highest amount ever achieved by the company. And this shows the recognition and support for our strategy from our international syndicate of lenders. The size of the order book not only reflects the additional projects that we've won, but also the increasing size of the vessels required by our clients. Compared with the past, we're also retaining a larger ownership percentage in our portfolio of units under construction, and this is especially visible with the 100% owned Guyanese vessels. Our financing model is efficient in terms of minimizing the equity investment in percentage terms, but where obviously larger units require a higher absolute amount of equity to be invested during construction. Then in our drive to accelerate our renewables technology, as Bruno just mentioned, we'll continue our investment in pilot projects. And we have the flexibility to manage these investments for the long-term future without compromising our shareholder returns. We returned a record $343 million last year, and that represents a cash yield versus 2020 year-end market capitalization of 10%. And today we announced the proposed increase in the dividend per share by 13% to $1 per share. I will spend some more time on capital allocation returns in more detail in a moment, but first to review the key metrics for the year on a directional basis. Now, as you know, cash is king, and that's why the key metric to focus on for SPM is the level of the order book, also known as the backlog, and the long-term net cash flows that this will generate. So starting with this, the backlog was $29.5 billion at year end, largely thanks to the impact of the awards of FPSOs Almirante Tamandare and Alexandre Bezos-Mao. Over the next 30 years or so, the lease and operate backlog is expected to generate an aggregate net cash flow of around $8.5 billion, which, by the way, is approaching nearly three times our current market cap. Then net debt. This increased by $1.3 billion to $5.4 billion as we invest in the projects under construction. And non-recourse is the operative word when speaking about SDM and debt. The debt is directly linked to individual projects backed by firm contracts with premium clients and is non-recourse during the operating phase. So given this, it makes sense to look at debt relative to the size of the backlog of those contracts. And at the year end, the ratio was 18%, which remains in line with our historical range. Then to the P&L metrics, of course, also important as these allow for the monitoring of the delivery and realization of the backlog. Underlying revenue of around $2.3 billion and underlying EBITDA of around $930 million was stable compared with the prior period. Both these are in line with the guidance provided at the third quarter trading update. And just to note for underlying, this mainly reflects the add-back of the $75 million to revenue in EBITDA linked to the re-delivery of the DeepMoot platform. And you'll recall we adjusted the underlying 2020 revenue in EBITDA downward last year and added the same amount to 2021 based on the fact that the cash payment was a 2021 item. Now turning to cash flow on a directional basis. Cash from operations before working capital was pretty much sufficient to cover debt, interest, tax, and the dividend. Then on the investment side, you can see cash inflow from borrowings exceeded cash out towards investments. That's primarily driven by the fact that an aggregate $1.25 billion in bridge loans for the FPSOs Almirante, Tamandare, and Alexandre de Jusmal were fully drawn at year end, largely ahead of the planned expenditure curve for the projects. So we'll see those cash consumed during 2022. Then looking at liquidity at year-end, we had $3 billion. On top of the year-end cash balance, we had additional liquidity of $1.9 billion from the RCF, which was undrawn at the year-end, plus the undrawn portion of project debt. Moving to the details of the backlog and forecast net cash flow going forward, So again, the two new large awards were the main driver of the increase here by around 40% to $29.5 billion. In the backlog, we've included the 45% sell-down of equity in Almirante Tanandare, which was completed in January 2022, as well as a 45% sell-down in Alexandre de Jusmao, which is progressing with our partners and planned to close in 2022. So then you've got 55% of these projects in the lease and operate bar and the partial divestment to partners, the corresponding 45% share is in the turnkey component. At the yellow tail, only the initially agreed funding for the feed component, which includes securing the NPF hole, is incorporated as the project is still subject to government approvals and client final investment decisions. and a Guyana project continue to be reflected in line with original contract duration. So that's up to 10 years for destiny and up to two years for unity and prosperity with the contractual purchases for these reflected by the orange bars. So then looking at net cash to be generated with 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. And this compares with $260 million average over 25 years at year end 2020. And here, we'd like to reemphasize that this cash flow is underpinned by contracts from premium clients supporting projects with very low operating break evens. We also updated here the discounted value per share of the net lease and operate cash flow plus currently assumed net cash from the sale of the BOT project in orange. As always, we're using the range of discount rates we observe being used by the financial community. And this value has grown to a range of 19 to 23 euros per share compared with 16 to 18 euros at year-end 2020. And so next, we'd like to update you on the various elements of our model for capital allocation and shareholder returns. First on net cash to look at the six-year model we've been using for several years now to assess the average in-hand cash flow for this period. Based on the updated backlog we just discussed, net cash from lease and operate after tax and debt service over this period is $365 million. So then we allocate the corporate overheads to lease and operate on the basis of an assumption of $75 million. and that leaves average net cash for the period of $290 million. Next, to consider the impact on the cash flow of turnkey, which is the growth engine of SPM, and where we've got various elements to think about. After covering the turnkey overheads, which include R&D, we need to consider the net equity investment required for the FPSO projects, which, as a reminder, is not included in the in-hand lease and operate net cash flow. Then we've got the investment in the renewables business mentioned earlier. So if we start with the FPSO net equity investment, we're financing the value of the FPSOs. And as such, we're able to debt finance a significant portion of the cost, minimizing the cash equity percentage requirement. However, larger units obviously require a bit more equity in absolute terms. Previously, we've talked about a rough range of $1 to $1.5 billion for FPSOs. Now, with the newer projects, it's more $1.5 to $2 billion, and then the net equity requirement depends on share of ownership, gearing, and project execution performance. It's important to mention that larger FPSOs bring larger backlog, so more cash down the line, and we consistently achieve attractive double-digit returns on FPSO project equity investment, which remains the expectation for all the current projects under construction. Next on investment to grow our renewables business. So in August, we mentioned that we've allocated an amount of up to $200 million in our forward planning to support our co-developer ambition. This amount is assumed to be covered by a working capital facility where we'd expect our aggregate investment to be recovered as a minimum as successful projects are sold down. So cash flow neutral overall. And to this end, we've structured, together with our RCF banks, a dedicated $50 million green tranche in our RCF. This only represents a first step where we're looking at seeking to extend this capacity over and above the current RCF capacity in line with our funding requirements going forward. In addition to this, we currently expect to invest in the region of $150 million on renewables pilot projects over the next three years or so, to ensure our technology evolves at the requisite pace to capture a sizable share of this increasingly promising opportunity set. And by the way, this flows through the P&L in turnkey. But to conclude then on the impact of turnkey in the cash flow equation, considering these growth elements, on average over the six-year period, turnkey will require some incremental investment over and above the cash to be generated from the current turnkey portion of the backlog also including the cash proceeds from the BOT sales. Finally, the last element of the model here, equity cash flow acceleration, can mitigate the impacts from this incremental investment phase on the overall cash flow equation. Now, this acceleration can take the form of further equity sell-down plus equity cash flow acceleration from project refinancings. We completed our first such refinancing with the FPSO Ilabella last year, and as stated before, we're actively assessing additional candidates for bond refinancing so that bank debt can be recycled and net cash accelerated. We also announced today the planned divestment of a 13.5% equity ownership in FBSO Sepitiva, the China merchant's financial leasing company. Then turning to how these updates on the capital allocation model translate to shareholder returns. Driven by the increase in the backlog and net cash in lease and operate, we're proposing to increase the dividend by 13% on a per share basis to $1 per share, which is around $180 million in aggregate. Helped by the benefit of the €150 million buyback completed last year, this represents a yield of 7% versus year-end 2021 market cap. And as you can see from the chart on the left, since the restart of the dividend in 2016, we've delivered a compound annual dividend growth of 30%. Since we started making a linkage between the dividend and the six-year average in-hand lease and operate cash flow after corporate overheads from 2019, over the past three years, we've paid out more than 60% of this cash flow, and the proposed increase in dividend is in line with this. Then throughout the period shown in the chart on the right, continuous per share dividend growth has been enhanced by the buybacks. The use of buybacks also has the advantage of allowing flexibility to manage the cash flow around incremental investment in growth through Turkey, along with the execution of equity acceleration transactions. And looking at the overall impact of the buybacks in recent years, these have enabled us to deliver a cash flow yield of around 10%, which is pretty competitive. And we have the ambition to maintain this in the future. but of course subject to growth investment requirements and our ability to deliver further equity cash flow acceleration. Already fair with the dividend alone, we'll continue to deliver a very healthy cash yield. So as you heard from Bruno, we're operationalizing our vision of an energy transition company, where as well as delivering growth in the future, this also means delivering cash returns today. And we're not going to let our optimism get ahead of us, But as there are some signs of a realization that there may be some value in traditional companies that are generating cash, we're hopeful that we might get some more recognition from this. That's it for me. Now back to Bruno for the outlook.