Sbm Offshore Nv Ord

Ladies and gentlemen, thank you for holding and welcome to the SPM offshore half-year 2022 earnings. At this point, 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. Please go ahead.

Thank you very much, operator, and welcome to SBM Offshore, half-year 2022 earnings update call. My name is Bruno Chabas, CEO of SBM Offshore, and I'm joined today by my management board, Oivin Tangen, Chief Operating Officer, Douglas Woods, CFO, and for the last time, Swang Song, Philippe Baril, CTO. As announced following Philippe's departure at the end of August, the structure of the management board would be simplified. The current CTO portfolio being distributed between the management board members. So let me now present SBM Offshore results. Our main achievement for the first half of 2022 and goes through the strategic updates of the company after which Douglas would go through our financials. As always, We welcome your questions after the prepared section of this call. Please note the disclaimer. And now we go to the core of the presentation. SVM Offshore is in the energy transition business. The world needs oil and gas going forward, produced in the most responsible way. Deepwater offers one of the most carbon and cost-efficient sources of oil and gas. As such, SBM Offshore can make the most significant positive impact in creating carbon-efficient technology for new FPSO, while improving our operation with the aim at reducing greenhouse gas emissions from our existing fleet. For the medium term, SVM Offshore develops competitive renewable solutions. We create value through three platforms, through our ocean infrastructure with 15 assets in our fleet and five FPSO under construction. These new FPSO decrease our CO2 intensity and generate our record-breaking backlog with a net cash flow visibility up to 2050. Supporting the energy transition through the development of zero-emission FPSO to help our clients in their commitment to reduce their emissions and to remain leaders in our market by capitalizing on our fast-forward experience. On new energy, we're developing competitive renewable energy, particularly gaining footholds in the promising floating offshore wind market by transferring oil and gas kills experience and technology capabilities in this market. SVM strategy and action plan are underpinned by our environmental, social and governance framework. Using our stakeholder material and key topics, we define our ESG framework and our strategic priorities. As such, it is only natural to embed ESG at the core of our strategic action plan. That way, all SBN employees and management have ESG integrated in their objective, which also drives short-term and long-term incentives. So let's now turn to the highlights for the first half of the year. We see so steady growth with the award of FPSO 1 Guyana which brings our backlog to another record level, now above $31 billion. The focus of the company is to deliver this backlog in line with our historical track record and reliable execution and operation. We're on track with a good set of financial results over the first half. Some major milestones were also achieved. The successful decommissioning and ramp-up production of FPSO lies at destiny in an industry-leading time, and the closing of FPSO won Guyana financing. Today's situation underlines the world's energy needs, requiring at the same time sustainable, reliable, and affordable sources of energy. SVM Offshore assists its clients in doing so by producing reliably from the most carbon-efficient and, hence, sustainable energy sources. Market outlook remains very positive, both in FPSO business and floating offshore wind markets. As such, we order a new MPF hull, and we will continue to target projects delivering value to all stakeholders, while remaining disciplined around the selection of projects we target. Finally, as announced in 2021, the company commits to a strategy to bring the company to a net zero by 2050. We're now setting intermediate goals with ambitious yet realistic emission reduction targets by 2030. in order to create a realistic pathway toward net zero in 2050. I will say a bit more about this new target in a minute. But first, let's start with our first value platform, our ocean infrastructure. In line with our vision, SVM Offshore delivers safe, sustainable, and affordable energy. Safety remains the company's priority. Total recordable injury frequency rate year-to-date was 0.10, compared with the full-year 2022 target of below 0.15. On affordability, SBM Offshore, FESO for large and complex developments or target markets, have very attractive break-even prices of between $25 to $35 per barrel. On sustainability, our Generation 3 units and the latest fast-forward units have a greenhouse emission intensity which is around 40% lower than the industry average. On reliability, SBM Offshore's fleet has a historical uptime of 99%, Our turnkey delivery track record is unique, demonstrating the reliability of our operations and the significant energy production associated with our FPSO. The fact that our main plane capacity will be close to 3 million barrels per day when our current backlog is delivered demonstrates how important our reliability is. Following on reliability in FPSO construction, this graph shows three things. Over the last five years, only two complex FPSO with an oil production capacity of more than 120,000 barrels per day were delivered on time. Both of these were done by SBM offshore. Reliability is not a given. It requires discipline, experience, including in execution, combined with strong project management and focus. The industry average delay in execution for delivering FPSO was under two years, with some units experiencing more significant delays. These delays have a massive impact on clients' economics, close to a billion dollars in NPV at $50 per barrel. and double that at today's price. Finally, the graph shows the value that SBM Offshore brings to its clients, especially with the BOT and lease and operate model based on our own and optimized FPSO design. Now let's have a look at the progress of our FPSO project under construction. Again, To put SBM Offshore's contribution in perspective, the fleet will have a total production capacity of close to 3 million barrels of oil per day when our current projects under construction are finalized with a total additional production capacity exceeding 1 million barrels per day. Now on the execution performance. It is still a challenging environment. We witnessed more lockdown situation in China during the first half of the year. While the COVID situation around the world is improving, it's still present. Our commercial model and specific mitigation measure allow control and schedule protection. But we're not 100% immune against those challenges. And part of the portfolio remains sensitive to further inflationary pressures. Overall, the portfolio is looking good, is booking good progress with a robust profitability, thanks to the outstanding work done by our teams. Now on the fleet. The number of operating units in the fleet tend at 15, with a total production capacity of around 1.8 million barrels of oil per day. The fleet of time performance for the first half of the year was impacted by FPSO CITAD and CHIETA shutdown for which repair are progressing towards safe restart in the second half of the year. Over the first half of 2022, FPSO Liza Unity was added to the fleet. Liza Destiny's updated flash gas compressor was successfully installed and is performing as planned. In addition, following optimization work, the unit production capacity increased. The production for those two FPSO, Liza Destiny and Liza Unity, has exceeded their initial combined capacity of 340,000 barrels of oil per day. Through its full lifecycle offering, SBM Offshore is also in charge of unit decommissioning and recycling. The fact that ESG is embedded in all we do is demonstrated by the Deep Anug Mopru responsible recycling, for which we are using the highest recycling standard. In-country activities reducing environmental footprint, while including initiatives contributing to life below water, plus generating business locally. The next unit entering in the decommissioning phase is SPSO Capisaba, for which we will apply our responsible recycling policy, which adheres to the most responsible environmental and social standards. So bearing this result in mind, SBM Offshore operates in the energy transition business. The market outlook in our traditional FPSO business is very positive, with 33 potential awards until 2025. This outlook improved compared to the previous years, as the world's oil demand has significantly recovered, while the supply side is witnessing the effect from underinvestment during the past decade. On each market, of complex FPSO with low carbon intensity and low breakeven prices remain the most attractive investment opportunity for our clients. Over the next few years, out of the estimated average nine FPSO awards per year, around three are within our target market of large FPSO. We reiterate our capacity of 2 plus FPSO award per year or about 6 FPSOs in parallel at various stages of construction. Again, SBM Offshore will remain selective and disciplined in selecting which bid to pursue. In an energy transition company, As an energy transition company, SVM Offshore announced in 2021 its ambition to achieve net zero by no later than 2050, including Scope 1, Scope 2, and Scope 3 for downstream lease assets, the later covering the emissions from our FPSO fleet. To create a clear pathway for its 2050 net zero ambition, Using a science-based approach, SBM Offshore has defined intermediate targets with the following key milestones. Reducing greenhouse gas intensity in scopes-free downstream assets by 50% by 2050. And this is starting from 2016 as a base year. Reaching net zero emissions. in scope one and two by no later than 2025. Achieve zero roots in flaring by 2030. Offer the market emission zeros leading to a near zero FPSO at latest by 2025. One of the pillars of our transition strategy is our Emission Zero Program. through which we intend to be able to offer a near-zero CO2 emission FPSO. We have seen good progress on the program with in-house technology development, qualified suppliers, and technology partners. An example is combined cycle power generation, which brings lower carbon emission compared to the conventional power generation. Another strong technology contributor will be the carbon capture, feasible in the medium term. Digitalization is already playing a big role in current track record of emission reduction, and will continue to bring significant contribution to the reduction target. The company is on track to making emission zeroes efficient solutions available to the market by 2025. Here I would like to highlight some of SVM Offshore core strengths, fitting our energy transition ambition. SVM Offshore is a technology company, but one that has the capability to deliver and deploy solutions with high technology content at scale. Already for more than 50 years, SBM Offshore has pushed the technology frontier in the offshore energy business. The company, with all its unique engineering, construction, project management, and financing experience and innovative capacity, will continue to position itself in developing market niches we consider attractive from a risk and reward standpoint. SVM Offshore is monitoring various market dynamics in order to bring technological solutions when appropriate and timely. Hydrogen and ammonia technology or other energy carriers are just one of those examples. In today's world, with a global push to sustainability, SVM Offshore stands to benefit from market dynamics as any future product will require technological development which are safe, sustainable, and affordable. As just mentioned, innovation and continuous improvement is the DNA of the company, and we apply those principles to develop competitive renewable energy solutions. The floating offshore wind market continues to develop worldwide. And the current market outlook of capacity to be sanctioned remains high, with expected between 6 to 16 gigawatts to be installed by 2030. Within this market, the company has the ambition to become a top-three floating technology provider. A co-developer participating in the floating offshore wind technology provider in 2 gigawatts of project over the next decade. Also, in the renewable market, the company will remain selective and disciplined, targeting only projects that are adding value to all stakeholders and strike the right risk and reward balance. The construction of the Provence Grand Large project, first pilot project, is progressing with commissioning schedule in 2023. The construction installation of those three 8.4 megawatt floaters will account for about 10% of the total installed floating wind electricity generation capacity by 2023. This is the first floating offshore wind project under construction in France and will be the first project worldwide to be installed using tension lake platform mooring technology, which has a minimum motion and seabed footprint. Lessons learned continue to be integrated into the company's next generation design for floating wind electricity generation. We call this Float4Wind. which leverage our offshore and construction experience. The second generation frotter, which is designed for a commercial wind farm, has roughly the same weight compared to our first generation, but is around 50% cheaper due to the simplification that was brought to it. We have less than 10 parts compared to more than 30 parts in the design of the first generation frotter. time for final component assembly is reduced by circa 70%. In conclusion, we will try to offer a competitive solution, achieving lower costs through a better and simpler design, which targets mass production with shorter execution time. We expect to continue our investment in pilot projects to ensure that our technology matures in line with market dynamics. Now I'm leaving the floor to Douglas and over to Douglas on the financials. Douglas?

Thank you, Bruno, and good morning, everybody. So the award of the One Guyana project in the first half of the year has resulted in another record backlog of more than $31 billion, speaking to the positive outlook for the market that Bruno just mentioned. And the record $1.75 billion financing for this project that we closed last month with 15 institutions participating also shows confidence of our financial stakeholders. And as you just heard, we could expect to further grow this backlog through the energy transition given the cost and carbon competitiveness of our FPSO offering and our ability to use our expertise to develop floating solutions for the offshore wind market plus other alternative energies beyond this. And as ever, we will remain disciplined in our choices. Indexation and reimbursable features of our contracts provide protection for our income from the existing fleet. And our model brings the advantage that we're able to factor in the latest supply chain dynamics and financial market environment at the time when we bid and win new orders. So this provides a very resilient and reliable financial foundation, which allows us to navigate the sort of challenges we've seen in the past few years, while still being able to fund significant growth plus, at the same time, offer attractive long-term cash returns to our shareholders. And on which note, in May, we paid our previously announced $1 per share dividend, around $180 million in aggregate. At today's prices, this would be about one euro per share with a yield of over 7%. And speaking of the exchange rate, you see the upside from the significantly strengthened dollar in the valuation of the backlog, which I'll cover in a moment. And then we've also increased our EBITDA guidance for the year from around $900 million to above $950 million. as we've been able to manage the impact of some of the risks foreseen at the beginning of the year. For example, by confirming an extension to the FPSO Cidade de Ancheta contract by the same duration as the period of shutdown. So then the associated revenue and margins recognized on a straight line basis over this newly extended lease period. Now next to review the key metrics for the first half of the year on a directional basis. Starting with the most important metric to focus on for SBM, our order book or backlog, which is the generator of our substantial long-term net cash flow. As I just mentioned, the award of the one Guyana FPSO took the backlog to a new record level of more than $31 billion at the first half. And from the lease and operate backlog, we expect to receive an aggregate net cash flow of around $9 billion over the next 28 years, and around $9.5 billion, including the BOT purchases, with a third of this $9.5 billion to be received over the next six years. So if we look at net debt, notwithstanding the continued investment in growth, this decreased slightly to $5.3 billion as a result of strong operating cash flow generation and the partial divestments of FPSO Almirante Tamandere and Alexandre de Jusmao, which resulted in the derecognition of the partner share of the associated net debt. Then on the P&L metrics, compared with the year-ago period, underlying revenue increased by more than 50% to just below $1.8 billion. This increase was mainly driven by the turnkey segment. We had a ramp-up in activities of the five FPSOs under construction, and then the impact of the partial divestment of the two FPSOs allowing us to book the EPC revenue on our partner share in line with percentage of completion to date. Underlying lease and operate revenue increased slightly, the key points to note being the impact of the startup of LizaUnity in the first quarter, mainly offset by the comparative impact from the fact that the last payment from the Deep Panuk contract was received in the first half of 2021. And just a note for underlying, in both revenue and EBITDA, This is reflecting the $75 million cash received in 2021, linked to the re-delivery of the Deep Panuk platform, and that was added back to revenue in EBITDA in the first half of last year. Turning to underlying EBITDA, this was flat at around $500 million compared with the year-ago period. Lease and operate EBITDA was stable, and that was driven by the same offsetting elements as for revenue. Then for turnkey, the increase in revenue did not have a commensurate impact on EBITDA, and there are three main factors at play here. First, under directional, the 100% owned Guyana FPSOs under construction during the period will only contribute to EBITDA in the operating phase. However, note some revenue was recorded for direct payments received from the client during construction as per directional accounting. Secondly, FPSO Alexandre de Guzmão only just reached the required completion percentage to allow margin to be booked. Then finally, while mitigation measures against inflationary pressures have been effective in protecting cost and schedule on the overall project portfolio, parts of the portfolio remain sensitive to the pressure in the global supply chain. Now, while we focus on directional accounting because this most closely follows the cash generation, When it comes to turnkey, I have to admit that IFRS does have its advantages in terms of assessing the profitability of the construction portfolio. So turning to the next slide, here we set up the turnkey model and how directional links to IFRS. Under directional, we take out all the turnkey margin associated with the SBM share of projects under construction as the cash from this is generated from the backlog during the operating period. As a result, the turnkey gross margin under directional only has the portion of the EPC work of the partnership. But in IFRS, we also report the margin associated with this SPM share of our construction projects. So here you can assess the performance of our overall construction portfolio. Factoring this in, here you see a robust gross margin of more than 18% over the first half of 2022. And that's in line with the average of 17% over the past four years. Next, the cash flow on a directional basis. And the main point to note is that you see quite a large swing in the cash balance over the first half. And you remember that at the end of last year, we drew down about $1.3 billion from two bridge loans for the FPSOs Almirante Tamandere and Alexandre de Guzmán. and we consume some of that cash through investment in capex, then following the partial divestment of these projects, we've deconsolidated the partner share of the remaining debt and cash. In terms of sources of cash over and above operating cash, we had cash in from drawdowns under the Sepitiba and Unity facilities, and an increase in working capital related to operating activities. As usual, with significant turnkey activity comes a buildup in working capital, And just to give you a sense of where we currently stand, of the $900 million networking capital we have in the directional balance sheet at the first half, around $400 million relates to operating activities, and the other $500 million relates to SPM investing activity. Then looking at liquidity, at the end of June, we had $2.2 billion. And in addition to the cash, we had $0.8 billion from the undrawn portion of project debt and then the RCF was undrawn at the end of the period. And since the end of June, as I mentioned, we've closed the one Guyana financing, and we're progressing the financings for Almirante, Tamandere, and Alexandra de Jusmao in line with plan. Next, zooming in on debt a bit further, and there are a few points to highlight around this. Given our debt is linked to individual contracts in our backlog, it makes sense to monitor this looking at the ratio of the debt to the backlog. And you see here that the ratio of debt to backlog was 17% as of June, 2022. And that's within the historical range. Then on the top right, you see the high degree of coverage we have given that the debt will mature a bit more than halfway through the remaining life of the backlog. Our interest rate exposure is pretty much fully hedged. And as I mentioned earlier, Going forward, our offers to clients will reflect prevailing financial market conditions. Now, our debt goes non-recourse once in the operating phase, and with the release of the guarantee for LizaUnity in the first half, 67% or $3.9 billion of our total $5.8 billion debt was non-recourse in the operating phase. The rest of the debts related to projects under construction and in turn will become non-recourse once these are brought online. next to the details of the backlog and the forecast net cash flow going forward. As discussed, the main change from the year-end 2021 was the impact of the One Guyana award. This, plus some other small additions, was more than sufficient to offset turnover during the period. And you see the impact of One Guyana as the third orange bar here, representing the contractual purchase by 2027. And to note, in the last update of the backlog at year end, we already included the sell-down of the two FPSOs in Brazil with 55% of these projects in the lease and operate bar and the partial divestment to partners of the corresponding 45% share reported in the turnkey component. Then looking at the net cash to be generated on an after-tax basis, average expected net lease and operate cash flow from the blue bars has grown to $315 million per annum for the 28-year period. That's above the $300 million average at year-end 2021. As ever, important to note that this cash flow is underpinned by contracts from premium clients supporting carbon-efficient projects with very low operating break-evens. Then updating our discounted cash flow analysis of lease and operate and BOT cash flows to include 1 Guyana at the usual range of discount rates, you see a big increase in the range, now €24 to €28 per share, compared with €19 to €23 at year-end 2021. That's basically double the current share price. In addition to one Guyana, there's a big impact from the exchange rate here of around €3 per share. Just looking at capital allocation next, the key elements around growth remain similar. So we've delivered unity, but added the larger 100% owned one Guyana FPSO, maintaining five large FPSOs under construction. And as you just heard, we're progressing our activities in floating offshore wind, with the outlook on Spain remaining in line with the previous guidance. In terms of equity acceleration, fair to say that with the current volatility and pricing levels at the moment, debt capital markets are not attractive. However, we're working on a number of opportunities so that we're ready when a window of opportunity arrives. At the same time, the basis of our capital allocation model has grown with total net cash expected to be generated from the lease and operate backlog increasing to $9.5 billion, including the BOTs. And this supports our ability to fund growth, but also offer very attractive long-term shareholder returns with the dividend yield at more than 7%. Finally, to cover all the elements of the guidance, EBITDA is revised upwards to above $950 million from around $900 million. Revenue is revised to around $3.2 billion, driven by an increase in lease and operate revenue from around $1.6 billion to around $1.7 billion. Turnkey revenue remains above $1.5 billion. That's it for me. Now back to Bruno.