SBM Offshore NV
AEX:SBMO
SBM Offshore NV
AEX:SBMO
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Earnings Call Transcript
Earnings Call Recording
Other Earnings Calls
Ladies and gentlemen, thank you for holding, and welcome to the SBM Offshore Third Quarter 2018 Trading Update Conference call. [Operator Instructions] I would now like to hand over the conference to Mr. Aarne Luten, Investor Relations. Go ahead, please, sir.
Thank you, operator, and thank you all for joining us today. Today's call is being recorded and will be available for replay on the company's website.Today's prepared remarks will be delivered by Mr. Bruno Chabas, followed by a Q&A session.Before we begin, I would like to point out the disclaimer at the bottom of our press release and remind participants that some of our comments today may include forward-looking statements reflecting SBM Offshore's view of future events. These matters involve risks and uncertainties that could cause our results to materially differ from our forward-looking statements. The risks are discussed in detail in SBM Offshore's 2017 Annual Report, which can be found on the company's website. Once again, we'll welcome your questions after the conclusion of prepared remarks.I will now turn the call over to Bruno.
Thank you, Aarne, and good morning to all. Thank you for taking the time to join SBM Offshore's Third Quarter 2018 Trading Update Call. My name is Bruno Chabas, CEO of SBM Offshore, and all members of our management board are joining me today.Our performance for the year-to-date reflects the quality of our Lease and Operate business, which continues to reliably generate stable cash flow from our substantial backlog. Our major projects are progressing in line with schedules. These projects, combined with higher Turnkey activity, would increase and contribute to the company cash generation. We see acceleration in our market on the basis of industry fundamentals and believe we are uniquely positioned to benefit from this upturn. To secure future production, our clients are required to invest and this was -- is one of the areas that aligned favorably in their project portfolio. As a result, SBM Offshore is witnessing increased client interest and commitment, especially in our game-changing Fast4Ward program.To meet the future demand, we are pleased to announce the commitment to our second multipurpose hull for the Fast4Ward program.On Brazil, we have paid the amounts associated with the Leniency Agreement signed in July, which allows us to compete for new opportunities with Petrobras.We are awaiting Fifth Chamber approval with regard to the MPF agreement signed September 1 this year. As we previously reported, this will require an associated payment of USD 48 million.The year-to-date revenues for Q3 landed at just above USD 1.2 billion, which is a stable performance compared to the year-ago period. Lower revenues in Lease and Operate, due to the sales of FPSO Turritella, were offset by Turnkey revenues that more than doubled.The net debt position at the end of September was $2.3 billion, representing a decrease of around USD 600 million compared to year-end 2017. This decrease was driven by strong operating cash flow from the Lease and Operate activity, the Turritella sales and proceeds from the final settlement of the Yme insurance case.This cash inflow more than offset the outflows related to project loan interest payments, investment in FPSO Liza Destiny and the first Fast4ward hull.As I mentioned, the company reached final settlement on the Yme insurance case, winning the total settlement to USD 390 million. After reimbursement of claim-related expenses, this will be shared with Repsol following the contractual arrangements.We conclude with the 2018 full year guidance. We maintain our 2018 Directional revenue guidance of around USD 1.7 billion, of which around USD 1.3 billion is expected from the Lease and Operate segment and around USD 400 million in the Turnkey segment.Based on our good performance year-to-date, we upgrade our 2018 Directional EBITDA guidance from around $750 million to above $750 million. For clarity, this guidance assumes 100% of Liza Destiny ownership and does not take into account the gain on sale of FPSO Turritella, the provisions for the MPF agreement and the estimated net positive impact in 2018 from the Yme settlement. Also, as a reminder, the guidance includes the expected positive impact from the implementation of IFRS 16.So in summary, SBM Offshore is on track for the year. And on the basis of good performance, we upgrade our EBITDA guidance. The industry upturn is picking up, and on this basis and on the basis also of our client interest, especially for Fast4Ward, we have ordered our second Fast4Ward hull.So this concludes the prepared remarks and we open the call for questions.
[Operator Instructions] The first question is coming from Mr. Peter Testa, One Investments.
I'd go one at a time for simplicity. One is just on the guidance upgrade. I was wondering if you could give some sort of more comment as to what the motivation or source of a better business, which drives the guidance upgrade, please, on the EBITDA?
I mean, Douglas would expand on this, but today original guidance upgrade is leaned to the good performance we had in -- on our operation and Turnkey activity. But Douglas, do you want to expand on this?
Yes, Testa, it's -- I mean, it's a function of the fact that we're now 3 quarters into the year, nearing the end of the year, so we've got better visibility on the results. I think things are going well in both businesses. And I think as we mentioned at the first half, and Bruno just mentioned in his remarks, we've seen a bit more activity in Turnkey. So more engineering man-hours being used. And then we also mentioned as well at the first half that we've been successful in closing out a number of outstanding items on finalized projects which currently is a little bit more color for you.
Yes, okay. And then the second question is on the decision to write down the Brasa yard and in conjunction with the comment about uncertainty and evolution of local content regulations. I mean, I guess, there's -- from the outside, there's 3 different possibilities or combination thereof. I think, first, that maybe Fast4Ward production of units is just not appropriate for Brasa, given the engineering structure and so on of the Fast4Ward vessel. The second, that there's no Petrobras order visibility that would use the yard for at least 2 years. It's just there's this shortage of good profitable Petrobras work compared to other opportunities. And the third is that Modec have been running contracts for the last few years with very little local content compared to what Brasa would imply and you just think it's just not so necessary to win the work anymore to have that yard. And any view on how -- on comments around those 3 ideas or other ideas that go behind the decision to write down the Brasa yard now, please?
Yes, definitely, and Philippe is going to take this question. But just as a quick introduction on the subject. The -- when we developed the Fast4Ward concept, the Fast4Ward concept was developed along the line of having local content wherever we need to develop those. So the Fast4Ward has really no impact concept on the write-down that we're discussing about, but Philippe is going to give you more information on it.
Yes, thank you. Thank you, Peter. So regarding Brasa and Brazil, we remain positive about Brazilian market and the potential application for Fast4Ward. We see delivery of Cidade de Maricá & Saquarema, our fullest FPSO for Petrobras. Brasa has played a key role to deliver high level of local content. As you can see from the monthly producer report, those 3 units are almost every month in the top 5 producers, confirming that SBM Offshore is providing highly reliable solution. Now linked to our return mid-2019 to the tender of lease, the cycle of extended tender period to projects to assure fabrications mean that before there's a potential fabrication we should support the decision to move forward. Now we have to take into consideration as well the perception that the current future of our FPSO is with a more moderate appetite for local contents and opportunities. One, that can be sold by value simplification means, including Brasa, but not exclusively.
The next question comes from Ms. Lillian Starke, Morgan Stanley.
I just had a question around the second Fast4Ward investment of a hull that you mentioned. If you could give us a bit of detail on the CapEx and sort of the conversations that you're having with clients in terms of the commitments that could potentially come with this hull?
Yes, definitely. And also to give you some perspective on the overall program for Fast4Ward, so Philippe?
Yes. So whenever we place the order for the first hull, it was a confirmation that the vision for an optimized next-generation FPSO and met the understanding of major customers. It was quickly followed, as you'll remember, by the signature of the Liza 2 contract with Exxon and its partner. The contract is progressing well and the fabrication of the first hull as well. Now with the second hull in place, it means that multiple customers has confirmed their interest with FEED studies and that it is the practical decision to take to support their potassium needs on targeted fields. Our ambition remain for Fast4Ward to be a program and to transform the FPSO industry. And I feel sorry, I'm not going to be able to give you a CapEx value.
The next question comes from Mr. Edward Donohue, One Investments.
The first question was answered. Then I have just a follow-up on what was asked by the Morgan Stanley analyst. Just an idea on the number of FEED studies that you have in hand that actually are working within the framework of Fast4Ward to give an idea how that progression is going.
Yes. And I'm not going to go into the detail on the number of FEED study we are having at this stage. It's not something that we disclose. However, what I can give you is to give you a flavor of the leverage what we can see in the market at this stage apart from the FPSO industry. Today, we're tracking a number of projects, in fact, 45 projects in 25 countries and those projects could be materializing in the coming 2 to 3 years. Some of them are Fast4Ward, some of them are not Fast4Ward. But it gives you the magnitude of the spread and the depth of the demand which is coming up in our segment of the industry. So based on this plus based on the interest that we're getting on Fast4Ward and our belief that, today, there's not enough capacity to answer the demand of FPSO going forward if you don't standardize, we already are committed to further our Fast4Ward program.
Okay. And just a follow up. Having placed the order, when would you expect delivery of the Fast4Ward hull?
It's -- it -- I mean, it's in the space of 24 months, 24 to 30 months.
And then a final question from myself, just going back to what Douglas was saying with regard to engineering utilization. Is that actually increasing scope on existing projects? Or is that inflow of new projects acquiring a greater utilization?
It's a combination of the 2. In fact, given the good performance on the Turnkey activity, you can say that the additional utilization of engineering is coming from inflow of new projects.
[Operator Instructions] The next question is coming from Mr. [ Kyle Hong, FD ].
And simple question from me. You've been very upbeat about this year and also the market, the recovery is accelerating. Why don't you give guidance for next year? Because it seems that -- do you expect this year -- next year to be better than this year? And also, it seems to be -- I mean, we're almost in the finalizing 2018, yet the -- it's a marginally different outlook. So it seems that you're a bit prudent in giving an outlook. Or is it just my feeling?
Yes, I think it's -- probably if you look at the cycle of how we give outlook for the next year, you would see that those outlook are coming later on in the year or beginning of next year that we give outlook. Having said that, if you also had followed us in the last conference call and even on this one, what you could see is that we figured that we're going to see a growing level of activity, but this level -- this growing level of activity also is sustained by our strong cash flow as a company and we're going to be able to maintain and to develop our dividend policy. So we have been -- I think we are providing guidance to the market on the level of activity coming up and the financial strength of the company in order to be able to reward our shareholders.
Well, a final question from me then, for you Mr. Chabas. It must be somehow be a better feeling to be a CEO nowadays than it was a couple of years ago, I guess, with the upbeat market. Is it true? Is it -- are you in a happier mood than a few years back?
I don't think happiness fills into this matter. But what I can say is, over the past 7 years as a company, we already have done a lot of things in order to put the past behind. You know that we invest for the future to position ourself in the future. In 2014, we said that we were going to start to invest into the Fast4Ward program. We did believe that the market was going to restart and reaccelerate sometime by 2019 to 2020. We're in this phase. We're seeing -- starting to see some effect of the market coming up. So obviously, it's better to be in the phase of upturn than in the phase where you need to clean up everything in long term. But it could be more interested, I would say, on the delivery and more dividend for the company. So yes, I mean, actually it has nothing to do with this, but it's definitely a better mood in by the company.
The next question comes from Mr. Andre Mulder, Kepler.
Two questions. So first question, can you give us a bit more of a comment on the second impairments on the floater subsidiary in the U.S.? It sounds a bit strange as you're quite bullish on the floater segment that you impair on the floater subsidiary. Does this relate to the old Atlantia subsidiary?
Yes, okay. So Philippe is going to go through the detail, but you're spot on. So go ahead, Philippe.
Andre, as Heraclitus used to say, there is nothing permanent except change. So in your question, there are 2 elements. One is related to the Houston office and the other one, yes, it's Atlantia, is a write-off of the sector of the Floating Production Unit. On one side, the FPU, Floating Production Unit, has always been an overall market, primarily for Gulf of Mexico and with some opportunities in [ area ]. In the down cycle, we have been working with U.S. customers, regulatory authorities and classification societies leading to an optimized semi design. Now as we look at the market, we cannot see short-term FPSO world leading to the write-off. On the other hand, the positive uptick on the FPSO markets and the solid experience of Houston in the FPSO they have, we also shared that Turritella FPSO allows us to redirect the workforce to this core market.
Does this have any implications on your local workforce there? Are you going to shrink the number of centers you're concentrating on?
No, not at all.
Yes. I mean, as Philippe was mentioning, yes, it's -- given the level of demand that we have, we are redirecting FPSO work to the Houston center. And basically, we don't see any impact on the workforce. In fact, we see an increase in the workforce.
Okay. Then trying to get a bit more flavor on the guidance. Above $750 million can mean a lot. Can you give us a bit more detail on what kind of magnitude we should be looking at?
Andre, I mean, I think it says what it says basically. We've outlined the reasons why the greater visibility, some more positive in Turnkey. And so we're -- that's where we're at. So we expect to be over $750 million. And if you look at it, between $750 million and $800 million, is something that's in line with the business.
All right, okay. One last question on the agreement with the MPF. You spoke about the direct payment and installments. Well, what kind of installments would those be? Would that be monthly installments?
Thank you, Andre. Erik here. Indeed, this -- the agreement that we have in place and that is effective with Petrobras and the other authorities, there are 2 components. There's a direct payment that we have done. And then in the future, there is a bonus reduction that will play out over a number of years. And for that, we have made all the arrangements of the agreement that allowed us to be back in business. And also happy to share with you that we see the result of that agreement, that some old issues with Petrobras, and has been pending for a long time on [indiscernible] result. But indeed, the bonus reduction, that will have an impact over a number of years going forward.
The next question comes from Mr. Guillaume Delaby, Societe Generale.
Could we have a little bit more granularity regarding the circa 45 projects you are working on? Should we understand that it is 45 new FPSOs, including conversion? Or does it include FPSOs or maybe, I don't know, turrets? Could we have a little bit more granularity? And how should we reconcile those 45 projects with a typical annual FPSO market?
Yes. So thank you for the question. Again, let me emphasize, we're not working on 45 projects. And one of the points that we have said and that we are reemphasizing in this call is that we're going to take a selective portion and remain extremely disciplined with respect to the opportunity we're going to be following here. However, what we're saying is that in the market, there is potentially 45 new FPSOs to be developed over the coming 2 to 3 years. Now some of them are going to happen, some of them are not going to happen, but that's the opportunity we show being present at this stage. But that's not -- we're not following all those 45 projects, but it gives you an idea about the magnitude of the demand in the market.
[Operator Instructions] There are no further -- oh, there's a last-minute question coming from Mr. Quirijn Mulder, ING.
A question on the Fifth Chamber. There is no sign of whatsoever from this organization or any signal that they are working on other? Is there anything you can say about it?
Erik, notice anything?
Yes, sure. Thank you, Quirijn. As I mentioned, to put matters in context, the agreement that we have that brings us back in business has immediate effect and we see the result of that. But then there is the additional agreement with the public prosecutor to end also the litigation that is put on ice that is indeed subject to the Fifth Chamber approval. All the documents have been filed, both by the company and the prosecutor as well as the support from the other authorities and Petrobras. It is now with the Fifth Chamber. There's still a few meetings in 2018 that's scheduled. But we don't know exactly when it will be handled. There is no, in that sense, further information that I can share with you. But all the preparations that we are involved in or that the other authorities are involved in has been performed. So indeed, we're now waiting for the final decision.
Okay. And my other question is about this -- the remarks about the dividend. If I read the text correctly, given the demand in the market and maybe the cash you need for that, you are focusing on dividend. Does that mean, Douglas, that you are not considering anything like a share buyback in the future, even if it is in [indiscernible]?
Yes. So I think what we're saying is there's growth coming. But on the other hand, we have a lot of liquidity, the requisite liquidity in place. And we still got the $1 billion RCF and an undrawn loan so far on Liza 1. And what this means is that we can maintain our policy, which is this prioritizing the dividend and consideration of shareholder returns. And I think, as you know, the policy is to keep the dividend stable and grow it over time, but where we look at underlying cash flow outlook. So yes, where we are at the moment in the -- we're in the process of finalizing our plans for next year. And I think overall capital allocation and overall shareholder returns, you can expect us to comment further, as normal, with the year-end results.
Mr. Chabas, there are no further questions. Please continue.
Okay. So thank you, thank you for joining us. So as a summary, SBM is on track for the year. And on the basis of good performance, we're upgrading our EBITDA guidance. We're seeing an upturn in the industry and it's picking up. And on this basis, we have ordered a second hull on -- for the Fast4Ward development. So based on this, if you have any further questions, don't hesitate to follow up with our team. And on this, I wish you a good day, and you may now resume normal activity.
Ladies and gentlemen, this concludes the SBM Offshore conference call. You may now disconnect your line. Thank you for participating.