SBM Offshore N.V.

Thank you, operator and good morning to all of you. Thank you for joining us today for this full year 2018 earnings update.

I am joined here in Amsterdam with the full management team with Douglas Wood, Philippe Barril and Erik Lagendijk. We have prepared a presentation, after which we are ready to take your questions.

Formal statements are forward-looking and I therefore encourage you to read our usual disclaimer. So let me start by explaining SBM Offshore in a nutshell.

And giving the fact that we are on Valentine’s, it’s probably a good way to go about it and to see how you are going to explain this to your lover. SBM Offshore is really the tale of two businesses which are complimentary and participate at the full lifecycle of deepwater field development.

It’s a solid business combination. Turnkey is our growth engine.

And with FPSO often in our client critical path for development, we are part of the early cycle players. The turnkey activity is based on our know-how, experience and project management; and provides opportunity to increase the lease and operate portfolio.

The lease and operate portfolio is actually a portfolio of units, with a visibility of – to 2036 and a firm cash flow to come. Those 2 business segments are sustained by game-changing attributes: continuous learning, which really help us to improve our product and services year after year; the investments into the Fast4Ward program, which is a groundbreaking program in the industry; and the investment that we are doing in digitalization in all aspects of our business from lease and operate where we started but also on the turnkey side.

On top of these, SBM Offshore wants to remain relevant for years to come. And we’re investing in transition fuels such as gas, renewable; and investing in technology to develop a portfolio of products to get energy from the oceans for years to come.

So where does this bring us today? I will say that we are well positioning for the upcoming growth while increasing our shareholder returns.

In 2018, we turned the page and we closed our legacy issue, giving us access to the worldwide market. We also are focusing on shareholder returns.

We increased our dividends on the positive outlook and the underlying ability to generate cash. And with the Yme insurance case proceed, we are starting a share buyback program today.

Douglas will go more in detail for both points. On top of these, the cycle is turning.

Turnkey has seen an inflection point in 2018. During the downturn, we protected our experience.

And it’s now paying off with a solid starting point for growth and realization of our potential; with Fast4Ward on track to become a game changer, getting a lot of client attraction. And as such, we decided – or we’re going to decide before the end of each corner – this quarter to order of third hull.

Now let me turn to HSSE, which remains a top opportunity for us. But in 2018, safety has been a tale of 2 ends.

The worker passed away from his injury after he had his accident in October. And of this backdrop, we have seen another year with a record safety performance.

On process safety, we have implemented our process safety throughout the full fleet today, and we have seen some significant progress year-on-year on Tier 1 and Tier 2 incident going down from 12 in 2017 to 9 in 2018. In environment, we are seeing also significant progress in the company.

We have seen a significant decrease in greenhouses gas emissions from our fleet of more than – almost 40% over 3 years, and this despite the fact that our fleet capacity has increased significantly through the period. All those points again demonstrate SBM commitment to continuously improving our business execution and becoming better year after year.

Now, we want to remain relevant for years to come. And this key sustainability program is critical to this endeavor.

We are integrating sustainability in our ways of working as has been done with safety and integrity in the past. We have created a roadmap on how to integrate relevant sustainability development goals in the coming decades.

As you can see, we have prioritized three of those goals with specific targets and objectives and scorecards that we are going to follow quarter after quarter year on year. Four more sustainability development goals will be added in 2019 and 2020.

I would say that our teams embrace these efforts. A nice example of their engagement, their effort and imagination has been in reducing of flaring with remarkable results as you have seen in the previous page.

Now, let’s speak about the market. As I was saying in the introduction, this market is growing.

We are seeing a new cycle building up. The funnel you are seeing in front of you is really the funnel for the coming 3 years of expected projects.

We are estimating that 40 prospects are going to be in the market. Some projects are going to come in and out, that’s part and parcel of the reality of a market.

Out of those 40 prospects, 30 of them are going to be potential awards and 12 of those are within our target market. They are within our target market because of the technical complexity, the fact that they are large system or because the fact that the clients who are having those projects are valuing reliable experience and good contractors.

We have a capacity target of winning 2 FPSO per year. Obviously, this is not going to be a linear function.

Some years, it’s going to be more. Some years, it’s going to be less and that’s part and parcel of our activities, but one point I can tell you is we are going to remain disciplined in our bidding and in our execution.

That’s the best way to further our lead and really to increase our experience and reliability. Now, if you look at the activity worldwide, you can see that there is prospect on a worldwide basis for both FPSO and the turret mooring activities and this is really a demonstration that we are at the beginning of a new cycle and that there is opportunity growing throughout the world.

Now, I would go zoom in more in detail in two specific markets, Guyana and Brazil. The information coming up is all coming from public sources.

So let’s start with Guyana. As you know, we are building the Liza Destiny project, which is planned to sell in Guyana somewhere this summer for installation towards the end of the year.

This is in line with expectations. Four prospective FPSOs have been announced, including Liza Unity for which we are executing the FEED at the moment.

This project is subject to sanctioning by government and by client and the design basis for this project is using a Fast4Ward program. Now, Brazil, Brazil remains the biggest market in the FPSO market, with around 35% of the total prospect base there.

And this is linked to the quality of the reservoir we can see in Brazil and the ability to develop those reservoir with an actually low breakeven prices. Petrobras is obviously the leader in this market, but other international operators are coming also.

We expect that 5 Petrobras awards will be done shortly followed by international oil company investment decisions in the few months to come. Overall, we expect that 13 prospects in the coming 3 years will be done in Brazil between 2019 to 2021.

So, how does it translate in the overall market? It basically shows that over the coming 3 years, we expect that we are going to see around 10 FPSO being awarded per year on average.

Out of this between 30% to 40% of those projects, are going to be large size FPSO within target markets of SBM Offshore. So, the question now is what is our strategy to address this market and what is the strategy really to grow SBM Offshore in the future?

So, our strategy has been constant over the past few years. It is based on three pillars: optimize and the end product of this is really the cash flow generation to give us the ability to reward our shareholders and to grow the business; transform and it’s really to transform the oil development business in this quarter, making Fast4Ward the industry reference; and innovate, where you bring in investments into our R&D projects to create new products and services for the gas and the renewable market.

So, let me go in turn on the three pillars. On optimize, we are looking at the execution of our projects both the FPSO, Liza Destiny and the Castberg turret.

Those projects are going according to plan and need to be monitored obviously under by the basis but progressing well. I would say on the turnkey business, I will explain a bit from what we see.

We see a market where the lease and operate market is going to remain relevant, but we see also opportunity in the build, own and transfer market like the FPSO Liza Destiny. What does it mean?

It means that we as a contractor are going to have to build an asset, but we are also going to have to commission and to do the ramp up phase of this asset. Those are the most risky phases of the asset development, and with the experience of SBM Offshore, we believe this is going to make a difference.

Today, we have 2 MPF hulls for the Fast4Ward program under construction. And as I mentioned previously, a third one is being planned to be ordered before the end of this quarter.

And the reason for its activity, we basically are looking to optimize our cash flow generation by maximizing the uptime that we have in our fleet. And one other point which is fairly remarkable is despite the fact that we have increased our capacity significantly to produce oil over the past few years between 2013 to 2018 by more than 30% we can see that our fleet uptime has remained constant.

Let’s put things in perspective. Today, SBM Offshore is producing roughly around 1 million barrel of oil per day, which is roughly 1% of the overall production of oil worldwide.

It’s quite a remarkable statistic. Now under transform we are looking at the Fast4Ward program to better perform and to deliver faster.

And it’s really based on few pillars. The first one is really client engagement.

You cannot accelerate a field development if you don’t work with your client upfront and understand what’s happening there and obviously it requires a change in the dynamics in the market, a change in the ways of working. The result of this could be saving significant times on projects.

Just a reminder field – of field development from discovery to first oil takes usually 8 years, some of the projects we are looking at and on which we are involved early on are going to be in production in less than 6 years, so it’s saving 2 year. I am not saying that saving 2 years is coming only from the Fast4Ward program, but it’s still also coming from the fact that we are involved with our clients upfront.

All of this can be feasible only if we standardized and if we standardize in our ways of working, standardize the hulls, standardize the modules standardize also the efforts that we are going to have in order to deliver those projects. Now it means also that it is going to allow us as a company to be more flexible in our way to approach the market and to be able to go up and down with the cycle of market and remain profitable regardless where we are in the cycle.

On this, we have announced also through a press release that we have made the acquisition of a joint venture, 50% joint venture, in India in order to develop our engineering capacity over there and our control in order to make sure that we are going to remain with a flawless execution, which is really what is making SBM Offshore different, with on-time delivery and within budget. Part of the Fast4Ward program also is really our relationship with the suppliers.

And I mentioned to you that I believe that today there is not enough capacity in the market to deliver all the projects that there is. It applies to FPSO contractors, but it also applies to some of the key contractors.

So based on this, we are really forging long-term alliances with some suppliers in order to address this cost. And obviously, we are working on digitalization both on the turnkey side of the business and on the lease and operating side of the business.

Today, on the lease and operating side of the business, all our biggest units have been going through a digitalization program, and we are starting to see some of the results to-date. Now innovate is really based on investing into new technology for the renewable and gas market.

This is exactly what we have done in the past in the oil market and that we will continue doing. Our R&D budget probably has been the biggest in the industry.

And we’re using today this technology budget to address the renewable market, the gas market and other opportunity that we can see from diverting or getting energy from the ocean. That’s what we call energy committed.

So based on these, I am going to turn the page to Douglas, who is going to go in the detail of the financials.

Thank you, Bruno and good morning everybody. SBM Offshore has delivered a good set of results for the full year, ahead of plan and in line with latest guidance.

The fact that we have been able to successfully navigate a challenging period with legacy issues plus the overall downturn while at the same time, restarting the dividends and making significant investments for growth is testament to the underlying strength of our business model and its future potential as we enter a period of growth. With our solid liquidity position and efficient financing model, SBM Offshore is ready for this new upturn.

And in order to further strengthen our flexibility, we’re taking steps to optimizing our financing arrangements. And I’ll come back to this in a moment, including how we look at our financial position and capital allocation, which has led to the decision to commence a substantial share buyback and the proposed 50% increase in the dividend.

Then on the overview of the numbers for 2018 where there are three main themes to highlight, first is the fact we have seen a turning point in turnkey, second is the sale of Turritella, and third the fact we decided to pursue the Liza Destiny project on a 100% basis. If we look at the metrics on this page revenue of $1.7 billion was in line with guidance, slightly higher than last year, where the increased activity in turnkey was sufficient to offset the impact of Turritella leaving the fleet in January 2018.

Underlying EBITDA of $784 million was almost in line with last year, with the pickup in turnkey again helping in compensating for the sale of Turritella. So even with the choice to pursue the Liza Destiny project on a 100% basis, which defers revenue and margin for the previously planned partner shares at the operating phase, we met guidance a function of a better than anticipated turnkey performance.

Then on top of the underlying results for EBITDA, we had a net additional $211 million impact from three items, a gain on disposal of Turritella and plus additional settlements in relation to the Yme insurance claim and then these two were partially offset by the provision for the settlements with the Brazilian public prosecutor’s office. These non-recurring but net cash contributing items have brought total reported EBITDA close to $1 billion and you can find a table in the appendix to this presentation posted on our website with details of these and of a further net negative $23 million impact on net income from exceptional items.

As announced at the first half for consistency going forward, we have not restated the impact of IFRS 16 from the underlying results and this had a $30 million positive impact for the full year. On the backlog, while still a substantial $14.8 billion, this has been reduced by turnover during the period partially offset by new orders.

Then on a pro forma basis we have now reflected the likelihood of Liza Destiny being purchased after 2 years as opposed to being leased for 10 years to align with current client indications. For net debt noting that here we include the approximately $200 million impact of IFRS 16 for comparison purposes in 2017 as well as 2018.

We saw a reduction of $500 million, thanks to strong lease and operate cash flow and the Turritella redemption. Now to provide some additional details on the segments, starting with lease and operate, revenue of $1.3 billion and EBITDA of $824 million were in line with expectations, taking into consideration Turritella plus some planned maintenance.

And the EBITDA margin came in around 64%, in line with our guidance. Moving to turnkey, where you can see here on the charts the manifestations of the turnaround, with both revenue and EBITDA significantly up versus the same period last year.

Turnkey revenue more than doubled, up $230 million to $406 million as a result of increasing activity, the main drivers being the Castberg turret project, FEEDs, offshore contracting activities and the Imodco buoy business. Underlying Turnkey EBITDA also increased, up $110 million to $24 million, driven by the higher activity, with all engineering resources fully occupied; and ongoing cost savings in overheads.

So a real inflection point, and the sense of improvement you get from the charts arguably understates the reality, remembering what you don’t see is the internal revenue and margin from 100% of Liza Destiny, which to give a sense for the stand-alone performance of Turnkey would have taken EBITDA north of $100 million. Finally, as we note at the bottom, on the corporate side underlying EBITDA was basically flat year-on-year at a cost of $64 million.

Now on to cash flow, on the cash-in front, we had strong overall underlying pretax cash flow from operations which was comparable to EBITDA and therefore driven by lease and operate. And we saw a significant boost in working capital mainly driven by timing of receipts and payments related to ongoing turnkey projects but where good focus in managing receivables also contributed.

And note here we expect the positive cash flow from the Turnkey-related working capital items to largely unwind over the course of the next 2 years. Looking at the uses of cash, the underlying cash flow was more than sufficient to cover regular debt-related obligations, tax and the dividend.

Then we made significant investment in growth, principally Liza Destiny and the Fast4Ward hull. And by the way, the second hull currently underway has not yet passed significant cash-related milestones.

And finally, we have the impact of the nonrecurring items, with the positive net cash impact of Turritella plus the Yme proceeds helping to significantly mitigate the cash out for the Brazil fines. As a result overall, cash reduced by $221 million, including FX impacts, leaving us with a cash balance of $657 million.

Now a few points to keep in mind here. As we have always highlighted in the annual report, some of our cash is restricted or not immediately deployable, mainly related to cash pledged versus debt service and joint ventures and this is over $200 million on a directional basis and then we expect to finalize the terms for distribution for the settlement for Yme shortly, which we anticipate will amount to around $185 million.

So following the settlements in Brazil and closure of the Yme insurance case, it’s an appropriate moment to step back and reflect on how we are positioned from a balance sheet, cash flow and financing perspective. Starting with the balance sheet, you can find our usual directional balance sheet presentation in the back, but for this time what we wanted to do was to show you an overview of the balance sheet focusing on how this is orientated towards lease and operate, as it forms the asset owning part of our business.

So at the top, we have effectively summarized all non-lease and operate related items, but then zooming in on the bottom part, I mean we see lease and operate. On the asset side, when we look at PP&E, this is basically entirely made up of the operational lease assets plus assets under construction but will be leased in the future.

On the liability side, the operational lease assets are financed by non-recourse debt. We have the deferred income, which is cash we already received for leases, leaving $1.3 billion of net assets which you could look at as the equity investment in the lease portfolio plus the assets under construction.

Then on this slide, we wanted to highlight the key features of our model, focusing on financial and valuation perspectives. First, we have lease and operate, which is a portfolio of vessel investments each held by standalone companies financed by non-recourse debt, with long-term contracts and no residual value risk.

The associated backlog from this asset portfolio is $13.4 billion, providing predictability and visibility for the next 18 years through to 2036 and this backlog generates an average cash flow, after debt service and tax, of around $250 million per year. Now thinking about this in terms of a return on investment, $250 million is just below what we saw in 2018.

And applying this versus the lease and operate net assets of $1.3 billion we saw on the previous slide, you get a return of around just over 20%. If you then exclude the assets under construction which are not yet return generating for which the CapEx we have disclosed over the past 2 years of around $450 million can be a proxy, net assets for the operational fleet would go from $1.3 billion to $850 million and then applying the $250 million average cash return gives a return of around 30%.

Now the important point, though, to mention is that this is only possible with turnkey, the growth engine of our company. It supplies the completed FPSOs, but also the turnkey margin is invested as equity in the leased FPSOs, also generating a return and remembering here that the PP&E is booked at costs in the balance sheet.

Because of the strategic choice to retain talent to maintain the capacity of our engine, we have been able to very effectively restart it, as we can see in the numbers. And as Bruno mentioned, we have implemented a flexible re-sourcing model.

And as you saw from the balance sheet, this part of the business is asset light. With the market picking up, we have been rebuilding the turnkey backlog.

Currently, this is $1.4 billion, the main elements being the Castberg turret. And now we have included the purchase of Liza Destiny 2 years post startup in turnkey and we are obviously aiming to bring in much more business, but the cash flow we anticipate to realize from the backlog we’ve rebuilt so far, of course subject to quality execution, will underwrite the turnkey business at around cash breakeven from average for the coming 2 to 3 years.

This then highlights the high degree of operating leverage we have in turnkey. Once the engine is running with a baseload, there is a large upside from the ability to convert margin into free cash flow either upfront through direct turnkey sales or through lease and operate with an added equity return.

So in conclusion, here to the early cycle of recovery in deepwater development, Turnkey is the engine to grow the value of the company. Now moving on, on how we can finance this growth.

For turnkey direct sales, this is straightforward as we receive payment in milestones but generally no financing or investments required from ourselves. The lease and operate projects, we finance these and effectively sell these to FPSO-specific companies owned by ourselves plus in many cases partners.

If you look at the top bar on this page here what we are emphasizing is that the financing for these is of course based on the value of the operational FPSO. So as such, we are able to debt finance a significant portion of the cost meaning that from a cash equity requirement this model can be pretty efficient obviously of course depending on project delivery performance.

Then depending on liquidity, we can choose to finance this cash equity ourselves and that’s what we have chosen to do in the case of the Liza Destiny project or mitigate it by selling to partners who invest based again on the overall project value seeking a return on this through the lease phase. In the bar below, you see how the debt financing is phased.

We have the revolving credit facility to bridge the project-specific financing pre-completion and this then goes non-recourse in the operating phase. And in terms of the use of the RCF and transition to project based loans we optimize this based on costs and overall liquidity needs.

Now, turning to where we currently stand on available financing. We have announced to-date a refinancing of our RCF, which gives us further flexibility in financing the anticipated growth.

The facility’s capacity remains $1 billion, but the key change is that the potentially growth restricted leverage covenant of the old RCF has been replaced by a forward-looking lease backlog coverage ratio which determines the borrowing amount. So we are sizing and securing the RCF against the future lease cash flows, underscoring the confidence of the lenders in this.

And there is currently headroom significantly in excess of the $1.5 billion based on the lease backlog cover ratio. That means we have the option to raise further debt at corporate level, and to this end, the refinanced RCF also has a $500 million uncommitted accordion.

Tenor of the RCF is 5 years to 2024 and with 2 extensions possible of 1 year. We secured this facility with our key relationship banks who’ve committed to continue to support SBM Offshore in this new growth phase.

And we were able to retain competitive rates. Plus as a first in the oil and gas services sector, we have a new, innovative feature where the margin can vary based on our sustainability performance.

So with respect to liquidity, we’ve got more flexibility in relation to the RCF. In addition to this, we have a $720 million loan for Liza Destiny in place, which we’re intending to fully draw later this year.

On the equity side as I mentioned, a decision to sell down lease and operate projects to partners is a choice we can make based on liquidity plus debt financing access considerations. And we’ve established, as we’ve mentioned before, a platform structure under which in principle new lease and operate projects will be held.

And we continue to seek to optimize this structure, but as explained today, our existing model of financing individual lease and operate projects with option of sell-down to partners is very efficient. So the platform is really about creating flexibility and options for the future.

Next, a quick update on dividend policy and capital allocation, no material changes here. With our focus on cash flow, we’re simplifying the policy by removing the additional reference to Directional net income in the old policy so we focus on a dividend that grows over time based on underlying cash flow, and I’ll explain how we look at that in a minute and then no change in approach on capital allocation.

The dividend has priority, along with growth then we have the buyback option available depending on liquidity and the outlook. Now to some further insight on how we think about the cash flow when determining the dividends, plus some pro forma analysis.

If we look at the model outlined here and we start with cash from lease and operate. We take off the debt service then we deduct tax and the cost of overheads to get to free cash flow before taking the view on turnkey.

At the top, we have mapped out the backlogs for the next 6 years in two construction cycles for an average FPSO. Then we based the pro forma analysis around our backlog disclosures, including debt profile.

This gives us the opportunity to remind you, hence we’ve been highlighting last year, that we will see a dip in the cash conversion rate during the coming years due to the effect of deferred income release. For the next 4 years 2019 to 2022, cash conversion is on average just below 60%, and in the entire period thereafter, the average conversion is above 65%, which gives an average of 63% overall.

Then here we’re using 2018 actuals as a reasonable proxy for the corporate overhead and tax. That gives on average in excess of $100 million annual free cash flow before looking at turnkey.

Now as I mentioned before, we do see significant upside potential driven by Turnkey, but conservatively for dividend purposes, for now, we assume at least breakeven, which moving to the next slide gives you the basics of the approach around the decision to recommend an increase of the dividend by around 50% to a payout of $75 million, a substantial portion of the free cash flow. So thus we’re maintaining our track record of increasing the dividend since this was restarted in 2016.

We’ve then reviewed our liquidity position, balancing outflows like the Yme settlement, plus the unwind of working capital over time, with inflows we’re going to see from implementing the Liza financing; and considering the RCF that we have in place. We’ve determined that we have sufficient liquidity to execute a share buyback whilst retaining flexibility for future growth.

So we therefore this morning launched a €175 million share repurchase program, which represents around 6% of current market cap. And this is approximate to the $200 million net proceeds we expect to retain from the Yme settlement, and it’s also the fiscal maximum amount of shares that we can currently buyback in 2019.

Looking at the 4 year period on the chart and including the buyback from 2016 by end 2019, we will have returned around $580 million cash, approaching 20% of current market cap. And the same time, our cash flow generation has enabled us to invest in retaining core competencies during the downturn, finance significant growth in Fast4Ward and Liza Destiny thus cover a significant, substantial net cash outflow for legacy items, a good indicator then of the robustness of the model and some context for the level of opportunity and potential that we see for the years ahead.

That’s it from me. Now back to Bruno.

Thank you, Douglas. And so, let’s discuss about the outlook and the guidance for the year.

So, in summary, as you have heard, we’re confident that the new cycle is resulting, and we have an increased confidence in markets. We have some visibility for a number of FPSO awards coming up.

We are well positioned for growth. We’re well positioned because of the investment we have made in downturn because of our Fast4Ward program, but in the same time we’re looking at growing the company in a disciplined manner and focusing also on shareholder returns.

And the increase of dividend of 50% and the share buyback program over $200 million is a proof of that. So, let’s discuss about the guidance for 2019.

The directional revenue will be around is guided around $2 billion, out of which lease and operate is $1.3 billion and Turnkey around $700 million. The directional EBITDA for the year would be around $750 million.

So, all of these conclude the formal part of our presentation, and we can now open the call for questions. Thank you for listening.

Hello, good morning. Thanks for taking my question.

Two questions, please. Firstly, on the distribution policy, so I think if we believe that you have more work in the next couple of years, I think we can expect net debt to probably grow.

And Douglas, you just said that we’ll have a growing dividend payout, hopefully; and that share buyback will be sort of opportunistic, depending on liquidity and the outlook. So, can you just provide a bit more clarity on whether we should think total distributions keep on increasing or whether we should just think dividend distributions and then the share buyback is opportunistic?

And I’ll do my second question in a moment.

Yes. So, I think I would go back to what I was saying around the business model.

We have a lease and operate business with a very stable visible cash flow for years to come. Turnkey is the growth engine of the company.

We see considerable upside there. We’d point you to a good execution track record of execution and our experience.

I think, yes, when we look at the dividend, we want to be as sort of reasonably certain as we can that we can at least keep it at the level that we are establishing, so we look at that based on what we see as the let’s say, the highly probable cash flow. So, in this regard what I said was we looked at turnkey as being breakeven.

And then increase in the dividend is going to be subject to business performance. So, I think, if we’re delivering and growing the business through our turnkey value engine, then I would expect to us to be able to increase the returns.

So how exactly we do that: We want to keep the dividend stable, so we would need to have a good visibility on that, but then as I mentioned, we things are going well. We have the option of the share buyback to, so let’s say, manage potentially lumpy cash flow from Turkey.

So, I think we are looking to increase our shareholder returns, but that’s got to be linked to business performance. And we need to be on our ability to finance the associated growth.

Yes, okay, that’s very helpful. And then second question Bruno, you mentioned earlier perhaps 35% of future opportunities will be in Brazil.

In the past, Petrobras has been quite tough on pricing, quite difficult to get maybe the IRRs that you would have maybe managed to get in some other basin. And even though you’re a lead player there, it’s a very price-competitive market with the with MODEC and the other players in that marketplace.

So, can you maybe just discuss a bit? Do you feel now that Petrobras is ready to pay properly for a full lease and operate service?

Are you more comfortable now with the economics of Brazilian-based FPSO leasing?

Thank you for the question. So, the first point I would like to highlight is the fact that we are not after market share.

Our aim is not to gain the most FPSO projects in the world, but our aim is really to deliver FPSO which are going to be reliable, delivered on time and to the satisfaction of our clients; and obviously making money on this. So, we’re going to look and we’re going to be extremely disciplined in our pricing strategy, in our terms and conditions that we’re going to take.

And obviously, it will depends on the behavior of the market. Now it’s usually easier to engage with a number of clients where you can engage with them and having discussion about the benefits that you can bring and really highlight the overall value that you can bring on a project.

Well, I discussed about the Fast4Ward program. One of the, feature of the Fast4Ward program is really to be engaged upfront with clients in order to shave time from the planning.

That, you can only do if you’re engaged upfront with the clients and not going through formal bidding procedures. And at the end of the day, the value that the clients obtain for this is to degrees of magnitude of probably of the size of the value of an FPSO, by shaving 1 or 2 years to the development program.

So, coming back to specifically to your question on Petrobras: Petrobras is basically handcuffed into their ways of tendering due to the legislation in Brazil. We need to take this into consideration.

We’re going to look at to see which project makes sense for us to bid, which projects we can add value for them, which projects we believe that there is some economy of scales, but again we’re going to be extremely disciplined in our approach with Petrobras.

That’s very helpful I will turn it over thank you.

Thanks. Can I just ask about Liza Destiny and the potential sale of that unit in 2021?

How do we put that through into models and account it, please?

Okay, hi Mick. Good morning.

Thanks for the question, yes. So, what you’ll see in our usual backlog presentation in the appendix is that we put the purchase for Liza Destiny in Turnkey division.

Revenue is basically on a kind of a discounted basis of the charter. And then the cost of goods sold will be based on the then depreciated net book value of the asset.

And we’ll show the result in Turnkey.

Okay. And then next one, just I know you said the $185 million net out to come on Yme.

Can you just run through exactly what other cash costs need to come out during the year, where we stand? Is everything else sorted through in ‘18 results, or is there more to come out this year?

Right. I mean I in respect of with Yme.

I’m sorry, everything else, Yme, Brazil, everything else.

Well, we would see I guess, subject to the final approval by the court to cancel the case in Brazil, we then start to see the payment of the it was roughly $48 million. It’s with equivalent Brazilian reais.

And it’s starting to come through, but we’ve got a phased payment program for that.

Okay. And then finally, just on I think, on the overall market.

And sorry. I can’t find the slides anywhere on your website.

So, Bruno, you said, I think, it was 10 awards per year, of which 30% to 40% to SBM. And then you said you are aiming to win 2 a year.

Now from my math it’s about 50% to 60% market share. Why are you so confident of that level?

Yes. I mean it’s yes, it’s 2 out of 10, so it’s 20% there.

That’s what we’re looking. When you look at the capacity in the market, that’s what we are looking at.

Now we’re aiming at a specific segment in the market there, and that’s what we’re targeting. Now this segment is really linked to when you do a unit with a production of anywhere between 150,000 to 250,000 barrels of production, the value uptake there is huge for both the contractor, obviously, to deliver that because, if you don’t do it correctly, you it has a big impact on you but more importantly to the clients.

And you’re in position where you can engage with the clients upfront. So, we really believe that our experience, our knowhow, our track record, what we have done on Fast4Ward program, our ability to deliver is putting us in a unique position.

Okay thank you.

Hi guys. Thank you for taking my questions.

My first question is on the Turnkey backlog and on the guidance. The backlog, as it stands, is $400 million, where it was also $400 million for 2019 in the first half of 2018, so no growth in the backlog for 2019 over the last 6 months, and hence you guide for $700 million of sales.

Could you give me a bit more color on where that incremental $300 million is coming from? Thank you.

I’m sorry.

We’re a bit puzzled there, so maybe, could you go back to some of your math?

Yes. So, you guide for $700 million of Turnkey sales over 2019, where your backlog in Turnkey is actually $400 million today.

No, no. $1.4 billion.

Yes, but okay, but I mean for 2019 specifically.

Yes. I mean we don’t we actually don’t know.

I mean the so the order intake reflects what we’ve already got. We don’t we’re not showing in the backlog what we are expecting to get in 2019.

So, the overall backlog is $1.4 billion. And that’s now including the purchase of Liza after its 2 years, Castberg and then some of the other small things that we’ve added during this year.

Okay, okay. Second question then, on your EBITDA guidance of $750 million.

If I just do the math behind the sales guidance on your L&O fleet, which is $1.3 billion, and I put a conservative margin of 60% on that and I make a simplistic assumption on your overhead, it seems like what you end up with is implicitly a Turnkey EBITDA guidance of $30 million to $40 million. How does that compare in relation to your $700 million sales guidance for Turnkey in 2019?

It seems like profitability in Turnkey is either very low or the guidance overall is quite conservative.

Okay, you need to remember again we are at the beginning of the portfolio. So, when you start a new project, for the first 25% of the project, you don’t recognize any margin.

So, you recognize margin rather slowly, depending on the progress of the project. And most of our projects are in the early part of the cycle.

The second aspect to it is part of the Turnkey activity is actually done in inventory, just to illustrate the point. So, we are not going to recognize any margin until you go into the either the lease and operate or the sale of the asset.

So that has an impact on the year-to-year margin level.

Okay. My last question relates a bit to the question earlier in the call.

In respect to the share buybacks, you mentioned that you do the share buyback in relation to the Yme proceeds, but to what extent are share buybacks going forward on the agenda if you think shares are undervalued? Like how opportunistic is it really?

Would you consider doing buybacks using operational cash flow if you think shares are severely undervalued? Thank you.

Okay. So, Douglas told you about our dividend policy, which is extremely clear, and it’s really going growing dividend over years.

Now if you look at share buyback, there are some statutory points which really limit the value of the share buyback that we can do, and we need to take these into consideration. Then we need to look at the evolution of the activity.

So, we have set the dividend in at a level that we believe that we can keep constant and grow over time. Based on current activity, we believe also that we can grow the company quite significantly, and based on the result there, we’re going to have several options.

It’s either do share buyback or to do exceptional dividend or to increase the dividends over times, but we’re going to take this opportunity when it comes. I think it’s all and good to put the cart before the horses or the other way around, but where we are today, we’re going to take it we’re giving you the aim at what we have to we’re going to be doing, in particular with regard to the dividend.

It’s clear that we’re not closed to share buyback. It’s not closed that we’re not closed to exceptional dividend and but we’re going to take things as they come.

Okay that’s helpful. Thank you very much.

Good morning gentlemen and thanks for taking my question. This one, on the strike issue, please.

You are talking about the new up cycle, obviously. Ordering is short haul and significantly increasing cash returns.

How do you factor in commodity price risk, which is always there, into your strategy and into your plans? And is there a plan B if, for example, there is a macro downturn in front?

Thanks very much.

Yes, that’s a good question. And the assumption that we have taken on the dividend payment is basically the assumption that there is no activity coming up.

And basically, we have a portfolio of activity which is going to help us to sustain the dividend and to grow things over time. The second assumption we have put into our plan is that we need to have a workforce which is a workforce way of operating which is much more flexible than in the past.

And that’s really being here by the standardization that we are doing in our product or with the working where we set contract differently than what we have done in the past and decide that we are going to develop some engineering capacity in different places than what we have done. So basically we are setting ourselves up for success under the assumption that there is not going to be any activity coming up and to be able to sustain our cash activity, now we don’t believe it’s going to be the case.

We believe that there we have seen under-investments into the industry for the past 4, 5 years; that investment needs to come back to the industry; and that the deep-water industry is actually extremely competitive on the worldwide market. So, we’re also putting ourselves into a space where we can grow the company significantly and, obviously, generate more cash flow on these, but that’s not taken into the dividend payment that we are doing at this stage.

And we are only putting ourselves into a sustainable position for years to come.

That’s helpful. Thank you Bruno.

Okay good morning. Question on staff, staff growth, can you give any indication on how much you need to grow to indeed handle those 2-plus FPSOs per year and where you specifically need to grow your staff base and how?

Okay. So obviously we’re going have to grow manpower structure, but we’re not going to go more into detail on this, with the exception of saying that we have created the joint venture in India to develop our engineering capacity over there.

And it’s an engineering it’s a joint venture that we own 50% which is going to be incorporated sometime in the middle of before the middle of this year. And we’re going to grow our engineering capacity over there.

The rest of it, we’re obviously going to have to grow other capacities throughout the world and we’re looking at this, but we’re not going to give you the mix between what we’re going to grow internally and what we’re going to set contract. But obviously we’re going to have to grow our capacity significantly over the coming 2 or 3 years, assuming that the market materialize in the way that we mentioned.

Okay. Then on top, can you maybe more or less indicate for ‘19 what kind of OpEx savings you see because of getting out of all the troubles related to Brazil, etcetera?

And on top, can you maybe give an indication on the startup costs or the rising startup costs related to the investments in renewables?

Okay, so first of all, if you look at the renewable business, the renewable business, we have been investing on the renewable activity out of our R&D budget which over the years has been stable of around $40 million per year, plus or minus. I mean it has been fluctuating over years, but it has been there even during the downturn.

So, the startup cost is there. Then our expectation is really that we’re going to materialize the FEED activity that we have into an actual project.

So, then we’re going to see some positive outcomes throughout the year on the renewables side. But the startup cost, as you say, is really the investment we are doing on the R&D budget.

And your second question was.

On the savings?

In savings, yes. I think it’s I mean there is some one-off saving, obviously, that we’re going to see, but more importantly, when you spend your time in dealing with different authorities, even though that is not the full management team but it’s taking a bit of our time, we’re going to be able to concentrate 100% in developing the company, in growing the company.

And that should yield some benefits, hopefully.

Yes. And then maybe finally, on the third Fast4Ward hull and on standardization, can you maybe, roughly give an indication what kind of discount or efficiency gain you already reach with the third hull versus the first or the second hull in terms of percentages, roughly?

I mean obviously I’m not going to go into the detail, as you can imagine, but what I can tell you is really the standardization concept is really something that we start about in 2015. We have seen the benefits of these when we have developed some programs.

And we’re the only one who have developed some programs initially in the 2000 period with ExxonMobil in Western Africa then, after, for Petrobras through the Generation 3 FPSO that we have done. We have some expectation of the saving that we can get.

They could be quite significant. Today, they are not being taken part of our model, but it’s definitely something that we’re monitoring and we are pushing through in the implementation of the Fast4Ward concept.

Yes. And then related to the Fast4Ward concept, I can assume that or I assume that your first Fast4Ward project was a first time in the industry, first time for the client, first time for you, so you probably agreed there on a kind of maybe discounted price agreement.

Is it logical to assume that the next ones will be on, let’s say, normal pricing from your perspective?

I don’t know what ask you’re making your assumption, but you’re free to make them.

Okay thank you very much.

Good morning, everyone. This is Quirijn Mulder from ING.

And questions on Fast4Ward and have you already decided which yard it will be and when do we expect the Fast4Ward number 1 to come off the yard? And what is the development with regard to this, the Fast4Ward, in the future?

I think it’s it looks like that your clients have shown such an interest that you are ordering 2 in fact 2 hulls in a very short frame time. So maybe you can elaborate on that?

That is my first question.

Yes. So, I mean if you look at Fast4Ward.

I mean Fast4Ward is not only the hull, but this is also the overall standardization concept that we have around the everything associated to that. But as you mentioned, there is certainly a lot of interest into the Fast4Ward concept by our clients; and looking at ways to make FPSO the reliable, to reduce the time to market.

Let’s not forget only less than 30% of the FPSO being delivered in the industry have been delivered on time. And that’s a huge issue on the profitability of Deepwater offshore, so we cannot remain in the same way.

And we have user experience as SBM Offshore in order to develop this Fast4Ward concept. Now more specifically on the hull, maybe, Philippe, you want to explain on the subject.

Yes. Taking hulls, because we’re talking about trails, one by one so that you get a feel on where we are versus customer interest and opportunities.

Hull number 1 is contracted via an extended FEED on the Liza Unity project. And the project is progressing in the engineering and procurement phase of the turnkey delivery.

Hull number 2 is allocated to an unnamed customer for specific field developments, and we are moving to the hull engineering phase for the full FPSO. And hull number 3, and we will not comment on the yard, is open to the market; with various customer, having expressed their interest, review and validate the design and move into conceptual space studies; and with innovation, a number of traditional tendering opportunities.

Okay, thank you. And my second is about Brazil and about the legislation there with regard to the tendering process.

What I remember that was in beginning of 2013, there were 2 FPSO won by SBM out of the blue, which later were named Saquarema and Maricá. So how fit is the law?

And what was – and I think in that time alone, the law was already feasible for everyone. So, maybe you can explain what happened there and what is the reason that it will not happen now?

I mean I think it’s more geopolitical mood in Brazil than anything else. There is some flexibility in the overall legislation system in Brazil for companies which are under the public bidding process to be able to make the right decisions, but I would say that the political environment since 2013 has not been conducive to that.

Are we going to see something else in the future? I don’t know, I mean it’s the evolution of the country we didn’t see, but certainly it’s a missed opportunity I would say for some of those companies to make the right decisions.

Okay, thank you.

Yes, good morning. Two questions.

First one is on the lease and operate margin. In the past, you used to say that, that margin will be somewhat volatile, first go down then go up to again back to the average of 63%, can you remind us about what you expect for the next few years in terms of that margin?

Yes. So what we said during last year and tried to emphasize again in the presentation that we see that dropping in the next 4 years from 2019 to ‘22 to just below 60%.

And then the average for the period thereafter is 65% and that gives you still or in line with the overall 63%.

Okay. Second question is on the MLPs, the floater segment is now getting – it’s getting some traction, the stream to some of them.

Are you thinking about taking the MLP structure off the shelf?

Yes. I think what I mentioned when we were talking about financing is that if you actually look at our basic financing model and project specific debt and equity based on the overall value of the project then with the option to sell them to partners, that’s working very well for us.

At the same time and we have talked about it before, we are putting in place, we have put in place the structure and we are looking at optimizing it, a platform that would give us the opportunity on a portfolio basis to do issue separate debt and equity like an MLP. I would say that’s not a big area of focus for us right now.

I mean, we continue to go into watch the market and talk to various providers, public, private of debt and equity. And if we see a value-creating opportunity for the company, then yes, the idea of having the platform is that when we can move reasonably quickly to leverage it, but for now, the near-term is we are not looking at doing anything particularly around that.

Okay, thanks.

Hi, good morning. I do have a question on you mentioned that you are seeing a bit more growth and an appetite for the build, own and transfer market.

And I mean besides considering these for strategic FPSOs, are you seeing sort of clients interested on buying back the asset just as you did with Turritella or this is not really coming up in your conversations?

No. I mean what we – no we don’t see that coming up.

Okay, perfect. Thank you.

Okay. So since there is no more questions we thank you for your attention on this Valentine days.

We wish you a good day and you can now resume your normal activity. Thank you very much.