SBM Offshore N.V.

Thank you very much. And welcome all to the SBM Offshore full year 2019 earning update.

Thank you for joining in. My name is Bruno Chabas, CEO of SBM Offshore and I'm joined today by the full management team with Philippe Barril, Erik Lagendijk and Douglas Wood.

I would present the general strategic update of the company after which Douglas would talk to you about our financials. We will welcome questions after the prepared section of this call.

Please note the disclaimer slide as always, and we go straight into the highlights for the year. So 2019 was overall strong and satisfying year for SBM Offshore.

Let's start with commercial success with the $6 million backlog increase sustained by the Fast4Ward program adoption. We also had good execution in delivering our project starting with the Liza Destiny project, which she came in into our fleet in a remarkable short time in line with a client specification and on budget and operation went smoothly reaching over 99% of time for the year in line with our total historical average.

We're also making progress in the field of sustainability. Now going forward, the key messages can be articulated around three axes for SBM Offshore, giving back, the Fast4Ward program momentum and our strategic sustainable agenda.

So giving back, we have decided to significantly increase our shareholder return by proposing to double our dividend and launching another share buyback program. Our mission is to maintain a substantial repurchase program for the foreseeable future.

This is subject to market outlook and operational performance. Both dividend increases and share buyback are underpinned by the discipline in selecting in other parts of the market, the cash generation and backlog, delivers for the high quality operation and the overall outlook in our Lease and Operate segments.

Our First4Ward program is on track to transform the FPSO industry by reducing time to market, increasing reliability and further decreasing cost of unit of barrel produced for our client. Our strategic sustainability agenda is focused on the challenging task of significantly reducing the carbon footprint of our existing fleet and on developing innovative solutions for the energy future.

These new solutions are the basis of SBM Offshore's ambition 2030 of generating by 2030 25% of total revenue from gas and renewables activity. We will regularly update the market on how we would get there and our progress in reaching this ambition.

I would talk more into detail about those key messages for the course of this webcast. Now let's turn to our license to operate and let's start with HSSE.

Over the past year our safety record has been solid and compares favorably to the industry benchmark. This year our total recovery injury frequency rate landed at 0 13, a major improvement year-on-year.

Despite the solid performance we're going to report the passing of diving subcontractor performing his duty on-board the SBM installer, the result of an accident late December last year. This again show that safety can never be taken for granted especially in an industry where activities tend to carry various risks.

We're aiming at always improving what we're doing targeting excellence, aiming at having no harm, no defects or no leak. Our target excellence campaign is an example of further maintaining awareness, better performance and continuous improvement across all business activities.

Now as you remember, last year we set three sustainable objectives or three sustainable SDG development goals with a set of targets. Our target were ambitious and – but they have been set and they have been performing measures throughout the year.

As the management of the company were generally pleased about the progress made within the different areas. Although we have not reached every target, we have made significant substantial progress across the board.

Give us an incentive to invest into an emissions zero program to develop FPSO with a zero net carbon footprint for its production in the future. We'll continue on this path of targeting improvement and being transparent in your performance.

Now, given the hard work that our team has put in last year, I wanted to highlight some interesting achievements and incentives. One of the key focus points within our strategy of sustainability is the reduction of greenhouse gases.

Over the last year, we have made good progress with respect to flaring, with the cumulative reduction of 34% over the past four years in our fleet. In the renewable space, we continue to invest in our prototype of the wave energy converter, which we expect to deploy by 2022 offshore Monaco.

Within a field of human rights, we implemented the 10 Worker Welfare principle for more building responsibly initiative in our company supply chain charter. Our efforts around human rights and Worker Welfare were recognized by one of our key clients on a major project.

On plastic waste offshore, we managed to reduce this year-on-year by 22%, banning plastic tapes and reducing the use of plastic bottles. Now our sustainability action then initiative are validated by external rating agency, like Sustainalytics ranking us as outperformer or number one among your peers.

Now, our sustainability approach is an integral part of our strategy. We will continue to raise our ambition in this regard.

We expect to make progress by investing in technology for providing solutions for the future. Last year we implemented quantitative targets and report our performance against this on multiple targets for years into three years.

Now our sustainability approach is an integral part of our strategy. We will continue to raise our ambition in this regard.

We expect to make progress by investing in technology for providing solutions for the future. Last year, we implemented quantitative targets and report our performance against this, on multiple targets regarding to three SDG.

Now we're adding three more with associated measurable target. Overall, our priority will be where the company can make most impact for reducing its greenhouse emission gases.

Let's now move to the market and see the market potential going forward. Basically, what can be said is that the market has developed in line with our expectation as reported last year.

In the next three years, we have identified 35 potential awards. Of these, we expect 15 large FPSO, within our target market, which are largest size FPSO or complex FPSO.

Despite this continued active market, especially enormous [ph], we reiterate that we're going to remain disciplined within our capacity, which is to win two plus awards per year. We believe that this is essential to deliver project, in line with our commitment and to secure long-term value for all of stakeholders.

Now looking at the geography and where the projects are going to be coming, it's again clear that a lot of the activity is going to be in South America over the coming three years. But we also see activity developing in new markets throughout the world.

Last year, as expected, there were nine awards, of which four were for large unit. For the three following years, we expect an outlook stable of between nine to 12 awards per year.

Now we're going to turn to our strategy. And I believe this was right to re-mention our vision as a company.

SBM Offshore believes the oceans will provide the world with safe, sustainable and affordable energy for generations to come. We share our experience to make it happen.

This vision is central to the company's long-term view. We deliver technology to the world energy market, today, in deepwater oil project.

We expect the world to go through a transition phase, using gas as a cleaner energy carrier to then arrive at the renewable energy technology. Our strategy to reach this vision is really to remain consistent across three themes, optimize, transform and innovate.

So going through each pillar in turn, let's speak about optimize. In today's growth market, it remains of paramount importance that SBM Offshore remains disciplined.

Only by doing this, we can deliver value to our stakeholders, ensuring that the deepwater industry can continue to compete. This starts with the selection of the right project to beat for.

The right opportunities are based on clients, technical specification or capacity to effectively deliver and against the right terms and condition. We're not chasing market share.

We aim at winning the right opportunities. During the design and construction phase, we aim to continue to build on our track record of delivering on time and on budget.

FPSO Liza Destiny produced first 13 months after the start of the construction contract, and this is a case in point. During the operational phase, we then focus on delivering our backlog.

It is key that we maintain uptime at the highest possible level. The uptime track record is world-class with a 99% uptime on average.

All of this converts to cash generation for the company and its state shareholders. Given our cash position and backlog in Lease and Operate as to our recent project wins, we're doubling the dividend year-on-year, from $75 million to $150 million, which is, of course – this remains pending the approval at the AGM.

Given the significant cash equity invested in major projects where returns will draw down on project finance, we're starting today another share buyback program for $150 million. While last year, the buyback was using one-off proceeds as a basis, we have the ambition to maintain the substantial share repurchase program for the foreseeable future, subject to market outlook and business performance, of course.

Douglas would go more in the detail of this later on. Under transform, our Fast4Ward program is increasing momentum.

Currently, the program is running five hulls. One is finished going through topside integration in Singapore and four others are under construction.

We keep our focus on standardization and obtaining learning effect from our supply chain by continuing to expand our topside design catalog. We continue to work directly with our supplier to create win-win situation through long-term agreements and improving project after project.

Our investment in digital is another important theme in under transform. It is an investment for the full life cycle of our activities.

Digital is starting to have a profound impact in our operation from simple example, such as moving from library of documents to electronic access to more sophisticated applications, such as transmitting live data from our operation through our onshore center, so to assist our crews offshore in real-time, with access to experts and data analysis. And of course, we now have not only digital training of boarding on fleet, but also implemented as-built twin so we have the real situation offshore, which can be simulated with a very high degree of precision.

One of challenge of our industry is to reduce emission from operation. Most of the emissions come from the use of energy to produce hydrocarbon flow by flaring and, to a lesser extent, venting.

We are creating targets for the production phase on flaring and venting, but also take the maintenance to the drawing board. For the future, our eMission ZERO is to develop FPSO with a zero net carbon footprint for its production.

SBM Offshore believes that we can make a difference as a producer of around 1% of the global oil worldwide. By 2030, we aim to generate 25% of the company revenues from gas and renewables.

This is an ambitious goal given that SBM Offshore is a technology provider. Reaching it depends on our current demand and market development.

Nevertheless, the world will need a lot more energy going forward while, at the same time, significantly reducing the impact to the environment. Oil will remain a large position in the energy mix, but increasingly supplemented by gas and renewable energy.

SBM Offshore will play the role as a technological innovator and stimulate and support the transition towards sustainable energy. On this, I propose to hand over to Douglas, who's going to bring us to the financial.

Douglas?

Thank you, Bruno, and good morning, everybody. While the underlying strength and resilience of our business and cash flow model has been apparent over the past years and you can see from the numbers on this page that the opportunity and potential that we anticipated our model will deliver in the future is now materializing.

Given the positive evolution of the market and our business, we're now able to further unlock this potential to deliver a very material increase in returns to shareholders, at the same time, maintaining liquidity to capitalize further on the market upturn and develop new products for the energy transition. I will spend a bit more time later on the cash flow model, including financing, and how we see this operating and delivering in the future to support new investment as well as the increase of the dividend and share repurchase.

But first are the key metrics for 2019 on this page. These reflect, in various ways, the increased activity and growth that we saw during 2019 and the very good performance in both divisions, in line with recent guidance.

Revenue of $2.17 billion increased by 27% compared with the previous year, mainly a function of the increased activity we saw in the Turnkey business. Underlying EBITDA of $832 million was up 6% year-on-year, driven by the increased activity in Turnkey plus improved fleet performance.

And then on top of the underlying results for EBITDA, we had a net additional $90 million gain reported in other operating income, relating to the acquisition of a minority share portfolio in five of our Brazilian FPSOs. This reflects the value accretion generated from the deal.

And this brought total reported EBITDA to $921 million. There is a table in the appendix to this presentation with the details of the one-off items excluded from underlying EBITDA, including this transaction and the prior year items.

But then it's important to highlight the fact that EBITDA in particular, does not reflect the current Turnkey activity or performance as neither the Liza Destiny nor Liza Unity nor the Sepetiba projects contributed to EBITDA during construction in 2019. Now with Liza Destiny achieving first oil at the end of 2019, this will generate results in Lease and Operate going forward.

And then you see the impact of the new awards, Liza Unity and Sepetiba, reflected in the backlog, which, combined with the acquisition of the Brazilian FPSO minority share portfolio, led to around a $6 billion increase. The backlog now stands at a substantial $20.7 billion.

Finally, the increase in net debt of $1.1 billion is entirely driven by the investment in growth that we saw during the year, given our model of largely using debt to finance the cost of our BOT and Lease and Operate projects in order to enhance return on equity and our execution track record is a prerequisite to this model. And now to provide some additional details on the segments, starting with Lease and Operate, here improved fleet performance, following maintenance activities in 2018, more than offset the impact of vessels, which left the fleet that year.

As a result, the revenue and EBITDA was slightly ahead of the prior year. The EBITDA margin remained stable at around 64%.

Moving to Turnkey, revenue more than doubled, mainly a function of progress on the Castberg turret project, direct payments for costs related to the Liza projects and various variation orders related to finalization of projects agreed in the fourth quarter. Then, there was also an impact from the sell-down to partners at a 35.5% share in the FPSO Sepetiba project.

Underlying Turnkey EBITDA increased by $29 million to $53 million, driven by the Castberg turret project with an offsetting comparative impact for the large number of positive closeout items we saw in the prior year. As we've been highlighting, the Liza projects do not contribute to EBITDA before first oil.

Under directional accounting, the work performed on these units is recognized as PP&E, with the contribution to Turnkey EBITDA to be generated at the disposal of the assets in line with the cash flow, and this is expected to occur in the period of up to two years after first oil. And Sepetiba has not yet reached our percentage of completion gains, around 25% of completion.

So as such, the divested 35.5% share did not yet contribute to the margin during 2019. But to give you a sense of current Turnkey performance and activity, for reference, including the eliminated margin on the Liza Destiny and Unity projects, we bring turnkey EBITDA to around $300 million.

Finally, as we note at the bottom, on the corporate side, underlying EBITDA was flat year-on-year at a cost of $63 million. Turning to cash flow, on a directional basis, here, you can see that cash inflow from operations was more than sufficient to cover debt service and tax.

We look at corporate operating cash flow as being net of debt service associated with the fleet given all of this debt is nonrecourse. And we've highlighted the corporate operating cash flow elements in green.

And you see that this was more than enough to cover the dividend. Then in terms of investing and financing activities, for ongoing core activities, colored in orange here, cash inflow from borrowings exceeded cash out towards investments.

This highlights an important element of our cash flow model. We have invested corporate cash in our current construction projects, but we also have project finance debt capacity left to draw against this construction cost.

I will explain this a bit later in more detail. Then to mention that the refinancing of the N'Goma project, Angola bought net cash at corporate level, which covered the FPSO portfolio investment in Brazil.

All of this meant that despite a significant aggregate outflow of more than $400 million for the 2019 share repurchase, and one-off items relating to payment of the partner share of Yme insurance proceeds as legacy items, the net cash variation was limited to around $200 million. And now to look at where we stand on the balance sheet and liquidity, this summarized version of the directional balance sheet aligns with what we showed you last year, except with the ramp-up of our business, we now have debt against projects under construction, which we call here construction project debt.

This is the only recourse debt on the balance sheet at present. And we've shown the construction debt separately from the operational project debt on the liability side, plus we have separated operating assets and assets under construction on the left, as we want to highlight a few points in relation to these items.

And to note, Liza Destiny is still included here in the construction category on both sides but despite reaching first oil at late December 2019, and that's because it's pending the imminent release of the corporate guarantee and final drawdown on the construction loan. So first, as you can see, the value of assets under construction is currently higher than the construction debt by some $600 million.

At the end of last year, we highlighted the fact that notwithstanding a substantial net cash flow outflow for legacy items, combined with significant shareholder returns, due to the robustness of our model, we have the ability to initially finance projects from our own cash flow. This, in effect, means that we have quite a lot of corporate cash tied up in what you could call temporary construction capital, which will be returned to corporate level when we progressively draw under the construction debt facilities.

This is the main driver of the difference in assets under construction and construction debt, although there is also a significant positive third-party working capital impact. And currently, as you see from the pie chart, we have $1 billion in undrawn project facilities.

And just to be clear, while we did use it during the year, the $1 billion revolving credit facility was undrawn at year-end. Now this may be obvious, but we want to reemphasize that our debt only correlates with investments in Lease and Operate, whether in the construction or the operating phase.

And to conclude this slide, we wanted to address the question of the impact of the use of debt finance on the risk profile of the company. Construction debt in the Turnkey phase of projects is recourse to the company.

But however a project is financed our risk profile in the Turnkey phase is the same. We have the obligation to deliver a completed project in line with specifications and on-time to client, which could be an external client for pure turnkey projects or a related special purpose company in the case of Lease and Operate or BOT projects.

So the risk associated with the debt in the construction phase is classic EPC risk. Now the review of the cash flow and balance sheet for 2019 has highlighted a few key features of the model and its robustness, and looking forward through the lens of the backlog further confirms this.

As at the end of 2019, the backlog stood at $20.7 billion, comprising $17.4 billion from the Lease and Operate fleet, $3.2 billion from Turnkey, including the anticipated proceeds from disposal of BOT projects. The major changes since last year in the period are for Lease and Operate, two years of operations at Liza Unity; the SBM share of Sepetiba and the Brazil FPSO portfolio acquisition.

Then for Turnkey, we now have longer visibility on cash flow, supported by the inclusion of the eventual disposal of the Liza Unity project and minority divestment of Sepetiba. Our Lease and Operate projects are held by stand-alone special purpose companies, financed by nonrecourse debt with long-term contracts and no residual value risk.

So as I've already highlighted, we look at the cash flow from our portfolio of lease investments on a net basis after debt service and view this as operating cash flow at the corporate level. The current Lease and Operate backlog is expected to deliver, on average, around $240 million net cash per year for the next 25 years.

And note that this includes a long tail at the end of the backlog where we currently only have Sepetiba. And then we have the Turnkey division, the EPC engine of SBM and the originator of the operating cash flow we received at group level.

The current Turnkey backlog gives visibility in terms of underwriting the Turnkey business beyond the next three years, highlighting the upside this division brings. It has high operating leverage, which results in the ability to convert margin from future awards into free cash flow, either up front through direct Turnkey sales, a disposal date for BOT projects, or through Lease and Operate with an added equity return.

Now, to cover the financing model and the outlook for the financing and investing cash flow, our main investment activity is in construction of Lease and Operate and BOT projects. We have an efficient financing model for projects where, of course, subject to project performance.

We can finance a very large portion of the construction cost with an FPSO with debt. This generally brings a very limited requirement for cash equity to cover any remaining CapEx, and this is what we see in terms of ongoing projects.

A partial divestment to partners can also mitigate any cash equity requirements, plus we have the option to raise cash from actively managing the operating debt portfolios linked to the backlog. This can be a portfolio level, given we now have our funding platform in place or through refinancing of individual projects, where we optimize the pay down profile on existing facility, accelerating cash and value at corporate level.

An example of the latter is the N'Goma refinancing we executed at the end of the year, where the accelerated equity cash covered the purchase price of the minority shares in our Brazil FPSO portfolio. As it's important to note, that in so doing, we have not cannibalized the backlog as the proceeds have been used to increase the backlog at a very attractive financing cost in effect, recycling cash and, at the same time, generating additional value.

Now in the next year or so, we intend to refinance one or more projects in the capital markets, which follows the same principles I just described. And this will bring the added benefit of creating additional bank capacity in our current growth environment.

And this kind of refinancing is more likely to be the source of backlog-linked financing in the near term rather than the platform. Our revolving credit facility, as I mentioned, is currently undrawn.

As such, we have $1 billion of financing available to bridge to specific financing facilities for projects. On top of this, the RCF covenants could accommodate around a further $900 million of corporate borrowing.

Now to be clear, we're not planning to use this, but it's just to give you a sense of the strength of our balance sheet and the associated flexibility this brings. In principle, the RCF is only used for the purpose of bridge financing.

So we consider it, in effect, a working capital facility as its use will be temporary. So going forward, with the RCF available to bridge debt for existing and future projects, and with past uncertainties behind us, we can reduce the requirement to inject corporate cash and new investments either temporarily or permanently.

Therefore, with good project performance, the cash flow associated with investing in and financing new projects can be managed around neutral. And then looking further ahead, we envisage the gas and renewables projects, which materialized, will either be on a Turnkey basis or financed on a similar basis to Lease and Operate FPSOs, where the special purpose company structure could facilitate access to specific financing on the renewable side.

And we're looking at putting such companies under a renewable energy platform company, which will also give us the flexibility to raise dedicated renewables financing at a time when major development funding may be required, for example, the future commercialization of our Wave Energy Converter. On the next slide, like last year, we've mapped out the average cash flow related to the backlog for the next six years, in two construction cycles for an average FPSO.

There are two key assumptions that we've already covered in the presentation behind this. The first is based on its existing backlog that Turnkey can be, at least, self-sufficient for the period.

And the second is that our new projects do not require material corporate cash investment. So the remaining element is Lease and Operate, where the logic is as follows.

The starting point is cash from Lease and Operate for our in-hand project portfolio, which provides the basis for our cash generation. Then we take out debt service, interest, amortization, and then we allocate all corporate overheads and tax in full to Lease and Operate and when you put all this together, results in $175 million per annum, net cash generation on average, over the next six years.

And we look at this in-hand future cash flow, which does not include future awards as effectively underpinning our dividend, contractually guaranteed with very long visibility. Based on this, we have decided to double the dividend to $150 million, which corresponds to approximately $0.76 per share and versus yesterday's closing price of EUR 16.30, this would represent a yield of over 4%.

Then, having reviewed our overall liquidity position, including the capacity to release a substantial portion of equity cash, which is currently invested in assets under construction, we have determined that we once again have the capacity to execute a share buyback and, at the same time, retain flexibility to respond quickly to opportunities or other business requirements. We've, therefore, launched this morning a EUR 150 million share repurchase program, which we would expect to conclude over the course of 2020.

This will, of course, progressively increase the payout and yield per share. As Bruno already highlighted, subject to ongoing business performance and evolution of the market, in line with our current outlook, we have the ambition to maintain a substantial share repurchase program for the foreseeable future.

Since we restarted the dividend in 2016, including the proposed dividend for 2019 to be paid this year and the buyback, we will have returned over $900 million and delivered an almost 40% increase in the dividend. And as we show on the right-hand side, our dividend track record and the delivered consistency in growth stand out among the sector.

Same applies for the support our backlog provides to sustain this dividend for a long period into the future. So then we have a model where the dividend and associated growth in this is linked to the Lease and Operate backlog, with future awards in Turnkey, maintaining the good level of visibility we have on this segment, therefore, allowing the ongoing monetization of the Turnkey backlog to support continued share repurchases to further grow the yield per share.

To summarize, last year, we highlighted the robustness of our model and the level of opportunity and potential we saw ahead. Based on the evolution of the business, and thanks for the efforts of the whole team at SBM, we're now in a position to translate business success into enhanced shareholder returns and provide further guidance on the approach on this and capital allocation going forward.

That's it for me. Now back to Bruno.

Okay. So let's finalize with the outlook and the conclusion of the presentation.

So the first point is really to note that there is a continued good positive market outlook, and through our Fast4Ward program, we're well-positioned for gaining momentum and getting positioned in this market. Now the guidance for the year are showing a directional revenue of above $2.3 billion, of which $1.6 billion for the Lease and Operate segment and $700 million for the Turnkey activity.

The direction of EBITDA would be around $900 million for the year. Now in conclusion, 2019 has been a good year for SBM Offshore.

And I want to conclude really with the three key messages of the presentation: giving back, the Fast4Ward program momentum and the strategic sustainable agenda. Giving back was a proposed doubling of dividend compared to last year and the share repurchase program started today for an amount of 150 million.

That's the case in point. The Fast4Ward program is on track.

It's gaining momentum, and that includes the progress we're making on digitalization. And on our strategic sustainability agenda while taking a pragmatic and realistic approach.

SBM is focused on being transparent on sustainability initiative, and good progress has been made on our target. We're adding new SDG targets, three new targets for the year, and we're putting some KPIs and measure Board goals in front of those.

We're also working out to create a net-zero carbon footprint FPSO through our eMission ZERO initiatives. And lastly, but importantly, our ambition 2030 is aiming at having 25% of our revenue from gas and renewables by 2030.

This concludes the formal section of our presentation, and we now open the call for questions. Thank you for listening.

Hi. Thank you very much for the quite detailed explanation and for the comments on capital return and ESG.

Two questions, please. I understand the Lease and Operate part of the – underpinning the dividend.

I was wondering if you could give a bit more of an understanding of where you think you are today on the equity release model that makes capital available going forward. And to what extent the benefits of that are really to be felt 2020 forward and how that may impact the ability to recycle capital for the buyback?

Okay. So that's your first question.

You said you had two questions.

Yeah. And then the other is just on – when you look at the Lease and Operate part of it, obviously, you have the BTO years of the two disposals, and they would release a fair amount of capital to – just how you think about that recycling back into other projects versus the use of that capital.

Okay. So those two questions can be brought into one.

I think they're kind of connected.

Do you want to take this?

Yeah. So I think we highlighted from the balance sheet analysis that, yes, we still have a significant portion of our own equity invested in assets under construction, and you saw there the difference was $600 million between the two.

There's quite a portion, that working capital, as I mentioned. Now as we draw down on the existing project loans we have in place, and you saw there's still $1 billion to go from the two lines alone, and some of that's going to match then going forward, but a portion of that will be used to refinance a significant portion of that $600 million.

So that then, in principle, becomes available. Obviously, it makes sense to maintain a portion of cash liquidity.

So as I mentioned, we can capitalize on opportunities or respond to other business events. But the idea is that as we win new awards in Turnkey, this will release cash from the backlog that we already have, which includes then in the term, this is the Turnkey backlog I'm referring to, which will include the cash we receive when we sell the BOT vessels.

So that's sort of the model. We have more than three years visibility in terms of Turnkey being underwritten.

We add new projects, then it releases cash to be available for the – to back the share repurchase program in the future.

Alright and can you also incorporate the, say, running capital requirement to support the lease and operate contracts into that? So as we sort of think about what you've built up over the last couple of years, which I guess I understand you'll be cycling projects through, so you won't need to build that up, which the lease allows cash to be generated.

Maybe if you could just –

Yeah. So I mean, in terms of the cost of maintaining the Lease and Operate portfolio, that's included in that lease – that in-hand Lease and Operate backlog analysis.

So in principle, as we were explaining on the financing model, where we've got a model and this is how we're seeing it operating real-time now, we're back up and running those projects, where we can finance, as we said, a significant portion of the CapEx we need for new investments with debt financing. And then as I mentioned, we've got these other tools, if you like, in terms of selling down to partners to generate cash to help with equity, or we can do what we're calling backlog-based financing, where the N'Goma transaction was an example of that.

So you raise finance at a very attractive rate to add to – effectively add to the backlog.

Right and that pool was under the L&O net assets, $1.4 on Slide 25?

Yeah. Yeah.

That's right. I mean, in terms of the balance sheet, yeah.

Yeah, okay, great. And I'll leave it there.

Okay, I'll leave it there for others. Thank you very much.

Good morning all, a couple of questions, if I may. Firstly, just on Fast4Ward, obviously, as that's going forward, can you just talk to me about the number of modules on the topsides of these units, which are coming down the standard path?

Yeah. Okay.

That's – yes. That's a couple of questions.

So you should give everything at once.

Okay. And secondly, you talked about 25% of revenues in 2030.

Obviously, with your backlog, you've got a big chunk of 2030 already in hand. So that would suggest there that you need to get going on gas and renewables very quickly, or there's going to be years where it's more –significantly more than 25%.

So what are the projects that are coming to enable you to do it on that sort of time frame? And thirdly, you've been very good in the past giving us lease and operate backlog out for the length of the backlog.

You've given us debt repayments out there, and you've given us a lease and operate and BOT cash outflows out to there. And in this presentation, I can't seem to see them.

I'm just wondering why you've decided to give less information on that medium to longer term.

It's part of the appendix. So the information is still there.

We didn't go through this in the formal presentation. But it's on the appendix, it's slide something or other.

On the appendix, I can't see.

Slide 34, I think. Yeah.

This presentation goes to Slide 33 on your website.

Okay. So the slide pack we're going to put on the website after the presentation is going to include the – this backlog.

So I see people moving their arms around me saying it's not yet on the website. So you're going to see this, and you're going to get all the detail there, so we're going to file –

Okay. We will get that Lease and Operate and BOT outflow all the way through?

Yes. We will.

So you can get that information – sorry, I thought it was already on the website, but you're going to get this. So looking at the number of modules on Fast4Ward, it's an evolving situation.

I mean, we're using some criteria about standardization on some FPSO in some project. And I would say that the first FPSO we have done, we had some criteria where we are measuring standardization with around – if you exclude the hull, around 20% to 25% of standardization.

Some of the new project we're starting to look at, we are more in the range of 70% to 90% of standardization. And obviously, there are some things that we need to adopt.

Part of the increase in standardization is given – is due to the fact that we're increasing our catalog, and part is due to the fact that basically, we're copying some of the things that we have done in the past. Now one point I would like to add on Fast4Ward is standardization is an easy word to say, and being in health, it looks easy.

But what is more difficult is really to transform the culture and the ways of working as an organization in order to apply those principle. And I would say this is a journey.

We're still in the middle. That's a journey where we have been making progress.

We're starting in 2014, but we're still at the beginning of it. And I have high expectation about the result we can get on this.

And those results, in my view, are not factored into the forecast of the company. But we're putting still a lot of work on this, and my expectation is that we're going to make further progress on the matter.

Now coming back to the 25% or the ambition 2030 of adding 25% into our gas and renewable is basically an ambition we have had for the past two years but we didn't want to communicate to the market. And the reason we didn't want to communicate to the market, it was really difficult for us to see what were the paths in – for us in order to get there.

Since the past two years, we have invested in technology and the market has evolved, and we're seeing some opportunities of increasing the volume of activity in those two market segments through the wind project. And we can see some large project coming up probably toward the end of the period of 2025, 2030.

And with the technology that we have, we believe that we're going to be able to test it fairly shortly offshore. So we believe we're going to be able to position ourselves.

On the gas market, we're looking at three sub segments in the gas market. The FLNG project, we see this small market segment, but there could be some opportunity in stranded gas field.

And we're following a number of opportunities there. We're also looking at gas wires opportunities, and we're following a number of opportunities with some suppliers there.

And we're looking also at the downstream side of the gas market through the distribution of LNG. So when I look at what we see in the portfolio of the renewables through the wind energy, the wave energy and the opportunity we're seeing in the overall gas market, we can see a path to reach this 25% activity in the gas and renewable market.

It's a stretch, but it's something that we're going to put a lot of effort. We're investing more than 60% of our technology budget into the gas and the renewable market, and that's where we want to establish a presence and grow the company.

On top of this also, as you have seen through the presentation, when you look at the oil production, the oil production itself is producing around 6% to 8% of the greenhouse emission in the world. So developing an FPSO with a zero emission output will also improve our carbon footprint overall.

So we're looking at all those trends in order to improve our sustainability agenda.

Magic, thank you, Bruno and good set of results.

Thank you.

Hi, thank you for taking my questions. First question is on the guidance of $900 million EBITDA.

I think that sort of implies $969 million or $970 million of EBITDA excluding the overhead costs. Could you maybe give a breakdown in terms of L&O and Turnkey?

Because if I think, simply take your sales target in L&O, 1,600 and I apply the same margin as 2019 L&O would already arrive at an EBITDA of slightly more than $1 billion, which on your current guidance would imply then Turnkey is going to be a negative EBITDA year. That's my first question.

And then the second question is on one of your competitors recently took quite a sizable provision for maintenance work on existing FPSOs in Brazil to prevent cracks from occurring. I don't think the technical reason for this engineering mistake or this – yes, this maintenance work is yet known, but what – why shouldn't this happen to SBM Offshore?

And could this be related to unforeseen weather or seawater conditions, especially since I think some of this – some of the hulls that your competitor talks about were also constructed at shipyards that SBM Offshore also uses. I think it's too easy to simply dismiss this as a construction fault.

Thank you.

Okay. So good question, I propose, Philippe, he's going over the technical question, and Douglas will discuss about the guidance for the year.

Philippe?

Yeah. So thank you, Henk, for your question.

So regarding the fault on the hull, I would like to say that we have engaged proactively with both the regulator and the customer in order to verify that not only the process but the monitoring that we have of the hull is sound. And there's nothing to be reported, and we have no concern at that stage.

And on – so we took some proactive action on that and reassure ourselves as Philippe mentioned. Douglas?

Okay. Then on the guidance, I think the point to emphasize here is that, as we discussed in relation to the 2019 numbers, a large portion of the activity that we have in Turnkey is BOT.

So you don't see that in EBITDA. It's on the balance sheet.

Then we think about 2019. Last year, the numbers were driven by, as I mentioned, the Castberg project, and we're in the process of wrapping that up now.

And so the project that we have in hand that will impact margin in 2020, there's one, basically large one, and that's 35.5% share in the Sepetiba project. As I mentioned, that hadn't reached percentage of completion by the end of last year.

It will do at some point this year. Obviously, we are aiming to win new awards.

But again, with the POC process, these are unlikely to materially impact EBITDA this year. So that's kind of the main thing I would say that you should think about.

And as ever, as we progress through the year, we keep you posted on how we see things evolving.

Okay. That's clear.

And just to summarize the first question, the answer to the first question is, you've taken proactive action following the news of your competitor. And so far, the outcome of that proactive analysis that you've made, there is no reason to be worried.

Is that correct?

That's correct. So we look at it.

And when there are events happening in the industry, and there are events happening in the industry on a recurring basis, we obviously go back to our operation. We verify for concern, and we try to get some assurance.

And that's what we have done on a positive basis, as Philippe mentioned, with our clients, with the regulator and with our technical teams and then – I mean, we can now satisfy your [indiscernible].

Perfect, thank you.

Yeah. It's Thijs Berkelder, ABN AMRO.

Good results. Three key questions.

On Slide 28, in your pro forma cash analysis, you're now using a cash flow conversion on L&O of 61%, where you previously used 63%. Can you explain why?

Second question is on the zero emission FPSO. Can you maybe technically explain what you exactly plan to do to make the FPSO zero emission?

And third question is on the turrets market. Can you maybe give a bit broader explanation on how you see developments in the turrets markets right now?

Okay. So Douglas will take the first question, Philippe, the third, and I will take the second.

Douglas, you start.

Okay. So yeah, let me start.

So the 61% that you see on that slide, it's referring explicitly to the six year period. And you'll remember we still got this bit of impact from the release of the deferred income.

So that brought our previous 63% average a little bit lower in that period. As you will see, when you're able to access Slide 34 in the – or 35 in the appendix, where we've given you the full update on the backlog now with the benefit of the new awards, the Constellation FPSO portfolio acquisition, that the overall average is now around 65%.

For the portfolio at large. Philippe, on the turret market?

So turret market in 2019, our focus has been in progressing on the – some delivery of the project in hand, namely you have Johan Castberg, which is really, obviously, very well. We had as well a smaller-sized storage which is moving closer to delivery.

We have to acknowledge that somehow, one of the targets in the small-sized market, in particular in Canada, we did not secure. Having said that, when we look at the market in 2020 and beyond there are a number of good opportunities both in small-sized and very large-size turrets, those are by definition dependent of the award of the full FPSO and on the field.

So an available market there and opportunities, now, if I look at the eMission Zero initiative, a number of things that we have done in the past and where we have shown that we can reduce the flaring from our fleet has been really to make sure that the gas power equipment and the gas turbine equipment is available so we can reduce flaring. Then we're looking at other different ways to generate our FPSO with some gas recycling unit in order to reduce the emission from the energy that you generate from the FPSO.

And last but not least, one of the things that we're looking at, and we're going to be looking at going forward, is linking an FPSO with renewable source of energy, could be a windmill, could be wind energy, in order to generate electricity for the – and power for the FPSO. So we see a number of avenue and peace [ph] in order to go forward in reducing the emission of our FPSO.

We have shown this on the existing fleet without doing any significant modification. We believe that through technology investments and innovation, working with a number of partners, we can get to a different step and with the aim of getting to a place where we're going to be to a 0 emission activity.

It is going to require some investment, but we're committed to that.

And maybe an additional – your wave converter project, can that be linked to an FPSO?

It could be the wave converter. It could be the wind energy, depending on where you are, or it could be solar energy, depending on where you are and what are the opportunities?

Okay clear, thanks.

Good morning gentlemen and thanks for taking my questions. Two of them, please.

First, you are raising the dividend, then communicating positive market outlook despite arguably increased macro uncertainty. Oil prices are down.

Oil majors are focusing on their capital discipline even more now, and some of them are clear in their intention to invest less in oil and gas going forward. Also, I believe you are building quite a number of FPSO hubs in China, where the ongoing disruption in Chinese shipyards is widely discussed in the press.

And also, there are press reports such as delays to FPSO tenders in Brazil and Australia. So do you think any of those factors create risk to your business?

And if yes, then is it the right time to raise the dividend? Or all of those risks are completely irrelevant, do you think, at this point?

And then very quickly, secondly, to follow up on the EBITDA guidance, obviously, you are pointing to $900 million. Analyst consensus as of this morning is about $960 million.

Could you help us understand where exactly we analysts are too optimistic on your earnings for this year? Is it primarily in Turnkey?

Is it also in lease and operate? Is it both?

Okay. So a lot of question in your negative outlook for the industry that I'm going to try to address as thoroughly as possible and also probably on your negative outlook of SBM Offshore, which is part of your question.

The first part, if I look at the positioning of the outbreak of the coronavirus and the impact on the industry, today, if I look at the market demand – I'm discussing about market demand, but Philippe can address the point about the execution, market demand today, it could have an impact on the market demand. It's too early to say.

The only comment we can have at this stage is that we have not seen any FID being delayed. And in fact, to the contrary, we're seeing an acceleration in the number of FID.

And as such, we're seeing a fairly large pipeline of projects still present. Now obviously, the situation could change.

And let's not be blind, if the price of oil remains below $60 or around $50, there could be some evolution in opportunities coming forward. Having said that, most of the large FPSO projects have a breakeven point, which is much, much lower than the $50 per barrel.

So that's one part of the answer. I would like Douglas to take the answer about the reason of raising the dividend, which really has nothing to do about prospect in the future and so on.

It's really based on what we have in hand and the security that we have, and it's also based on the dividend policy that we have, which is going to be stable or growing over time. So we will not raise our dividend if we didn't expect that we were going to meet our dividend policy.

But Douglas, do you want to take this?

Yes. I think as we showed with the six year view on the in-hand cash flow with what we have in the tank at the moment, we're able to sustain the dividend at this level.

And what's really critical to note is that this cash flow, it doesn't include any future growth. But at the same time, it has the cost structure in Turnkey and at the corporate level to support new awards.

So from that perspective, it's very robust and it allows us the ability as well to win new projects and ideally grow the returns going forward.

And lastly, for Philippe, to tell you where we stand in terms of operation and the resistance of our Turnkey projects.

I'm first glad that – to report that none of our staff or contractor are reported infected. Following the start of the epidemic and around the first day of the Chinese New Year, that is the 27th of January, we have mobilized a dedicated team to monitor and provide expert medical advice to our teams in China and back from China.

That is to say 37 people were back from China, and we have around 200 people in the country. Regarding operation and to illustrate the current status we are operating, as you mentioned, in a number of yards and facility for equipment supply, if we were to focus today on our main yards, four of them, they have reopened between the 3rd and the 13th of February, that is today.

And 3rd was ahead of the traditional safety period. The ramp-up will require further monitoring to assess the potential impact.

We are engaged with customer and contractors to discuss proactively measures. So we will, therefore, update you at the end of the Q1 on potential impact.

So in summary, we're looking at the market obviously. But today, we're still optimistic about the level of market, and we're seeing FID being done on time.

Our dividend increase is based on what we have in hand with no anticipation about getting new projects. I would even add that when we saw the market increase coming over the past few years, we made a conscious decision of not increasing our breakeven point to a level where it could impact us if we had a decrease in the activities.

So what we're doing, we are really balancing a lot the contracting staff versus the staff of the company to be sure that we have the flexibility to adapt the company to the up and down of the industry, which is part and parcel of what we have had. And this is linked also to our discipline of focusing only on two plus FPSO per year.

And last but not least, what Philippe told you with regard to our ongoing activity, the number of yards where we're working are back at work. They're ramping up.

We're monitoring the situation, and we're going to advise if there is anything to advise going forward. Douglas, do you want to add something to that?

Yeah. That was just to – glad to have this last question relative to the outlook and where are the analysts currently on the [indiscernible].

And yes – so again, with similar question, it's really around Turnkey. Yes, we got a lot of Turnkey activity ongoing, but it's around the accounting and the balance sheet versus the P&L.

So that's the area. And as I mentioned, yes, it's the – we're just at the beginning of the year.

So we keep you posted as ever as the year evolves on how we see these.

Super. Thank you very much for the color.

Thank you.

Thank you very much for taking my question. I have two of them.

The first one is related to Guyana. As far as I know, it was a big success for Exxon and all its partners.

But it's also true that over the coming weeks, we are going to lead general elections in that country. There is some kind of political controversy around the oil and all that kind of things.

So I would like to know if you see a risk in this general election. And the second question is related to some of your competitors that also do these large FPSOs.

That seems to be running at fuel engineering capacity. And you seem to have a bit more spare capacity or engineering capacity to address the new FPSOs' potential that will come over the 2020.

Yes. So okay, two questions.

First of all, what's happening to Guyana is really something which is increasing the wealth of the nation quite significantly. And what are happening is happening is extremely fast.

Let's remember that the first well was discovered – or the first oil was discovered in May 2015. And less than five years after discovery, there is first oil.

So like in any country, democratic country, there's going to be some election. Obviously, those election are – the new government in place is going to have a view about what's happening to this new industry and the wealth of the nation.

Time will tell if anything is going to happen. But one thing is for certain.

It's that the wealth is coming to this nation. If we look at the capacity of SBM Offshore, we have been actually disciplined in really taking only projects that we can do and that we can deliver on time to the specification of clients and to the satisfaction of our clients.

Now the reason we have done that is at the end of the day, deepwater industry went through a bad phase before 2014, where most of the project were not delivered on time, and costs are nominal like to our clients. And as such, SBM Offshore has always and is continuing to make sure that we'll want to have project that we're going to deliver to the satisfaction of our clients in order to create value for them.

So we have some capacity in terms of engineering, in terms of project management, but this capacity is going to be well targeted to the project, which makes sense for us in terms of clients, in term of competence that we need to have, in terms of the terms and condition that we are doing. We're not going to overstretch ourselves, and we're not going to put ourselves at risk.

And one following question to [indiscernible. You say that you are going to be selective.

And do you prefer build, operate and transfer model? Or do you prefer the lease and operate traditional model?

We're fairly agnostic about those two. I would say that the build, operate and transform model has good value for the clients in the sense that we're doing the Turnkey side, we're putting in operation.

We're bringing in some of our operational value for the first few years of operation, and we're using some of our digitalization tools also in operation probably going forward. So that's a model which has a lot of value for our clients.

And the lease and operate, obviously, has a long-term view for us. But if you look from an NPV standpoint, there is really zero difference on either of those.

So as such, we're fairly agnostic.

Okay, thank you very much.

Good morning. Three questions from the sheet 28.

So you now mentioned the $175 million compared to the $120 million before. The $175 million sort of indicates that you would expect that Turnkey would be having a neutral contribution.

So it would have to bring up its overhead. And as long as that's zero, the $175 million still stands.

Yeah. I'll take this.

Thanks, Andre. Yeah, that's correct.

So conservatively, you just look at the backlog that we have in Turnkey at the moment. As we mentioned, that's enough to sustain the Turnkey business to make it self-sufficient.

Obviously – but then – and that's actually including, though, the cost structure that we have at the moment, which is targeting winning new awards. So clearly, we hope that the Turnkey does better than that.

And as I mentioned, as it – as and when it does, that will release more cash, given the high operating leverage of that division, that it would allow us to maintain our ambition on the buyback.

Yes. The second question is about this cash conversion.

You're slightly up to numbers from 60% to, let's say, 66%, 67% and for the long term from 63% to 65%. That sort of indicates that in the period between, the increase can be a lot larger there.

How would you look at that?

Yeah. I mean, it's – so it's a function of the new awards we have, some of the larger units, which has helped and we've added.

So we've got another year in this analysis. It's moved on one year.

So that's driving it. And yeah – and as I said, overall, we're now around 65%.

And last question sort of relates to that. On sheet 26, you mentioned $240 million.

Previously, that was $250 million. Was that – what makes the difference there?

Well, it was $250 million. But remember, the backlog ended in 2036.

So now we've got the increased visibility, and it's actually – which is driven only by Sepetiba at the moment at the year-end. So okay, now we've gone up to 20 years' visibility.

It's gone down a little bit. Obviously, the aim of the game is to win more awards, increase the backlog during that period and actually extend it further.

Okay thanks.

Hi, thank you. There's two, please.

The first is just on the Turnkey assumptions. I mean, you've got the Castberg closeout and the higher level of activity in '20 versus '19 on Turnkey, I guess, which – and the signs of completion of the Castberg closeout would normally be positive.

I was wondering what you're kind of assuming around those and to what extent also your comment about the Liza Destiny timing has any impact on the Turnkey 2020 versus 2019. And then the other was just referring back to the earlier question on Fast4Ward and benefits and the comment that was made about the cultural benefit, where you're still in the early stages in getting – in looking forward to getting the benefit of that.

When you talk about the benefit of that from the company perspective, can you give some sense as to what do you mean by engineering capacity that will come out as a result of this or ability to handle units? Or is it other factors such as performance on time to internal expectations?

Just maybe if you could elaborate on what you perceive is the benefit still to come from the cultural side of adopting Fast4Ward.

Yeah. Okay.

So let me take the Fast4Ward aspect, and Douglas will take the first question first. Do you want to take that?

Sure. Yeah, so just quickly to cover that, Peter, so no impact from anything to do with the Liza Destiny.

Yeah, Castberg, the project's making good progress. I think in the press release, we give you the details.

You can see it's almost closed out. So the point is, we booked most of the margin already, not really much to come in 2020.

So in inverted commas, all we have is the 35.5% of Sepetiba, which will come in, as I said, during the year once we reach the 25% POC.

And is there any impact of the higher level of general activity in Turnkey versus – '20 versus '19, as it sort of covers cost to overhead?

Not specifically. It's really – the real point is this issue around – not the issue, it's the fact around the – that the balance being more on the BOT side.

That's really the kind of the key thing to think about.

Yes. And if I look at Fast4Ward, so the ambition could be and are, in fact, in the company is already to increase the reliability of delivering our operation by – as such, making sure that they're going to be delivered faster.

They're going to be delivered with less rework, less cost and on quality, therefore, improving the overall – our financial outcome, both for our clients by going faster as to ourselves. The net effect of this would be an increase in productivity of our workforce and our suppliers and basically to be able to dedicate rare resources into what matters rather than more mundane tasks like it can be done when you're less standardized.

And the benefits of this could be that basically adding the same level of workforce, we could be able to increase our capacity to take three FPSOs, three plus FPSO per year really without changing our breakeven point. And that's really the aim that we're looking at.

I'm not making any promises. So at this stage, it's too early to say.

But really, that's where we are working on in order to – that's what we're working on in order to increase that.

That's clear, thank you.

Well, next question I believe.

Thanks for just taking my call, just a quick tidy-up, on the Constellation transaction, obviously, a very good return for you. Was there a debt assumption associated with that consolidation transaction that's included in the $3.5 billion net debt position?

Well, yeah, thanks. It has a – it does have an impact, but we're not disclosing the exact numbers around that.

Overall, what I would – as I mentioned, yeah, it's very attractive and – well, as you've noted, a very good value enhancing deal for SBM.

But that has gone through in the 2019 numbers in the debt position?

Yes. Yeah.

Okay. Fine, I just thought in 2020.

Okay. Yeah.

No. Okay.

But yeah, in 2019, yeah, it has been part of the debt increase associated with the transaction.

Magic, thank you, that's great.

You talked about here the renewables part, including the stranded units for the FLNG. Where do the turrets fit in?

Would that still be, let's say, old school or would you also put that into the bracket of renewables?

Depends, I mean, most of the turrets are going to be associated with oil-related vessel. However, you could imagine that some turrets could be used in order to bring electricity onboard of – onshore electricity onboard of an FPSO and therefore be part of the zero emission initiative that we have.

So you can fit it wherever you want, but it could apply to both the oil and reducing our CO2 footprint. That's what we're looking at in terms of the turrets.

Okay. And for the stranded FLNG units, you're looking at the old idea of having a catamaran FLNG.

We're looking at different concepts there and some of them – so we're developing different concepts. Some of them are conversions.

Some of them are new builds. Some of them are catamaran.

It really depends on the opportunities that we're having and some of the discussion that we're having are more toward new builds than anything else.

Okay, thanks.

Okay. So I think given the fact that we have spent almost an hour and a half on this conference call, we're going to call it a day.

I wanted to thank all of you for listening to this conference call, and I wish you all a good day. And you can now resume normal activity.

Thank you very much.