SBM Offshore N.V. (SBMO.AS) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for holding, and welcome to the SBM Offshore Half Year 2025 Earnings Conference Call. [Indiscernible] Just to remind you, this conference is being recorded. I would now like to hand the conference over to Mr. Oivind Tangen. Go ahead, please.

Good morning, everyone. I'm Oivind Tangen, CEO of SBM Offshore, and joining me on the call is our Chief Financial Officer, Douglas Wood. We appreciate you being with us today, and thank you for your continued interest in SBM Offshore's journey and progress. SBM Offshore's strategy is focused. Advancing our core business, setting new benchmarks for efficiency, sustainability and returns and capturing a greater share in a growing market. We aim to provide reliable, affordable and sustainable energy for the long term, and our core business linked to deepwater remains one of the most resilient and future-fit segments of the energy mix, presenting low breakeven costs and low emissions. At the same time, we are preparing with discipline to expand our product offering. We envision a broader role for ocean infrastructure across sectors and markets. This includes developing new offshore technology and new business models to support society sustainably. The first half of 2025 has been marked by solid project execution and operations, delivering on our stakeholder commitments with stability and consistency. Our financial performance has been strong over the first months of 2025, a 26% increase in revenue to $2.3 billion and 10% increase in EBITDA to $682 million by disciplined project execution, delivery and operations. Our net cash backlog of $9 billion provides long-term visibility and resilience. Based on this performance, and with 2 start-ups in Brazil and FPSO 1 Guyana on charter, we raised our EBITDA guidance from around $1.55 billion to above $1.6 billion. So indeed, during the first half of the year, we brought online 2 large FPSOs in Brazil, Alexandre de Gusmão and Almirante Tamandaré, the largest oil-producing unit in Brazil. The combined capacity adds 405,000 barrels of oil per day. FPSO 1 Guyana is on charter as of August 4, and will be the largest producing unit in Guyana with an initial nameplate capacity of 250,000 barrels of oil per day. These 3 vessels delivered as promised in 2025, bring the size of our fleet to 17 FPSOs with a total installed production capacity of 2.7 million barrels of oil per day. In June, we signed an agreement with TotalEnergies to provide the operations and maintenance service for a minimum of 2 years of FPSO GranMorgu, becoming the first offshore operator in Suriname. In Guyana, we've reached record production levels with combined output from our units at 665,000 barrels of oil per day. ONE Guyana will take this to over 900,000 barrels per day, and we are proud to play the role in helping our clients in the remarkable achievement of reaching this level in only 6 years. Our strong growth forecast underscores our commitment to advancing our core and pioneering more. The deepwater market remains resilient with 46 potential contract awards in the next 3 years. We have 2 Fast4Ward MPF hulls under construction, enabling rapid response to upcoming tenders. Our near zero FPSO now with ABS approval in principle is market ready. Our ability to deliver consistently and responsibly positions SBM Offshore at the forefront of the industry. We are set up to achieve excellence in execution, delivery and operation. The deepwater sector continues to demonstrate exceptional double resilience with breakeven costs ranging from just $20 to $35 per barrel and emission intensity about 45% lower than the industry average. By 2030, more than 30% of new global oil production is expected to come from deepwater, reinforcing its critical role in the energy mix. We are firmly positioned at the forefront of this market with around 1/3 of the potential award in our strategic sweet spot. Furthermore, our ability to anticipate has prompted the expansion of our operational footprint in high-growth regions such as Suriname, Namibia and Mexico. With 3 new FPSO start-ups this year, our share of global deepwater production is more material than ever. To support future demand, we've ordered 2 additional hulls and are extending our capacity pipeline in collaboration with key yards with slot options in the coming years. Our disciplined and selective approach anchored by the proven Fast4Ward program continues to deliver market share gains and efficiency improvements, ensuring we remain the partner of choice in the deepwater market. For us, excellence is more than a principle. It sits at the heart of realizing a new industry standard of performance. This approach drives our relentless pursuit of optimization across the asset's life cycle to deliver competitive and high-performance solutions for our clients. By incorporating learnings from all phases of the life cycle, we standardize design, accelerate delivery and derisk execution, ensuring outcomes that are on time, on budget and built for long-term performance. Our Fast4Ward execution model is the embodiment of this mindset, smarter, faster and more reliable. And with in-house installation capabilities, enhancing agility and control, we are setting new standards for delivery assurance. FPSOs Alexandre de Gusmão and Almirante Tamandaré achieved flare-out in an industry-leading average below 45 days. Our uptime average across the fleet reached 99.4% for the first 6 months of the year. And in Guyana, debottlenecking of processing facilities on our initial 3 FPSOs has increased production capacity by 125,000 barrels of oil per day. This experience brings learnings and data, which allow us to continuously refine our value proposition, reinforcing our ability to execute complex projects at pace and at scale. Through a proven execution model, a culture of continuous improvement and a life cycle business model built to capture the right demand, SBM Offshore is converting opportunity at higher margin and generating recurring value, delivering growth through performance. Our project execution model is designed to assure value by leveraging the gains of Fast4ward. Following the successful delivery of FPSO ONE Guyana, we now have 3 major projects under construction. FPSO Jaguar for ExxonMobil, FPSO Trion for Woodside and FPSO GranMorgu for TotalEnergies. All 3 are progressing well and remain on schedule with overall portfolio progress at approximately 30% completion. This current project portfolio enjoys the full benefit of learnings of our earlier Fast4ward projects, which stands at 6 deliveries in just 3.5 years. We have also begun construction of our 2 additional MPF hulls, extending our capacity pipeline in partnership with key yards. This targeted approach actively supports tender activities in a robust market. Our sale and operate model for FPSOs Jaguar and GranMorgu begins to generate profit after just 25% completion, accelerating cash flow at an early stage of construction, while maintaining our life cycle value proposition through operations and maintenance contracts that commence upon completion of construction. Meanwhile, the lease and operate model for FPSO Trion contributes to long-term cash flow visibility. With the hulls under construction, we are responding to a clear market demand. This, together with our overall Fast4ward approach, which encompasses not only our product but also how we work with our clients, partners and suppliers enables us to derisk project delivery and ensure operational reliability, generating value for our clients. As global challenges intensify with the continuously growing energy demand and the energy trilemma, grid congestion, limited coastal space. Offshore infrastructure is emerging as a strategic opportunity. It unlocks access to untapped environments, enabling delivery of energy or other industrial processes where land-based systems are constrained or infeasible. Ocean Infrastructure is flexible and scalable. It's modular standardized execution model supports rapid global deployment with consistency and efficiency. This approach delivers compelling economics and flexible application across a spectrum of proven technologies. For example, low carbon power, ammonia and hydrogen production, carbon capture, carbon capture and storage and fresh water generation. Offshore floating platforms can be critical enablers of resilient, future-ready infrastructure systems. This is where we can apply our experience and capabilities to offer a unique value proposition for ocean infrastructure. With over 60 years of offshore experience during which we've delivered more than 500 floating solutions and built up more than 400 cumulative years of operating experience, we combine a heritage of industry firsts deep life cycle expertise and our fast-forward approach to deliver infrastructure that is reliable, cost-efficient and built for performance. Together, this positions us not only to meet today's infrastructure demands, but those of tomorrow. Already, our teams are working on all the concepts that you can see here at the bottom of the page, to enable us -- to enable, as we like to say, a better blue tomorrow. Now over to Douglas for a deep dive on our financials.

Thank you, Oivind, and good morning, everybody. So as you've heard, our strong first half performance and the delivery of the 3 new units has driven an increase in revenue guidance to above $5 billion and EBITDA guidance to above $1.6 billion. anticipating strong underlying growth year-on-year from the materialization of our backlog. And this is very much supported by the growth of the half-on-half numbers. Now all of this speaks to the ability and the great efforts of our teams to execute our life cycle model and materialize cash from our backlog where, as we'll see in a bit, we remain on track to generate an expected average of $470 million a year available free cash flow up to 2030. And notwithstanding the recent rise in our share price, that still represents a very respectable 10% yield. And that's even more so when you consider the quality and resilience of our business model. This has consistently demonstrated its robustness versus macroeconomic and geopolitical challenges. The contracts in our backlog are backed by take-or-pay contracts from premium clients, supporting developments with very low breakevens, and have a significant inflation protection in both the construction and operating phases. And as we deliver the cash flow from our backlog, we're paying down existing project debt. Given that the FPSO projects we have in execution and all of those in our near-term tendering pipeline are based on the sale and operate model, we continue to anticipate further deleveraging of our balance sheet, simplifying our financial storyline. And then the resulting available free cash flow from the backlog supports our ability to deliver very competitive returns. We've already paid our EUR 150 million dividend in May, and have our $150 million equivalent share buyback program ongoing. So we're on track to deliver our promised $280 million cash return to 2025 and a minimum of $1.7 billion from 2025 to 2030 inclusive. So then turning to the key metrics for the first half year 2025 on a directional basis, starting with the backlog. This was just above $33 billion lower than year-end as a function of the revenue materialized over the first 6 months. 2025 is a year of delivery with the prospects we target estimated to be due for awards starting from around the end of the year. Moving to net debt. This remains stable versus year-end 2024, with a slight decrease of just under $100 million, resulting in a net debt level just above $5.6 billion. The impact of scheduled repayments during the first half was partially offset by final drawdowns under the facilities for existing projects and the previously announced sale and leaseback transaction for FPSO Cidade de Paraty which is accounted for as debt. As we'll see in a minute, the deleveraging trend towards the end of this decade remains in line with what we've previously shared. Next to the P&L metrics. So total revenue was just over $2.3 billion in the first half compared with over $1.8 billion for the first half 2024. This 26% increase was driven by the Turnkey segment, where revenue was more than $1.3 billion compared with $662 million in the prior year period. Main driver here was the Jaguar and GranMorgu projects, which follow the sale and operate model. Then on the lease and operate side, revenue was around $1 billion, a decrease of 16% compared with the prior period. This mainly reflects a reduced contribution from FPSO's prosperity and destiny as these move to an operation and maintenance only basis following the sales at the end of last year. And this impact was only partially mitigated by the contributions from FPSO Almirante Tamandaré and Alexandre de Gusmão as these just started up during the first half. Turning to EBITDA. This was just over $680 million. That's 10% higher compared with the same period in 2024. Similar to revenue, we saw an increased contribution from Turnkey at $225 million compared with a negative $12 million in the prior year period. The main driver of this was the margin for the period of Jaguar with a smaller impact from GranMorgu as this only reached the milestone for booking margin towards the end of the current period. Speaking of margin, the Turnkey directional gross margin was 21%. So that's starting to converge with the IFRS gross margin of 26% as a result of the sale and operate model. Now while we very much expect to deliver healthy margins in Turnkey, consistent with what we've seen over the recent years, with sale and operate, you can expect a bit of volatility depending on the timing of new awards and relative phasing and stage of completion of the portfolio. To round off the EBITDA story, lease and operating EBITDA was around $500 million compared with $679 million in the year ago period, the drivers being the same as for revenue. And other revenue was $41 million negative, an improvement versus $47 million negative last year as a result of lower G&A costs. Next, looking at our view of the pipeline of opportunities for the coming 3 years. Our expectation remains that the majority, if not all of these will follow the sale and operate model, where we either have only short-term construction financing as with the case of Jaguar or no debt as with GranMorgu. So our life cycle model will require a structurally lower level of debt. Now of course, while our existing debt is well structured correlated to individual project contracts and nonrecourse from the operating phase, it's clear that at least the optics of this in the financials create a challenge for some potential investors. So with the shift towards the sale and operate model, as our existing debt pays down, we expect to see the trend of deleveraging continuing simplifying an aspect of our financial storyline and more readily clearing key screening hurdles for some investors. So assuming no lease and operate awards in the period, our current expectation is that net debt should decrease by around $4 billion up to 2030. Now it's very important to note we could see some fluctuations, particularly in leverage ratios, where, for example, the 12 months to end 2024 and the rolling 12 months to the first half of this year, benefit from the EBITDA impact of the prosperity and destiny sales. And then there's also the point I just mentioned about the potential for variability driven by the Turnkey margin. However, we're confident about the overall trend. Turning to the net cash backlog. This stood at $9 billion at the end of the first half. The delta with the year-end level of $9.5 billion reflects the successful materialization of more than $300 million in the first half across Turnkey and lease and operate with a further circa $200 million difference, mainly coming from the impact of the sale and leaseback transaction for parity. Through this transaction, as well as demonstrating our ability to access diverse sources of financing, we accelerated more than $200 million at a competitive rate. At this time, we've made the Turnkey backlog a bit more prominent, as you can see on the chart, where we show the aggregate amount we expect until completion of all projects in the portfolio currently 2028. Now when it comes to the discounted analysis of the net cash value at various discount rates, there's a circa EUR 1 impact from the change in the backlog with a much bigger circa EUR 3 impact driven by dollar depreciation versus the euro. The discounted analysis includes about EUR 2.5 per share for the existing Turnkey backlog, but no upside from anticipated growth. If you wanted to value the turnkey upside applying a 4 to 6x multiple range, every $250 million of turnkey EBITDA, which is pretty much what we've delivered so far in the first 6 months would be worth EUR 5 to EUR 7 a share. The backlog with the visibility and predictability that it gives us on future cash flow underpins our ability to offer stable returns with growth potential, and we remain very much on track with this. Here, reconfirming the picture for the 6 years from this year 2025 to 2030. At the minimum $1.7 billion return, as I mentioned, we've already paid the dividend component of our cash return for this year, and we're on track with the share buyback, which will take the overall cash return to $280 million for the year. And you might ask how the parity sale and leaseback plays in this equation? Well, this was anticipated at the start of the year, and we're using the proceeds as planned to manage and optimize our liquidity, mainly to reduce the short-term net equity investment. So it's net neutral on this picture overall. As a result, upside remains from the additional $1.1 billion we effectively have in the tank from the existing backlog, plus potential new sale and upgrade awards, which, with the accelerated cash flow these bring would impact this period. So to conclude, if you want to simply summarize the future financial perspective we have for SBM, it's more returns, lower leverage, simpler story. That's it for me. Now back to Oivind to conclude.

Thank you, Douglas. So concluding. We have successfully delivered 3 major FPSOs in just 7 months, a benchmark unmatched in the industry. The upgraded guidance reflects both this operational momentum and the strong financial performance of our organization. We are on track to deliver a minimum of $1.7 billion from 2025 to 2030 inclusive with upside potential from the existing backlog and prospective new awards. Our robust business model allows us to navigate a complex macroeconomic and geopolitical landscape and deliver reliable performance, results and shareholder returns. There is a strong market for new build large and complex FPSOs today and in the years ahead. And beyond that, given the flexibility and versatility of Ocean infrastructure, we are focused on applying our unique experience and capabilities to develop solutions that can help address many of today's global challenges. So from the foundation of consistent and strong delivery of what we do today, we're set for growth, not only in the near term, but also for the long term. I'd like to finish by thanking our teams worldwide for their dedication and to our stakeholders for their continued support. Thank you all for listening. We're now looking forward to your questions.

[Operator Instructions] And the question comes from line of Guilherme Levy from Morgan Stanley.

I have 2, please. Firstly, could you say a few words on the competitive environment for new awards from Petrobras in Brazil recently. We know, of course, that there has been a big push from them to drive costs lower. But at the same time, I understand that many of the yards that won work there recently are very for work. So how can I consolidate the 2 things? How can I consolidate Petrobras ambition to drive down costs, with the ability of key EPC players to compete there? And then second question, it might be a bit more technical. But looking at your cash flow statement, could you perhaps say a few words the cash flow from investment activities in this half and in the coming one? How should we think about CapEx in the second half of the year. And also in the first half, what's inside the $180 million figure of other investing activities?

Thank you, Guilherme. So let me address the first one, and then Douglas will take your cash technical question. So competitive environment on Petrobras contracts, I think it's pretty classic. Those -- that are technically qualified to bid on those jobs is a limited number of players, and there is a healthy prospect pipeline in what we know as 50% of the market outlook for FPSO. So I think we are a partner of Petrobras, and we want to remain a partner of Petrobras. So we are obviously leaning in on some of these prospects that fit into the sweet spot of SBM, and we do see some more activities with the type of BOT contracts that yards may be entering this space, but we are confident that the life cycle value proposition also plays to our competitive positioning. So it's pretty as per historical trends on the competitive landscape in Brazil.

Okay. And then on the net -- the cash flows and investment, it's really the repayment of the residual net equity investment that we have. That's how we see the cash flow on the investing side going for this year, remembering that the picture we show you is a directional one. So we have about 300 left at the end of last year. We're making good progress with that. We probably have a bit left at the end of the year, but we'll repay most of that over this year and as I mentioned, effectively, we're applying the proceeds from the parity sale and leaseback on that. And the other one $80 million number you mentioned, that's the IFRS side of things. So it doesn't quite go around with the whole cash story line that we had -- we showed on the slide that I concluded with.

And the question comes from line of Thijs Berkelder from ABN AMRO.

Congrats with strong results. Question on your guidance, Douglas, you already hinted a bit in your presentation, but turnkey margins in H1 were up to 21%, thanks to a recognition of Jaguar now being included IFRS 26% and GranMorgu also contributing in the second half? Does it mean that in the second half, we should see the turnkey margin more towards that 26%. Second question is you report to hulls under construction. Can you maybe elaborate a bit on the options on more hulls and availability? And third question is, I see that in direction, you have $1.8 billion left as hulls under construction, is that on Guyana and Trion? Or is it still about?

Okay. Let me start on the guidance. So yes, with sale and operates a strong year for Turnkey. As I mentioned, so Jaguar was driving the EBITDA in the first half, GranMorgu is only just starting to contribute to or see a growing contribution from that. So -- but I'm not going to give like percentage guidance on the turnkey gross margin, but it's fair to say that as everything kind of normalizes, if you like, and we get the lease and operate or the BOT projects out of Turnkey, then there'll be more convergence with IFRS.

Do you want to do the last question. Yes, I'll do the hull. Yes. So Thijs, thank you for your question. So we got 2 hulls under construction, so that lines up nicely with the prospects we currently are pursuing. And then as we've been doing over the last decades, we do have good insights into the next couple of years with dialogue with our partnership yards to sort of line up their availabilities and our pristine needs. So the pipeline is something that we keep on renewing looking, let's call it, 18 to 24 months ahead at the time. So it's not a definite number. It's just a continuous journey with our partnership yards.

So then in terms of what the assets under construction are it's 1 guy on GranMorgu, Jaguar.

Thank you, Douglas.

Now we're going to take our next question and it comes from the line of Jeremy Kincaid from Van Lanschot Kempen.

I've got 4. The first one is just on the guidance. You've obviously lifted EBITDA by EUR 50 million, and you talk to strong execution of the 3 turnkey projects you delivered. Could you just provide a little bit more color around the assumptions or what's changed there? Are you collecting more revenue or at costs lower? The second question, just on the net debt you published. It's a bit different to what consensus had. So I was just wondering if you had any thoughts around that. And obviously, you did talk to the fact that turnkey margins can vary half-on-half. So I was just wondering if you could provide some color as well as to when those margins might be higher or lower at what stage of the sell and operate model would lead to higher margins or lower margins? The third question is just on Slide 12. You talked to the net cash backlog. Obviously, in the second half, you show there's another $300 million to come through. Are you able to share what the first half number was? And then finally, just on the timing of potentially new awards. I know you cannot share anything around what you're potentially bidding on or anything like that. But are you able to share when new awards are usually tendered or what the pipeline could look like for the second half of the year?

All right. Jeremy, I counted 5 questions, actually, by the way. But so no problem. Let's work through them. So the EBITDA and the 3 start-ups, so when we give our guidance for the year, we do it based on the risks and opportunities that we see. And with 3 project start-ups, there is definitely an element of risk there, some of which you control, other which you don't control because startups are sometimes dependent on other parties doing various things. So I would say at the beginning of the year, we took a kind of a balanced approach in that regard. But we're very pleased that things have pretty much gone through to plan with the 3 startups and thanks to the efforts of our team. So with those behind us, I would say there's less risk now in terms of the forecast for 6 months into the year, and that's driving the increase there. On net debt, hard for me to comment on the consensus and the variance. I haven't really done an analysis on that. But there are a few -- obviously, there's the same and leaseback that we did -- that added some debt. Margin wise, I don't expect like a big volatility for the rest of the year, basically there, I was just laying down a bit of a marker, if you like, that things can vary, and it very much depends -- you've got a lot of factors in it. So there's obviously a number of awards you win. But if you had no awards and you won a lot of awards because of the gate percentage of completion, could take a while to book. So it depends on the whole timing, the maturities. So all I'm saying is it can go up and down in the future. But nonetheless, when you look at the average, which is really how I would judge our performance, you can expect performance very much in line with the very good performance that we've been delivering for the past years. On net cash, so as I mentioned, so we consumed during the first half $500 million from the net cash backlog and $300 million was like consumption during the period, the $200 million was the sale and leaseback. Oivind, do you want to take the last?

Yes. All right. So timing on new awards. So there's obviously a lot of factors coming into play to that. So we are pursuing, as we've said, a competitive bid both in Namibia and in Brazil. We -- our efforts are going to meet all the specs and the deadlines that our clients have set and then how fast they will choose whether they will choose us. And when the FID comes, that depends a lot on parameters outside of our control. So we have -- but we have made real significant investment into providing our best competitive offers. So hopefully, that will be turned around in the time line that gives us a good top-up of our portfolio in the period ahead, but we can't really say anything on dates. That's way outside our control.

Great. And I think you're right, that was 5 questions.

Now we're going to take our next question, and it comes from the line of Mick Pickup from Barclays.