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

Ladies and gentlemen, thank you for holding, and welcome to the SBM Offshore Full Year 2020 Earnings Update. [Operator Instructions] Just to remind you, this conference is being recorded. I would like to hand over the conference to Mr. Bruno Chabas. Go ahead, please.

Thank you, operator, and welcome to the SBM Offshore Full Year 2020 Earnings Update Call. Thank you for joining us today. My name is Bruno Chabas, CEO of SBM Offshore, and I'm joined today by my management Board, Philippe Barril, COO; Erik Lagendijk, CGCO; and Douglas Wood, CFO. I will present the general strategic update of the company, after which Douglas will talk to you through the financials. As always, we welcome your questions after the prepared section of this call. On the next slide, please note the disclaimer as usual. So I would like to highlight what defines SBM Offshore's value platform today. And let's start with the ocean infrastructure platform with our Lease and Operate portfolio. This contractual backlog gives us visibility up to 2045 with associated substantial cash flow generation, all sustained by the quality of our operations. Secondly, the growth opportunity in our core business with our key transformation program, Fast4Ward and emissionZERO. These programs address the need for fast and reliable delivery, while reducing emission per barrel produced and cost. We are positioning the company to win new awards in world-class deep water development. We have a positive outlook in the deepwater market segment given the quality of these assets. And lastly, the third value platform is the new energy business centered around renewables, gas and digital services. It provides SBM Offshore interesting opportunity to play an active role in the energy transformation. We're playing this role by leveraging our extensive offshore experience technology and know-how, but more on this later. All this value platform are supported by our talented and dedicated employees, our unrivaled technology and our innovation capacity based on our experience. Now let's turn to the highlights for the year. In general, despite a challenging year for everyone, we showed exceptional resilience with robust performance, made the company stronger in order to address future market fluctuation in our core market and progress in our energy transition ambition. So we started by navigating the crisis. COVID-19 impacted our operation and still impact our operation and execution and forced us to adapt our ways of working. We implemented safety measures to protect the health of our employees and to minimize COVID-19 cases. We accelerated the use of digital solution within the offices, yards, shore bases and offshore following travel restrictions. We accelerated the company transformation to adapt to the new energy market environment. All of this led to a robust performance. All our teams stood up and faced the challenges. We managed to navigate the crisis as a result. We safeguard business continuity with project execution on [ track ], including the delivery of 2 Fast4Ward hulls and turrets project. We maintained the performance and operation of our fleet with strong HSSE and ESG results, and we increase and deliver on our guidance. All of this led to the transition in action. The pandemic for us acted as a catalyst for transformation. Our restructuring program supports the reduction of our breakeven point and ensure that we can do -- be more flexible, competitive and agile. This is essential as we enter in a period where the energy business will experience increasing demand fluctuation, but at the same time, provide significant growth potential over the coming few years. Our transition is on track with good progress on our product transformation programs. This supports growth in our core FPSO market as well as the promising market of renewables and gas. So turning now to our license to operate with HSSE and sustainability performance. And let's start with HSSE. Looking back, we see a robust trend in terms of continuously improving our safety performance. Compared to the industry benchmark, SBM Offshore ranks top quartile. Our 2020 total recordable injury frequency rate landed at 0.10, which represents a further improvement compared to an already good performance prior years. This performance is even more remarkable in the context of the COVID-19 pandemic, which increased our operational complexity and risk, with, for example, management of issues arising from fatigue. Despite these good results, safety can never be taken for granted, especially in our industry. So let's turn to sustainability performance. And with respect to our sustainability ambition, SBM Offshore showed good performance on 2 metrics: first, with the external recognition of our ESG strategy with improving third quartile rating from several independent ESG rating agencies; secondly, through strong achievements related to ambition targets with -- ambitious target we set and communicated at the start of the year. SBM Offshore continued to embed sustainability in its strategy, create transparency on its target and performance against those. 10 targets were set, covering 6 sustainable development goals. We are pleased with the progress made within the different area, whereby the company has met all its targets. I would like to highlight a few of the achievements. Our priority is to reduce emission of greenhouse gases. In 2020, our efforts led to a 36% reduction of mass of gas flared on SBM account. Emission from the FPSO Liza Destiny, who joined the fleet at the end of 2019, will be included in the target from 2021 onwards. In 2020, she faced challenges related to gas compression during the start-up phase. Although remissions were not included in the initial target for 2020, we decided to take into account her performance in the scorecard, which determine employees and management short-term incentives. Another 2020 example is the dedication of more than 50% of our R&D budget to noncarbon technology. Our sustainability approach is an integral part of our strategy, and we will continue to target improvement and be transparent on our performance. As mentioned, improving on our greenhouse gas emissions footprint is a key priority for SBM Offshore. The company works to date resulted in roughly 50% reduction of the flaring intensity of our fleet when comparing 2016 and 2020. These metrics consider operating FPSO to provide like-for-like comparison. The significant improvement was possible thanks to the digitalization supporting improved process stability and gas compression uptime as well as integrating new generation vessel in the fleet, which deliver improved carbon efficiency. The objective going forward is to further reduce our emission intensity by, for example, improving power generation efficiency, further improving vessel performance and reducing tank venting. Finally, the challenges we unfortunately experienced in the gas compression startup of the FPSO Liza Destiny has now been implemented in our lesson learned, supporting development of our future projects, product and operations. This demonstrates our continuously improvement drive and full life cycle approach by taking improvement opportunity from operation into the design of new FPSO end products. Over to our market outlook now. Although COVID-19 has caused considerable pressure in the energy business, our outlook for deepwater oil production remains positive in all scenarios. Earlier in 2020, there was significant uncertainty in client demand. Although a lot of uncertainty remains we currently identify around 25 potential awards in the next 3 years. Of this 25 potential awards, we have identified the one with a breakeven price lower than $40 per barrel, which is where the world-class deepwater projects are sitting. Our target market for large size, complex FPSO has very competitive breakeven prices and prove resilient in difficult market conditions. Despite uncertainty, but positive market condition, we reiterate that we will remain selective and disciplined. We continue to carry a capacity of winning 2-plus awards per year in order to deliver projects in line with commitment to secure long-term value for our clients and to all our stakeholders. This translates to a portfolio of 6 FPSOs under different construction stages in any given year. Looking at where market activity is restarting, we see worldwide opportunity. The key market for large size complex units remain concentrated on Latin America, our market for SBM Offshore. So let's turn to the new energy market and specifically to floating offshore wind. This market is very promising, and it is projected to grow fast, not only short term but also longer term. SBM will seek to play an active role and capture opportunities here with this technology now being deployed in the EDF Renouvelables project. Over the next 10 years, we believe the industry will have developed up to 12 gigawatts in floating windmill through more than 20 projects around the world. Our new energy team is actively engaging with relevant stakeholders, clients, developers, potential partners and equipment manufacturers focusing on the area described in the maps throughout the world. So let's turn to our strategy next. During the crisis, our vision has been confronted and remains unchanged. As a reminder, 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 evolution. We deliver unrivaled technology to the world's energy market today in deepwater oil project. We expect the energy market to go through a transition phase, using gas as a cleaner energy source with renewable energy becoming predominant in the long term. Through our technology leadership position, this energy will bring many opportunities for SBM Offshore to capture and to play an active role. Our strategy to reach this vision remains consistent around optimize, transform and innovate. Under optimize, the company accelerated its restructuring program, which allows us to lower our breakeven point to ensure we are more competitive, selective and agile. During the execution phase, we aim to continue to build on our track record of delivering on time and within budget. We delivered 2 turrets on time to our clients in 2020 and this despite COVID-19. We have 3 major projects under construction, namely FPSO Liza Unity, FPSO Sepetiba and FPSO Prosperity. These are on track as well as 2 Fast4Ward hulls under construction, which are progressing in line with schedule. During the operational phase, we then focus on delivering our backlog. We focus on maintaining uptime to our clients. Our track record is world-class, on average 99% uptime. Our strong backlog in lease and operate results in a strong cash generation for the company and its shareholders with limited operational risk. Our focus continues on further optimization in the area of cost and emissions. Under transform, we are developing the FPSO of the future with lower carbon intensity, increased delivery certainty and lower cost. Our 2 main transformation programs Fast4Ward and emissionZERO are progressing in order to address clients' requirements. Our Fast4Ward program was launched in 2014 and continue to embed learning, which continue to bring further reliability in schedule and cost advantage. Supporting our outlook, we recently ordered our sixth Fast4Ward MPF hull. The emissionZERO was launched in 2020 and has matured into a program targeting near 0 emissions from operations, in line with clients' and other stakeholders' net 0 ambitions. Digitalization remains an important element of our transformation strategy. It will support, enhance and facilitate all aspects for our business. So more on emissionZERO. The most effective way to eliminate emissions is to capture or remove CO2 from power generation and limit CO2 from flaring, which are the 2 largest source of carbon emission. Solutions such as combined cycle power and carbon capture modules are ways for reducing CO2 from power generation. With further digitalization of FPSO, we can improve operational performance uptime and in parallel further reduce flaring. Existing FPSO can implement some module from emissionZERO program. However, we see emissionZERO to be most effective when designed from start. This is in order to benefit from our cost efficient Fast4Ward hull and topside catalog with standard components, supported by partnership agreements in the supply chain. Today, SBM Offshore has sufficient technology and experience to start deploying emissionZERO modules. Market acceptance is key, and we are inviting our clients to join us in this journey towards 0 emission. Now let's turn to innovate. Addressing the energy transition, we launched our Ambition 2030, 1 year ago. Our ambition is to generate 25% of revenue from renewables and gas technology by 2030. SBM Offshore, under new energies and digitalization platform, has dedicated product line teams working on developing new technology and product offering. For example, in the gas product line, the team is rapidly progressing in creating a new value proposition for the gas to power market and its developing solution in the LNG to Wire and LNG to Terminal market. In renewables, we're developing our product in floating offshore wind and our wave energy. So to expand a bit on those 2 products. We are leveraging more than 60 years of experience from floating production system in the quarter, while ensuring safety, sustainability and affordability of renewable energy. Our floating offshore wind solution was not developed overnight. It is based on our well-proven Tension Leg Platform technology. We transferred this technology from the old renewable business and we optimized it. Within the value chain, we are well positioned to create value from our high-quality teams, confirmed by our track record of delivery, both in EPC work and in our operation. Looking at the development we are working on today. So on floating offshore wind, we're working on the Provence Grand Large project from EDF, 3 units of 8.4 megawatts to be deployed offshore Marseille. The current status is that we're entering the procurement and construction stage of this project. On the Wave Energy Converter, we're working on the project to deploy a prototype offshore Monaco. The current status is the completion of the design and fabrication of the first section of the innovative S3 Wave Energy Converter project at our lab in France. We expect to have a prototype in the water by 2022. Key for the success of renewable technology will be a competitive leverage cost of energy associated with reliability of delivering, lowering costs and reducing environmental footprint. The execution drivers are similar to the ones in our traditional market and at the core of SBM capability. To achieve all of these in the renewable markets, industrialization of our product is essential. Within the design of our renewable products, we embed the principle of standardization, scalability and repeatability to benefit from economy of scale. Now let's turn to our return to shareholders. The energy market has been volatile and any capacity to return capital to shareholders is not a given. SBM Offshore is an exception to this. From our strong backlog with a high cash flow conversion and our business performance, we have been able to realize a consistent growing dividend and on top of this, executed 3 buybacks in the past 5 years. When taking our dividend proposal in 2021 into account, which is an increase year-on-year, we will have returned more than USD 1 billion to our shareholders over a 6-year period, which represents almost 1/3 of our current market capitalization. It demonstrate the strength and resilience of our business model and the delivery of high-quality teams. So I'm turning it now over to Douglas for going more in detail in the financial. Douglas?

Thank you, Bruno, and good morning, everybody. So the exceptional events of 2020 could be said to have provided SBM with the ultimate stress test against which both operationally and financially we've stood up well, a function of the hard work and ingenuity of our people and the quality of our business and cash flow model. As a result, we maintained our dividend increase and completed our share repurchase, totaling more than $300 million in aggregate, plus delivered results in excess of initial guidance. Now despite the market turbulence as a result of the pandemic, we were able to secure additional financing for projects under construction, and we ended the year with our $1 billion revolving credit facility undrawn, providing us with ample flexibility to fund future growth. Further, we've made progress with implementing new tools and structures to increase financing and cash flow optionality. Taking into account the circa $1 billion net increase in the backlog, we're proposing to increase the dividend by 10% to $165 million. So I'll come back on the new financing tools and structures and the analysis supporting the dividend in a minute. But first, to review the key metrics for 2020 on a directional basis. Year-on-year, 2020 showed an increase in both revenues and EBITDA. Both indicators were impacted by the same drivers. First, Destiny was added to the fleet at the end of 2019, contributing during the full year of 2020; and then second, SBM purchased additional shares in 5 Brazilian FPSOs in late 2019, which also contributed over the full year 2020. And these more than offset decreases in Turnkey caused by the fact that the balance of Turnkey activity was more weighted to projects to be transferred to the Lease and Operate portfolio where the associated revenue and margin will be booked post construction during the lease period. Then as highlighted at the end of the first half 2020 concerning the early redelivery of the Deep Panuke platform, we've adjusted for the accelerated recognition of revenue and EBITDA related to cash to be received in 2021 that had to be accounted for in 2020. And so as you can see on the slide, this amount of $77 million has been excluded from the underlying numbers for 2020, and we intend to add this back in 2021 on an underlying basis, in line with the associated cash flow. So reflecting all of these elements, underlying revenue of around $2.3 billion increased by 6% compared with the previous year. An underlying EBITDA of $944 million was up 13% year-on-year. And the pro forma backlog increased by nearly $1 billion to $21.6 billion, and we'll go through the details on a separate slide. Finally, the increase in net debt of $0.6 billion is driven by the investment in growth we saw during the year, and this debt is linked to specific projects with repayment structures to match the cash flows they will generate from the backlog. Now to provide some additional details on the segments, starting with Lease and Operate. So for Lease and Operate, again, the main factors for the increase in revenue and EBITDA above 20% on an underlying basis in both cases, with Liza Destiny joining the fleet and the acquisition of the Brazilian FPSO minority share. Then on to Turnkey, underlying directional Turnkey revenue decreased to $669 million, this compares with $856 million in 2019. And although there was a high level of activity with 3 FPSOs under construction in 2020, following the completion of the main EPC activities for the Johan Castberg Turret earlier in the year, the balance of activity in 2020 move towards projects linked to Lease and Operate and therefore lower contribution to Turnkey revenue. Now on underlying directional Turnkey EBITDA, this decreased from $53 million in the year ago period to around breakeven at $9 million negative in 2020, and a year-on-year decrease from the lower activity in Turnkey linked to the Castberg Turret was mainly offset by the ramp-up of FPSO Sepetiba related to JV partnership. And then the impact of $40 million restructuring costs booked in Turnkey took the results to around breakeven. Finally, as we note at the bottom, on the corporate side in other, we see an increase in cost to $78 million. And this year-on-year increase mainly resulted from one-off legal and tax expenses, restructuring costs and investment in the company's digital initiatives. And on the latter, we'll likely see a continued impact in 2021 and 2022 from these investments, which are expected to generate healthy positive returns but with an expectation of a reduction in costs thereafter. Turning to cash flow on a directional basis. So here, you can see the 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. We've highlighted the corporate operating cash elements in green, and you can see that this was sufficient to cover the dividend. Then in terms of investing in financing activities, for ongoing core activities colored orange here, cash inflow from borrowings exceeded cash out towards investments. And here, you see the impact of an element of our cash flow model that we highlighted last year, namely the recycling of corporate cash invested at the initial stage in projects after applicable long-term project financing is implemented a bit later on. So this effectively generated additional cash flow at corporate level, facilitating the buyback and minimizing the draw on cash to cover this in one-off items, resulting in a net cash reduction of $75 million over the year. Now to look at where we stand on the balance sheet and liquidity. And starting with the summarized version of the directional balance sheet, which is driven by the projects and financing linked to the contracted backlog. Construction activity on FPSO Sepetiba, Unity and Prosperity has led to a growth in the Lease and Operate part of the balance sheet. Construction project debt is directly linked to these projects, and this financing will become non-recourse once the projects for each of the operating phase. At the end of the year, the split between nonrecourse operating project debt and construction project debt was approximately 70-30. Looking at the difference in assets under construction and construction debt, the majority of this is third-party working capital impact, and then the financing to be implemented relative to the rest will contribute positively to our financing cash flow. Then on liquidity, looking at the pie chart. As at the 31st of December, we had $1.7 billion of liquidity with the RCF undrawn at year-end. The financing for the FPSO Sepetiba is progressing and on closing will be used to repay the bridge loan, which is currently being used to finance the project. Now to focus on the backlog and the net cash flow to be generated going forward. The backlog increased from $20.7 billion to $21.6 billion. The key increases to the backlog relate to our projects in Guyana. We have the addition of the FPSO Prosperity following FID by the client in October 2020. This is a contractual 2-year BOT project. So it adds to the blue Lease and Operate backlog in the first 2 years of operation with a purchase assumed in orange, adding to the BOT backlog in 2026. I say in principle, because as communicated at the end of last year, we have commenced discussion with the client regarding the leases of FPSOs in Guyana, which could have a significant impact on the timing of our future cash flow. As a result of these discussions, we no longer assume purchase of the Liza Destiny in 2021, and we've reverted to reflecting its contractual duration of 10 years. And looking at the evolution of net cash from the backlog, compared with the last version, where there was an orange bar for Liza in 2021, representing the earlier expected sale, this has now been smoothed into the blue Lease and Operate bars over the lifetime of the charter contract. Our pending conclusion of discussions with the clients and, of course, project lenders, FPSOs Unity and Prosperity are maintained per their contracts with the assumption of a purchase at the end of a 2-year lease period. However, a material portion of the aggregate orange bars could change to Lease and Operate revenue, growing this portion of the backlog. At the end of the year, we also agreed the extension of the charter of the FPSO Espirito Santo in Brazil for a period of 5 years. This extension and the impacts from Guyana more than offset the impact of consumption of backlog by turnover during the year. Important to note here that we now show the net cash backlog on an after-tax basis. We decided to change this due to 2 factors: first, the implementation of REPETRO, a new tax regime in Brazil; second, the increase in weighting of projects in Guyana with Destiny now reflected as a 10-year lease and then the addition of Prosperity. Although both factors lead to increased tax, revenues remain consistent with the assumptions assumed in determining the relevant charter rates. The net result is that the overall economics remain unchanged. On this after-tax basis, average net lease and operating cash flow is $260 million for the 25-year period. In the appendix of the presentation, you'll also find the usual presentation of the revenue backlog and associated debt repayment profile. Finally, as per last time, we've discounted the net cash flows plus currently assumed cash from the sale of the BOT projects in orange, also net of tax, by the way, at a range of discount rates we observed being used by the financial community. We stated all the assumptions on the slide, but key to note that this only includes the in-hand projects in the backlog, so it doesn't include any value for lease extension options and also for the avoidance of doubt, it doesn't include any future growth. So for a range of discount rates from 8% to 6%, you can see this gives a range of approximately EUR 16 to EUR 18 per share, which compares to yesterday's closing price of EUR 15.36. Now this range is the same as last time, notwithstanding the increase in the backlog but the point to note is that the depreciation of the U.S. dollar exchange rate since last time from 0.9 to 0.83 resulted in a negative impact of around EUR 1.5 per share, so you could add this back to get a like-for-like comparison. And the increase in Lease and Operate backlog facilitates the increase in dividends. But before covering the details of this, I wanted to spend a moment on financing and the optionality that we have around this. In past presentations, we have focused on the efficiency of the financing model for projects, allowing us to finance a significant part of the construction cost of an FPSO with debt. Today, I wanted to build on that and to focus on 2 areas where we have made progress in implementing new tools and structures to increase the options we have in financing growth and managing our cash flow. The first is around what we call backlog based financing and the second our ability in future to access specific pools of finance that target investment in renewables. Backlog based financing is the ability to raise debt and equity financing from the existing Lease and Operate backlog. This can be at portfolio level, given we now have our funding platform in place, or through refinancing of individual projects where we optimize the debt and amortization profile on existing facilities, helping to manage our cash flow profile and creating options to accelerate cash and value at corporate level. And together with our partners, we recently launched a bond refinancing of the project financing debt for the FPSO Cidade de Ilhabela in Brazil. This will extend the maturity of the debt from 2024 to 2034. Thereby, in the short term, reducing principal repayment of debt and increasing the level of cash flow available to the Ilhabela shareholders with SBM Offshore owning 75%. The proceeds of the bond will be used to repay the existing bank lenders, in principle, allowing them to recycle these funds into future project debt required for the anticipated FPSO growth in Brazil. In addition, net of fees, the sizing of the bond is approximately $280 million higher than the outstanding loan, meaning that this amount of cash will effectively be accelerated to the shareholders' 75% SBM share. We've seen strong demand for the bond, which was trading at a yield -- a bit below 5% yesterday. Now there are additional project level refinancing opportunities that we are currently exploring, and we're also reviewing the possibility of developing a financing tool at portfolio level that would provide additional optionality to accelerate cash flow. And of course, just for completeness, we also retain the option for further sell-down of equity at project level. Finally, on the philosophy for funding new energy projects, we envisage that gas and renewables projects, which materialize will either be on a Turnkey basis or financed on a similar basis to Lease and Operate FPSOs. So in other words, not requiring a major draw on cash flow from our existing core business. Although we could pursue small-scale M&A to accelerate our technology road map or to enhance access to the pipeline of opportunities. Now, in order to be able to raise financing for renewables projects in the future, as shown on the slide here, we've now established a renewable energy platform company, which will also give us the flexibility to raise dedicated renewables financing at an attractive cost of capital, either at the project levels below it or, to the extent major growth funding may be required at a point in the future at platform level itself, for example, the future commercialization of our Wave Energy Converter. So the combination of backlog-based financing tools and the renewables platform, gives us a good deal of flexibility in being able to manage our cash flow in order to optimize both cost of financing and access to the broadest possible pool of liquidity. Now looking at where we stand on contracted cash flow in the short-to-medium term. As per usual, we have mapped out the average cash flow related to the backlog for the next 6 years, being 2 construction cycles for the average FPSO. And we're using the same model where the starting point is cash from Lease and Operate. Where this time, we simply use the net cash flow shown earlier. So that's net cash from Lease and Operate after overheads, debt service and also now tax. Then we allocate all corporate overheads to Lease and Operate on the basis of an assumption of $70 million. Putting all this together, results in $270 million per annum net cash generation on average over the next 6 years before dividend distributions, noting that the lower level in 2021 is compensated by future years. We look at this in-hand future cash flow, which does not include future awards, as effectively underpinning the sustainability of and also possible growth in future dividends, contractually secured with very long visibility. As in the past, the assumption here is that Turnkey can be at least neutral. And based on the Turnkey backlog as presented today, including BOT, Turnkey is positioned to be about self-sufficient for the majority of the period, including tax. As I've mentioned, the discussions on the Guyana lease durations could have a material effect on the phasing of the backlog, smoothing portions of the currently assumed near-term Turnkey BOT backlog into the future Lease and Operate portion of the backlog. Of course, though, we're aiming to add more projects to the Turnkey backlog. Also, as just discussed, backlog-based financing will give the flexibility to accelerate cash flow to equity, which can then be used to cover any costs in Turnkey or corporate investments to the extent necessary. As such, then, we've got the ability to manage and mitigate possible impacts on the available in-hand cash flow in the short-to-medium term. Our dividend policy is to pay a stable dividend, which grows over time, and we've linked growth in dividend with growth in the in-hand Lease and Operate backlog. Now there are a few moving parts on Guyana to be confirmed in the coming year, and obviously, a material part of the backlog relates to projects under construction, which remain to be finalized. But nonetheless, based on the current result in Lease and Operate and underpinned by the growth profile in our Lease and Operate backlog, we are proposing to increase the aggregate dividend by 10% to $165 million, which gives $0.89 per share. Compared to yesterday's closing price of EUR 15.36, this represents a yield approaching 5%. As you see in the chart on the left here, since we restarted paying dividend in 2016, we've generated an average annual growth rate in shareholder returns approaching 35%. In the coming years, new awards and backlog-based refinancing could add upside in the short-to-medium term. We will look carefully going forward at such potential impacts. And in this respect, our approach to shareholder returns and capital allocation remains the same. Having funded growth in the dividend, we retain the option to use excess cash for buyback. Then looking at the right-hand chart, you can see the development of the share price over the same period as on the left-hand chart, shown here versus the OSX, Oil Services Index, as well as the AEX and MSCI Europe Index. And we believe this demonstrates that SBM Offshore is clearly differentiated from the Oil Services Sector, particularly when you look at the past 2 years, with the focus on shareholders' returns, underscoring our positioning in ocean infrastructure. As just discussed, in relation to the analysis of the current backlog and its potential evolution, there is upside to further grow returns. We see our strategy delivering further additions to the backlog with progressive reduction in its carbon footprint. First, from growth in our core business, leveraging the principles of Fast4Ward and emissionZERO; second, from using our expertise in floating energy to play a role in the energy transition and bring new floating energy solutions. So we're therefore evolving as an energy infrastructure company with the experience, capability and track record to add, execute, finance and operate new growth opportunities through the energy transition. That's it for me. Now back to Bruno.

Thank you, Douglas. And let's now turn to the outlook before we open the floor for questions. Our guidance for 2021 is the directional revenues of around $2.6 billion, with around $1.6 billion from Lease and Operate activity and around $1 billion from Turnkey. Guidance for 2021 Directional EBITDA is around $900 million. This includes $77 million revenues and EBITDA for Deep Panuke to be receiving cash in 2021. We also consider the currently foreseen COVID-19 impacts on project and fleet operations, while we note the ongoing uncertainty with respect to the COVID-19 crisis. I would like to conclude with a summary. SBM added another very good year to its track record. Despite COVID impacts, financials came in per guidance. This financial result and the associated quality of our operation track records are credited to our talented and world-class management and personnel. Our backlog provides unique visibility on our ability to generate cash, leading us to the proposed dividend increase. We maintained our positive outlook for deepwater oil developments even under stress scenario in which pressure -- in which the oil markets will remain. For experience or unique offshore technology and our progress in developing new product offering in gas and renewables, SBM Offshore will play an interesting active role in the ongoing energy transition transformation. So all of this concludes the prepared portion of our call. We're now opening the floor for your questions. Thank you for listening.

[Operator Instructions] And the first question is from Mr. Henk Veerman, Kempen & Co.

I have a couple of questions. So first one, on the guidance of EBITDA, $900 million, which includes Deep Panuke of $77 million. So on an underlying basis, EBITDA of about $820 million. And if I then do a quick and dirty analysis and I, let's say, assume that the lease fleet generates about $1 billion of EBITDA, that would leave me with a gap of about $180 million for Turnkey and overhead costs. So you say that you are prudent because of the COVID -- the potential COVID impact still this year, but can you explain maybe what this gap of about $180 million consists of? That's my first question.

Okay. So that's clear. As you know, there are a lot of things which are coming into play in the Turnkey, and in particular, the fact that we don't recognize a lot of margin on this. But Douglas, do you want to go through the detail of it?

Yes. So, Henk. I mean part of it is obviously the other corporate overheads, where, as I mentioned for this year and likely the next year, we'll see them a bit more -- a bit higher than usual. And that's a function of some of the investments that we're making on the digital front, which have very good payback and then, after that period, we'll see it trending down. And then really, it's the point that Bruno just mentioned, we're very busy in Turnkey. But again, this year, what we're going to see is that, that activity is geared towards projects that have either got 100% or majority ownership. So that really explains the difference there.

Okay. Second question is on the backlog financing that you talked about. Let's say, the Liza Destiny is now a long-term lease. And potentially, Unity and Prosperity will also become long-term leases, depending on your discussions with the client. But I mean you especially mentioned selling down equity stakes. Is it also something you would consider for these 3 FPSOs, if they would become long-term leases?

Yes. So if -- I'll take this one, Douglas again. So -- yes, I mean, indeed, the point is, I mean we're having discussions about the leases, we need to see where they result. I think, overall, relative to the backlog, I mentioned that we have still, of course, the ability to sell equity. But I think what I'd also highlight in terms of managing the overall cash flows is the refinancing that we've just done on Ilhabela. So that kind of refinancing is a very cost-effective way of accelerating equity cash flow, and that gives you options for financing projects other than needing to have partners.

Okay. Last question is on the Offshore Wind market, where you give a sort of long term -- quite a favorable long-term outlook on the market. Do you expect to really commercially tender for projects this year or is this year already -- is this year too soon? It's rather 2022, 2023?

So at this stage, what we're doing on the Offshore Wind Market is obviously finalizing the prototype and pulling it offshore. In the same time, we're also capitalizing on the learning that we're having and simplifying what we're doing in order to be ready to tender for some pre-commercial or commercial form. Now there's going to be some projects which are going to be coming during 2021. But I really suspect that most of the commercial activity will take place in 2022, 2023.

The next question is from Mr. Thijs Berkelder, ABN AMRO.

Yes, gentlemen. Coming back on the guidance outlook, can you roughly indicate what kind of COVID-related costs you are, at this moment, building into that guidance for 2021?

Douglas, do you want to go through this?

Yes. So indeed, we're focusing on keeping personnel safe and also maintaining our operational performance. We have incurred extra costs in operations and on projects. In operations, some is reimbursable, others we need to cover ourselves. On the project side, we've been working with clients and suppliers in order to mitigate the impacts on costs and also delays. And all of these impacts are incorporated in the overall financial results, as we presented today, EBITDA came in as guided. Looking forward, we're incorporating what we've learned in 2020, and we're assuming kind of a similar level of impacts from COVID on the financials for 2021.

That's again, roughly $50 million or so?

I think it's in line with what we have in the results for this year.

Yes. Okay. Clear. Then I have a question on your Slide 28, the pro-forma in-hand Lease and Operate cash analysis. This 6-year average or the 6-year average numbers are substantially higher than the ones you gave a year ago. So this seems to show that you have a much stronger fundament for paying out dividends, much more room for dividend and the 10% communicated today. I assume this is -- this slide is based on average revenues of $1.5 billion per annum. If I then look at your Slide 34, it's obviously and then really excludes the BOT sales in that pro forma analysis already. Is that right?

That's correct. Yes.

Yes, that's correct, yes.

Yes. So this really is, although being much higher than the previous one, still very conservative. And another question is you're now indicating only corporate overheads and leaving tax rate. Can you maybe communicate what is happening on the tax side at SBM Offshore? What kind of tax rate should we use and also in this picture, what is the tax effect?

So Douglas will go more in detail on this. But as was mentioned, the tax now is incorporated into the operating expense, but Doug that go through this more.

Yes. So maybe first, just your reflection and suggestion that the dividend increase is conservative. I think to start with, as you saw over the past years since we restarted the dividend, we have returned on average annual growth of coming close to 35% per annum. Now our dividend policy is to pay a stable dividend that grows over time. Now I think one of the key points to note here is that, as I mentioned, there are still some moving parts in the backlog. We need to finalize discussions on the Guyana leases. So yes, that's an important component to nail down going forward. I think, yes, the other point you can see on the chart that 2021 is a bit on the low side with then the benefits to come in the future [indiscernible]. But those are, again, driven by projects, as I mentioned -- some of that is related to projects that are still under construction and need to be finalized. So yes, we think 10% is a very appropriate increase given the overall context that I just painted. Then you had some questions around tax. So what we've done now is we're moving towards rather than giving you kind of individual components of the backlog and then you do your own work to sort of figure out what the cash flow is going to be, we decided to do the work for you, that's why we prepared the net cash chart. And as I mentioned, because there are a number of reasons, taxes going up, in line with expectation and no impact on the economics, but we just decided to include the tax impact. And tax impact in SBM is mainly in Lease and Operate. We decided to include that in the net tax return. So that is in -- the average net cash from Lease and Operate, that's included in the chart. Then -- and then there is some small tax impacts here and there on the corporate side in our Turnkey modeling, which, again, for the purposes of this model, we say conservatively, Turnkey should be at least neutral for the majority of the period, that includes any tax impacts.

Okay. That's clear now to me. But still, the average net cash generation, even though using a very conservative revenue outlook, is 55% higher than what you communicated a year ago. So I hope this is a clear sign for dividends next year.

Yes.

We'll see here. So next question is more focused on negotiations ongoing. What roughly -- can we get a rough feeling for Búzios 6 on time frame, timing negotiations, et cetera? And maybe on new contract tenders kind of situations in Guyana?

Okay. Let me take this. Philippe, if you want to add something, you give me a sign. So if we look at Buzios, as we noted and as we made the market aware and Petrobras made the market aware, we have been within the direct negotiation and direct discussion with the clients on this subject. The timing is really not depending on us. The timing is really depending on the client evolution. And I really cannot comment on that. That's really more for Petrobras to provide you some guidance on this. Now if you look at the market at large, you can see that we mentioned that there are 25 opportunities in the market in the coming 3 years. We can see opportunities coming, obviously, in Brazil, obviously, in Guyana, we can see opportunity also in Surinam. We can see also opportunities, which are starting to develop in Western Africa. So what I'm saying there, it's not only one market where opportunities are rising. Now the timing for those opportunities is highly variable and evolving almost on a daily basis. So focusing on any one of those opportunities, I think is a bit meaningless at this stage. What is more important is the macro picture of the deepwater market and the fact that this market is quite resilient to the fluctuation of oil price.

The next question is from Mr. Luuk Van Beek, Degroof Petercam.

Yes. Well, my first question is on the new energies. Can you update us on the level of investments that you expect in the coming years? And to what extent there will be a significant impact on the P&L in 2021?

So in terms of investment, as we mentioned, our R&D budget is going 50% -- or in 2020, was above 50% in the new type of energy business. With time, this is going to increase and probably going to go more towards 75% of the CapEx expenditure. Now the CapEx expenditure, if you look at our history, has been rather constant over the years, somewhere in the range of $25 million to $30 million per year. So really no change there on this aspect. The second part is it is a market, which is really starting, where there's going to be opportunities and a growing number of opportunities. We're looking at it carefully. We're looking at it on opportunities where we can generate value for stakeholders at large, and that's the approach we're going to have. Does it mean that, that time you're going to have to make some investment -- small investment? Potentially. But this definitely is not going to impact the overall cash flow generation of the company and the ability to provide a dividend to our shareholders.

Okay. My second question is on the financing. Yesterday, you announced the $850 million note for Ilhabela. To what extent do you expect the mix of financing to change in the future? And will that have an impact on the cost of financing going forward?

So Douglas, why don't you expand on the optionality that we're creating in our financing and the opportunity that they generate for us?

Yes. So yes, thanks for the question. I think we're very pleased with the high level of demand that we got for the bond and where it's currently trading. And I think this opens up or sort of solidifies the availability of a new tool for financing our projects. It's really helpful to have this, particularly in Brazil, where there's a lot of opportunities that require financing. So traditional sources of financing while certainly still available, they're not finite. So what this enables us to do is, I said, is to recycle some of the cash from the existing projects, make it available for financing by banks of our upcoming projects. And the other option that this provides us with is the ability to raise finance to fund our equity share, for example, of new projects, and we have quite a lot of those where we're doing at 100%. We can finance those at a very attractive cost when you compare to cost of selling equity in projects. Now as I mentioned in the answer to another question, likely, we still do use equity funding of projects because often our equity partners bring access to finance, which is very helpful. So I continue to see us do a mixture of those. But yes, no, I think it's really good from multiple perspectives that we've opened up access to the bond market. And as I mentioned, we see other opportunities at project level to do more transactions like that.

Okay. And my final question is on the topside standardization. Can you give an update on say the percentage of standardized topsides in -- how it's progressing over time? So do you see increasing opportunities with the new tenders that you're preparing? Can you say something about that?

What I can tell you is about the Fast4Ward program. We started this in 2014. We're starting to see the first benefits of it and actually they come -- one of the external way of looking at it is the fact that, despite the fact of the COVID crisis, we're able to maintain the planning by and large. And this, despite a lot of impact on the construction side and a lot of impact on the -- due to COVID. Now my view is that we're already at the beginning of what can be done there. And that we're going to be able to go through the learning curve on the different units as we develop them. The reality of this is going to mean that we're going to create more reliability in the delivery of these assets and when you look at the FPSO market, you can see the statistics from the year, and which doesn't improve in the current year that only 30% of the FPSO are delivered on time. So reliability is a big component of generating value to our clients and obviously making deepwater economics. So we already believe that so far, we're going to increase the reliability, and as you increase reliability, you obviously decrease cost. But it's really -- let's wait for 2021 before we can provide more granular guidance on this subject.

The next question is from Mr. Andre Mulder, Kepler Cheuvreux.

I had a handful of questions. Firstly, on this Ilhabela refinancing, that's looked to be the most probable. Where do you see other possibilities there because most of them are quite small or already have long-term financing. So where do you see the possibilities in the current portfolio? Secondly, this amount of $260 million after tax, the $240 million is before tax. So how would that look comparing apples to apples? Question on the Liza 1. It's now considered a 10-year lease. It means it is now taken into calculating the room that you have in the yards [ here ]? A question on the floaters that will come off contract in '22. Any news on those contract extensions? And last, where do you stand in terms of the talks on the Sepetiba loan?

Okay. So I propose Douglas to go through all the financial question. With regard to extension on contract, if and when they come, we obviously advise the market, and that was the case at the end of 2020 when we made the announcement on the Espirito Santo extension. So the same would apply on the other if ever this were to apply. Douglas, do you want to go through the 3 financial questions?

Yes. Okay. Andre, so on -- yes, Ilhabela, opportunities to do more things. There are a number of opportunities, specifically in Brazil. Now whilst indeed some of our more recent projects have long-term project financing, the point is really that the period of the leases is much longer than the debt period. So we've got around 20-year leases. So that gives you the option to do kind of longer-term bond financing even on some of those newer vessels. You were asking about the $260 million. So now it's after tax. I mean, what I would say is this is what we're going to focus on now. But of course, yes, if we'd done it pretax, the number would have been higher, but we want to move just to the average cash flow on a net cash basis. And I think that's the most useful because that's the cash we're going to see in the bank at the end of the day. Then on the 10-year lease and the RCF, yes, we include that in the backlog cover ratio for the RCF. You then asked me about Sepetiba. Yes, so the financing, it's progressing. As I've mentioned before, there are a lot of parties involved. It doesn't help that you have to do everything on the remote basis, it makes coordinating meetings with multiple parties more challenging, but we're progressing in line with expectation there.

Should we see a conclusion already this year or will it be stretched to next year?

Of the finance -- yes, that's the expectation, yes.

For this year?

Yes.