Seatrium Limited (5E2) Earnings Call Transcript & Summary

Good evening, everyone. Thank you for joining us on our first half 2021 results webcast. I'd like to remind all that some of the statements made on the call today is forward-looking in nature and a detailed disclaimer in this regard has been included in the press release and related documents. On the call today, we have Mr. Wong Weng Sun, President and CEO of Sembcorp Marine. He is joined by Mr. William Goh, Group Finance Director. Without further ado, I'd like to invite Mr. Wong to address us. Mr. Wong, please.

Thank you, Mun Yuen. Good evening, everyone. Thank you for joining us at Sembcorp Marine First Half 2021 Results Webcast. The challenges faced by the group are real and severe. Due to the protracted effects from the COVID-19 pandemic, these challenges have lasted longer than anticipated. Over the course of 2021, new waves of localized infections continue to surface with new border control measures put in place. We continue to face supply chains disruption and shortage of skilled manpower. This further impacted our yard operations and the scheduled completion of projects. A majority of the group's projects have been delayed at least 12 months since the start of the COVID-19 pandemic. We have taken concrete steps to address these challenges. Firstly, to mitigate the risk of project cancellations, the group has been coordinating with customers to reach mutually beneficial outcomes of project rescheduling. I am pleased to share that there's no cancellation of any of the group's assisting project to date. Additionally, to complete the existing projects with minimum further delay, the group has actively sourced for skilled workers from other countries, tapping into alternative labor supply other than the recruitment from sources the group used to hire from. However, it is also noted that, along with the success of project rescheduling, the group faces deferment in payments. This means a significant reduction in revenue received in the near term. The active steps taken to address the acute labor shortage have resulted in an increased manpower and other related costs amounting to SGD361 million. Costs such as higher wages and costs upfront, COVID-19-related recruitment costs, including up to 5 weeks of quarantine at home country and Singapore. Additional project-related costs due to work rescheduling, extra subcontract work, additional material usage and other staff turnover-related costs. On average, recruitment from the alternative sources cost more than twice that from the group's user sources. While we incur significant additional cost, completion of our projects with minimum further delays mitigates the risk of project cancellation. At the same time, it frees up our resources to take on more projects. This development has impacted the group financial performance. The group registered a substantial net loss of SGD 647 million for the 6 months ended 30th June 2021, including provisions of SGD 472 million, largely related to higher provisions of manpower and other related costs to complete most of our existing projects over the next 6 to 18 months. Due to the COVID-19-related executive delays and rescheduling of project delivery, the group's revenue for the 6 months ended 30th June 2021 came in at SGD 844 million, SGD 62 million lower compared to first half 2020. As a result of significant reduction in revenue receipts and increase in cost, the group faces higher negative operating cash flows, which affected its near-term liquidity position. We have taken actions to reduce the group's monthly operational cash burn rate and to carefully manage our working capital. We have also deferred all nonessential capital expenditure incurring only maintenance spending to ensure yard safety and operability. External consultants have been engaged to develop a holistic performance improvement plan, PIP, to drive operational improvements and optimize our cost structure. The PIP will include strategic cost management initiatives, improved project execution and procurement processes, digitization and overall reduction of overheads. Given the challenging business environment, the group faces increasing challenges in refinancing its existing maturing debt. As such, we expect an increasing need to repay more debt upon their maturity over the next 18 months. Allow me to briefly mention about the net cash proceeds raised from last year's rights issue. Of the SGD 0.6 billion of net cash raise, SGD 0.43 billion has been used for working capital purposes, including SGD 0.13 billion in July 2021. It has progressively become evident that the impact of COVID-19 and the industry downturn has been more protracted than originally anticipated. Hence, the remaining of SGD 0.16 billion net proceeds from last year's rights issue is now insufficient. On 24th June 2021, the group issued an announcement related to a proposed rights issue and addressing the group's immediate funding needs. The proposed rights issue is expected to strengthen the group balance sheet, replenish the group temporary working capital depletion and enhance the group's liquidity position to meet its projected operational funding requirements until at least the end of 2022. The proposed rights issue will also allow the group to keep its sights on its future strategic goals, especially the proposed rights issue will enable the group to continue to successfully execute assisting projects and competitively bid for higher value and larger scale projects, allow the group to pursue strategic investments to further augment this technological capabilities and accelerate the group strategic transition towards the high-growth renewable and clean energy segment to secure sustainable long-term growth. The Board of Directors of Sembcorp Marine has considered various financing options and believe that another equity rights issue at this point is most optimal solutions. The fully committed nature of the proposed rights issue means that the group and stakeholders, including investors and customers, have the assurance that the group will raise approximately SGD 1.5 billion that it critically requires. This is a very brief review of the group's financial performance and position. William Goh, our Group Finance Director, will provide more details on our financial performance shortly. Let me now turn to a discussion of our operations. Despite extreme operational challenges encountered due to the acute manpower shortage and other supply chain constraints, we managed to complete a number of projects successfully in first half 2021. These include the fabrication of 2 wellhead and 1 riser topsides and 2 bridges for the deployment to TotalEnergies’ Tyra Redevelopment Field, which has since sailed away to the Danish North Sea on 25th July 2021. A 125,000 cubic meter FSRU delivered to our customer Karmol in March 2021 for deployment to Senegal to bring cleaner LNG power electricity to the surrounding locations. Completion of FSU conversion project, GasLog Singapore, for our partner GasLog LNG in early July 2021. Major upgrades of FPSO Ningaloo Vision for Teekay; FSO Prem Pride for Synergy Marine Group; and heavy-lift vessel Aegir for Heerema Marine Contractors for deployment to Changhua Offshore Wind Project in Taiwan in first half 2021. Completion of Murex, the first of the 5 LNG liquefaction -- reliquefaction plant installation projects for Teekay, currently managed by Shell. Major refit of limestone carrier, Accolade II for Inco ships. Major repairs of 10 LNG carriers. And repairs and refit of 22 cruise ships. For ongoing project development, notably, we may progress in the construction of Shell's Vito host with the successful lifting and installation of the FPU's upper column frame in May 2021. This was the first time a tandem lift. The simultaneous lifting performed by 2 cranes was executed by our 30000-tonne goliath cranes. Ongoing works are currently underway to prepare for the next major construction milestone, including the mega lift of 9,200 tonnes FPU single topside module, scheduled in second half 2021 before the final integration and commissioning phase of the project. Following delivery of the completed facilities for TotalEnergies’ Tyra Redevelopment project, the group is currently fabricating the remaining 3 topsides modules and 2 bridges, which are projected for completion in January 2022. In June 2021, taking into consideration destruction arising from the COVID-19 pandemic, the group entered into Amendment Agreements with Transocean Offshore Deepwater Holdings Limited to revise the delivery dates of 2 ultra-deepwater drillships. These drillships are designed and equipped to optimize fuel consumption and reduce emissions. They boast off many firsts. They are the first of the next-generation drillships with ultra-deepwater drilling capabilities to be constructed in Singapore. And they are the only drillships in the world with 3 million pound hook-load and are capable of 20,000 psi drilling operations. The Group also secured an Amendment Contract in June 2021 from Tupi B.V., valued at about approximately SGD 230 million for modification work to be completed on the FPSO P-71 oil and gas vessels with expected delivery in the last quarter of 2022. In March 2021, the Group made another notable inroad in the renewable energy market with a new contract to design, construct, install and commission the Offshore Converter Platform, OCP, for RWE Renewables' Sofia Offshore Wind Farm in the U.K. Sofia will be the world's most remote Offshore Converter Platform located some 220 kilometers from the North East Shore for the nearest shore. During the first half of 2021, the group secured multiple contracts for repairs and upgrades, including a long-term contract with a European owner to operate an operator of luxury cruise ships and yacht. With this win, Sembcorp Marine works with 4 global operators together own more than 15 cruise brands. In total, the Group has 16 projects under execution with 5 scheduled for completion in 2021, 9 in 2022 and the remainder scheduled for completion up to 2025. As at end of June 2021, including SGD 615 million of new orders secured in first half 2021, the Group has a net order book of SGD 1.78 billion. This comprises SGD 1.56 billion of projects under execution with a total original contract sum of SGD 6.1 billion and SGD 0.22 billion of ongoing repair and upgrade projects with firm deliveries in 2021. I am pleased to share that green energy solutions comprised approximately 34% of the Group's net order book. The group is currently executing several wind farm projects, namely fabrication of 2 wind farm substation topsides for Ørsted for deployment in UK Hornsea 2 Offshore Wind Farm. Fabrication of 15 jacket foundations for Formosa 2 Offshore Wind Farm and the design, construction, installation and commissioning of the offshore converter platform comprising an 18,000-tonne topside and jacket foundation structure for the RWE Renewables Sofia Offshore Wind Farm. The Group has also been working expeditiously to expand its business and product segment towards the provision of clean energy solutions. The group is actively tendering more than 10 projects, especially in the renewable energy and gas solutions segment. A similar number of tenders are in progress for the Process Solutions segment covering FPSO, FSO and FPUs. Project under execution as at 30th June 2021 can be shown on the table. Now I will go on to the workplace safety and health. While the Group is committed to reschedule project delivery, as discussed and planned for with this customer, we are also focused on the safe and progressive execution of all existing projects. The group is equally committed to ensuring a safe and secure environment with the required safe management measures and precaution in place to protect our workers, customers, vendors and other stakeholders. Our unwavering focus on high standards of occupational health and safety earned the Group a total of 24 accolades at this year's Workplace Safety and Health, WSH, Award, organized by Singapore WSH Council. Today, we celebrate the whole of 24 awards and applaud Team Sembmarine for their achievements. These wins are a testament to the Group's hallmark of high standards of workplace safety and health and are especially meaningful given the heightened health and safety requirements brought on by the ongoing COVID-19 pandemic challenges. On the sustainability front, our steadfast commitment to sustainability through the years has also won the Group's Prestigious Sustainability Award at the Singapore International Maritime Award 2021, presented for the first time by Maritime and Port of Authority of Singapore. This national award recognizes Sembcorp Marine's contribution towards the building of a greener and more environmentally sustainable maritime industry. In April 2021, Sembcorp Marine signed a memorandum of understanding with Shell and Penguin International to jointly develop hydrogen as marine fuel. This product development is the first for Singapore and potentially pave the way for emission-free shipping and transportation. This groundbreaking collaboration will further propel our efforts in championing decarbonization and a cleaner future for the maritime industry. To further boost our green energy capabilities and reduce our carbon footprint, the group signed a partnership agreement with Singapore Power, SP, in June 2021 to deploy an additional 4-megawatt peak of solar energy across 7 rooftops at Tuas Boulevard Yard. The project is an extension of our partnership with SP in 2017, which saw the successful integration of our existing 4.5-megawatt peak roof solar panels currently in operation atop our steel fabrication facilities. With the additional solar installation, the yard's solar power capacity will increase to 8.5-megawatt peak, enough to power more than 2304-room flats per year and help the Group avoid annual carbon emission by more than 4,200 tonnes, which is equivalent to taking approximately 1,300 cars off the road. Now I would like -- also like to take this opportunity to briefly share another announcement the Group issued on 24th June 2021. The announcement relates to a nonbinding memorandum of understanding entered into with Keppel Corporation Limited to explore the potential combination of Sembcorp Marine and Keppel Offshore Marine Potential Combination. The Potential Combination is in response to dramatic changes in the global O&M engineering and energy sectors, which are seeing a major transition away from oil globally. As our global peers have pursued consolidation to create scale, retain talent, more effectively use their asset bases and to position themselves for new opportunities arising from the energy transition, we too are exploring such a combination. I do have to emphasize that the discussion on the potential combination are currently at very preliminary stage. There's no certainty that the potential combination will take place, and it is subject to, among others, satisfactory due diligence, further negotiations between parties, execution of definitive agreement, receipts of relevant regulatory approvals, and the approval of shareholders of respective parties. The Group continues to build on its integrated O&M engineering capabilities to move up the value chain and provide a wider set of products and solutions for its existing business segment. This strategy is aimed at strengthening the Group's competitiveness in winning more orders and improving its overall profitability over the longer term. Underpinned by the global energy shifts towards cleaner product and solutions, significant growth is expected in renewables and other clean energy over the next decade and beyond. The group will also focus on accelerating its transformation to gain further traction in this segment and strengthen its market share. To support its expansion into new and existing markets, the Group will continue to strategically augment its yard's facilities and make other strategic infrastructure investment to enhance its value proposition of yard capabilities and sustainability operations. As mentioned earlier, the Group has partnered the SP Group to enhance the sustainability credentials of its flagship Tuas Boulevard Yard with a further deployment of 4-megawatt peak of solar energy across its yards. Let me go to the outlook. The Group continues to face uncertainties arising from the COVID-led measures of border controls as well as workforce supply and quarantine restraints. Resolving the skilled manpower shortage on a timely basis is a key priority. We are also actively undertaking measures to improve project execution, replenish temporary working capital depletion and enhance Group's liquidity position. However, the group expects to incur losses in second half 2021 because of insufficient revenues to cover overhead costs. Thank you. I now pass on to William.

Thank you, Mr. Wong. A very good evening, once again, to all of you, and thank you for taking time to join our results webcast. I shall now take you through the group's financial performance. Let me start with the key financial highlights for first half 2021. Group revenue for first half 2021 was SGD 844 million, a 7% decline year-on-year due to production delays caused by COVID-19, which has disrupted supply chains and exacerbated the shortage of skilled manpower. The Group registered a net loss of SGD 175 million before material provisions and impairments, which I shall elaborate shortly. Including such provisions and impairments, which amount to about SGD 560 million on a pre-tax basis, of SGD 472 million on a post-tax basis. Net loss recorded was SGD 647 million. While operating performance was muted during the first half of 2021, there has been no cancellation of existing projects. And as at 30th June 2021, our net order book was SGD 1.78 billion. Going to a bit on the financial details, Group revenue, as mentioned earlier, for first half '21 was SGD 844 million compared to SGD 906 million booked in the corresponding period last year. The 7% revenue decline in first half 2021 was largely due to lower revenue recognition from rigs and floaters as well as specialized shipbuilding projects, but offset by a stronger performance from our offshore platforms segment, which include our renewable energy solutions. The gross loss for first half 2021 was SGD 588 million, mainly due to delays in project execution as well as the provisions of SGD 436 million for additional labor and other costs to complete existing projects over the next 6 to 18 months. Excluding the provisions, gross loss would be SGD 152 million. After-tax and noncontrolling interest net loss was SGD 647 million for first half 2021. And excluding the provisions and impairments on a post-tax basis of SGD 472 million, net loss would be SGD 175 million. Let me now explain the material provisions and impairments recognized by the Group during first half 2021. These include, firstly, the provisions for additional costs to complete projects over the next 6 to 18 months. As shared by our CEO earlier to minimize further delays and mitigate the risk of project terminations due to shortage of skilled labor, the group incurred additional labor costs, as we procure skilled labor from alternative sources, which cost more than 2x compared to our existing sources. There were also significant upfront costs incurred for such recruitment. In addition, we also incurred other related costs to complete our projects arising from rescheduling of work with extra subcontract work costs, additional materials usage and other staff turnover-related expenses. The above cost with total SGD 361 million of post-tax basis will be incurred over the next 6 to 18 months. The second item is the increase in provision for yard's reinstatement costs of SGD 65 million on a post-tax basis. As we have shared in previous announcement, as part of our transformation strategy, to consolidate operations at our Tuas Boulevard Integrated Yard, we have vacated our Tanjong Kling Yard back in 2019. Prior to returning the yard land, we have proposed our reinstatement plans to the government. While discussions were ongoing, we have made the necessary provisions at the end of last year based on our reinstatement plans. The government has recently reverted in June 2021 on its reinstatement requirements, which caused more than our existing provisions. Given more clarity on the reinstatement requirements, we have made additional provisions, therefore, of an additional SGD 55 million on a post-tax basis to comply with the government's requirements. We also have a smaller yard at Shipyard Road, which we have vacated even earlier back in 2018, along the same strategy to consolidate our yard operations. So similar to our Tanjong Kling Yard, we have made an additional provisions of SGD 10 million on a post-tax basis to comply with the government's reinstatement requirements. So the total increase in provisions for both yards amounts to SGD 65 million on a post-tax basis. The third item, we made a further provision for impairment loss of SGD 46 million on the marine charter vessel. The provision was in light of the increasingly challenging business environment, especially the intensifying competition. Based on latest tender activities, the outlook for charter race continue to be increasingly challenging. Accordingly, in light of the weaker market outlook, the projected value-in-use valuation of the vessel decreases. With inputs from our external auditors, we made the impairment loss accordingly. So these are the key items of the provisions, which amount to a total of SGD 472 million on a post-tax basis. Let me move now to our capital gearing and ROE. Shareholders' funds at 30th June 2021 was SGD 3.02 billion, a decrease of SGD 18 million compared to end 2020 due to the net loss incurred in first half of 2021. Net debt as at 30 June 2021 was SGD 2.8 billion, which is similar in level to the SGD 2.78 billion as at end 2020, as the Group used part of the SGD 0.6 billion net cash proceeds from a September 2020 rights issue. Net gearing increased, however, to 0.92x compared to 0.75x due to a lower equity base. Moving on to cash flow. The group generated a slight negative cash flow from operations in first half of 2021 of SGD 2 million as collections of receivables offset increases in payment for project costs and overheads. The net cash used in investing activities was SGD 22 million, which is significantly lower than the 1 half 2020 of SGD 56 million. This is in line with our ongoing group-wide prudence and discipline to defer all non-essential CapEx to preserve cash flow and manage our overall liquidity prudently. Having said that, while we pay careful attention to every aspect of our operations to achieve cost optimization, we will not do so with compromise to our yard safety and operability. The net cash flow from financial activities was SGD 41 million, largely due to drawdown of existing facilities for working capital purposes. The overall cash balance at end first half '21 is SGD 788 million. Given the ongoing COVID-19 challenges, the cash balance is maintained as part of our overall liquidity management to ensure we have sufficient liquidity to meet our operational needs for the foreseeable quarters. Having said that, given the situation of a reduced revenue due to delays in execution, the increased costs that we have shared earlier and the increasing challenges in refinancing our existing debt facilities, all these contribute to the increased cash flow needs in the foreseeable quarters ahead. And, therefore, as our CEO mentioned, the need for our SGD 1.5 billion rights issue. Let me move on now to our business review. Firstly, by turnover segments. From the pie chart, you can see that in terms of revenue contribution, our offshore platform segment, which includes our renewable solutions, the offshore wind substation topsides that gives the largest contribution of 35% of total revenue. It also registers the highest growth of 128% from prior year, the result of our increasing focus on renewables. The second largest segment is Repairs & Upgrades at 28%. Floaters, which comprises mainly oil and gas production solutions, such as FPSO and FPU contributed 25%. The rigs, on the other hand, contributed a low 7%, which reflects partly market conditions and also as we continue to increasingly focus on cleaner and greener solutions. Specialized shipbuilding focus on clean vessels by Ropax battery-operated ferries and LNG bunker vessel contributed 2% in light of the lack of manpower resources to continue execution of these projects. Offshore platform, on the next slide, the revenue, as mentioned earlier, more than doubled in the first half 2021 to SGD 296 million. Besides fixed production platforms, projects such as the Tyra and Gallaf, the improved revenue came from notable renewable energy solutions. Projects under execution include the Orsted Hornsea 2 Wind Farm Reactive Compensation Station or RCS Topsides; the Jan De Nul Formosa 2 Offshore Wind Farm, the Turbine Jacket Foundations; and our most recent project win, the RWE Renewables Sofia Offshore Wind Farm project. Moving on to Repairs & Upgrades. Repairs & Upgrades activities declined slightly by 8% compared to first half 2020, reflecting the effects of manpower shortages in first half 2021. While the number of vessels serviced was slightly higher, the value per vessel was lower, as there were significant cruise ship upgrade projects recognized in the first half of 2020. And further mention of rig building. As mentioned earlier, rig building revenue was SGD 60 million, a significant decline of 135%. The lower revenue reflects significant lower offshore rig building activity and the production time up due to the COVID-19 constraints. A short word on specialized shipbuilding. It declined 60% of revenue due to the lack of workers to execute the existing projects. Moving on to a summary of our net order book at SGD 1.78 billion. This reflects our new orders secured during the first half of 2021. Net order book presently stands in total of SGD 1.78 billion, of which major projects comprise SGD 1.56 billion under execution. In addition, there's SGD 0.22 billion of ongoing Repairs & Upgrades projects with firm deliveries in 2021. A quick indication on the delivery schedule. Of the 16 projects under execution, 5 is expected to be completed by end of this year, while further 9 will be completed in the course of 2022, 1 further project in 2023 and our Sofia Wind Farm scheduled for completion in the middle of 2025. This ends my sharing of the financials. Thank you for your attention. We will now proceed to Q&A. Mun Yuen?

Thank you. Thank you, Mr. Wong. Thank you, Mr. Goh, for that presentation. We invite you to raise your questions via the webcast platform. Please put through your questions. All right, we have a question from Philip Low. How many Indian migrant workers have arrived in Singapore for Sembmarine under the MON pilot program, to bring in migraine workers from India? How many more Indian migrant workers are expected to arrive in the coming months?

Thank you, Mun Yuen. Due to the border controls recently, we have not able to bring in any workers from India and Bangladesh. Going forward, we are planning to have to a plan to bring in our workers under the further pilot programs for about up to 900 workers into Singapore.

Thank you. Thank you, Mr. Wong. Philip has a further question. What is the estimated amount of cash inflow for Sembmarine for the 5 projects that are expected to be completed in the second half of 2021?

Philip, thank you for the question. We do not give specific guidance on the cash flow for these projects per se. Having said that, as you know, we have announced in June of this year, with respect to the Transocean drillships, one of the project is scheduled for completion within the first -- within the second half of this year. But we have also announced that a significant portion of the delivery payment will be deferred. So in that sense, it gives an indication that our cash flows from these projects is lesser than what it should be in light of the deferred payment terms. I hope that helps.

Thank you. Thank you, William. Siew Khee of CIMB has this question. What's the basis of provision for labor in that it almost tripled that of second half 2020? Is this going to be the case in the second half of 2021?

Siew Khee, thank you for the question. As what we highlighted earlier, as we seek to minimize further project execution delays, the procuring of the labor from nontraditional sources or rather from alternative sources. The cost of this is more than 2x. So in a sense, we, therefore, incur this higher cost. Having said that, as we work on these additional labor requirements, we have captured the relevant amount that is applicable to the projects, and we have, therefore, made the necessary provisions. With respect to our labor costs in subsequent quarters, that depends on our ongoing needs as well as the ramp-up of our recruitment of this additional labor.

Further questions from Siew Khee. If the negotiation to take on capital O&M is successful, how would the company fund it? And when do we expect the OPS to turn into gross profit status again?

Siew Khee, I think we have discussed this question before in -- during the launch announcement. As our CEO had guided earlier, the proposed combination is still at a very prelim stage. It is a nonbinding MoU stage. So it's too early to talk about this matter further. Having said that, in terms of the mention of our payment by the combined entity, that will be the responsibility of the combined entity based on the current proposed structure. I just want to qualify that because it is still at very prelim stage, so, therefore, even the structure is not finalized. Certainly, in terms of any payment by the combined entity, the proposed price issue that we have proposed to raise will not be used for any such payments.

Thank you. Thank you, William. Philip Low has this further question. Why did Sembmarine grant Transocean the estimated SGD 600 million financing at a time when it is facing a cash crunch with the alternative of letting them cancel the drillship order be better for Sembmarine's shareholders?

Philip, thanks for the question. Indeed, the commercial discussions with our customers were difficult because the execution of the project continues to be delayed. And so, therefore, the completion date was further pushed back. As we have to defer the execution and completion, our negotiation position had to cater to such considerations. If we were to compare between providing deferred payment terms to the customer, Transocean, versus allowing for cancellation, the cancellation will have its commercial consequences, which given its commercial confidentiality, I would not specifically mention, but management has evaluated the 2 scenarios. And from our standpoint, we see important for the drillship to be completed, to be put into operation instead of allowing a cancellation, whereby a new buyer will be needed. And as you know, under current market conditions, new buyer is not going to be easy to find. So on balance, as we evaluated both scenarios, we believe it is in the best interest of the company and the Group to execute, complete, deliver, collect some initial receivables and to defer the receivables in subsequent years. I just want to mention that under certain scenarios, the deferred payment under this Transocean drillship may be accelerated earlier under certain conditions. Thank you.

Thank you. Thank you, William. We have 1 question from the media Uma -- Uma Devi. Are the losses for the second half likely to be more than that of the first half? What is the likelihood that the company will call for another rights issue this year or in 2022, given that the impact of the COVID-19 is not likely to ease anytime soon?

Let me address the second question in terms of the possible rights issue -- further rights issue. As we have shared in our proposed rights issue announcement, as we work on our liquidity needs, the SGD 1.5 billion is based on our projected operational needs all the way to at least the end of 2022. So the probability of an additional rights issue called during this period is unlikely. In terms of the losses between the first half and the second half, we have not given specific guidance on the second half. Having said that, based on our current evaluation of events and barring unforeseen circumstances, we anticipate the second half losses would be lesser than the first half.

Thank you. Thank you, William. Rahul Bhatia of HSBC has these questions. Could you talk about usage of the SGD 1.5 billion from the rights issue and the cash of SGD 790 million? The short-term debt itself is around SGD 1.6 billion. Will SGD 2.2 billion be sufficient for debt repayment and working capital for the next 18 months? Could you talk about cost impact if we compare adding labor in Singapore versus outsourcing work in other yards outside Singapore, even competitor's yard?

Let me first address the question regarding the usage of the SGD 1.5 billion. As we have shared during our launch announcement, the SGD 1.5 billion is intended for our operational needs true to end 2022. The usage for this SGD 1.5 billion is firstly for our working capital, other general corporate purposes, including debt servicing requirements, as I mentioned earlier. Yes, we have the additional short-term loans. These are being worked out and refinancing as and when they fall due. But, as I shared earlier, not all the refinancing may be fully financed because of the challenging market environment. But the combination of the usage of this SGD 1.5 billion for working capital, which is reflecting our lower revenue and higher costs on the one hand, and on the other hand, the increase in debt servicing. The combination of this drives the total amount SGD 1.5 billion over the projected needs to end 2022. Second question?

Yes. I will take on the second question. Thanks, Rahul, for the questions. From our perspective, outsourcing versus getting the work done in Singapore, we look at the 3 big benefits, especially after learning from this COVID-19. First, obviously, we are able to average out our cost. And secondly, a more important element is we were able to derisk the constructability and also the scheduling so that we can run the construction in parallel. And this is due to, recently, we have installed mega crane facilities, the 30,000 tonnes crane -- goliath crane, where we can combine mega blocks into 1 easily. And the last 1, having able to run different outsourced component in various yards outside Singapore, we can then secure even more job leaving the last part of integration and commissioning to be done in Singapore.

Thank you. Thank you, Mr. Wong.

Rahul, let me just add to your earlier question regarding the working capital. Just to clarify that for working capital, it's not just for existing working capital needs for the projects, but also catering for anticipated working capital needs for new projects. Having said that, for new projects, our focus is on projects with milestone of progress payment basis. So we target to minimize working capital. But our projection of the SGD 1.5 billion funding needs includes both existing project execution as well as the execution of new projects. Thank you.

Thank you. Thank you, William. Adrian Loh of UOB Kay Hian. He has this question. Could you please share your view on the potential new order flow for offshore production assets in the second half of 2021? U.S. services companies have been generally more bullish in their outlook. So how are your clients' FIDs coming along?

Thanks for the question, Adrian. I think we have shared earlier that one of the key projects that we are targeting to be awarded, even last year, was being deferred to this year, and that is the Cambo FPSO project. This project is based on our Sevan cylindrical design, and we are already at the fit stage. And we expect, based on interaction with the customer, that the final investment decision for this project will be during the second half of this year. So that is 1 project that we have greater visibility. In addition, as you have rightly highlighted, especially in the Gulf of Mexico, there are several projects whereby the project sponsors, the oil majors, who are actively reviewing the FIDs. 2 examples, 1 will be the Shenandoah Project in the Gulf of Mexico, where Beacon Offshore is a key driver for that project. At the same time, we have Total, which is developing the North Platte's project also within the Gulf of Mexico. From our commercial folks on the ground, both these 2 projects in terms of the production facilities, the invitation to tender has already been issued. So those are indications of our projects in the oil and gas segment, which interestingly, based on the current oil price and based on the fact that these projects are at a development stage, the project sponsors have been keen to accelerate these projects and put that into fruition. Thank you.

Thank you. Thank you, William. Paul Chew of Phillip Securities asks, can you share the size of the opportunities for Sembcorp Marine in offshore wind farm projects over the next 3 to 5 years?

In this aspect, we foresee that there are opportunities both in the wind turbine installation vessels as well as the -- our converter platforms. These are the areas we are already in, and we are currently receiving quite a number of invitations to be. We are also looking forward into the development and also for floating wind farm structures. So we believe that this -- the growing demand and crave will create opportunities for us into this area.

Thank you. Thank you, Mr. Wong. Izabella Tan, CGS-CIMB, has 2 questions. Do you expect more provisions in the second half of 2021? And how much can you ramp up revenue for the second half, assuming a stabilized labor force?

Thank you for the question. As we mentioned earlier, the additional cost to complete our projects over the 6 -- over the next 6 to 18 months, we have made the provisions accordingly in our first half. So we do not foresee at this point in time the need for any operational provisions in relation to these projects. Having said that, as we know, the COVID-19 impact is ongoing, we hope that given all the steps that we have taken, we'll be able to write through accordingly. In terms of the ramping up of revenue for the second half, with the recruitment from the alternative sources of labor, we expect to be able to improve in terms of our overall operating activities in the second half. Having said that, as you see our overall net order book, the key focus for us will be to secure new orders so that our activities can improve accordingly thereafter. Thank you.

Thank you. Thank you, William. Zhiwei from Macquarie asked these questions. For the yard reinstatement cost, how certain is it that this will be the last provisions to be made? If possible, could you share what the difference in requirements were to your initial expectations?

Thank you, Zhiwei. This is a relatively technical question, and there are also sensitivity to this topic. But what I would say is that in yard reinstatement, in general, there is a reinstatement concept that is proposed yard. And what we have done is looking at a situation for yards, as we work towards returning the yard to the government, we propose accordingly a practical approach to such yard reinstatement. And that's the basis for us to make that provision at the end of last year. With further discussion and understanding from the relevant authorities, yes, it has become clearer to us that from the government standpoint, they do need a more extensive reinstatement concept. So in that sense, as it becomes more extensive, the associated costs related to such reinstatement concept increased accordingly. For prudence, we, therefore, made the necessary provisions. And since they are in line with government requirements, we do not foresee any additional provisions unless there are further changes in our discussions with the government.

Thank you, William. Philip Low of GL has this additional question. How would the recent FID for Shell Whale project affect the calculation of the value of Sembmarine's project under execution?

Thanks for the question. In terms of Shell Whale, this is 1 example whereby our interaction with the customer Shell, even though the FID has not started, the customer's confidence in initiating the project with us. So, therefore, we have commenced certain parts of the project. We will continue to execute the project. The key difference that with the FID, then the project would proceed with certainty and continue to its completion based on schedule in 2023.

All right. Thank you, William. Siew Khee of CGS-CIMB, raised this question. Where, which country did you outsource -- let me re-read this, right? I think it should be where, which country did you get your labor from, and not outsource your labor, Siew Khee, and which are the key projects in which you had to do this?

We are recruiting workers from Malaysia and from China. And generally, we cover all the projects, which we need to meet the new delivery schedule, as we have discussed with the customer.

Okay. Thank you. Thank you, Mr. Wong. Another question on manpower by Rahul Bhatia of HSBC. He asked, could you share details on the number of employees that are currently in Singapore yard versus pre-COVID? And what is the target number of employees for 2021?

The target of employees, if we are referring to our direct employees, but I would also want to share about our total workers required, including the resident contractors as a workforce to answer your question. At the workers level, pre-COVID-19, we had the level about 20,000. And currently, we have just below 15,000. Of course, obviously, as the project progresses, we no longer need 20,000 level workforce. But nevertheless, due to the recent high-level attritions, we actually shot off 4,000 workers to meet the current requirement. So for this recruitment from the other source, we plan to replenish this 4,000 workers -- skilled workers that we require to finish the projects in 2021.

Thank you. Thank you, Mr. Wong there. I do not have another question at this present moment. We will pause to wait for more questions to come in. All right, there we go. Cheryl from UBS. What is your confidence that the additional 4,000 workers will arrive as planned? Is there a risk of further delays given these are new sourcing countries?

Thank you, Cheryl. We have been doing this planning since May, and we are confident that these workers able to arrive as planned progressively. Thank you.

Thank you. Thank you, Mr. Wong, there. All right, Siew Khee has this question. When do you think the company can revert to gross profit status?

Thanks, Siew Khee, for the question. As you know, we do not guide beyond the current year. Given the way things are going, what's important for us is that the constraint in execution of our existing projects, we make sure that we make the provisions so that we are able to execute these projects with minimum delay and deliver them. That will, on the 1 hand, free up the capacity, but you also remove the drag on the cost of these projects that has been delayed. So with that in mind, barring unforeseen circumstances, as we get more orders flowing through, we hope to be able to achieve that sooner than later. Thank you.

I do not have any other questions in the platform. And we will just wait a minute. All right, Zhiwei from Macquarie has this question. How much more room do you have to further reduce the fixed overhead?

Zhiwei, thanks for the question. The current oil price level is important for us to ensure that the existing projects and some of our newer projects are executed smoothly. The fixed overheads, even though it's fixed in nature, it's going to be driven by the required manning to execute our projects going forward, and we will tailor accordingly. Having said that, there's always an element of sustainability, the preservation of key skill sets, which we will keep as we continue to transition into the new energy segment. But otherwise, management's approach is to continue to be nimble, manage our cost optimization. Thank you.

Thank you. Thank you, William. It appears that the questions are slow in coming. We perhaps have answered all the questions that the floor has for management. We'd like to thank you, everyone, for your participation. With no further questions, we would like to close this evening results webcast. Once again, thank you.

Thank you.

Thank you, everyone. Thank you.

Thank you, and good night.