Seatrium Limited (5E2) Earnings Call Transcript & Summary

Good morning, members of the media, ladies and gentlemen. Thank you all for dialing in. I'm Mun Yuen, Head of Investor Relations and Corporate Communications. I will be facilitating this morning's session. Once again, welcome to today's media and analyst briefing by Sembcorp Marine in relation to the group's full year 2022 financial results. We have filed the results with the Singapore Stock Exchange last evening. This morning's briefing is chaired by our President and CEO, Mr. Wong Weng Sun. He is joined by Mr. William Goh, Group Finance Director of Sembcorp Marine. Today's discussion will contain forward-looking statements. I would like to draw your attention to the disclaimer statement in our announcement. Without further delay, I'd like to pass the session to Mr. Wong. Mr. Wong, please.

Thank you, Mun Yuen. Good morning, everyone. Thank you for joining us at Sembcorp Marine Full Year 2022 Results Webcast. We had a busy and productive year in 2022, with the execution of a total of 21 projects, of which 12 key projects were completed and delivered to date according to schedule agreed to with our customers. The progressive completion of these projects enable us to free up resources for redeployment to other existing projects, including our newly won newbuild and conversion solutions. During the year, the group secured contract wins, including repairs and upgrade orders totaling more than $7 billion. William will elaborate further on the new order wins. The group's operational and financial performance improved significantly in full year 2022. I am pleased to report that the EBITDA for second half 2022 turned positive at SGD 12 million, with full year EBITDA of negative SGD 7 million, a 99% improvement against the prior year. Well, let me now turn to the proposed combination with Keppel O&M. The ordinary resolution for the proposed combination with Keppel O&M was approved and passed with strong support of 95.28% from our shareholders at the EGM held on 16th February 2023. On behalf of the company's Board of Directors, we would like to express our appreciation to our shareholders for supporting the sole resolutions table at the EGM. Thank you. The proposed combination will create a premier global player with deep engineering heritage to offer offshore renewables, new energy and cleaner solutions in O&M sector. The enlarged group is envisaged to unlock synergies from the integration of 2 established industry players with anticipated long-term value creation for our stakeholders. It will also strengthen Singapore's leading position as a marine time and an offshore and marine hub. The enlarged group will have the reach, scale and operating platform to capitalize on the global energy transition, at the same time, to realize economies of scale and be strategically positioned to seize opportunities in the improving industry landscape. As a single organization, the collective workforce of 23,000 will benefit from expanded opportunities for career development and growth in the areas of offshore renewables, new energy and cleaner O&M solutions. With a combined net order book of SGD 18 billion and over 40 projects, our people will gain fully engaged to complete the projects from now to 2026. This year marks the 60th anniversary of Sembcorp Marine. Over these 6 decades, the company has taken strategic steps to evolve and transform. From its humble beginning in ship repairs, the company is today internationally recognized as an innovative solutions provider in the offshore, marine and renewable energy sectors. The group invested and developed a state-of-the-art integrated yard at Tuas South Boulevard, a major milestone in the company's growth and expansion strategy. The group also diversified its suite of engineering solutions beyond traditional oil and gas to renewable and new energy with the delivery of its first design engineering procurement, project management and construction of our platform jacket substructure and topside, the Dudgeon Offshore Wind Farm project for Siemens. The group has since completed and delivered several other projects for the offshore renewable markets, with multiple projects under execution. The transformation strategy, particularly in the last decade, has created an organization with future-ready capabilities and know-how, technological bench strength and a broad suite of products and solutions. Having weathered the longest down cycle in the O&M industry from 2015 and the unprecedented COVID-19 pandemic and navigated the energy transition to offshore renewables, the group has emerged more resilient. Together with the current Board and management, we have built the company to its current stature and positioned it at the center of the global shift towards a low-carbon economy. Today, having successfully delivered all our key projects, built up a sizable net order book of more than SGD 7 billion and our strategic yard capabilities and technology bench strength, the group is well positioned for the new Board to steward the enlarged group to greater heights. Let me pause here and pass the session to William, who will do a financial review and discussion of Sembcorp Marine FY 2022 performance. Thank you, William, please.

Thank you, Mr. Wong. Once again, a very good morning to everyone for taking time to join us for this morning's results briefing. I'll go through first the key financial highlights for FY 2022. In terms of the top line for revenue, we recorded revenue of $1.95 billion for FY 2022, and that is about 5% higher than the previous year. From the bottom line standpoint, we have cut our FY '22 net loss to $261 million, which is a 78% reduction from the prior year. As Mr. Wong mentioned earlier, our EBITDA has turned positive for the second half of the year to a positive 12% so that our end FY '22 EBITDA is a negative $7 million, a 99% improvement from the previous year. And the overall financial performance is basically underpinned by the successive completions of 12 key projects during the year, and this has enabled us to effectively redeploy our resources to the other projects, especially those that we have secured recently. And just to mention again, as we have said in the past, no projects has been canceled throughout this entire process. Let me move on now to the key numbers. You see the table there, the turnover, as I mentioned earlier, EBITDA as well, and the net loss are the key numbers I'd like to flag up to you. And as mentioned earlier, the operational financial performance improved significantly through the progressive resolution of COVID-19 challenges, enabling the smooth completion of our projects. Moving on straight away to the next slide. In terms of cash flow, we're happy to share that net cash generated for operating activities is a very huge improvement from the prior year. So FY '22, operating cash flows generated is $1.039 billion. This compared to a negative $589 million for the previous year. For investing activities, mainly CapEx, you will see that is a relatively low $26 million. And this, again, is a result of our ongoing optimization of our maintenance CapEx. As was shared previously before, all new CapEx are basically put on hold as we ride through this downturn and also embrace the combination with Keppel Offshore & Marine. Nevertheless, all CapEx, they are necessary to ensure operability as well as safety, continues to be executed as required. In terms of net cash from financing activities, basically some repayment as well as the payment of lease liabilities, so a small $21 million negative. The previous year, $964 million positive is the result of the rights issue. Overall net increase in cash for FY '22 is a positive $992 million. And we end the year with cash and cash equivalents at $2.1 billion. Let's move on to the next slide. So these are key numbers in terms of the capital gearing. Shareholders' funds is at $3.8 billion. Net debt less the cash is $998 million. The net working capital is a negative $301 million, and this is basically due to the reclassification of some of our term loans from long term to current borrowings because they mature in the course of FY 2023. Just to highlight that in terms of net gearing ratio, as I shared recently, it's improved significantly to 0.26x from 0.49x last year. Let's move on to the next slide on some of the other aspects of revenue. So this is a breakdown of the various key segments. Focusing on the table, on the right, Floaters is the largest segment with a revenue of $900 million, an improvement of 40% from the previous year. The next largest segment is Repairs & Upgrades of $506 million and a 28% improvement from the previous year, followed by Offshore Platforms, Rigs, Specialised Shipbuildings and others. You see the various percentage contribution to revenue. I will now move on to each of the segment to give us added color. So I shared Floaters revenue, that increased by 40% year-on-year. And the projects included here are basically the production solutions, the FPSO, as well as the FPU, or floating production units. And we have a combination of both newbuild as well as conversion solutions. Just to highlight those projects that were delivered in the course of the year, FY '22, the Equinor, Johan Castberg Newbuild FPSO, the Technip Energies Courage Newbuild FPSOs, the P-71 Newbuild FPSO to Petrobras and also the Shapoorji FPSO conversion. We do have 2 ongoing projects in the course of 2023 execution. The first is a Shell Whale, and that's a newbuild FPU. And of course, our most recent P-82 project with Petrobras, another Newbuild FPSOs. Moving on to the next segment, Repairs & Upgrades. Repairs continue to improve in the course of the year. As you may recall, Repairs was significantly impacted at the beginning of last year, FY '22 and also previous year because of COVID-related challenges. But looking at the key numbers here, revenue rose 28% year-on-year from $396 million to $506 million. The number of vessels naturally increased in terms of number of vessels service to 221 vessels. In the prior year, it was 144 vessels. Of the 221 vessels serviced, 25 were LNG carriers, and this is also the largest segment among the various segments within Repairs & Upgrades. And this includes LNG reliquefaction retrofits as well as BWMS, or ballast water management systems. We, for now, continue to have further upgrades for FSRU as well for Cambo, and that's one of the key upgrade projects. We do have others in the course of the year as well. Let's move on to the next segment, which is on the Offshore Platforms side. Just to share, Offshore Platforms basically are those fixed platforms, whether it's for production solutions or for offshore wind farms. Revenue here declined 51% year-on-year, basically as more projects were completed in the course of the year. Therefore, compared to previous year, revenue was lower. I just mentioned again that the projects include fixed production platforms, offshore wind farm platforms as well as some of the top sites for gas solutions. We have a list of all the projects that were delivered in the course of a year, 4 of them; the Hornsea 2 Offshore Wind Farm; [ Yandina ] Formosa Offshore Wind Farm; we have 1 for TotalEnergies fixed production platform for the Tyra redevelopment projects; as well as for the Gallaf Batch 2 wellhead platforms for production as well. For FY 2023, for this segment, the key projects under execution, you have the RWE Renewables for the Sofia Offshore Wind Farm. And we also have the gas topsides for a major energy company in Australia. And finally, for Bechtel, the Pluto Train 2 gas projects. A quick mention for Rigs, which, by the way, includes WTIV, or the wind turbine installation vessels. Revenues increased slightly to 8%. But basically, these are the tail end completion of our 2 drillship projects, the Transocean Deepwater Atlas as well as Transocean Deepwater Titan. As you know, these 2 drillships are the most modern and the highest technical specs for the industry, and they are used for drilling in the [ dedicated ] BOP required environment, especially in the Gulf of Mexico. With the delivery of these 2 drillships for FY '23, the projects under execution for now will be the Maersk WTIV for this particular segment. Specialised Shipbuilding, we basically completed all 3 of the ropax roll-on, roll-off fully battery-operated ferries, and what's ongoing is the final testing and commissioning for the LNG bunker vessel, which we target to deliver within the next 1 to 2 months. We thought it will be helpful to give an overall snapshot summary of the net order book. So looking at the key bullets on the right, the net order book is $6.75 billion, as we shared in our press release. They comprise 2 separate buckets. The first are the major projects of $6.31 billion of projects under execution. The original contract value for these projects is north of $7 billion. Besides the $6.31 billion of major projects, we also have $0.44 billion of ongoing Repairs & Upgrades projects. The combined 2 numbers together, we have the $6.75 billion net order book. As you can see, compared to previous year, it's a very significant improvement in terms of the orders that's being secured. And of this, the -- in terms of greener solutions, we also have a higher 37% or $2.5 billion that relates to these greener solutions. We have also shared that notwithstanding the higher order book, we continue to see improved visibilities insofar as further orders are concerned. Let's move on to delivery schedule. So just a very quick recap, in FY '22, we delivered 21 projects. There will be a further 2 to be delivered in FY '23 and a further 7 from '24 to 2026. I think that's all for the results, and we'll have time for Q&A now. Thank you.

Thank you. Thank you, Mr. Wong, and thank you, William, for your address here. We now proceed to the Q&A session. May I invite all to post your questions on the Q&A platform? Please do let us know your name and the organization you represent. [Operator Instructions] All right. I've received the first question from Rahul Bhatia of HSBC. Good morning, Rahul. He has 3 questions for the meeting. One, could you share more about opportunities for synergies, specifically at cost level from the merger? And also, you mentioned about integration challenges. Appreciate if you could expand on this with examples. Question two. Could you share how much of the current order book has cost or inflation increase pass-through in the contract? And if there are milestone payment? Third, Petrobras has some new FPSO orders that are expected to come through in the second -- in 2023. Could you share how Sembcorp Marine views this as an opportunity?

Thank you, Rahul. Thanks for the questions. First, I will talk about the synergies from the cost side. As I mentioned just now, we have a 23,000 workforce. And also among them, we also have also all the PMETs. I think one of the cost synergies will be all the work we are doing, we are involving the EPCCs. And throughout the project executions, there are times whereby, as the business grows and the new opportunities are coming, in relation to the order book, as you have seen, we shall not take the normal way of the more we do, the more we need to increase the resources. And as we all know, the current resources from both Sembcorp Marine and KOM, they are already in a much lower compared to pre-COVID time. And as now the world has grown, the synergies will be how we can combine the resources so that we will able to perform the job with lesser than before, pre -- prior to COVID time. Then this is 1 synergies that we will look into it. As also I mentioned, while we are getting 18, we already see -- combined, we have $18 billion of work. That excludes ship repairs. And we have mentioned just now for Sembcorp Marine, the ship repairs for the FY 2022 is above $0.5 billion. So we just multiply by combining 2, and over the next 4 years, I think the current order book in hand, including ship repair and upgrade, is well above 20 b. And the company will continue to secure new orders in the coming quarters and also translating into renewables. So from the synergy side, when we look into the study, we are not only looking at just numbers, also look at the opportunities and how we then reorganize ourselves to achieve the synergies that we should be getting. Then second one, talking about the integration challenges. Definitely, the integration challenges will be there for all M&A or even any combination of any organization or departments. So for -- in this particular for this enlarged Sembcorp Marine, we are facing with several things. Number one, coming together to realize the synergies, we need to have an integration plan and to start as soon as possible. So at the same time, we also know that we have a current order book of $18 billion, excluding ship repairs. So how would the integration plan? We need to start sooner than later. But at the same time, also the challenge is to maintain that these orders are being executed without any slight disruption. So this is the second challenge, right, that the organization will need to pay attention. And the third challenge will be while we are concentrating on the integration and also the execution of the existing work, we also need to continue our effort in securing more orders and also, more importantly, continue to focus on the transition into renewables and new energy projects. So this also will then have some consideration from the integration plan and how we organize it or how we organize ourselves to be able to be efficient, to be able to be notify -- able to be recognized by the customer that our track records, our point of contact remain to be there and even enhanced. And then the last challenge is we are not looking at the current $18 billion work; we are looking at the target state of operating model. So sooner we reach that, the better we are because end of the day, the target state of operation will very much tie to how fast and how soon we will benefit from the transition into the renewables and new energies. So if you all put all this together, the challenge we are seeing here is people, how we group the people. We have the people, we will have the business. We have the project, we have a continuity. So therefore, the challenge for us, overall, is how we organize ourselves, how we work together as 1 going forward, able to make the organization continue to be relevant in the industry and continue to be the leader of the industry. I think the second question, I will let William to take on. Thank you.

Mr. Wong, thank you. Rahul, thank you for the questions. As usual, you come up with a few. And just for the benefit of audience, I would just recap very quickly what you asked. So your second question asked about to what extent our current order book has cost inflation increases pass-through clauses in the contract and whether we have milestone payments. So let me just touch on the first part. Firstly, before I make further comments, just to be clear that all our comments at this point in time is confined to SEM's projects because of the anticompetition considerations. The understanding of projects from KOM side, those will be only after the legal completion. So as far as SEM's projects are concerned, I would say that we do have a combination whereby, in some projects, there are costs or inflation pass-through adjustment clauses. In some projects, we don't. And you appreciate I can't be specific as these are commercially sensitive. But what I would say is that for those whereby we commit to a fixed price and if there are no so-called inflation adjustment clauses in the cost of the project, the way we do it -- and for that matter, for all projects, the way we do it is as far as possible, we try to lock in our costs. In this case, the cost could be for bought materials, it could be for key major equipments. However, before we commit our total price contract price to the customers, we lock in these major cost components, and that way we, therefore, address and hedge our costs so that our margins can be preserved and protected. So broadly speaking, that's how it is. And for that matter, not just in terms of the cost itself, but also the foreign currency, the FX exposure as well. These are things that we also hedge to the extent possible earlier than later so that our overall cost can be better managed. I hope that helps. In terms of the milestone payments, yes, we can share that most, if not all, of our new projects are milestone payments or progress payments base. And we do that, as you know, so that we can manage our working capital needs better. All things being equal, we try to be cash flow neutral or cash flow positive along the way. And if there are some areas of negative cash flow along the way, they are well managed by the compensatory positive cash flows shortly thereafter. So yes, milestone payments, that's the way we focus, and our order book are largely on milestone payments basis. The other question talks about FPSO orders from Petrobras. You are right. The market still continues to be very active. I think what's coming up is the P-84 as well as P-85 FPSOs. I think not only that, there are also some previous FPSOs that were tendered out but were not completed. It was retendered, for example, the P-81. So yes, it's quite a fair bit of FPSO orders from Petrobras alone. But as far as Brazil is concerned, the market is a lot more than just Petrobras, as you know. Many of the -- [ I would say ] NOC are very active in Brazil as well. So we do see opportunities for FPSOs in Brazil, also from the international oil players. So we are, therefore, optimistic, and we will seize opportunities along the way as and when they come along. Thank you.

All right. We have the next question, and it comes from Fred Lam of [ Raise ] Capital. He asked the meeting, can you provide revenue, numerical outlook for 2023?

Fred, thank you for the question. As you know, we don't give specific revenue on numerical outlook for 2023. Having said that, I think it's not difficult for you to know that given the order book that we have, close to $7 billion order, book coming into FY '23, you expect revenue to be higher than FY 2022. And not to mention that we're hopeful that there will be more orders secured in the course of FY '23 as well. So yes, certainly, we expect the revenue for FY '23 to be an improvement for FY '22. Thank you.

All right. Thank you, William. Next set of questions from Horng Han of CLSA. One, can we know what are the kind of inquiries you are seeing in terms of newbuild demand? And two, if there's demand to build jack-up, when can SMN realistically deliver in view of your current order book? Would it take 2 years or more?

Thank you. Thank you, Horng Han. The current inquiries, mainly coming from cleaner, greener solutions for FPSOs as well as the -- in terms of LNG, conversion work for the newbuild, it will be the LNG -- floating LNG liquefaction platform, or FLNG. And there are also inquiries for wind turbine installation vessels, offshore wind farm, cable-laying vessels. And these are pertaining to renewables segment. And there are also floating wind farm projects inquiries as well. So in terms of your question on the demand for jack-up, I will say that we will view these inquiries when it comes along and looking into the overall projection of the demand and the deliveries. So today, it is still early to respond to you, although particularly in the past, the newbuild contract for newbuild jack-up for drilling rigs would take typically less than 3 years. But your question is, we will need to see when the demand has begun. When the inquiries come in, we will do the study. Thank you, Horng Han.

Thank you. Thank you, Mr. Wong. Next, we have Foo Zhiwei from Macquarie. First of all, he conveys his congratulations on the positive EBITDA, and thank you, management, for the presentation. And now his question. One, how will the combined entity function operationally in 2023 and into 2024? Will all resources be consolidated at TBY immediately? And two, has S&M provided for all possible restoration cost? Can you please share how much integration cost might be? Or how long will it be embedded in your earnings? His last question. Ex depreciation, gross margin has turned positive in the mid-single-digit range. Which segment helped to drive this improvement?

Thank you. Thank you, Zhiwei. First of all, when we look into the operation level, currently, both the operating in SCM and KOM, we were quite busy at the moment. So in terms of operations to execute the project, the execution plan and also the activities that -- performing the EPCC performance will not change after the combined entity from the first -- from the day 1. So this is important so that there is a continuity in executing the projects. So for the coming projects, definitely, there will be a study that how those projects will be executed taking into consideration that the overall market trend and also the scope of work we would like to grow or continue to maintain. And all this will consider where we execute the job the best in terms of achieving the synergies as well as the efficiency of the project. And you asked about whether will all resources be consolidated in TBY immediately. I think whether immediately or midterm or long term, there is not an issue of consolidating all resources into TBY. As we know, in everywhere we operate, resources always find it. So TBY is 1 single location. But today, as a combined entity, the enlarged group has multiple location and resources to perform the work. So it is only logical and beneficial to able to get the synergies out from this combination, is to be able to maximize the resources to execute the project in various locations. So I believe that there will be no kind of -- no anything of immediate consolidation of all resources at TBY. For instance, for example, we have 7 dry docks in TBY, but we have many more dry docks, both in KOM and also at AY Yard. So we have consolidated all in together to TBY, which means we are actually reducing our resources as a whole. And hence, we will be letting go a lot of opportunities for the ship repairs and upgrading project. Thank you.

Zhiwei, let me try to address your other questions. So you ask whether all possible restoration costs has been provided for. I presume you are referring to yard restoration costs. And the short answer is yes, it is a regular process. As and when there is a requirement for yard restoration, once it's identified and known, the provision will be made accordingly. And the provision will be made for the entire restoration and it will hit the P&L straight away for that particular quarter or year. So in that sense, in terms of whether how long it'll be embedded in the earnings, the short answer is that once it provide, it goes to P&L, and it will not affect future earnings in terms of these yard restoration costs. In terms of third question, ex depreciation, GP margin turned positive. Thanks for the observation there. Yes. January has turned positive. What we would say is that the improvement in GP is generally broad-based. So whether it's repairs or upgrades to our other existing projects, generally speaking, because, as you know, the market has continued to improve, the overall industry, in terms of yard capacity, has also relatively tightened over the last several quarters. So in that sense, we should be looking towards normalized margins. And for projects whereby we have the -- if we made the entire value proposition from the design to engineering, procurement, as well as construction, being up in the value chain, we have guided before, that will also enable us capture a larger part of the profit pool. And from the standpoint, therefore, we should also want to expect better margin for the particular project. So if I take a step back, 2 general drivers for improved margins, number one, industry normalizing, a yard capacity tightening that drives margins upwards; and secondly, for those higher value-add projects, we want to look for better margins. So overall, they are broad-based across our various product segments. Thank you.

All right. Thank you, Mr. Wong, and thank you, William. Next, we have Siew Khee of CGS CIMB, and she would like to raise this question to management. Please, can you give a sense of why the strength in ship repair in the second half of 2022? If this is sustainable, how much repair from KOM? There is -- if there is no combi, would you say your gross loss would turn around in FY 2023? How much of P-82 have you recognized? And would you say the worst of cost pressure from labor shortage had happened in previous quarter? Altogether, 4 questions for management.

Maybe I would address the initial parts of the questions. So essentially, when we talk about the strength of ship repair in 2H '22, I think all of us know that insofar as COVID-19 is concerned, that's impacted our Repairs & Upgrade during the initial part of FY '22 and also the preceding quarters in FY '21 and earlier. So as COVID challenges reside, more vessels can come to our yards. And so therefore, Repairs & Upgrades continues to improve. There are also other possible factors, which I can highlight that actually also enhance our Repairs & Upgrades. And that is that we are also seeing that overall growth in economic activities also resulted in more fleet owners having their vessel fleets, getting them accelerated or bringing them back to original schedule because they delayed their repairs some of them during the COVID years. So now they are being brought back. And so therefore, there is, if may, a sort of a catch-up of these regular maintenance and also upgrades as well. Bear in mind, also, that we do have the green solutions for Repairs & Upgrades, the ballast water treatment solutions, we talk about, as well as the gas scrubber solutions. So all these contribute towards the Repairs & Upgrade. How sustainable they are? We are hopeful that this trend would continue. But then again, there will always be a general up and down in between quarter. But directionally, over the year, we should expect Repairs & Upgrades to continue to be relatively resilient. I would not really comment much on the repairs from KOM. You have heard their strategy about focusing on more higher value-added repairs [ outright ] activities. I'm sure we can talk about that more after we have a better understanding of them post combination. You asked a question regarding if there is no combi, would you say your gross loss would turn around FY '23 from the current order book execution. I think it's premature and it's also speculative in any way to talk about what will be the P&L financial performance for FY '23 with or without the combination. What we will say is that from SCM standpoint, we are seeing that with our net order book and our current situation, our operating and financial leverage should improve in FY '23. And therefore, we believe that the financial performance for SCM side, at least for top line, we're seeing growth there. Whether or not, if you compare the 2 together, as you know, we are in no position to comment at this point in time. Yes, I hope you understand. Your question regarding P-82 in terms of revenue recognition. P-82 was secured in October of last year. So in that sense, initial works are already ongoing. But in terms of revenue, I would say that it is immaterial. The fourth question regarding the -- whether there was a cost pressure from labor shortage, would you say the worst is over? You're right. We have guided in our third quarter as well as presently that during the second half, in terms of sending back our higher-cost workers that we brought in to complete the projects in the previous year, there were delays in repatriating them, but we therefore use them for our existing projects, but they were higher cost. And now where we are, we are happy to share that all of these workers have also been, well, sent back to their home country. So our cost, internal labor costs should normalize going forward from here. Thank you.

Thank you. Thank you, William. Next, we have questions from [ Tio Yun Yuin ] from SP Global Petrol Data. First question, will the Keppel O&M proprietary drilling rig designs now belong to the combined entity? And two, given the focus on greener projects, will the new entity still be open to take on orders to build more drilling rigs now that the market is improving?

Thank you for the question. There are lists of proprietary designs will come together from the transaction. So we were not in this position to tell the detailed list. But definitely, there are proprietary rig designs is part of the list that come along with the transaction to the combined entity. And the second question is on the green projects. It is a quite early stage for us to comment this, as I mentioned just now. However, our focus will be, while it is a drilling rig, if there is, it will be a greener and lower-carbon footprint drilling rig design and construction. And that is also in line with our target of producing solutions for lower carbon, decarbonization, or even electrify the drilling rigs, if possible. And these are some of our solutions, right, the company is also studying now. Thank you.

Thank you, Mr. Wong. Well, next question come from Jame from Citi. Could you share more on how you are seeing the cost environment evolve going into FY 2023, especially in terms of labor cost, raw material cost inflation as well as component shortages? Are we expecting this issue to materially improve in the year? Or are there still lingering challenges to contend with?

Thank you, Jame, for this question. I think in summary, I would say that as of now, these challenges are still there. Notwithstanding that in certain part of the value chain or supply chain has some sign of easing, but overall, as we know, our type of projects involve all the supply chains globally. So I would say that currently, we are managing it together with the customer in our execution plan before we sign the contract. Thank you.

All right. Next, we have questions from [ Fu Swan Ee ] of [ EIA Investment Management ]. Going back to your earlier comments on the target state of operations, may I check what would be the target head count number and the order book size in that target state?

Thank you, [ Swan Ee ]. At the moment, I can't give you a number. But once post combination, there will be studies on the overall strategy so that we know the pathway from present, right, which is definitely still have oil and gas product, how we go into the green oil and gas, decarbonization projects and leading into the renewables. During these pathways, there are several things we need to consider. That is while getting and seizing the current opportunities and continue to build up competencies and capabilities to meet the coming -- this surge of renewables projects in the midterm -- from the midterm, so all this will be in consideration, in terms of the resources we need, the competency, we will continue to have, and also from there on, how will be our order book size look like. So today, there's no answer for you yet. Thank you.

Thank you. Thank you, Mr. Wong. Jame has circled back with another question. Would you be able to quantify for us the expected integration costs, which could arise from the combi? Or on the flip side, the potential cost savings through synergies in FY 2023 and into FY 2024?

Maybe I'll attempt this, this time round because I think in terms of quantification of expected integration costs, I think it's going to be very much driven by how the combined entity comes together and strategize here from how best to position ourselves in response to the energy transition. And the key thing to note is that the 2 companies come together with significant order books. So in that sense, insofar as integration is concerned, the focus will be to firstly ensure that all these projects continue to be smoothly executed even as we evaluate and optimize how the 2 groups can come together. So whether it's in terms of manpower, whether it's in terms of how the yards are going to be optimized for existing order book for the 2 entities going forward, those will be evaluated. We are looking at a strategy in terms of the business strategy. We are talking about our business model. These are things that we would take opportunity to evaluate. And this is something which, we understand, the new Board and management will be a priority going forward. So no specific numbers for you. As you know, this really depends on many factors. So it's premature, not appropriate for us to talk about quantification of integration costs. Having said that, we are talking about potential cost savings and synergies. Short answer, there should be and there will be. But again, it's premature to hazard any particular numbers. I think it's important for us to stay focused on the business, at the same time, better position ourselves as we progress in response to the competition as well as opportunities up there. I hope you understand. Thank you.

All right. Thank you, William. Looks like there is written question from Zhiwei of Macquarie. If I may make a follow-up on margins. When you see normalized margin, what is that margin? One of your local peers in topside fabrication is doing 10% gross profit margin. Is that considered a normalized margin? If not, can you share the delta of the improvement and how many basis points higher do higher-value projects add to your margin?

Zhiwei, thanks for the question. I have to say that you have asked that before, you have tried. As we have guided in the past, we don't give specific guidance on the margins. Having said that, when we say normalized, we are referencing to those days whereby during COVID years and a severe industry downturn, margins obviously were a lot more lower and potentially negative as you have seen. What we would say, as I said earlier, is that when the industry normalizes, as what's happening now and getting increasing strength, we want to see margins improve. And so you mentioned a 10% margin. I think we'll want to look for better than that. In any case, as I say, we cannot share -- we don't give guidance rather in terms of specific margins, but we wish to aspire and work towards higher margin than those that you mentioned earlier. Thank you.

Thank you, William. It looks like Zhiwei is back with another question. Do you plan to host an Investor Day later this year to talk about Sembcorp Marine's new strategy going forward once you have completed all the studies? If I may respond to this, Zhiwei. Certainly, we do hope to continue to engage all our shareholders as well as the investment community. And post the completion of that, certainly, we should have more engagement opportunities with all sell-side and buy-side analysts and our shareholders. Please do look out for such invitation. They may come your way very soon. All right. Next, we go to Adrian Loh of UOB Kay Hian. Thank you for the presentation management. Could you please give us an overview of some of the major offshore production projects that Sembcorp Marine could be in a good position to win in the next 12 months? Two, day rates for latest generation semi-subs and drillships have gone up materially in the past 2 years. Are you seeing any order inquiries from these types of assets?

Thank you, Adrian. As I mentioned just now, there will be several areas of inquiries coming in. There's also a number of projects in our pipeline. Please forgive me that I'm not in this platform to share the details with you. We will definitely let you know once we have concluded a contract. So as I mentioned, we have both offshore production projects, LNG projects as well as renewables segment from wind turbine installation vessels, cabling, vessel substation projects. So I think, so far, what I can share with you. For the project details, due to the sensitivity of the commercial discussion ongoing, I will not able to share anymore. Of course, for the -- coming back to the questions on drillships, right? I would say that the same answers to -- given to the jack-up rigs. When there's inquiries, we will study again and evaluate whether we will go into it. And definitely, as I say, any drillships or drilling assets in the future, it will have to be in a much smaller carbon footprint as well as energy saving. So that's all I can share with you. Thank you.

Thank you, Mr. Wong. Well, we have received quite a number of questions on the trading halt issued this morning. If I may address this. All right. We have issued the trading halt this morning as we have guided that the legal completion of the proposed combination is likely to take place today. To create a fair environment for all shareholders as well as incoming shareholders following the DIS from Keppel, we have this trading halt to maintain that. We trust that, that will give everyone a level playing and a fair environment to trade the shares going forward. All right. Next, we have Siew Khee, not quite a question, but rather a sharing from her. I assume that the new Board will take some time in the months to come after completion to review the business strategy so that we know that it will not be an immediate synergy in 2023. But to build in realistically the time line for the Board and management to share. Thank you, Siew Khee, for this understanding. Well, thank you, everyone, for your participation. I do not have any more questions on the platform. We thank you that you have joined us this morning. Well, we would like to close this morning's session. If you have further questions, please do not hesitate to reach out to the IR and comm teams at Sembcorp Marine. Contact details are provided in our press releases, and please reach out to us. Once again, thank you, everyone, for joining us this morning. Have a very pleasant day. Thank you.

Thank you.

Thank you, everyone.