Securities Investors Association (Singapore) (5E2) Earnings Call Transcript & Summary

Good evening, shareholders of Sembcorp Marine. Thank you for joining us today at the SIAS-Sembcorp Marine Virtual Dialogue Session. SIAS is organizing this session to allow you to engage in a dialogue with the senior management of Sembcorp Marine, to hear the details and their views of the proposed combination between Sembcorp Marine and Keppel Offshore & Marine and to seek answers for your questions. On the of April 27, 2022, Sembcorp Marine and Keppel Corp jointly announced that they have entered into definitive agreements for the proposed combination. It involves the establishment of a new holding company, the combined entity, which will combine the businesses of Sembcorp Marine and Keppel O&M via separate schemes of arrangement. Sembcorp Marine believes that the proposed combination will create a premier global player with a deep engineering heritage that will offer offshore renewables, new energy and cleaner solutions in the O&M sector. In the definitive agreements, the proposed combination was based on 50-50 enterprise value ratio using discounted cash flow, DCF, methodology approach conducted by DBS Bank Limited, which acted as the joint financial advisor. It is also published that the equity value exchange ratio of the combined entity being held by 44% Sembcorp Marine shareholders and 56% Keppel Corporation Limited and its shareholders. This was agreed on after due diligence and negotiations that consider the respective capital structure of the 2 companies, especially the different net debt levels being approximately $2.0 billion for Sembcorp Marine and $0.3 billion for Keppel O&M. Is the proposed combination necessary and fair to you shareholders? What is ahead for the combined entity in the future? Who will manage the new entity? Who will be on the Board, are your questions? What happens to Sembcorp Marine should the combination go through? Will you be better off or worse off? The proposed combination has generated significant interest among retail shareholders. I wish to remind shareholders to listen very carefully to all sides of the story and give due consideration to the issues at hand before reaching a decision on the future of Sembcorp Marine. You have to make your own decision that is good for you, and not rely on third-party's views. That is why SIAS is keen on this dialogue being organized for your benefit only. Today, we have invited senior management of Sembcorp Marine to join us at this dialogue. I welcome Mr. Wong Weng Sun, President and CEO; and Mr. William Goh, Group Financial Director. Thank you, gentlemen. We will kick off the session with a presentation by Mr. Wong and Mr. William, to share insights on proposed combinations, followed by a Q&A session moderated by my Vice President, Mr. Loh Uantchern. Please submit your questions via the Q&A function of the Zoom webinar, and the management will endeavor to address them all. So without further ado, Mr. Wong and Mr. William, over to you to take us through with the presentation that you have. Thank you very much.

Thank you, David. Good evening, David, and Uantchern, and thank you SIAS for organizing this shareholder dialogue. Good evening to Sembcorp Marine shareholders. Thank you for taking time to be with us today. Towards the end of April this year, we announced the proposed combination of Sembcorp Marine and Keppel O&M. This is a significant milestone for Sembcorp Marine and a culmination of our strategic business transformation journey that was started in 2015. We believe that the combined entity will have resilient foothold in the offshore, marine and energy sector. At the same time, it will allow us to accelerate our advance into cleaner and greener O&M, renewables and new energy market. As you know, the industry is evolving extremely rapidly. We have taken concrete steps in the past years to position Sembcorp Marine at the center of a global transition to a low carbon economy. They are exciting opportunities here, which we have already identified. We are now taking this defining most step, one step is transformational, almost instantly. With the proposed combination, we will have greater scale and resources to address the USD 260 billion offshore renewables market and USD 290 billion worth of O&M opportunities. If we stay status quo, there will be severe challenges ahead of us. Already, there are bigger, fiercely competitive players out there. They are also readying themselves for the future. Like them, we must evolve. We need a transformative change that will allow us to scale up and address the competition. With our combined engineering and R&D capabilities, enhanced operational and financial muscle, we will be much better positioned for the road ahead and much more resilient and able to weather the challenges. We want to seize market opportunity. However, without the combination, there will be certainly operational manpower and other resource challenges and pressure that comes along. Since the announcement, we have received feedback from our shareholders, and we are very appreciative of these open lines of communication. In our interaction with our institutional and retail shareholders, many have welcomed and expressed support for the portfolio combination. We understand also that some have questions about it, which William and I hope to address during today's session. The board and management of Sembcorp Marine believe the proposed combination is the best interest for all shareholders. I now pass to William who will share some key information on the proposed combination. William, please?

Thank you, Mr. Wong. Once again, good afternoon, everyone, and thank you for taking time to join this dialogue and thanks SIAS for facilitating. We thought that before we go to specific Q&A based on the feedback we received from our shareholders, like ourselves, we thought it's helpful to give an overall step shot on 2 key aspects of this merger. Firstly, why are we proposing the merger? And secondly, how some of the key terms, especially the merger ratio will derive. So I want like each to address these 2 parts very quickly to the first slide. So this first slide there, you can see a total of 5 columns. On the left-hand column, it basically show the market trends, and hence the context that catalyze this proposed merger. The next 2 columns summarize what each party brings to the table, and probably more importantly the challenges that each party faces in that sense. And the next column on the right shows if the merger proceeds, how the combined entity is better positioned to take on the industry challenges. And finally, on the right most column, specifically, how SCM will benefit with the merger proceeding? So let me very quickly cover each of these columns. Without too much detail, you can see the bullets for yourself. But basically, we note the energy transition is increasingly clear, especially in the last few years, and this capitalized demand for renewable energy as well as new energy solutions, and you see the market size there. At the same time, oil and gas market due to underinvestment over the last several years and also a recent oil price rally, the demand for oil and gas solutions is also recovering well. But while the overall industry outlook is improving, there is also a very clear trend of global consolidation of yard players, even if they are already lost by themselves, and this includes the largest Chinese yards, the Koreans as well as the Japanese. The question is why are they doing that? It's because in order to respond to the rapidly changing industry landscape, it requires investments, developments of new technologies, engineering and execution capabilities. And this requires focus and the need to adopt a longer-term perspective before you see returns for such efforts. So in short, the global players see the need to merge to be stronger operational and financially, to respond to the above changing landscape. So the question is are other large players globally are merging? They all the most abroad players should otherwise if they merge and we don't, then the competition gap would just increases even more. Let me very quickly go into the next column, the value proposition of each player. For SCM, quite clear cut, we have new year capabilities and capacities with acquired technologies, design, engineering capabilities, we have a decent global footprint, although not in all countries, and track record and customer relationships. The challenges we face is while we have invested in significant yet capabilities and capacities, but with the changing industry landscape and a very hungry global competing yards, we may or may not be able to win sufficient orders each year to fit our yards. And at the same time, because we invested a few billion dollars yard capabilities for the future, we have incurred gross debt which is more than SGD 3 billion. And banks understandably are interested to understand how we go about repaying them over the next years. On the KOM side, very briefly, they have a strong order book of SGD 5.1 billion, almost 4x ours of SGD 1.3 billion at the end of last year. They arguably have a more global footprint and rich -- for example, they have a U.S. yard, which can be a promising market. They have equally good trend customer relationship and the relatively asset-light business model and, therefore, a lower gross debt levels. Their challenges, if we may want to argue that the yard is older, so may not be as well-positioned to take on certain types of opportunities in the energy transition. But we now look more importantly, what happens if the merger proceeds, how the CE, combined entity, will better position for the longer-term future? You can see from the chart very clearly, the synergies and competencies and capabilities. This will enable better and faster response to the energy transition, leveraging on the global footprint and relationships to secure more orders. Essentially, the combined entity will certainly be more competitive, achieving greater scale and cost efficiencies, operating leverage in this case here. And also as a single player representing Singapore Inc., we can expect banks to be also more supportive and therefore facilitate credit growth and credit access for future growth. In short, a stronger and more sustainable operational and financial position for the CE. These benefits are clearly applicable to the CE and therefore, to Sembcorp Marine by [indiscernible] Specific at Sembcorp Marine, you look at on the right-hand side now, growth -- with the combined entity with SCM combining with KOM, the growth can be accelerated. We will be more agile, a faster response to the evolving market trends with the greater scale and broader geographical footprint. And probably more importantly is that while we are agile and we can grow, we need to be also have a certain level of stability. And this is very important because of the major industry which is cyclical in that sense. So overall, we are talking about more resilient SCM through the combined entity to weather the future market volatilities. And ultimately, what really matters to our shareholders is sustainable financial returns. With better growth prospects, more agile, lower operational risk, the overall earnings quality and long-term sustainability of returns to shareholders is much more better underpin. So in summary, for this slide, the strategic business rationale for the merger is very clear, and not merging is not an option. Let me pause here and then move on to the next slide. For this slide is very much addressing some of the questions that were asked. What valuation methodology is appropriate for the merger? And how the merger ratio is the right act? And a lot of feedback that we get talks about why is it use of DCF, the desired cash flow methodology and not, for example, the NTA as a basis for valuation? Let us say that there are many ways to evaluate the merger, but it's always most objective to look at the fundamental piece at first. Why merger? Merger is looking at the long-term mutual contribution each party to the combined entity. And therefore, the value contribution is best measured more by the short- and long-term cash flow generation contributed by each party and not the upfront current situation, for example -- like the level of net assets, which is a static measure. And measuring in this case year end of last year. Of course, to be fair, petitioner will say that different industry offer different dynamics and therefore, different weightage to some of these metrics. So for example, if you are a property development or investment company, your portfolio of properties injected into the merger certainly is a strong inflection of future cash flow generation. But in our case, the O&M industry, while yes, assets quality and capacity definitely helps, but objectively speaking, because of the global competition with a better yard quality and capacity, there is still no assurance, as we mentioned earlier, of securing enough orders quickly. On the other hand, if vendor does not such kind of yard capability and capacity, it also doesn't mean that we can't secure enough traditional orders to support and contribute to longer-term cash flows. So in short, in our yard business, the net tangible asset is not the appropriate measure, and not the key driver for the valuation for sure. Whereas the discounted cash flow methodology provides such measure of cash flow contribution both for the short as well as the long term. And just to mention that in DCF, it takes into account current orders, near-term and longer-term orders, and also the associated margins to provide the performance measure. And while the future, one can argue in many ways, one objective way to evaluate the future is a look back at the historical trend and historical performance. And given the nature of the industry, as we mentioned earlier, a longer-term 10-year historical performance would be a relevant indicator of future performance, adjusting of cost for any evolving industry landscape or strategy. So basically, based on all these above considerations, it drives the mutual agreement by both companies to adopt the DCF methodology and also the associated key assumptions and business use. So I hope that clarifies why the DCF is used, and some of the assumptions has also been adopted. Let me move on to the outcome of this year methodology. So on the right-hand side, you see that from the outcome analysis, we end up having a 50-50 enterprise value ratio. So in short, the assessment of this year basis resulted in a merger of equal, a 50-50 enterprise value ratio. And then from the enterprise value to the equity value exchange ratio, is a relatively standard approach whereby you adjust the debt items. And because SCM has a much higher net debt of SGD 2 billion compared to KOM of SGD 0.3 billion, the outcome factoring also other adjustments is an equity value exchange ratio of 44:56. Now naturally, SCM management will argue for a higher ratio. But likewise, KOM management as well. So this will be an argument that both sides will want to improve for themselves. But at the end of the day, with the objective assessment, we also want to say that for SCM standpoint, what key consideration for us accepting this 44:56 is the fact that all the legacy rigs from KOM is being -- are being excluded from this merger. In other words, the [ $4 billion ] of legacy rigs that may have questions regarding their disposal at what price, any possible loss to the right down in the future, all these things are removed from the restructured KOM coming in the combined entity. And probably more importantly is that an equal amount of liabilities, of [ $4 billion ] is also removed from the restructured KOM balance sheet so that the KOM coming in with low debt, and contribute to reduced gearing, and this will enable more debt headroom for future growth by the combined entity. So in a sense, the restricted KOM coming into the combined entity is a lower or derisked KOM, which is therefore beneficial to the CE and beneficiary to SCM. So overall, we felt that the merger terms rightly factored in, firstly, the longer-term perspective; and secondly, both quantitative and qualitative factors, and assess that how management was supportive of the competence because we believe we have push and the terms are all within reasonable range. So that's the summary for these 2 slides. We can -- maybe Uantchern, I pass it back to you. We can progress through the Q&A.

Thanks, Mr. Goh, for the presentation and the clarification. There's quite a fair bit question on the valuation and on the numbers. So I'll give you a couple of minutes to look through them while I go to Mr. Wong. Mr. Wong, there's a question from -- you see Mr. Klem Chong on the future of Semb Marine and what happens if the merger doesn't go through in terms of the combination. Maybe any juncture -- maybe you can share with us, Mr. Wong, what's the good thing about the combination, the bad thing and what can really get ugly in terms of the combination, if it doesn't go through. Mr. Wong?

Well, thank you for the question. It is quite interesting. Let me share my thing on this.

What's the good..

Well, this is a lifetime opportunity or the last opportunity. Why? SCM to have opportunity that able to merge with a restructured KOM. This is free from legacy rigs. Having low debt is irrefutable, and having now restructured a core marine and offshore player with its existing capacity and capability that comes with healthy order book. And this brings benefit of this year. And what this could translate into SCM? That means, SCM's combination with a restructured KOM, means an immediate step up in terms of scale, capabilities and operational reach to tap into opportunities that compete on a global stage in this new energy era. And install optimization of Sembcorp Marine's larger, newer yards, with the enlarged order book of the combined entity with resultant financial and operating benefit. There is a turn from the market that they are requiring an active reinvestment for [indiscernible]. But in the very short time, it is opportunity for us, we're able to optimize this and able to capture this opportunity. And again, the immediate unlocking of synergies for the integration of 2 established industry players.

The good. Mr. Wong, the good is very clear. How about the bad?

Well, the bad will be, we all know, same status quo is not an option for Sembcorp Marine. So if the merger does not happen, Sembcorp Marine will have to go alone in the increasingly competitive landscape, navigating the ongoing transition to a low carbon economy, which is scheduling in place. Face its competition, which is pushing ahead with the consolidation plan. Sure SCM will have to consider other organic or inorganic options. This will take time to become a reality. We'll have...

We cannot have [indiscernible]

Not on our side. Now I would like to go to the ugly. The ugly can be really ugly. We all know Keppel's tragic 2030 vision will be roll out. Keppel is divesting KOM's business. If the proposed combination is not successful, could KOM be acquired by a competitor? Will this opportunity for a proposed combination be lost forever? And it is not just a loss for Sembcorp Marine, it has implications for Singapore as well. We are ready to face this real ugly.

And what's the worst-case scenario, Mr. Wong?

That will be the worst, worst case, and there is a lot of ecosystems in Singapore. There is a lot of engineers, supervisors, project management team, which are excellent, top class and in this industry in Singapore. And they will be affected.

And on this call, thanks, Mr. Wong for the explanation on the good and the bad and ugly with regards to the situation right now for Semb Marine in terms of the combination, not easy in terms of the choices faced in Semb Marine maybe we go over to Mr. Goh now. There's a couple of valuations have questions from Mr. Alan, so Alan Lee. One of the technical question is asked is that has the valuation take into account the newness of the yards between Semb Marine and Keppel Corp.

Thanks for the question. Certainly, all these factors are taken into consideration. But as I mentioned earlier, the quality and newness of the gas, so very relevant. But what ultimately drives is the ability to generate and secure orders which will then translate into revenue as well as margins. So yes, they have taken a consideration, but the cash flow generation for this year methodology would capture that accordingly.

Thanks, Mr. Goh. Another question from Mr. Alan Lee. You presented in your slides, the rationale for the technical computation and the financial justification. What's the view of management and the Board based on what the computations have -- now what's the net-net bottom line, what's your feeling away from the yards.

Why don't we talk about net bottom line you're referring to?

In terms of is it the right number? Is it -- does it disadvantage anybody?

Right. So I think, firstly, in terms of the overall terms, as we have shared earlier, overall, we believe that they are within reasonable range. Naturally, different people look at it slightly differently, but we felt that the overall approach and the overall outcome is within reasonable range. Having said that, we look at, at the end of the day, the relative contribution as well as the relative merits for all parties. As I said earlier, we will also look at the qualitative aspects of this transaction as well.

Okay. Thanks, Mr. Goh. Coming back to Mr. Wong. William has -- Mr. Goh has presented in terms of the potential revenue or the market share. What do you think is the potential share that the combined entity can gather from this huge market? I mean the total market is $550 billion. So that's a huge market.

Yes. Thanks, Uantchern. I think the market for the immediate oil and gas is more of a nearer-term and part over the midterm. And therefore, the renewables and new energies, probably reference to today's time was will grow in a much smaller phase, but then exponentially growth later. And I think overall, the combined entity -- if we do it correct, do it well, execute our strategy correct, whereby we will able to sustain our power in terms of the existing oil and gas, able to turn that into cleaner at the same time, starting to go into renewables, such as [indiscernible] and later for the renewables and so on and so forth. I believe we'll be able to reach up 5% to 15% of the market share.

That's very significant.

And probably through this plan, we're also able to achieve with a collaboration with other like-minded companies to work together to achieve our goal.

So if I go back to your good and bad and ugly narrative, this market share in 5 -- 10% to 15%. If you were to go it alone, you'd be very challenging for Semb Marine to achieve that market share?

Yes. I want to explain a little bit why. And most of us will see that SCM is ready. SCM has pivoted a long time ago. I think I would like to share that we have made strategic investments and acquisitions in 2015 to align our business to the global energy transition. Also, yes, SCM has core engineering capabilities and broad set of sustainable and renewable product solutions. But however, the market sometimes will be impacted by many, many other factors such as COVID, such as the geographical tension. And also, on the flip side also accelerated by the oil majors who have set the vision of 2030 net carbon neutral, and eventually go to 2050 target. However, the global energy market is really evolving very quickly, and the operating landscape is getting increasingly challenging and competitive. We must not forget this. We must grow in scale and capabilities so that we are not out of -- we are not out-competent in the future. Not only of today, we have to be stay receiving and to stay relevant in the future. If we look at the potential consequences in the proposed combination does to materialize. As I mentioned, we need a border translation today. If merger is not supported by shareholders and shareholders voted against the merger, Sembcorp Marine would have to navigate an even more competitive landscape. Where many regional players Chinese, the Korean, the Japanese have either consolidated with peers or are in the process of taking consolidation. I also want to emphasize that stand-alone, SCM response time is constrained by existing levels of resources, capacity and global outreach. SCM may find challenges to capture the immediate market turning and lost opportunity for growth. So however, if we think as Singapore as a homegrown marine icon, Semb Marine and KOM have the closest DNA. If we come together, we should have a very relative smoother transition of equation. Although we recognize that any M&A, there will be integration challenges.

There's a question, Mr. Wong, on reorganization before the combination. Has there been one done with SCM by Sembcorp Marine at this point in time?

I think Semb Marine has -- over the time has restructured its operations internally, and we backed that in 2013, we have restructured from a business-centric shipyard into a factory-center shipyard. And we consolidate all the businesses into 4 important pillars. But at the same time, we will also streamline all the corporate services. And then we venture into different renewables initiatives, lower carbon footprint initiative as well as greener oil and gas whereby we invest in certain types of these technologies companies.

And Mr. Wong, one last question for you before we go over to William to answer question on assets contributed to the combined entity between Semb Marine and KOM. Mr. Wong, who are the big competitors to Semb Marine and the combined entity? And I guess, as a stand-alone Semb Marine, it's going to be difficult to compete with these competitors. So who are these competitors?

I will say traditionally, competitors, the landscape has changed from the traditional -- the rig building into the offshore, and now transiting -- transition into the future of low carbon footprint. Yes, we know our current competitor. And yet we do not know who will be the competitors coming against us in the future. We are in the -- market is changing and try to adopt and try to innovate and try to make adjustment. If you look into oil and gas, both combined entity or individually, we have a strong footing in the conversion of FPSO, LNG, cooking LNG as well as specialized shipbuilding. However, into the future, this require more of a solution-based package to the customer. The competition, we will suspect, it will be even raised to the level of consolidation between engineering firm with the production companies. So I think that part of it, right, the competition, we cannot be still competent. The no competition is coming up. Individual, all the players we're not able to complete, but they're coming together for project-by-project basis. For example, in the past, we only built and designed our own product. Now we are also inquired orders in the previously competitor to be our brand. And vice versa, right, sometimes we also let them become our customer. So going forward, more importantly is the combined entity to be able to withstand resiliencies, able to be relevant into the future. The competition can be anyone stronger. We know they are growing, both in the Far East as well as also in the Europe now. And third, we may see that competition may slowly come up from Indo-China countries probably also from countries like in North America as well in the longer term.

Thanks, Mr. Wong. Let's now go over to Mr. Goh. A couple of questions, one on the contribution assets of the combined entity. And the second question, you said, there seems to be a perception that KOM has a stronger bargaining power with regards to the combination. While we're getting William to research answers on these questions, Mr. Wong, we'll come back to you on questions about has other options being considered besides the combination? Who will take over the new combined entity? Will it be KOM or combination of KOM and SCM? So some of these more practical questions in terms of the common entity. So over to you, Mr. Goh, your first question on contribution of assets. So the question is, why is Semb Marine contributing more assets to the combined entity and compared to KOM?

Thanks, Uantchern. In terms of the assets, basically, when it comes to the merger, basically both parties bring in whatever their existing total assets to the table. And in our case, we bring -- because we continued in the business, we want to continue the business, and therefore, we bring all our assets in, which is natural. And I would say that all these assets are then the basis for generating all those cash flows that has been taken into consideration in a merger valuation. So it is not a case whereby you can choose and select and take away some assets, for example. Because if you do that, then as a company to be able to generate all those cash flows, those require the assets. So you cannot have a situation of recognizing the cash flow for valuation and not having some of the assets included in the sense. So for us, it is all the assets in, and the cash flow generation and contribution is being recognized accordingly. In the case of Keppel, they started off in the first place, having less assets because they have been adopting a relatively asset-light model, right? And in this case here, technically, all the assets should be in. But in the objective of having the CE, the combined entity, to be more resilient, the key question is that what is it within the Keppel Offshore & Marine that is not constructive to the combined entity. And one big area, obviously, is the older stranded rigs of KOM, which is as that I mentioned earlier, the standard rigs are being taken out. And more importantly, as I said, is associated [ $4 billion ] of our payables are also taken out as well so that the KOM that's coming into the CE is a lot more light in terms of its debt load, right? And also some of the other loss-making entities that you see like Floatel and Dyna-Mac, those are also as good as well. So in overall scheme of things, the assets coming into the combined entity are those that contribute to the cash flow, factor into the valuation and more importantly, is constructive for the CE to grow and take on the global competition going forward.

So the assets has contributed to the CE, or combined entity, is a very structured decision.

It is indeed. And all things being equal, in a normal merger, all parties bring everything. But in this case here, we have the benefit of moving some of those assets, loss-making or standard assets that can cause potential challenges to the combined entity post-merger. We have those excluded. And that is why with those stranded assets excluded, you actually have a lower risk KOM coming into combined entity, which will therefore be helpful and beneficial for SCM shareholders.

Thanks, Mr. Goh. A couple of questions that seem to point to the fact that Semb Marine is always disadvantaged in terms of the combination that there's -- Semb Marine is a great company, but there seems to be some perception that it has disadvantage. Maybe you can comment on that, Mr. Goh.

What we would say is that if you look at some of the metrics like NTA, it is understandable for people to say we have a higher NTA, and they have a lower NTA. How do we end up in a lower exchange ratio? We understand that. The rate I say is that in a merger, you are really looking at the long term. And the long term for the nature of our business, as I said earlier, what is most important is the projected future cash flow generation contribution by each company. And we agree to accept the approach because that is objective and reasonable approach. And so that drives the valuation and not NTA. And -- in a way, when we come to a merger, you have to be objective about the methodology and the approach. You don't have the benefit of picking and choosing because if you pick and choose, the other party will do likewise then how to arrive at terms that is both party mutually acceptable. So we go in, obviously, with a set of objectives. But where we come up with the overall packaging deals and the terms, we look at it. And so long as it's within a reasonable approach and reasonable range, and for the bigger, longer-term objective of getting this merger through so that we can have a longer term and a more sustainable future. Overall, we thought that the overall approach was acceptable.

There's a question from Mr. Alan Lee to Mr. Goh. On the fairness of the combination. So in no uncertain terms, Mr. Alan Lee has said that it's very fair for Keppel [indiscernible] unfair for Semb Marine. Would you care to comment on that?

I think as I mentioned earlier, different parties will look at it from different lenses, and find that it is fair or unfair. But at the end of the day, we have to agree to a commonly acceptable and also established methodology. So in this case here, is that is called the cash flow methodology. And this year, rightfully factored in not just the upfront immediate term, but also the medium and longer-term value contribution by both companies. And we felt that this is actually a more objective approach, especially within the consideration that for our industry is cyclical, and a cycle typically can be anything from 8 to 10 years or even more. So essentially, this approach is more objective and fair, and we subscribe to it.

And what does the board and management feel on the overall basis once again, Mr. Goh? What...

Yes. So as I said earlier, of course, management bought wishes to it for the ratio to be improved, that's for sure. And likewise, the other party will also think of that way. But in overall scheme of things, as we look at the longer term, we look at the rationale for this merger, we look at both the quantitative as well as qualitative aspects. We felt that the overall outcome and the merger ratio is within reasonable range.

And management and Board stand behind this reasonable range?

That is correct.

Thank you, Mr. Goh for that statement. Now let's go over to Mr. Wong for some more strategic questions like who will run the combined entity? Have the other options being considered other mergers? Has Semb Marine prepared itself for the combination? So Mr. Wong, maybe can I hear from you, have other options being considered?

Okay. This is a good question. For the final, probably the setup will be announced at a later stage. But I would like to say that both SCM, KOM, individually running a very sound and good operations and have a very, very effective of -- reaching out to that market. But at the same time, we also know the ambition of this combined entity is not only doing the current work well, but also wants to grow and transit into the future of the oil and gas requirement. So there are a lot of elements inside depending on the stages. Upon the immediate combination, the most important is we must ensure that the current work, current progress, current bidding will not be affected. This is important. I think going forward, how then we will look into -- how we immediately have a synergy in how to increase capacity and capabilities. These are the real questions both Sembcorp Marine and the future combined entity will have to think relatively. I will say that in terms of the management, it will be a joint management in the sense that we need to have one integrated team, a team whereby we will not lose out from what we had planned from the very beginning. We don't want to lose any capabilities, any competencies as well as any good effect arising from this proposed combination. But going forward, we're also depending on the target state, and how the market has evolved. There will be a necessity for us to bring in expertise, to bring in different diversity into the company because we are running a global -- real global stage of a company whereby we are heading towards into the future. No longer back in -- 20, 30 years ago, we started as a ship repair or the most we reached to the level of constructing our own jack-ups, our own semi-submersible drilling units. We are talking about in the future, new energies, talking about starting wind farm, talking about any possible right, or sustainable solutions for fuel production. So in short, I will say that the management should be coming from those who are running the business and those who are really on the floor, on the ground and thereby they know where is the hard point, where the difficulties -- and especially when the 2 companies come together, there is a lot of effort to keep everyone as one and integrate going forward.

Thanks, Mr. Wong. Over back to you, Mr. Goh, there's quite a few of questions on operational matters, cash flow, incurrence of debt, operational issues. So I'd like to ask Mr. Goh, in your slide, you presented you put 1 plus 1 is credit. How would you characterize in terms of the operational efficiencies for the new entity in terms of the day-to-day operations, is it going to be Semb Marine 2.0? Or is it going to be a real step change for shareholders in -- shareholders asking share price, the incurrence of that. Maybe you'd like to shed some light on that, Mr. Goh.

Thanks, Uantchern. So I think as I shared earlier in the first slide, the operational and financial synergies are quite similar. I think the most important factor to look at is really the industry landscape and the competition landscape in particular. I think when we embark on our strategy -- SCM by ourselves, we embarked on our strategy over the last 10 years, building our new yards, acquiring technology, et cetera, we certainly adopt the approach that we are able to take on the global competition, and achieve sustainable returns over the long term. But I think what happened over the last 5 to 7 years, where you see how the industry downturn back, and we see how energy transition takes his whole and continue to progress very significantly. And that drives the entire industry landscape in terms of how to try and compete. You add on all those global competitors combining themselves to build further scale. In a way, it is a consistent thinking mindset that with the evolving industry challenges and with how the industry landscape has progressed. There is a need for greater scale and a greater need for focus, and also to adopt a longer-term perspective of things. So therefore, by ourselves, while we can try to navigate and take on the global challenges. But certainly as a combined entity, it's a lot more sustainable and a lot more safer in that sense. So operationally, I don't wish to repeat the slide information are there, on the fourth column there. And the benefits to SCM that are listed on the fifth column, as you can see there. But at the end of the day, one of the key drivers of growth is also financing. And with our banks generally more supportive of a combined entity because they see that Singapore, like the global competitors, the Singapore players are combined. And so therefore, with a greater strength, better able to compete, generally speaking, banks will be more positive and supportive. And that all goes well for the future growth because we need the working capital to take on the orders and execute the orders. So let me pause here, Uantchern, for your next question.

Thanks, Mr. Goh. What would be the one single thing that would characterize the operations of the new community? What's going to be the thing that stops you from being the same old again? Aren't going to be the people? Is it going to be the large size? What can I, as a shareholder, look forward to? What's the SLP part?

Yes. I think, firstly, you can -- if you can look forward to basically the combined footprint and scale, and therefore, the reach to customers as well. But essentially, you have the commercial teams hunting currently separate customers, separate region. But when you combine together, we have the benefit of our cross synergies, cross reference, different customer needing different products that the other party may be able to deliver and vice versa. So you expect the combined entity as we have also announced, we will have a new name as well as new branding, and be a lot more targeted into the renewables as well as a new energy while focusing on greener O&M solutions at the same time because the potential continues to be there. So there will be a significant clarity and focus, especially in all these new areas. And there's really one key factor why you do the combi because you have the scale and scope to then be very focused and targeted and to be able to take on those opportunities as and when they surface in the foreseeable years.

Thanks, Mr. Goh. Now over back to Mr. Wong for some more strategic questions. How ready is Semb Marine to go into the merger?

It's a good question. I think SCM is ready to go for the merger. And why I say so because we know where is the transition point of the market. There is a need for us to be ready for the future, but to reach that, we must know that we must have the resiliency to stay on where the markets become very challenging. We also earmarked and planned from bank, the transition from the benign water jack up going into a diversification in different areas and also into different technology companies that we acquired, the different IP able to house the offshore application such as Circular [indiscernible] as well as the credit flow and so on. We know by doing so, also the nature are different. And we're not able to capture all this by ourselves, it is impossible. And whether SCM is ready or not, I think SCM is ready, both in the spectrum of where we should head in to. We want to be involved in the green O&M, renewable boats as well as new energy. We have restructured internally in terms of operation that we are able to acquire technologists also, at the same time, able to merge with companies. I think in terms of operations, for this particular merger, I will say that the DNA are the closest. If you talk about in Singapore, there's no other DNA similar to SCM and KOM. And globally, right, we also faced some differentiation in terms of D&A. Both KOM and SCM has a very strong engineering base. We are all both offshore and reengineering company, and we should be able to manage this. For SCM, we are ready.

There's going to be a new name, Mr. Wong, for the new combined entity. Is there a lot of work to be done in preparation for that?

I think there will be work to be done. Of course, this has to be also aligned with the progress of the development cost definitive agreement and also seeking the shareholders' approval. The preparation will be done.

Thanks, Mr. Wong. Let's go back to Mr. Goh. There's quite a few questions on share price. I know this one would to be challenging to either answer them or even to address them. I am mindful and respectful of that Mr. Goh. So maybe you want to address, if you can, some of the shareholders' questions on what will reduce share price? How will it be affected? The dividends. So at the end of the day, the shareholders are worried about the dollars and cents.

Thanks, Uantchern. Thanks, shareholders for all these questions. It's quite understandable that you would like to see how the share price trend may move. But as you can understand, it is -- we are not in a position to speculate on share price trends going forward. But what we would say is that if you first look at how the share price have trended since the last price issue, $0.08 with the proposed merger, generally speaking, you'll find a share price of trending upwards. But I think more importantly is for our shareholders to understand the rationale, the strong rationale for the combined -- for the combination. And the reason why, because it's only through the combination that the 2 SCM players combined can take on the global competition a lot more effectively. And I think this is going to be the key driver for the future share price of the combined entity. Both parties individually performed well, combined together performed even better, and that is why we highlighted the 1 plus 1 should get more than 2. And this is where the quality and consistency of earnings becomes a lot more clearer. The synergies take into effect. And therefore, compared together, it will result in a better performance overall. And that should drive the better the share price of the combined entity going forward. By specific share price, I hope you understand that we are not in a position to comment. Uantchern?

Thanks Mr. Goh. I totally understand that. And what will you see the issue in terms of shareholders and also the market that seems to perceive that we're coming in a weak position that the combined entity seems to be more of the same there's concern that it's going to be a penny stock. There's concern that it's not strong enough. It's not -- it's too late -- too little, too late in terms of getting the market share. It is in a weak position. What's your view on that, Mr. Goh?

Not at all. I think you will find it historically, both companies have been the resilient and has been able to stand on their own and take on the global competition. But having said that, as we look at the most recent years' development, energy transition, global competition landscape, this is where logical parties believe that it is good and timely to actually come together and strengthen each other so that together at Singapore Inc., we are a lot more resilient and a lot more able to take on the global competition. We have been able to do in the past. We believe we're able to do so individually, but combine together all the more so. And this is where we see the standpoint of all our stakeholders, especially our shareholders. Shareholders are concerned about how the energy transition, how the global competition is affecting Singapore players. And we are responding by saying that we believe that when we combine together, we'll be able to take on the global competition. Earlier, there was a question of 10%, 20% market share or the SGD 550 billion of our market share. We hope to be able to achieve more. And the only way to achieve more is to be able to combine together, leverage each other's strengths and take on the competition better, and there are synergies on both sides that you see in the slide. And this is the best formula, we believe, right, to generate value for all our shareholders over the longer term. And the share price should then reflect accordingly whether it is in terms of share price or in terms of dividends, once we generate the profitability, the dividends naturally will follow as well. Uantchern?

Thank you, Mr. Goh, on that. And let's go back to Mr. Wong. We talked initially about the good, the bad and the ugly, if Sembcorp Marine want to go to this alone and the combination doesn't happen, would it be a situation where the past contract to the present, meaning that more rights issue you'll be challenging share price to be struggling? What's your view on that, Mr. Wong?

I think but it is difficult to predict the market is coming or the market is going against us. I think what we are looking at -- if we have to withstand alone, definitely, it is a very, very difficult situation where things repeat itself, where the market share or the oil price, the energy market connect. I think this is something for us to think about the possible risk that may come along, and we should prepare for it, and what is the best way for us to be more resilient. I think on this position, the most important is if there is no combination, then SCM has to take a longer path to achieve once. At the same time, they also subject to possible challenges what we have experienced in the past.

Do we need this deal Mr. Wong, the Sembcorp Marine in this?

I think overall, if you look at what our presentation explanation that Semb Marine needs this tie and SembMarine needs something of both that to make sure that we can continue what we have started that in 2015. We're able to restructure ourselves. We're able to ensure that the changing environment, especially the situation of the climate requirement and the changes in oil and gas landscape, and all these are affecting order books. I think for us, in order to be able to stand able to withstand the storm in the future, the combined entity definitely will be able to uplift SCM in the shorter time, especially with the current situation where the market may turn to be hotter, then we have the ability to deliver in terms of capacity and capabilities. And if we were to do in a low, there is always, always a resource constraint in any company when they are standing alone. So in short, I think this is something SCM should look into, we need to ensure that what it takes to derisk the future uncertainties as well as meeting the challenges.

Thanks, Mr. Wong. So status quo is definitely not tenable from Semb Marine's point of view.

Yes. I would say so, it's not tenable.

Thank you for that. There's 1 question, Mr. Goh, on the operating leverage of the common entity capital management. Would you like to address that?

Sure. So in terms of the operating leverage, basically, what we are saying is that if you have -- if you build a new large yard, and the yard cost money and so therefore, there will be the annual depreciation. So it's probably important for our yard, our annual depreciation is close to $200 million per annum. It is important for the yard, therefore, to be able to execute a lot of projects so that the projects can then absorb this depreciation. So operating leverage essentially means that you need to have a commensurate level activities to be able to feed the yard so the yard depreciation can be well absorbed by a higher level of orders. So more orders, the depreciation, the same depreciation is allocated more projects. Overall, the depreciation charge to each project is going to be lower. So overall, the margins will improve currently. So that's a simple illustration of the benefit of operating leverage, whereby large assets requires more orders to share the cost of the asset. In terms of the capital management, you're referring to the -- why don't you repeat the question regarding the share buyback?

Yes. That's right.

Yes. So on the share buyback, that one is a one-off that we do is very much to cater to our share tradition needs where we pay to our staff or our directors, the director's fees in the form of shares. So this share buyback is specifically on a net basis, we don't have a so-called generic share buyback program currently. I think the key thing here is that we shouldn't be thinking about share buyback because in the current market situation, it is more important to actually preserve our cash liquidity to meet the needs of the company's operational needs rather than talking about share buybacks. We know that companies and other countries do is -- for a share buyback to increase the share price. But for us, we believe it's more prudent and important to preserve our liquidity, our cash for operation needs rather than for share buyback. I hope I have answered.

Definitely, Mr. Goh. Thank you for that. We are going to have a hard stop at 6:30. So dear shareholders, please do -- keep -- putting your questions there. But I'm going to ask Mr. Wong and Mr. Goh, the last few questions, at least from my perspective, what will happen tomorrow if the merger doesn't go through? Especially the situation where it doesn't happen, and all the due diligence is done and then the vote doesn't push it through. And tomorrow, we become the morning the combination is not on. What would you do?

Uantchern, maybe financially, let me very quickly say that we will without the merger, right, we, as an independent listed company naturally will continue to operate, right, as usual, and that is the case. And people may ask, does that mean that in 6 months' time or 12 months' time, you're going to have liquidity issue. The short answer is no, right? We continue to be able to operate at least for the next 12 months as what we have also represented following our last price issue. The key thing here for our shareholders is the SCM management and Board, our duty is to see the trend going forward and identify the strategic risks and challenges that the company face -- the company faces. And therefore, take preemptive steps to be able to address all those challenges early so that we do not wait until when this is too late. They only start trying to take the immediate action. That will be too late. So from our standpoint, while we continue to be able to operate at least for next 12 months and beyond. What we see is that the industry landscape is moving so fast that we have to react. That we have to be preemptive in that sense, and therefore, strategically working on and supporting this merger because this merger basically build our resilience and our better ability to take on the global competition and generate sustainable returns. So if the merger doesn't go through, we BAU. We do our very best to continue to operate as much as possible in the foreseeable future. But with the merger, we've got the support of the bankers better, our shareholders -- or our shareholders better and we're better positioned not just to survive, but to also write on a lot more confidently into the future.

So if I can summarize that, Mr. Goh, you will be challenging. If we wake up tomorrow morning, the combination is off the table, it's going to be extremely challenging for Semb Marine.

The word challenging here as to be challenging, also go time dimension. Immediately, we have continued to write the challenges and being able to continue to operate and execute our orders. But I think the longer term, the extreme challenges as you rightly put it, there are things that we have to bear in mind now so that we can write on those challenges as when they occur, and take them on.

Thanks, Mr. Goh. There's a couple more questions on the floor. And I will let you [indiscernible] Mr. Goh while I go to Mr. Wong. So Mr. Wong, from your perspective, you wake up tomorrow morning and the combination does not happen for whatever reason, the vote doesn't go through. What would be your reaction? Business as usual? It's going to be challenging?

Definitely going to be very challenging. And also, we have to reassess the risk profile, the strategic risks for the coming risk for the company, and also the opportunity loss that could have achieved with the combination with KOM. I think these are the immediate questions in my mind from -- to handover to me to longer term. And unfortunately, this timeframe is getting narrower, but because of the environment today we are in, there's a lot of uncertainties still booming up. And we all know we just recovered from -- have [indiscernible] from COVID-19. And immediately, we have this [indiscernible] tension, supply chain get affected. And going forward, the inflation issues were coming. And all the customers will also have their plan changed. And of course, there are some with a longer-term plan, right? The work remains. But however, as operation, there would definitely has a lot more challenges compared into a normal path. So I think for me, if it doesn't pass, then immediately, the risk profile has to be reviewed. Our plan -- midterm longer plan for the product development, also including what are the reach of and what are the limit we can do in terms of the size of the work we are going to take.

Can I ask you Mr. Wong, do you have a contingency plan?

Basically, there's no contingency plan. As I say, it is good, bad or ugly.

Okay. And I like your focus on that, Mr. Wong. So back to you, Mr. Goh, a couple of last questions from the floor, resources from Semb Marine from Keppel. I think this is a very broad question. And then the more specific question on moving NTA down from -- to $0.07 and moving up with up to $0.13. And while you're using on that, Mr. Wong -- Mr. Goh. The final questions I'd like to post to both you and Mr. Wong side, you wake up tomorrow morning and the combination goes through more on the positive note. What will be the step change that will make shareholders excited if it goes through tomorrow. I suppose we're not going through. So now going through is really is not tenable. But if it goes through what is the upside? So Mr. Goh, so maybe you can answer these 2 questions on NTA and resources.

Sure. So in terms of the resource front, this is not something whereby we are looking at specific resources by looking at the overall entity. I think all of us should know that Keppel Offshore & Marine is one of the largest players in the past for the key segments that they focus on, and they are a large player globally, right? They do have their global reach. So the 1 example is that the U.S. market, for example, for renewable energy and also for gas solutions is very, very significant in the foreseeable years, right? And SCM doesn't have a significant -- we don't have a yard in the U.S., Keppel have a yard in the U.S. So from a [indiscernible] perspective, whereby you need certain kind of vessels have to be built in the U.S. Heavier U.S. yard will be an advantage. So this will be just 1 example of specific resources where SCM can benefit from the resources. But let me just say and take a step back to say that in the merger, right, there will be common resources, there will be different resources, and are all helpful in terms of complementing one another or even they are common resources to strengthen one another and to be able to use for each other's orders. So I hope that helps in terms of resource allocation. In terms of the NTA, we are looking at a group NTA. How long it takes -- this is a question of how long it takes to generate profits to increase the NTA of the company. This is a forecast question, which I won't be able to specific answer. But what I would say is that certainly, the combine entity in a better position generate more revenue and profits in the future, and to get back toward better NTA days, shorter run a longer period of time. Uantchern?

Thank you, Mr. Goh. So back to Mr. Wong, and then to Mr. Goh on the final question before we wrap up for the day and get Mr. David Gerald to have a closing address. So Mr. Wong, if you wake up tomorrow morning and the combination go through, what assurance do you have for the combined entity shareholders to believe that this won't be business as usual that we'll be able to compete, get 10% to 15% and the market share potentially that they woke up to a brand new, exciting, not just Semb Marine 2.0, but it's really combine that makes a difference globally.

Yes. If the combined entity come into reality, immediately the next day -- immediately there's a fresh of the combined entity as well as for Semb Marine's shareholders. That definitely become the brand new SCM. It's not SCM 2.0. It is a combined entity that you will pursue its core with more resilient than even in the future. And to start off, we can see that the strong home base of all the order books and all the capacity and capabilities will eventually integrate as one. And it will take time, but it will not take a long time for us because in this the [indiscernible]. I will say that when that happens, all the equations will be behind us. What we look at to create values are not values and to stay relevant into 2030 and stay relevant, be profitable until 2050. We have the capacity. We will have a resource pool, and we have expertise to grow from high to height.

And that's why you characterized this opportunity as a 1 plus 1 is greater than 2, it's a combination of equals, and both bring value to the table, both challenges but both coming together, it is an opportunity of a lifetime, both see this as an opportunity that makes sense, and is greater than 2?

Yes.

Thank you, Mr. Wong. Mr. Goh, from your perspective, do you see as 1 plus 1 is greater than 2. What's the magic that shareholders should be excited about as opposed to become the morning and then business as usual.

I think my CEO has spoken. But let me just say that if the deal goes through, what it does is remove a certain level of risk, uncertainty regarding this situation. I think long-term shareholders will be able to see that the challenges are there in the horizon. And therefore, this merger, if it doesn't go through, those challenges will continue to be present and will need to be addressed. So if the merger goes through, the answer that they are removed. I can share certain that from the bank's standpoint, if the merger goes through, they will certainly -- and they have indicated that they are more positive with the merger, which means they are less positive without the merger. And I think from the -- also from the customer standpoint, they also want certainty. If we see the combined expertise of the 2 companies coming together to be put to bear for the customer. I think customers will also welcome it. So in essence, removing the risk, strengthening ourselves, moving on with a clear footing to take on the future challenges and to also write on all the huge opportunities coming forward. I think all of us will be a lot more optimistic, sure, confident to write the future together.

Thanks, William, for that closing remarks. It's very, very encouraging. And now maybe I'll hand over to Mr. Wong for his closing remarks for today's dialogue session. Mr. Wong, please?

Thank you. As today's session rose to close, I would like to convey our thanks to you, our shareholders for joining this dialogue. We hope that you found this session meaningful and have gained a better understanding of the proposed combination. I would also like to take this opportunity to acknowledge the support of shareholders who have newly entered our share register. We have seen more than a 16% increase in a number of shareholders from our early March shareholding. Thank you for your support on the equity front. We would like also to express our appreciation to SIAS, David and Uantchern, thank you for hosting this dialogue. This is the merger of the eco. They are financial advisers import negotiations done, due diligence done. And SCM takes what it needs. And what we can give, and what it shouldn't take it to conclude this as a package deal that can be forwarded to a shareholders' approval. As I mentioned, today, this combination means the good, the bad and the ugly of the outcome. We believe the proposed combination is the best way to deliver long-term value creation for all stakeholders. We would like to seek the support of our shareholders. We have planned for additional dialogue over the next few months, and continue to welcome directions with all shareholders to continue to build a deeper appreciation for the proposed combination. Thank you all for joining today's dialogue. Thank you.

Thank you, Mr. Wong. And next now I have David Gerald, President and CEO, Founder of SIAS, to provide us with his closing remarks.

Well, shareholders of Sembcorp Marine, you have heard the management this evening. And you have had a robust discussion during the Q&A session. Very relevant and important questions for us and the management was prepared to give you the answers that you were expecting. SIAS is encouraged to know that shareholders are very engaged and interested in knowing this proposed combination. Before you make an informed decision -- investment decision, shareholders would need to consider carefully the different possible outcomes, a combination or no combination. Foremost in your mind must be the question, what happens if this proposed combination fails. You have the answers now. SCM want you to enjoy the benefits of creating a premier global player for the offshore renewables. New energy and cleaner O&M solutions market. And that is how the global trend is. Do note that the shareholders circular is not out yet, and shareholders are encouraged to do your own due diligence and arm yourselves with more information. SIAS will work towards organizing another engagement for your benefit, with the shareholders and management after the shareholders circular in relation to the proposed combination is dispatched. With this, I thank Mr. Wong, Mr. Goh and Mr. Loh for the session, which has been very educational, informative. And I'm sure that if there is another session, you will all come back. With this, I wish you a good evening. Enjoy the evening. Thank you very much.

Thank you, David. Thank you, Uantchern.

Thank you. Thank you, everyone.

Thank you, everyone. Thank you.