Bruno Chabas, CEO of SBM Offshore commented:
“2013 was a year of progress on all fronts: strategic, operational and financial. Our Company is now focused, without distraction, on its future. Our outstanding project wins in Brazil and the US Gulf of Mexico sum-up what is best about SBM Offshore: staying close to our clients, using our technological edge to solve their problems and taking pride in our work. Our industry faces a challenging period, but we believe SBM Offshore is strongly positioned. We possess a balanced portfolio of projects, the ability to offer a choice of financing options for clients and the leading position in a niche service which the oil industry needs to sustain future production.”
- Directional¹ revenues were up 13% to US$3,445 million in FY’13, and underlying Directional¹ EBIT increased by 28% to US$535 million
- Directional¹ Backlog up by 39% to a record level of US$23 billion
- Awarded three Lease & Operate FPSO contracts: Cidade de Maricá, Cidade de Saquarema and FPSO Stones.
- FPSOs Cidade de Paraty and OSX-2 delivered on time and on budget
- Cash at the end of the period was US$200 million; undrawn credit facilities of US$1,234 million
- Net debt at the end of December stood at US$2,691 million
- Agreement to decommission the Yme platform and settle outstanding issues with Talisman for US$470 million
- Update to residual values and decommissioning costs resulted in one off non-cash charges of US$158 million
- Successful 10% Rights Issue at €10.07 per share raised US$247 million in new equity
Management is issuing 2014 Directional¹ revenue guidance at similar levels to 2013, of approximately US$3.4 billion, which is based on conservative award assumptions. Turnkey and Lease & Operate revenues are also expected to be approximately in line with 2013 levels.
2013 Company Overview
The Company began its transformation in 2012, re-focusing its strategy around FPSOs and related products and services, followed by far reaching changes to the organisational structure emphasising accountability, transparency and compliance. The results, strong revenue growth, good core performance and record backlog clearly began to emerge in 2013. The transformation continues as the Company focuses on strengthening project controls, support functions and operational disciplines across the business. This is being achieved through a programme to improve ways of working for people, and through processes and systems designed to increase effectiveness, deliver control and allow the Company to “work as one.”
Apart from the on-going internal investigation into potentially improper sales practices, the Company has largely consigned its legacy issues to the past. The Yme settlement was signed in March and the Deep Panuke platform achieved Production Acceptance in December 2013. Asset values have been adjusted where required. Through the corporate and project financing activities completed in the year, the financial position of the Company is markedly strengthened enabling it to competitively address the increasing demand for larger and more complex projects from our clients.
The project award delays encountered in 2012, combined with a strong commercial effort, resulted in record order levels in 2013 with Directional¹ Order Intake of US$10.0 billion and Directional¹ Backlog of US$23.0 billion.
Consistent with the Company’s strategy to focus on its core business and to further strengthen the financial position, a number of non-core asset divestments were made during the period, which include the sale and lease back transactions of two out of three office properties in Monaco and the sale of its non-core “COOL™ hose” technology.
In the first half of the year, the Company strengthened its financial position through a 1 for 10 rights offering of new ordinary shares raising US$247 million and, as a result of the settlement with Talisman, an additional US$27 million top-up from HAL Investments B.V. (HAL) as a share premium contribution on the new ordinary shares it acquired through a private placement in December 2012.
The Company secured a Project Loan facility for FPSO N’Goma for US$600 million and bilateral credit facilities for FPSO Cidade de Maricá and Cidade de Saquarema for US$600 million. The additional liquidity and greater financial flexibility have further improved the Company’s risk profile for securing funding for future projects.
In 2013, in order to provide its shareholders with clarity on business performance above and beyond the regular IFRS-based disclosures, the Company introduced Directional¹ reporting. Directional¹ reporting addresses the complexity in the Group’s business model whereby turnkey sales are combined with construction projects for its own lease & operate portfolio. Furthermore, the Company’s FPSO lease & operate contracts are increasingly classified as ‘finance leases’, which adds further complexity by accelerating revenue and profit recognition into the construction phase, well before rents are invoiced to, and paid by, the client. The Directional¹ view extends reporting with non-IFRS disclosures showing revenues and results more in line with operating cash flows to simplify some of these complexities. This is designed to increase transparency and understanding of performance and provide disclosures of Backlog and Income Statement based on Directional¹ principles.
Directional¹ reporting principles are:
- Directional¹ reporting is an additional disclosure to IFRS reporting
- Directional¹ reporting assumes all lease contracts are classified as operating lease
- Directional¹ reporting is limited to restating revenue and operating income; no balance sheet restatements are made
- Directional¹ reporting is included in the Financial Review
In order to introduce Directional¹ reporting, the Company achieved the following steps:
- Disclosure of Directional¹ income statement and Backlog for H1 2013 and the H1 2012 comparison was made in August with the Half-Year results
- 2013 transition period to promote Directional¹ reporting as the main indicator for Company performance and variance analysis
- Full Year 2013 Directional¹ income statement disclosed with 2012 comparison
- 2014 guidance for Directional¹ revenue
The need for the introduction of Directional¹ reporting is acute and significant: revenue reported under IFRS rules exceeds the Directional¹ view by some US$1.4 billion in 2013. This represents the present value of future income to be invoiced and realised over the next 20 years. Under IFRS the Company reports a US$111 million positive net income attributable to shareholders for 2013, while the Directional¹ view shows a loss of US$58 million. The Management Board highlights these fundamental and significant differences to allow investors a balanced understanding of the results, giving insight in both rules and reality.
* Figures are expressed in million $US and may not add up due to rounding.
Over the course of 2013 the Company achieved a good safety performance in a range of its business activities, and similar to that of 2012 with a Total Recordable Injury Frequency Rate (TRIFR) of 0.40 in 2013 compared to 0.38 in 2012. However, the Lost Time Injury Frequency Rate (LTIFR) deteriorated to 0.15 in 2013 from 0.06 from 2012. A number of corrective actions have been taken to help raise our standards.
In 2012, the Company announced it had initiated an internal investigation, conducted by outside counsel and forensic accountants, into potentially improper sales practices. The Company has disclosed the results of the internal investigation to the appropriate authorities and remains in active dialogue. As the investigation is still in progress it is not possible to provide further information or an estimate of the outcome, financial or otherwise. The Company has continued and expanded its efforts, started in 2012, to enhance its compliance program.
In March, the Company reached an agreement with Talisman to terminate the Yme MOPUstor contract for a settlement of US$470 million. The settlement included the termination of the existing agreements and arbitration procedures and the decommissioning of the MOPU. As the Company had already made a provision of US$200 million in 2012, the difference of US$270 million was recognised in the 2013 results.
The Company completed the debottlenecking process, and brought the Deep Panuke platform to full production capacity safely and received a Production Acceptance Notice (PAN) from the client in December 2013. The platform is currently on hire and generating full day rate.
Last year the Company re-focused its strategy on its core business of FPSOs and associated products and services. Since the beginning of 2013, new award announcements for two FPSOs for Petrobras in Brazil and one FPSO for Shell in the Gulf of Mexico demonstrate progress is well underway. As the industry leader, the Company continues to strive for an improved risk/reward balance for its FPSO products and services and has identified an encouraging pipeline of projects in the medium term.
Investing in our Future
Over the course of 2013, the Management Board focused its attention on three core strands of activity to develop and improve SBM Offshore’s future performance. During 2014, these programmes will carry incremental costs equivalent to 2.5%-3% of Directional1 revenue.
With the lengthening life spans of FPSOs, there is an emerging need for a defined fleet maintenance programme, over and above the standard operational expenditure on individual vessels. This will be a focused two year investment programme with clear operational and financial benefits.
Despite recent progress, there is a distinct need to permanently embed improved efficiency and ways of working across multiple disciplines. A two year transformation programme, named Odyssey 24, will create the foundation to deliver consistently outstanding performance. The programme is led by SBM senior staff members, dedicated for the project duration, and using external advisors.
Maintaining its technological lead position in complex floating production systems, and associated mooring systems, is critical for SBM Offshore. The company will continue to identify technology trends in the offshore oil & gas market, prioritising development work to address key areas of demand.
Outlook and Guidance 2014
2013 has been a strong year for SBM Offshore. Revenue growth and underlying EBIT margins were excellent as the Company successfully progressed its EPC and Lease & Operate portfolio.
The Company is providing 2014 guidance on the basis of Directional¹ results. Directional¹ revenue is expected to come in at similar levels as in 2013, approximately US$3.4 billion, which is based on conservative award assumptions. Turnkey and Lease & Operate revenues are also expected to be approximately in line with 2013 levels.
The Company expects a level of capital investments higher than 2013 levels. Furthermore, the Company will continue to attract necessary project financing for the funding of new, or recently awarded, leased FPSOs under construction.
The Management Board reiterates that the Company will not pay a dividend over 2013, in view of the losses incurred in 2011 and 2012 and the need to strengthen the balance sheet. The Management Board intends to discuss at the Annual General Meeting (AGM) in 2015 a change of dividend policy, making dividends dependent on available free cash flow as opposed to the existing policy of paying out 50% of IFRS net income. Given the on-going execution of the Group’s record project backlog, the Management Board does not expect positive free cash flow for 2014 or 2015. Following the 2015 Annual General Management meeting the Management Board intends to propose a payout ratio of between 25% and 35% of Directional1 net income subject to the availability of free cash flow.
The consolidated Directional¹ result for 2013 is a net loss of US$55 million (2012 Directional¹ net loss of US$176 million). This result includes divestment profits, impairment charges, and other non-recurring items which generated a net loss of US$433 million in 2013 (US$473 million in 2012). Directional¹ net loss attributable to shareholders amounts to US$58 million (US$175 million loss in 2012). Excluding divestment profits, impairment charges, and other non-recurring items, the underlying consolidated Directional¹ result attributable to shareholders for 2013 improved by 26% to a net profit of US$375 million (2012 net profit of US$298 million).
Taking into account IFRS adjustments related to finance lease contracts totalling US$169 million and representing mainly the deemed net profit on the Company’s share in the Joint Ventures (JV) acquiring the FPSOs under construction, the consolidated IFRS result for 2013 is a net profit of US$114 million (2012 net loss of US$75 million). IFRS net income attributable to shareholders amounts to US$111 million (US$79 million loss in 2012).
The Directional¹ loss per share amounted to US$0.28 (loss per share of US$1.00 in 2012). Adjusted for divestment profits, impairment charges, and other non-recurring items underlying Directional¹ net income per share increased by 8% for 2013 despite dilution to US$1.84 per share, compared with US$1.70 in 2012.
Net debt at the year-end amounted to US$2,691 million (US$1,816 million in 2012) with bank covenants met and available committed bank facilities of US$1,234 million.
Total Directional¹ orders in the year came to US$10,012 million (split 43% / 57% between the Lease & Operate and the Turnkey segments respectively), compared to US$1,440 million achieved in 2012.
Directional¹ turnover increased by 12.6% to US$3,445 million, in comparison with US$3,059 million in 2012, mainly as a result of higher Turnkey revenues. Taking into account IFRS adjustments related to finance lease contracts representing mainly the deemed revenues on the Company’s share in the JV acquiring the FPSOs under construction, IFRS turnover increased by 32.0% to US$4,803 million, in comparison with US$3,639 million in 2012, mainly as a result of higher Turnkey revenues.
Total Directional¹ order portfolio at the end of the year was US$23,025 million compared to US$16,459 million at the end of 2012, an increase of 40% reflecting the high level of orders in 2013. Of this, US$20,146 million relates to the non-discounted value of the revenues from the Company’s long-term lease contracts in portfolio at year-end.
Directional¹ EBITDA amounted to US$577 million (including non-recurring items of US$248 million), representing an approximately 7% decrease compared to US$623 million in 2012.
IFRS EBITDA amounted to US$700 million (including non-recurring items of US$252 million), representing an approximately 3% increase compared to US$681 million in 2012.
Directional¹ operating result (EBIT) increased to US$98 million profit after impairment charges, divestment profits and non-recurring items for US$437 million compared to US$79 million EBIT loss in 2012 which included US$499 million of non-recurring items related to the Yme and Deep Panuke projects.
IFRS operating result (EBIT) increased to US$293 million profit after impairment charges, divestment profits and non-recurring items for US$442 million compared to US$38 million EBIT profit in 2012 which included US$499 million of non-recurring items related to the Yme and Deep Panuke projects.
The year was marked by the following financial highlights:
- Strong order intake of US$10.0 billion boosting Directional¹ backlog to a record high level of US$23.0 billion.
- Talisman Yme MOPUstor project settlement of US$470 million (US$200 million recognised in 2012, the difference of US$270 million recognised in 2013).
- The Deep Panuke platform went on hire following the receipt of Production Acceptance Notice in December. Additional costs associated with the delay and debottlenecking totaled US$37 million in the period.
- The carrying value of the ThunderHawk facility has been impaired by US$65 million. This was based on production trends from current reserves, and projections from planned new fields. As such, total deliverable volumes were determined to be insufficient to sustain the asset’s book value. The ThunderHawk semisubmersible production facility in the US Gulf of Mexico is the only facility in SBM Offshore’s Lease fleet portfolio which bears exposure to reservoir risk.
- The FPSO Falcon and VLCC Alba, laid up since 2009 and 2011 respectively, have been classified as held for sale and consequently have been impaired by US$53 million to their estimated market value in the second half of 2013.
- With the upcoming expiration of contracts for FPSO Kuito and FPSO Brasil, the Company has undertaken the reassessment of decommissioning costs. As a consequence, a Company-wide review was conducted in Q4 to reassess decommissioning expenses of all other vessels, resulting in a charge to income of US$40 million.
- FPSO OSX-2 was successfully delivered as per contract in early September with no further financial exposure to the client.
- FPSO Cidade de Paraty began oil production and went on hire in June 2013 following full systems acceptance by the client. The unit is owned and operated by a consortium of affiliated companies of SBM Offshore (50.5%), QCOG, Nippon Yusen Kabushiki Kaisha (NYK), and ITOCHU Corporation (ITOCHU).
- As part of the disposal program of non-core assets announced in 2012, the Company completed sale and lease back transactions for two of three office buildings in Monaco. The remaining building is now expected to be sold in 2014. Sales proceeds thus far exceed US$100 million, resulting in a book profit of approximately US$27 million, including the sale of the “COOL™ hose” technology.
- Capital expenditure and investments in finance leases in 2013 amounted to US$1,423 million, exceeding 2012 level of US$1,217 million.
- New financing agreements totaling US$600 million for FPSO N’Goma and four bilateral credit facilities for FPSO Cidade de Maricá and Cidade de Saquarema for US$600 million arranged in December.
- Cash plus undrawn facilities amounted to US$1.4 billion at the end of December 2013 compared to US$2.0 billion in 2012.
- The Company finalised in April a 1 for 10 rights offering of new ordinary shares raising US$247 million and an additional US$27 million from HAL as a top-up to the share premium contribution on the new ordinary shares it acquired through a private placement in December 2012.
Segmental information in respect of the two core business segments of the Company is provided in the detailed financial analysis.
Total Directional¹ orders for 2013 amounted to US$10.0 billion. This total includes new orders signed for US$9,401 million and variation orders signed for US$611 million.
The Company continued to capitalise on its strength and expertise in its core FPSO market, securing new orders including:
FPSO Stones (Gulf of Mexico)
The Company secured a contract from Shell for the supply and lease of an FPSO for the Stones development project in the Gulf of Mexico. The contract includes an initial period of ten years with future extension options up to a total of twenty years. The Stones development is located in 2,900m (9,500ft) of water approximately 320km (200 miles) offshore Louisiana in the Walker Ridge area.
FPSOs Cidade de Maricá and Cidade de Saquarema for Petrobras
Contracts have been executed with BM-S-11 subsidiary Tupi BV for the twenty-year charter and operation of the two FPSOs Cidade de Maricá and Cidade de Saquarema. Both FPSOs are destined for the Lula field in the pre-salt province offshore Brazil. BM-S-11 block is under concession to a consortium comprised of PETROBRAS (65%), BG E&P Brasil Ltda. (25%), and Petrogal Brasil S.A. (10%). The FPSOs will be owned and operated by a Joint Venture owned by SBM Offshore, Mitsubishi Corporation, Nippon Yusen Kabushiki Kaisha, and Queiroz Galvão Óleo e Gás S.A. with an SBM Offshore share of 56%. SBM Offshore is in charge of the construction. Planned delivery for FPSOs Cidade de Maricá and Cidade de Saquarema is expected by the end 2015 and early 2016 respectively.
Total Directional¹ turnover rose significantly in the year due to higher revenues recognised in the Turnkey segment, especially under the strong contribution of the contracts signed in early 2013.
Turnkey third party Directional¹ turnover of US$2,367 million rose by 14% and represents 69% of total 2013 turnover (2012: US$2,082 million representing 68%) as a result of a full year of construction progress on a number of FPSOs, such as FPSOs Cidade de Maricá and Cidade de Saquarema, FPSO Cidade de Ilhabela, FPSO N’Goma, and increased year on year construction progress of the three major turrets, offset by the completion of FPSO OSX-2 and FPSO Cidade de Paraty and the loss of revenue due to the sale of GustoMSC completed at the end of 2012.
Construction commenced for the finance lease FPSO Stones. The project is fully controlled by SBM Offshore, as the Company currently owns 100% of the project.
Construction commenced for the finance lease of FPSOs Cidade de Maricá and Cidade de Saquarema. The joint venture (JV) is controlled by SBM Offshore, and is consolidated proportionately to the Company’s 56% share of the JV. Directional¹ turnover reflects SBM’s income generated by invoicing the JV partners for their 44% share in the EPCI lump-sum cost of the FPSO under construction. IFRS adds to this the revenue calculated as the present value of the 56% SBM share of the future lease income.
Construction continued for the finance lease FPSO Cidade de Ilhabela throughout 2013, with refurbishment and conversion at the Chinese shipyard completed. The vessel is currently in Brazil where the process modules at the Brasa yard will be installed. Start-up of the facility is expected in the second half of 2014. The joint venture (JV) is jointly controlled by SBM Offshore, and is consolidated proportionately to the Company’s 62.25% share of the JV. Thus Directional¹ turnover reflects SBM’s income generated by invoicing the JV partners for their 37.75% share in the EPCI lump-sum cost of the FPSO under construction. IFRS adds to this the revenue calculated as the present value of the 62.25% SBM share of the future lease income.
Construction was completed and the vessel has been on hire since June 2013 for the finance lease FPSO Cidade de Paraty contract (SBM Offshore share 50.5%). Directional¹ turnover reflects SBM’s income generated by invoicing the JV partners for their 49.5% share in the EPCI lump-sum cost of the FPSO under construction. IFRS adds to this the revenue calculated as the present value of the 50.5% SBM share of the future lease income.
The twelve-year lease contract with ENI for FPSO N’Goma is also accounted for as a finance lease. Construction, refurbishment and the lifting of process modules at the shipyard in Singapore is complete. The FPSO will sail to Angola for integration and start of production currently forecast in the second half of 2014. Directional¹ turnover reflects SBM’s income generated by invoicing Sonangol for their 50% share in the EPCI lump-sum cost of the FPSO under construction. IFRS adds to this the revenue calculated as the present value of the 50% SBM share of the future lease income.
Lease & Operate Directional¹ turnover increased by 10% to US$1,078 million (31% of total revenues; 32% in 2012), as a result of the start-up of FPSO Cidade de Paraty in July 2013, the full year operation of FPSO Cidade de Anchieta, and despite the exit from the fleet of FPSO Sanha.
Total IFRS turnover rose significantly in the year due to higher revenues recognised in the Turnkey segment, especially under the strong contribution of the finance lease contracts under construction, including the Siakap North Petai extension to FPSO Kikeh, classified as a finance lease in 2013.
The ongoing charter contracts for FPSOs Cidade de Paraty, Aseng, Mondo and Saxi Batuque are similarly accounted for as finance leases, as per IAS 17 Leases. Earned interest in Lease & Operate turnover in 2013 in respect of these contracts amounted to US$87 million (2012: US$64 million).
Ongoing Construction Contracts
FPSO Stones (US Gulf of Mexico)
Construction continued for the finance leased vessel throughout 2013, with refurbishment and conversion work being done at Keppel Singapore. The charter contract includes an initial period of 10 years with future extension options up to a total of 20 years. When installed at almost 3 kilometers of water depth, the FPSO Stones will be the deepest offshore production facility of any type in the world. The vessel is a typical Generation 2 design, with a disconnectable internal turret and processing facility capacity of 60,000 barrels of oil per day (bpd) and 15 mmscfd of gas treatment and export.
FPSO Cidade de Maricá and Cidade de Saquarema (Brazil)
Construction is ongoing for the two finance leased vessels. Refurbishment and conversion work progressed throughout 2013 at a Chinese yard. The charter contract for both vessels includes a period of 20 years with options for extension. The two double hull sister vessels will be moored in approximately 2,300 meters water depth and with a storage capacity of 1.6 million barrels each. The topside facilities of each FPSO weigh approximately 22,000 tons, will be able to produce 150,000 bpd of well fluids and have associated gas treatment capacity of 6,000,000 Sm3/d. The water injection capacity of the FPSOs will be 200,000 bpd each.
FPSO Cidade de Ilhabela
Construction continued for the finance leased vessel throughout 2013, with refurbishment and conversion at the Chinese shipyard completed. The vessel arrived at year end 2013 in Brazil where the process modules at the Brasa yard will be installed. The FPSO will include topside facilities to process 150,000 bpd of production fluids, with processing of the substantial volumes of associated gas from the pre-salt field for export. Start-up of the facility is expected in the second half of 2014.
The construction, refurbishment, and module work at Keppel shipyard in Singapore is nearing completion. The FPSO is expected to arrive in Paenal, Angola for lifting of the remaining modules and completion of the FPSO. The schedule foresees a production start in 2014 at a design capacity of 100,000 bpd.
Turret Mooring Systems
The three large complex turrets for Prelude FLNG, Quad204 and Ichthys are progressing well and on schedule at their respective stages of completion of the project. These three turrets represent a substantial proportion of the Turnkey segment with delivery of sections in 2013 reaching completion with the superstructure of Ichthys as the last section in 2014. All three turrets contain elements that require advanced technology solutions for high mooring loads; total weight of 11,000 tons with a height of 95 meters for Prelude, fluid throughput of 320,000 bpd in the swivel stack on Quad 204 and 40 years of continuous operation in harsh environment on Ichthys.
Main Projects Overview
Year-end Directional¹ order portfolio at US$23.0 billion is higher by 39.4% from last year’s level of US$16.5 billion reflecting the effect of a high level of orders in 2013. The current Directional¹ order portfolio includes US$20.1 billion (2012: US$13.6 billion) for the non-discounted value of future revenues from the long-term charters of the lease fleet. Approximately 53% of the total future revenues from the long-term charters of the lease fleet will be generated from the lease contracts which have yet to commence (FPSOs Cidade de Ilhabela, N’Goma, Cidade de Maricá and Cidade de Saquarema and Stones).
Turnkey Directional¹ order portfolio remained stable at US$2.9 billion (US$2.9 billion in 2012), representing approximately 1.2 year’s equivalent turnover.
The Company’s order portfolio as of December 31, 2013 is expected to be executed as per the table below.
Directional¹ Order Portfolio
as of December 31, 2013
The primary business segments of the Company are Lease & Operate and Turnkey plus “Other” non-allocated corporate income and expense items. EBITDA and EBIT are analysed per segment but it should be recognised that business activities are closely related, and certain costs are not specifically related to either one segment or another. For example, when sales costs are incurred (including significant sums for preparing the bid), it is often uncertain whether the project will be leased or contracted on a turnkey lump sum basis.
In recent years, new lease contracts are showing longer duration and are increasingly classified as finance leases for accounting purposes, whereby the fair value of the leased asset is recorded as a Turnkey “sale” during construction. This has the effect of recognising, in the Turnkey segment during construction, part of the lease profits which would, in the case of an operating lease, be reported through the Lease & Operate segment during the lease.
Directional¹ EBITDA in 2013 of US$577 million (US$623 million in 2012) consisted of US$285 million (US$337 million in 2012) from Lease & Operate activities, US$311 million (US$334 million in 2012) from Turnkey, less US$19 million (US$48 million in 2012) of non-allocated corporate, other costs and the 2013 book profit resulting from divesting activities. Restated for divestment profits, impairment charges, and other non-recurring items, the underlying Directional¹ EBITDA for 2013 increased by 19% to US$825 million compared to 2012 underlying Directional¹ EBITDA of US$694 million.
IFRS EBITDA in 2013 of US$700 million (US$681 million in 2012) consisted of US$226 million (US$292 million in 2012) from Lease & Operate activities, US$493 million (US$437 million in 2012) from Turnkey, less US$19 million (US$48 million in 2012) of non-allocated corporate and other costs and the 2013 book profit resulting from divestment activities. Restated for divestment profits, impairment charges, and other non-recurring items underlying IFRS EBITDA for 2013 increased by 26% to US$951 million compared to 2012 underlying IFRS EBITDA of US$753 million.
As a percentage of turnover, Directional¹ EBITDA was 16.8% (2012: 20.3%). Segmental Directional¹ EBITDA margins for Lease & Operate stood at 26.4% (2012: 34.5%), Turnkey 13.1% (2012: 16.0%) excluding intercompany projects. The relative contribution to Directional¹ EBITDA from the segments was 48% from Lease & Operate and 52% from Turnkey. In 2012, the corresponding split was 50% / 50%.
As a percentage of turnover, IFRS EBITDA was 14.6% (2012: 18.7%). Segmental IFRS EBITDA margins for Lease & Operate stood at 22.2% (2012: 31.3%), Turnkey 13.0% (2012: 16.1%) and the relative contribution to IFRS EBITDA from the segments was 32% from Lease & Operate and 68% from Turnkey. In 2012, the corresponding split was 40% / 60%.
The Directional¹ operating profit in 2013 amounted to US$98 million (EBIT loss in 2012 US$79 million) with the following highlights:
- High contribution from the Turnkey segment, with a strong EBIT margin of 12.5% (14.9% in 2012 and 8.8% excluding GustoMSC and SBM Dynamic Installer divestments), driven by good projects execution and positive settlements on projects completed in 2013.
- The level of Lease & Operate fleet activity was slightly higher to that of 2012 and resulted in an EBIT loss of 16.4% or a 26.6% profit excluding impairment charges and other non-recurring items (-34.9% and 29.2% excluding impairment charges and other non-recurring items in 2012).
Restated for divestment profits, impairment charges, and other non-recurring items underlying Directional¹ EBIT for 2013 increased by 28% at US$535 million compared to 2012 underlying Directional¹ EBIT of US$420 million.
Taking into account IFRS adjustments related to finance lease contracts totalling US$195 million and representing mainly the deemed net profit on the Company’s share in the Joint Venture acquiring the FPSOs under construction.
Net financing costs increased to US$100 million compared to 2012 (US$78 million) mainly as a result of interest paid on the US Private Placement set up for FPSOs Cidade de Anchieta and FPSO Cidade de Paraty project loan. The average cost of debt came to 5.3% in 2013 (5.3% in 2012).
More generally, once production units are brought into service the financing costs are expensed to the income statement whereas during construction interest is capitalised. It should be emphasised that the net profit contribution of newly operating leased units is limited by the relatively high interest burden during the first years of operation, although dedication of lease revenues to debt servicing leads to fast redemption of the loan balances and hence reduced interest charges going forward.
Interest income on the Company’s cash balances was again very low in 2013 due to the low level of short-term US interest rates. Main interest income of the Company is derived from interest bearing loans to joint ventures and associates.
The reported share of profit in associates was minimal in 2013 (US$1 million) as it was in 2012 (US$4 million). In the future the Company’s share of net results in any non-controlled joint ventures (as defined by IFRS 11 Joint Arrangements) will appear in this line item, but at present the Company’s accounting policy for joint ventures continues to be the proportionate consolidation method whereby the Company’s share of each income statement or statement of financial position line item is included in the consolidated financial statements.
The underlying Directional¹ Effective Tax Rate in 2013 was stable at 13.6% compared to 14.0% in 2012.
IFRS non-controlling interests in the 2013 net result amounted to income of US$3 million compared to the 2012 minority share of US$5 million due to reported results from fully consolidated joint ventures where the Company has a minority partner (principally concerns FPSOs Aseng and Capixaba).
IFRS net result attributable to shareholders accordingly amounts to income of US$111 million (US$79 million loss in 2012).
As previously advised, the Company will not pay a dividend over 2013.
Statement of Financial Position
Total assets were US$7.1 billion as of 31 December 2013 (31 December 2012: US$6.3 billion). The increase is largely a result of the growing investments and activities recorded in 2013, and the proceeds from divestment of non-core assets and the rights offering.
Shareholders’ equity increased from US$1,458.6 million to US$2,064.2 million due to 2013 net income of US$111 million, the 1 for 10 rights offering of new ordinary shares raising US$247 million and the US$27 million top-up to the December 2012 private placement with HAL and the US$201 million income in Other Comprehensive Income resulting from the variation of hedging reserve related to financial instruments.
Capital Employed (Equity + Provisions + Deferred Tax Liability + Net Debt) at year-end 2013 amounted to US$4,946.8 million and increased by 45% compared to last year’s level (US$3,419.9 million). This was due to the positive contribution to equity of the rights offering, increase to the private placement realised at the end of December 2012 and the increase of net debt.
At 31 December 2013, the Company has undrawn committed long-term bank facilities totalling US$1,234 million (Revolving Credit Facility, FPSO N’Goma, FPSO Cidade de Ilhabela – SBM 62.25% share and bilateral credit facilities for FPSO Cidade de Maricá and Saquarema) available for financing capital investment in 2014 onwards.
Net debt at the year-end amounted to US$2,691 million (US$1,816 million at 31 December 2012) with net gearing at 126.0% which is slightly higher than last year despite the rights offering and HAL private placement top-up, due to the increase of the net debt driven by the US$470 million settlement with Talisman. The relevant banking covenants (main solvency, net debt/adjusted EBITDA, interest cover) were all met.
As in previous years, the Company has no off-balance sheet financing.
In 2012, the Company announced a plan to sell and lease back its premises owned in Monaco. The Company completed sale and lease back transactions for two of three office buildings. The remaining building is now expected to be sold in 2014. As a consequence, the Company’s related property, plant and equipment continues to be classified as assets held for sale for their carrying value in the Company statement of financial position as of 31 December 2013, together with three non-core vessels, the DSCV SBM Installer, the FPSO Falcon, and the VLCC Alba.
The current ratio defined as “current assets/current liabilities” increased to 1.67 mainly due to the increasing construction activities on finance lease contracts, and the reduction of the current portion of loans and borrowings.
Statement of Financial Position
Following the successful private placement of the Company’s shares with HAL in December 2012, the subsequent top-up of the private placement of the Company’s shares with HAL and the 1 for 10 rights offering of new ordinary shares in early 2013, the financial position of the Company is secure. The anticipated future proceeds from the non-core asset disposals and frozen dividend payments, will provide further equity support. The Company’s medium-term objective remains to strengthen the balance sheet to a point that it will be able to obtain an investment grade credit rating in order to access the corporate bond market.
Investments and Capital Expenditures
Total investments made in 2013 increased to US$1,423 million compared to US$1,217 million in 2012 and were recorded as:
- Capital expenditures of US$201 million (US$655 million in 2012).
- Investments in finance leases for US$1,222 million (US$563 million in 2012).
Total capital expenditures for 2013 (comprised of additions to property, plant & equipment plus capitalised development expenditure) amounted to US$201 million (2012: US$655 million). The majority of this total is related to new investments in the lease fleet (operating leases only) and other ongoing investments for which the major elements are:
- Final expenditure on the commissioning for the MOPU gas platform for EnCana’s Deep Panuke field in Canada.
- Ongoing investment in the Brasa integration yard in Brazil.
- Refurbishment of a newly leased office “Le Neptune” in Monaco.
Expenditures in 2013 on the FPSOs Cidade de Paraty, Cidade de Ilhabela, Cidade de Maricá and Cidade de Saquarema for Petrobras, FPSO Stones for Shell, and on FPSO N’Goma for ENI are excluded from the total amounts above. Due to the classification of the contracts as finance leases, investment in the units were recorded through construction contracts, with the investments in finance lease to be ultimately recorded in non-current financial assets. The net investment in these finance lease contracts amounted to US$1,222 million in 2013 (US$563 million in 2012) and are reported as investing activities in the consolidated cash flow statement.
The decrease in property, plant and equipment in 2013 to US$2,023 million (31 December 2012: US$2,414 million) resulted from capital expenditure in 2013 less depreciation, impairment and amortisation, the reclassification as asset held for sale of the SBM Installer (Diving Support and Construction Vessel), the FPSO Falcon and the VLCC Alba.
The Company’s investments comprise the external costs (shipyards, subcontractors, and suppliers), internal costs (man-hours and expenses in respect of design, engineering, construction supervision, etc.), third party financial costs including interest, and such overhead allocation as allowed under IFRS. The total of the above costs (or a proportionate share in the case of joint ventures) is capitalised in the Company’s consolidated statement of financial position as the value of the respective facility. No profit is taken on completion/delivery of such a system for a lease & operate contract which is classified as an operating lease, apart from the profit realised by SBM Offshore with external partners on the construction contract with a joint venture proportionally consolidated.
Cash Flow/ Liquidities
Return on Average Capital Employed (ROACE)
ROACE (Return On Average Capital Employed) increased to 7.0% and Return On average shareholders’ Equity (ROE) also increased to 6.3%, both resulting from the increased activity and improved results in 2013 and the increase in equity and capital employed due to the top-up of the private placement of the Company’s shares with HAL and the 1 for 10 rights offering of new ordinary shares.
IFRS EBITDA increased from the previous year mainly due to increased activity and improved results.
Net cash and undrawn facilities decreased slightly to US$1,434 million, of which US$854 million can be considered as being dedicated to specific project debt servicing or otherwise restricted in its utilisation.
The Enterprise Value to EBITDA ratio at year-end 2013 stood at 9.9; higher than the previous year due mainly to increased market capitalisation.
¹Directional view is a non-IFRS disclosure, which corrects the non-cash effects on revenue and earnings introduced by IFRS finance lease accounting.
Analyst Presentation & Conference Call
SBM Offshore has scheduled a webcast of its Analyst Presentation and a conference call followed by a Q&A session at 9:00 Central European Time on Thursday, February 6, 2014.
The presentation will be hosted by Bruno Chabas (CEO), Peter van Rossum (CFO) and Sietze Hepkema (CGCO). Interested parties are invited to listen to the call by dialling +31 45 631 6905 in the Netherlands, +44 207 153 2027 in the UK or +1 480 629 9726 in the US. Conference ID#: 4660813. Interested parties may also listen to the presentation via webcast through a link posted on the Investor Relations section of the Company’s website.
A replay of the conference call will be available on Thursday, February 6, 2014, beginning at 11:00 Central European Time for one week. The phone number for the replay is +31 45 799 0028 in the Netherlands and +44 207 959 6720 in the UK using access code 4660813#. The webcast replay will also be available on the Company’s website.
SBM Offshore N.V. is a listed holding company that is headquartered in Schiedam. It holds direct and indirect interests in other companies that collectively with SBM Offshore N.V. form the SBM Offshore group (“the Company”).
SBM Offshore provides floating production solutions to the offshore energy industry, over the full product life-cycle. The Company is market leading in leased floating production systems with multiple units currently in operation, and has unrivalled operational experience in this field. The Company’s main activities are the design, supply, installation, operation and the life extension of Floating Production, Storage and Offloading (FPSO) vessels. These are either owned and operated by SBM Offshore and leased to its clients or supplied on a turnkey sale basis.
Group companies employ over 9,600 people worldwide, who are spread over five execution centres, eleven operational shore bases, several construction yards and the offshore fleet of vessels. Please visit our website at www.sbmoffshore.com.
The companies in which SBM Offshore N.V. directly and indirectly owns investments are separate entities. In this communication “SBM Offshore” is sometimes used for convenience where references are made to SBM Offshore N.V. and its subsidiaries in general, or where no useful purpose is served by identifying the particular company or companies.
The Management Board
Schiedam, February 6, 2014
For further information, please contact:
Nicolas D. Robert
Head of Investor Relations
|Telephone:||+377 92 05 18 98|
|Mobile:||+33 (0) 6 40 62 44 79|
Group Communications Director
|Telephone:||+377 92 05 30 83|
|Mobile:||+33 (0) 6 80 86 36 91|
Some of the statements contained in this release that are not historical facts are statements of future expectations and other forward-looking statements based on management’s current views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance, or events to differ materially from those in such statements. Such forward-looking statements are subject to various risks and uncertainties, which may cause actual results and performance of the Company’s business to differ materially and adversely from the forward-looking statements. Certain such forward-looking statements can be identified by the use of forward-looking terminology such as “believes”, “may”, “will”, “should”, “would be”, “expects” or “anticipates” or similar expressions, or the negative thereof, or other variations thereof, or comparable terminology, or by discussions of strategy, plans, or intentions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described in this release as anticipated, believed, or expected. SBM Offshore NV does not intend, and does not assume any obligation, to update any industry information or forward-looking statements set forth in this release to reflect subsequent events or circumstances.