Resilience in a difficult macro environment

SBM Offshore ended 2014 with a good underlying financial performance, ahead of expectations for the second straight year.  The Company reached an important milestone in announcing an out-of-court settlement agreement with the Dutch Public Prosecutor’s Office (Openbaar Ministerie) over the inquiry into alleged improper payments, whilst the US Department of Justice declined to prosecute and has closed its inquiry into the matter.  This marks a big step forward in putting the Company’s legacy issues to rest.  Furthermore the year was marked by continued project execution with the delivery of two FPSOs, securing financing for a number of projects and continued strengthening of the balance sheet.  Directional¹ revenue increased 5% to US$3,545 million, while Directional¹ backlog remains near record highs at US$21.8 billion.  This was reinforced by strong operational performance with consistently high uptime across the fleet of over 99%.

 

Bruno Chabas, CEO of SBM Offshore, commented: 

 

“The effects of the recent drop in oil prices are being felt across the offshore services industry in the form of lower order intake.  This reduction is putting pressure on suppliers’ capacity.  While SBM Offshore is no exception, the current macro environment should not overshadow our sound 2014 financial results.  In the last twelve months, we achieved significant progress on a number of operational and corporate objectives.

 

Furthermore, the Company is uniquely positioned to weather this period of uncertainty thanks to its strong Lease and Operate backlog that provides long-term cash flow, is unaffected by movements in oil prices or production levels.  As a result, the Company expects a steady increase in cash flow over the coming years as we continue to deliver the projects under construction.

 

My appreciation goes to all of our employees for staying focused, responsive and adaptable during a challenging year.  I remain optimistic about the medium to long-term prospects for our industry in general and SBM Offshore in particular.”

 

Financial Highlights

•        Directional¹ revenue ahead of expectations at US$3,545 million 

•        Underlying Directional¹ EBIT of US$437 million and underlying EPS of $1.67 per share 

•        Directional¹ Backlog stood at US$21.8 billion

•        Cash and undrawn committed credit facilities at the end of the period stood at US$1,987 million

•        Proportional net debt at the end of December stood at US$3,298 million

•        Project financing secured for US$1.9 billion and a new Revolving Credit Facility for US$1.0 billion

•        US$240 million out-of-court settlement reached related to the compliance investigation

 

 

2014  Company Overview

Introduction

 

Projects under construction progressed to plan in 2014, delivering FPSOs Cidade de Ilhabela and N’Goma FPSO to their respective clients following systems acceptance.  Sound financial results, steady Directional¹ revenue growth, continued reliable operational performance and a near record backlog point to sustained progress of the turnaround commenced in 2012.  The transformation continues as the Company focuses its attention to delivering three FPSO projects by mid-2016 and completing the business improvement initiatives.

 

Notwithstanding the ongoing investigations by authorities in Brazil, a major milestone was reached when the Company announced a US$240 million out-of-court settlement with the Dutch Public Prosecutor’s Office.

The FPSO Turritella Operations and Maintenance contract was signed in May and Encana agreed to a settling of claims arising from the Deep Panuke project offshore Nova Scotia.  Through the corporate and project financing activities completed during the course of the year, the financial position of the Company is markedly strengthened.

Consistent with the Company’s strategy to focus on its core business and to further strengthen its financial position, the sale and leaseback of the Monaco real estate portfolio was completed and the all cash sale of the Diving Support and Construction Vessel (DSCV) SBM Installer was announced and closed.  SBM Offshore was also successful in securing three financings and signing the renewal of its Revolving Credit Facility in 2014.  A US$400 million bridge loan for the financing of the Deep Panuke platform was secured in May.  In August project financing was secured for FPSO Cidade de Maricá totalling US$1.45 billion from a consortium of international banks at a weighted average cost of debt of 5.3%.  In early November, the Company refinanced the US$400 million bridge loan for the Deep Panuke Production Field

Centre when it announced the completion of US$450 million of non-recourse senior secured debt by way of a USPP.  The 3.5% fixed coupon bond is rated BBB- / BBB (low) by Fitch and DBRS respectively and carries a 7 year maturity.  The additional liquidity and greater financial flexibility have further improved the Company’s risk profile for securing funding for future projects.

Lastly, a review of strategic alternatives regarding balance sheet optimization announced at the Capital Markets Day in September was completed in November.  The Management Board, with the endorsement of the Supervisory Board, intends to pursue the development of a master limited partnership (MLP).  The anticipated offering is subject to market conditions.

 

 

HSSE

SBM Offshore deeply regretted to have to report two fatalities of yard contractor staff on construction projects in Singapore.  Root cause analysis has been carried out and appropriate measures have been put into effect at the contractor facilities.

The Company achieved a much improved safety performance in 2014 thanks to the focused drive, commitment and involvement of its employees.  Total Recordable Injury Frequency Rate (TRIFR) improved 45% to 0.22 compared to 0.40 in 2013, while the Lost Time Injury Frequency Rate (LTIFR) improved by 66% to 0.05 in 2015 from 0.15 from 2013.

 

Furthermore, the environmental performance of the Group has also improved compared to last year, with 13% less Green House Gas emissions per hydrocarbon production offshore compared to 2013, 9% less energy consumption and 17% less oil discharged from produced water offshore compared to 2013.

1 proportionally consolidated.

Compliance

On November 12, 2014, SBM Offshore reached a US$240 million out-of-court settlement with the Dutch Public Prosecutor’s Office over the inquiry into alleged improper payments.  Furthermore, the United States Department of Justice informed the Company that it would not prosecute and has closed its inquiry into the matter.  The settlement agreement with the Openbaar Ministerie and the United States Department of Justice’s decision relate to payments to sales agents in Equatorial Guinea, Angola and Brazil in the period from 2007 through 2011.  The main reason for the authorities to agree to an out-of-court settlement is related to the comprehensive remedial actions taken by the new Management Board since taking office in 2012.

 

The investigation of the Dutch Public Prosecutors Office established, through means inaccessible to SBM Offshore, that payments were made from the Company’s Brazilian sales agent’s offshore entities to Brazilian government officials.  As a result, SBM Offshore is a party in a number of investigations in Brazil, notably by the Federal Prosecutor, the Federal Accounts Tribunal and the Comptroller General’s Office, who recently confirmed in writing to the Company that they have opened an investigation.  The Company continues to cooperate with all requests for information and is in active dialogue with the Brazilian Comptroller General’s Office in order to come to an agreement to close the matter in Brazil.

 

Management confirms that it is not aware of any authorities outside of Brazil investigating SBM Offshore.

 

 

Investing in Our Future

Costs associated with research and development focused investments and the Odyssey24 programme came to US$63 million in 2014, representing a year-on-year increase of US$37 million.  The programmes’ focus on step changes in design, execution, project and supply chain management, allowing the Company to deliver its projects faster while reducing project costs by at least 5% per project.  The programmes continue into 2015 and once completed is expected to benefit from a quick payback on new contract awards.

 

 

Divestment Update 

In August the Company announced the completion of the sale and leaseback of its Monaco real estate portfolio.  The last of three buildings was sold for approximately US$62 million net of expenses, resulting in a book profit of approximately US$58 million.  This was in addition to the December 2013 announced sale and leaseback transactions for two of the three buildings with sales proceeds exceeding US$100 million and resulting in a book profit of approximately US$30 million.  Total proceeds, net of expenses, resulting from the transactions are in excess of US$162 million with a total book profit of approximately US$88 million.

 

In early December, SBM Offshore announced the US$150 million all cash sale of the DSCV SBM Installer to OS Installer AS.  The Company confirmed in mid-December that OS Installer AS, a newly established Joint Venture between Ocean Yield (75%) and SBM Offshore (25%), secured bank financing and that the transaction had closed.  Net of the retained equity interest in the Joint Venture, the Company received US$140 million in proceeds.

 

FPSO Brasil and VLCC Alba remain held for sale.

 

 

Year-End Update

In the December 17, 2014 year-end update press release, SBM Offshore announced the reduction of the useful life of the Deep Panuke Production Field Centre to eight years, in line with the fixed contract period.  This adjustment resulted in a non-cash impairment charge of approximately US$59 million.  The eight-year firm contract revenue is not affected by the announcement.

 

In addition, the Company announced a one-off impairment charge (non-cash) of US$49 million related to a financial asset following a dispute with a US-based client, as well as the decision to make an additional provision for warranties at year end of US$40 million.