Positive free cash allows return to dividend
February 10, 2016
SBM Offshore is pleased to report revenue and net debt reduction in line with expectations. Although industry challenges have led to continued postponement of client investment decisions, the Company`s predominant activity of leasing, operating and maintaining FPSOs is generating positive cash flows. Consequently, following a five year hiatus, a cash dividend payment of US$0.21 per share is being proposed. Additionally, discussions with Brazilian authorities have progressed to the point of making a compliance settlement provision.
Bruno Chabas, CEO of SBM Offshore, commented:
"Looking back, much was accomplished over the last year. Complex projects progressed according to client schedule, safety performance continued to improve, the lease fleet continued its strong record of reliability, project financing was obtained at attractive prices and net debt targets were surpassed. In-line with developments in the industry, Turnkey backlog continues to decrease providing lower visibility in the short-term. Meanwhile, the Lease and Operate segment is generating positive income, turning SBM Offshore`s Free Cash Flow positive in 2016. The reorganization of the Company continued in 2015 with the intention to reduce costs while retaining the core competencies that are the bedrock to recovery in a market upturn. It is critical that we protect our future and have the ability and the people to be well placed to benefit from the expected recovery."
2015 COMPANY OVERVIEW
Corporate Social Responsibility
The Company has continued to achieve improved safety performance in 2015 with the lowest frequencies of recordable injuries and lost time injuries since 2007. Total Recordable Injury Frequency Rate (TRIFR) remained flat year-on-year at 0.22, while the Lost Time Injury Frequency Rate (LTIFR) improved by 40% to 0.03 in 2015 from 0.05 at the end of 2014.
The volume of gas flared was 26% better than target, however GHG emissions per unit of production increased 38% compared to 2014 mainly due to the absence of gas export infrastructure in Angola. Offshore energy consumption and oil discharged from produced water improved compared to last year and stood 64% better than the industry benchmark.
For the sixth consecutive year running, SBM Offshore has been included in the Dow Jones Sustainability Index with an overall improved position. This is credit to efforts to incorporate all Environmental, Social and Governance elements in the Company`s day-to-day business and how it deals with all its stakeholders.
In addition, the Company received notification in December 2015 of its inclusion in the Euronext Vigeo Benelux 20 Index, which includes the 20 most advanced companies in the Benelux region in terms of Environmental, Social and Governance performances.
Over the course of 2015 discussions with Brazilian authorities and Petrobras have progressed to the point where the Company is providing US$245 million for a possible settlement. While discussions are at an advanced stage, timing of a settlement announcement as well as the size of any potential final settlement amount remain to be confirmed.
On December 17, 2015 the Brazilian Public Prosecutor`s Office made allegations regarding several people in Brazil and abroad, including a number of current and former employees of the Company, of whom one is a U.S. citizen.
On January 15, 2016, the Company was informed that the judge in Brazil referred the above allegations with regard to the Company`s CEO and a member of its Supervisory Board back to the Public Prosecutor to propose an out-of-court settlement, on a no admission of guilt basis, as is common for misdemeanors of the kind alleged.
On January 25, 2016, the Company announced the settlement of the allegations made regarding the Company`s CEO and a member of its Supervisory Board. This settlement is still subject to approval by the court.
Subsequently, the United States Department of Justice has informed SBM Offshore that it has re-opened its past inquiry of the Company and has made information requests in connection with that inquiry. The Company is seeking further clarification about the scope of the inquiry. The Company remains committed to close-out discussions on this legacy issue which the Company self-reported to the authorities in 2012 and for which it reached a settlement with the Dutch Public Prosecutor in 2014.
FPSO Cidade de Maricá (Brazil)
Cidade de Maricá topside integration work at the joint venture Brasa yard outside of Rio de Janeiro has been completed. The vessel sailed away from the Brasa yard on December 19, 2015 and is on location undergoing first oil readiness acceptance testing. The charter contract includes an initial period of 20 years. Delivery of the vessel to client Petrobras is scheduled for first quarter 2016.
FPSO Cidade de Saquarema (Brazil)
Construction is ongoing for the finance leased vessel. Cidade de Saquarema has been undergoing topside module integration at the joint venture Brasa yard outside of Rio de Janeiro since December 20, 2015. The charter contract for the vessel includes an initial period of 20 years. Delivery to client Petrobras is scheduled for mid-2016.
FPSO Turritella (US Gulf of Mexico)
Construction was completed on the finance leased vessel at the yard in Singapore. The vessel has arrived on location in the U.S. Gulf of Mexico. Start-up of the facility is expected in mid-2016. The charter contract includes an initial period of 10 years with extension options up to a total of 20 years.
FPSO Marlim Sul (Brazil)
Decommissioning confirmation was received from the client. Decommissioning activities have recommenced and are expected to be completed in the first quarter of 2016. The vessel received a decommissioning dayrate through the end of the third quarter of 2015. Following its decommissioning, the vessel will be marketed for future conversion opportunities.
Turrets & Mooring Systems
The two large, complex turrets for Prelude FLNG and FPSO Ichthys were delivered to the respective yards for integration during the period. Commissioning is underway in accordance with clients` schedules and contractual planning for both. BP`s FPSO Glen Lyon, for which the Company successfully delivered the Quad204 turret, is now on location in the North Sea.
Main Projects Overview
|Project||Contract||SBM Share||Capacity, Size||POC||Expected Delivery||Notes|
|Prelude, Turret||Turnkey sale||100%|| 95m height,|
|2016||Final integration phase with the vessel ongoing.|
|Ichthys, Turret||Turnkey sale||100%|| 60m height,|
|2016||Final integration phase with the vessel ongoing.|
|Cidade de Maricá, FPSO||20 year finance lease||56%||150,000 bpd||2016||Topside integration and construction completed at the Brasa yard in Brazil. Undergoing first oil readiness acceptance testing with delivery expected in 1Q16.|
|Cidade de Saquarema, FPSO||20 year finance lease||56%||150,000 bpd||2016||Vessel has arrived at the Brasa yard in Brazil where integration of the topsides is taking place. Delivery is expected in mid-2016.|
|Turritella, FPSO||10 year finance lease||55%|| 60,000 bpd,|
|2016||Vessel arrived on location in the U.S. GoM end of 2015. Start-up of the facility and delivery to the client expected in mid-2016.|
|Legend, Percentage of Completion (POC)|
Turritella Joint Venture
Effective June 30, 2015 SBM Offshore completed the divestment of a 45% stake in the Turritella project to joint venture partners Mitsubishi Corporation and Nippon Yusen Kabushiki Kaisha. The total partners` cash contribution to the Turritella project is expected to amount to approximately US$590 million, of which US$488 million was received in fiscal year 2015.
Directional1 backlog at the end of December 2015 came in at US$18.9 billion compared to US$21.8 billion at the end of 2014. While this reflects US$2.6 billion of revenue generated in 2015 and the low level of order intake for the Turnkey segment, it also emphasizes the resilience and excellent long-term visibility of the Lease and Operate portfolio revenue.
Directional1 Turnkey backlog decreased to US$0.5 billion compared to US$1.1 billion in 2014 as no major Turnkey orders were signed in 2015. As market conditions continue to deteriorate, order intake continued to be impacted by delays in client final investment decisions.
Total order intake in 2015 amounted to US$0.4 billion including new orders signed for US$0.2 billion. No major new orders were signed during the period.
As of December 31, 2015, SBM Offshore had cash and undrawn committed credit facilities totaling US$2,681 million (IFRS).
New project financings were secured for both FPSOs Cidade de Saquarema and Turritella joint ventures at attractive rates in the amounts of US$1.55 billion and US$800 million, respectively.
Proportional net debt at year-end amounted to US$3,147 million versus US$3,298 million in the year-ago period. The decrease is mainly related to the funding provided by the new joint-venture partners in the FPSO Turritella project and strong cash flow generation of the Lease and Operate segment. This was partially offset by the ongoing investments in the three FPSOs under construction (Directional1 capital expenditure of US$443 million) and a strong reduction in accounts payable. Net gearing (net debt to equity) at the end of the year stood at 150%, slightly lower than in 2014. As in previous years, the Company has no off-balance sheet financings. The year-end 2015 average cost of debt stood at 4.1% versus 4.2% at year-end 2014.
Investing in the Future
In 2015, SBM Offshore completed an in-depth review of its ways of working, its global presence and the size of its workforce. The Company concluded that to retain the ability to win and execute FPSO, FPU and Turret contract awards, it needed to specialize and concentrate knowledge by product line, which are now assigned to its regions. Although each region has seen substantial workforce reductions, no regional engineering center closures are planned.
Workforce reductions over 2015 totaled approximately 3,200 positions. Approximately 1,500 were full-time employees and contractor staff. The remaining 1,700 were construction yard positions related to the winding down of projects under construction. Restructuring costs totaled US$55 million over 2015. Overall restructuring costs of US$63 million, including US$8 million of charges in 2014, are expected to generate annualized savings of approximately US$80 million.
Given the prolonged downturn a further 400 positions are expected to be eliminated in 2016 at a cost of US$30 million. This additional action is expected to generate a further US$40 million of annualized cost savings in addition to the previously announced savings of US$80 million beginning in 2016.
While client investment decisions continue to be postponed, the Company has taken a view that a recovery is unlikely before 2018. Nevertheless, the Company will maintain an engineering overcapacity to position itself for a future market upturn. This leads to cumulative Directional1 Turnkey EBIT losses of approximately US$150 million over 2016 and 2017. Should the industry downturn persist additional steps will be considered to manage the Company`s cost base.
The Company has elected to reinstate a cash dividend, to be approved at the Annual General Meeting (AGM) of Shareholders on April 6, 2016, totaling US$45 million or US$0.21 per share. This corresponds to 25% of the Company`s US$180 million underlying Directional1 net income, which is exceptionally adjusted for non-recurring compliance related events.
The annual dividend will be calculated in US Dollars, but will be payable in Euros. The conversion into Euros will be effected on the basis of the exchange rate on April 6, 2016. Given the Company`s strong cash position, the dividend will be fully paid in cash.
Management & Supervisory Board
On November 4, 2015 during the Extraordinary General Meeting of Shareholders, Bruno Chabas was re-elected with 99.75% of the votes and reappointed as a member of the Management Board for a second term of four years up to the Annual General Meeting (AGM) of Shareholders in 2020. Mr. Chabas has been designated by the Supervisory Board to continue his role as Chief Executive Officer of the Company.
Mr. P.M. van Rossum`s first term as Management Board member and CFO expires at the Company`s Annual General Meeting of Shareholders on April 6, 2016. The Supervisory Board will propose to the Company`s 2016 AGM to reappoint Mr. van Rossum as a member of the Management Board for a new four year term. Mr. van Rossum has indicated his intention to retire after the 2017 AGM subject to a successor being in place. Consequently, the Company will start the selection process for a successor.
Messrs. F.G.H. Deckers and T.M.E. Ehret will complete their second term as Supervisory Board members during the AGM on April 6, 2016. SBM Offshore`s Supervisory Board will propose to the Company`s 2016 AGM that both are reappointed for a third and final term of four years as Supervisory Board members.
Outlook and Guidance 2016
The downturn persists and client investment decisions are postponed further. Management maintains its positive medium to long-term outlook as the Company considers offshore development to be a crucial component of the overall energy mix to meet future demand.
The Company is providing 2016 Directional1 revenue guidance of US$2.0 billion, of which US$0.6-0.7 billion is expected in the Turnkey segment and US$1.3-1.4 billion in the Lease and Operate segment. The Company has also elected to introduce 2016 Directional1 EBITDA guidance of around US$750 million.
Directional1 capital expenditure guidance for the remaining three finance lease vessels under construction is expected to be approximately US$90 million. Directional1 capital expenditure excludes changes in net working capital and is presented net of SBM Offshore`s share of upfront client payments for FPSOs Cidade de Maricá and Cidade de Saquarema.
Master Limited Partnership
Following the completion of a strategic review of alternatives, the Company announced on November 13, 2014 its intent to pursue the development of a master limited partnership (MLP). Structuring work is progressing with the Company working towards receiving the required regulatory approvals and filing a registration statement with the Securities and Exchange Commission. The contemplated initial public offering of common units is subject to market conditions, which are not encouraging at the moment.
Sea Lion FPSO FEED
Premier Oil plc (Premier) awarded the Company the Front-End Engineering and Design (FEED) contract for an FPSO for Phase 1 of its Sea Lion development in the North Falkland Basin.
The 18-month contract awarded to SBM Offshore covers the FEED elements of the proposed FPSO. The asset will be a converted FPSO with a throughput capacity of approximately 85,000 barrels per day and will operate in 450 meters of water.
Annual Report 2015
SBM Offshore has published its 2015 audited statutory Annual Report on its website today, which includes the full financial statements and notes to the accounts. The Company will also file the 2015 Statutory Annual Report with the Dutch Financial Markets Authority.
Highlights - Directional1 Performance
Directional1 consolidated net income for 2015 came in at US$24 million versus US$84 million in 2014. This result includes non-recurring items which generated a net loss of US$157 million in 2015 compared to a net loss of US$265 million in 2014. Excluding non-recurring items all relating to compliance issues, 2015 underlying consolidated Directional1 net income attributable to shareholders stood at US$180 million, a decrease from US$349 million in the year-ago period, mainly attributable to lower Turnkey segment activity.
Reported consolidated 2015 IFRS total net income was US$110 million versus US$652 million in 2014. IFRS net income attributable to shareholders amounts to US$29 million compared to US$575 million in 2014.
Directional1 earnings per share (EPS) in 2015 amounted to US$0.11 compared to US$0.40 per share in 2014. Adjusted for non-recurring items, underlying Directional1 EPS decreased by 49% year-on-year from US$1.67 in 2014 to US$0.85.
IFRS Net Debt at the year-end totaled US$5,208 million versus US$4,775 million in 2014. All bank covenants were met and available cash and undrawn committed credit facilities stood at US$2,681 million.
New orders for the year totaled US$248 million as a result of current market downturn, which compares to US$3,124 million achieved in 2014.
Directional1 revenue decreased by 26% to US$2,618 million compared to US$3,545 million in the year-ago period. IFRS revenue decreased by 51% to US$2,705 million versus US$5,482 million in 2014. This was mainly attributable to lower Turnkey segment revenues.
Directional1 backlog at the end of 2015 remained high at US$18.9 billion compared to US$21.8 billion at the end of 2014. This reflects a significantly reduced level of order intake in 2015 and a predominant Lease and Operate portfolio consisting of US$18.3 billion at year-end.
Directional1 EBITDA amounted to US$561 million, representing a 16% increase compared to US$486 million in 2014. This figure includes non-recurring net costs totalling US$157 million.
IFRS EBITDA amounted to US$462 million, representing a 50% decrease compared to US$925 million in 2014. This figure includes non-recurring net costs totalling US$157 million.
Directional1 EBIT decreased slightly to US$191 million after non-recurring net costs of US$157 million. This compares to US$201 million in 2014 which included US$236 million of non-recurring costs.
IFRS EBIT decreased sharply to US$239 million after non-recurring net costs of US$157 million. This compares to 2014 EBIT of US$726 million, which included US$227 million of non-recurring costs.
The year was marked by the following financial highlights:
On March 16, 2015, the Company signed a Memorandum of Understanding (MoU) with the Brazilian Comptroller General`s Office (Controladoria-Geral da União - "CGU") and the Attorney General`s Office (Advocacia-Geral da União - "AGU"), setting a framework between the Company, the CGU and the AGU for discussions on a potential mutually acceptable settlement and for the disclosure by SBM Offshore of information relevant to the CGU`s investigations. Whilst these discussions, which also include the Public Prosecutor`s Office (Ministério Público Federal - "MPF") and Petrobras, are still ongoing, it has become sufficiently clear that a resolution of the issues will have a financial component. Consequently, based on information currently available to it, SBM Offshore has recorded a provision of US$245 million in the year-end financial results of 2015. While discussions are at an advanced stage, timing of a settlement announcement as well as the size of any potential final settlement amount remain to be confirmed.
Fiscal year 2015 segmental information regarding the two core business segments of the Company is provided in the detailed financial analysis section of the press release. Revenue by geography is also included in the notes to the Financial Statements.
Directional1 backlog at the end of 2015 remained healthy at US$18.9 billion compared US$21.8 billion at the end of 2014. This reflects both the low level of order intake for the Turnkey segment and the resilience of the Lease and Operate portfolio. Approximately 37% of total future bareboat revenues will be generated from the lease contracts which have yet to commence operations. Those include FPSOs Cidade de Maricá, Cidade de Saquarema and Turritella.
Directional1 Turnkey backlog decreased to US$0.5 billion compared to US$1.1 billion in 2014 as no major Turnkey orders were signed in 2015. As market conditions continue to deteriorate, the level of tendering activity experienced by the Company became lower than in 2014 and the order intake continued to be impacted by structural delays in client final investment decisions.
Backlog as of December 31, 2015 is expected to be executed as per the below table:
Directional1 Revenue decreased by 26% year-on-year despite an increase by 4% for the Lease & Operate segment:
Third party Directional1 Turnkey revenue came down 39% year-over-year to US$1,512 million, representing 58% of total 2015 revenue. This compares to US$2,487 million, or 70% of total revenue, in 2014. The decrease is mostly attributable to nearing the completion stage on a number of projects under construction, such as FPSOs Cidade de Maricá and Cidade de Saquarema, Turritella, very low order intake in 2014 and 2015 as a result of the market downturn, and the completion of FPSOs Cidade de Ilhabelha and N`Goma FPSO in 2014, partially offset by additional revenue invoiced to the new partners in the Turritella joint venture company.
Construction of FPSO Turritella was completed in 2015 with sail away from the Keppel yard in Singapore in November 2015, and arrival in the Gulf of Mexico at year end. During the period, the Company`s share in the Lease and Operate joint ventures was reduced from 100% to 55%, and as a result the Company has started to generate revenue and gross margin under Directional1 reporting related to the partners` 45% share of the EPCI contract of the FPSO supplied by SBM Offshore to the lease and operate joint venture. Start-up of the facility is expected in the first half of 2016. On the other hand, IFRS revenue recognition remains based 100% on the fair value of the lease and on a percentage of completion basis.
Construction was completed for FPSOs Cidade de Maricá in December 2015 while it remains ongoing for FPSO Cidade de Saquarema. First oil for FPSO Cidade de Maricá is expected in the first quarter of 2016 and integration works for FPSO Cidade de Saquarema are concurrently taking place at the Brasa yard in Brazil, with an expected start-up of the facility in the middle of 2016. The joint ventures are fully controlled, as per IFRS 10, by the Company which owns 56% of the shares and is fully consolidated under IFRS. As a result, recognized Directional1 revenue is equal to the partners` 44% share of the EPCI selling price of the FPSO from SBM Offshore to the JV. On the other hand, IFRS revenue recognition is instead based on 100% of the fair value of the lease and on a percentage of completion basis.
BP`s Quad 204 turret was delivered on time on October 2015 and fabrication work on the Ichthys and Prelude turrets were completed during the period and commissioning is underway in accordance with contractual planning for both.
Directional1 Lease and Operate revenue increased by 4% to US$1,105 million, representing 42% of total Directional1 revenue contribution in 2015, up from the 30% contribution of 2014. The increase in segment revenue is attributable to the start-up of FPSOs Cidade de Ilhabela and N`Goma FPSO in November 2014 partially offset by the decommissioning from the fleet of FPSOs Marlim Sul, Kuito and Brasil in the course of 2014 and 2015.
Total IFRS revenue decreased significantly during the year, down by 51% to US$2,705 million due to significantly lower revenue recognised in the Turnkey segment from the finance lease contracts nearing completion such as FPSOs Turritella, Cidade de Maricá, and Cidade de Saquarema and the completion of FPSOs Cidade de Ilhabelha and N`Goma FPSO in 2014.
The Company`s primary business segments are Lease and Operate and Turnkey plus "Other" non-allocated corporate income and expense items. EBITDA and EBIT are analysed by segment but it should be recognised that business activities are closely related, and that 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.
The Company`s profitability may be affected external variables and conditions. Profitability may be sensitive to significant areas of estimation and judgements, and to potential currency and interest rate fluctuations against the U.S. dollar as described in notes 6.2.7 B (a) and 6.3.29 to the financial statements, respectively.
In recent years, new lease contracts are showing longer duration and are systematically classified under IFRS as finance leases for accounting purposes whereby the fair value of the leased asset is recorded as a Turnkey "sale" during construction. For the Turnkey segment this has the effect of accelerating during the construction period, a substantial part of the lease profits which would in the case of an operating lease be recognised through the Lease and Operate segment during the lease period. To address this lease accounting issue and the newly introduced IFRS 10 and 11 standards, the Company has assessed its performance by treating all lease contracts as operating leases and consolidated all JVs related to lease contracts on a proportional basis, referred to as Directional1. This provides consistency in segment presentation and allows for improved sector wide comparison.
Reported 2015 Directional1 EBITDA was US$561 million compared to US$486 million in 2014. Directional1 EBITDA consisted of US$667 million from the Lease and Operate segment compared to US$535 million in 2014, and US$239 million from the Turnkey segment compared to US$210 million in 2014. A loss of US$345 million, compared to a loss of US$259 million in 2014, related to non-allocated corporate costs, restructuring charges relating to corporate functions and the US$245 million provision related to the potential settlement contemplated with the Brazilian authorities and Petrobras. Adjusted for non-recurring items, 2015 underlying Directional1 EBITDA increased by 12% to US$718 million compared to US$643 million in 2014. This increase is primarily attributable to the Lease and Operate segment and the two new vessels that came into production at the back-end of 2014 FPSOs Cidade de Ilhabela and N`Goma FPSO, partially offset by the US$55 million restructuring costs incurred in 2015.
IFRS EBITDA in 2015 came in at US$462 million versus US$925 million in 2014. Total IFRS EBITDA consisted of US$592 million from the Lease and Operate segment compared to US$522 million in 2014, and US$215 million from the Turnkey segment compared to US$662 million in 2014. A loss of US$345 million, compared to US$259 million in 2014, related to non-allocated corporate costs, restructuring charges relating to corporate functions and the US$245 million provision related to the potential settlement contemplated with the Brazilian authorities and Petrobras. Adjusted for non-recurring items, 2015 underlying IFRS EBITDA decreased by 43% to US$619 million compared to US$1,089 million in 2014. This is primarily due the Turnkey segment and the significantly lower activity around the finance lease vessels under construction FPSOs Cidade de Marica, Cidade de Saquarema and Turritella, all nearing completion.
As a percentage of revenue, Underlying Directional1 EBITDA was 27% compared to 18% in 2014. Underlying Directional1 EBITDA margin for the Lease and Operate segment stood at 57% versus 44% in 2014, while Turnkey segment Underlying Directional1 EBITDA margin stood flat at 12% year on year.
The relative segment contribution to Directional1 EBITDA remained almost constant at 73% Lease and Operate and 27% Turnkey.
As a percentage of revenue, IFRS Underlying EBITDA was 23% compared to 20% in 2014. IFRS Underlying EBITDA margin for the Lease and Operate segment stood at 55% versus 50% in 2014, while Turnkey segment EBITDA margin stood at 10% compared to 15% in 2014. The relative segment contributions to IFRS EBITDA were 73% Lease and Operate and 27% Turnkey. In 2014, the corresponding split was 44% Lease and Operate and 56% Turnkey.
Directional1 EBIT in 2015 amounted to US$191million compared to US$201 million in 2014. The below highlights the contribution from each segment:
Adjusted for non-recurring items, underlying Directional1 2015 EBIT decreased by 20% to US$348 million versus US$437 million in 2014. This was due to the strong decrease of activity by 39% during 2015 of the Turnkey segment and restructuring costs incurred in 2015 in all segments.
IFRS EBIT in 2015 amounted to US$239 million compared to US$726 million in 2014. Adjusted for non-recurring items underlying 2015 EBIT decreased by 59% to US$395 million compared to US$954 million in 2014.
Directional1 overheads came in at US$299 million in 2015 compared to US$307 million in 2014. This stability resulted from the finalisation of the Company`s business improvement initiatives, continuous development of research and development programs, and one-off items such as legal fees related to the compliance investigation. The Odyssey24 project aiming at optimising and standardising the Company`s ways of working was completed at the end of 2015.
"Other income and expenses" showed a net cost of US$298 million in 2015 compared to US$186 million in 2014. This includes the US$245 million provision related to the potential settlement discussed with Petrobras and the Brazilian authorities and US$55 million of restructuring charges incurred in 2015. As a result of the adjustment of the Company`s cost structure to the continued market downturn, the workforce reduction is amounted to approximately 3,200 positions worldwide over 2015. Restructuring costs accounted for as "Other operating expense" over the period represented US$55 million, of which US$31 million relate to the Turnkey segment, US$9 million for Lease and Operate, and US$15 million relating to corporate functions for the "Other" segment.
Directional1 net financing costs increased to US$137 million compared to US$127 million in 2014. This was mainly due to interest paid on project loans for FPSOs Cidade de Ilhabela and N`Goma FPSO that went on stream at the back-end of 2014, as well as a 2014 US$29 million impairment charge of a financial asset related to a contractual dispute with a US-based client. The 2015 average cost of debt was 4.1% compared to 4.2% in 2014 due to lower interests rates.
More generally, once production units are brought into service the financing costs are expensed to the P&L 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 once again very low in 2015. This was due to the low level of short-term US interest rates. The main interest income the Company derives is from interest bearing loans to joint ventures.
The Directional1 share of profit of equity accounted investees, the Paenal and the Brasa yard, came at a loss of US$8 million in 2015 down from a profit of US$13 million in 2014, mostly driven by the lower activity and restructuring of the Paenal yard. Under IFRS, the Company`s share of net results of non-controlled joint ventures amounted to US$73 million in 2015 compared to US$117 million in 2014. The decrease year-on-year was driven by the 2014 one off profit due to the requalification as finance lease of FPSO Kikeh, the lower contribution in 2015 of the Paenal yard, partially offset by the positive Lease and Operate contribution of N`Goma FPSO.
The 2015 IFRS tax charge remained stable at US$26 million, mostly driven by a constant level of deemed profit taxes and withholding taxes, while the effective tax rate sharply increased from 5% in 2014 to 41% in 2015. This increase reflects the impact of the lower profit before tax in 2015 and the effect of unrecognised deferred tax assets on 2015 tax losses due to non-recurring items.
IFRS non-controlling interests included in 2015 net income amounts to US$81 million, which is slightly higher than the 2014 minority share of US$76 million related to reported results from fully consolidated joint ventures where the Company has a minority partner (principally Brazilian FPSOs and Aseng).
As a result, IFRS net income attributable to shareholders amounted to US$29 million compared to US$575 million in 2014.
In 2015, the Company introduced a new dividend policy which consists in paying out between 25% and 35% of Directional1 net income either in cash or in shares of SBM Offshore at the election of each shareholder, provided that positive free cash-flows are expected to be generated during the year of payment. In accordance with this policy, but taking account the specific circumstances relating to 2015 including the nature of the non-recurring items, a dividend out of 2015 Directional1 net income of US$0.21 per share will be proposed at the Annual General Meeting of Shareholders on April 6, 2016, which corresponds to 25% of the Company`s US$180 million Directional1 net income exceptionally adjusted for non-recurring items. Given the Company`s strong cash position, the dividend will be fully paid in cash. The decreasing level of investments related to FPSOs Cidade de Maricá, Cidade de Saquarema and Turritella nearing completion and their anticipated production in 2016 will generate strong and sustainable free cash flows from first oil onwards.
The annual dividend will be calculated in US Dollars, but will be payable in Euros. The conversion into Euros will be effected at the exchange rate of April 6, 2016.
Statement of Financial Position
Total assets remained stable at US$11.3 billion as of December 31, 2015 compared to US$11.1 billion at year-end 2014. This slight variance is attributable to the increased investments in FPSOs Cidade de Maricá, Cidade de Saquarema and Turritella, largely offset by vessels depreciation, finance lease redemptions, and lower trade receivables following Turnkey activity slowdown.
Shareholder`s equity slightly increased from US$2,419 million to US$2,496 million mostly due to the 2015 net income.
Capital Employed (Equity + Provisions + Deferred tax liability + Net Debt) at year-end 2015 amounted to US$8,806 million, an increase of 8% compared to US$8,134 million in 2014. This was due in large part to the increase of net debt related to investments in finance leases.
As of December 31, 2015 the Company had cash and undrawn committed credit facilities totalling US$2,681 million. The facilities available to the Company for capital investment in 2015 include the Revolving Credit Facility, FPSOs project loans Cidade de Maricá and Cidade de Saquarema and FPSO Turritella.
IFRS net debt stood at US$5,208 million compared to US$4,775 million in 2014. Proportional net debt at year-end amounted to US$3,147 million versus US$3,298 million in the year-ago period. The decrease is mainly relating to the funding provided by the new partners on FPSO Turritella project and strong cash-flow generation in the Lease and Operate segment. Net gearing (net debt to equity) at the end of the year stood at 150%, slightly lower than in 2014. The relevant banking covenants (Solvency, Net Debt/Adjusted EBITDA, Interest Cover) were all met. As in previous years, the Company has no off-balance sheet financing.
The Company remained within its bank covenants at the end of 2015 despite the effects of a high level of net debt due to ongoing investments and a low level of EBITDA due to the market downturn affecting the Turnkey segment.
The Current Ratio defined as "Current Assets / Current Liabilities" increased to 2.44 due in large part to the sharp decrease in trade payables relating to contracts under construction while construction work-in-progress increased year-on-year.
|(in million US$)||2011||2012||2013||2014||2015|
|Net gearing (%)||145.2||118.7||117.8||151.6||150.0|
Despite the continuous market downturn and the US$245 million provision for the potential settlement agreement with the Brazilian authorities, the Company`s financial position has remained strong. The growth of the lease and operate segment as well as the adaptation of the Turnkey segment to a depressed market, coupled with strong cash-flows generated by the fleet strengthened both equity and net debt positions.
Investment and Capital Expenditures
Total investments made in 2015 reached US$775million compared to US$2,396 million peak level in 2014. Highlights for fiscal year 2015 investments are:
Total capital expenditures for 2015, which consists of additions to property, plant and equipment plus capitalised development expenditures, were related to new investments in the lease fleet (operating leases only) and other ongoing investments.
Due to the classification of the contracts as finance leases, investments in the units were recorded as construction contracts with the investments in finance leases ultimately recorded as financial assets. The net investment in these finance lease contracts amounted to US$752 million in 2015, which compares to US$2,331 million in 2014, and are reported as operating activities in the consolidated cash-flow statement.
The decrease in property, plant and equipment in 2015 to US$1,686 million, compared to US$1,923 million at the end of 2014, resulted from the very low level of capital expenditure less normal depreciation, impairment and amortisation, and the Pelicano heavy lift crane asset`s de-recognition following a change in the consolidation method upon the 50% disposal of shares to our partner Synergy.
Return on Average Capital Employed and Equity
Both Return on Average Capital Employed (ROACE) and Return on Average Shareholders` Equity (ROAE) decreased to 2.8% and 1.2% respectively in 2015. This was primarily the result of the lower level of Turnkey activity as reported under IFRS in 2015 as well as the increase in equity and capital employed due to ongoing investments.
Cash Flow / Liquidities
Cash and undrawn committed credit facilities increased significantly to US$2,681 million, US$1,325 million of which can be considered as being dedicated to specific project debt servicing or otherwise restricted in its utilization.
The Enterprise Value to EBITDA ratio at year-end 2015 was 19.3, higher than the previous year, due mainly to a decrease in the Company`s EBITDA as a result from the reduced contribution of the Turnkey segment.
|(in million US$)||2011||2012||2013||2014||2015|
|Cash flow from operations||1,158||1,134||(1,044)||(1,356)||(538)|
|EV : EBITDA ratio at 12/31||6.8||6.3||10.6||7.8||19.3|
|EBITDA : interest cover ratio||16.3||10.5||12.7||14.1||7.1|
IFRS EBITDA decreased year-on-year from US$925 million to US$462 million due in large part to reduced Turnkey activity level. Provided below is a reconciliation of IFRS net income before taxes to Cash Flow from Operations:
|(in millions US$)||2014||2015|
|Net income before taxes||678||137|
|Adjustments for non-cash items|
|Depreciation of property, plant and equipment||223||212|
|Net impairment / (impairment reversal)||0||9|
|Amortisation of intangible assets||3||1|
|Adjustments for investing and financing items|
|Share in net income of associates and joint ventures||(117)||(73)|
|Finance costs excluding impairment||167||200|
|(Gain) / loss on disposal of property, plant and equipment||(59)||1|
|(Gain) / loss on disposal of subsidiary||-||3|
|(Gain) / loss on distribution||-||0|
|Adjustments for equity items|
|Reclassification of exchange differences relating to the disposal of foreign subsidiaries||-||0|
|Changes in operating assets and liabilities|
|Decrease / (increase) in inventories||6||3|
|Increase in operating receivables (excluding WIP)||(229)||178|
|Increase in WIP (excluding reclass to Financial Assets)||(2,782)||(836)|
|Increase in operating liabilities||619||(548)|
|Total changes in operating assets and liabilities||(2,386)||(1,204)|
|Reimbursement finance lease assets||172||206|
|Income taxes paid||(34)||(24)|
|Net cash generated from operating activities||(1,356)||(538)|
Analyst Presentation & Conference Call
SBM Offshore has scheduled a webcast of its presentation to the financial community and a conference call followed by a Q&A session at 9.00 Central European Time on Thursday, February 11, 2016.
The presentation will be hosted by Bruno Chabas (CEO), Peter van Rossum (CFO), Philippe Barril (COO) and Erik Lagendijk (CGCO). Interested parties are invited to listen to the call by dialling +31 20 716 8427 in the Netherlands, +44 203 139 4830 in the UK or +1 (866) 928 7517 in the US. Conference ID: 25128038#. Interested parties may also listen to the presentation via webcast through a link posted on the Investor Relations section of the Company`s website.
The live webcast and replay, which should be available shortly after the call, will be available at: http://player.companywebcast.com/sbmoffshore/20160211_1/en/player.
|Publication of AGM Agenda||February 24||2016|
|Annual General Meeting of Shareholders||April 6||2016|
|Trading Update 1Q 2016 - Press Release||May 11||2016|
|Half-Year 2016 Earnings - Press Release||August 10||2016|
|Trading Update 3Q 2016 - Press Release||November 9||2016|
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 approximately 7,000 people worldwide. Full time company employees totaling 4,900 are spread over five regional centres, eleven operational shore bases and the offshore fleet of vessels. A further 2,100 are working for the joint ventures with several construction yards. 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, The Netherlands, February 10, 2016
For further information, please contact:
Nicolas D. Robert
Head of Investor Relations
|Telephone:||+31 (0) 20 2363 126|
|Mobile:||+31 (0) 6 5461 2410|
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. Nothing in this press release shall be deemed an offer to sell, or a solicitation of an offer to buy, any securities.
 Directional view is a non-IFRS disclosure, which assumes all lease contracts are classified as operating leases and all vessel joint ventures are proportionally consolidated.
 This release shall not constitute an offer to sell, or a solicitation of an offer to buy, any securities.