Slide 1: Project Direction Presentation June 2013
Project Direction Presentation June 2013 © SBM Offshore 2012. All rights reserved. www.sbmoffshore.com IR- 20/06/2013
Slide 2: Disclaimer
Disclaimer Some of the statements contained in this Should one or more of these risks or presentation that are not historical facts uncertainties materialize, or should are statements of future expectations and underlying assumptions prove incorrect, other forward-looking statements based on actual
Slide 3: Finance Lease Accounting: Analysts' View
Finance Lease Accounting: Analysts’ View “All year we have argued that finance lease accounting within SBM’s lease fleet portfolio has rendered valuation arguments based on the P&L as largely irrelevant.” Barclays August 2011 “IFRS is diminishing the product’s appeal: Under IFRS, the distinction bet
Slide 4: Agenda
Agenda Overview Principles Figures © SBM Offshore 2012. All rights reserved. www.sbmoffshore.com
Slide 5: Overview
Overview © SBM Offshore 2012. All rights reserved. www.sbmoffshore.com
Slide 6: Project Direction - Context
Project Direction - Context • SBM’s business model is a combination of turnkey sales, construction and lease and operate projects, making it a challenge to model • Finance lease accounting under IFRS adds further complexity by separating revenue recognition from cash flows • Accelerated recognition
Slide 7: Project Direction - Objectives
Project Direction - Objectives • SBM Offshore has decided to extend its reporting to develop an operating lease presentation in-line with operating cash flows • Increasing transparency and understanding of SBM Offshore’s performance • Disclosure of Directional Backlog and Directional Income Statemen
Slide 8: Finance Lease Accounting: A Growing Issue
Finance Lease Accounting: A Growing Issue 100% 90% SBM Contract Percentage 80% 70% Finance lease 60% contracts 50% 40% 30% Operating lease contracts 20% 10% 0% * *assuming new IASB exposure draft is accepted IR- 20/06/2013 © SBM Offshore 2012. All rights reserved. www.sbmoffshore.com 8
Slide 9: IFRS: IAS 17 Finance Leases
IFRS: IAS 17 Finance Leases • Definition: A lease that transfers substantially all the risks and rewards incidental to ownership of an asset. Title may or may not eventually be transferred. • Critical criteria: is the lease term for the major part of the economic life of the asset? It’s a Finance
Slide 10: IFRS: IAS 17 Finance Leases
IFRS: IAS 17 Finance Leases • Under IFRS, leasing an asset to a lessee under finance lease rules is like selling the asset, and giving the buyer a purchase financing arrangement. • SBM constructs the assets it leases as part of its own project development activities (Turnkey Segment) • As a result,
Slide 11: Contract Assumptions
Contract Assumptions • Capex: US$ 1 bn • Financing: 40% Equity- 60% Debt • Cost of debt: 6% • Lease contract duration: 20 years • Construction: 2 years • Project WACC:10% • Ownership:100% IR- 20/06/2013 © SBM Offshore 2012. All rights reserved. www.sbmoffshore.com 11
Slide 12: Operating Lease vs. Finance Lease in US$ mln
Operating Lease vs. Finance Lease Sale Financing arrangement repayment FL Finance Lease Turnkey Lease and Operate Segment Segment 700 Revenue Oper Lease 600 Revenue recognition Revenue Fin Lease 500 in US$ mln 400 300 200 100 0 Year OL Operating Lease Asset under Lease construction IR- 20/06/2013 ©
Slide 13: Operating Lease vs. Finance Lease in US$ mln
Operating Lease vs. Finance Lease Sale Financing arrangement repayment FL Finance Lease 120 Profit Oper lease 100 Profit Fin lease Profit recognition 80 in US$ mln 60 40 20 0 Year OL Operating Lease Asset under Lease construction IR- 20/06/2013 © SBM Offshore 2012. All rights reserved. www.sbmoffsho
Slide 14: Operating Lease vs. Finance Lease in US$ mln
Operating Lease vs. Finance Lease Sale Financing arrangement repayment FL Finance Lease 600 Year-end Equity Equity Oper Lease 500 Equity Fin Lease 400 in US$ mln 300 200 100 0 Year 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 OL Operating Lease Asset under Lease construction IR- 20/06/20
Slide 15: Consequences
Consequences • Total disconnect between P&L revenues and cash inflows • Change of reporting segment: finance lease contracts are reported in Turnkey Segment during construction as transaction is considered a direct sale under IAS 17 and in Lease & Operate upon first oil: Higher level of revenues an
Slide 16: Previous Steps to Clarify Lease Accounting
Previous Steps to Clarify Lease Accounting • Bottom up approach: SBM explained finance lease accounting in 2010 at the vessel level to analysts and shareholders • Workshop in September 2010 with analysts • Top-down approach: Since 2011, disclosure of turnover recognised with respect of Finance Lease
Slide 17: Directional Reporting - Revenues FY 2012 In US$ mln
Directional Reporting - Revenues FY 2012 Unaudited 4,000 3,106 3,695 3,500 3,000 Bareboat NPV Cd Ilhabela, Paraty & 2,500 In US$ mln N’Goma 2,129 +634 2,763 2,000 1,500 Turnkey Segment 1,000 977 -45 932 L&O Segment 500 - Directional revenues IFRS Adjustment IFRS revenues IR- 20/06/2013 © SBM Offshor
Slide 18: Directional Reporting Principles
Directional Reporting Principles © SBM Offshore 2012. All rights reserved. www.sbmoffshore.com 18
Slide 19: Directional Philosophy
Directional Philosophy Directional Reporting + IFRS Adjustment = IFRS IR- 20/06/2013 © SBM Offshore 2012. All rights reserved. www.sbmoffshore.com
Slide 20: IFRS Scope Existing Contracts
IFRS Scope Existing Contracts Lease Contracts FPSO under Construction FPSO in Lease Period FPSO N’Goma Reported as FPSO Cdde de Paraty FPSO Saxi Finance Lease FPSO Cdde de Ilhabela FPSO Mondo contracts FPSO Cdde de Marica FPSO Aseng FPSO Cdde de Saquarema FPSO Cdde de Anchieta FPSO Capixaba FPSO Esp
Slide 21: Impact of Directional Reporting
Impact of Directional Reporting Lease Contracts FPSO under Construction FPSO in Lease Period Reported as Finance Lease contracts FPSO Saxi FPSO Mondo FPSO Aseng FPSO N’Goma FPSO Cdde de Anchieta FPSO Cdde de Paraty FPSO Capixaba Reported as FPSO Cdde de Ilhabela FPSO Espirito Santo Operating Lease F
Slide 22: Directional Reporting Golden Rules
Directional Reporting Golden Rules • Directional reporting is an additional disclosure to IFRS reporting • Directional reporting assumes all lease contracts under the Operating lease standard • Directional reporting is limited to restating revenue and operating income; no balance sheet restatements
Slide 23: Directional Reporting Process
Directional Reporting Process • For all lease contracts: calculation of an operating lease contract P&L • Revenue, gross margin and backlog stated according to operating lease classification • Revenue in-line with contracts invoicing • Directional reporting to be included in the Financial Review and
Slide 24: Financial Market Authority Acceptance?
Financial Market Authority Acceptance? • Companies must report fully compliant IFRS results • Companies can provide additional disclosures to improve investor understanding • Precedents exist where non-IFRS disclosures take the lead IR- 20/06/2013 © SBM Offshore 2012. All rights reserved. www.sbmoff
Slide 25: Directional Reporting Financials
Directional Reporting Financials © SBM Offshore 2012. All rights reserved. www.sbmoffshore.com 25
Slide 26: Assumptions Example #1
Assumptions Example #1 • Capex: US$ 1bn • Financing: 40% Equity - 60% Debt • Cost of debt: 6% • Lease contract duration: 20 years • Construction: 2 years • Finance lease contract • Project WACC:10% • Ownership: 100% IR- 20/06/2013 © SBM Offshore 2012. All rights reserved. www.sbmoffshore.com 26
Slide 27: Example #1 - 100% SBM
Example #1- 100% SBM Bareboat to invoice OL FL FL Bareboat Financial interests Net Present associated with financing Value arrangement IR- 20/06/2013 © SBM Offshore 2012. All rights reserved. www.sbmoffshore.com 27
Slide 28: Assumptions Example #2
Assumptions Example #2 • Capex: US$ 1bn • Financing: 40% Equity - 60% Debt • Cost of debt: 6% • Lease contract duration: 20 years • Construction: 2 years • Project WACC: 10% • Finance lease contract • Ownership: 60% SBM • Consolidation based on joint operation of the JV • Sale price to JV: US$ 1.1bn
Slide 29: Example #2 - With 40% JV Partners
Example #2 - With 40% JV Partners 60% Bareboat to invoice OL OL FL FL OL 40% sale price to 60% Bareboat 60 % Financial interests JV partners Net Present associated with financing Value+ 40% sale arrangement price to JV partners IR- 20/06/2013 © SBM Offshore 2012. All rights reserved. www.sbmoffshore
Slide 30: Benefits of Directional View
Benefits of Directional View • Turnkey Segment becomes a pure construction business. Revenues and Gross Margin consist of: Direct sales contracts (FPSO OSX2, Prelude Turret, Quad Turret…) Sales to JV partners (FPSO Cdd de Ilhabela, FPSO N’Goma, FPSO Cdd de Marica and Saquarema) • Lease and Operate
Slide 31: Directional Backlog as of 31/03/2013
Directional Backlog as of 31/03/2013 Revenues for FL contracts under Revenues already booked in construction Turnkey • US$ 2.1bn revenues already booked under IFRS, but still to be invoiced • US$ 5.3bn revenues not yet invoiced to clients under Lease & Operate Segment • US$ 3.2bn anticipated revenue
Slide 32: Directional Backlog: Future Cash Inflows
Directional Backlog: Future Cash Inflows US$ 23.2bn Lease & Operate backlog: Directional view vs. IFRS 1.4 Direct. view 1.2 1.0 IFRS in US$ bn 0.8 0.6 0.4 0.2 US$ 19.3bn 0.0 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 Turnke
Slide 33: Directional P&L - FY 2012 Unaudited
Directional P&L - FY 2012 Unaudited Difference between financial interests and day-rates for Aseng, Saxi and Mondo Unaudited Depreciation gap Revenues for FL contracts under construction: Cdd Ilhabela, Paraty and N’Goma Bareboat NPV IR- 20/06/2013 © SBM Offshore 2012. All rights reserved. www.sbmoff
Slide 34: Directional P&L - Underlying FY 2012
Directional P&L - Underlying FY 2012 Unaudited IR- 20/06/2013 © SBM Offshore 2012. All rights reserved. www.sbmoffshore.com 34
Slide 35: Visible Impact
Visible Impact In US$ mln- 2012 IFRS view Directional view Revenue Lease & Operate $932 $977 Revenue Turnkey $2,763 $2,129 Unaudited EBITDA $698 $639 EBIT (underlying) $550 $432 Earnings per share $2.08 $1.57 (underlying) in US$ P/E ratio year-end 6.66 8.86 IR- 20/06/2013 © SBM Offshore 2012. All ri
Slide 36: The Way Forward
The Way Forward • Disclosure of Directional P&L statement and Backlog for H1 2013 and H1 2012 on August 7 with Half-Year results • 2013 IFRS revenue outlook already provided, however both measures will be reported • 2013 transition period to promote Directional reporting as the main indicator for Co
Slide 37: Q&A Session
Q&A Session © SBM Offshore 2012. All rights reserved. www.sbmoffshore.com
Slide 38: Key Takeaways
Key Takeaways • Directional Turnkey results are consistent, linked to cash inflows and comparable to EPC peers • Directional Lease and Operate results are aligned with cash inflows • SBM outlook and dividend policy will be based on the directional view IR- 20/06/2013 © SBM Offshore 2012. All rights
Slide 39: Thank You!
Thank You! IR- 20/06/2013 © SBM Offshore 2012. All rights reserved. www.sbmoffshore.com 39
Slide 40: Notes
Notes © SBM Offshore 2012. All rights reserved. www.sbmoffshore.com 40