Sbm Offshore Nv · EURONEXT:SBMO
Sbm Offshore Nv — Investor Presentation (September 2010)
43 slides from Sbm Offshore Nv's investor presentation, Sep 24, 2010
Slide 1: Lease Accounting Overview
SBM Offshore NV Lease Accounting Overview 24 September 2010
Slide 2: Table of Content
Table of Content Introduction • Base Cases: Operating Lease vs. Finance Lease • Variations to base cases: Impact of consolidation method • Application to SBM Offshore NV • Future developments page 2
Slide 3: Introduction
Introduction • In SBM Offshore NV business model, leases represent a significant part (H1 2010: 28.4% of revenue, 59% of EBIT, 2009: 27.6% of revenue, 59.6% of EBIT) • Leases are most often handled with Partners through Joint Ventures companies • Because SBM is a Manufacturer Lessor (as per definiti
Slide 4: Introduction
Introduction • Under IFRS, US and most other Gaap, there is a distinction between Operating Lease and Finance Lease (also called Capital Lease) • SBM Offshore NV has been applying IFRS since 2005. • Under IFRS, the standard is IAS 17 which currently under revision. • Literally, Finance leases are le
Slide 5: I Base Cases Operating Lease / Finance Lease
I Base Cases Operating Lease / Finance Lease page 5
Slide 6: Case 1 - Operating Lease
Case 1 - Operating Lease • Risks and rewards remain with SBM Offshore NV • There is a unique transaction ie. the leasing of our asset – Therefore only one segment is impacted ie. Lease and Operate • During the construction: SBM is building the asset it is going to lease – In BS: the asset being buil
Slide 7: Case 2 - Finance Lease
Case 2 - Finance Lease • In substance, it is a sale followed by a “lease”. Therefore it can be considered as a multiple elements arrangement: – Element 1 is a sale which generates revenue, cost of sale and gross margin - Shown under the Turnkey System segment – Element 2 is the lease term which is t
Slide 8: Case 2 - Finance Lease
Case 2 - Finance Lease • During the lease term – BB payments are the rewards for the SBM financing – Therefore BB payments are apportioned as - (a) repayment of the principal (the financial receivable) - and (b) interest income – In P&L - Because there is no tangible fixed asset, there is no depreci
Slide 9: Simplified Example
Simplified Example • Main assumptions Lease term years 10 Yearly BB payment (linear) USD, 000 200 Construction costs USD, 000 900 Project WACC % 8 Assuming construction period years 2 Percentage of Completion year 1 40% year 2 60% • This case is deliberately simplified with the following elements •
Slide 10: Simplified Example - Operating Lease
Simplified Example - Operating Lease Y Revenue Depreciation EBIT EBITDA Cashflow 1 200 90 110 200 200 2 200 90 110 200 200 3 200 90 110 200 200 4 200 90 110 200 200 5 200 90 110 200 200 6 200 90 110 200 200 7 200 90 110 200 200 8 200 90 110 200 200 9 200 90 110 200 200 10 200 90 110 200 200 2,000 90
Slide 11: Simplified Example - Finance Lease
Simplified Example - Finance Lease 1. Determine Net investment in the Lease 2. Allocate the value of the contract Y Gross BB Discount factor Net BB to the various elements 1 200 92.6% 185 2 200 85.7% 171 Element 1 - Sale 3 200 79.4% 159 Costs incurred 900 4 200 73.5% 147 Net investment (Fair value o
Slide 12: Simplified Example - Finance Lease
Simplified Example - Finance Lease Interest Y Revenue COS GM EBIT EBITDA Cash inflow income Construction 1 537 360 177 177 177 - 2 805 540 265 265 265 - Lease 1 107 107 107 200 2 100 100 100 200 3 92 92 92 200 Year 1: 40% 4 83 83 83 200 5 74 74 74 200 progress 6 64 64 64 200 7 53 53 53 200 8 41 41 4
Slide 13: Comparison OL / FL
Comparison OL / FL Com parison Cum ul EBITDA No DA component in 2,500 FL 2,000 EBIT Cumul USD,000 identical in the 1,500 OL end 1,000 FL 500 Comparison Cumul EBIT - 1,200 1 2 3 4 5 6 7 8 9 10 11 12 Years 1,000 800 USD,000 OL 600 FL 400 200 Com parison Cum ul Cash Inflow - 1 2 3 4 5 6 7 8 9 10 11 12
Slide 14: II Variations to base cases Impact of consolidation method
II Variations to base cases Impact of consolidation method page 14
Slide 15: JV accounting
JV accounting • Most of the leases are handled with Partners through Joint Venture companies (13 JV out of 19 vessels in SBM lease fleet). • Depending on SBM’s control in those JV, we can identify variations to the base cases 1 and 2: – The JV is in Joint Control - Cases 3.1 (Operating Lease) and 3.
Slide 16: Cases 3.1 and 3.2
Cases 3.1 and 3.2 The JV is in Joint Control 50% SBM and 50% Partner • The method of consolidation applied so far by SBM is the Proportionate consolidation – Case 3.1 - Operating Lease is the base case 1 with inflows / outflows / and BS positions taken at 50% – Case 3.2 – Finance Lease is the base c
Slide 17: Case 3.1 - Operating Lease
Case 3.1 - Operating Lease Y Revenue Depreciation EBIT EBITDA Cashflow 1 200 90 110 200 200 2 200 90 110 200 200 3 200 90 110 200 200 4 200 90 110 200 200 5 200 90 110 200 200 6 200 90 110 200 200 7 200 90 110 200 200 8 200 90 110 200 200 9 200 90 110 200 200 Base Case 1 10 200 90 110 200 200 100% 2
Slide 18: Case 3.2 - Finance Lease
Case 3.2 - Finance Lease Interest Y Revenue COS GM EBIT EBITDA Cash inflow income Construction 1 537 360 177 177 177 - 2 805 540 265 265 265 - Lease 1 107 107 107 200 2 100 100 100 200 3 92 92 92 200 4 83 83 83 200 5 74 74 74 200 Base Case 2 6 64 64 64 200 7 53 53 53 200 100% 8 41 41 41 200 9 29 29
Slide 19: Cases 4.1 and 4.2
Cases 4.1 and 4.2 • SBM has the Full Control on the JV – The JV is consolidated in Full with Minority Interests - Case 4.1 – Operating Lease is the exact replica of case 1 except that ultimately net result is apportioned between SBM and minority interests - Case 4.2 – Finance Lease is the exact repl
Slide 20: Case 4.1 - Operating Lease
Case 4.1 - Operating Lease Y Revenue Depreciation EBIT EBITDA Cashflow 1 200 90 110 200 200 2 200 90 110 200 200 3 200 90 110 200 200 4 200 90 110 200 200 5 200 90 110 200 200 6 200 90 110 200 200 Base Case 1 7 200 90 110 200 200 100% 8 200 90 110 200 200 9 200 90 110 200 200 10 200 90 110 200 200 2
Slide 21: Case 4.2 - Finance Lease
Case 4.2 - Finance Lease Interest Y Revenue COS GM EBIT EBITDA Cash inflow income Construction 1 537 360 177 177 177 - 2 805 540 265 265 265 - Lease 1 107 107 107 200 2 100 100 100 200 Base Case 2 3 92 92 92 200 4 83 83 83 200 100% 5 74 74 74 200 6 64 64 64 200 7 53 53 53 200 8 41 41 41 200 9 29 29
Slide 22: Cases 5.1 and 5.2
Cases 5.1 and 5.2 • The other Partner has the Full Control on the JV – The JV is not consolidated at all. SBM will apply the Equity Method - In the Equity Method, a company recognizes its Share of Profit (loss) and Equity in the JV · In the P&L, the profit or loss is shown as a separate line called
Slide 23: Cases 5.1 - Operating Lease
Cases 5.1 - Operating Lease Net result Case 4.1 Y Revenue Depreciation EBIT Mino SBM EBITDA Cashflow 1 200 90 110 33 77 200 200 Minority 2 200 90 110 33 77 200 200 3 200 90 110 33 77 200 200 4 200 90 110 33 77 200 200 5 200 90 110 33 77 200 200 6 200 90 110 33 77 200 200 7 200 90 110 33 77 200 200 8
Slide 24: Cases 5.2 - Finance Lease
Cases 5.2 - Finance Lease Net result Y Revenue COS GM Interest EBIT Minority SBM EBITDA Cash inflow income Interest Construction 1 537 360 177 177 53 124 177 - 2 805 540 265 265 80 186 265 - Lease 1 107 107 32 75 107 200 2 100 100 30 70 100 200 3 92 92 28 64 92 200 4 83 83 25 58 83 200 5 74 74 22 52
Slide 25: III Application to SBM Offshore NV
III Application to SBM Offshore NV page 25
Slide 26: Specificity of SBM
Specificity of SBM • The specificity of SBM is that in most cases, the JV subcontracts part of / entirely the construction phase directly to an SBM entity. In those cases: – SBM has a direct contract with the JV (either lumpsum EPCI or open books contract) – SBM can realise an additional profit from
Slide 27: Operating Lease
Operating Lease • The EPCI profit realised by SBM on its share in the JV is deferred to the lease period – This is a consolidation entry, which is outside the JV books – The EPCI profit is not shared with the partner in the JV – Example: Lease term years 10 Yearly BB payment USD, 000 200 Constructio
Slide 28: Case 3.1.1 - Operating Lease in Joint Control (50%)
Case 3.1.1 - Operating Lease in Joint Control (50%) SBM books Elimination entry (conso) JV books at SBM share Total Y Revenue COS EBIT Revenue COS EBIT Revenue COS EBIT Revenue COS EBIT Construction 1 360 320 40 - 180 - 160 - 20 180 160 20 2 540 480 60 - 270 - 240 - 30 270 240 30 Lease 1 - 5 100 45
Slide 29: Case 4.1.1 - Operating Lease in Full Control with Minority interests
Case 4.1.1 - Operating Lease in Full Control with Minority interests SBM books Elimination entry (conso) JV books Total Y Revenue COS EBIT Revenue COS EBIT Revenue COS EBIT Mino SBM Revenue COS EBIT Mino SBM Share Share Construction 1 360 320 40 - 252 - 224 - 28 108 96 12 12 2 540 480 60 - 378 - 336
Slide 30: Case 5.1.1 - Operating Lease with No Control
Case 5.1.1 - Operating Lease with No Control SBM Elimination entry (conso) JV books Consolidation Y Revenue COS EBIT Revenue COS EBIT Revenue COS EBIT Share of Revenue COS EBIT Share of Result profit in profit in SBM Share associates associates Construction 1 360 320 40 - 360 320 40 40 2 540 480 60
Slide 31: Finance Lease
Finance Lease • The profit realised by SBM on its JV is recognized during construction • This profit is 100% SBM and not shared with the partner in the JV • Example: Lease term years 10 Yearly BB payment USD, 000 200 Construction costs SBM USD, 000 800 Sold to the JV (EPCI contract) USD, 000 900 Pro
Slide 32: Case 3.2.2 - Finance Lease in Joint Control (50%)
Case 3.2.2 - Finance Lease in Joint Control (50%) SBM JV Total Construction 100 221 321 Lease 329 329 Margin 100 550 650 Case 3.2 Total profit can be explained: 50% Profit on the partner 50 Element 1 - Construction (at 50%) 271 Element 2 - Lease (at 50%) 329 Total 650 Profit on partner 50% Elements
Slide 33: Case 4.2.2 - Finance Lease in Full Control with Minority Interests
Case 4.2.2 - Finance Lease in Full Control with Minority Interests SBM JV Minority Total Construction 100 442 - 133 409 Lease 658 - 197 461 Margin 100 1,100 - 330 870 Total profit can be explained: Profit on the partner 30 Case 4.2 Element 1 - Construction (after mino) 379 Minority 30% Element 2 - L
Slide 34: Case 5.2.2 - Finance Lease with No Control
Case 5.2.2 - Finance Lease with No Control SBM JV Share of Total profit in associates Construction 100 - 133 233 Lease - 197 197 Margin 100 - 330 430 Total profit can be explained: Profit on the partner 70 Element 1 - Construction (after mino) 163 Element 2 - Lease (after mino) 197 Case 5.2 Total 43
Slide 35: Summary
Summary Lease operation SBM has a partner in the SBM is alone in the Lease Lease Operating Lease Finance Lease Operating Lease Finance Lease Case 1 Case 2 Joint control Joint Control Case 3.1.1 Case 3.2.2 SBM has full control w ith SBM has full control w ith Minority Interests Minority Interests Cas
Slide 36: Summary
Summary Lease operation SBM has a partner in the SBM is alone in the Lease Lease Finance Lease Operating Lease Finance Lease Operating Lease Case 2 Case 1 (Espadarte, Marlim Sul, Thunderhaw k, Deep Panuke, YME) Joint control Joint Control Case 3.1.1 Case 3.2.2 (Sanha, Xikomba, Kuito, Brasil, (Mondo,
Slide 37: IV Future developments
IV Future developments page 37
Slide 38: IFRS projects that will have an impact on SBM
IFRS projects that will have an impact on SBM • Project of reshaping IAS 17 – Leases – Joint Project IASB and FASB – Project calendar - Discussion paper published in March 2009 - Exposure Draft (ED) published in August 2010 - ED open for public comment until December 15, 2010 • What is being propose
Slide 39: Exposure Draft Lease
Exposure Draft Lease Is there a transfer of significant risks or benefit of the underlying asset? YES NO Derecognition Performance obligation Balance Sheet Balance Sheet Residual asset X Underlying asset X Right to receive lease payments X Right to receive lease payments X Lease Performance obligati
Slide 40: IFRS projects that will have an impact on SBM
IFRS projects that will have an impact on SBM • Joint Ventures (ED9) – IFRS release expected for Q3 2010 – Effective date: TBC – Shall remove the proportionate consolidation method • Revenue recognition – Exposure Draft published June 2010 – Comments period ends 22/10/2010 – Target date for IFRS rel
Slide 41: Q&A session
Q&A session page 41
Slide 42: Disclaimer
Disclaimer Some of the statements contained Should one or more of these risks in this presentation that are not or uncertainties materialize, or historical facts are statements of should underlying assumptions future expectations and other prove incorrect, actual results may forward-looking statemen
Slide 43: Slide 43
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