SBM Offshore N.V. (OTCPK:SBFFF) Q4 2021 Earnings Conference Call February 10, 2022 4:00 AM ET
Bruno Chabas – Chief Executive Officer
Douglas Wood – Chief Financial Officer
Philippe Barril – Chief Operating Officer
Conference Call Participants
Quirijn Mulder – ING
Andre Mulder – Kepler Cheuvreux
Mick Pickup – Barclays
Thijs Berkelder – ABN AMRO.
Andre Mulder – Kepler Cheuvreux
Quirijn Mulder – ING
Ladies and gentlemen, thank you for holding and welcome to SBM Offshore Full Year 2021 Earnings Update. At this moment, all participants are in listen-only mode. After the presentation, there will be an opportunity to ask question. Just to remind you this conference is being recorded.
I would like to hand over the conference to Mr. Bruno Chabas. Go ahead, please.
Thank you very much, operator. And welcome to the SBM Offshore full year 2021 earnings update call. My name is Bruno Chabas, CEO of SBM Offshore. And I’m joined today by my management board: Philippe Barril, Erik Lagendijk and Douglas Wood.
I will present SBM Offshore’s main achievements of 2021 and go through the general strategic update of the company, after which Douglas Wood talks to us through the financials. We will welcome your questions after the prepared section of this call.
So as always, please note the disclaimer. And now let’s go through the call of the presentation. And we’re going to start by speaking about our business model. We as SBM Offshore are not in the energy business. We are in the energy transition business. We are playing a key role in the energy transition: first, through the decarbonization of fossil fuel production; secondly, through the development of renewable energy solutions.
Overall, through our experience, our knowledge of the oceans and our strategy of optimize, transform innovate, we are providing safe, sustainable and affordable energy for generations to come. We played this role through our three value platforms through which we bring value solution and results to all our stakeholders.
Starting with Ocean Infrastructure based on our lease and operate portfolio, backed by our strong operational performance combined with our capacity to reduce existing fleet emissions and of course, generating a healthy and predictable cash flow. Then the growth opportunity of our core business, which is supported by our transformation programs Fast4Ward and emissionZERO.
With these two programs, we address clients’ needs for fast reliable delivery with the lowest carbon footprint. Finally, the new energy business, where we leverage our offshore experience and technology leadership to bring competitive and innovative solutions to the renewables energy market such as offshore wind, which I will tell you a bit more in a moment. This in combination with our digital services which aim at increasing value throughout our product life cycle by leveraging our operational data and digital technology.
Now let’s turn to the highlights of the year. SBM Offshore, once again delivered a strong performance despite the continued challenges brought by the pandemic. This success is directly linked to the talent, motivation and dedication of all SBMers throughout the world.
In 2021, we saw strong delivery across the board. So to highlight a few examples of this. FPSO Liza Unity is getting ready to deliver its first oil soon. We continue an excellent uptime of our fleet. Our guidance are delivering in line with expectations and we got two major FPSO awards during the year.
2021 also saw SBM Offshore breaking quite a few company records, the lowest total recordable injury frequency rate seen. Again, we should note that we will never take this safety for granted and we will always remain careful and disciplined. Nevertheless, the performance of this year is quite remarkable.
We have a record backlog of around $30 billion, which provide contracted cash flow visibility until 2050. We raised $4.8 billion of financing to support our growth. And our solid performance allows towards return a record-breaking $345 million in cash to our shareholders through dividends and share repurchases.
Third point, regarding the energy transition, our teams have achieved around 30% reduction in flaring over the last five years, or about 10% reduction in absolute emissions compared to last year. We will continue to focus on flaring performance and focus on further improvement going forward.
SBM Offshore also commits to be the net-zero emission by 2050, which includes Scope 1, 2 and 3 for downstream leased assets. Finally, we’re proud of the milestone reached in our floating offshore wind business, ensuring that the company is positioned well in this upcoming market, again, an outstanding performance, which is a major complement to the SBM Offshore teams around the world.
Now, let’s go over to the shareholder return. Our solid performance is translated in an industry-leading shareholder returns. Looking back, we now have created a track record of returning money to our shareholders, and we are looking to further build on this in the future. With a 13% increase year-on-year in dividend per share proposed to be paid in 2022, the company will book its sixth consecutive year of dividend increase, consistent with the stable and growing dividend policy.
Over this period in dividend alone, SBM Offshore has sustained, a 30% confirmed annual growth rate in its dividend, which is remarkable and certainly in our industry in particular during the period that we have leased. Including the 2022 dividend, the company returned around $1.4 billion since 2016, which represent more than half its market capitalization as of 2021 year-end.
So before going into more detail in our value platform, I will cover our ESG performance. In 2021, we have aligned overall scoping of our emissions reporting to the greenhouse gas protocol. This results in the reclassification of most of our emissions formerly reported under Scope 1 to Scope 3. You can find the further details around this in our Annual Report published today.
This reclassification has not impacted SBM ambition, with respect to emissions reduction. Therefore, today we report emission from Scope 1 and Scope 3, which are close to zero thanks to the use of green energy in our site operation. Under Scope 3, the company reports the emission from the FPSO operated on behalf of clients under the category downstream leased assets, as well as a new voluntary disclosure added this year under the category Purchased Goods and Services, to address emission from the supply chain.
As you can see the vast majority of emissions is produced in our Scope 3 downstream leased asset, which is where SBM supports its clients to reduce their emission intensity. So you could question, how we’re going to make this happen.
First of all, deepwater oilfield development compared to any other source of oil ranks, the best – among the best development with the lowest carbon intensity. Secondly, our program of emissionZERO in place is aiming at resisting FPSO emission, and offer to the market a near-zero emission FPSO.
And lastly, on the existing fleet, we managed to achieve significant reduction in emissions for example through better management of the gas system using digital technology and data analytics.
We also have embedded sustainability in all our activities. And we’re proud to see our efforts and performance recognized by third-party experts in their review of SBM Offshore sustainability performance as the company is identified as a leader and global industry mover.
We also report annually on our sustainability-related KPIs at year-end. Of the 10 ambitious targets for the year for which all the details are available against in our Annual Report seven of them have been met. For example, our safety performance and money spent in R&D and in technology.
We also have some work ahead of us on some indicators. As example — one of the example, is the creation of a training center in Guyana which received approval from all stakeholders at the end of 2021 and enabled us to catch-up on this target in 2022.
We continuously raise the bar, by stepping up on our ASG target for 2022, where the company has now added long-term target towards 2030. In addition, we are expanding on sustainability focus and action on material topics such as human rights.
We are also adding diversity and inclusion and secularity to the overall program. We’re targeting to dedicate at least 50% of the 2022 R&D budget towards EU taxonomy eligible activities. The maturity gain over the years has allowed us to set clear targets at midterms and to meet the company’s ambition to reach the net zero by 2050.
So now let’s go to the different value platform of the company. We are currently operating 15 units for which our focus is on maintaining a solid track record in uptime for our clients. You can see here that for 2021 we are again above 99% at year-end, despite the challenging environment and in line with our historical track record.
This performance is reflected by the award we have received from one of our key clients Petrobras for the second year in a row about the Best Oil Platform Operation. We are also pleased to confirm the company receives the six-year lease extension on FPSO Kikeh, the largest deepwater FPSO in Asia.
So turning to the growing the core platform. As previously mentioned, we’re going through a major growth phase with five projects under construction following the award of two FPSO Almirante Tamandaré and Alexandre de Gusmão.
As with our operation activity our project team are facing [indiscernible] challenges from the pandemic and managed to maintain their focus on project delivery and safe execution. On FPSO Sepetiba the modules fabricated in Brazil has arrived at the yard in China. And the topside module fabrication in China is progressive. The project targets first oil in 2023.
FPSO Prosperity is progressing as planned. The installation of the mooring system is ongoing and the first topside modules are planned to be completed and lifted in the first quarter of this year FPSO Almirante Tamandaré and FPSO Alexandre de Gusmão construction are progressing as per schedule.
The sixth MPF hull been allocated to the Yellowtail development project. Finally, I wanted to draw your attention to FPSO Liza Unity. Everything is on track to achieve first oil as per our initial schedule. We’re proud of this remarkable achievement for which — for such a complex unit especially during the COVID-19 crisis.
This is the first FPSO with the — under the Fast4Ward concept delivered as well as the largest to be operated with the 220,000 barrel per day of production capacity. It is also the world’s first FPSO with the SDG-linked class notation SUSTAIN-1.
To the market now. With the capacity of two-plus FPSO awarded per year or about six FPSO at various stages of construction, the company will remain selective and disciplined in the positive FPSO market outlook. We identified around 25 potential awards until 2024. Our niche market of complex FPSOs with low carbon intensity and low breakeven prices remain the most attractive to our clients.
Now, let’s turn to the New Energies value platform. And as I mentioned upfront, we’re in the energy transition business. So the company in this market segment, the company’s strategy is to position itself in the renewable market and the floating offshore wind market which is the fast-growing market. While leveraging our experience and capacity in the floating energy solution by investing in technology development, especially in floating offshore wind and wave energy.
To enhance the positioning of the company’s technology and to continue to stimulate the floating offshore wind market, SBM Offshore moved forward as a codeveloper to accelerate the adoption of this technology.
Our first development Llyr is located in UK and comprising of two offshore sites of up to 100 megawatts each. Cademo is another co-development project located in California for 60 megawatts.
In the execution phase, the company is making good progress on the Provence Grand Large project with the construction of three floaters for total 25 megawatts for EDF Renewable labs. We’re facing some execution challenges from the fact that we are fabricated for the first time our newly designed components in the COVID environment.
These challenges actually bring some interesting learning points that have been integrated in our new version of our floater design and execution. We expect to continue our investment overall in pilot projects to ensure that our technology matures in line with the market dynamics.
SBM Offshore is also looking to participate at the EPCI and technology supplier for clients involved in major form developments such as in Scotland, France, South Korea, and Japan.
Finally, we are building strategic partnership to support the development of our second generation offshore wind floater which I would like to discuss next. Our floating technology solution, the tension leg platforms, offers our clients a solution with high output and lower cost. This technology offers several benefits, but most notably it brings a lower environmental impact and a better layout subsea.
The capability to scale it to accommodate the largest wind turbine which is important in order to bring the cost of electricity down. The ability to operate in deeper water and harsher environment to address all markets.
Leveraging on this experience the company is developing a second generation of flotel, which is what we call Float4Wind offering a competitive solution achieving lower costs through better and simpler design which should allow mass production and shorter execution. The group is under Float4Wind is really the blueprint that we have been using on tender Fast4Ward.
Now let’s turn to the market. The floating offshore wind market is developing worldwide. And the current market outlook of capacity to be sanctioned has grown during the year and is forecasted to further grow.
The initial forecast now increased to between 6 gigawatts to 16 gigawatts to be installed by 2030. With this growing market, the company has the ambition to become a top three floating technology provider. The company also has the ambition of at least 2 gigawatts of floating offshore wind installed and under construction by 2030.
So that concludes the first part of the presentation. So over to Douglas for the financials for SBM financial. Douglas?
Thank you, Bruno, and good morning, everybody. The financials for 2021 reflect the strong business performance and the achievement of a number of records. With the two new orders received during the year, the order book approached $30 billion at year end. That’s the highest on record and almost 40% increase versus last year.
The level of the order book reflects the growth phase that we’re in with five FPSOs in the construction phase plus the early work on Yellowtail. Now to support this growth, we raised $4.8 billion of financing during the year and that’s the highest amount ever achieved by the company. And this shows the recognition and support for our strategy from our international syndicate of lenders.
The size of the order book not only reflects the additional projects that we’ve won but also the increasing size of the vessels required by our clients. Compared with the past we’re also retaining a larger ownership percentage in our portfolio of units under construction and this is especially visible with the 100% owned Chinese vessels.
Our financing model is efficient in terms of minimizing the equity investment in percentage terms, but where obviously larger units require a higher absolute amount of equity to be invested during construction. Then in our drive to accelerate our renewables technology as Bruno just mentioned, we’ll continue our investment in pilot projects.
We have the flexibility to manage these investments for the long-term future without compromising our shareholder returns. We returned a record $343 million last year and that represents a cash yield versus 2020 year end market capitalization of 10%.
And today we announced a proposed increase in the dividend per share by 13% to $1 per share. I will spend some more time on capital allocation returns in more detail in a moment, but first review the key metrics for the year on a directional basis.
Now as you know cash is king. And that’s why the key metric to focus on the SBM is the level of the order book also known as the backlog and the long-term net cash flows that this will generate.
So starting with this the backlog was $29.5 billion at year end largely thanks to the impact of the awards of FPSO’s Almirante Tamandare and Alexandre de Gusmao.
Over the next 30 years or so the lease and operate backlog is expected to generate an aggregate net cash flow of around $8.5 billion which by the way is approaching nearly three times our current market cap.
Then net debt. This increased by $1.3 billion to $5.4 billion as we invest in the projects under construction. And non-recourse is the operative word when speaking about SBM and debt. The debt is directly linked to individual projects backed by firm contracts with premium clients and is non-recourse during the operating phase.
So given this it makes sense to look at debt relative to the size of the backlog of those contracts. And at the year end the ratio was 18%, which remains in line with our historical range. Then to the P&L metrics, of course, also important as these allow for the monitoring of the delivery and realization of the backlog.
Underlying revenue of around $2.3 billion and underlying EBITDA of around $930 million were stable compared with the prior period. Both these are in line with the guidance provided at the third quarter trading update.
And just to note for underlying this mainly reflects the add-back of the $75 million to revenue and EBITDA linked to the redelivery of the Deep Panuke platform. And you’ll recall we adjusted the underlying 2020 revenue and EBITDA downward last year and added the same amount to 2021 based on the fact that the cash payment was a 2021 item.
Now turning to cash flow on a directional basis. Cash from operations before working capital was pretty much sufficient to cover debt interest tax and the dividend. Then on the investment side you can see cash inflow from borrowings exceeded cash out towards investments. That’s primarily driven by the fact that an aggregate $1.25 billion in bridge loans for the FPSO’s Almirante Tamandaré and Alexandre de Gusmão was fully drawn at year-end, largely ahead of the planned expenditure curve for the projects. So we’ll see this cash consumed during 2022.
Then looking at liquidity at year-end, we had $3 billion. On top of the year-end cash balance, we had additional liquidity of $1.9 billion from the RCF, which was undrawn at the year-end plus the undrawn portion of project debt.
Moving to the details of the backlog and forecast net cash flow going forward. So again the two new larger words were the main driver of the increase here by around 40% to $29.5 billion. In the backlog, we’ve included the 45% sell-down of equity in Almirante Tamandaré, which was completed in January 2022 as well as a 45% sell-down in Alexandre de Gusmão, which is progressing with our partners and plan to close in 2022. So then you’ve got 55% of these projects in the lease and operate bar and the partial divestment to partners with corresponding 45% share is in the turnkey component.
At the Yellowtail, only the initially agreed funding for the feed component, which includes securing the MPF hull is incorporated as the project is still subject to government approvals and client final investment decision. And the Guyana project continue to be reflected in line with original contract duration. So that’s up to 10 years for Destiny and up to two years for Unity and Prosperity with the contractual purchases for these reflected by the orange bars.
So then looking at net cash to be generated with the two new awards on an after-tax basis, average expected net lease and operate cash flow has grown to $300 million per annum for the 29-year period. And this compares with $260 million average over 25 years at year-end 2020.
And here we’d like to reemphasize that this cash flow is underpinned by contracts from premium clients supporting projects with very low operating breakevens. We also updated here the discounted value per share of the net lease and operate cash flow plus currently assumed net cash from the sale of the BOT project in orange. As always we’ll use the range of discount rates we observed being used by the financial community. And this value has grown from a range of €19 — has grown to a range of €19 to €23 per share, compared with €16 to €18 at year-end 2020.
And so next, we’d like to update you on the various elements of our model for capital allocation and shareholder returns. First on net cash to look at the six-year model, we’ve been using for several years now to assess the average in-hand cash flow for this period. Based on the updated backlog we just discussed net cash from lease and operate after-tax and debt service over this period is $365 million. So then we allocate the corporate overheads to lease and operate on the basis of an assumption of $75 million and that leaves average net cash for the period of $290 million.
Next to consider the impact on the cash flow of Turnkey, which is the growth engine of SBM and where we’ve got various elements to think about. After covering the turnkey overheads, which include R&D, we need to consider the net equity investment required for the FPSO projects, which as a reminder is not included in the in-hand lease and operate net cash flow.
Then we’ve got the investment in the renewables business mentioned earlier. So if we start with the FPSO net equity investment, we’re financing the value of the FPSOs. And as such, we’re able to debt finance a significant portion of the cost, minimizing the cash equity percentage requirement. However, larger units obviously require a bit more equity in absolute terms.
Previously we talked about a rough range of $1 billion to $1.5 billion for FPSOs. Now with the newer projects it’s more $1.5 billion to $2 billion and then the net equity requirement depends on share of ownership gearing and project execution performance. It’s important to mention that larger FPSOs bring larger backlog so more cash down the line and we consistently achieved attractive double-digit returns on FPSO project equity investment, which remains the expectation for all the current projects under construction.
Next on investment to grow our renewables business. So in August we mentioned that we’ve allocated an amount of up to $200 million in our forward planning to support our co-developer ambition. This amount is assumed to be covered by a working capital facility where we’d expect our aggregate investment to be recovered as a minimum as successful projects are sold out so cash flow neutral overall.
And to this end, we’ve structured together with our RCF banks, a dedicated $50 million green tranche in our RCF. This only represents a first step where we’re looking at seeking to extend this capacity over and above the current RCF capacity, in line with our funding requirements going forward. In addition to this, we currently expect to invest in the region of €150 million on renewables pilot projects over the next three years or so to ensure our technology evolves at the requisite pace to capture a sizable share of this increasingly promising opportunity set. And by the way this flows through the P&L in Turnkey.
So to conclude then on the impact of turnkey in the cash flow equation considering these growth elements, on average over the six-year period turnkey will require some incremental investment over and above the cash to be generated from the current turnkey portion of the backlog also including the cash proceeds from the BOT sales. Finally, the last element of the model here equity cash flow acceleration can mitigate the impacts from this incremental investment phase on the overall cash flow equation.
And this acceleration can take the form of further equity sell-down, plus equity cash flow acceleration from project refinancings. We completed our first such refinancing, with the FPSO Ilhabela last year. And as stated before, we’re actively assessing additional candidates for bond refinancing so that bank debt can be recycled and net cash accelerated. We also announced today, the planned divestment of a 13.5% equity ownership in FPSO Sepetiba to China Merchants Financial Leasing Company.
Then turning to how these updates on the capital allocation model translate to shareholder returns. Driven by the increase in the backlog and net cash in lease and operate, we’re proposing to increase the dividend by 13% on a per share basis to $1 per share, which is around $180 million in aggregate. Helped by the benefit of the €150 million buyback completed last year this represents a yield of 7% versus year-end 2021 market cap.
And as you can see from the chart on the left, since the restart of the dividend in 2016, we’ve delivered a compound annual dividend growth of 30%. And since we started making a linkage between the dividend and the six-year average in-hand lease and operate cash flow after corporate overheads from 2019, over the past three years we’ve paid out more than 60% of this cash flow. And the proposed increase in dividend is in line with this.
Then throughout the period shown in the chart on the right, continuous per share dividend growth has been enhanced by the buybacks. And the use of buybacks also has the advantage of allowing flexibility to manage the cash flow around incremental investment in growth through Turnkey, along with the execution of equity acceleration transactions.
And looking at the overall impact of the buybacks in recent years, these have enabled us to deliver a cash flow yield of around 10%, which is pretty competitive. And we have the ambition to maintain this in the future, but of course subject to growth investment requirements and our ability to deliver further equity cash flow acceleration. Already though with the dividend alone, we’ll continue to deliver a very healthy cash yield.
So as you heard from Bruno, we’re operationalizing our vision of an energy transition company where as well as delivering growth in the future, this also means delivering cash returns today. Now we’re not going to let our optimism get ahead of us. But as there are some signs of a realization that there may be some value in traditional companies that are generating cash we’re hopeful that we might get some more recognition from this. That’s it for me.
Now back to Bruno, for the outlook.
Thank you, Douglas. And let’s go to the outlook and the conclusion to this prepared section of the call. So our guidance for 2022, we’re looking at 2022 direction on revenue guidance at above US$3.1 billion which is around US$1.6 billion for the lease and operate activity and above $1.5 billion for the turnkey activity. Our 2022 EBITDA guidance, is around $900 million in effect the same guidance as last year. This EBITDA guidance includes foreseen effects of COVID and the associated cost for mitigating impacts in project execution and additional cost to manage cost to prevention in our fleet combined with some additional maintenance which have been pushed into 2022.
So in conclusion, with its leading experience and predictable long-term cash flow, SBM Offshore is at the forefront of the energy transition. Again, we’re not in the energy business. We are in the energy transition business. And it is not just about switching to renewables. We start with lowering the impact of fossil fuel while at the same time developing new means to replace them. At SBM Offshore, we put our marine expertise and oil and gas experience as a service of the responsible future.
So, again, thank you for your attention. And the floor is now yours for your questions. Lorita? Hello.
Thank you sir. Ladies and gentlemen, we will start the question-and-answer session now. [Operator Instructions] Go ahead please. And the first question is coming from Mr. Quirijn Mulder, ING. Please go ahead. Your line is open now.
Good morning everyone. Can you hear me?
Yes, we can.
Okay. I have a couple of questions. My first question is about your — let me say, your ambitions for 2030 with regard to 20% — 25% of revenues coming from New Energies and Gas. So what about the situation with regard to gas? So maybe you can say something about that situation there.
And the second question is regarding your outlook 900 million EBITDA in line with what do you think is let me say is the impact of COVID-19 in principle with somewhat delays here and there somewhat extra cost. Is that completely offsetting the positive contribution from the second quarter of Liza Unity in terms of EBITDA? Is that what you’re now saying to us? That were my questions.
Okay. Thank you very much. So Douglas is going to go through the — more of the detail of the outlook. But let me first take the ambition for 2030 with regard to floating offshore wing. The strategy of SBM Offshore has been over the past few years to be extremely focused on targeting some market segments.
We have done that in the FPSO market by being specialized into one niche market and really to develop a technology, which is in advance of anybody else and to be the leader in this technology and basically to be able to make money. We’re looking at doing the same in the New Energy business. And as such, we have identified the floating offshore wind market, which combines both high growth in the market and which combine the strength that SBM Offshore can bring to this market and for us to be able to take a leading position.
Now we’re looking at also at other markets around. But we don’t want to spend too much time in basically trying to diversify the company in too many angles. But when we look at the gas side what we have said is on the gas side, we’re going to be focusing much more on what is the possibility to do carbon capture and in particular carbon reinjection rather than producing gas or to go into areas like floating LNG where we believe that the market is not there, it’s not established and it would be rather difficult for a company like us to make money.
So our focus really on the New Energy business is going to be on the forking offshore wind market again using the same principle that we have been using on the FPSO market and through the development of the Float4Wind concept it shows you the trend that we’re taking there. Douglas, do you want to go through the outlook here?
Yes. So, on the outlook and the guidance. So what I’d say is as ever we take a disciplined approach when setting the guidance considering the risks and opportunities that we see for the period looking ahead. We’re at the start of the year and the same as the recent years we’ve obviously got the backdrop of COVID the pandemic to consider. And so really based on the visibility that we’ve got we feel this is a reasonable place to start and we’re going to keep you posted as the year evolves.
And the next question is coming from — someone — Mr. Mulder from Kepler Cheuvreux. One moment please.
Yes, Hi. Good morning. A question on your New Energies. It shows on C3 that the Wave Energy converter is missing. Can you make any comment on that?
Secondly, on the cash flow picture, the €300 million average through 2050 is the same as what you said before. Still you now see a value of €21 per share compared to €19. So can you comment on those two?
Okay. So Douglas will take the cash flow picture. With regard to the Wave Energy, we didn’t highlight any particular point at this stage simply because we are in the way we’re progressing the project and we’re making progress. But really there is no main highlight. The main progress we have made during the year, are really associated with the floating offshore wind market and the technology associated to that. So that’s why we wanted to highlight those points. The rest which is ongoing is ongoing and we didn’t have any particular highlight to this. Douglas?
Yes. So, just on your question on the net cash and our calculation of the price, I think the key element to mention there is you’re really seeing the benefit of the buyback. So that’s a factor there. And then there are also some elements around FX.
Okay. Thank you.
And the next question is coming from Mick Pickup, Barclays. Please go ahead.
Good morning, all. A couple of questions. Just — I think you said Sepetiba is now a 2023 start-up. I think that was 2022. So can we just talk about exactly how much later it’s going to be? And if there are issues elsewhere in any of the units you’re thinking are touch later obviously problems within the system globally?
And then secondly on the floating wind, you’re now talking of second-gen TLP. We spent quite a few years talking about the first-gen. So could you just talk about the differences between Gen 2 and Gen 1?
So I would take the second question first and Philippe would go through the first question on the overall project portfolio and also with highlights on Sepetiba. But let me speak about the Float4Wind concept. The initial phase of development in the floating offshore wind was really basically to debug the system, to learn from it and security, I would say, was the basis of developing the concept.
Now, at the end of the day, if you want this market to develop, you need to have a concept which are going to be fast to build, which are going to be efficient, which are going to be linked to the supply chain which exists in the world and standardized basically — exactly the same approach that the approach we have been using for Fast4Ward.
So as such over the past three years, because it’s not a concept which just came from the drawing board over the last year. For the past three years, we have looked at ways to optimize the first concept that we developed in order to become more competitive, to become more efficient and yet to take the risk away when we’re going to do the installation.
Now, Doug has mentioned that over the coming few years, we’re planning to spend around $150 million in the development of this technology. All of this is flowing through a P&L. So I just want to highlight this slide that nothing is shown in the balance sheet and that we’re taking all the development costs through our P&L. But we believe that we’re really through the first version of the system.
And the second version of the system, we are creating value for the company going forward, which is second to none and really to be extremely competitive. And this brings the confidence that we have in saying that we want to be one of the major — one of the leader in providing technology in EPC capacity to the floating offshore wind market in a derisked environment. Because you can be a leader when losing a lot of money, but that’s not what we’re aiming at. We’re planning to do this in a derisk environment and really making money in this market. Philippe?
Mick, let me start by first portfolio to confirm that at that stage we see the portfolio as healthy and there’s no change there. But now coming back on Sepetiba you’re right that last time, we flagged this project and indicating that somehow there was COVID impact and some mitigation being implemented.
Having said that, there’s no change to the delivery date of 2023. We still see it the same way. We were providing because we were entering construction and commissioning phases a number of details. While now we are updating is that all the fabrication that had to be done in Brazil is now delivered in China. When we’re talking COVID, even a module requires COVID [indiscernible]. So those are the things that as well that are potentially impacting us.
Coming back to the fabrication in China, we somehow have decided to extend the construction phase during the Chinese New Year in order to have modules that have a higher degree of completion before we are in the commissioning phase. On the commissioning phase, we had indicated somehow that the electrical modules and power generation were on board. I’d like to update you and tell you that the commissioning is progressing as per plan.
So again, a portfolio overall which is in line with our expectation obviously we need to mitigate the COVID impact. You have some effect more on some projects and other but overall, really pleased with the performance and what’s happening today as is shown under Liza Unity. I mean Liza Unity is really — we’re looking at first oil in the near future and that’s in line with the original plan which is pretty remarkable.
Can I just ask about your emissions? You talked about reclassify some of the emissions. Can you just talk exactly about it? And what was the driver behind? I know you mentioned it but I’m not that alert?
It’s early morning for you and apologies for that. Now what we have done is basically looking at the emission and to make sure that the reporting of our emission is in line with the greenhouse gas emission protocol. And as such the emission from our effect is really should be classified under Scope 3 which is what we have done.
Does emission classify on the Scope one for clients? Now this reclassification which really reflect — give a better reflection of what the company is doing for Scope 1 Scope 2 and Scope 3, does not change at all the focus that we have in order to reduce the overall emission of a company including Scope 3.
And the emissionZero program is really in line with this target in order to help our clients reach net zero emission target most of the time by 2050 and that’s also what we’re aiming at doing.
And the next question is coming from Mr. Thijs Berkelder, ABN AMRO. Please go ahead, sir.
Hi, good morning. Do you hear me.
Yes, we can hear you loud and well.
Very good. First question because I still don’t think we really have an answer on Quirijn’s question. The Unity is to be delivered, let’s say any moment now more or less, will it contribute to profitability in 2022? So should we conclude that the extra contribution more or less is completely eaten away by start-up costs for floating wind and or let’s say additional profit costs on the ones we already have?
So that’s a question on the outlook. Douglas, do you want to go through more details?
Sure. I mean look it’s an overall view. As I said it’s based on the visibility that we see at the moment. And so, it’s a reasonable starting point. I think specifically you asked some questions on lease and operate. I mean things to bear in mind. Yeah we’ve got Unity coming in, but we also have Deep Panuke effectively out. So we added that back this year so that’s not there next year. Then we’ve got Capixaba which seem to be out [indiscernible].
Yeah. But that may be more specifically. Just to understand the split between, let’s say what is all legacy business, let’s say your legacy business and your renewable business what has been the pressure of startup costs coming from renewable energy say in 2021 and what can we expect there for 2022? And maybe also for 2023, when can we expect it to greatly fade away?
I mean we’re not providing detail on the different segments of the turnkey activity. But suffice to say, as Douglas is mentioning that we’re looking at some healthy investment into the renewable business. Again, those investments are flowing through the P&L rather than through the balance sheet where we’re creating significant value in our view to go forward. So that’s in effect impacting the EBITDA guidance for certain. And that’s one point to take into consideration. Maybe another point to take into consideration is, as you know under directional reporting for assets which are in full performance with — good performance which is there is not shown into the P&L. So at the end of the day, when you look at the COVID effect, when you look at some of the delays that we have spoken on maintenance and a number of things that’s the guidance we’re coming to which all in all given where we are and the state of the industry and the performance of the company is a pretty good guidance.
Okay. Can you then maybe give a comment on inflation effects in the supply chain and how you are able right now to pass these inflation effects through to your clients?
So I mean inflation, I believe we spoke about this in the previous call. But what we have seen is basically over the past 18 months, an increase in costs of roughly in the range of 30%. But more importantly, then the increase in cost is really the impact on the planning. We can see that there is a lot of bottleneck in the supply chain, a lot of elements which are not going to be delivered on time. So the importance to be able to mitigate the planning effect is there. Now with regard to our project what we do when we submit an offer, is really we take the information that we have and we try to mitigate as much as we can the effect of inflation. And by and large, that has been done.
Now during the execution phase, what is important is really to rely on the number of key suppliers in order to be able to deliver. And I would say the policy of the company to built strong relationship with some key suppliers is helping us during this phase. At the end of the day, when you put everything into consideration, I would say that the investment done under Fast4Ward and the concept of standardization, working with some key suppliers and mitigating the risk is being shown in the performance of the company. But the cost of FPSO is increasing in line with the inflation which exist and that’s the reality of the world today. By the same token the price of oil is increasing also significantly.
Yeah. Now I fully agree there. Just needed clear statements. And then for Douglas, you’re not announcing a new share buyback right now similar to last year full year results. Is there a good chance that you will come back to the market this year with the buyback?
Yeah. I would say Thijs that — as you saw in the presentation, the capital allocation model approach on shareholder return there’s absolutely no change to that. The base is the dividend policy stable growing over time. We just put the dividend up 13% — now proposing to put the dividend up 13%. And as ever we’re very disciplined on how we manage the cash flow. So yes, for sure, we’ve got to make some investments a bit more draw from the larger FPSOs. But as I mentioned, that’s going to give us more cash down the line. We’ve got the ability to manage that with the equity cash flow acceleration and so to free up some cash flow for additional returns. And as I mentioned that certainly, we’ve got the ambition to increase our cash yield above the dividend one. But as always, it’s been the case when we’re thinking about all of this, we’re looking carefully at the overall equation of the cash outlook, the investments that we need to make plus the impact of any money we’ve actually got in from acceleration activity. So yes, it’s pretty much the same approach.
Okay. A final question for Bruno on floating wind. So the ambition to be top three suppliers by 2030 and that’s with only 2 gigawatts project hard line. Looking at ScotWind I would say 2 gigawatts is too low to make it to top 3. Can you – ScotWind maybe are you actually in talks on really supplying floaters for ScotWind projects or is it primarily talks on the mooring systems?
So a few aspects. When you look at ScotWind where you speak about if I’m not mistaken 15 gigawatts, it’s not 15 gigawatts installed by 2030. So when we speak about 2 gigawatts we’re speaking about 2 gigawatts installed by 2030, which is in line with the market expectation that we’re seeing of anywhere between six to 16 gigawatts. But we’re more of the opinion that it’s going to be on the low range than the high range at this stage simply because of the time it takes for the market to materialize.
Now I mentioned also that we involved as a turnkey supplier of the system in all the major markets in the world which are active today, including Scotland, Japan, France and the US. So that’s also in line with present there. We’re not going to be present under ScotWind as a developer. Again, our ambition is not to be a developer. We don’t want to compete with our clients that’s not the aim of what we’re doing. We want to accelerate the acceptability of the floating offshore system. And as such we’re taking some small participation as a developer but our aim is not to compete with our clients who are the developer.
Okay. Clear. Thanks.
[Operator Instructions] And there is a follow-up question coming from Mr. Andre Mulder, Kepler Cheuvreux. Please go ahead.
Hi. I’ve got a couple of questions. First on turnkey we see doubling of sales in this year. I think the delayed sale of the Almirante Tamandare stake is of course a part of that. But could you give us a bit more insight in the doubling of turnkey? Secondly, I understood as well that the Capixaba is now definitely out after July. I think the Sepetiba effect will likely be very small. Any news on the Mondo’s at the end of this year but maybe some further insight there? Then two other questions a question on the tax level. We see this global drive to sort of Danish companies with the standard tax rate. Does that have any impact on your operations? And last, can you give us a bit more detail for first oil for the floaters that you have under construction for modeling purposes for some – your more detailed for Unity’s Q1 for Almirante Tamandare it’s the second half. But what about Sepetiba, what’s about the Prosperity and the Alexandre de Gusmao?
Okay. So Douglas, I’m looking you eager to answer all those questions? And I’m sure you can…
I am ready to…thank you. All right. So turnkey I mean it’s very much we’re in the growth phase. So now you’re going to see the revenue coming through. So yes Tamandare is included. And as I mentioned, we are also assuming the sell-down of the Alexandre de Gusmao. So that is a meaningful component in the turnkey revenue guidance. So there’s no option extension for Capixaba.
As you mentioned, Serpentina is a small impact. And Mondo, no news on that. We’ll keep you posted. Tax-wise you’re talking about Globe. So the model rules were published really right at the end of December and in order for us to assess what the impact will be if any. Next, we need to see the OECD commentary on how to actually interpret those rules, and then we’ve got to see how the adoption process goes in the EU. So we’re monitoring that but we need to see the further details. I think you then asked about the start-up date. And those are the dates that we have are clear in the press release in terms of the anticipated completion of all the projects. So that’s what we’re able to say about those.
But can you give a bit more detail for Sepetiba, will it be the first half of 2023 or the second half?
Those are the dates of the – that’s what we’re able to say.
And next follow-up question is coming from Mr. Quirijn Mulder, ING. Please go ahead.
Yeah. On the BOT contracts we are now, I think t43here’s a discussion for more than two years now on with Exxon on the BOT contracts I think. Is there anything you can tell us about it, because the oil price is now at levels that the cash flow is coming in massively for these oil companies? Do you have any news? And then on the partnership from a Chinese lease company 13.5% they take in Sepetiba, what is the next step for these guys?
Are they also maybe stepping into the big floaters in – for Buzios? Is that maybe a consideration? But I think you have already 45%. So maybe there’s a limited divestment there as you would like to have a majority in these floaters I think. And then my last question about Cidade de Anchieta. Is there anything news about you can tell us about the leakage of the oil which you mentioned in your press release?
Okay. So I propose Philippe to give you an update on Cidade de Anchieta, and those elements. And Douglas you will take the two other questions. So let’s start with you Philippe.
Quirijn, thank you. Let me start by saying the fleet is in excellent condition. The maintenance is a priority and we are applying the highest international standard. Our clients appreciated. They expect it, and they recognize it. Now, on CDA, we had to record a herd-related event. SBM pension programs are based on a year of experience with Classification Society, Novel and Marine experts. I will start to stress the effectiveness of the antipollution measures. The situation is under control. There’s no further oil around the FPSO. We have implemented a temporary repair and we will move to permanent repair shortly, material resource procedures are identified. The value of these active with the customer the authorities and the classification society on the following action plan before we restart. While we are diligent on establishing and implementing the action plan, we will continue to prioritize prudent operatorship aiming at no subsequent event.
Thanks, Philippe. Douglas?
Yeah. Then the other two questions the BOTs we’re not expecting any changes to the contracts that we have. So Destiny it’s a 10-year contract, but with an option to buy early. We’ve got it in the backlog at 10 years for now. And then on the other two projects those are two-year BOT contracts. And that’s how we reflected them and we don’t have any update on precisely when the options may be executed. So it just makes sense to have them in the backlog per the contract.
There are no discussions with Exxon on this subject compared to last year for example or to 2020?
Yes. No. We just – there’s no specific discussions on those no. Then on the planned sell-down to China Merchants Financial Leasing. So really the focus on that is getting the approvals from the various parties to bring them in to the deal. I think it’s a very encouraging step. It’s great to have a new partner. And once we’ve concluded the deal on Sepetiba, we’ll look to see how we can build on the partnership going forward.
But it is logical that you let me say for the Gusmão and certainly Tamandaré that’s too small participation otherwise to lose your majority in FPSOs.
So I think with those projects that’s where we are for now. There’s, no plans at present to change that. But again, I’m going back to the whole discussion around capital allocation. We obviously have various options tools in our toolbox relative to equity cash flow acceleration. So yet further — I’m never going to rule out further sell-downs on any project. But — then we also have the ability to accelerate cash flow from the bond refinancing. So we’ve got all of the tools that we need there.
And the last question is coming from Mr. Mick Pickup of Barclays. Please go ahead sir.
Hi all. Just a quick follow-up, I think Douglas talked average new units being in that CAD1.5 billion to CAD2 billion range versus CAD1 billion to CAD1.5 million. And then Bruno you mentioned average price inflation has been about 30%, given that units are getting bigger, so that actually a range of new units be a touch higher than that €2 billion these days?
Maybe the one which are going to be quoted later on, again, the pricing environment is moving and has been moving quite a lot. We have been able to lock in some prices at a level which were below the 30% increase for some part of the components. So the new units that we have in portfolio do not reflect fully the 30% increase that I mentioned about.
But if we were to quote a project today, it would be a 30% increase compared to 18 months ago. So would it be above €2 billion that would be potentially the case. But I would not want to commit to that to be absolutely affirmative because you need to have what you tender on the go in order to say that. But your point is well made then there is a possibility that the new units would be above that.
And can you just talk about competitive environment? Obviously, your major competitor is having quite serious financial difficulties. So what are the conversations like with your clients today about the competitive environment?
I think what we can see is our focus as a company has always been to focus on the value we can deliver to our clients. And that was the principle behind Fast4Ward to be able to accelerate new oil to our clients and to deliver value to them and as such, to be in position, to be able to negotiate, and to be the preferred partner with our clients.
That’s what we have done I would say with our two main clients Petrobras and Exxon. I believe, that we were delivering is really reinforcing our competitive position. Time will tell things are going to be evolving. But at the end of the day rather than the competitive environment is the value that we can bring to our clients which really brings our clients and the tight working relationship we have with them. And that’s one …
And that’s one point. The second point is also — and we have said this for the past few years. And we’re reinforcing this message there. We’re going to be disciplined. What I mean by that is even if good opportunity were to arise at present if we don’t have the capacity internally from an execution standpoint or from a financing standpoint or whatever else, we’re not going to overextend ourselves.
The priority is really to perform in line with the expectations for our clients and to deliver. So as such, I would say, the competitive environment is whatever it is. The more important point is to provide value to our clients. And as such, we will remain disciplined and we will focus on accelerating the value added we bring to them.
Thank you, Mick. So I believe, there is no further question. As such, thank you very much all of you for your attention. And you can now all resume a normal activity. Have a good day.
Ladies and gentlemen, thank you for attending. This concludes the SBM Offshore event call. You may now disconnect your lines. Have a nice day.