Earnings call transcript: SBM Offshore Reports Strong Q1 2025 with Strategic Progress

SBM Offshore (SBMO) delivered a robust performance in Q1 2025, reporting a 27% increase in directional revenue compared to the previous year. The company highlighted significant strategic advancements, including a collaboration with Microsoft and progress in modular carbon capture solutions. The stock has shown remarkable strength, currently trading at $21.17, representing a 45% return over the past year and a 19.1% gain year-to-date. According to InvestingPro analysis, the company’s current market capitalization stands at $3.7 billion, with a Financial Health Score rated as "GOOD."

Key Takeaways

• Directional revenue increased by 27% year-over-year to $1.1 billion.
• Strategic partnership with Microsoft for AI-powered ocean solutions.
• Strong FPSO market outlook with no delays expected in major projects.
• Reaffirmed 2025 guidance with a target of $1.7 billion cash return to shareholders.

Company Performance

SBM Offshore’s performance in Q1 2025 was marked by a substantial increase in revenue, driven by its directional turnkey and lease and operate segments. The company maintained a stable net debt of $5.7 billion and completed a significant $400 million sale and leaseback transaction. These achievements underscore SBM’s strategic focus on innovation and operational efficiency amidst a strong FPSO market outlook. The company’s solid financial position is reflected in its EBITDA of $956 million and an attractive dividend yield of 4.49%. InvestingPro subscribers can access detailed analysis of SBM’s debt metrics and cash flow performance through comprehensive Pro Research Reports.

Financial Highlights

• Directional revenue: $1.1 billion (+27% YoY)
• Directional turnkey revenue: $627 million
• Directional lease and operate revenue: $476 million
• Net debt: $5.7 billion (stable)
• Sale and leaseback transaction: $400 million

Outlook & Guidance

SBM Offshore reaffirmed its 2025 guidance, emphasizing a target of $1.7 billion in cash returns to shareholders. The company is set to deliver three major FPSO units in 2025, with the first oil from FPSO Al Mirante Tamandare expected in February. The strategic partnership with Microsoft aims to enhance SBM’s technological capabilities, focusing on AI-powered ocean infrastructure solutions. Analysts maintain a strong bullish consensus on the stock, with price targets ranging from $23.83 to $39.76. For deeper insights into SBM’s valuation metrics and growth potential, including exclusive ProTips and detailed financial analysis, visit InvestingPro.

Executive Commentary

CEO Erwin Tong Yan stated, "Our strategy of advancing the core and pioneering more delivers and it pays." He emphasized SBM’s resilience and confidence in its ongoing projects, noting, "We don’t see any shifts on the prospects we’re working that are active in the market now."

Risks and Challenges

• Oil price volatility could impact project economics.
• Potential trade uncertainties may affect supply chains.
• Managing inflationary pressures remains a priority.
• The success of new technological collaborations, like with Microsoft, is yet to be fully realized.

SBM Offshore’s Q1 2025 performance reflects its strategic focus on innovation and operational efficiency. The company remains well-positioned to capitalize on market opportunities while navigating potential challenges.

Full transcript - SBM Offshore NV (SBMO) Q1 2025:

Conference Operator: Ladies and gentlemen, thank you for holding, and welcome to the SBM Offshore First Quarter twenty twenty five Trading Update Conference Call. At this moment, all participants are in a listen only mode. After the presentation, there will be an opportunity to ask questions. I would like to hand over the conference to mister Charles Albee, Investor Relations. Please go ahead.

Charles Albee, Investor Relations, SBM Offshore: Thank you, Heidi, and thank you all for joining us today. This call is being recorded and will be available for replay on the company’s website. Today’s prepared remarks will be delivered by CEO, Hoyden Tanen, followed by a Q and A session. Before we begin, I would like to point out the disclaimer at the bottom of our press release and remind participants that some of our comments today may include forward looking statements reflecting SBM Offshore’s view of future events. These matters involve risks and uncertainties that could cause our results to materially differ from our forward looking statements.

The risks are included in detail in SBM Offshore’s twenty twenty four annual report, which can be found on the company’s website. Once again, we will welcome your questions after the conclusion of the prepared remarks. I will now turn the call over to Oguyen.

Erwin Tong Yan, CEO, SBM Offshore: Thank you, Shaul. Good morning, everyone, and thank you for joining the SBM Offshore first quarter twenty twenty five trading update call. I’m Erwin Tong Yan, CEO of SBM Offshore. And as usual, I’m joined by our CFO, Douglas Wood. So starting with our performance over the last quarter.

Our teams continued to deliver strong results in line with the plan. We’re pleased to report a directional revenue of $1,100,000,000 for the first quarter, up 27% compared to the first quarter of twenty twenty four. Our full year directional revenue and EBITDA guidance demonstrates the resilience of our business model and our ability to navigate macroeconomic uncertainty with confidence. As the world’s offshore infrastructure expert, we run a global operation focused on excellence at every step of the FPSO life cycle. This translates to a pro form a directional backlog of $35,100,000,000 as of December 2024 backed by premium clients and with inflation protection.

We continue to expect to deliver a minimum of $1,700,000,000 cash return to shareholders up to 2013. Our promise is to continuously enhance the quality and efficiency of our operations. The excellent performance achieved in all regions of the Lease and Operate activities attest to that, with the fleet uptime standing at 99.5% at the end of first quarter. On the execution side, we are well on track to deliver three major units in 2025. First, FPSO Al Mirante Tamandare achieved first oil in February 2025.

This unit is followed by FPSO, Alexandre de Guzmau, which arrived at its location in Brazil in March of this year. The hookup and installation works are complete, and the FPSO is being prepared for first oil around midyear. The third unit to be delivered this year, FPSO one Guyana, arrived safely in Guyanese waters where the installation and hookup campaign is progressing well. We’re targeting first oil in the third quarter. We continue to progress as per plan on our three projects under construction.

On FPSO Jaguar, the top line module fabrication is progressing very well and first oil is expected in 2027. On FPSO client, engineering and procurement are progressing a plan and the fabrication of the disconnectable turret mooring system has begun. Finally, the fast forward NPS hole has been delivered to the FPSO ground molder project and the topside fabrication will start in the coming months. With a strong FPSO market outlook in the Atlantic Basin, we continue to follow our path forward model for the best competitive positioning. A total of eight path forward holds have been delivered, of which four are in operation and four have been delivered to projects.

Another two NPS holds have been ordered to support active discussions with clients on premium prospects. We are also pleased to share an important milestone in our offering of decarbonized floating solutions. Just last week, SBM Offshore received an approval in principle from the American Bureau of Shipping for our near zero FPSO design. This is an important step in the mission zero roadmap, and the design is fully integrated with our proven path forward concept, delivering on our commitment to a market ready near zero FPSO by the end of twenty twenty five. Building on our expertise in ocean infrastructure, we are partnering with other innovative companies to diversify our product offering.

We have signed a strategic collaboration agreement with Microsoft to develop standardized AI powered ocean infrastructure solutions. The first phase of the collaboration will focus on floating gas to power solutions, integrating our modularized carbon capture solution. Now to financials. For the third quarter of the year, the company’s directional revenue increased by 27% to $1,100,000,000 compared with the same period last year, driven by directional turnkey, which stood at $627,000,000. The year on year improvement reflects the progress booked under the sale and operate model on FPSO Grand Motor and Jaguar.

Directional lease and operate revenue was $476,000,000 for the first quarter of twenty twenty five, approximately $18,000,000 below the same period last year due to the sale of FPSOs, Prosperity and Liza Destiny in q four twenty twenty four. This was partly offset by an increasing reimbursable scope and FPSO Amirante Tamandere joining the fleet in February 2025 as it entered on charter. Our net debt position has been stable since the end of last year and stood at 5,700,000.0 billion dollars for the period up to March 31. Most of the debt is related to our projects in operation and the funding of our large FPSOs under construction. There is no finance refinancing risk related to this debt, and all project debt becomes nonrecourse in the operating phase.

Since the beginning of the year, we have also demonstrated our ability to diversify our sources of financing with the completion of the $400,000,000 sale and leaseback transaction for FPSO Cidada de Parati. This was completed in April. And we’re pleased with the successful syndication of the increased revolving credit facility, reflecting the strong support SBM Offshore continues to receive from financial institutions across the globe. Finally, regarding cash return to shareholders, at our AGM in April, the proposed hundred and €50,000,000 cash dividend was approved, which resulted in a dividend distribution of €80 €86 cents per ordinary share paid on May 6. We have also started a hundred and €41,000,000 share buyback program after the 2024 program was completed.

The new program is progressing and was about 7% complete as of May 14. To conclude, we are confident in our ocean infrastructure experience, the expert capabilities of our teams, and the resilience of our business model. Our strategy of advancing the core and pioneering more delivers and it pays. This quarter’s results provide evidence by reiterating the company’s guidance for 2025 in a time of increased macroeconomic uncertainty, reconfirming our existing targets to deliver $1,700,000,000 cash return to shareholders until 02/1930, maintaining high safety records and excellent uptime, successfully delivering FPSO Andreanza Tomandere and well on track for the deliveries of FPSO Alexander de Guzmal and Bam Guyana. And we continue to divert diversify our sources of financing and creating new partnerships with innovative companies.

This concludes today’s call. Thank you for listening. Operator, we can now open the call for questions.

Conference Operator: Thank you. If you wish to ask a question, you will need to press 11 on your telephone and wait for your name to be announced. To withdraw your question, please press 11 again. We will take our first question. And the question comes from the line of Philip Ngoto from Kepler Cheuvreux.

Please go ahead. Your line is open.

Philip Ngoto, Analyst, Kepler Cheuvreux: Hi. Good morning. Thank you for taking the questions. And I have two, if I may. First of all, just on the general market and, I mean, we’ve seen, of course, quite volatile oil price environment and it’s down 15% year to date.

I also understand that the large scale ultra deep at reserve that you’re involved in usually operated fields that sit within the first quarter of the cost curve. But nonetheless, I was just wondering if you’ve seen any hesitance or cautiousness from your clients in discussions on future projects or whether that could lead to any potential delays versus your initial timeline. And if I may ask one other question, I was just wondering in terms of, yeah, the the refinancing that you did on Citadel de Parati. Would there be any other FPSOs in your portfolio where you could do something similar in terms of refinancing and freeing up additional cash in in the near term?

Erwin Tong Yan, CEO, SBM Offshore: Okay. Philip, thank you for your questions. So oil price and and the market ahead of us. So we don’t see any shifts on the prospects we’re working that are active in the market now. We follow prospects that are inherently have very sound economic, you know, underlying economics.

And and we don’t see any shifts that are being communicated by our clients. And I think you can see that in the public domain very well. So in the immediate, we don’t see any anything in the pace of awards plan. So lesson number two. Okay.

On the second one. Yeah. Morning, Philip. So we’re, of course, always reviewing how we optimize the financing of our portfolio so we’re effectively managing the cash flows. What I would say though is that in terms of cash acceleration, given that we see quite a lot of cash acceleration coming just as a result of the sale and operate model, I wouldn’t say that we’re prioritizing cash acceleration.

This transaction also enabled us to work, approve, if you like, a new financing model that we hope to deploy to our competitive advantage in the the future. And, of course, we’re always really if there’s an opportunity to refinancing existing debt at at lower costs, definitely, that’s something that we we would consider doing and pursue. Okay. Very clear. Thank you.

Conference Operator: Thank you. We will take our next question. The next question comes from the line of Luke Van Beek from Degroof Petercam. Please go ahead. Your line is open.

Erwin Tong Yan, CEO, SBM Offshore: Yes. I was wondering if you can tell a bit more about the cooperation with Microsoft. So when you expect to do the first project, can you give a a rough indication of of the difficult project size that you expect and how it’s gonna develop? Thank you, Luke. So so it’s a collaboration where, you know, SPM’s capabilities and Microsoft’s projected demands for power and needs.

And right now, we are exploring into that collaboration economic viability or potential development of designated power barges with carbon capture to to meet any electrification amount associated with AI power data centers. So so for now, it’s it’s it’s very early phases of that collaboration to understand whether there is there is a product offering that the multiple companies like Microsoft leads and if there’s other players in the the journey of energy need for data and AI. Thank you.

Conference Operator: Thank you. We will take our next question. Your next question comes from the line of Titus Burkowder from ABN AMRO ODDO BHF. Please go ahead. Your line is open.

Erwin Tong Yan, CEO, SBM Offshore: Yep. Good morning all. Question on q one. Can you maybe disclose the direction of CapEx you spent in q one for the, let’s say, remaining three FPSOs? And I recall you indicated something like 250,000,000 still needed to be spent this year or am I wrong there?

Further, did q one include some kind of delivery results or not because of the Amirands at the Mandaray being producing now And third question is, do you see any impact so far from, yeah, potential tariff measures by the Trump government. Okay. Morning, Thijs. So regarding your question on the on the net equity investment, so we’re not giving, like, quarter on quarter guidance. But what I would reiterate is that, yeah, indeed, it’s $250,000,000.

Most of it we anticipate to be spent this year, and I think, yeah, we’re trending on on track there. Regarding Amerantes to Manduray, yes, did have an impact in the first quarter. Of course, we’re looking forward to seeing the impact from the other two FPSOs, which are due to come on stream in the coming periods. And that, by the way, is one of the big big drivers if you multiply our revenue for q one times four. You’ll see we’re a bit shy of the guidance, but that’s because we haven’t yet seen the impact of those big units which are coming on stream later.

Yeah. Thank you, Douglas. And then on tariffs, so so as we’ve said previously as well, our existing backlog is not is really subjected to trade across American borders. And in terms of generally generally inflation protection that’s inherent both through either reimbursable contracts or index adjusted contract on on lump sum stuff. So so we don’t see an exposure in existing backlog from the tariffs on the new work.

Obviously, any uncertainties in the world and we manage that to to how we lock in prices and then we’ll be doing on on upcoming commercial opportunities and the contractual structures supporting service work to delivery on those future opportunities. We also have measures that build in all the learnings we’ve done to other fluctuations in naming COVID, naming Ukraine war, and how we adjusted to these volatilities that we’ve seen over the last decade almost now. So we feel that our model is very resilient also from the underlying economics, the prospect we pursue, and the contractual structures both in existing and new backlog. We have good strategies to manage that. Yeah.

A a follow on on your, let’s say, announcement that you rent out your normal installer to, let’s say, to BP for Gulf Of Mexico. You don’t need to have an own installation vessel on on your current project deliveries? Yeah. Very good, doctor Richard. So, obviously, the normal installer is is a great tool for us that we use on our installation on our FPSOs.

It a it knows our design and gives us a very efficient and flexible way of planning our project schedule and giving project schedule certainty. Our own scope doesn’t fill completely the the the workload of the noninstaller. So every time we have an opportunity between our own installation work, she’s in the market and this contract is a great example of how she could be how she’s a very useful tool also in generating additional revenue to the company. So so this is an example. We also had other awards for the anonymous dollar over the last year.

So she’s

Charles Albee, Investor Relations, SBM Offshore: a very good tool with a very good team.

Erwin Tong Yan, CEO, SBM Offshore: Okay. Thanks.

Conference Operator: Thank you. We will take our next question. Your next question comes from the line of Killeen Malja from ING. Please go ahead. Your line is open.

Erwin Tong Yan, CEO, SBM Offshore: Yeah. Good morning, everyone. My question is especially with regard to the the holes in the construction in China. I read that there’s some progression with regard to more focusing on clients. Is that correct, that conclusion?

Or let me say, have you made some progression there not only on the, yeah. Not not only on the construction, but also on targeting the clients? No. I mean, we we we’re pursuing several commercial opportunities and these holes is, you know, just following the same model as we’ve had done for the last for the last nine years. So we have two holes that are unallocated and we obviously do any commercial work.

We engage with our clients on potential technical clarification, etcetera. But these are two unallocated standard holes that we are hopeful will help us to be securing future backlog growth. But there is no there is no different strategies in terms of of engagement or or otherwise with the with the clients or prospects. Okay. Thank you.

Conference Operator: Thank you. We will take our next question. Your next question comes from the line of Jeremy Kinkar from Van Lanshaw, Kempen. Please go ahead. Your line is open.

Erwin Tong Yan, CEO, SBM Offshore: Hi. Good morning, everyone. Just this line of questioning on sale on leaseback. Could you just help us with the modeling of it? So am I right in assuming you’re you’re gonna receive 400 times by your ownership percentage in the second quarter as an inflow, and then there’ll be steady cash outflows for the remainder of the the lifetime of the vessel, which I think is

Charles Albee, Investor Relations, SBM Offshore: until f y thirty three. Is that correct? Yes.

Erwin Tong Yan, CEO, SBM Offshore: Okay. Excellent. Thanks. And then,

Charles Albee, Investor Relations, SBM Offshore: obviously, you still have a little bit

Erwin Tong Yan, CEO, SBM Offshore: of corporate debt. I think last quarter was around a hundred million euros. Do you do you want what’s what’s the ideal situation there? Would you like Would you like that number to be zero in the long term, or are you happy to have some level or small amounts of corporate debt in in the mid to long term?

So the the the corporate debt is really the the RCS, so that’s gonna fluctuate depending on where we are with, you know, awards, potentially bridging future financings if we if we have those or managing working capital. So but we’re we’re comfortable with the with the with where it’s at, and, you know, we’re very happy that we have the RTS renewed to to to support our business. Yeah. And then one one final question. From memory, I I believe you calculate some contingencies in the backlog and just in case, yeah, things go wrong.

But obviously, you have some vehicles which will be operational or becoming operational in FY ’25. Would you release those contingencies in the backlog when they become operational? And are you able to quantify how much that might be? Yeah. So specifically, if we have a if we have some level of contingency for turnkey projects, then, yeah, we would release that when the vessels come on come on stream.

Charles Albee, Investor Relations, SBM Offshore: Yeah. But if But when why am I give the

Erwin Tong Yan, CEO, SBM Offshore: specific details of Pam, of of all the contingency. We just get the the overall guidance. Sure. Understood. Thank you.

Conference Operator: Thank you. As a reminder, if you wish to ask a question, please press 11 on your telephone.

Erwin Tong Yan, CEO, SBM Offshore: We

Conference Operator: will take our next question. And the question comes from the line of Guillaume Delaby from Bernstein. Please go ahead. Your line is open.

Erwin Tong Yan, CEO, SBM Offshore: Yes. Good morning. I think one year ago, in the specialized press in upstream, there were some article mentioning that Brazil could Petrobras could gradually shift to a more, I would say, HMO model. And I think last week, at the OTC conference in Houston, Petrobras mentioned that again. So maybe could you give us a little bit of favor when you are discussing with Petrobras how they are evolving regarding the assemble model?

Thank you. Thank you, Guillaume. I think you’ll see what they put out in the market now that there is a representation of EPC with Petrobras specification and BOT, which is a handover of the asset early in its operating life, and also some maybe lease and operate. But typically, the episodes in the market where we we will bid, you see a shift from long term lease and operate to a b o t model right now. And this is published by Petrobras themselves.

So in in recent articles in Austria, you’ll see they’re quite explicit about this strategy because also referring to other questions earlier about pay for the awards. You see Petrobras is very much pursuing high pay for the awards. They got a lot of profit to get out. So they’re they’re seeking models that contractors will respond to. Douglas, you want to add something?

Yeah. Just to to to to be clear, because we we use the term BOT for Guyana. It’s a slightly slightly different makes perfect sense for Petrobras to call it a BOT. But for for us, that would be sale and operate because we’re not gonna have any financing, and we’ll be booking the margin in in in Turkey and then at the operating part thereafter should we, as we hope, be successful in winning some of these upcoming awards.

Charles Albee, Investor Relations, SBM Offshore: Yeah. Very good clarification.

Erwin Tong Yan, CEO, SBM Offshore: Thank you, Douglas. Thank you, Gil. Thank you. I’ll turn it over.

Conference Operator: Thank you. This concludes today’s question and answer session. I will now hand back for closing remarks.

Erwin Tong Yan, CEO, SBM Offshore: Thank you very much for your continued in interest in SBM. And, of course, as always, if you have further questions or want to seek more details, you could connect with our teams, and we’ll be happy to explore and share information with you. Thank you very much, and have a great day.

Conference Operator: Ladies and gentlemen, this concludes the SBM Offshore conference call. You may now disconnect your lines. Thank you for your participation.

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