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SBM OFFSHORE ANNUAL REPORT 2008 TECHNOLOGY CREATING VALUE


TABLE OF CONTENTS 1

1 2 6 8 9 9 10 12 13 13

Overview Message from the CEO Corporate profile Snapshot 2008 Highlights 2008 Expectations 2009 Shareholder information Business Drivers and Competitive Position SBM Offshore Corporate Mission World map SBM Offshorew

2

15 16 18 21 30

Report of the Supervisory Board Introduction Meetings of the Supervisory Board Committees Remuneration Report Information regarding the Supervisory Board

3

33 34 36 38 50 59 68 70 75

Report of the Board of Management Introduction SBM Offshore Lease Fleet Group Activities 2008 Corporate Governance Risk Management Human Resources Product and Technology Development The Company’s Future

4 83 90 90 91 92 93 94 137 138 141 141 142 143

Financial Review Financial Statements Consolidated income statement Consolidated balance sheet Consolidated statement of changes in equity Consolidated cash flow statement Notes to the consolidated Financial Statements Company balance sheet and income statements Notes to the company Financial Statements Other information Appropriation of profit Auditor’s report Key figures

1 Overview Section 1


MESSAGE FROM THE CEO Looking back, 2008 has been a year with both positives and negatives. We have seen record turnover and our order backlog reached a new high. The lease fleet and our services business continued to provide excellent results, however, our net profit was disappointing as two of our major FPSO projects incurred cost and schedule overruns during their finalisation phase. These projects faced problems essentially caused by an overheating market for equipment and construction services which diverged significantly from the market conditions assumed in the bid proposal and was incompatible with contractual requirements. Much focus has been placed on understanding the underlying problems and implementing enhanced procedures and controls to ensure that project execution performance returns to the level that the Company has traditionally achieved. In 2008, we were engaged with the execution of eleven major projects of which three were delivered during the course of the year. The increase in our business over the last years, with the associated build-up of our execution capability, has established SBM Offshore as one of the major contractors in the offshore oil and gas sector. The strong order book puts us in a relatively secure position going forward, with several important project deliveries planned in 2009 and 2010. The recent oil price collapse and the subsequent expected slow down in the award of new contracts, makes it however difficult at this time to provide a full year profit expectation for 2009. We expect that the demand for our products and services will remain strong in the medium to long term due to the necessary increasing development of deepwater oil and gas reserves to meet world energy requirements. We are developing further innovative technology to meet these future needs. We continue to aim for steady growth, sustaining our market leader position as a service provider and reliable partner for our clients. We are convinced that the Company has a robust business model, as has been demonstrated by past performance, providing attractive returns to you our shareholder. We thank our employees for their efforts. Their dedication is essential to the further development of SBM Offshore.

Tony Mace

2 Message from the CEO Section 1


3 Message from the CEO Section 1


Operating profit Million US$ 302 275 254 195 161

2004

2005

2006

2007

2008

The primary business segments of the Company are the Lease and Operate activities versus Turnkey Systems and Services. However, given that both activities are closely related, and each demand the same core technological know-how, all costs are not specifically related to either one segment or the other. For example, when sales costs are incurred (including significant sums for preparing the bid), it is often uncertain whether the project will be leased or contracted on a turnkey lump sum basis. Furthermore, with IFRS limiting the capitalisation of General & Administrative overheads into the asset value of the lease fleet, segmental results are further skewed in favour of the lease activities. Indeed much of the Company’s engineering and project management resources contribute to construction of the lease fleet ‘at cost’ without a Selling, General and Administration

The Company will implement the requirements of IFRS 8 ‘Operating Segments’ as from 1 January 2009, which will provide a more precise segmental profitability.

costs (S, G & A) mark-up, while the FPSO/FSO fleet results ‘benefit’ from lower capex and lower annual depreciation. For these reasons, the Company does not present detailed analysis of segment net profits. In approximate terms however, two-thirds of S, G & A and other operating costs and revenues can be attributed to the turnkey sale segment, meaning that in 2008 23.6% of EBIT is contributed by turnkey sales and 76.4% by Lease and Operate activities.

»

86 Financial review Section 4

Gross margin in 2008 of US$ 413.6 million (US$ 435.6 million in 2007) consisted of US$ 256.3 million (US$ 223.9 million in 2007) from Lease and Operate activities and US$ 157.3 million (US$ 211.7 million in 2007) from Turnkey Systems and Services. EBIT decreased compared to 2007 due to: » much lower contribution from major turnkey projects, particularly due to cost overruns on the FPSO Frade, FPSO Saxi Batuque and (to a lesser extent) drilling rig series; » continuing growth from the lease fleet as men tioned earlier. It should be repeated however that the net profit contribution of newly operational leased units is limited by the relatively high interest burden during the first years of operation. Full dedication of lease revenues to debt servicing leads to fast amortisation of the loan balances and hence reduced interest charges going forward; sale of FPSOs Mystras and Tantawan Explorer and sale of the Company’s Alblasserdam South,


Net profit

Average Capital Employed

Million US$

Million US$

267 228

216

2499 1818

1886

1747

2006

146 92

2004

2005

2006

2007

2008

Weighted average

2004

2005

2006

2007

2008

Divident per share

Million US$ 1.55

0,93

Million US$

1.85

0,93

0,77 1.54

0,43

0,54

1,07 0,69

2004

2005

2006

2007

2008

resulting in a combined net gain of US$ 31.4 million (including release of FPSO demobilisation provisions);

Âť slightly lower R&D charge. As a percentage of the higher turnover, operating profit therefore decreased to 9.0% (2007: 10.5%). Net financing costs were higher as a result of the beginning of the charters in 2007 and 2008 of the FPSO Kikeh, PSO Mondo and FPSO Saxi Batuque. Once production units are brought into service the financing costs are expensed to P&L (whereas during construction interest is capitalised). Although net debt increased significantly during 2008, the major part of this increase concerned production units still under construction. Interest income fell sharply in the second half of 2008 with the reduction in short-term US interest rates.

2004

2005

2006

2007

2008

withholding taxes and other project taxes) for the Company is expected to average between 5% and 10% of pre-tax profits for the foreseeable future. For the reasons stated before, no detailed allocation of net profit between Lease and Turnkey business segments is provided. As reported earlier the dividend proposal will be to maintain the dividend at the same level as paid in 2008 (US$ 0.93 per share), which represents a 60% pay-out ratio, payable 50% in cash and 50% in SBMO shares.

The 2008 tax burden was US$ 9.4 million (4.0% of profit before tax), reflecting in particular the profitability of the Dutch operations of the Company, combined with the relatively low tax burden elsewhere. This compares to a net tax burden of US$ 14.9 million (5.3% of pre-tax profit) in 2007. The corporate tax burden (excluding

87 Financial review Section 4


CONSOLIDATED BALANCE SHEET Assets

2008

2007

2,565,388

1,962,395

46,782

35,571

69

71

420,372

92,550

Deferred non-current assets

12,922

8,596

Inventories

23,305

15,448

972,795

569,344

829

224

292,542

513,644

79,661

156,095

230,329

280,684

4,344,994

3,364,622

2008

2007

50,885

52,570

383,274

363,057

1,053,780

890,697

253,211

26,933

6,207

4,297

1,430,319

921,505

35,275

44,110

709

812

1,039,457

909,081

21,144

16,414

Borrowings and bank overdrafts

263,970

233,868

Derivative fi nancial instruments

313,175

171,098

4,344,994

3,364,622

Property, pland and equipment Intangible assets Investments in associates Other fi nancial assets

Trade and other recivables Income tax receivable Construction contracts Derivate fi nancial instruments Cash and cash equivalents Total assets

Equity and liabilities Issued share capital Share premium Retained earnings Other reserves Minority interests Long-term loans and other liabilities Provisions Deferred tax liabilty Trade and other payables Current income tax liabilities

Total equity and liabilities

90 Consolidated balance sheet Section 4


COMPANY BALANCE SHEET Assets

2008

2007

37

74

1,251,192

1,332,909

24,167

10,502

3,172

9,430

1,278,568

1,352,841

2008

2007

50,885

82,750

383,274

363,057

1,053,780

890,697

253,211

26,933

—

4,657

23,450

—

9,993

13,911

10,397

836

1,278,568

1,352,841

2008

2007

21,130

21,245

Result Group companies

244,302

284,130

Total income statement

223,172

262,885

Property, plant and equipment Group companies and associates Other receivables Cash and cash equivalents Total assets

Equity and liabilities Issued share capital Share premium reserve Retained earnings Other reserves Provisions Group companies Other current liabilities Current income tax liabilities Total equity and liabilities

Income statement Company result

91 Company balance sheet Section 4


NOTES TO THE COMPANY FINANCIAL STATEMENTS General The separate financial statements are part of the 2008 financial statements of SBM Offshore N.V. With reference to the separate income statement of SBM Offshore N.V., use has been made of the exemption pursuant to Section 402 of Book 2 of the Netherlands Civil Code. Measurement of assets and liabilities and the determination of the result SBM Offshore N.V. uses the option provided in section 2:362 (8) of the Netherlands Civil Code in that the principles for the recognition and measurement of assets and liabilities and determination of result (hereinafter referred to as principles for recognition and measurement) of the separate financial statements of SBM Offshore N.V. are the same as those applied for the consolidated financial statements. These consolidated financial statements are prepared according to the standards laid down by the International Accounting Standards Board and adopted by the European Union (referred to as EU-IFRS). Reference is made to pages 94 to 103 for a description of these principles. Participating interests, over which significant influence is exercised, are stated on the basis of the equity method. Results on transactions, involving the transfer of assets and liabilities between SBM Offshore N.V. and its participating interests or between participating interests themselves, are not incorporated insofar as they can be deemed to be unrealised.

1. Property, plant and equipment

2008

Cost

424

Accumulated depreciation and impairment

350

Book value at 1 January 2008

74

Additions

—

Depreciation

35

Currency differences Total movements

2 37

Cost

403

Accumulated depreciation and impairment

366

Book value at 31 December 2008

138 Notes to the Company financial statemens Section 4

4,344,994


2. Group companies and associates

2008

2007

1,332,835

1,120,403

60,345

52,622

1,272,490

1,067,781

Results for the year

244,302

284,130

Investments and other changes

268,096

31,90

Dividends received

46,409

52.099

Currency received

2,080

4,578

72,283

204,709

1,251,192

1,332,835

50,985

60,345

1,200,207

1,272,490

2008

2007

23,141

9,506

1,026

996

24,167

10,502

2008

2007

Participation in Group Companies

50,985

60,345

Amounts owned by group

50,985

60,345

0

4,657

2008

2007

Amounts on to Group Companies

6.212

10.257

Taxation and social secutiry costs

165

53

3,625

3.601

9,993

13,911

Balance at 1 January Provisions Investments at net asset value

Movements

Balance at 31 December Provisions Investments at net asset value

3. Other receivables Accounts owned by Group companies Other debtors

4. Provisions

5. Other current liabilities

Other creditors

139 Notes to the Company financial statemens Section 4


SBM Offshore Annual report 2008  

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