Seatrium Limited (5E2) Earnings Call Transcript

Good morning, everyone. Thank you for joining us at Seatrium's First Half 2026 Results Briefing. My name is Amelia, and I take care of Investor Relations for Seatrium. This morning, we have with us our CEO, Mr. Chris Ong; our CFO, Dr. Stephen Liu. Chris and Stephen will bring us through a short presentation before we open the floor to questions. Chris, please?

Thank you, Amelia. Good morning, and thank you for joining us today for Seatrium's First Half 2026 Results Briefing. Today's results center on 3 key themes. First, despite macroeconomic uncertainties, we continue to deliver strong progress. While revenue maintained healthy momentum, our primary focus is driving margin efficiencies. Our cost optimization and divestments are delivering real sustainable benefits. Second, we remain well positioned to capture opportunities from a global pipeline of over $32 billion. Although the market was relatively quiet in the first half, we are actively engaged across all major energy markets and expect FID momentum to accelerate in the coming quarters. Our net order book remains healthy at $13.3 billion, providing clear near-term earning visibility with a higher quality project mix. Third, we are shifting from recovery to value creation. This means growing earnings, generating cash and building resilience by scaling our series built and adjacent services business. On the financial headline, revenue rose 5% to $5.6 billion, in line with financial year 2028 steady-state target range of $10 billion to $12 billion. We continue to be focused on driving margin improvements through strong execution, quality projects and reducing overheads. Year-on-year gross profit margin rose to 8.6% versus 7.4% last year. This translated to a 54% year-on-year improvement in net profit to $212 million, even if you exclude the one-off divestment gains. Including these divestment gains, we reported a 158% growth in net profit to $373 million. That 54% is a number to anchor on. It reflects genuine improvement in operating performance, expanding gross margins and a leaner overhead structure and a project mix that continues to shift in our favor. The direction is clear, and it is consistent with where we need to be by 2028. Our net order book stands at $13 billion with 24 projects deliveries through to 2033, providing clear earning visibility. The quality of our order book is also improving with over 95% consisting of series build projects that raises execution certainty. With the completion of 3 projects in the first half, the proportion of lower-margin legacy non-FPSO projects has declined to about 1% of the net order book, less than $140 million in value. Our execution remains focused and on schedule. We delivered state-of-the-art dredger to Manson and the WTIV to Maersk. We also completed a complex FPSO integration for Exxon and MODEC. The Revolution Wind offshore substation has completed offshore commissioning and will be delivered to Orsted in the coming weeks. Looking ahead, key projects like P80, P82 and Shell Sparta remain on track for sailaway in second half 2026. New order wins to date are just over $100 million, including FSRU conversion for Karpower LNGT Karadeniz, and the recent takeover of an FPSO life extension project to prepare the asset for redeployment in South Atlantic as we finalize our scope with the client. Global pipeline opportunities remain robust at $32 billion over the next 24 months with supportive market dynamics amidst strengthened energy security and diversification teams. To highlight the key pipeline changes since financial year 2025. The Petrobras SEAP projects were removed from our pipeline in first Q 2026, reducing opportunities in South America from $12 billion to $8 billion. We continue to engage with SBM on local content opportunities. In South America, we are mainly pursuing full scope FPSO EPCC for upcoming BOT tenders with Petrobras alongside Guyana integration and module fabrication opportunities. North America has increased from $1 billion to $2 billion as we are pursuing growing FLNG opportunities in Africa worth about $7 billion. Fixed platform opportunities in the Middle East remain intact. Alongside $1 billion in opportunities in Asia, that totals about $21 billion in oil and gas opportunities that we are chasing over the next 24 months. We are also tracking $9 billion in offshore wind pipeline, predominantly HVDC and HVAC platform work in Europe and Asia Pacific. This includes TenneT's major infrastructure program amongst opportunities with other TSOs and operators. Conversions represent approximately $2 billion, largely FSRU and powerships, mainly through our Karpowership partnership. This breadth across distinct market cycles is what gives us resilience. Our commercial teams are busy. While we cannot control FID timing, our activity level reflects the pipeline is real and moving, and we are confident in our competitive positioning. In short, it's a matter of timing, not demand. Our FPSO business is where we see the most visible near-term opportunity. We are among a selected group of yards capable of delivering large complex new build at full EPCC scope, with contracts in the range of $4 billion to $5 billion. With our globally leading track record and 3 leading yards in Brazil, we are well equipped to support customers in meeting local content requirements. This gives us a strong competitive advantage as we pursue upcoming FPSO tenders in Brazil, particularly full EPCC projects similar in scope margins and payment terms to the 6 P-Series FPSO currently on our order book. Beyond FPSO, we are seeing a growing demand for FLNG and FSRU deployment driven by LNG supply tightness, energy security, and the push for supply diversification. These are faster to market and more cost effective than conventional infrastructure. We have delivered the world only 2 operational LNGC to FLNG conversions. We are also developing FLNG-X, our proprietary next-generation FLNG design with AIP achieved, allowing us to pursue new build FLNG opportunities that may arise. We have executed over 90% of global FSRU and FSU conversions. In first half 2026, we secured a new FSRU conversion contract with Karpowership, and this is not a one-off. The pipeline for gas conversions is real. It is growing, and we intend to take a leading share of it. On offshore wind, our position spans the full sea-to-grid value chain. That end-to-end breadth is not common in this industry. While offshore wind remains a long-cycle market, the project's timings have temporarily slowed, the underlying demand outlook remains strong. Momentum is expected to return in 2027, supported by grid investment in Europe and an expanding project pipeline across Asia Pacific. As market moves into deeper waters, floating wind will become increasingly dominant. We are preparing for that opportunity through our proprietary FWSS foundation design and a U.K. site that gives us early access to the market and a platform to validate our technology and supply chain. Separate from our pipeline, our Repairs & Upgrades business provides a resilient earning base, balancing out our project-based revenues. The market backdrop remains constructive. We remain differentiated through our scalable global execution platform with supportive ecosystem and globally leading proven track record. While our staple of FCC contracts entrenches us deeply with high-quality customers, we have been refocusing our Repairs & Upgrades business for growth, pursuing higher-value segments where we have a clear competitive edge. Maintaining a balanced mix of these stable base customers with higher growth niche segments, we expect higher volumes in second half 2026 that will drive stronger segment performance. I shall now hand over to Stephen to take you through the financial review. Stephen, please?

Thank you, Chris. In first half 2026, we continue to make good progress on margin expansion and cost control. First, our central financial priority is to strengthen margins for resilience. We increased our profitability in first half 2026 through consistent gross margin expansion and a robust year-on-year increase in NPAT, excluding divestment gains. Second, structural cost optimization is bearing fruit. We have materialized initial cost savings from our divestments, and we expect to see the full annualized run rate benefits from May 2026. Digitization, AI and machine learning continue to drive further operational efficiencies. Third, on the capital management front, we have strengthened the balance sheet and enhanced our financial flexibility to support long-term returns. Revenue for first half 2026 grew 4.6% to $5.6 billion, underpinned by steady execution of the group's solid order book. This maintains the annualized run rate consistent with our FY 2028 target range. Revenue for the Oil & Gas segment grew 15% to $4.2 billion, driven by advancing project progress on FPSOs P-84, P-85 and the 2 FPUs, Kaskida and Tiber. These large complex projects are now entering their most active phase as reflected in the higher revenue contributions. Offshore Wind segment was lower by 21%, primarily due to the declining contribution from legacy projects. Repairs & Upgrades segment was broadly flat despite a decline in the number of vessels completed, and this reflects our deliberate refocus towards higher-value projects. Finally, the Other segment declined 17%, reflecting lower contributions from specialized shipbuilding and reduced MRO activity due to the ongoing Middle East tensions. Our gross margins expanded by 120 basis points to 8.6%, up from 7.4% in first half 2025. Key margin drivers remain consistent, a growing portion of higher-margin projects, improved operating leverage year-on-year and continued cost discipline. The combination is producing structural margin improvement, and these improvements were partially offset by a closeout provision relating to the Maersk WTIV, which we delivered in February 2026. Other operating income increased mainly due to the one-time pretax divestment gain of $172 million from the asset sales announced earlier, the last of which was completed in April 2026. We have earlier communicated $200 million in additional non-core assets earmarked for sale, and we are pleased to report that we have sold an accommodation vessel, Aquarius Brasil a few days ago to GranEnergia, a leading vessel operator in Brazil for over SGD 80 million. The non-core vessel is about 30 years old, and we capitalized on an attractive opportunity to monetize the vessel while it was still on charter with Petrobras, securing a sale above book value. This transaction removes future re-contracting risk, provides greater certainty over the realization of the vessels remaining economic value and is expected to close later this year. Next, our G&A costs remained stable at around 3% of revenue. And overall, our net profit grew 158% to $373 million. Excluding divestment gains, NPAT grew 54% to $212 million. EBITDA, excluding divestments, rose 20% to $479 million. We achieved positive cash flow, which is a strong indicator of both the quality of our earnings and the overall health of our project portfolio. OCF, excluding a one-time legacy payment, was $114 million. The one-off item is the car wash final settlement payment of $73 million that we made to the Singapore authorities. Including this payment, reported OCF was $41 million. Investing cash flow contributed $123 million. CapEx was $52 million and was deployed mainly for project needs and safety spend. Our portfolio optimization program unlocked $167 million in cash from asset divestments. And ultimately, our free cash flow was $237 million, excluding the car wash settlement. This is a substantial turnaround from the negative $5 million reported in the prior period. This trajectory is driven by disciplined project cash management, progressive milestone payment structures and proceeds from our divestment program. Now quickly turning to the capital structure and balance sheet. I think the key development in the first half was the launch of our $3 billion multicurrency debt issuance program in April 2026, which we followed with an inaugural $400 million issuance of our senior unsecured note due in 2031 priced at 2.95%. The issuance received strong institutional demand, a clear signal of market confidence in Seatrium's credit profile. Liquidity remains strong at $3.4 billion in cash and undrawn committed facilities. Net leverage has improved to 0.5x and net gearing maintained at 0.1x. Overall, we have a robust flexible balance sheet with ample headroom to fund any working capital and future growth opportunities. With that, I shall pass the time back to Chris.

Thank you, Stephen. We remain firmly on track to achieve our 2028 steady-state targets. First half 2026 revenue of $5.6 billion tracks comfortably towards our $10 billion to $12 billion annualized target. EBITDA momentum is building and ROE of 6.1% annualized is moving towards our 8% and above target. We are also delivering on our commitment to shareholders. Our $100 million share buyback program is near completion with $90 million already repurchased, a clear signal of our confidence in the business. Upon completion, we intend to launch a new share buyback program to enhance shareholder value. Let me close by coming back to the strategy we outlined at our 2024 Investor Day. We said then that the world's energy future would be shaped by the need to balance these 3 priorities: security, affordability and sustainability. 2 years on, that energy trilemma remains firmly in place and continues to drive investment decisions. Seatrium is uniquely positioned to address these pressing needs. Our breadth of solution offers agility that required to meet the dynamic pace the market is demanding. Our track record is the evidence of our ability to deliver certainty. We believe we are strongly positioned to capitalize on market opportunities. We also said in 2024 that we would be focused on margins. Today, despite significant macroeconomic headwinds, we have delivered a visible progress and established a clear pathway for further margin improvement. While new order wins remain important, our focus is not growth at all cost. For us, growth means winning the right work, executing strongly and translating it into sustainable financial performance and resilience. The progress we have achieved reinforces our confidence that Seatrium is on the right path. We expect to deliver a stronger full year 2026 performance with the key margin drivers intact and gains unlocked from the divestment. Our strategic priorities never changed. We have remained focused, delivered tangible results and strengthened our competitive position. We are confident that Seatrium is well positioned to drive sustainable, tangible value for all shareholders and stakeholders. Thank you.

Thank you, Chris. We will now open the floor to questions. For those of you in the room with us, please raise your hand to ask a question. Terence?

My name is Terence. I'm from JPMorgan. Congratulations, Chris and Stephen, on the very, very strong set of results and the margin improvement. So if I may ask my first question. Historically, Seatrium has performed strongly under Petrobras EPC-led tendering framework, winning 90% of Petrobras EPC contracts from 2021 to '24. So with Petrobras increasingly adopting BOT structures that require operating capabilities, what are the key changes in the competitive landscape from Seatrium's perspective? And how is Seatrium positioning itself under this model? And what factors will determine the win rate in future Petrobras contracts?

Thanks. Good that we met. First thing first, I think the competitive landscape, if you talk about FPSO competition, it has always been there. And your statement about us winning that way seems to indicate that it's almost a walk in the park, and I can assure you it wasn't. If you remember, before the EPC slew of contracts, we were actually in different form. Contracts came in different form. It's a hybrid between engineering, procurement and -- yes. So the customers has track record of changing the formula of how they want to go to market. And it's a mix rather than a change because there will still be EPC or BOT contracts that come. Now I guess the main question is how do we play in the BOT world. Now BOT world that we are going into the bidding stage, largely, there's no difference. It depends on who fronts the contract. Because for BOT, it's a true train EPC then followed by O&M, right? So technically, we are in play for the EPC contracts. And technically, I would rather see that -- based on your comment just now, with the number of EPC contracts that we have in place, we delivered -- we are sailaway one that has shown that it can perform straight to the field that puts us in a good position in terms of technical and also, we have said that our ability to work on how we basically build those assets. Very complex, but I think the team now has a good track record. Even if we do not consider the time before the EPC contracts, just focusing just on the EPC contracts, I think P-78 was very important for us. Well, there were a lot of detractors along the way, but the team did well, managed to sailaway directly to the field and produce. I think that is something in the market that is seldom achieved, right? We did not stop at our yard in Brazil, and it went straight to field. And I think now it's tracking along very, very well. We are -- 80 and 82 will sailaway, and we think that it will mimic, if not improve the performance of what we have right now.

And we also understand that Seatrium is pursuing subcontracting opportunities with SBM under the SEAP contracts. And also Seatrium is participating in the full scope upcoming Petrobras FPSO tenders as a direct bidder or consortium partner. So how should we think about the potential overlap between direct tender participation and subcontracting opportunities?

Well, all these opportunities have always been around. If you take a look at different spend or scope in an FPSO contract, Guyana with Exxon is very clear. Those have SBM and MODEC in play. We also have contracts that are lease and operate type of contracts all the while. Our local yards have played the local content very well. So there's a different mix. So if you take a look, how will you think about the overlap, it is really driven by the project requirement because when you construct modules and whether you do the full integration, those are time and space. I can't really guide how do you look at, what is the difference. We still have the Jaguar with sailaway of one of the Exxon integration only type of projects. We still have Jaguar in the yard. So we are pursuing all these prospects, whether they are EPC, whether they are integration, whether they are just module fabrication. So all hands on deck. The team are very busy.

Just now we had a hand from Luis.

Congrats on the results. I had -- this is Luis from Citi. Just had three questions initially. The first one is regarding the OpEx savings you've had from the overhead cost savings. Could you disclose how much of those of the $50 million you had booked in the first half and therefore, what's coming in the second half? The second question relates more towards your order book. We saw from Slide 25, where you have the percentages of completion that you're even now working quite significantly on contracts that are due 2028 and onwards. Is it possible that you'll finish earlier? And in that case, do you also get paid ahead would be the question. And the third question is on the rolling order book pipeline that you've upgraded to $32 billion. Chris, you mentioned earlier part of it is $1 billion more in the U.S. Where is the -- I didn't catch the rest of the $3 billion, where is it coming from essentially?

Do you want to take the first one?

I can take the first one. So the OpEx savings, as you recall, we said the divestments was about $50 million on a run rate basis. In the first half, we completed all the transactions in April. So in the first half, we recognized approximately $10 million on a run rate basis. So by second half, the $50 million should come in. Hope that answered your question.

Yes. Luis, I'll take the order book, the elephant in the room. I guess, you mentioned that -- I think the question is in twofold, right, whether we can accelerate so that we can get paid earlier. You speak like my customer. Everybody love to accelerate. So we have to balance because at the end of the day, we do have quite a lot of inquiries also. So technically, it's a planning of time and space. But that is the beauty of -- and the expertise of Seatrium. Now we are fully integrated. Manpower, in a way, is fungible. So technically, when work front, because it's not just about manpower or whether you can accelerate, it's also work front. So if certain work fronts are not ready, we are not reckless in order to push. But technically, if you see -- I would rather see that most of the series build projects are progressing better and better after each other -- after each one. P-84, P-85, is progressing very, very well. So the key is to make sure that we are safe. And of course, if there are opportunities to accelerate definitely because, again, that's the beauty of the contracts that we have. Milestone driven. When we hit the milestone, we will be paid. So far, most of the customers have honored and are very happy to pay us because it means that the project is progressing along fine. Of course, beyond inquiries, we also have to balance between segments, right? Because R&U is also a little bit more dynamic. So it's a balance between prospects and ongoing so that we are able to answer and service most of our customers at one go. You mentioned about U.S. U.S., without a doubt, with us already operating and delivering Sparta, progressing along fine on the BP FPUs. That market is a very important market for us. The $1 billion without -- I think no doubt those would be mainly on LNG prospects. So we are excited about that and pushing for that. We'll let you know when the project has some lending.

Just a follow-up on that. The additional $3 billion, where is -- it's coming from which other countries? Because first quarter, you had $28 billion targets, now it's $32 billion. $1 billion came from the U.S. The balance is Brazil or?

I wouldn't segmentize that way. But suffice to say, compared to the last, I believe, you guys asked a lot about, hey, you reduced, but now it went back again. It's a coincidence, it became $32 billion again. We did not do anything on that. The increase mainly will be around LNG prospects, as we mentioned just now. I think that market is proving to be quite a big inquiry work that we are doing right now. FSRU, like what we mentioned, we are the world leader in FSRU conversion. We recognize that. We started the very first one. And to date, we are market leader. And in a very short time, we are looking at no less than 6 to 9 FSRU tenders right now. So ranging from integration or full EPC for FSRU, also for FLNG conversion. So we're actively looking at that. And at the same time, as what we mentioned, the team is not static. Our technology group is developing FLNG new build. So I think that part of the market is something that is stepping up a lot of our energy around. So hopefully, there will be good news coming.

Next question, Pei Hwa.

I'm Pei Hwa from DBS. Congrats on the good results. I have two questions. First is maybe a continuation for what Terence has asked. Going to the BOT model going forward, you partner with operator as well. I mean, there are maybe some like 10 prequalified operators. If you go into this mode, how would that change our relationship -- business relationship with all these operators going forward? This is the first question. Second question is on order win. I think all of us have been asking since first half is relatively slow. So I wonder if management could give us a bit more color or confidence as to what are the -- maybe some major projects that we could expect FID in the second half.

I will talk about the BOT. I think just to crystallize the understanding of the BOT tender. BOT tender is largely different from how some of the operators really tender out the project in pieces. The BOT tenders that we are involved with a front-running operator usually will involve us. And the next one, of course, it involves us taking the EPC part of the whole thing because, again, proven track record. Again, we understand what is the requirement, and that's a huge part on building things in Brazil and for Brazil. So we -- the partnership is around -- and BOT tender is slightly different from how you should think about in an EPC contract, because EPC, you just give a technical specification, you cost against it and you talk about margin. The BOT, the art is about trusted partners and also importantly, how you structure the contract because if you go in and you start having overlapping interest and also margin, then you're not pricing to win. So we are going into BOT with a mindset of pricing to win with our partners. So it's quite elaborate. The risk and reward is quite slightly different. But mainly, you should think of us wrapping the EPC portion because we are already proven. So there are knowledge within the organization. There's already ability on the One Seatrium execution how to get that done. So BOT is -- to me, if you take a look at where we add value would be the full EPC scope, all right? Now in terms of order win, I have already -- there are quite a bit of hints inside what we said. Basically, I can't control FID timing for the contracts that we are chasing. And I think I maintain that since I believe you asked the same question in 2023, 2024. Same. You were chasing me to say that, how come -- I would love to give good news like a REIT every time it's about distribution and contract wins. But the key thing is that the team is fully engaged. If you take a look, actually, right now, I would say that our tender team is involved in projects and it's almost their peak. They are really going out there and try to win the good quality contracts. Now what are upcoming? There are -- of course, Albacora is well known in the market. That one will come in -- results will be in the second half. But that's not just the only one. There are a few FLNG conversion -- FSRU conversions. I've already said that we are -- I think that we are in a period of time where we suddenly see quite a number of inquiries around there. Of course, HVDC and HVAC is a built up, not forgetting that we won a HVDC contract in December. So that's only quite recent, and it's a very competitive tender. I'm very proud of the team when they won it. So depending on how and when the tender is going to come, the team is also locked in with the customers. There are a few HVACs that we are chasing. So I think broadly across you think oil and gas, there is also Guyana that's coming, right? Guyana, I think Exxon has been in the market. That's public domain knowledge. So if you take a look at it, I can go on and on, but those are the breadth across all our segments that we are locked in with the customers.

Chris, if I may add just one point, Pei Hwa. On the BOT, the commercial terms are similar to what we have seen with our other projects around margins and milestone payments, right? But the structure is different, but the end exposure for us is actually the same.

Yes, that's a good point. When I say the EPC contract, if it's an EPC contract, of course, we are direct with Petrobras, and we have the EPC contracts. But if you take a look at the BOT, then it depends on the structure, right? Of course, the operator partner would be the one that's going to fund it, and we will have a structure. But largely, what I'm trying to say is that the specification, the payment terms, the risk profile, localized in the EPC scope itself is largely the same.

Next question, Meg.

This is Meg from CGS. So I noticed in your pipeline compared to the full year. In the Middle East and Africa, you've kind of split it out this time with a bit more clarity on Africa versus Middle East. So can we understand how that has changed from like early in the year, pre-war? Was it more on the Middle East side, how that pipeline has changed? And any inquiries that you're seeing following the conflict there? And secondly, on P-80 and P-82, I understand that they're scheduled for delivery in 2027, but would they be sailing away in 2026 before that?

Africa, Middle East, I think there was some feedback that what is the color around because I believe at that point of time, all our analyst friends trying to peak into whether the Middle East conflict affects the pipeline. That's why we are very specific in splitting that up. The other portion is also because of how the market is moving. We mentioned that the market security quick-to-market type of concept around that, we do see an increase in Africa prospects. So whether it is oil or gas, I think that there are quite a lot of customers that are actually looking at that area. So we thought we give the granularity for you to make sure that you understand where we are looking for. P-80 and P-82. Now for EPC contracts, it doesn't stop when we sailaway, right? Just like P-78, it sailaway, went straight to fuel. The team are on the FPSO gunning for first oil, then you inject gas or you flare. And then after that, you export cargo, right? So even P-78 sailaway, it is now -- I believe that we have passed all the -- and we're waiting to export cargo is -- I think capacity-wise, it's already more or less proven. It's the same for P-80 and P-82. They will sailaway this year, second half, just confirm. So look forward to our LinkedIn post with nice pictures for the ceremony. And that's why it is projected to be delivered next year because there are still on few works that needs to be done. But saying that, we shared with all of you now Seatrium is very largely global. All my dear colleagues are largely One Seatrium. We have local Singapore and Brazilian colleagues sailing with the FPSO, making sure that they take care of it, and they will come online nicely next year.