Resilience in a difficult macro environment February 4, 2015
SBM Offshore ended 2014 with a good underlying financial performance, ahead of expectations for the second straight year. The Company reached an important milestone in announcing an out-of-court settlement agreement with the Dutch Public Prosecutor's Office (Openbaar Ministerie) over the inquiry into alleged improper payments, whilst the US Department of Justice declined to prosecute and has closed its inquiry into the matter. This marks a big step forward in putting the Company's legacy issues to rest. Furthermore the year was marked by continued project execution with the delivery of two FPSOs, securing financing for a number of projects and continued strengthening of the balance sheet. Directional1 revenue increased 5% to US$3,545 million, while Directional1 backlog remains near record highs at US$21.8 billion. This was reinforced by strong operational performance with consistently high uptime across the fleet of over 99%.

Bruno Chabas, CEO of SBM Offshore, commented:
"The effects of the recent drop in oil prices are being felt across the offshore services industry in the form of lower order intake. This reduction is putting pressure on suppliers' capacity. While SBM Offshore is no exception, the current macro environment should not overshadow our sound 2014 financial results. In the last twelve months, we achieved significant progress on a number of operational and corporate objectives.

Furthermore, the Company is uniquely positioned to weather this period of uncertainty thanks to its strong Lease and Operate backlog that provides long-term cash flow, is unaffected by movements in oil prices or production levels. As a result, the Company expects a steady increase in cash flow over the coming years as we continue to deliver the projects under construction.

My appreciation goes to all of our employees for staying focused, responsive and adaptable during a challenging year. I remain optimistic about the medium to long-term prospects for our industry in general and SBM Offshore in particular."

Financial Highlights
Directional[1] revenue ahead of expectations at US$3,545 million
Underlying Directional1 EBIT of US$437 million and underlying EPS of $1.67 per share
Directional1 Backlog stood at US$21.8 billion
Cash and undrawn committed credit facilities at the end of the period stood at US$1,987 million
Proportional net debt at the end of December stood at US$3,298 million
Project financing secured for US$1.9 billion and a new Revolving Credit Facility for US$1.0 billion
US$240 million out-of-court settlement reached related to the compliance investigation

2014 Company Overview
Introduction
Projects under construction progressed to plan in 2014, delivering FPSOs Cidade de Ilhabela and N'Goma FPSO to their respective clients following systems acceptance. Sound financial results, steady Directional[1] revenue growth, continued reliable operational performance and a near record backlog point to sustained progress of the turnaround commenced in 2012. The transformation continues as the Company focuses its attention to delivering three FPSO projects by mid-2016 and completing the business improvement initiatives.

Notwithstanding the ongoing investigations by authorities in Brazil, a major milestone was reached when the Company announced a US$240 million out-of-court settlement with the Dutch Public Prosecutor's Office.

The FPSO Turritella Operations and Maintenance contract was signed in May and Encana agreed to a settling of claims arising from the Deep Panuke project offshore Nova Scotia. Through the corporate and project financing activities completed during the course of the year, the financial position of the Company is markedly strengthened.

Consistent with the Company's strategy to focus on its core business and to further strengthen its financial position, the sale and leaseback of the Monaco real estate portfolio was completed and the all cash sale of the Diving Support and Construction Vessel (DSCV) SBM Installer was announced and closed. SBM Offshore was also successful in securing three financings and signing the renewal of its Revolving Credit Facility in 2014. A US$400 million bridge loan for the financing of the Deep Panuke platform was secured in May. In August project financing was secured for FPSO Cidade de Maricá totalling US$1.45 billion from a consortium of international banks at a weighted average cost of debt of 5.3%. In early November, the Company refinanced the US$400 million bridge loan for the Deep Panuke Production Field Centre when it announced the completion of US$450 million of non-recourse senior secured debt by way of a USPP. The 3.5% fixed coupon bond is rated BBB- / BBB (low) by Fitch and DBRS respectively and carries a 7 year maturity. The additional liquidity and greater financial flexibility have further improved the Company's risk profile for securing funding for future projects.

Lastly, a review of strategic alternatives regarding balance sheet optimization announced at the Capital Markets Day in September was completed in November. The Management Board, with the endorsement of the Supervisory Board, intends to pursue the development of a master limited partnership (MLP). The anticipated offering is subject to market conditions.

HSSE
SBM Offshore deeply regretted to have to report two fatalities of yard contractor staff on construction projects in Singapore. Root cause analysis has been carried out and appropriate measures have been put into effect at the contractor facilities.

The Company achieved a much improved safety performance in 2014 thanks to the focused drive, commitment and involvement of its employees. Total Recordable Injury Frequency Rate (TRIFR) improved 45% to 0.22 compared to 0.40 in 2013, while the Lost Time Injury Frequency Rate (LTIFR) improved by 66% to 0.05 in 2015 from 0.15 from 2013.

Furthermore, the environmental performance of the Group has also improved compared to last year, with 13% less Green House Gas emissions per hydrocarbon production offshore compared to 2013, 9% less energy consumption and 17% less oil discharged from produced water offshore compared to 2013.

Compliance

On November 12, 2014, SBM Offshore reached a US$240 million out-of-court settlement with the Dutch Public Prosecutor's Office over the inquiry into alleged improper payments. Furthermore, the United States Department of Justice informed the Company that it would not prosecute and has closed its inquiry into the matter. The settlement agreement with the Openbaar Ministerie and the United States Department of Justice's decision relate to payments to sales agents in Equatorial Guinea, Angola and Brazil in the period from 2007 through 2011. The main reason for the authorities to agree to an out-of-court settlement is related to the comprehensive remedial actions taken by the new Management Board since taking office in 2012.

The investigation of the Dutch Public Prosecutors Office established, through means inaccessible to SBM Offshore, that payments were made from the Company's Brazilian sales agent's offshore entities to Brazilian government officials. As a result, SBM Offshore is a party in a number of investigations in Brazil, notably by the Federal Prosecutor, the Federal Accounts Tribunal and the Comptroller General's Office, who recently confirmed in writing to the Company that they have opened an investigation. The Company continues to cooperate with all requests for information and is in active dialogue with the Brazilian Comptroller General's Office in order to come to an agreement to close the matter in Brazil.

Management confirms that it is not aware of any authorities outside of Brazil investigating SBM Offshore.

Investing in Our Future
Costs associated with research and development focused investments and the Odyssey24 programme came to US$63 million in 2014, representing a year-on-year increase of US$37 million. The programmes' focus on step changes in design, execution, project and supply chain management, allowing the Company to deliver its projects faster while reducing project costs by at least 5% per project. The programmes continue into 2015 and once completed is expected to benefit from a quick payback on new contract awards.

Divestment Update
In August the Company announced the completion of the sale and leaseback of its Monaco real estate portfolio. The last of three buildings was sold for approximately US$62 million net of expenses, resulting in a book profit of approximately US$58 million. This was in addition to the December 2013 announced sale and leaseback transactions for two of the three buildings with sales proceeds exceeding US$100 million and resulting in a book profit of approximately US$30 million. Total proceeds, net of expenses, resulting from the transactions are in excess of US$162 million with a total book profit of approximately US$88 million.

In early December, SBM Offshore announced the US$150 million all cash sale of the DSCV SBM Installer to OS Installer AS. The Company confirmed in mid-December that OS Installer AS, a newly established Joint Venture between Ocean Yield (75%) and SBM Offshore (25%), secured bank financing and that the transaction had closed. Net of the retained equity interest in the Joint Venture, the Company received US$140 million in proceeds.

FPSO Brasil and VLCC Alba remain held for sale.

Year-End Update
In the December 17, 2014 year-end update press release, SBM Offshore announced the reduction of the useful life of the Deep Panuke Production Field Centre to eight years, in line with the fixed contract period. This adjustment resulted in a non-cash impairment charge of approximately US$59 million. The eight-year firm contract revenue is not affected by the announcement.

In addition, the Company announced a one-off impairment charge (non-cash) of US$49 million related to a financial asset following a dispute with a US-based client, as well as the decision to make an additional provision for warranties at year end of US$40 million.

Supervisory Board
Following the completion of Chairman H.C. Rothermund's third term on the Supervisory Board, he will resign at the Company's Annual General Meeting of Shareholders on April 15, 2015. SBM Offshore's Supervisory Board has decided to appoint F.J.G.M. Cremers, currently Vice Chairman, as Chairman as of that date. T.M.E. Ehret will simultaneously be appointed as Vice Chairman replacing Mr. Cremers.

Outlook and Guidance 2015
The Company is providing 2015 Directional[1] revenue guidance of at least US$2.2 billion, of which US$1.0 billion is expected in the Turnkey segment and US$1.2 billion in the Lease and Operate segment. Proportional net debt guidance is being introduced for FY2015. The Company expects to end the year with proportional net debt below US$3.5 billion. Guidance is based on Management's conservative award assumptions in light of the current macro environment.

Dividend
The Management Board reiterates that the Company will not pay a dividend over 2014, in view of the losses incurred in recent years and the desire to continue strengthening the balance sheet. The Management Board intends to present, at the Annual General Meeting (AGM) in April 2015, a change of dividend policy from the existing policy of paying out 50% of IFRS net income. Under the new dividend policy, the proposed payout ratio would be between 25% and 35% of Directional1 net income subject to the availability of sufficient free cash flow in the year of payment.

FINANCIAL REVIEW

IFRS 10, 11 & 12

New consolidation standards for joint ventures (JVs) have been introduced as of January 1, 2014 ending proportional consolidation of JVs for SBM Offshore. As disclosed in its 2013 Annual Report, the Company is now required to account for its fully controlled JVs on a fully consolidated basis (mostly impacting all Brazilian FPSOs) and apply equity accounting to the Company's jointly controlled JVs (mostly impacting all Angolan FPSOs). All 2013 income statement, statement of financial position, cash flow statement comparatives figures and key indicators presented in the financial report were restated for the introduction of these new standards.

On balance, this implementation has a limited impact on the Company's IFRS revenue as the additionally reported partner share in the fully consolidated ventures is offset by the exclusion of revenue in the equity accounted ventures and almost nil to net income attributable to shareholders. However, the Company's reported total asset value at year-end 2013 has increased significantly (approximately US$1.6 billion) as the now fully consolidated Brazilian assets are younger and represent a larger portion of the balance sheet. A similar effect is visible at the gross debt level, increasing from US$2.9 billion to US$3.6 billion.

As this change of consolidation rules under IFRS further complicates the understanding of the Company's performance, effective January 1, 2014, Directional[1] reporting principles were amended and stand as follows:

Directional1 reporting represents an additional non-GAAP disclosure to IFRS reporting
Directional1 reporting assumes all lease contracts are classified as operating leases
Directional1 reporting assumes all JVs related to lease contracts are consolidated on a proportional basis
All other accounting principles remain unchanged compared to applicable IFRS standards

All 2013 Directional1 income statement comparative figures presented in the financial report were restated for introduction of these new consolidation rules.

As Directional1 reporting better reflects of the performance of the Company's segments and drives key decisions taken by the Management Board, the segmental information has been provided under Directional1 reporting principles as part of the financial statements, and reviewed by the Company's auditors.

Highlights
Directional1 consolidated net income for 2014 came in at US$84 million versus a net loss of US$58 million in 2013. This result includes divestment profits and other non-recurring items which generated a net loss of US$265 million in 2014 compared to US$433 million in 2013. Excluding divestment profits, and other non-recurring items, 2014 underlying consolidated Directional1 net income attributable to shareholders stood at US$349 million, a slight decrease from US$375 million in the year-ago period.

Reported consolidated 2014 IFRS net income was US$652 million versus US$175 million in 2013. IFRS net income attributable to shareholders amounts to US$575 million compared to US$114 million in 2013.

Directional1 earnings per share (EPS) in 2014 amounted to US$0.40 compared to a loss of US$0.28 per share in 2013. Adjusted for divestment profits and other non-recurring items, underlying Directional1 EPS decreased 9% year-on-year to US$1.67 from US$1.84 in 2013.

IFRS Net Debt at the year-end totalled US$4,775 million versus US$3,400 million in 2013. All bank covenants were met and available cash and undrawn committed credit facilities stood at US$1,987 million.

Order intake for year totalled US$3,124 million, a 77% / 23% split between the Lease and Operate and Turnkey segments respectively. This compares to US$9,990 million achieved in 2013.

Directional[1] revenue increased by 5% to US$3,545 million compared to US$3,373 million in the year-ago period. IFRS revenue increased 20% to US$5,482 million versus US$4,584 million in 2013. This was mainly attributable higher Turnkey segment revenues.

Directional1 backlog at the end of 2014 remained high at US$21.8 billion compared to US$22.2 billion at the end of 2013. This reflects the reduced level of order intake in 2014 and a Lease and Operate portfolio consisting of US$20.6 billion at year-end.

Directional1 EBITDA amounted to US$486 million, representing a 7% decrease compared to US$520 million in 2013. This figure includes non-recurring items totalling US$157 million.

IFRS EBITDA amounted to US$925 million, representing a 56% increase compared to US$592 million in 2013. This figure includes non-recurring items totalling US$163 million.

Directional1 EBIT increased to US$201 million after divestment profits and non-recurring items of US$236 million. This compares to US$63 million in 2013 which included US$437 million of non-recurring items including charges related to the Yme and Deep Panuke projects.

IFRS EBIT increased to US$726 million after impairment charges, divestment profits and non-recurring items of US$227 million. This compares to 2013 EBIT of US$188 million, which included US$436 million of non-recurring items including charges related to the Yme and Deep Panuke projects.



The year was marked by the following financial highlights:

Order intake of US$3.1 billion maintaining the Directional1 backlog to a high level of US$21.8 billion.
On November 12, 2014 an out-of-court settlement was reached with the Dutch Public Prosecutor's Office (Openbaar Ministerie) over the investigation into potentially improper sales payments. Furthermore, the US Department of Justice informed the Company it would not be prosecuted and closed its inquiry into the matter. This out-of-court settlement consists of a payment by the Company to the Openbaar Ministerie of US$240 million. Payments will be in made in three instalments, the first of which US$100 million was paid at the time of the announcement. Two further instalments of US$70 million each will be due on December 1, 2015 and 2016 respectively.
A Production Handling Agreement (PHA) was signed with Noble Energy to produce the Big Bend and Dantzler fields to the Thunder Hawk DeepDraftTM Semi in the US Gulf of Mexico. Production fees associated with produced volumes are estimated to lead up to projected revenue of US$400 million to be delivered over the ten year primary contract period. Based on new projected production reserves combined with projections from existing fields, total deliverable volumes will allow the asset's current book value to be sustained and reverse the full US$109 million of previous years' impairments.
The Company has chosen to reduce the useful life of the Deep Panuke Production Field Centre from ten to eight years in line with the fixed contract period. This adjustment resulted in a non-cash impairment charge of approximately US$59 million.
As a result of a contractual dispute, the Company recorded a one-off non-cash impairment charge of US$49 million related to a financial asset following a dispute with a US-based client.
Following the remediation of some technical issues under warranty, the decision was taken to incur an additional US$40 million provision for warranties at year-end.
With the contract for FPSO Marlim Sul set to expire at the end of June 2015, upon completion of vessel decommissioning, the Company has reassessed the carrying value of the FPSO. This undertaking has resulted in an impairment charge of US$15 million.
Late November 2014 marked the announcement of FPSO Cidade de Ilhabela being formally on hire after achieving first oil. Following the announcement an upfront payment of US$145 million was received on December 31, 2014 in accordance with the contract. The unit will operate under a twenty year charter and operate contract with Petrobras S.A., and the FPSO is owned and operated by a joint venture formed by SBM Offshore (62.25%), QCOG, and Mitsubishi Corporation.
N'Goma FPSO began oil production and went on hire in late November. Formal Production Readiness Notice was received from the client Eni in mid-January 2015 going into effect retroactively to late November. The unit is owned by Sonasing, a joint venture consisting of SBM Offshore (50%), Sonangol and Angola Offshore Services Limitada (AOSL). The vessel will be operated by OPS, a joint venture company formed by SBM Offshore (50%) and Sonangol (50%), for twelve years.
The divestment of the non-core Monaco real estate portfolio was completed in August. The last of three buildings was sold for approximately US$62 million net of expenses, resulting in a book profit of approximately US$58 million. This was in addition to the December 2013 announced sale and leaseback transactions for two of the three buildings with sales proceeds exceeding US$100 million and resulting in a book profit of approximately US$30 million. Total proceeds, net of expenses, resulting from the transactions are in excess of US$162 million with a total book profit of approximately US$88 million.
In early December, SBM Offshore announced the US$150 million all cash sale of the DSCV SBM Installer to OS Installer AS. The Company agreed to charter the vessel under a long-term bareboat charter for a fixed period of twelve years while maintaining the option to acquire the vessel during the charter period, with the first option exercisable after five years. The Company further confirmed in mid-December that OS Installer AS, a new established Joint Venture between Ocean Yield (75%) and SBM Offshore (25%), secured bank financing and that the transaction had closed. Net of the retained equity interest in the Joint Venture, the Company received US$140 million in proceeds.
Capital expenditure and investments in finance leases amounted to US$2,396 million in 2014, which exceeded 2013 levels of US$1,792 million. The increase is primarily attributable to a full fiscal year of investments in the current projects under construction.
Revolving Credit Facility (RCF) renewal was signed mid-December with maturity on January 30, 2020 securing liquidity of up to US$1.0 billion. The RCF's maturity can be extended with two additional one year extension options. The facility was secured with a select group of thirteen core relationship banks and replaced the existing facility of US$750 million that was due to expire in mid-2015.
New project financing agreements totaling US$ 1.9 billion were put in place. This includes project financing for FPSO Cidade de Maricá totalling US$1.45 billion from a consortium of international banks, and the US$450 million of non-recourse senior secured debt by way of a US Private Placement for the Deep Panuke Production Field Centre.
Cash and undrawn committed credit facilities amounted to US$2.0 billion at the end of December 2014 compared to US$1.4 billion in 2013.


Fiscal year 2014 segmental information regarding the two core business segments of the Company is provided in the detailed financial analysis section of the press release. Revenue by geography is also included in the notes to the Financial Statements.

Order Intake
Total order intake in 2014 amounted to US$3.1 billion. This includes new orders signed for US$1.3 billion and variation orders signed for approximately US$1.8 billion. The main new orders signed during the period include:

FPSO Turritella
The FPSO Turritella Operations & Maintenance contract was signed between SBM Offshore and Shell Offshore Inc. The contract includes an initial period of ten years with future extension options up to a total of twenty years.

Thunder Hawk
A Production Handling Agreement (PHA) was signed with Noble Energy to produce the Big Bend and Dantzler fields to the Thunder Hawk DeepDraft(TM) Semi located in 6,060 feet of water in the Gulf of Mexico (GoM). Production fees associated with produced volumes are estimated to lead up to projected revenue of US$400 million to be delivered over the ten year primary contract period. First oil from Big Bend and Dantzler are expected in late 2015 and first quarter 2016 respectively. At these levels both fields will utilize a maximum of 85% of total daily asset capacity.

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