Good morning. Welcome to Seatrium Limited first half 2023 results presentation. Today, we have with us Mr. Chris Ong, Chief Executive Officer, and Mr. Paul Tan, Acting Group Finance Director. Before we begin, a general disclaimer, please. Thank you for the kind attention. We will now have our CEO, Mr. Ong, please.
Good morning, everyone. Thank you for joining us at Seatrium Limited's first half 2023 results webcast. Since the completion of the combination in February this year, Seatrium has made notable progress in the delivery of our pipeline of projects. The continued buildup of our order book is also a testament to Seatrium's ambition for sustainable growth as a premier global player, leveraging on our combined competencies and capabilities to meet our customers' needs. Through our suite of products, spanning across oil and gas production facilities, floating liquefied natural gas solutions, offshore renewables, and cleaner green solutions, Seatrium is building future-ready capabilities by leveraging our engineering knowledge and solutions to support the industry's energy transition towards a sustainable operative environment.
The group secured $4.3 billion of new orders in first half 2023, bringing our net order book to over $19 billion, with deliveries till 2030. Renewables and cleaner green solution comprise approximately 40% of this net order book. Supported by the delivery of four major projects during this period, the group recorded a revenue of $2.9 billion for first half 2023, compared to $1.1 billion during the corresponding period last year. This increase in revenue was attributed to the combination's consolidation of projects and their continued operational milestones and deliveries. Our strong operational performance has enabled the group to achieve a significantly improved EBITDA of $258 million before provisions. Even after accounting for provisions for contracts and merger expenses, the group still achieved a positive EBITDA of $27 million.
We will continue to focus on our project management and executions in order to further strengthen our EBITDA performance. While the group still reported a net loss in first half 2023, key measures are being worked on to steer the group back to net profitability. This includes the streamlining of the group cost structure and completion of the ongoing capital restructuring. We will closely monitor the working capital needs of the group and will continue to adopt a disciplined approach to cash flow as well as liquidity management. This will be further addressed in the financial performance segment of this briefing. We have had a busy start to 2023, with successive deliveries of four major projects in first half 2023. We delivered the third zero-emission, full battery-operated RoPax ferry, designed and built for Norled. Third dual-fuel, new-build LNG-powered trailing suction hopper dredger for Van Oord.
Second of the 2 LNG-powered container ship for Pasha Hawaii. FPSO modification and upgrade for BW Offshore. Seatrium continues to demonstrate our market leadership in repair and upgrade segment, with 144 vessels serviced at our network of yards in first half 2023, compared with 96 projects in the same period last year. This include 28 LNG carrier refits, 14 cruise ship repair upgrades, as well as conversion and major refits of offshore projects such as FSRUs and FPSOs. The group currently has more than 25 projects under execution. I will highlight some of the key projects. Shell Whale FPU. We recently completed the integration of a mega topside with Shell Whale FPU hull in a single lift using our game-changing 30,000 ton Goliath Crane at Tuas Boulevard Yard in Q2 2023.
This project will also benefit from the synergies and experience from earlier Shell Vito FPU project. It also demonstrates how the yard's enormous lifting capacity has become a winning differentiator for Seatrium's project executions. Petrobras EPC FPSOs, a series of EPC FPSO new build projects, P-78, P-80, P-82, and P-83, are in various phases of construction for Petrobras, for Buzios pre-salt development in offshore Brazil. These are being executed across different facilities in Singapore and Brazil, made only possible through harnessing Seatrium's global network of yards.... Gimi FLNG. Gimi, the second of the three EPC FLNG conversions for Golar LNG, is undergoing final phase of commissioning and testing. We've scheduled completion in Q3 2023 for deployment in offshore Mauritania and Senegal. RWE Renewables HVDC offshore converter platform.
Fabrication is on track for RWE Renewables 1.4- gigawatt HVDC offshore converter platform for Sofia offshore wind farm in UK North Sea. Sofia is slated to be one of the largest wind farm in the world when completed. DolWin5. TenneT's offshore HVDC converter station for DolWin5 offshore wind farm is on track for sail away in 3Q 2023 for the next phase of works prior to installation in the German sector of the North Sea. Two WTIVs for the US market. Seatrium is constructing two wind turbine installation vessels for Dominion Energy and Maersk Supply Service to service the US market. We expect continued strong execution with successive project deliveries and good progression on these existing projects. In fact, we have 11 more major projects scheduled for completion by the end of this year.
The new orders of $4.3 billion secured in first half 2023 include a landmark win from TenneT to construct three 2-gigawatt HVDC offshore converter platforms. This will be the biggest and the most powerful of their kind in the industry to serve TenneT's 3 offshore wind farm projects off the coast of Netherlands. A $500 million contract for 2 offshore wind farm substation for Empire Offshore Wind, for installation in the East Coast of the U.S. to power more than 1 million homes in New York and support U.S. energy transition goals. An EPCI contract win from Chevron for its LNG fleet modification. Innovation and technology are enablers of our industry's commitment towards decarbonization and a sustainable operating environment. On this front, Seatrium continues to advance our technologies and new product development through strategic collaboration and partnerships.
In a tie-up with Technology Centre for Offshore and Marine, Singapore, the Seatrium-TCOMS Ocean Lab has been established to advance the design and operational performance of smart ocean system and infrastructure. This also saw a master research collaboration agreement signed on 27 April 2023. Seatrium and ABS have collaborated to advance pioneering digital transformation with smart yard initiatives. In fact, Seatrium mobile wearable personal device monitoring system has received product design assessment approval from ABS in April 2023. Our wholly owned subsidiary, LMG Marin, has entered into a joint development project with partners GTT, TotalEnergies, and Bureau Veritas to develop a 150,000 cubic meter liquid hydrogen carrier concept design. This is to pave the way for safe and efficient transport of hydrogen at sea for maritime decarbonization.
In the area of sustainability, the Group's effort to put sustainability in the forefront of our business are outlined by our collective affirmation of commitment to ESG. We have in place a dedicated corporate social responsibility committee established to support the board and the management on ESG matters. Honing in on our execution centers, the drive for sustainable yard operation has resulted in the adoption of renewable energy sources to power Seatrium's yards in Singapore, the Philippines, China, and Brazil. We have also gained traction in this area from a financing perspective. The group has secured green trade finance facilities for bank guarantee , worth $1.1 billion, to finance our sustainability efforts. We will continue on our sustainability journey in order not only to do well for our stakeholders, but also to do good for the community and environment.
In the face of our rapidly evolving industry, we continue to take steps to position Seatrium at the center of global energy transition to a low-carbon economy. Amid the ongoing energy transition and heightened concerns for energy security, the industry outlook for oil and gas, offshore renewables, and other green solutions continues to improve and strengthen. In particular, the prospects for offshore wind-related orders will continue to be driven by Europe, and the US needs to meet the capacity targets by 2040. These targets are likely to be accelerated due to the above-mentioned increasing momentum of energy transition and governmental goals of net zero emission. Riding on these prospects, Seatrium is working on multiple tender opportunities and endeavors. To strategically convert this into firm quality contracts, we anticipate operational and financial performance to continue to improve in tandem.
Since the kickoff of our Seatrium brand launch in March, the group continues on our drive to engage all our stakeholders on our new corporate identity and brand promise. As I've covered during the Q1 2023 business update, Seatrium's post-merger implementation plan are being executed, including a focus on unlocking synergies to create long-term value for the future. We are on track on our transformation journey, with oversight through a dedicated board committee and transformation team. The organization's capital structure and strategy reviews are also both underway and are expected to be completed by end 2023. Let me now pass the discussion to Paul Tan, our Group Finance Director, who will share more details on our first half 2023 financial performance. Thank you.
Thank you, Chris, and good morning to all. Before I take you through the group's financial performance, I would like to highlight that the financial results reflect the completion of the combination with Keppel Offshore & Marine, now known as Seatrium Offshore & Marine, on 28 February, 2023. For the first half of 2023, the group achieved a positive EBITDA of $27 million. However, if we stripped out the provision for contracts and merger expenses, EBITDA will be $258 million. Both this compared favorably with the negative EBITDA of $19 million for the first half of 2022. The group's revenue was $2.9 billion, representing a significant 164% increase year-on-year. This was due to the consolidation of projects following the completion of the combination.
Strong operational execution, achievement of production milestones, as well as initial contribution from new projects. Free cash flow. Free cash outflow was SGD 173 million, compared to free cash inflow of SGD 297 million in the corresponding period in 2022. Higher receivables, purchases of inventories and materials for contracts resulted in the cash outflow. There were four projects deliveries, compared to seven projects deliveries in the first half of 2022. Net gearing was 0.17 times on 30th June, compared to 0.26 times on 31st December 2022. The decrease was due to higher equity because of shares issued for the acquisition of Seatrium Offshore and Marine. Net loss was higher year-on-year at SGD 264 million, compared to SGD 143 million in the first half of 2022.
Due to the provision for contracts and merger expenses, higher net finance costs and tax expenses. Excluding the provision for contracts and merger expenses, net loss was an improved SGD 33 million. Net asset value per share was SGD 0.12, and net tangible assets per share was SGD 0.06. This is because of the goodwill on acquisition of Seatrium Offshore and Marine. To date, the group has secured new contracts of SGD 4.3 billion, primarily from cleaner green solution. Our net order book remains robust at SGD 19.7 billion, with deliveries extending into 2030. For the first half of 2023, the group revenue increased to SGD 2.9 billion, compared to SGD 1.1 billion in the same period last year. However, losses were higher because of provision for contracts and merger expenses.
The group result was also impacted by the higher depreciation and amortization of intangibles of $200 million in the half year, compared to $96 million in the first half of 2022. Consequently, the group registered a higher net loss of $264 million. The group expects to continue to report a net loss for the full financial year, 2023. Shareholders' funds increased significantly from $3.8 billion at the end of last year, to $8.2 billion at the end of June 2023. This is attributable to new shares issued to Keppel Corporation as consideration for the acquisition of Seatrium Offshore & Marine. The group's net debt increased to SDG 1.4 billion on 30th June 2023, as borrowing increased to execute the order book.
Despite the higher net debt, net gearing ratio improves to 0.17 times. This is due to the higher equity base. On 30th of June, 2023, we recorded a negative net working capital of SGD 1.45 billion. However, if we take into consideration balances such as advances, prepayment, and contract liabilities that are not expected to realize in the next 12 months, the group's negative working capital lowered to SGD 532 million. The negative working capital was due to reclassification of loans to short-term as they become due in the next 12 months. We plan to refinance the loan of the group with longer-term arrangements. We are in discussion with banks on refinancing the loans. We continue to adopt a disciplined approach to cash flow and liquidity management.
Barring unforeseen development, we believe we have sufficient debt headrooms, with existing facilities and continued support of our bankers and bondholders, we will be able to execute our secured orders and meet our liquidity needs. This slide shows our free cash flow, which I have explained earlier. Gross debt on 30th of June was $3.7 billion, cash and cash equivalent was $2.3 billion. We have just announced the utilization of $200 million of our 2021 rights issue proceeds. The balance from the rights issue now is approximately $400 million. The group will continue to be prudent in its fund management and will manage towards the right mix of borrowings. I will now hand over the webcast to Chris for the question and answer session. Thank you.
Thank you, Paul. Now, we now open the floor to Q&A. Please feel free to ask your question online. I think we have the first question from CIMB. Siew Khee asks five questions in total. First one: Can you please share how much is the provision for merger expenses? What are the key expenses? Are there any more in the quarters ahead? I think I let Paul answer that first before I move on to the second one.
Okay. Siew Khee, the merger expense comprises principally professional fees for the combination, as well as transformation and integration costs. This cost will reduce over time.
Thank you, Paul. Second question is: How much is repair and upgrades revenue, given that the volume has gone up by 50% year-on-year? Siew Khee, RU revenue is for for first half, 2023 is around about SGD 500 million, and our repair and upgrade business is experiencing a higher workload in quarter two, 2023. We expect a good market recovery momentum to continue to increase the incoming quarters. We are very focused on niche market segments and the higher value-add repair projects like LNGC, FSRU, FSU, cruise ship, navy vessel, and periodic dry docking and life extension. Now, the third question is: What projects do you need to provide for higher costs? Why is there a need for this?
We have guided that the provision for contracts are recorded following management assessment of project activity, largely from the U.S. operation. As what we mentioned, due to the higher costs and also for the manpower shortages in that area, that we have assessed our contracts over there in the U.S. The fourth question is: How far ahead are your repair capacity and yard booked? Well, if you ask specifically, repairs, I think that we have a good suite of dry docks and also quayside space right now. I think the whole group is actually looking at the contracts that are visible, and we are open to taking more projects.
Right now, we are, as mentioned, looking at niche market and our regular customers who believe in our capabilities. It's not only just for Singapore. Seatrium has a global network of yards and facilities, and we would partner up with our regular customers who are able to give us visibility on the long-term plan on all their fleet, so that we can build it into our, our slots that's available. We are still pursuing and tendering for, for projects, so we are not fully booked yet in that aspect. Question number 5: Are Petrobras P-84, P-85, the relatively bigger size contracts that you are building on now? If not, what are other projects you are bidding that you can share? Thanks. I think P-84 and P-85 is a.
It is a public knowledge, we are actively participating in that, and we are strategizing on heading in our bid. There are other opportunities. In fact, the market has quite a number of tenders out there right now, and it spans from oil and gas production facilities to floating LNG solution and, of course, offshore renewable projects. Yes, we are not only busy executing the order book, but we are also busy out there chasing for more projects. Okay, we have a question from Rahul, from HSBC. Thank you, Rahul. Rahul asks: "Could you provide more color on the provision for contracts and merger expenses, like nature of provision? Why is there a need and split between the two contract versus merger expenses?
Can we assume that we start at a clean account from second half of 2023? Rahul, we have already addressed that in an earlier question. Whether we can start on a clean account, management is always on the lookout, and also assessing our situation every quarter and every half, so we will update when there is anything that's material. On the guidance for loss of 2023, right to say it is on reported basis? Paul, you wanna take that?
Yes, it will be on the reported basis, the loss for 2023. I think, whether we will be profitable next year, I think is something that we are working hard towards.
Yeah.
Okay.
I think, Rahul, as we have always shared, the group is very focused in our EBITDA performance. That goes to show that we are executing the projects. The capital and capital structure review, and also the strategy review, will actually help us to tackle how are we optimizing the way that we are structured, right? Next question is for Au Yong Sing. The question goes that: "What is keeping the group for being profitable in 2023?" I think, thanks, Yong Sing, for the question. I think that, right now, if we take a look at the performance itself, based on the adjusted EBITDA, we are already showing a tremendous improvement of a margin of near to 9%.
On top of that, on adjusted basis, the net loss actually has narrowed to SGD 33 million. We continue to work hard on that, and I think that there's still a tailwind coming off from the last downturn, and at the same time, the projects that we have secured are still building up. We are building up our execution excellence to ensure that we are able to translate that to a bottom line. We have a question from Terence Chua, from Mizuho. "Hi, Chris, Paul, thanks for the presentation." Thank you very much, Terence. "Could you share more details on the green finance trade financing?
Are there incentives that you can meet that will qualify you for a better funding?" Well, we have successfully secured a green trade finance facility from OCBC Bank. We secured the green trade financing facility mainly for the bankers' guarantee that's worth SGD 1.1 billion to finance the group's sustainability effort. The facility. There's a fixed rule of how we can utilize that, and we follow very closely to the Green Loan Principles. With this facility, we can be more focused on securing more new, renewable and decarbonization projects. Well, it goes to show that the market and the bankers are in full support for Seatrium to grow in that area. Next question is from Jamie Osman from Citi.
Jamie asks: "Hi, thanks for the opportunity to ask question." You're welcome, and you're always welcome to ask question. Four questions from Jamie: "For the $231 million of provision amount which was made, could you provide a split between what was related more to the merger and integration versus what was for contracts, et cetera?" Paul, do you want to take that first?
Yes. I think the provision for contracts is a higher amount, okay? Whilst the merger and integration expenses, as we said, is for the combination and the harmonization of the two organization. I think we don't provide a split of the two, but the bulk of it, the significant part of it, is for the provision for contracts.
Yeah. I guess your second question relates to this, is that to let you understand a little bit better what it relates to, is it a cost overrun or some other reason? Also going into second half, any guidance on the magnitude of similar provision, given that the integration is still ongoing. Now, we don't provide guidance on provisions. We are constantly in review of every aspects on how to optimize our operation. Pertaining to the provision made on contracts, I've already mentioned that it mainly pertains to the US operation, where we have some challenges in cost overrun in terms of manpower shortages and also extended schedule. We work with our customers, and we have actually a fixed target on how we're gonna deliver these projects on time.
Next question is that, "Given the working capital you require for upcoming projects, how much can we expect gearing to increase to in the near term? Or is there a near-term target gearing we should be thinking of?" I, I think we don't provide forecast of what the how the gearing will go. Suffice to say that the way that we run our operation today would be on cash flow neutral and positive type of projects. With the, the order book that we have, majority of them are cash flow neutral or positive, which means to say that a lot of the cash that we're holding will be utilized for the projects going forward, and that should see us in a better position than back-ended payment projects.
We will have to deliver on those projects in order to improve our cash flow situation. Next one will be: "Separately, could you also share what is your blended interest costs is currently, and do we include the recent $1.1 billion green trade financing you secured recently? Thank you." Sorry, I know we're very interested on this, but we do not share our cost of debt. Suffice to say now, as a bigger group, and with our order book, moving towards the energy transition, and the quality of the order book is better, we work closely with our relationship banks to make sure that we get the best support that we can to grow Seatrium further. Next question is from Amanda, from Upstream.
The question is: "How much of the slated first half 2023 increases in Seatrium's revenue and order book, versus last year, came from the inclusion of Keppel Offshore & Marine?" Okay. Amanda, thanks for the question. Right now, we actually don't split ourself in terms of whether it is a Keppel Offshore & Marine or a Sembcorp Marine order book. Good to say that when the team comes together at Seatrium, we apply our strict criteria on what are the value-added projects that we do. Giving a little bit of color in terms of revenue and order book, most of it are tenders that we traditionally compete with each other, but now as a wider group, there's a better outreach.
Better outreach to our customers and to understand what are their needs and the value that we can create, rather than competition between the two on whose order book it came from. Next question is that: "Is there a delay to Seatrium strategic review? If so, why?" There's no delay. I, I think from day one, we were saying that because we are having a holistic review of our strategy and capital structure, we have said that it will be done before the end of the year, so we are on track. The board and management have been spending a lot of energy to make sure that we come up with something that we can align and grow Seatrium. Of course, the next question would be: "When do you expect to return to profit?
Thank you. We do not provide forecast. Suffice to say, right now we are looking at all angles in our review. As you can see, one of the main focuses is really to execute our projects well. Make sure that we are able to return a good EBITDA margin. Then we take a look at the capital structure. We are leaving no stone unturned, and we will be coming back to the market to educate on our strategic review results. Next question is from Uma Devi, from The Business Times, SPH Media. Thank you, Uma. You have a couple of questions. I'll go one by one.
By when, which quarter or which financial year can we expect merger expenses to be fully accounted for?" I, I think that we are doing what is necessary and what is right to make sure that we have a good strategy for growth, long-term growth, in fact, for Seatrium. It's suffice to say that all these expenses will reduce over time, right? Over time, we still need to execute on the expenses, on the strategy, but definitely it will come and reduce over time. Second question is: "How much more write-down can we expect in the coming quarters?
Are there write-downs likely to increase in second half? Again, we do not provide forecasts, but again, suffice to say, we are looking at all angles and doing our assessment on every quarter and every halves with our auditors. "Did the net loss figures for first half fall within management expectation or forecast? When is Seatrium likely to break even or turn a profit? Thank you." I believe this is the same question, but as mentioned, we are working hard. The key thing for us, our interests are aligned, is a pathway to profitability. Next question is for Terence Chua from Mizuho. He asks: "Also, Chris, are there any bottlenecks facing the group in executing its order book?" Thank you, Terence, for, for, for adding on to your question. We have a good team in Seatrium.
Right now, it's a combination of two very capable companies. The order book that we have secured has very detailed planning and also very capable project management and operation and design people behind that. I'm quite confident that the team are on it. Challenges there will be, but we are here to actually overcome all this and make sure that we deliver our projects on time, on budget. The next is from Glenn, from Shanghai Pudong Development Bank. Glenn asks: "Is concentration risk to Petrobras arising from the P-series projects a concern?" Thank you, Glenn. This is a valid question, but we see it from the angle that we manage our risks with the cash flow neutral or positive approach. We will ensure that all the milestone payment are received on time.
The key is for us to focus on execution and hit our milestone on time. From that way, I think the concentrated risk is not, not, not a concern to us. The next question is from Mayank Maheshwari from Morgan Stanley. Mayank, thanks for your question. Your first question is that, "Can you talk about the fixed cost for Seatrium in first half 2023, and how much variable costs of the total $3 billion?" Paul, do you want to take that?
I'm not sure.
Yeah.
... where you, where you've got the SGD 3 billion from? I'm not sure whether you are asking about fixed assets or-
Mm.
Right. If you're asking for fixed assets, because of the acquisition of Keppel Offshore & Marine, that would be added on to the fixed assets. There is a certain element of what we call purchase price allocation, the review of the holding costs in common, and there was a slight uplift to that cost, if you're looking at. Yeah.
I think, Mayak, might have asked on the direct cost of $3 billion. Those are direct costs in execution.
Yeah.
executing the projects.
That's right.
Yeah.
Direct costs.
Yeah. Whether it's variable or not, is in accordance to what we need in order to execute the projects profitably. Second question is that: "Can you give us details on potential increase in working capital, or we stabilize at current level for the rest of 2023?" I think that, as what we have mentioned, for the working capital, we will take a look at our capital structure review and, which is currently ongoing. One of the key strategy that we have, that even before the merger, is for cash flow neutral and cash flow positive contracts, which form a large part of our order book.
That helps in making sure that we do not finance fleet growth, and that will help us in mitigating the need for huge capital in securing contracts. Next question come from Ziwei, from Macquarie. Thanks, Ziwei, for your question. The first one: "Can you explain the other income figures of SGD 93 million in 2005, which seems related to claim for costs incurred regarding to rigs sold to AssetCo?" Paul, you want to take that?
Yeah. I, I think, if you're looking at the SGD 93 million, this, yes, you are right. This is, this includes costs that we have spent, which we are recovering from Rig Co.
Thank you, Paul. Next question from Rahul, from HSBC. The question is that: "What should we expect as a EBITDA margin for second half 2023, given the contracts you're likely to deliver and will be working on?" Rahul, again, we don't provide forecast. Suffice to say that the EBITDA margin is something that we are working very hard on, as is a direct measure of how our execution excellence. "Consequently, will you expect the company to be profitable on underlying basis for full year 2023?" Again, we don't provide forecasts. As mentioned, we will want to execute the projects in hand profitably. "Can you share more details on the higher, the high other income in first half 2023, related to rigs sold to AssetCo and higher scrap sales?
Is there an ongoing work you are doing?" Basically, trying to understand future expected trend of other operating income. I think Paul has already explained that, some part of that is relating to, basically, maintenance and also work done on the asset in Asset Co. Scrap sales, no, it's, it's not, it's not there. There are some exchange gains.
Foreign exchange.
-inside there, too. I, I think that these are, these are, these are basically numbers that will vary from quarter to quarter, and we cannot provide any forecast on that. Next question is from Peihua, from DBS. Thanks, Peihua. Congratulations on encouraging operating results. Thank you very much. Can you share more on question one? How much was the claim for costs incurred relating to risks sold to AssetCo under, under other income line? I think we have responded to that question, so we'll jump to the second question. How should we think about capital requirement and operating cash flow for Seatrium as revenue activity increase?
Well, in terms of capital requirement for our existing loan, of course, we are in advanced discussion with our supporting banks to refinance the loans that are due in the next 12 months. With the capital structure review, we will take a look at how do we optimize our debt. Of course, when we talk about capital requirement, I've also mentioned a lot of the drivers will be down to the payment terms of the projects itself. As mentioned, the amount of cash that we are holding is quite huge, but that will also support the execution of the project. Those are basically finance payment by our customers. Next question is from Adrian, UOB Kay Hian. Thanks, Adrian, for your question. The first question relates to challenges in the U.S.
Is it expected to continue in second half 2023? The short answer to that is that we at, as of now, in the first half, this, the management had assessed that this is the amount of provision that's required, and we will update if there's anything material further on. Your second question, is there any timeline update on the tender of Brazilian FPSO? Well, right now is at clarification stages. I reckon that sometimes this tender timeline would be quite... It will be a moving target because depending on how the active competitors are asking, sometimes they will ask for extension. Suffice to say that we are preparing our strategy and our tender to go in during the due date.
The third question is, given the upcycle in drilling asset, have you seen any inquiries yet? The answer is yes. We have ongoing drilling asset inquiry, resulting in increase in global market utilization of drilling asset. But right now, it will be quite opportunistic, and we will be quite selective in which are the ones that we will participate in. But we expect that the drilling market will probably take some time to come back because of the financial situation of the contractors. Next question is from Hong Han, from CLSA. Your first question is, what drives $93 million of other income? We have answered that. Is it expected to continue? I, I think, the, the question would be it...
There is a MSA agreement on how we're gonna manage and to maintain the rig and complete the rigs. That is on a recurring basis at the instruction or AssetCo. For AssetCo income, we do not expect that to be recurring at that number. Second question is that, can we know what is the revenue run rate to reach break even for the combined entity? Well, that is a question that we are looking at at strategic review. It's not only just on revenue run rate, it's also on the cost structure, and also about, you know, the holistic costs or optimization that we can achieve because of the merger. The team is working hard on it, and we will share more details later on when we are ready.
There's one question that, you know, there's, there's no name attached to it, right? Seatrium is sitting on a large cash balances. What is the intent for these funds? Well, a lot of all these cash balances, besides what is remaining of the rights issue, it is also the advanced payment cash that were given on the projects that we assigned from our customers. That is the reason why I believe Paul mentioned that, you know, that when you compare quarter to quarter, half to half, it's quite difficult to say that whether there is a growth or not, because this amount of cash will be utilized for the to complete the contracts itself. There is full intent of how we're gonna use this. All right?
In the meantime, we keep them as cash pools, whether in different instruments. Next question, Amanda from Upstream. Please, can you share which project in Seatrium U.S. Yard is experiencing labor issues and schedule delay? Amanda, I think we, we don't pinpoint which are the project because the labor situation is across the Americas. What we have left in the yard right now would be the one dredger and one WTIV. It's under control, and we, we know what are the plan to deliver those projects. Jamie from Citi follow on with another question: How are you seeing the current operating environment in terms of both labor supply as well as raw material or component shortages in the market? Do you expect this to persist or improve in the near term?
Well, we have shared about the labor challenges in the U.S., but for most of our projects in Singapore and other areas, the team are very conscious in managing all these risks. In fact, these risks have always been flagged out even before we close the contracts, and the team are tasked to make sure that they have mitigation around it. Most of the material and the component and the, the tech items, usually we will have a certain percentage of confidence that we are able to place an order at the point of contract signing, so that helps to mitigate some of the unknown. Of course, we have teams managing the supply chain that will be constantly looking at this at the project execution level.
I think the next question is from Ziwei, from Macquarie. Can you explain the push and pull factor that will affect your adjusted EBITDA margin of 9% going forward? Like, what are the cost factors that could be a drag versus factors that could drive an uplift in margin? I, I think, Ziwei, it is, it is a good question. I think the EBITDA margin is a factor of how well that we execute all our contracts. So in terms of, whether there's any drag, it's all about execution, which means to say that our team will have to execute the contracts, overcome issues.
Factors that can drive a uplift, which the team is actively executing, would be utilizing the best facilities or capacity within the group, which they, the, they didn't have at the point where the contracts are being signed. Take, for example, when some of the contracts are signed, requiring dredging of some of our yards, we now move to TBY and execute them at a deeper water berth. Those are the things that will help in terms of our synergy. Right. Next, question come from Joseph Tan. High interest rates, inflation, impacted investment into green investing, and it is very frustrating that projects that could have gotten FID are being pushed back.
Your question in that background is: Does the contracts under execution have a built-in automatic adjustment to operating costs, given the long lead time of construction? Thanks, Joseph, for that question. As mentioned, different, different contracts will have different condition, depending on risk reward. Suffice to say that the team has looked at the risks very closely. Some of the contracts, a certain portion of the variable, the variable costs are actually remeasurable and reimbursable, but most of it that is within the yard control are actually lump sum. There are different aspect on how we actually structure and agree on the different risks itself. Yes, we are actively looking at how do we make sure, right? Those factors that are not within our control, we share risks with our customers.
The second question that you have is that Transocean seems to be in a good position right now. Would the yard loans be realized more quickly than previously anticipated? Right now, there is a, there is an agreed timeline for the loans to be repaid. In the meantime, I think, all our receivables, the payments that are due have came in very promptly, so we continue to work very closely with our customers. Thanks for all the overwhelming questions that you have. I'm sure that we will actually meet up separately to answer more of your questions that you have about Seatrium. Thanks for the interest, but I have one last time for one last question. This is from Su Xuan Yi from AIA Investment Management. Thank you, Xuan Yi.
Your question is regarding your US operation. They are facing higher cost, manpower shortages. Can you share if conditions have improved, worsened since end June? I think I've addressed that earlier, but suffice to say that the team has looked at it very closely and we, we deem that the provision is sufficient as of end June. Okay, thank you. I, I think that we have ran out of time, but thank you all for your interest in Seatrium, and we'll talk to you and see you in the near future. Thank you very much. Thank you.