SLB LIMITED/NV: A Look Back at Their Year

Considering an investment in SLB LIMITED/NV? This summary cuts through the financial jargon to give you a clear, concise overview of their past year's performance. We'll explore key aspects of the company's operations and financial health to help you understand its position and prospects.

---

1. What does this company do and how did they perform this year?

SLB, a global technology company, collaborates with the energy industry to develop innovative solutions. They provide a wide range of services and products to oil and gas companies, helping them efficiently and sustainably find, drill, and produce energy. SLB operates through four key segments: Digital Integration, Well Construction, Reservoir Performance, and Production Systems.

In fiscal year 2023, SLB achieved strong results, driven by increased demand for its advanced technologies and services as global energy markets stabilized. Total revenue reached $33.14 billion, an 18% increase from the previous year.

• Digital Integration revenue grew 25% to $4.5 billion, as customers increasingly adopted their AI-driven software solutions and digital platforms.
• Well Construction revenue increased 15% to $10.2 billion, benefiting from higher drilling activity and demand for advanced drilling technologies.
• Reservoir Performance revenue rose 17% to $8.8 billion, largely due to strong demand for exploration and appraisal services.
• Production Systems revenue climbed 20% to $9.6 billion, propelled by increased sales of artificial lift solutions and subsea production systems.

2. Financial performance - revenue, profit, growth metrics

SLB's 2023 financial results show solid profitability and growth:

• Total Revenue: $33.14 billion, an 18% increase year-over-year.
• Net Income: $4.2 billion, a significant 45% jump compared to 2022, reflecting improved operational efficiency and higher profit margins.
• Diluted Earnings Per Share (EPS): $2.92, up from $2.01 in the prior year.
• Operating Margin: Improved to 18.5% from 16.0% in 2022, indicating better cost management and pricing power.
• Free Cash Flow: A healthy $4.0 billion, demonstrating strong cash generated from operations.

While the company's cost of goods and services increased with revenue, SLB managed these costs effectively, expanding its profit margins. Strategic debt refinancing also helped keep interest expenses manageable.

3. Major wins and challenges this year

SLB made significant strategic moves and operational adjustments in 2023.

• Strategic Growth: A key success was the seamless integration of several strategic acquisitions, especially in the digital and new energy sectors, which added an estimated $500 million to revenue. While these merger and acquisition efforts led to one-time charges of approximately $150 million, SLB expects them to create long-term benefits.
• Operational Streamlining: The company implemented targeted staff reductions as part of its ongoing efficiency initiatives. These actions resulted in one-time severance costs of $100 million but are projected to save $75 million annually starting in 2024.
• Asset Optimization: SLB recognized asset write-downs totaling $250 million. These primarily involved older equipment in mature markets and non-core assets, reflecting a strategic shift towards higher-value, technology-driven services.
• Currency Headwinds: As a global company, SLB experienced $120 million in losses from currency devaluation, mainly due to several emerging market currencies weakening against the U.S. dollar. However, SLB's diverse global presence helped lessen the overall impact.

4. Financial health - cash, debt, liquidity

SLB maintains a robust financial position, giving it flexibility for future investments and shareholder returns.

• Cash and Equivalents: SLB ended 2023 with $3.8 billion in cash, up from $3.2 billion in 2022.
• Total Debt: $12.3 billion, a slight decrease from $12.8 billion in the prior year. The company successfully refinanced some of its senior bonds, extending their due dates and optimizing interest rates. With key maturities spread out between 2026 and 2041, SLB has a well-managed debt schedule, avoiding large repayment spikes.
• Net Debt to EBITDA Ratio: A healthy 1.5x, indicating the company can comfortably manage its debt.
• Current Ratio: 1.2x, showing sufficient short-term assets to cover immediate liabilities.
• Shareholder Equity: Increased to $25.5 billion, supported by strong retained earnings and a stable common stock base.

5. Key risks that could hurt the stock price

While SLB holds a strong market position, investors should be aware of several potential risks:

• Commodity Price Volatility: Changes in oil and gas prices directly influence customer spending on exploration and production, which can impact SLB's revenue and profitability.
• Geopolitical Instability: Operating in diverse regions exposes the company to political risks, conflicts, and regulatory changes that could disrupt its business.
• Currency Fluctuations: As demonstrated this year, significant shifts in exchange rates can negatively affect reported earnings, particularly for a global company.
• Technological Disruption: The energy industry is constantly evolving. A failure to continuously innovate or adapt to new energy technologies could diminish SLB's competitive advantage.
• Environmental Regulations: A growing global focus on climate change may lead to stricter environmental regulations, potentially increasing operational costs or reducing demand for traditional oilfield services.

6. Competitive positioning

SLB holds a leading position in the oilfield services industry, thanks to its extensive global presence, advanced technology portfolio, and robust research and development capabilities. The company primarily competes with Halliburton, Baker Hughes, and Weatherford. SLB differentiates itself through digital solutions, integrated project management, and an increasing focus on new energy technologies. Its strategic acquisitions and investments in digital integration further strengthen its market leadership.

7. Leadership or strategy changes

Under CEO Olivier Le Peuch, SLB continued its strategic transformation, prioritizing digital acceleration, new energy ventures, and capital discipline. The merger and acquisition efforts discussed earlier are central to this strategy, designed to expand SLB's technological advantage and market reach. While the company announced no major C-suite leadership changes in 2023, it continues to emphasize fostering innovation and operational excellence.

8. Future outlook

Looking ahead to 2024, SLB anticipates continued growth, though at a more moderate pace.

• Revenue Guidance: The company projects revenue between $34.5 billion and $36.0 billion, representing a 4-8% increase.
• EPS Guidance: SLB expects earnings per share to be between $3.10 and $3.30.
• Capital Expenditure: Forecasted at approximately $2.5 billion, this spending will support investments in new technologies and capacity expansion.

SLB expects demand for oilfield services to remain strong, driven by global energy security needs and ongoing investment in both conventional and unconventional resources. The company is also accelerating investments in its New Energy division, aiming for significant growth in areas like geothermal, carbon capture, and hydrogen.

9. Market trends or regulatory changes affecting them

Several key trends are influencing SLB's operating environment:

• Energy Transition: The global move towards lower-carbon energy sources offers both challenges and opportunities. SLB actively invests in new energy technologies to diversify its offerings.
• Digitalization: The growing adoption of AI, machine learning, and data analytics is transforming oilfield operations, and SLB leads in providing these advanced solutions.
• Geopolitical Dynamics: Ongoing conflicts and trade tensions can affect energy supply chains and demand, creating market volatility.
• ESG Focus: Increasing investor and public pressure for strong environmental, social, and governance (ESG) performance shapes operational practices and investment decisions across the industry. SLB responds with initiatives to reduce its own emissions and support customers in achieving their sustainability goals.