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How Has Sembcorp Industries Done For 2013?

Sembcorp Industries Limited (SGX: U96) announced a positive set of results for its 4th quarter and full year earnings for 2013 after the markets closed yesterday. Total revenue for the year increased 6% to S$10.8 billion from S$10.2 billion while net profits edged up 9% to S$820.4 million compared to S$753.3 million in the previous year.

Sembcorp’s businesses can be divided into 4 segments: Utilities, Marine, Waste Management and Urban Development with the former 2 being the main profit contributors;  in 2013, Utilities and Marine accounted for 51% and 39% of the company’s overall net profit (excluding Corporate eliminations) respectively. The remaining 10% is a blend of 6% from urban development and 4% from “other businesses” such as on-site logistics and waste management.

The Utilities business achieved a 20% boost in net profit for the year as it grew from S$374.6 million to S$449.9 million, mainly due to the recent IPO of Sembcorp Salalah Power & Water Company which contributed a total gain of S$117 million. Of these, a S$37 million gain was derived from the disposal of a 20% equity interest in Sembcorp Salalah by Sembcorp Industries during the IPO and the remaining $80 million comes from the fair value gain on the re-measurement of the latter’s remaining 40% stake in the former. Unfortunately, the gains from the Sembcorp Salalah IPO were partly mitigated by the S$48.5 million impairment for Teesside assets in the third quarter of 2013.

Moving on, the Marine business – as represented by majority-owned subsidiary Sembcorp Marine (SGX: S51) – contributed S$336.9 million in net profits, a slight increase of 3% on a year-on-year basis. Lastly, the Urban Development business recorded a 22% growth in net profit to S$50.2 million.

Financial Position

Sembcorp Industries managed to improve on its financial position during the year, taking its 7% net gearing ratio at the end of 2012 to a net cash balance (i.e. the total cash on its balance sheet has now exceeded is total debts) as of 31 Dec 2013.

Its free cash flow has also more than doubled from S$689 million a year ago to S$1.429 billion. However, investors should note that its free cash flow is derived by adding back “expansion Capex”, which can be understood as capital that’s spent to grow the business.

Tang Kin Fei, Group President & CEO of Sembcorp Industries, commented on the year’s results: “Sembcorp delivered a strong performance in 2013 with all our businesses delivering profit growth. Demonstrating the success of our global growth strategy, our Utilities business saw its net profit up 20% and profit contribution from its overseas operations increasing to over 50%.

He added: “With a strategic presence in key emerging markets, significant growth in capacity and a strong Marine orderbook of S$12.3 billion, Sembcorp continues to be well-positioned to deliver sustainable long-term growth.”

Looking ahead, Sembcorp aims to deliver sustainable long-term growth by a 3-pronged approach: 1) A strategic presence in key emerging markets; 2) Significant growth in capacity and; 3) A strong Marine order book (it must be noted here that while an order book of S$12.3 billion represents more than two years’ worth of revenue for Sembcorp Marine – revenues for 2013 were at S$5.53 billion – there was still a slight decline from the S$12.7 billion it was at a year ago).

Valuation and dividends

Sembcorp Industries has proposed final ordinary and special dividends of S$0.06 and S$0.02 per share respectively, bringing its total dividend payout for 2013 to S$0.13 per share, unchanged from 2012. This translates to a dividend yield of 3.125% based on the company’s current share price of S$5.44. Sembcorp Industries also sports a healthy ROE (Return on Equity) of 17.1% and is valued at 12 times trailing earnings.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor James Yeo doesn’t own shares in any companies mentioned.