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SembCorp Marine Ltd’s Latest Earnings: Tough Competition Ahead

SembCorp Marine Ltd  (SGX: S51) reported its fiscal fourth quarter earnings for the year ended 31 December 2014 yesterday. The reporting period was for 1 October 2014 to 31 December 2014.

SembCorp Marine is a global leader in the offshore and marine industry. Its business is made out of three major sectors: rig building, offshore and conversion, and repair. It is also majority owned by SembCorp Industries Limited (SGX: U96).

You can learn more about SembCorp Marine here and catch up with its previous quarter’s earnings report here.

Financial highlights

Here’s a rundown on the financial figures for SembCorp Marine’s latest earnings:

  1. For the quarter, overall revenue for the company was down 14.6% on a year–on-year comparison, coming in at $1.44 billion. For the full financial year 2014, revenue came in at $5.83 billion – up 5.6% compared to 2013.
  2. Profit for the fiscal fourth quarter fell by 4.6% to $174 million. For 2014, profit came in at $560 million, roughly flat compared to the full year profit in 2013.
  3. Earnings per share (EPS) also fell 4.5% from 8.73 cents in the fourth quarter of 2013 to 8.33 cents in the reporting quarter. The marine giant made 26.82 cents in EPS for the whole of 2014, representing a slight increase of 0.9% from 2013.
  4. 2014’s cash-flow from operations was a negative $508 million with capital expenditures clocking in at $739 million. This gave SembCorp Marine a negative free cash flow of $1.25 billion for the year.
  5. As of 31 December 2014, the company had $1.08 billion in cash and equivalents and $1.74 billion in borrowings.

For the reporting quarter, SembCorp Marine’s management also proposed a dividend of 8 cents per share. The total dividend paid out for 2014 would be 13 cents per share, unchanged from the year before.

The Marine giant ended 2014 with a net order book of $11.4 billion ($4.2 billion in orders were actually secured in 2014) with deliveries and completion stretching to 2019; this compares with a net order book of $12.3 billion at end-2013.

Although SembCorp Marine’s annual revenue grew, the challenges in the oil and gas industry – which stem from the dramatic collapse in the price of oil in the last quarter of 2014 – may have chaffed at the company’s results for the quarter. This is seen from the double digit fall in SembCorp Marine’s revenue for the period.

Operational highlights

For the fourth quarter, the double-digit fall in overall sales was mainly from a 27% plunge in revenue in the rig building sector. This was partially offset by a 26% increase in the offshore and conversion segment.

Gross profit and operating profit rose by 20% and 24% respectively during the quarter, but net profit fell 5% due to a write-back of tax mainly attributable to recognition of tax incentives.

For some future outlook, the management at SembCorp Marine added the following comments:

“With the steep decline in oil prices in the second half of 2014, major oil and gas companies have announced reduced capital expenditure and deferred some of their planned projects. The Group continues to face tough competition in upcoming tenders for new projects in the offshore exploration and production sectors.

For the ship repair sector, there is continued demand for repair, upgrading and life extension work, in particular in the niche segments of LNG carriers, passenger/cruise vessels and offshore vessels. Demand for the Group’s big docks remains strong as alliance and long-term customers continue to provide a stable and steady base-load which would help cushion the impact of weaker demand in the offshore rig-building segment.

We remain well positioned to benefit from the upturn with our expanded product capabilities, state-of-the-art facilities and sound track record. Our performance in 2015 will be supported by our order book.”

Foolish summary

At its closing price yesterday of $2.99, SembCorp Marine traded at around 11 times trailing earnings with a trailing twelve months dividend yield of 4.3%.

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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 Chin Hui Leong doesn’t own shares in any companies mentioned.