SembCorp Industries Limited’s Latest Earnings: What Investors Should Know

SembCorp Industries Limited (SGX: U96) reported its fiscal first-quarter earnings report yesterday evening. The reporting period was for 1 January 2015 to 31 March 2015.

The company’s source of revenue comes from its three major business segments: Utilities, Marine, and Urban Development & Others. The Marine segment’s contribution mainly comes from SembCorp Industries’ 60% stake in rig builder SembCorp Marine Ltd (SGX: S51).

You can read more about Sembcorp Industries here.

Financial highlights

Here’s a rundown on the company’s latest set of financial figures:

  1. Overall revenue for SembCorp Industries for the quarter was down 11% on a year on year comparison, coming in at around $2.34 billion.
  2. Consequently, net profit for the period fell a whopping 23.3% to around $187.7 million.
  3. Earnings per share (EPS) thus also fell 23.6% from 10.19 cents in the first quarter last year to 7.79 cents in the reporting quarter.
  4. Cashflow from operations came in at $152.1 million for the first quarter of 2015 with capital expenditures clocking in at $390 million. This gives SembCorp Industries a negative free cash flow of $237.9 million for the reporting quarter, down from the free cash flow of $567 million seen a year ago.
  5. As of 31 March 2015, the company had $1.6 billion in cash and equivalents and $5.5 billion in borrowings. This gives a net debt position of $3.9 billion. Notably, $2.4 billion of the $5.5 billion in borrowings will be due only after five years. In any case, Sembcorp Industries’ balance sheet has weakened from a year ago when it had a net debt position of -$734.5 million (meaning to say it had more cash than debt).

In all, revenue and profit was down for SembCorp Industries on a year on year basis. The company also had negative free cash flow and had added debt to its balance sheet.

Operational highlights

Quarterly revenue for the Utilities segment fell by hefty 21% to $958 million when pitted against the same quarter a year ago. Revenue for this segment was impacted by lower gas offtake in Singapore and lower high sulfur fuel oil (HSFO) prices. Meanwhile, the first unit of the TPCIL power plant in India has already commenced operations, and will be in full operation by the end of 2015.

For the Marine segment, quarterly revenue was $1.3 billion, 2% lower on a year over year basis. This was mainly due to lower revenue recognition for its rig building projects and lower average revenue per repair vessel. The net orderbook to date stands at $10.6 billion; investors might want to note that the Marine segment’s net orderbook has been declining of late.

Group President and Chief Executive Officer of SembCorp Industries, Tang Kin Fei, had given some comments on the reporting quarter’s results in the earnings release:

“Amidst the challenging environment for our Singapore energy operations and Marine business, we continue to focus on project execution, as well as on enhancing operational excellence and efficiency, to manage our costs and maximise earnings.

Underpinned by sound business fundamentals and a healthy pipeline of projects, Sembcorp remains committed to delivering long-term value and growth”

Looking forward, competition is expected to be intense in both the Utilities and Marine segment. The high level of competition is expected to continue for the Singapore energy sector which is compounded by lower oil prices. At the face of the ongoing cutback in global oil exploration, competition for new projects in the Marine segment remains intense. It is expected to be a challenging year ahead for the Marine segment.

Foolish summary

At its closing price yesterday of $4.49, SembCorp Industries traded at around 10.7 times trailing earnings with a trailing twelve months dividend yield of 4.9%.

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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.