SembCorp Marine Ltd’s Latest Earnings: Headwinds Continue to Bite the Business

SembCorp Marine Ltd  (SGX: S51) released its second-quarter earnings report yesterday evening. The reporting period was for 1 April 2015 to 30 June 2015.

SembCorp Marine is a global leader in the offshore and marine industry. It has three main business segments: rig building; offshore & conversion; and repair. It is also majority-owned by SembCorp Industries Limited (SGX: U96).

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

Financial highlights

The following’s a quick take on the latest figures from SembCorp Marine:

  1. Overall revenue for the quarter dropped by 10% year over year to $1.21 billion.
  2. Subsequently, net profit for the second quarter fell a hefty 17% from the same quarter a year ago to $136 million.
  3. Earnings per share (EPS) followed suit with a 17% fall from 6.3 cents in the second-quarter last year to 5.23 cents.
  4. SembCorp Marine’s cash-flow from operations for the reporting quarter was a negative $358.6 million. With capital expenditures clocking in at $216.3 million, the rig-builder ended up with negative free cash flow of $575 million, down significantly from the negative free cash flow of $389.6 million that was seen in the same quarter a year ago.
  5. As of 30 June 2015, the company had $803.6 million in cash and equivalents and $2.5 billion in borrowings. SembCorp Marine’s balance sheet has weakened significantly compared to a year ago when it had $1.82 billion in cash with borrowings of just $940.3 million.
  6. The marine-engineering giant ended the reporting quarter with a net orderbook of $10.9 billion, a notable decline from the selfsame figure of $12.7 billion that was seen a year ago. SembCorp Marine has managed to secure $1.35 billion in new contracts so far in 2015.

Headwinds in the oil and gas industry continue to plague SembCorp Marine, judging from its double-digit fall in revenue for the second-quarter of 2015. The company was also free cash flow negative and had accumulated more debt on its balance sheet. The strength of SembCorp Marine’s balance sheet continues to be an area of concern to be watched.

For the quarter, the company’s management team had proposed an interim dividend of 4 cents per share. This represents a 20% reduction from the 5 cents per share in dividend that was paid out for the same period last year.

Operational highlights

SembCorp Marine’s double-digit fall in overall sales was mainly due to a 29% plunge in revenue from its rig building sector. This was partially offset by a 36% year-on-year increase in revenue from the offshore and conversion segment. SembCorp Marine’s ship repair sector also recorded an 11% rise in revenue as well.

The management team at SembCorp Marine have the following comments to share on the company’s outlook on the future:

“The persistently low oil prices have escalated the ongoing cuts in global exploration and production capital expenditure. Some customers are deferring or seeking to defer the delivery of their ordered rigs on a lack of charter contracts.

While the new order outlook for offshore exploration vessels remains bleak, particularly in the jack-up segment which is in an oversupply situation, the Group has benefitted from its strategy to diversify its product offering in addition to drilling solutions.

Brazil’s oil and gas industry remains fraught in uncertainty. We continue to engage with our customers to find the best way forward for our projects and to explore all options including slowing down construction.

While the Group faces many challenges ahead, we will continue to actively manage our balance sheet to maintain a healthy financial position.”

Foolish summary

At its closing price of $2.71 yesterday, SembCorp Marine traded at around 10.9 times its trailing earnings and has a trailing-12-months dividend yield of 4.4%.

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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.