SembCorp Industries Limited’s Latest Earnings: Profit Jumped, But Don’t Celebrate Yet

SembCorp Industries Limited (SGX: U96) reported its fiscal second-quarter earnings yesterday evening. The reporting period was for 1 April 2015 to 30 June 2015.

SembCorp Industries’ revenue comes from its three different business segments: Utilities; Marine; and Urban Development & Others. The Marine segment’s contributions mainly come from SembCorp Industries’ 61% stake in SembCorp Marine Ltd (SGX: S51).

You can read more about SembCorp Industries in here or catch up with its previous quarter’s earnings here.

Financial highlights

The following’s a quick take on SembCorp Industries’ latest financial figures:

  1. Overall revenue for the reporting quarter was down 5.8% year-on-year to $2.39 billion.
  2. Meanwhile, SembCorp Industries’ net profit for the period increased by 24.9% year-on-year to $223.6 million. The conglomerate’s bottom-line for the reporting quarter was helped along by a $54.7 million gain from the divestment of Sembcorp Bournemouth Water Investment (SBWI). SembCorp Industries’ share of results from associates and joint ventures also showed an increase mainly due to the utilities operations in China.
  3. Consequently, SembCorp Industries’ earnings per share (EPS) rose 23.5% from 9.79 cents in the second-quarter last year to 12.09 cents in the reporting quarter.
  4. Cash flow from operations was a negative $399.3 million for the second-quarter of 2015 with capital expenditures clocking in at $300.5 million. This gives SembCorp Industries a negative free cash flow of $699.8 million for the period, down significantly from the negative free cash flow of $323 million that was seen a year ago (negative cash flow from operations of S$75.6 million and capital expenditures of S$247.4 million).
  5. As of 30 June 2015, SembCorp Industries had $1.7 billion in cash and equivalents and borrowings of $5.8 billion. This gives a net debt position of around $4.1 billion. This is up from a net debt position of $3.9 billion on 31 March 2015.

In all, revenue for the reporting quarter was down for SembCorp Industries but profit was up. That said, investors may want to note that SembCorp Industries’ profit had received a big helping hand from the one-off gain from the SBWI divestment.

Meanwhile, the conglomerate continued generating negative free cash flow and added debt to its balance sheet.

We should also note that SembCorp Industries has seen its trade receivables move up to $1.8 billion in the second-quarter of 2015 as compared to the selfsame figure of $1.2 billion seen at the end of last year.

This happened even as the firm’s revenue declined by 8.4% during the same six month period – this may suggest that the conglomerate has some work to do in collecting timely payments from its customers. To its credit though, SembCorp Industries commented in the earnings release that an amount of $379.5 million was received on 1 July 2015.

Last but not least, SembCorp Industries’ board of directors had declared an interim dividend of S$0.05 per share, unchanged from a year ago.

Operational highlights

Quarterly revenue for the Utilities segment fell by 3% year-on-year, coming in at $1.1 billion. Mirroring the last quarter, revenue for the Utilities segment was impacted by lower high sulfur fuel oil (HSFO) prices. The fall was partially mitigated by a higher contribution from the firm’s TPCIL power plant in India.

Net profit for the Utilities segment rose by 53%, predominantly on the back of the SBWI divestment. If the divestment was excluded, the segment’s profit would have fallen due to intense competition in the Singapore power market and low oil prices.

For more on the marine segment, check out my take of SembCorp Marine’s latest earnings release.

Tang Kin Fei, the Group President and Chief Executive Officer of SembCorp Industries, had summarized the first-half of his company’s fiscal year in his own words:

“Our overseas growth strategy remains on track. In the first half of the year, we strengthened our presence in the fast growing renewable energy sector with the acquisition of Green Infra in India. We also continued to expand our renewable energy footprint in China with another 150MW of wind power capacity to be added in Hebei. In total, we now have an international renewable energy portfolio of over 1,200MW

Backed by strong project development capabilities, we also entered Myanmar with the award of a US$300 million 225MW project to develop the largest independent power plant in the country. Meanwhile in India, construction of our supercritical coal-fired power plants remained on track, with the completion of our first 660MW unit.”

Looking forward, competition is expected to be intense in both the Utilities and Marine segment. SembCorp Industries continues to see a challenging environment for the Singapore energy business and is looking for its overseas operations to pick up some of the slack.

Elsewhere, customers of SembCorp Industries’ Marine segment are looking to defer deliveries of their ordered rigs. The woes in this segment mirrors that of fellow rig-builder Keppel Corporation Limited (SGX: BN4), who is engaging with its Brazilian customers on the best way forward for their projects after not having received payments since November 2014.

Foolish Summary

At its closing price yesterday of $3.46, SembCorp Industries traded at around 8 times its trailing earnings with a trailing-12-months dividend yield of 4.6%. Foolish investors should note that the trailing earnings per share includes the one-time SBWI divestment gain.

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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.