SembCorp Marine Ltd’s Latest Earnings: Profit Plunges 77%

SembCorp Marine Ltd  (SGX: S51) reported its fiscal third-quarter earnings yesterday evening. The reporting period was for 1 July 2015 to 30 September 2015.

SembCorp Marine is a global leader in the offshore and marine industry. Its business is made out of three major sectors: Rigs & Floaters, Repairs & Upgrades, and Offshore Platforms. It is also majority owned by SembCorp Industries Limited (SGX: U96).

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

Financial highlights

The following’s a quick rundown on SembCorp Marine’s latest financial figures:

  1. Overall revenue for the quarter was down 34% year-on-year to $1.13 billion.
  2. Subsequently, net profit for the quarter had plunged to $31.5 million, a hefty 77.4% haircut from the same quarter a year ago.
  3. Earnings per share (EPS) followed suit with a 75.6% fall from 6.32 cents in the third-quarter a year ago to just 1.54 cents in the reporting quarter.
  4. For 2015’s third-quarter, SembCorp Marine eked out just $248,000 in cash flow from operations. Capital expenditures, though, was a hefty $288.9 million. This gave SembCorp Marine a negative free cash flow of more than $288 million for the reporting quarter; this is up from the negative free cash flow of $825.5 million seen a year ago (cash flow from operations of -$608.9 million and capex of $216.6 million).
  5. As of 30 September 2015, the company had $826.8 million in cash and equivalents and $2.85 billion in borrowings. SembCorp Marine’s balance sheet had weakened considerably from a year ago when it had $1.56 billion in cash and $1.65 billion in total debt.
  6. The marine giant has a net orderbook of $11.6 billion year-to-date, down from the number of $12.6 billion seen a year ago. The firm managed to secure $2.9 billion in new contracts so far in 2015.

Compared to the prior quarter, SembCorp Marine’s revenue and profit decline was more severe this time. Headwinds in the oil and gas industry continue to hobble the company. Meanwhile, the negative free cash flow and accumulation of more debt on the balance sheet isn’t helping things.

On a brighter note, SembCorp Marine’s net orderbook had increased from the $10.9 billion reported in the previous quarter.

Operational highlights

For the third quarter, the sizable fall in overall sales was mainly due to a 43.4% plunge in revenue from the rig & floaters segment and a 16.5% fall in the repair & upgrades segment. There was a minor offset from the 6.6% revenue increase from the offshore and conversion segment.

SembCorp Marine’s profit sank significantly due to a lower operating margin, higher finance costs (arising from higher debt), losses at its associates, and impairments for its available-for-sale financial assets.

SembCorp Marine’s management had the following commentary in the earnings release regarding the firm’s future outlook :

“On July 1, 2015, we reached a key milestone in our Transformation efforts as our various business units were integrated under one brand focussing on four key capabilities, namely, Rigs & Floaters; Repairs & Upgrades; Offshore Platforms; and Specialised Shipbuilding. As an integrated Sembcorp Marine, we will optimise our capabilities and capacities, as well as increase our efficiency and productivity to better serve our partners and customers.

While the immediate operating environment in the offshore rig building industry remains very challenging, Sembcorp Marine remains focussed on the timely and effective execution of its current order book and efficient working capital management. We are confident of the long term fundamentals of the offshore and marine industry and believe our investments in new capabilities and facilities will help ensure sustainable returns for the Group, both in Singapore and at our overseas yards.”

Foolish summary

At its closing price yesterday of $2.54, SembCorp Marine traded at around 12.5 times its trailing earnings and has a trailing dividend yield of 4.7%.

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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.