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

SembCorp Industries Limited (SGX: U96) reported in its third quarter earnings report yesterday evening. The reporting period was for 1 July 2015 to 30 September 2015.

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

You can read more about the company here or catch up with the previous earnings here.

Financial highlights

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

  1. Overall revenue for SembCorp Industries was down, plunging 21.8% year on year. The utility and marine giant recorded $2.4 billion in sales for the reporting quarter.  
  2. Subsequently, net profit for the period was also down, falling 46.9% year on year to $139 million. Share of results from associates and joint ventures also fell by 16.3%.   
  3. Earnings per share (EPS) followed suit with a 42.1% decline, falling from 10.78 cents per share in the third quarter last year to just 6.24 cents per share in the reporting quarter.   
  4. For the third quarter, cashflow from operations was $106.3 million with capital expenditure clocking in at hefty $443.8 million. Unfortunately, this gives SembCorp Industries a negative free cash flow of $337.5 million for the reporting quarter.
  5. As of 30 September 2015, the company had $1.6 billion in cash and equivalents and borrowings of $6.2 billion. This gives it a net debt position of around $4.6 billion. This is a deterioration from its net debt position of $2.3 billion on 30 September 2014.

In all, this looks like a tough quarter for SembCorp Industries with both revenue and profit suffering. The conglomerate generated negative free cash flow and added debt to its balance sheet.

It is worth noting that SembCorp Industries recorded $1.4 billion in trade receivables for the third quarter of 2015. This compares with the $1.2 billion in trade receivables recorded in the same quarter last year. Given that its topline has declined year on year, this suggests that the conglomerate has some work to do in collecting customer payments on time. The reporting quarter’s trade receivables, though, is lower than last quarter’s trade receivables of $1.8 billion.  

Operational Highlights

Quarterly revenue for the Utilities segment fell by 11% year on year, ending the quarter with $1.2 billion in sales. The utilities segment’s revenue was impacted by lower high sulfur fuel oil (HSFO) prices. The fall in topline was partially mitigated by a higher contribution from its TPCIL power plant in India.

Net profit for the utilities segment also fell 21% year on year. During the quarter, SembCorp Industries recorded an allowance of $23.2 million for doubtful debt; this is done in accordance to the group’s policy.  

For more on the marine segment, check out my article on SembCorp Marine here.

Group President and Chief Executive Officer of SembCorp Industries, Tang Kin Fei summarized the third quarter in his own words:

“While current market conditions are challenging, Sembcorp remains committed to delivering long-term value and growth. In the quarter, we continued to achieve milestones in our overseas growth strategy. Our 1,320-megawatt TPCIL power plant in India commenced full commercial operation in September. We also expanded our footprint in fast-growing emerging markets with the development of a 426-megawatt power project in Bangladesh.

At the same time, we continue to unlock value for shareholders through divestments which provide us with additional resources to invest in businesses and markets with high growth potential, in line with our focus on the energy and water sectors.”

Looking forward, competition is expected to be intense in both the Utilities and Marine segment. The Singapore energy business is still expected to be challenging and SembCorp Industries is looking for its overseas operations to pick up the slack.

Foolish summary

At its closing price yesterday of $3.58, SembCorp Industries traded at around 9 times trailing earnings and a trailing dividend yield of 4.5%. Foolish investors should note that the trailing earnings per share includes the one-time divestment gain of  Sembcorp Bournemouth Water Investment.

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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.