SembCorp Marine Ltd’s Latest Earnings: A Year to Forget

SembCorp Marine Ltd  (SGX: S51) reported its fiscal fourth-quarter earnings yesterday evening. The reporting period was for 1 October 2015 to 31 December 2015.

For a brief background, SembCorp Marine is a global leader in the offshore and marine engineering industry. Its business revolves around the construction, conversion, and repair of oil rigs and vessels. It is also majority owned by the conglomerate SembCorp Industries Limited (SGX: U96).

You can learn more about SembCorp Marine in here and catch up with the results from its previous quarter here.

Financial highlights

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

  1. The reporting quarter’s revenue was down 8.2% year-on-year, coming in at S$1.33 billion. For 2015, revenue was down 14.8% to S$4.97 billion.
  2. SembCorp Marine had logged a hefty S$537 million in losses for its shareholders for the fourth-quarter, a massive decline from the S$174 million in profit recorded in the same quarter a year ago. This led to a full year loss of S$290 million.
  3. Subsequently, earnings per share (EPS) was a negative S$0.257 for the reporting quarter. For the full year, SembCorp Marine’s EPS was a negative S$0.1387.
  4. For 2015’s fourth-quarter, SembCorp Marine generated a negative S$581.1 million in cash flow from operations and S$206 million in capital expenditure. These gave SembCorp Marine a negative free cash flow of S$787 million for the reporting quarter. For the full year, SembCorp Marine recorded S$1.92 billion in negative free cash flow (a negative S$989 million in cash flow from operations and S$933 million in capex).
  5. SembCorp Marine’s cash flow numbers have declined considerably from that in 2014. For the fourth-quarter and whole of 2014, the company had a negative S$580 million and a negative S$1.25 billion in free cash flow, respectively.
  6. SembCorp Marine had S$627.3 million in cash and equivalents and S$3.4 billion in borrowings as of 31 December 2015. This is a significant deterioration from the S$1.1 billion in cash and equivalents and S$1.7 billion in borrowings that the company had on 31 December 2014.
  7. The Marine giant ended 2015 with a net orderbook of S$10.4 billion. The firm had secured S$3.2 billion in new contracts for 2015, but its net orderbook still fell from the $11.4 billion seen at end-2014.

The company took impairment charges and provisions of S$609 million for the quarter, which led to the first quarterly loss for SembCorp Marine since 2003. Of the amount, the company had made a S$329 million provision for Sete Brasil projects. This mirrors the action taken by Sembcorp Marine’s peer, Keppel Corporation Limited (SGX: BN4), which took a S$230 million charge for Sete Brasil projects in the fourth-quarter of 2015.

Trade and other receivables rose from S$468.5 million at the end of 2014 to S$589.7 million at the end of 2015. This comes despite revenue falling by nearly 15% over the same time frame. The disparity could mean that SembCorp Marine has not been able to collect cash from its customers in a timely fashion.

Furthermore, the company was free cash flow negative to the tune of S$1.9 billion. This led to SembCorp Marine piling on an additional S$1.7 billion in borrowings on its balance sheet.

The company’s board of directors had proposed a final dividend of S$0.02 per share, a 75% cut from the S$0.08 per share paid out last year. Together with the interim dividend of S$0.04 per share, SembCorp Marine’s total dividend payout for 2015 would be S$0.06 per share, down from the S$0.13 seen in 2014.

Operational highlights

For the fourth-quarter, the fall in sales came mainly from a 22.3% plunge in revenue to S$854.1 million from the Rig & Floaters segment. The fall was cushioned by a 73% year-on-year increase in revenue to S$294.1 million from the Offshore Platforms segment.

SembCorp Marine’s negative free cash flow for the quarter and year arose from spending in both operational and investing activities. A hefty S$989.1 million in 2015 was spent on ongoing rig projects while S$932.8 million was used for expansion and operational expenditures (mainly for the Brazil new yard and Phase II of Sembmarine Integrated Yard @ Tuas).

As seen from the higher trade receivables,, cash collection from its customers has significantly lagged its spending. This may have led to its massive dividend cut.

The management of SembCorp Marine had added the following commentary in the earnings release on the firm’s current situation and future outlook:

“In FY2015, Sembcorp Marine secured S$3.2 billion in new orders, which represents a healthy replenishment of order books notwithstanding the challenging macro environment. With these new contracts, the Group’s net order book backlog as at 31 Dec 2015 stands at $10.4 billion.

Several of our customers have requested for delivery deferments in light of delays in chartering out their rigs. Given the current depressed environment in the upstream sector, we have tried to accommodate their requests, while preserving our commercial interests. As has been reported, one of our customers has failed to take delivery of its rig, and we have terminated the contract and taken legal action to recover the amount due to us. For the rest of our completed rigs with deferment requests, they have all been technically accepted by our customers and we have arrived at or are finalising mutually acceptable solutions with them.

The Group has made prudent provisions of $609 million in FY2015 for rig contracts, of which $329 million relate to Sete Brasil. Looking ahead, this down-cycle is expected to be more protracted than previous cycles. Sembcorp Marine believes that it is sufficiently prepared, not just to ride through the storm, but to lay stronger foundations for the future when the market recovers. The Group will continue to actively manage our balance sheet to maintain a healthy financial position.

The Group remains optimistic on the longer term prospects of its business as its facilities have been built to cater to the industry’s demand for the long term. 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.”

Foolish summary

At its closing price yesterday of $1.46, SembCorp Marine had a trailing dividend yield of 4.1%.

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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.