Latest Earnings From Sembcorp Industries Limited: Marine Division Is Taking Its Toll

Yesterday evening, Sembcorp Industries Limited (SGX: U96) released its results for the quarter and year ended 31 December 2015.

For a brief background, Sembcorp Industries is a conglomerate with three main business divisions: Utilities (consisting of energy, water, and waste management assets); Marine; Urban Development; and Others. The Marine division comes from Sembcorp Industries’ majority ownership of marine engineering firm Sembcorp Marine Ltd (SGX: S51).

With that, let’s take a look at Sembcorp Industries’ latest earnings. Here are some important financial highlights:

  1. Fourth-quarter revenue and net profit came in at S$2.42 billion and S$60.8 million respectively. There was a 9.2% year-on-year decline in revenue while profit nosedived by 75%. For the whole of 2015, revenue slid 12.4% to S$9.54 billion from S$10.89 billion in the prior year. Net profit followed suit, sinking by 31.2% to S$549 million. Consequently, earnings per share for the year had fallen by 34.2% to S$0.2917.
  2. Big drops in revenue were seen in both the Marine and Utilities divisions; their revenues had declined by 15% (to S$4.97 billion) and 13% (to S$4.23 billion), respectively. While the Urban Development and Others divisions had experienced solid revenue gains of 22% and 65%, respectively, they are both a tiny part of Sembcorp Industries’ business and thus unable to move the needle.
  3. Despite a fall in revenue for the Utilities division, it had delivered a massive 261% jump in profit to S$395 million in the reporting quarter; for the year, it was a 72% spike in profit to S$701.5 million. It should be noted though that the profit growth in the year was underpinned by net gains of over S$400 million from divestments. Without the divestment gains, the division’s profit in 2015 had dropped by 19% (or S$76 million) to S$332 million. Lower spark spreads from the operations in Singapore had dragged the division down.
  4. In the fourth-quarter of 2015, the Marine division reported a loss of S$327 million after making provisions and impairments. For the whole of 2015, this had dragged the division’s bottom-line into the red. Sembcorp Marine had released its results yesterday and my colleague Chin Hui Leong has given a great recap on what’s going on. You can check it out right here.
  5. Moving on to Sembcorp Industries’ balance sheet, its gross debt at the end of 2015 stood at S$6.8 billion while cash and equivalents came in at S$1.61 billion. This gave rise to a net debt of S$5.23 billion and a net debt to equity ratio of 0.65. For perspective, at the end of 2014, the conglomerate had net debt of just S$3.08 billion and a lower net debt to equity ratio of 0.43.
  6. Sembcorp Industries’ net asset value per share had grown by 14.3% from S$3.15 in 2014 to S$3.60 in 2015.
  7. Cash flow from operations for the reporting quarter was a negative S$598 million with capital expenditures (the purchase of property, plant and equipment line item in the cash flow statement) coming in at S$249 million. This gave Sembcorp Industries negative free cash flow of S$847 million. For the whole of 2015, Sembcorp Industries’ free cash flow was a negative S$2.14 billion (negative S$761 million in cash flow from operations and S$1.38 billion in capex). For perspective, the quarter and year ended 31 December 2014 had negative free cash flow of S$633 million and S$1.29 billion, respectively.
  8. Sembcorp Industries had proposed a final dividend of S$0.06 per share for the reporting quarter, bringing the total dividend for 2015 to S$0.11. These numbers represent a big drop from a year ago; in 2014, Sembcorp Industries’ final dividend and total dividend were $0.11 per share and S$0.16 per share respectively.

Looking ahead, Sembcorp Industries is focused on growing overseas contributions for the Utilities division. Between 2016 and 2018, the division has a solid pipeline of projects that will see the addition of over 3,800 MW (megawatt) of power and over 1.3 million m3/day (cubic metres per day) of water and wastewater treatment capacities. But, the company expects its energy business in Singapore to continue facing intense competition.

The Marine division is optimistic about its long-term prospects as “its facilities have been built to cater to the industry’s demand for the long-term.” That said, it also warned that the current down-cycle in the oil & gas sector “is expected to be more protracted than previous cycles.”

Sembcorp Industries’ shares closed at S$2.51 yesterday. At that price, the company’s valued at just 8.6 times its latest earnings and 0.7 times its book value. Shares of the firm also offered a trailing 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 Esjay own shares in Sembcorp Industries.