Sembcorp Marine Ltd’s Latest Earnings: The Suffering Continues

Sembcorp Marine Ltd  (SGX: S51) reported its fiscal first-quarter earnings results yesterday evening. The reporting period was for 1 January 2016 to 31 March 2016.

Sembcorp Marine is an important global player in the offshore and marine industry. It builds oil rigs and helps to convert and repair certain types of vessels. 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 results from the previous quarter here.

Financial highlights

The following’s a quick rundown on the latest financial figures for Sembcorp Marine:

  1. The reporting quarter’s revenue was down 29.6% year-on-year, coming in at around S$918 million.
  2. Sembcorp Marine also saw its profit sliced by almost half. The rig builder earned S$55.6 million in profit for the first-quarter of 2016, a massive decline from the S$108.9 million recorded in the same quarter a year ago.
  3. Consequently, earnings per share (EPS) was S$0.0263 for the reporting quarter, down over 48% year-on-year.
  4. For 2016’s first-quarter, Sembcorp Marine also had a negative S$73 million in cash flow from operations and S$102 million in capital expenditure. The combination gave Sembcorp Marine negative free cash flow of S$175 million for the reporting quarter, an improvement from the negative free cash flow of S$271 million seen a year ago.
  5. Sembcorp Marine had S$955.3 million in cash and equivalents and S$3.9 billion in borrowings as of 31 March 2016. This is a deterioration from the S$1.1 billion in cash and equivalents and S$2 billion in borrowings that it had on 31 March 2015.
  6. The marine engineering outfit has a net orderbook of S$9.7 billion as of 31 March 2016. This is a sequential decline from the S$10.4 billion recorded at the end of 2015.

There is little to cheer for Sembcorp Marine at the moment.

Late last week, a major customer of the company, Sete Brasil, filed for bankruptcy protection. Sembcorp Marine has taken legal action in response to protect its interests.

In another update, Sembcorp Marine said that it is pursuing legal arbitration with Marco Polo Marine Ltd (SGX: 5LY) over a contract dispute. At the moment, there is no resolution in sight for the legal kerfuffle involving the two companies.

Other financial figures also look discouraging for Sembcorp Marine. Trade and other receivables rose to S$692 million for the reporting quartter, up from the S$563 million recorded on the same date last year. This comes despite revenue falling nearly 30% over the same timeframe. The disparity could mean that the company has not been able to collect cash from its customers in a timely fashion.

Elsewhere, the company continues to record negative free cash flow. This may have led to Sembcorp Marine picking up additional debt.

Operational highlights and a future outlook

The company’s Rigs & Floaters segment continues to be weak. For the first-quarter of 2016, sales there fell by 43% year-on-year to S$540 million. The fall was slightly offset by a 10% increase in revenue to S$261 million from the Offshore Platforms segment.

The management team had some commentary on the company’s outlook:

“Sembcorp Marine believes this down-cycle is likely to be more protracted than previous cycles. Whilst maintaining its cautious outlook, the Group is prepared not just to overcome these challenges but to lay stronger foundations for the future when the market recovers.

The Group will continue to actively manage its balance sheet. It remains optimistic of the longer term prospects of its business with facilities being 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.”

It would seem like there is no end for Sembcorp Marine’s suffering in the near term, based on management’s comments.

At its closing share price of S$1.67 yesterday, Sembcorp Marine had a trailing dividend yield of 3.6%. Investors may want to note that the company’s dividend in 2015 was slashed drastically.

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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.