SembCorp Industries Limited’s Chief Executive Talks About SembCorp Marine Ltd: 3 Key Things to Know

Sembcorp Marine Ltd (SGX: S51) had a tough year in 2015 due to the collapse in the price of oil.

As a brief background, 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. Sembcorp Industries Limited (SGX: U96) is its majority owner.

In Sembcorp Industries’ latest annual report, its chief executive Tang Kin Fei, had touched on Sembcorp Marine’s challenges. Here’re three key things that Tang said.

Facing up to challenging times

“It has been a very challenging time for the Marine business [referring to Sembcorp Marine]. The downturn in the oil and gas market has affected yards around the world with a lack of new projects and requests to defer or cancel existing deliveries.

In addition, our Marine business has been affected by uncertainties in Brazil, as well as by the financial difficulties of its customer Sete Brasil.”

Lower oil prices have crimped demand for Sembcorp Marine’s services. The company had to take a $609 million impairment charge in 2015, which include $329 million for Sete Brasil projects and $280 million for other potential deferments and/or cancellations.

Staying resilient

“The business has built up a full spectrum of solutions and proprietary technologies as well as modern infrastructure to serve not only oil and gas exploration players, but also downstream players in the production, offshore support and export and import facilities segments.

This diversified product offering makes for greater resilience, as seen from Sembcorp Marine’s securing S$3.2 billion of new contracts despite depressed market conditions, including two sizeable contracts worth around US$1 billion each from customers in the oil and gas production segment.

The business has also invested wisely in new technologies and solutions and has best-in-class integrated facilities that enhance its productivity, efficiency and long-term competitiveness.”

In the quote above, Tang said that Sembcorp Marine has a broad range of capabilities that includes services catering to customers in the production and offshore support segment of the oil & gas industry. Tang thinks this could help Sembcorp Marine weather the storm.

Furthermore, he noted that SembCorp Marine was able to secure two US$1 billion projects despite the gloomy market.

Keeping the right perspective

“At the end of the day, we must remember that down-cycles are not new to the industry. Having been in the business for more than 50 years, Sembcorp Marine has gone through many such cycles, and has always emerged stronger. I have no doubt that, as an integrated company, it will be able to weather this storm and any other challenges that it may face in the future.”

Despite the near-term challenges, Tang is keeping the long-term firmly in his sights. Tang said that down-cycles are not new, implying that better conditions will return eventually. He expressed confidence that Sembcorp Marine will bounce back when the cycle turns.

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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 company mentioned.