Latest Earnings From Sembcorp Marine Ltd: What’s Next After A Huge 90% Drop In Profit?

Sembcorp Marine Ltd (SGX: S51) just released its second-quarter earnings yesterday evening.

As a brief background, Sembcorb Marine builds, repairs, and upgrades oil rigs and other kinds of sea-faring vessels for a living. The company is majority-owned by Sembcorp Industries Limited (SGX: U96).

With that, let’s take a look at Sembcorp Marine’s latest results.

Financial highlights

Here are some of the company’s latest financial figures:

  • For the quarter, revenue and net profit attributable to shareholders came in at S$908.5 million and S$11.45 million, respectively. These represented stiff year-on-year declines of 24.8% for revenue and a whopping 89.5% for profit.
  • The net asset value (NAV) dropped 18% from S$1.46 per share in the second-quarter of 2015 to S$1.20.
  • Moving on to the balance sheet, Sembcorp Marine ended the reporting quarter with total debt of S$3.98 billion and cash & equivalents of S$968.0 million; this equates to a net-debt position of S$3.01 billion. Sembcorp Marine had a net-debt position of ‘just’ S$1.65 billion in the second-quarter of 2015. Moreover, the company’s net-debt to shareholder’s equity ratio had also increased from 54% in the second-quarter of 2015 to 120% in the second-quarter of 2016.
  • Although free cash flow for the reporting quarter came in at a negative S$57.4 million (operating cash flow of S$30.0 million and capital expenditure of S$87.5 million), it is a big improvement from the prior year when free cash flow was a negative S$574.8 million (operating cash flow was negative S$358.6 million and capital expenditure was S$216.3 million).
  • The company announced an interim dividend of 1.5 cents per share, down 62.5% from the 4 cents per share declared in the same period a year ago.

Operational highlights

Sembcorp Marine attributed its lower revenue in the reporting quarter to “lower revenue recognition for rig building projects resulting from customers’ delivery deferment requests.”

For the first-half of 2016, Sembcorp Marine secured S$320 million in contracts. The company ended the reporting quarter with an order backlog of S$9.2 billion, down from the S$10.9 billion seen at end-June 2015 and $9.7 billion at end-March 2016.

Sembcorp Marine also said that the “majority of current S$9.2 billion order book is with progressive payment terms.” It added that “less than 20% of the order book is for drilling rigs with backend loaded payment terms.”

The road ahead

In its earnings release, Sembcorp Marine painted a gloomy picture regarding the future of the oil & gas industry. It said:

“Global economic growth remains subdued and uncertain. More offshore exploration and production projects have been curtailed. Capital investments in oil & gas are significantly down and this will continue to have a negative impact on the recovery process.”

The company also gave a brief update on one of its major customers, Sete Brasil. It said that there “has been no significant significant development since Sete Brasil’s filing for judicial restructuring on 29 April 2016.”

Sembcorp Marine also shed light on its strategy for dealing with the industry-downturn:

“The Group remains focused on delivering from its order backlog with net orders totaling $9.2 billion as at end June 2016.  The Group’s recent significant and successful project deliveries have improved cash flow.

During these challenging times, the Group will continue to focus on costs, liquidity and balance sheet management.  The Group continues to rigorously optimize its manpower requirements.  We will remain prudent and will actively manage our balance sheet to maintain a healthy financial position.

Sembcorp Marine’s strategic investments in infrastructure and technology over the years have enhanced our resilience to navigate through these tough times. We have gone through several down-cycles in the past and have built up a strong core that will enable us to weather the elements during this difficult period.”

The company’s shares closed at a price of S$1.44 yesterday. At that price, the company carries a price to book value of 1.2.

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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 owns shares in Sembcorp Industries.