SembCorp Industries Limited’s Latest Earnings Briefing: What it Said About its Dividends

SembCorp Industries Limited (SGX: U96) hosted its second-quarter earnings briefing recently.  

SembCorp Industries has three business segments, namely Utilities, Marine, and Urban Development & Others. The former two are by far the most important for SembCorp Industries. It’s worth noting that the conglomerate’s Marine business stems from its majority ownership of SembCorp Marine Ltd (SGX: S51).

Investor’s eyes might be on the SembCorp Industries’ interim dividend payout.

In the second quarter, SembCorp Industries cut its interim dividend per share from S$0.05 in 2015 to S$0.04 for 2016. This came on the back of lower profits for the first half of the year.

Koh Chiap Khiong, SembCorp Industries’ chief financial officer, addressed this question in the latest earnings briefing:

The dividend side – I think – definitely if you look at our policy point of view, we are looking at sustainable profit and sustainable kind of payout. So, for the first half – our payout ratio is about 40-odd percent. And although it’s cut from five [cents per share] to four [cents per share], out payout ratio still maintains at the same level, in fact, higher than what we actually paid last year.

Of course, we will try to strive to make sure the core earnings itself is steady. Then, we can actually progressively also look at the payout ratio according to what we actually paid in the past.”  

It would appear that lower profit levels had affected the dividend payout. In 2016’s first half, SembCorp Industries’s net profit fell by 47% year on year. This could be one factor behind the cut in the interim dividend.

Show me the money

It is worth looking at the free cash flow and cash on the balance sheet as well.

For the second quarter of 2016, cash flow from operations was around $178.6 million for 2016’s second quarter. Capital expenditure was $259.7 million. This gave Sembcorp Industries negative free cash flow of over $81 million for the latest quarter.

Next up, SembCorp Industries’ balance sheet. As of 31 June 2016, the company had $1.68 billion in cash and equivalents and total borrowings of $8.5 billion. This gives a net debt position of around $6.8 billion.

The lack of free cash flow and net debt position might add constraints to SembCorp Industries’ ability to pay out in the future. These could be another two things for investors to watch in the future.

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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.