Sembcorp Marine Ltd’s Latest Earnings: Sinking into Another Loss

Sembcorp Marine Ltd  (SGX: S51) reported its third-quarter earnings results yesterday evening. The reporting period was for 1 July 2016 to 30 September 2016.

As a quick background, Sembcorp Marine is a global leader in the offshore and marine industry. It builds, repairs, and upgrades oil rigs and other kinds of sea-faring vessels for a living. It is also majority owned by the conglomerate Sembcorp Industries Limited (SGX: U96).

You can catch up with the results from Sembcorp Marine’s previous quarter here.

Financial highlights

The following’s a quick rundown on some of the latest financial figures from Sembcorp Marine:

  1. Overall revenue for the company was down 21.4% year-on-year, coming in at $888 million.
  2. Sembcorp Marine fell into the red in the reporting quarter with it recording $21.8 million in losses attributable to shareholders, compared to $32.1 million in profit seen a year ago.
  3. Consequently, the company’s earnings per share (EPS) was a negative 1.04 cents in the third-quarter of 2016.
  4. Sembcorp Marine brought in net cash flow from operations of $765.1 million in the reporting quarter and clocked $83 million in capital expenditure. This gave Sembcorp Marine free cash flow of $682.1 million, up significantly from the negative $288.6 million in free cash flow ($248,000 in cash flow from operations and $288.9 million in capex) seen in the same quarter last year.
  5. As of 30 September 2016, the company has $1.5 billion in cash and equivalents and $4.1 billion in borrowings. This is a slight improvement from the previous sequential quarter when SembCorp Marine had S$968 million in cash and equivalents and S$3.98billion in borrowings.
  6. The company has a net orderbook year to date of $8.4 billion. Excluding the contracts with Sete Brasil, a customer that had declared bankruptcy earlier this year, the order book would be $5.2 billion. Sembcorp Marine ended the second-quarter of 2016 with a net order book (including Sete Brasil orders) of $9.2 billion.

To sum it up, Sembcorp Marine experienced another double-digit fall in revenue for the reporting quarter (the company saw revenue fall 24.8% in the second-quarter). It also fell into losses, with interest expense ($22.5 million for the quarter) taking a big bite out of its operating income.

On a brighter note, the company was free cash flow positive. Sembcorp Marine also ended the quarter with an improved balance sheet compared to the previous sequential quarter.

Operational highlights

The double-digit fall in overall sales was mainly due to a 40% revenue decline in the rig & floaters segment. This was partially offset by a 39% year-on-year increase in the offshore platform segment. Sembcorp Marine’s repair and upgrades business also recorded a 20% year-on-year decrease in revenue.

Management had some commentary in the earnings release on the company’s future outlook:

“The macro environment remains challenging, with global economic growth uneven and muted. The outlook of the Oil & Gas Sector is uncertain and recovery is expected to be long drawn. Offshore exploration and production projects continue to be curtailed. There are however some prospects in the LNG [liquefied natural gas] value chain.

Sete Brasil filed for judicial restructuring on 29 April 2016. We continue to monitor the developments.

Receipts from project deliveries and achievements of progress milestones have improved the Group’s cash flow and balance sheet during the quarter. The Group will continue to focus on liquidity, costs and balance sheet management. This includes active management of our manpower requirements in line with changing needs.

Sembcorp Marine expects to navigate these tough times, having gone through several down-cycles in the past. With a strong core team and strategic investments in infrastructure and technology built over the years, the Group is more resilient and better positioned to capture new opportunities.”

So, Sembcorp Marine still sees tough times ahead. But, management appears confident in the company’s ability to weather the storm.

At its closing share price of $1.32 yesterday, Sembcorp Marine traded at a negative price-to-earnings ratio (due to its losses) and a trailing dividend yield of 2.7%.

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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.