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3 Slides Which Show How the Oil Price Rout Has Ravaged SembCorp Marine Ltd’s Business

It’s not a secret that oil prices have taken a big hit since the middle of 2014.

As you can see from the graph below, the price per barrel of oil has declined from as high as US$110 in 2014 to around US$48 today.

2016-11-02-oil-prices
Source: NASDAQ

Oil rig builder Sembcorp Marine Ltd  (SGX: S51) has not been spared during this oil price rout. To get a sense how hard its business has been hit, take a look at the three slides below that the company shared in its latest earnings presentation (for the three months ended 30 September 2016).

Sharp fall in revenue

2016-11-02-sembcorp-marine-revenue
Source: Sembcorp Marine’s earnings presentation

From the slide above, we can see that Sembcorp Marine had recorded annual revenue of as high as S$5.83 billion back in 2014. But much has changed since then.

From the heights of 2014, Sembcorp Marine’s revenue fell around 15% in 2015 to $4.97 billion. There was no respite this year.

In the third-quarter of 2016, Sembcorp Marine recorded S$888 million in revenue. This is the lowest quarterly revenue the company has recorded since 2012. It is also a far cry from the third-quarter of 2014 when Sembcorp Marine recorded revenue of S$1.71 billion.

Sharp fall in operating margin

2016-11-02-sembcorp-marine-margins
Source: Sembcorp Marine’s earnings presentation

Sembcorp Marine’s operating margin has also taken a beating as the effect of the oil price rout sank in. The oil rig builder’s operating margin had been as high as 20.7% in 2010, but has since shrunk to just 5.8% in the first nine months of 2016.

The large hit in Sembcorp Marine’s operating margin has taken a toll on the company’s bottom-line.

Sharp fall in profit

2016-11-02-sembcorp-marine-net-profit
Source: Sembcorp Marine’s earnings presentation

Sembcorp Marine’s net profit has been hit hard by the oil price rout.

The rig builder took impairment charges and provisions of S$609 million in the fourth-quarter of 2015, which led to the first quarterly loss for Sembcorp Marine since 2003.

The profit picture this year has not been encouraging. For the first nine months of the year, Sembcorp Marine recorded just S$44 million in net profit – that’s a huge difference from the S$560 million it recorded in 2014.

Sembcorp Marine has also said that it needs to hunker down as it thinks that an upturn in its industry does not seem to be around the corner at the moment.

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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.