Sembcorp Industries Limited Talks About Sembcorp Marine Ltd’s Past, Present, and Future

Sembcorp Marine Ltd (SGX: S51) has had a tough two-year streak.

The oil rig builder has seen its shares shrink by nearly 60% since the start of 2015. In 2015, falling oil prices had led the company to record lower revenue and clock a loss. Then in April this year, one of SembCorp Marine’s major customers, Sete Brasil, filed for bankruptcy . In the third quarter of 2016, Sembcorp Marine reported another loss.

In short, times are tough for Sembcorp Marine.

The oil rig builder’s troubles have muddied the results for its parent company, Sembcorp Industries Limited  (SGX: U96). In Sembcorp Industries’ 2016 third-quarter earnings presentation, it talked about the past, present, and future of Sembcorp Marine.

The past

The slide below was shown during Sembcorp Industries’ earnings presentation:

Source: Sembcorp Industries’ earnings presentation

Sembcorp Marine has seen its net profit shrink by a stunning 82% in the first nine months of 2016. Commenting on the profit decline, Sembcorp Industries’ chief financial officer, Koh Chiap Khiong, said:

“I think you have seen the Marine results. It’s still a very challenging macro environment. Our focus is really on the liquidity, cash and balance sheet management. Manpower requirements are also managed in line with changing needs.”

It’s becoming clear what Sembcorp Marine has to do to play defense now. It has to shore up its balance sheet and improve its liquidity situation.

The present

As of 30 September 2016, Sembcorp Marine has $1.5 billion in cash and equivalents and $4.1 billion in borrowings. This gave rise to a net gearing of 1.03 times for the company.

From the slide above, the oil rig builder has a net orderbook of $8.4 billion. More than 50% of its net orderbook comes from drillship orders. Excluding drillship contracts with Sete Brasil, Sembcorp Marine’s order book would be $5.2 billion.

The future

Sembcorp Marine is looking beyond the oil industry for its future. During Sembcorp Industries’ earnings presentation, Koh also said:

“You can see that SembCorp Marine has been focusing strongly on technology solutions. We have been diversifying into product capabilities – gravifloat, aragon. We are diversifying out from our product mix, focusing more on the non-drilling side and I think in terms of the LNG [liquified natural gas] value chain – that’s where we would like to focus a little bit more.

So, spreading out our product into different parts at this point of time.”

In all, Sembcorp Marine might have to tough it out and make selective investments to secure a future beyond the volatile oil industry.

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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.