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Sembcorp Marine Ltd’s Latest Earnings: Another Year to Forget

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Sembcorp Marine Ltd  (SGX: S51) reported its 2016 fourth quarter and full year earnings yesterday evening. The reporting period was for 1 October 2016 to 31 December 2016.

As a quick background, Sembcorp Marine is a global leader in the offshore and marine industry. The firm builds offshore platforms, rigs, and floaters, and also repairs and upgrades various types of vessels.  Sembcorp Industries Limited (SGX: U96) is the majority owner of Sembcorp Marine.

You can learn more about Sembcorp Marine in here and catch up with the results from its previous quarter here.

Financial highlights

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

  1. The reporting quarter’s revenue was down 37.5% year-on-year, coming in at around $829.9 million. For 2016, revenue was down 28.6% to $3.54 billion.
  2. Sembcorp Marine recorded a profit attributable to shareholders of $34.3 million for the fourth quarter of 2016, a reversal from the $536.9 million in losses suffered in the same quarter a year ago. This lead to a profit attributable to shareholders of $78.8 million for 2016, up from the loss of S$289.7 million seen in 2015.
  3. Earnings per share (EPS) was $0.0164 for the fourth quarter. For the full year, Sembcorp Marine’s EPS was $0.0377.
  4. In the reporting quarter, Sembcorp Marine generated $153 million in negative cash flow from operations. Capital expenditure was $148.8 million. The combination gave Sembcorp Marine a negative free cash flow of almost $302 million for the reporting quarter, up from the negative free cash flow of $787.1 million seen in the same quarter a year ago (a negative $581.1 million in cash flow from operations and $206.0 million in capex). For the full year in 2016, Sembcorp Marine recorded $147 million in positive free cash flow, a stark reversal from the negative free cash flow of $1.92 billion seen in 2015.
  5. As of 31 December 2016, Sembcorp Marine had $1.22 billion in cash and equivalents and S$4.15 billion in total borrowings. This is down from the $627.3 million in cash and equivalents and S$3.38 billion in total borrowings that the company had on 31 December 2015.
  6. The marine giant ended 2016 with a net orderbook of $4.7 billion. This figure excludes $3.1 billion worth of Sete Brasil contracts. Sembcorp Marine had a net order book of $5.2 billion (excluding Sete Brasil contracts) in the third quarter of 2016.

In all, it looks like 2016 is another year to forget for Sembcorp Marine. Revenue was down by almost 29% for the full year, and the balance sheet is burdened with a higher debt load compared to a year ago.

On some positive notes, the oil and gas firm managed to generate positive free cash flow and it also swung back from the losses it experienced in 2015 due to write-offs.

Elsewhere, Sembcorp Marine’s trade and other receivables fell 16.5% from around $589.7 million at the end of 2015 to $492.0 million at the end of 2016. Trade and other receivables mirrored the fall in revenue, albeit at a slower pace.

The company’s board of directors proposed a final dividend of $0.01 per share, a 50% cut from the $0.02 per share dividend paid out last year. Together with the interim dividend of $0.015 per share, the total dividend for 2016 would be $0.025 per share, a sharp fall from the dividend of $0.06 per share seen in 2015.

Operational highlights and a future outlook

In 2016, Sembcorp Marine’s overall revenue decline came mainly from a 43% plunge in the Rig & Floaters segment to S$1.89 billion. The fall was cushioned by a 10% revenue increase to $1.12 billion in the Offshore Platforms segment.

For 2016, Sembcorp Marine secured $320 million in new contracts, a far cry from the $3.2 billion that it gained in 2015.

Sembcorp Marine provided the following outlook in its earnings release:

“While prospects for the oil & gas industry have taken a more positive turn following the November 2016 agreement by OPEC and major non-OPEC countries to cut production, we believe a more robust recovery may take longer. Despite the challenging outlook and intense competition, we believe that growth prospects for the offshore and marine industry remain positive in the medium to long term.

However, with increasing enquiries for non-drilling solutions, we foresee an earlier recovery in demand for fixed platforms, FPSO [floating, production, storage and offshore] and FSO conversions  [floating, storage and offshore] and new-builds in the next few years. Rising global demand for gas also augurs well for our broad-based LNG solutions and capabilities. We believe these are the key segments that will offer opportunities in 2017.

The Group’s strategy and focus remain anchored on strengthening and optimising our talent pool; pursuing operational excellence in executing our projects; investing in new capabilities, products and technological innovation to help grow our order book; and prudently managing our financial resources to preserve financial flexibility and ensure overall sustainability of our business.”

At its closing share price of $1.54 yesterday, Sembcorp Marine had a price to earnings ratio of 40.8 and a dividend yield of 1.6%

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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.