Sembcorp Industries Limited’s Latest Earnings: A Tale of 2 Businesses

Yesterday, Sembcorp Industries Limited (SGX: U96) reported its 2016 fourth quarter and full year earnings.

As a quick background, Sembcorp Industries’ revenue comes from its three different business segments: Utilities; Marine; and Urban Development & Others. The Marine segment’s contribution comes mainly from Sembcorp Industries’ 61% ownership stake in Sembcorp Marine Ltd (SGX: S51).

You can read more about Sembcorp Industries in here or 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 Industries:

  1. For the fourth quarter, revenue for Sembcorp Industries fell 16.3% year-on-year to $2.03 billion. For 2016, Sembcorp Industries’ revenue was down 17.2% to $7.91 billion.
  2. Sembcorp Industries swung back into profitability in the fourth quarter, recording $153 million in net profit. This comes after the conglomerate recorded a loss of $145.7 million in the same quarter a year ago. For 2016, Sembcorp Industries had $394.9 million in net profit attributable to shareholders, down 28.1% from a year ago.
  3. Consequently, the company’s earnings per share (EPS) was up 170% to 7.64 cents in the reporting quarter. For the full year, Sembcorp Industries recorded an EPS of 19.75 cents, down almost 32% from 2015.
  4. Cash flow from operations was a negative $221.0 million for 2016’s fourth quarter. Capital expenditure was $127.6 million. This gave Sembcorp Industries negative free cash flow of around $349 million for the reporting quarter. For 2016, the marine and utilities giant had around $50 million in positive free cash flow. For perspective, Sembcorp Industries generated a negative $2.13 billion in free cash flow in 2015 (a negative $703.8 million in cash flow from operations and $1.42 billion in capex.)
  5. As of 31 December 2016, the company had $1.88 billion in cash and equivalents and borrowings of $9.22 billion. This gives a net debt position of around $7.4 billion. This is down from Sembcorp Industries’ net debt position of $6.6 billion $5.23 billion at the end of 2015.

In 2016, Sembcorp Industries had endured another year of revenue decline. The company’s net debt position also increased significantly compared to end-2015. But, it managed to generate positive free cash flow.

It is worth noting that Sembcorp Industries recorded $1.96 billion in trade receivables at the end of 2016. This compares with the $1.57 billion in trade receivables recorded at the end of 2015. Given that revenue in the fourth quarter of 2016 has declined by 16.3% year-on-year, this suggests that the conglomerate has some work to do in collecting customer payments on time.

The board proposed a final dividend of four cents per share. Together with the interim dividend of four cents per share, Sembcorp Industries will be paying out eight cents per share for 2016, down from 11 cents per share in 2015.

Operational highlights and the future outlook

For the fourth quarter of 2016, the Utilities segment’s revenue was up 14% year-on-year to $1.1 billion. But, net profit for the Utilities segment was down 77% year-on-year to $89.2 million.

For 2016, the segment’s revenue was down 3% to $4.1 billion. Net profit was also down 50% to $348 million. It is worth noting that the 2015 net profit included a $369.9 million one-off gain. Excluding the exceptional items, net profit for the Utilities segment would have been up 4% instead.

For more on the Marine segment, you can check out my article on Sembcorp Marine here.

Tang Kin Fei, Sembcorp Industries’ group president and chief executive officer, summarized the company’s year with the following words:

“In 2016, the Utilities business continued to provide a strong income base as the largest profit contributor to the group. Operations outside Singapore contributed over 60% of the business’ net profit, demonstrating the success of our overseas strategy.

While the market environment is expected to remain challenging in 2017, with strong capabilities and resilient businesses, SembCorp continues to be well-positioned for the future.”

Looking forward, Sembcorp Industries reported that the SGPL (SembCorp Gayatri Power) power plant commenced operations in February this year, but has yet to secure a long-term power purchase agreement. Sembcorp Industries also expects the Singapore utilities segment to continue to face intense competition.

At its closing share price of $3.36 yesterday, Sembcorp Industries traded at 17 times trailing earnings and has a trailing dividend yield of 2.4%.

Editor’s note: The original version of this article had incorrectly stated in the net debt in 2015 was $6.6 billion and that the trade receivables was $1.96 billion in 2016’s fourth quarter. The former has been corrected to $5.23 billion while the latter has been changed from the fourth quarter to the end of 2016.  

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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.