What Investors Should Know From Sembcorp Industries Limited’s Latest 2016 Results

Sembcorp Industries Limited (SGX: U96) is a conglomerate with three major business segments: Utilities; Marine; and Urban Development & Others. The Marine business comes mainly from Sembcorp Industries’ 61% ownership stake in Sembcorp Marine Ltd (SGX: S51).

Just last week, Sembcorp Industries reported its 2016 full year results. Let’s take a look at some important things from the company’s latest announcements:

1. The overall numbers

Here’s a table showing the revenue and profit numbers from Sembcorp Industries’ business segments in 2016 and 2015:

Sembcorp Industries revenue and profit table
Source: Sembcorp Industries 2016 full year earnings release

2016 was a challenging year for the conglomerate. Its total revenue and net profit were both down by double-digit percentages, and as the table shows, all its businesses did not perform well too (although, the Utilities business did not do as badly as the numbers suggest; more on this later).

2. The negatives

Firstly, the Marine segment’s revenue continued its downward trend. In 2015, the segment saw its revenue drop by 13%; this was followed by a 29% decline in 2016. The fall in revenue was driven by lower revenue-recognition due to customers wanting to defer the delivery of rigs, and lower levels of activity in the offshore platform projects and repair businesses.

Secondly, despite oil prices having more or less doubled from their lows in 2016, Sembcorp Industries does not expect a quick recovery in its Marine segment. In other words, investors who are expecting a swift recovery in 2017 may be disappointed.

Thirdly, the balance sheet of the conglomerate has deteriorated. To this point, Sembcorp Industries’ borrowings had increased by around S$2.39 billion from S$6.83 billion in 2015 to S$9.22 billion in 2016; over the same period, the company’s cash position has climbed by only S$276 million. The higher borrowings has contributed to the jump in financing costs (essentially interest payments) from S$238 million in 2015 to S$402 million in 2016.

3. The positives

Despite the gloom earlier, there is also a particularly bright spot to note: Sembcorp Industries’ Utilities business.

In the table above, you can see that the Utilities segment delivered a profit decline in 2016. But, 2015 actually saw the segment enjoy some one-off divestment gains. If the one-offs were excluded, the net profit from the Utilities segment in 2016 would actually be up 4% over 2015.

Moreover, the segment’s China operations delivered record profits in 2016 and its performance in 2017 is expected to remain stable.

Overall, Sembcorp Industries had a tough 2016 largely as a result of weakness in its Marine business segment. Going forward, the recovery of the Marine business would likely be necessary in order for Sembcorp Industries to regain its profitability levels achieved in prior years.

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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 Lawrence Nga doesn’t own shares in any companies mentioned.