Sembcorp Marine Ltd’s Latest Earnings Briefing: 3 Things to Know About Its Dividend

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Oil rig builder Sembcorp Marine Ltd (SGX: S51) released its 2016 fourth quarter results recently and hosted a briefing for it.

There wasn’t good news on the company’s dividend. During the briefing, Sembcorp Marine announced a final cash dividend of S$0.01 per share. This would bring its total dividend for the year to S$0.025 per share, a sharp fall from the S$0.06 per share dividend that it paid out in 2015.

Here are three important things to note that are related to Sembcorp Marine’s dividend, namely, the free cash flow generated, the cash outlay needed for the dividend, and the strength of the company’s balance sheet.

A peek into free cash flow

Sembcorp Marine chief executive Wong Weng Sun said during the earnings that the company reported better cash flow for 2016:

“For FY2016, the Group generated a positive S$669 million of Operating cash flows, compared with a negative S$867 million for FY2015. Such improvement was attributed to successful deliveries of key projects and achievement of scheduled milestones for projects under execution.”

For the whole of 2016, Sembcorp Marine recorded S$147 million in positive free cash flow, a stark reversal from the negative free cash flow of S$1.92 billion seen in 2015. Wong attributed the turnaround to the company’s ability to deliver several key projects. Capital expenditure in 2016 also declined by 50% compared to 2015.

The cost of the dividend

For context, Sembcorp Marine had to shell out S$125 million for its 2015 dividend of S$0.06 per share.

With 2016’s dividend being lowered to S$0.025 per share, this is expected to cost Sembcorp Marine S$52.2 million. With free cash flow of $147 million in 2016, Sembcorp Marine has the ability to support the dividend. But this is provided that the rig builder is able to maintain its positive free cash flow at or above S$52.2 million.

Historically, Sembcorp Marine’s business has been volatile.

The balance sheet

As of 31 December 2016, Sembcorp Marine had S$1.22 billion in cash and equivalents and S$4.15 billion in total borrowings, giving rise to a net debt position of S$2.93 billion. This is down from the net debt position of S$2.75 billion seen at the end of 2015 (S$627.3 million in cash and equivalents and S$3.38 billion in total borrowings).

Wong explained in the earnings briefing why Sembcorp Marine’s net debt had climbed by around S$200 million from 2015 to 2016:

“Net gearing had increased marginally from 1.03x in FY2015 to 1.13x as at end December 2016.

This was largely due to investments of S$227 million in key technology companies and the remaining shares in PPL Shipyard. Excluding such investments, net gearing at end December 2016 would be similar to that for FY2015.”

In short, Sembcorp Marine has continued to invest even as it navigates through tough times in its industry. We will have to see what 2017 brings for the oil rig builder.

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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.