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Sembcorp Industries Limited’s Latest Quarter: 5 Quotes from Management to Sum Up the Utilities Business

Sembcorp Industries Limited (SGX: U96) released its 2017 first quarter earnings  last month. It also hosted an earnings presentation on the same day.

The company has three business segments, namely, Utilities, Marine, and Urban Development and Others. The first two are by far the most important for Sembcorp Industries.

Let’s take a look at what Sembcorp Industries’ management shared about the Utilities segment during the 2017 first quarter earnings briefing.

Trouble in India

The company’s chief financial officer, Koh Chiap Khiong, provided an update on the Utilities’ segment’s net profit:

“Utilities net profit was SGD 55.3 million in 1Q 2017, down 27%, primarily due to the weak performance from India.”

Indeed, the decline in net profit from the segment’s India business was the deepest amongst all other geographies. This is shown in the slide below:


Source: Sembcorp Industries’ earnings presentation

The weak result in India was due to the segment’s SembCorp Gayatri Power Limited (SGPL) unit, a thermal power plant. Sembcorp Industries’ chief executive officer, Neil McGregor, said:

“In India, SGPL commenced commercial operations in February 2017, and faced typical start-up issues. As the plant has yet to secure long-term power purchase agreements, its performance was adversely affected by weak spot and short-term power tariffs.

We are of course seeking to secure long-term power purchase agreements, PPAs, for SGPL. However, currently, there is limited availability of value-enhancing, long-term PPAs in the market. Spot and short-term tariffs are expected to remain weak until industry utilization improves over the next two to three years.”

For the other power plants in India, results were more positive. McGregor said:

“Meanwhile, our first thermal power project, Thermal Powertech Corporation, TPCIL, also improved its operating performance. TPCIL has 86% of its net capacity contracted under long-term PPAs.”

McGregor also took time to highlight Sembcorp Industries’ renewable energy business in India:

“We continue to make progress on growing our renewable energy business. In April, our renewable energy business in India won a bid for a 250-megawatt wind power project. The project is to be located in Tamil Nadu, and is expected to be developed in phases and fully commissioned by first quarter 2019. The project’s entire output will be sold under a 25-year, long-term PPA.

As a Group, we now have a total of over 2,000 megawatts of renewable power and energy-from-waste globally, including over 1,200 megawatts in India alone.”

Overall, the Utilities segment of Sembcorp Industries saw its losses in India widen from $1.3 million in 2016’s first quarter to $16.6 million in 2017’s first quarter. Elsewhere, Singapore’s net profit did better, rising 15% year-on-year to $34.2 million. Koh said:

“Singapore operation posted an improved performance in 1Q 2017, on higher contribution from the energy segment. The power business, however, continues to face intense competition.”

For the first quarter of 2017, Singapore contributed almost 62% of the total net profit of Sembcorp Industries’ Utilities segment.

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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.