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What Does Sembcorp Industries Limited Do and How Does It Make Money?

It is important to know what a particular company does and how it makes its money before investing in it. Investing in a business without such knowledge is akin to travelling to an unknown territory without a map.

On that note, let’s check out what business Sembcorp Industries Limited (SGX: U96) is involved in and how it generates its revenue.

Sembcorp Industries, which is part of the Straits Times Index (SGX: ^STI), is an energy, water and marine group and has operations across 15 countries on five continents worldwide.

The annual report of the firm can clue us in on the business divisions the firm has, and the revenue raked in by each division. Let’s take a look at the table below for the revenue contribution of each division for the financial year ended 31 December 2016 (FY2016):

Source: Sembcorp Industries Limited Annual Report 2016

Revenue from the Utilities business division comes from developing, owning and operating energy and water assets.

This division operates in 14 countries and has an established track record in “generating and supplying power, steam and natural gas, and providing total water and wastewater treatment solutions for industries and water-stressed regions”.

The following shows the operational indicators, and profit from operations (PFO) by geography and segment, for the Utilities business division in FY2016:

Source: Sembcorp Industries Limited Annual Report 2016

Singapore contributed to 28% of the Utilities revenue. Looking at the segmental breakdown, the energy industry contributed to the bulk of revenue at 72%, followed by water (17%) and on-site logistics and solid waste management (11%).

Over at the Marine business division, revenue comes from its 60.9% (as at 31 December 2016) stake in Sembcorp Marine Ltd (SGX: S51).

This division specialises in providing turnkey solutions for products such as rigs and floaters, and performing repairs and upgrades of vessels, marine and offshore structures. It also has capabilities in offshore platforms and specialised shipbuilding.

The Marine division offers solutions across the offshore and marine value chain, both within and beyond the oil and gas sector. The yard facilities are located in Singapore, Indonesia, India, the UK and Brazil.

The pie-chart below shows the revenue by different segments. The bulk of the revenue, at 53%, were derived from rigs and floaters in FY2016.

Source: Sembcorp Industries Limited Annual Report 2016

The Urban Development segment owns, develops, markets and manages integrated urban developments. These include industrial parks as well as business, commercial and residential spaces mainly in Vietnam, China and Indonesia.

Last but not the least, the Others/Corporate segment comprises of businesses largely relating to minting, design and construction activities, and offshore engineering.

Behind every ticker symbol lies a living, breathing business. Buying a stock without fundamental knowledge of what the company does and how it makes money can be dangerous.

Once we know the basics of a company’s revenue streams, we can then delve into other aspects of the firm such as its profitability, strength of its balance sheet, its cash generating abilities, and more.

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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 Sudhan P owns shares in Sembcorp Industries Limited.