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Sembcorp Marine’s Latest Earnings: Massive Drop in Profit

Sembcorp Marine (SGX: S51) is a Singapore-listed company with business interests in the marine sector. It has three business segments; 1) Rigs & floaters 2) Repairs & upgrades and 3) Offshore platforms.

Sembcorp Marine released its first-quarter earnings for the year ending 2019 yesterday morning. Let’s have a look at them in more detail.

  1. First quarter revenue and net profit came in at S$811 million and S$2 million respectively. This was a 31% drop in revenue while profit nosedived 68% year-on-year.
  2. Net asset value (NAV) per share came in at S$1.11 – relatively unchanged on the year.
  3. Moving on to the company’s balance sheet, its gross debt stood at S$3.99 billion while cash and equivalents came in at S$524 million. As such, net debt came in at S$3.46 billion implying a net debt to equity ratio of 1.47 for the quarter. This was a slight pullback on the year when net debt to equity stood at 1.44.
  4. Free cash flow for the reporting quarter came in at a negative S$76.6 million (operating cash flow stood at negative S$48 million while capital expenditures came in at S$76.5 million). This was a step back from the prior year when cash flow was negative S$37.2 million (operating cash flow was S$6.6 million and capital expenditures of S$43.9 million).

Operating Highlights

Rigs & floaters saw a 33% decline in revenue year-on-year from S$1.02 billion to S$680 million. This was due to lower project recognition and deliveries compared to the prior year. Repairs & upgrades also saw a 30.3% rise from S$79 million to S$103 million for the same period. Finally, the offshore platforms segment’s revenue declined by 75.8% from S$62 million to S$15 million.

For the first quarter of the year, Sembcorp Marine secured S$175 million in contracts. These were from the design and construction of LNG bunker vessels and repair and modernisation of 13 cruise ships. This meant that the group’s order book stood at S$5.77 billion.

Sembcorp outlook

On the group’s, outlook management mentioned the following,

“Global capex spend for offshore exploration and production (E&P) continues to improve especially for the offshore production segment. Offshore drilling activities saw some improvement in day rates and utilisation levels for some drilling segments. Sembcorp Marine is responding to increasing inquiries and tenders for offshore production units, innovative engineering solutions, and projects related to the gas value chain.

The outlook for ship repairs and upgrades continues to improve, underpinned by higher work volume from the new IMO regulations requiring the installation of ballast water treatment systems and gas scrubbers. Overall, competition remains intense, and production activity for the Group is expected to remain low. We will continue to take steps to manage our costs, cash flows and gearing to address our balance sheet and to capitalise on new business opportunities.”

The company’s shares closed on Friday at S$1.67 indicating a price-to-book value of 1.5.

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Motley Fool Singapore contributor Esjay contributed to this article. Esjay does not own shares in Sembcorp Marine.

The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Tim Phillips doesn’t own shares in any companies mentioned.