Sembmarine paints less rosy picture in H2, cites higher labour cost, slower improvement in repairs and upgrades

OFFSHORE & marine giant Sembcorp Marine (Sembmarine) lowered its second half guidance compared to its expectations just three months ago, citing a “one-off” uptick in labour costs, lower than anticipated improvement in repairs and upgrades works plus delays in securing some projects.

“These are the various factors that contributed to the financial performance for the second half to be guided as what they are…it doesn’t necessarily mean it will be worst off than the first half but that is the guidance for this current quarter,” said Sembmarine group finance director William Goh at an analyst and media briefing on its third quarter and nine-month business update on Tuesday (Nov 15). 

On the back of that, Sembmarine said it expects second half FY22 losses to be similar to that for the first-half period. 

In August this year, Sembmarine reported a net loss of S$143 million for the first-half period ended June –  a significant improvement from the S$647 million loss reported in H1 2021. On the back of a steady progress in project deliveries and a more sanguine outlook for the oil & gas, offshore wind, renewables and other green solutions sector and better orders visibility, the company’s management said then that while it expected to make a loss for the financial year, it anticipated operational and financial performance to continue to improve.

But the higher labour costs, which Goh described as “unanticipated”, was due to a significant delay till the fourth quarter in the repatriation of temporary workers from higher cost alternative sources – done earlier as pandemic-led border restrictions had led to severe labour constraints – as a result of border restrictions and unavailability of flights to their home country.

“The plan was to send them back to their home country by the middle of this year, but not every country enabled the repatriation of these workers as per our schedule. So the higher cost of labour was unfortunately due to these constraints. We call them ‘one-off’ because by the end of the year when we send them back,  we shouldn’t be experiencing this nature of cost next year,” said Goh. 

The company nonetheless expects overall business volumes to pick up in FY2023. 

Sembmarine is set to become a global O&M powerhouse once the mammoth deal to merge with Keppel Corp’s O&M unit, the terms of which were sweetened and simplified last month, is done and dusted by year’s end, as expected. Sembmarine’s acquisition of Keppel O&M is still underway, with an extraordinary general meeting expected to be convened in December 2022 or January 2023.

As at the end of September, Sembmarine’s net order book stood at S$7.1 billion, the company said. 

About S$6.7 billion of its order book comprises new contracts acquired in the year to date, including an engineering, procurement and construction contract worth about S$4.3 billion to build an oil tanker for Brazil-owned Petrobras for delivery in FY2026. 

The marine and offshore engineering group expects to complete three of its 12 ongoing projects by the end of the year, while its remaining nine projects are scheduled for delivery between 2023 and 2026. 

As at end-September 2022, the group has two renewable solutions projects under execution; three process solutions projects; four gas solutions; two ocean living solutions projects; and one advanced drilling rig solutions project.

At the briefing, Sembmarine president and chief executive Wong Weng Sun reiterated the firm’s intent to transit in a big way into the renewable wind energy and other cleaner and green solutions, which currently account for some 34 per cent of the group’s net order book.

“We want to emphasise that LNG is one of the projects we will focus on as we transition from the current state to full renewables as gas, which is a cleaner energy, is one of the key components,” he explained.

 The firm’s recent announcement that it has secured master service agreements from New Fortress Energy (NFE), which mark the first set of two Sevan cylindrical hulls to be repurposed into FLNG liquefaction facilities, was proof of this, he continued.

Shares of Sembmarine finished 0.8 per cent or S$0.001 lower at S$0.13 on Monday.