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Pay cuts at Sembmarine as yard shutdowns bring H1 net loss to S$192 million

SEMBCORP Marine (Sembmarine) has posted a net loss of S$192.1 million in the half-year ended June 30, due to the shutdown of production activities at all its Singapore yards since April as a result of the Covid-19 pandemic.

By comparison, the group made a net loss of S$6.8 million in the same period the year before. Revenue in the first half was S$906 million, down 41 per cent from the same period a year earlier.

All segments posted losses in the six-month period, with the exception of the repairs-and-upgrades business, which reported higher profits on better product mix of higher-margin upgrade projects executed in the first quarter of 2020.

Sembmarine president and chief executive Wong Weng Sun told an earnings call on Wednesday: "We had positioned ourselves for recovery in 2020, but we were unexpectedly hit by Covid-19 and the collapse of oil prices.

"Given the delays in executing our existing projects, and with new orders likely to remain depressed in 2020, the group now foresees that recovery will be pushed out to 2021 and beyond."

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The net order book was S$1.91 billion as at end-June, down from S$2.4 billion as at end-2019. "While we have yet to announce significant new orders this year, we have resumed discussions on several project opportunities," Mr Wong said.

With the relaxation of Covid-19 measures in Singapore in June, production activities gradually resumed from early this month, but Sembmarine continues to right-size its workforce.

Mr Wong has volunteered to take a 50 per cent pay cut. Senior management will take a 15 per cent salary reduction; middle management will take 10 per cent less. All other employees in Singapore and overseas will take a 5 per cent pay cut, except for those earning under S$1,800 a month. Sembmarine's board is also continuing with a 10 per cent reduction in director’s fees this year, similar to FY2019.

All non-essential capital expenditures have been deferred. Capex in the first half of 2020 was S$58 million, less than a third of the amount incurred in the first half of 2019. Mr Wong said: "Going forward, we expect capex to remain low, as only maintenance capex will be incurred to ensure the safety and operability of our yard facilities."

Sembmarine remained in a net current liabilities position of S$259 million as at June 30, due mainly to term loans maturing over the next 12 months. The group said it is engaging with its lenders to refinance these loans with longer term maturities.

Mr Wong said: "In June 2020, we completed the refinancing of three term loans due that month, with longer term maturities. The group expects to have adequate existing loan facilities to repay or refinance current borrowings as they fall due."

With no operating activities for almost three months in the first half of 2020, cash flow from operations was a negative S$122 million, compared with a positive S$273 million in the corresponding period the year before.

Net gearing was 1.35 times as at end-June, compared to 1.14 times at end-2019.

On June 8, Sembmarine announced a proposed S$2.1 billion renounceable underwritten rights issue, followed by a proposed demerger ofSembmarine from its parent, Sembcorp Industries (SCI), via a distribution in specie of Sembmarine shares owned by SCI to SCI’s shareholders.

Mr Wong urged shareholders to support the rights issue when it is put to a vote in August: "The proposed rights issue, when completed, will strengthen our balance sheet by converting our S$1.5 billion subordinated loan from SCI into equity on our balance sheet.

"This will lower our net gearing as at end-2019 from 1.82 times to 0.45 times on a pro forma basis, and significantly reduce our interest  expense. We will also raise approximately S$0.6 billion additional cash to fund our working capital needs and other general corporate purposes, enabling us to compete for high-value new orders and overall ensure our long-term viability."

First-half loss per share was 9.19 Singapore cents, widening from a loss per share of 0.33 Singapore cent in the first half of 2019.

Net asset value per share was 94.77 Singapore cents as at June 30, 2020, down from 103.96 Singapore cents as at Dec 31, 2019.

Sembmarine shares rose one Singapore cent or 2.25 per cent to S$0.455 on Wednesday before the results were announced after market close.

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