SCI posts S$131m losses in H1, dragged by weak marine business, huge impairments

A BLEEDING marine segment, as well as substantial impairments of investments and assets dragged Sembcorp Industries' (SCI) first half showing into the red, further strengthening the case for the proposed demerger of the conglomerate and Sembcorp Marine, its top executives have said.

SCI's group president and chief executive Wong Kim Yin, who just took over the helm on July 1, succeeding Neil McGregor, said at a results briefing for reporters and analysts: "The marine unit has endured multiple hits ... and has really sunk every step of the way. We foresee a recovery to take much longer from 2021 and beyond and even then, there are headwinds and no clarity.

"Because of that, we have to evaluate how best to carry on. It is in this context that the recapitalisation (of SembMarine) and demerger was conceived. Once our balance sheets become independent of each other, we will each have better metrics. SCI's credit ratios will also improve and we can focus our business with the available resources."

Group chief financial officer Graham Cockroft put it more bluntly, saying: "At the moment, you could argue that we are destroying value by being together...(and) through the separation, we can unlock value".

For the first half period, SCI reported a net loss of S$131 million from a profit of S$191 million a year ago, led by the marine business that sank deeper into losses of S$117 million from S$6 million a year ago.

Another chief culprit for the poorer showing was exceptional items that totalled a negative S$191 million. This included impairments on energy assets, including a S$44 million write-off of gasoil inventory stored with Hin Leong Trading, a troubled firm that is facing a judicial management process.

GET BT IN YOUR INBOX DAILY

Start and end each day with the latest news stories and analyses delivered straight to your inbox.

Sign UpVIEW ALL

Without these exceptional items, underlying group net profit was S$60 million, said the firm in its results announcement.

Turnover for the six-month period to June came in at S$3.5 billion - 27 per cent lower from a year ago led by a 19 per cent dip in the energy segment turnover to S$2.5 billion, owing to falling energy demand and prices as economic activity slowed amid lockdowns as a result of the Covid-19 pandemic.

Due to exceptional items of a negative S$161 million, the energy business posted a net loss of S$5 million from a profit of S$177 million in the first half of 2019.

SCI said that in the second quarter, energy demand in Singapore, India and the UK fell by some 5-20 per cent from the year before, and hence, it expects the underlying performance of this segment in 2020 to be markedly lower than 2019.

The marine segment suffered due to absence of revenue recognition from rigs and floaters, with turnover plunging 41 per cent to S$906 million.

SCI's urban business, one of the group's two key pillars post-demerger, saw its net profit more than double to S$38 million, led by strong land sales at Sino-Singapore Nanjing Eco Hi-tech Island, China and Kendal Industrial Park, Indonesia.

For the period under review, SCI posted a loss per share of 8.29 Singapore cents versus an earnings per share of 9.69 Singapore cents a year ago.

No interim dividend was declared as the board has decided to defer the dividend consideration to the full year, given the current challenging environment.

When asked for a guidance on dividend, Mr Wong replied that the board has decided to defer the decision till the end of the year for the sake of prudence. Factors such as cash flow, which remains "strong" at the operating level currently - barring further headwinds - and the proposed demerger will impact the decision on the quantum of the payout, he added.