Sembcorp expects lower performance for energy segment

SEMBCORP Industries expects the performance of its energy business to be "markedly lower" than last year due to reduced demand for power and falling energy prices.

It said on Monday that while its energy operations continue to be supported by long-term contracts, the impact of the pandemic and the reduction in economic activity amid lockdowns have hit the business.

Power demand in Singapore, India and Britain declined by about 10 to 25 per cent in April from April 2019; the downtrend is expected to continue for the rest of the year.

Furthermore, net profit from its energy business is expected to be further hit by a S$30 million accumulated currency translation loss from the divestment of its water business in Chile, as well as the lower net realisable value of the inventory of its gasoil reserves in Singapore due to lower energy prices. The value of the latter declined to about S$59 million as at end-March 2020 - a S$45 million pre-tax reduction in book value.

The company also expects losses to continue for its marine division. Except for the repairs and upgrades segment, activity levels remain low across the board, with overall business volumes expected to further weaken over the rest of the year.

Challenges have also intensified due to the Covid-19 disruption of supply chains and the resulting impact on the timely execution of its projects. The effects of the pandemic and low oil prices on projects' final investment decisions will also continue to hit new orders in coming quarters, it added.

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Sembmarine's priority now is to ensure adequate liquidity to sustain operations and tide itself over the severe downturn.

Sembcorp said that while business conditions remain bleak, it expects to maintain positive operating cash flow in 2020 due to its long-term contracts and diversified portfolio of businesses.