Sembcorp Industries' Q3 net profit down 38%

HIGHER finance costs and lower revenue eroded third-quarter earnings for Sembcorp Industries, which also wrote down S$56.3 million on its utilities business in Singapore.

Net profit for the group tumbled 37.7 per cent to S$33.6 million from the previous year, said the group in an exchange filing. This translates to earnings per share of 1.23 Singapore cents, down from 2.47 Singapore cents a year ago.

For the three months ended Sept 30, revenue fell 15.5 per cent to S$1.81 billion from the preceding year, as reduced contribution from the marine division more than offset an increase in the utilities division's turnover.

Sembcorp Marine's (SembMarine) revenue had plunged 64.3 per cent year-on-year due to lower revenue recognition for rig building and offshore platform projects; it also reversed revenue recognised a year ago after two rig contracts were terminated.

Sembcorp's net other operating income surged to S$44.4 million in the quarter, from S$3.9 million a year ago, thanks to fair value gains from mark-to-market adjustments of currency derivatives, and foreign exchange gains from SembMarine's revaluation of liabilities denominated in the US dollar to the Brazilian real.

However, this was nearly all erased by an increase of S$36.1 million in finance costs. These were due to SembMarine's higher bank borrowings and finance costs for Sembcorp's newest thermal power plant in India, Sembcorp Gayatri Power Limited (SGPL).

Sembcorp made an impairment of S$25.8 million as it wrote off the steam boilers in the Sakra area on Jurong Island which had been built in the late 1990s. (see amendment note)

The group plans to use an upcoming waste-to-energy plant on Jurong Island to produce steam more efficiently instead.

It also impaired S$26.4 million on the goodwill value for Sembcorp Cogen Pte Ltd that was acquired in 2003, as the cogeneration plant has been making losses over a period of time, said chief financial officer Koh Chiap Khiong in a briefing. Another S$4.2 million in impairment was made in relation to the utilities division's investment in an associated company.

At the briefing, chief executive Neil McGregor also told analysts and reporters that it has signed an agreement to sell utilities assets that were previously serving Jurong Aromatics Corporation (JAC) to ExxonMobil Asia Pacific. ExxonMobil had acquired JAC's plant earlier this year.

The boilers, cooling tower and associated assets will be sold for US$113 million, he said. The deal will be completed between the second half of 2019 and first half of 2020. (see amendment note)

Until then, Sembcorp will continue to supply utilities to ExxonMobil. It has also signed additional contracts with ExxonMobil for the supply of power and natural gas, he added.

In India, the group has successfully bidded for another 250 MW in the latest wind power tender, and is awaiting the formal letter of award. It had also secured 250MW in the first tender earlier this year.

Still, while the renewable energy business and its first thermal power plant Thermal Powertech Corporation India Limited (TPCIL) are performing well, these will probably not fully mitigate the expected losses from SGPL, said Mr Koh.

The urban development business is expected to deliver a better performance this year, underpinned by land sales in Vietnam, China and Indonesia.

Overall, the market environment is expected to remain challenging in 2017, Mr Koh added. "With strong capabilities and resilient businesses, the group is strengthening its balance sheet and repositioning the business for the future."

Shares in Sembcorp fell two Singapore cents, or 0.6 per cent, to S$3.38 before the results announcement on Thursday.

Amendment: Sembcorp has clarified that the steam boilers which are impaired are not part of its power plant. An earlier version also stated that the deal with ExxonMobil will be completed between the second half of 2019 and first half of 2010 - the latter has been corrected to 2020.