Sembcorp Marine posts Q4 loss of S$77.7 million

Singapore

SEMBCORP Marine reported another dismal quarter on Thursday but management remained hopeful of brighter prospects ahead even as it foresees continuing losses into 2020.

It posted a net loss of S$77.7 million for the three months to Dec 31, 2019 due to a persistent downturn in the offshore and marine space, reversing from a profit of S$5.9 million in the previous corresponding quarter.

On a brighter note, its Singapore yards are drawing more enquiries for various works and projects amid the supply disruption faced by Chinese yards on the back of the Covid-19 outbreak. This could result in fresh orders that could "cascade" into the subsequent quarters.

"Directionally, there are enquiries (but) I can't give specific guidance as it's a little bit too early," said William Goh, SembMarine's director of group finance.

He noted that some customers who, prior to the virus outbreak, had allocated their fleet between SembMarine's yards and Chinese yards have decided to rebalance in favour of Singapore yards. "This is a positive development as well," he said at the group's results briefing on Thursday.

SembMarine president and chief executive Wong Weng Sun said challenges remain, in particular supply chain disruptions, due to the virus outbreak, which could affect the execution of the company's projects.

On whether the group was facing production disruption in relation to a hull construction of a vessel that was outsourced to a Chinese yard, Mr Wong replied: "There is some disruption to the work itself but we are resolving this with our shipyard and our customer to bring this to a minimal impact."

He expects the impact of supply chain disruption of certain materials to be similar to the situation following the Kobe earthquake in 1995.

"Generally the supply chain will be impacted across the board but the level of impact may be different," he explained. For example, the group has a buffer stock of consumables. However, items that require long lead time could face a higher risk of supply disruption.

"We have to assess and make sure that we are able to identify them earlier so we can manage the situation better in terms of the production and delivery and how to minimise the impact and mitigate such risks," he said.

As for the impact of foreign worker quota cuts announced in Singapore's Budget 2020, Mr Wong said the company was not surprised by the move and while there will be an impact, the group has already been preparing itself for the eventuality through automation under its transformation agenda as well as outsourcing to neighbouring countries such as its yards in Indonesia's Batam and Karimun islands.

"We are (already) preparing for it...not so much in terms of labour changes but to build up our capabilities," he added.

The landscape for the rig builder was harsh in the fourth quarter.

Aside from the challenging market conditions, the wider-than-expected net loss for the fourth quarter was due to accelerated depreciation for the Tanjung Kling Yard as it relocates all operations from its older yard. But the move, driven by the group's transformation and yard consolidation strategy, is expected to reap cost savings of S$48 million annually.

Mr Goh said the savings may not flow in immediately but is likely to happen on a gradual basis.

The weaker showing was partly offset by profits from the repairs and upgrades business, which rose on improved margins and better product mix. This segment is expected to continue to improve, underpinned by IMO (International Maritime Organization) regulations that require the installation of ballast water treatment systems and gas scrubbers.

Revenue for the quarter under review fell 32 per cent to S$624 million from a year earlier. While revenue from rigs and floaters more than halved to S$334 million, repairs and upgrades revenue rose 53 per cent to S$214 million.

Loss per share for the quarter amounted to 3.72 Singapore cents versus earnings of 0.28 Singapore cent previously.

For the full year, losses nearly doubled to S$137.2 million from S$74.1 million on the back of a 41 per cent drop in revenue to S$2.9 billion.

Despite difficult market conditions, the group added new jobs worth S$1.49 billion to its orderbook from new and repeat customers - higher than the S$1.18 billion in FY2018.

Some S$530 million of the new orders in 2019 involved greener solutions, including scrubber and ballast water management system retrofits, and gas and renewable energy projects.

Group net orderbook stood at S$2.44 billion as at Dec 31.

Mr Wong said that the group was making "reasonable progress" in its talks with a potential purchaser on completing two of seven drill ships following the full and final settlement with the Sete Brasil Group on the claims under all seven drill ship contracts.

"We hope the negotiation will soon progress to new orders," he said, adding that the talks could be finalised by first or second quarter of 2020.

SembMarine shares ended Thursday at S$1.20, down four cents or 3.2 per cent.