Sembmarine H2 net loss widens to S$523.3m; expects better performance in FY22

SEMBCORP Marine (Sembmarine) reported on Friday (Feb 25) a net loss of S$523.3 million for its second half ended December 2021, widening from a S$390.4 million loss a year earlier, as challenges from the Covid-19 pandemic weighed on its operations.

But its chief executive, Wong Weng Sun, said during the results briefing the group expects its financial performance in FY2022 to be "significantly better" than FY2021, given factors such as an improved industry outlook, and that provisions for costs to complete projects in 2022 were already made in the prior year.

Wong said that Sembmarine encountered execution challenges associated with the pandemic during 2021, with shortages of skilled workers and supply chain constraints, which "resulted in significant cost overruns".

The company had issued a results guidance last October, saying that it expected to incur losses for the second half - potentially in the range of the losses of S$647 million reported in the first half.

Wong said: "While we managed to reduce our second-half losses compared to the first half, our financial results for the full year reflected the continuing impact of the pandemic which accounted for the significantly higher provisions for manpower and other costs to complete our projects."

The group noted that the stabilising labour situation, and cooperation with customers, meant that it had incurred lower losses and provisions in the second half.

Group finance director William Goh noted during the results briefing that net loss for the second half, excluding material impairments and provisions, would be S$156 million, down 37 per cent from a year earlier.

For the 6 months ended Dec 31, 2021, the group reported a 68.5 per cent increase in revenue to S$1.02 billion, up from S$604.1 million a year ago.

Full-year revenue rose 23 per cent to S$1.86 billion in FY2021, up from S$1.51 billion a year earlier.

Revenue from its floaters segment grew 24 per cent on year to hit S$643 million, and remained its largest segment. Meanwhile, its offshore platforms segment - which includes renewable solutions such as offshore wind - also posted strong revenue growth, up 85 per cent on year to S$574 million in FY2021.

However, full-year net loss stood at S$1.17 billion, double the S$582.5 million net loss recorded in FY2020. The group said it was materially affected by asset impairments and cost provisions of S$839 million, incurred mainly to address execution challenges due to Covid-19. This included S$696 million in additional labour and other costs to complete existing projects.

The group, however, is seeing positive signs heading into 2022.

The industry outlook for the oil & gas, renewables and other green solutions continues to improve, the group noted.

Goh said that high oil prices are constructive, but noted that when customers evaluate projects, they look at a much longer-term basis. "These are long-term investments and so therefore the oil majors as they evaluate the investment decisions, it wouldn't be just the temporal fluctuations in oil prices," he said.

The group will need to complete and deliver 12 existing projects in FY2022, and provisions for costs to complete these projects have already been made in the prior year. Of the 12 projects, 3 have already been delivered as of February.

Wong said: "Taking these factors into account, the group expects its financial performance in FY2022 to be significantly better than FY2021."

When asked by analysts what was the basis for the guidance of a significantly better financial year, Goh noted that as projects get closer to completion, variability and uncertainty would be improved, and they do not foresee further provisions being made.

However, he said it is still "a bit early" for them to guide on whether gross profit would be positive, negative or break even.

The manpower situation for Sembmarine has also eased. Wong said: "At the moment, we do not foresee any manpower shortages at all for us to complete the work."

The group noted that there had not been any cancellations of any existing projects during the year.

Sembmarine's net order book stood at S$1.3 billion as of end-2021, with around 43 per cent for renewables and other cleaner and green solutions sectors.

Goh said they are working actively on winning several projects, and some of these could have significant contract values "certainly north of S$0.5 billion, or even bordering into S$1 billion".

In terms of the potential combination with Keppel Offshore & Marine - announced last June - the group said the due diligence process is ongoing, and they are working towards a definitive agreement in the first quarter of this year.

The group's loss per share for the full year stood at S$0.0649, less than the S$0.1057 in FY2020, with a greater number of shares in circulation. Net asset value per share for the group stood at S$0.1275 as at Dec 31, 2021, down from S$0.2921 a year earlier.

No dividend was declared, unchanged from a year earlier.

Sembmarine shares closed at S$0.085 on Friday, up 1.2 per cent or S$0.001, before the earnings announcement.