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SembMarine Q4 net profit sinks 94.9% to S$5.9m on higher cost of sales

OFFSHORE engineering group Sembcorp Marine's fourth-quarter net profit fell 94.9 per cent to S$5.9 million from S$117.3 million a year ago on continued low overall business volume, impairment of an asset and accelerated depreciation.

Earnings per share (EPS) dropped to 0.28 Singapore cent, down 95 per cent from 5.61 cents previously. SembMarine did not declare any interim and final dividend for the full year, opting for “a prudent approach to conserving cash in light of the challenging business environment”. It paid out two Singapore cents per share the year before.

SembMarine shares were trading at S$1.66 as at 10.15am on Wednesday, up 5.1 per cent or 8 Singapore cents, following the results announcement.

Revenue for the three months to Dec 31 edged up 0.2 per cent to S$913.2 million, driven by the rig and floaters segment, which saw revenue grow 16.7 per cent to S$745.7 million. Repairs and upgrades revenue slipped 2.9 per cent to S$140.4 million, while sales from offshore platforms plunged 89.2 per cent to S$11.8 million. Other activities posted revenue of S$15.3 million, down 15.9 per cent year-on-year.

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But cost of sales rose 14.4 per cent to S$893.3 million for the quarter, dragging gross profit down 84.8 per cent to S$19.9 million as low business volume reduced the group's ability to absorb overhead costs. SembMarine also saw a 17.7 per cent increase, to S$56.5 million, in depreciation and amortisation; a S$4.7 million impairment on a marine vessel; and the absence of a year-ago S$32.4 million writeback from the termination of three rig contracts.

For full-year 2018, the company sank into the red with a net loss of S$74.1 million, or 3.55 Singapore cents per share, reversing from a net profit of S$260.2 million, or 12.45 Singapore cents per share,  the year before. This came as cost of sales jumped 81.7 per cent to S$4.88 billion from S$2.69 billion in 2017.

Full-year revenue grew 61 per cent to S$4.89 billion. This was due largely to revenue recognition on delivery of seven jack-up rigs to Borr Drilling, one jack-up rig to BOT Lease Co Ltd (BOTL), the sale of the West Rigel semisubmersible rig (renamed Transocean Norge) and higher percentage recognition for ongoing drillships and newly secured offshore production projects in the full year, the company said.

Offshore platforms revenue for 2018 fell 74.8 per cent to S$184.2 million due to fewer contracts on hand and the completion of existing projects. Revenue from repairs and upgrades slipped 4.6 per cent to S$476.3 million with fewer ships repaired. Average revenue per repaired and upgraded vessel rose to S$1.61 million from S$1.28 million the year before on improved vessel mix of higher-value works.

Excluding the sale of West Rigel and rig deliveries to Borr Drilling and BOTL, full-year group revenue would have been largely unchanged at S$2.53 billion from S$2.55 billion the year before.

Moving forward, as part of its transformation and yard consolidation strategy, SembMarine said it would move all operations from its Tanjong Kling Yard (TKY) by end 2019, four years ahead of schedule. This will result in accelerated depreciation of assets at TKY amounting to S$60 million over 15 months, from Q4 2018 to end 2019. After the move, the group will realise cost savings estimated at S$48 million per year from full-year 2020 onwards.