SembMarine revenue recognition hit by Covid-19, oil price collapse

HIT hard by the double whammy of the Covid-19 pandemic and the collapse in oil prices, Sembcorp Marine (SembMarine) will be deferring all non-essential capital expenditures (capex) to preserve cash flow and manage overall liquidity with prudence and discipline.

Industry-wide cuts to capex have affected the group's ongoing negotiations for the finalisation of new orders. This, coupled with delays in executing existing orders, has led to lower revenue recognition, SembMarine said on Wednesday in its business update for the first quarter of 2020.

The collapse in oil prices from March 2020 had resulted in major oil companies deferring their final investment decisions for projects and cutting the capex significantly for this year. It also significantly affected SembMarine's securing of new orders for the foreseeable future.

Meanwhile, the Covid-19 pandemic has affected global shipping operations and "adversely affected" the group's repairs and upgrades business.

Singapore's virus-related restrictions also substantially reduced the group's operating yard workforce to 850 from about 20,000 previously, "severely" constraining yard activities, SembMarine said in its update on Wednesday.

This came after the Ministry of Manpower recently announced movement-restriction measures disallowing migrant workers from leaving their dormitories for work.

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Since the nationwide "circuit-breaker" measures were implemented on April 7, SembMarine has also imposed a no-entry into its yards for workers staying in close proximity to dormitories linked to Covid-19 infections.

The company's yards in Singapore continue to operate, having been granted exemptions from the authorities, although a limit was imposed on the number of workers allowed on the premises.

For two weeks from April 17 to 30, SembMarine also implemented a stand-down of yard production activities, to protect employees and other stakeholders from Covid-19 exposure.

In response to The Business Times' queries, a SembMarine spokesperson said on Wednesday: "While our yards are open and there are no stop orders from the government, we cannot operate optimally with our substantially reduced workforce."

The reduced workforce has been deployed to manage critical works and support yard essential services such as emergency response teams, facilities and utilities management, dormitory operations, medical centres and yard security, according to the company's Q1 business update.

The company is assessing the impact on its project schedules and working closely with customers to manage the ongoing projects during this period.

"We want to be able to reactivate our workforce and resume work safetly and efficiently when the measures are lifted," the spokesperson said.

For the rest of the year, SembMarine expects overall business volumes for all segments to further weaken. The previous trend of losses is expected to continue in foreseeable quarters, it added.

SembMarine shares were trading down one Singapore cent or 1.4 per cent to 72.5 cents as at 2.20pm on Wednesday.

Clarification note: An earlier version of this article stated that SembMarine had received a government order to stop all onsite work until the end of the "circuit-breaker" period. The company's yards had in fact been granted exemption approvals to continue operating. The yards thus remain open, albeit with a substantially reduced workforce.