Sembcorp Marine Swings to Q4 Profit

Posted by Joseph Keefe

Annual revenue lowest since 2006.

Singapore's Sembcorp Marine Ltd (SembMarine) swung to profit in
the fourth quarter of 2016 after provisions pulled the rig
builder into a loss the year earlier, but a downturn in oil
prices pushed annual revenue to its lowest in a decade.

SembMarine and compatriot Keppel Corp Ltd have been suffering
from an oversupply of offshore oil drilling rigs, with customers
delaying contracts and refraining from placing orders while oil
hovers at about half its 2014 peak.

"While prospects for the oil & gas industry have taken a more
positive turn following the November 2016 agreement by OPEC and
major non-OPEC countries to cut production, we believe a more
robust recovery may take longer," SembMarine said in a statement,
referring to the Organization of the Petroleum Exporting
Countries.

SembMarine, majority-owned by conglomerate Sembcorp Industries
Ltd, posted S$34 million ($24 million) in profit for the three
months through December, versus a S$537 million loss a year
prior. Revenue fell 38 percent to $830 million.

Profit for the full year stood at S$79 million, versus a 2015
loss of S$290 million, while revenue fell 29 percent to S$3.545
billion. The revenue decline was the steepest on record, and the
amount was the lowest since 2006, Thomson Reuters data showed.

New orders stood at S$320 million at December-end, with net
orders at S$7.8 billion. Excluding drillship orders from rig
lessor Sete Brasil, which has filed for bankruptcy protection,
SembMarine's order book was worth S$4.7 billion.

To ride out the industry downturn, SembMarine and Keppel have
been focusing on cost-cutting and have reduced workforces by
thousands. SembMarine has also frozen salaries since 2015.

The rig builder said it believed its current provisions were
adequate and that it has made no additional provisions since
2015.

Last month, Keppel posted its lowest annual profit in a decade.
It said it had mothballed two overseas yards and was closing
three yards in Singapore.

SembMarine's shares closed 0.66 percent higher ahead of the
earnings results. The wider market closed up 0.9 percent.

The rig builder had a debt-to-equity ratio of 1.36 percent at the
end of September, the highest among capital goods firms in
Singapore.

Analysts expect SembMarine to cut capital expenditure by 38.7
percent over the next 12 months, according to Thomson Reuters
StarMine SmartEstimates. That would be the biggest cut among
Singaporean capital goods firms.

Reporting by Marius Zaharia and Aradhana Aravindan

Feb 22, 2017

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