This article was originally published on Wednesday, 20 February 2019 at 7:09 A.M. SGT; it has since been updated.
Sembcorp Marine reported on Wednesday its fourth quarter net profit dropped 94.9 to S$5.93 million, beating Daiwa’s forecast for a net loss.
It attributed the profit drop to continued low overall business volume, impairment of marine vessel and accelerated depreciation costs, partly offset by higher margin recognition from newly obtained floater projects and write-backs of provisions for completed projects.
In addition, the year-ago net profit was boosted by the net positive effects of S$241 million for the termination of three rig contracts, which entitled SembMarine to the down payments, and a one-off gain from disposing of Cosco shares.
Revenue for the quarter ended 31 December rose 0.2 percent on-year to S$913.17 million, it said in a filing to SGX before the market open on Wednesday.
Daiwa had forecast a loss of around S$19 million for the fourth quarter, but had anticipated the company might “kitchen sink” 2018 earnings, primarily for its under-utilized Brazil yards.
For the quarter, SembMarine reported a tax credit of S$10.36 million, compared with a year-earlier tax expense of S$11.74 million, mainly on losses during the year and the recognition of tax incentives.
For the full year, the company reported a net loss of S$74.13 million, swinging from a year-ago net profit of S$260.18 million. Full-year revenue rose 61.1 percent to S$4.89 billion, it said.
UOB KayHian had forecast a full-year net loss of S$109 million, while OCBC had estimated a net loss of S$85.6 million.
Higher revenue for rigs and floaters
The higher full-year revenue was mainly on revenue recognition after delivering seven jack-up rigs to Borr Drilling, one jack-up rig to BOTL, the sale of the West Rigel semi-submersible rig (renamed Transocean Norge) and higher percentage recognition for ongoing drillships and newly secured offshore production projects during the year.
That had pushed up revenue from the rigs and floaters segment was S$4.15 billion for the full year, up from S$1.72 billion in the previous year.
For the offshore platforms segment, revenue was S$184 million, down from S$732 million in the previous year, on fewer contracts on hand and the completion of existing projects, it said.
Revenue from the repairs and upgrades segment was S$476 million for the year, down from S$499 million in the previous year, on fewer ships repaired, it said.
In its outlook, SembMarine was downbeat: “Overall business volume and activity for the group, while stabilizing, is expected to remain relatively low.”
Wong Weng Sun, president and CEO of the company, said in his prepared remarks that global capital expenditure for offshore exploration and production was expected to continue to improve, although it would take time for that to trickle down to offshore rig orders.
“Offshore production units are expected to dominate orders pipeline and Sembcorp Marine is responding to increasing enquiries and tenders for innovative engineering solutions,” Wong said.
“The ship repairs and upgrades segment remains intensely competitive although the market is expected to improve with higher work volume from the new IMO regulations requiring the installation of ballast water treatment systems and gas scrubbers,” Wong added.
In 2018, SembMarine said it obtained S$1.18 billion in new orders, bringing its net order book to S$6.21 billion, or to S$3.09 billion excluding Sete Brasil drillships.
Sete Brasil’s judicial recovery plan, which includes selling four drilling rigs being built at two Singapore yards, was approved by its creditors in November, Wong said. He added that that the S$329 million provision made in 2015 remains adequate.
The company didn’t declare a dividend for the quarter to conserve cash, compared with a year-ago dividend of 2.0 Singapore cents.