Sembcorp Marine FY 2016

Sembcorp Marine Group returned to profitability in FY2016 and generated operating cashflow of S$669million, compared with negative S$867million for FY2015. Net Profit for FY16 was S$79 million.

Significant deliveries made in FY 2016 include:- 

• Noble Lloyd Noble, the world’s largest ultra high-specification harsh environment jack-up rig, to Noble Corporation; 

• Safe Zephyrus harsh environment accommodation semi-submersible to Prosafe; • FPSO Professor John Evans Atta Mills to MODEC; 

• Maersk Highlander harsh environment jack-up rig for the Culzean Field; 

• Ivar Aasen Process, Drilling and Quarters (PDQ) Platform Topsides to Det Norske; 

• Six LNG Modules for the Wheatstone LNG project for Chevron. 

• Siemens Dudgeon project/ Yamal LNG processing module 

Key ongoing projects include: 

•Engineering & construction of world’s largest semi-submersible crane vessel for Heerema; 

• Design and construction of new Floating Storage and Offloading (FSO) vessel for MODEC; •Engineering, Procurement and Construction (EPC) of harsh environment topside modules for Maersk Oil, including a central processing facility, wellhead platform and living quarters platform; 

• FPSO Pioneiro de Libra conversion for Libra field, offshore Brazil; 

• FPSO topsides modules construction/integration at EJA Yard in Brazil; 

• Construction of power generation module at SLP yard, UK; 

• LNG modules work at Indonesian yards; 

The management also addressed restructuring measures to reduce manpower, salary freeze and adjustment to variable remuneration for management staff to reduce operating cost. This is good but they should do more to reduce pay from the management staff. The new yard CAPEX will only proceed if required for new contracts else it will be deferred.

The divestment of COSCO shipyard group will realise a gain of S$48.32m.

Borrowings increased by 23% from 3,380 in FY15 to 4,155 in FY16.

One of the new story which I think is a good idea is Gravifloat. Sembcorp Marine increased stake in Gravifloat to 56% after buying an additional 44% for US$38 million. Gravifloat was formed to design, deliver and operate redeployable, gravity-based, modularised LNG and LPG Terminals for installation in shallow waters. Incorporated in Norway in 2006 as a spin-off of LMG Marin (a marine & engineering and naval architecture company), Gravifloat is headquartered in Bergen. Gravifloat technology allows the LNG terminal to be fully built and completed at a shipyard and installed in shallow waters to facilitate direct ship loading of LNG. It offers a more cost effective solution compared with FSRU (floating, storage and regasification units) and land terminals, and can be designed for both liquefaction and receiving terminal services.

Overall, I believe Sembcorp Marine has performed very well for Q4 FY16. Give it another quarter and it should reinforce the fact that the worst is over and company will slowly recover through this big oil and gas correction. Do note that it does not mean Sembcorp Marine will suddenly outperform as oil majors have not increased their CAPEX much and there are excessive tonnage in the market. The repair and innovation to reduce cost for contractors and vessel owners will be critical for the next few years.