Sembcorp FY 2016

Sembcorp revenue decreases by 17.2% from FY15 9,544,621 to FY16 7,907,048. Cost of Sales decreases by 22.8% from FY15 8,812,960 to FY16 6,801,916. I see restructuring in terms of reduction in terms General & Administrative expenses to $360,827. General & administrative expenses for 4Q16 were lower due to lower allowance for doubtful debts. 4Q16 also included refinancing costs for Thermal Powertech Corporation India Limited (TPCIL). Allowance for doubtful debts and bad debts in 4Q16 mainly pertained to Utilities’ India operations and Marine is at $4,671. 4Q15 included Marine’s allowance made for rig building contracts and from Utilities’ exiting of chemical feedstock business in Singapore is at $201,470. Allowance made for impairment losses for interests in associate pertained to Marine is $2,120. Write-back of impairment of Utilities UK’s fixed assets consequent to the extension of customers’ contracts is $6,707. This indicates to me the worst may be over for Sembmarine. 

Do note on the increases in finance costs for FY16 402,009 from FY15 237,984, which is an uplift of 68.9%. Higher finance costs in 4Q16 was mainly due to Utilities’ India thermal power plants which achieved commercial operation in phases and finance costs were no longer capitalized but expensed to profit or loss, and included other charges relating to TPCIL’s refinancing. Higher finance costs in 4Q16 was also due to Marine’s higher bank borrowings. 

On the Balance Sheet, it is seen that both current liabilities and non current liabilities are inching upwards. The total liabilities increase by about $2b. The net assets and equity shares of subsidiaries, property, plant and equipment which are collaterised for secured loans should already been heavily discounted by the banks. 

On the Cashflow Statements, Sembcorp Group shows overall improvement in the cash status. Cash flows from operating activities before changes in working capital were $1,324.9 million in FY16. Net cash from operating activities for FY16 was mainly due to Marine’s receipts from completed rig building projects; partially offset by Utilities’ India working capital for operations. Net cash outflow from investing activities for FY16 was $800.6 million, mainly from step-up acquisition of subsidiaries and purchase of property, plant and equipment primarily for the expansion and operation of Marine’s yards, partially offset by proceeds from divestment of SembAP and dividends received. 

Utilities’ Prospect
Utilities’ China operations delivered record profits in 2016. Its performance in 2017 is expected to remain steady although lower than 2016 due to the expiry of the Yangcheng cooperative joint venture agreement in 2016. In India, Sembcorp has two thermal power plants and renewable energy assets totaling over 3,600 MW. The second thermal power plant, SGPL, commenced full commercial operations in February 2017 but has yet to secure long-term power purchase agreements. As the spot and short-term power tariffs remain weak, its performance is expected to be adversely affected. In Singapore, the centralised utilities, gas and solid waste management businesses are expected to remain steady. However, the power business continues to face intense competition. Operating performance in the other regions is expected to be stable. The Utilities’ business remains focused on operational excellence as well as the execution of its pipeline of projects to deliver long-term growth.  

Marine’s Prospect
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, Sembcorp Marine believes a more robust recovery may take longer. Despite the challenging outlook and intense competition, Sembcorp Marine believes that growth prospects for the offshore and marine industry remain positive in the medium to long term. However, with increasing enquiries for non-drilling solutions, Sembcorp Marine foresees an earlier recovery in demand for fixed platforms, FPSO and FSO conversions and new-builds in the next few years. Rising global demand for gas also augers well for its broad-based LNG solutions and capabilities. Sembcorp Marine believes these are the key segments that will offer opportunities in 2017. Sembcorp Marine’s strategy and focus remain anchored on strengthening and optimising its talent pool; pursuing operational excellence in executing its projects; investing in new capabilities, products and technological innovation to help grow its order book; and prudently managing its financial resources to preserve financial flexibility and ensure overall sustainability of its business.

Dividend
FY2016 Dividend is at 8.0 cents per share which is less than FY2015 11 cents per share.

Conclusion
I used to hold large position (in my context) in Sembcorp. I am interested in this company again as I think the worst is over and turnaround is here. 

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