Singapore: Sembcorp Marine’s Profits Jump by 68%

Sembcorp Marine achieved a 105% increase in net profit to $296 million from $145 million in 3Q 2009. Excluding the one-off write-back of $53 million in the consolidated income statement arising from the full and final amicable settlement with Societe Generale on the disputed foreign exchange transactions, net profit at $243 million in 3Q 2010 was 68% higher as compared with $145 million for the corresponding period in 2009.

Group turnover at $1,115 million was 27% lower as compared with $1,520 million in 3Q 2009. The lower turnover was attributable mainly to lower progressive revenue recognition of the rig building, ship conversion and offshore projects. There was no major initial revenue recognition in 3Q 2010 as compared with 3Q 2009 where a unit each of semi-submersible, jack-up and FPSO achieved 20% initial recognition.

Group operating profit at $283 million was 63% higher as compared with $174 million in 3Q 2009. The increase was due to the resumption of margin recognition arising from the sale of the CJ70 harsh environment jack-up rig as well as the execution of repeat rig orders for customers.

At pre-tax level, Group profit increased 94% to $355 million from $183 million in 3Q 2009. The increase was attributable to higher profit margin and the receipt on the full and final amicable settlement of the disputed foreign exchange transactions with Societe Generale.

9M 2010 versus 9M 2009

On a 9M basis, Group net profit increased 54% to $621 million as compared with $403 million for the corresponding period in 2009. Excluding the one-off write-back in the consolidated income statement arising from the amicable settlement with Societe Generale on the disputed foreign exchange transactions, net profit at $568 million in 9M 2010 was 39% higher as compared with $410 million in 2009.

Group turnover at $3,572 million was 19% lower as compared with $4,382 million registered in 2009. The decline was due mainly to lower progressive revenue recognition of the rig building, ship conversion and offshore projects on a 9M 2010 to 9M 2009 basis.

Group operating profit at $645 million was 36% higher as compared with $475 million in 2009. At pre-tax level, Group profit increased 49% to $764 million in 2010 as compared with $513 million for the corresponding period in 2009.

Outlook

The Group has a net order book of S$4.7 billion with completion and deliveries stretching till first quarter of 2013. This includes S$2.3 billion in contract orders secured this year to-date. Contracts secured include the Ekofisk North Sea accommodation topside, the P-62 pre-FPSO conversion, incremental adjustment to CJ-70 harsh-environment jack-up drilling rig, 3 FPSO/FPU conversions, 2 Pacific Class 400 jack-up rigs and 2 Friede & Goldman JU2000E jack-up rigs.

Although worldwide economic recovery remains fragile and uneven across different regions, Asia continues to lead in steering the upturn. The fundamentals driving the oil and gas sector remain intact with oil prices having improved significantly from the trough level to around US$80 per barrel.

The market for premium and high-specification jack-up rigs has improved in recent months with strong enquiries for such rigs. The Group has secured four firm orders for such high-specification premium rigs with options for another seven units. The long-term prospects for such jack-ups are strong, given the highly skewed age profile of the world’s jack-up fleet with 70% of the fleet estimated to be older than 25 years by 2012.

With the recent lifting of the US Government moratorium on drilling in the Gulf of Mexico, market sentiments for deepwater drilling have turned positive. New regulations requiring operators to clear the new and higher bar for safety and environmental protection have been introduced, which includes stricter blowout preventor requirements and certification of each well by the operator’s Chief Executive Officer. Although the certification processes have the immediate impact of slowing down drilling activities, for the mid to longer term, existing rigs that do not comply with such stringent standards will need to be upgraded and outfitted. New rig orders, in particular high-specification rigs, will be required to replace the aging fleet for drilling in deep waters.

While enquiries for jack-ups and floaters have improved, competition is very keen.

For ship repair, the market outlook continues to improve with the bigger docks well-booked into early next year. The Group has signed several long-term contracts with its customers, in particular in the niche segments for the repair, upgrading and life extension of LNG carriers and passenger/cruise vessels. These long-term customers will continue to provide a stable base-load for the Group’s ship repair sector.

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Source: SembcorpMarine, November 5, 2010;