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 and 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 (US$24 million) in profit for the three months through December, versus a S$537 million loss a year prior. Revenue fell 38 per cent 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 per cent 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 per cent higher ahead of the earnings results. The wider market closed up 0.9 per cent.
The rig builder had a debt-to-equity ratio of 1.36 per cent at the end of September, the highest among capital goods firms in Singapore.
Analysts expect SembMarine to cut capital expenditure by 38.7 per cent over the next 12 months, according to Thomson Reuters StarMine SmartEstimates. That would be the biggest cut among Singaporean capital goods firms.