Sembcorp Marine posted Group revenue of $2.81 billion for the six months to June 30, 2018. This compares with $1.39 billion in revenue generated in 1H 2017 (restated for accounting changes on adoption of SFRS (I)). The higher revenue in 1H 2018 was largely due to revenue recognition on delivery of 4 jack-up rigs to Borr Drilling, 1 jack-up rig to BOTL, sale of the West Rigel semi-submersible rig (West Rigel) and higher percentage recognition for ongoing drillship and offshore production projects in 1H 2018.
On a segmental basis:
-Turnover for Rigs & Floaters was $2.41 billion in 1H 2018, compared with $643 million in 1H 2017. The higher revenue was related to recognition of the Borr Drilling and BOTL jack-up deliveries, sale of West Rigel, as well as higher floaters revenue on percentage recognition of the ongoing Johan Castberg FPSO and Shell Vito FPU projects, and ongoing recognition of revenue from the Transocean drillships.
-Offshore Platforms revenue was $147 million in 1H 2018, lower than the $473 million in 1H 2017 due to fewer contracts on hand. During the second quarter, revenue from the remaining work for the three topside modules for the Culzean platform topsides was booked and delivered on schedule in June 2018.
-Revenue from Repairs & Upgrades totalled $205 million in 1H 2018 compared with $232 million in 1H 2017 on fewer ships repaired. A total of 158 ships and other vessels were repaired or upgraded in the first half compared with 239 units in 1H 2017. Average revenue per vessel was higher on improved vessel mix of relatively higher-value works.
The Group posted 1H 2018 operating loss of $33 million and a net loss of $50 million. This compares with a net profit of $42 million in 1H 2017, which was mainly due to a gain of $47 million from the sale of Cosco Shipyard Group. 1H 2018 loss was due to (i) lower overall business activities with key orders secured in 2015 substantially completed while new orders secured since end 2017 are at early execution stage; and (ii) sale of West Rigel, which was completed and recognised in 2Q 2018 at a loss of $27 million.
2Q 2018 versus 2Q 2017
On a quarterly basis, Group turnover for 2Q 2018 at $1.63 billion compares with $649 million in 2Q 2017. The higher revenue was due to higher percentage recognition of the Transocean drillships, the Johan Castberg and Shell Vito projects, as well as recognition of 2 additional jack-up rigs delivered to Borr Drilling and the sale of West Rigel during the quarter, offset by lower revenue from Offshore Platforms following the completion of the Culzean Project.
The net loss of $56 million incurred in 2Q 2018 was due to booking of a loss of $27 million upon the sale of the West Rigel, as well as lower volume of activities.
Balance Sheet and Cash Flow
Net debt remained relatively stable at $2.99 billion, with net debt to equity at 1.26 times as at 30 June 2018 compared with 1.13 times as at end FY2017. Operating cash flow generated before working capital changes was $66 million in 1H 2018. Cash used in operations in 1H 2018 was $38 million, mainly due to working capital for ongoing projects, offset by receipts from ongoing and completed projects.
After due deliberation, the Board has adopted a prudent approach to conserving cash in light of the challenging business environment. As such, no interim dividend has been declared for 1H 2018. For 1H 2017, a 1.0 cent dividend per share had been declared.
CAPEX spend on global exploration and production (E&P) continues to improve with firmer oil prices in the first half of 2018.
However, offshore rig order recovery will take some time as the market remains oversupplied, particularly for jack-up rigs. There are some pockets of initial demand for mid and deep water rigs.
The majority of new orders have been for offshore production projects. This trend is expected to continue and Sembcorp Marine is responding to an encouraging pipeline of enquiries and tenders for innovative engineering solutions.
Competition in the repairs and upgrades segment remains intense. The segment will be underpinned by regulations that require ballast water treatment systems and gas scrubbers to be installed over the next two to five years.
The overall industry outlook remains challenging. While improvement in E&P CAPEX spending is projected to continue, it will take some time before we see a sustained recovery in new orders. The Group’s transformation efforts to move up the value chain have resulted in new business opportunities but they require significant time and effort in project co-development with potential customers before orders are secured. Such new-build engineering, procurement and construction (EPC) projects have detailed engineering and construction planning phase, which may take as long as six to twelve months before main construction activities and corresponding revenue recognition can take place. Margins remain compressed with intense competition.
Overall business volume and activity for the Group is expected to remain low for the immediate quarters. The trend of negative operating profit will continue in the near term. Our cash resources remain sufficient and we will prudently manage our costs and cash flows to align them with business volume and potential opportunities.
We will actively pursue the conversion of as many enquiries into new orders, execute existing orders efficiently and position the Group well for the industry recovery.