Sembcorp Marine 2010 profit up 23% to $869mn

Overall enquiries have improved though competition remains fierce as the Group posted a net order book of S$4.8bn with completion and deliveries stretching until second quarter of 2013.

Sembcorp Marine achieved another year of record performance with net profit increased by 23% to a high of $860 million in 2010. Earnings per share rose by 22% to 41.55 cents. Return on equity was 38.4%.

Group turnover at $4,555 million was 20% lower as compared with $5,725 million in 2009. The lower turnover was attributable mainly to lower progressive revenue recognition for the rig building, ship conversion and offshore projects as well as lower variation order settlement in 2010 versus 2009, according to a Sembcorp Marine report.

Group operating profit at $943 million was 9% higher as compared with $862 million in 2009. The higher operating profit 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 during the year.

At pre-tax level, Group profit increased 19% to hit a record high of above $1 billion mark for the first time at $1,078 million from $908 million in 2009. The increase was attributable to higher profit margin and the receipt of settlement of the disputed foreign exchange transactions with Societe Generale during the year.

On a quarterly basis, Group net profit at $239 million was 20% lower as compared with $297 million for the corresponding period in 2009. The lower net profit was attributable mainly to lower turnover in 4Q 2010 and the resumption of margin recognition for a unit of BMC 375 jack-up rig and a heavy lift vessel in 4Q 2009.

Group turnover at $983 million was 27% lower as compared with $1,343 million registered in 2009. The lower turnover was due mainly to lesser number of rig building, ship conversion and offshore projects achieving initial percentage of completion revenue recognition in 4Q 2010.

Group operating profit at $298 million was 23% lower as compared with $387 million in 4Q 2009. The higher operating profit in 4Q 2009 was due to the resumption of margin recognition for projects upon securing new buyers during that quarter.

At pre-tax level, Group profit at $314 million was 21% lower as compared with $395 million for the corresponding period in 2009.

Dividend
In view of the record performance in 2010 and to reward shareholders for their continued interest and unwavering support to the Group amid challenging operating environment in the past, the Board of Directors are pleased to recommend:

1. A final ordinary one-tier tax-exempt cash dividend of 6.00 cents per share &
2. A special one-tier tax-exempt cash dividend of 25.00 cents per share.

Total final one-tier tax-exempt cash dividend will be 31.00 cents per share for the financial year ended 31 December 2010.

Including the interim one-tier tax-exempt cash dividend of 5.00 cents per share paid on 31 August 2010, the total final dividend for FY 2010 will be 36.00 cents per share, an increase of 140% over the 15.00 cents per share in FY 2009.

The proposed final and special cash dividend, if approved at the Annual General Meeting to be held on 20 April 2011, will be paid on 11 May 2011.

Outlook
The Group has a net order book of S$4.8 billion with completion and deliveries stretching till second quarter of 2013. This includes S$3.04 billion in contract orders secured in 2010 and S$361 million worth of contracts secured since the start of 2011, excluding ship repair contracts.

Although global recovery has improved in past months, recent events in the Middle-East and North Africa may create uncertainties in the world economy which may have an impact on businesses.

For the oil and gas industry, the fundamentals remain intact with oil prices expected to sustain above US$80 per barrel. Exploration and production (E&P) spending budgets continue to show positive development with oil companies reporting intention to increase E&P spending further in 2011.

Given the highly skewed ageing rig fleet and the bifurcation in the jack-up market with oil companies increasingly focused on new, safer and efficient rigs, demand for premium and high specification rigs is expected to remain strong.

The Group has since the fourth quarter of 2010 secured eight firm orders of jack-up rigs amounting to S$2.0 billion with options for another ten units.

While drilling activities in the Gulf of Mexico have slowed pending finalization of deepwater drilling regulations, deepwater drilling activities for the rest of the world are expected to increase. This optimism is reflected in the number of newbuild orders, in particular for drillships, by drilling contractors since the last quarter of 2010.

Sembcorp Marine, with its proven track record in deepwater rigs, will be well-positioned to capture new orders and meet the industry’s most stringent operating requirements.

Overall enquiries have improved though competition remains keen.

The ship repair market continues to improve with continued demand for bigger docks. The Group has secured several long-term contracts from 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.