Seatrium net loss widened to $264m in 1H2023 on higher provisions, despite strong operational performance

SINGAPORE - Recently-merged Seatrium said on Friday that it expects to remain in the red for the full year after posting a net loss of $264.4 million in the half-year to the end of June, 85 per cent higher than its net loss of $142.9 million in the same period a year earlier.

This was despite the offshore and marine company reporting a solid performance that saw its revenues rise year on year by 164 per cent to $2.89 billion, which it attributed to the combination of “strong operational execution, achievement of production milestones and initial contributions from new projects”.

Formerly known as Sembcorp Marine, Seatrium merged with Keppel Offshore & Marine (Keppel O&M) earlier this year to form one of the world’s largest offshore and marine energy engineering companies.

The net loss was largely due to provisions for contracts and merger expenses. Excluding these, net loss was an improved $33 million.

Ebitda - a measure of profitability which refers to earnings before interest, taxes, depreciation, and amortization - turned positive, rising to $27 million from negative $19 million in the corresponding half-year in 2022.

Nevertheless, loss per share crept higher to 0.47 cents, up 2 per cent from the previous half-year. No dividends were declared for the first half of 2023.

Seatrium chief executive Chris Ong said key measures are being worked on to steer the group back to net profitability.

“This includes the streamlining of the group’s cost structure and the completion of the ongoing capital restructuring,” he said during a briefing on the results.

Seatrium delivered four key projects during the first half of its financial year, including a liquid natural gas-powered container ship, a dredger, a battery-powered passenger ferry and the upgrading and modification of a floating-production, storage and offloading vessel.

There was a free cash outflow of $173 million, in comparison to an inflow of $297 million from a year ago, whereas net gearing was lowered to 0.17 times, against 0.26 times at the end of December 2022.

However, the total amount of debt repayable in one year or less, or on demand stood at $2.44 billion, whereas those that were due after one year amounted to $1.28 billion.

Seatrium said that it was “in talks with lenders to refinance and re-profile current loans with longer term maturities”.

In a breakdown of revenue by geography, Brazil accounted for the lion’s share of $1.56 billion, or just under 55 per cent of total revenue, followed by the US and the rest of Europe.

Of the group’s two key business segments, the one comprising all rigs and floaters, repairs and upgrades, offshore platforms and specialised shipbuilding accounted for almost all the revenue earned during the period, growing by 164.2 per cent to $2.86 billion.

In contrast, the ship chartering segment made up just 0.75 per cent of total revenue but also grew significantly, rising 126.1 per cent to $21.6 million.

On its merger, the group said that it had successfully completed this, along with the name change. It added that it was on track with its transformation journey, while reviews on its strategic and capital structure were scheduled to be completed before the end of 2023.

Looking ahead, net orders stood at $19.7 billion and their delivery stretched till the end of the decade.

In particular, Seatrium said it had clinched significant order wins of $4.3 billion, “mainly from the renewable space” during the half year. Notably, such orders made up some 40 per cent of all new orders.

Commenting on the results, CGS-CIMB Securities analyst Ms Lim Siew Khee said Seatrium’s losses were wider than expected due to provisions for its US yard, even though she had anticipated these, along with the labour challenges the company faced.

She said that the outlook for the group was positive, given its strong order book and its possession of the only relatively sizeable yard in the Southeast Asian region.

DBS analyst Ho Pei Hwa said she had expected losses to narrow to around $50 million to $60 million, with better operating leverage and higher activity levels, but had remained mindful of any provisions or impairments in the wake of the integration of Keppel O&M. Nevertheless, she felt that the market might take an optimistic view that the worst was over.

In a report ahead of the merger, CLSA analyst Low Horng Han felt that there were other reasons for optimism, including the group’s large order backlog, whereas its larger scale and ability to take on work with greater complexity should mean a less intense competitive environment.

The merger has also enabled the group to expand its suite of solutions, particularly because it will be able to tap on Keppel O&M’s proprietary technology to build larger vessels with higher contract values, he said.

As a result, the group’s share price may be poised for a re-rating, Mr Low’s report also noted.