Sembcorp Marine says revenue recognition hit by double whammy of Covid-19 and oil price collapse

Sembcorp Marine expects overall business volumes for all segments to further weaken for the rest of the year.
Sembcorp Marine expects overall business volumes for all segments to further weaken for the rest of the year.PHOTO: SEMBCORP MARINE

SINGAPORE (THE BUSINESS TIMES) - Hit hard by the double whammy of the Covid-19 pandemic and the collapse in oil prices, Sembcorp Marine (SembMarine) will be deferring all non-essential capital expenditures (capex) to preserve cash flow and manage overall liquidity with prudence and discipline.

Industry-wide cuts to capex have affected the group's ongoing negotiations for the finalisation of new orders. This, coupled with delays in executing existing orders, has led to lower revenue recognition, SembMarine said in its business update for the first quarter of 2020 on Wednesday (May 13).

The collapse in oil prices from March 2020 has resulted in major oil companies deferring their final investment decisions (FID) for projects and cutting the capex significantly for this year. This also significantly affected SembMarine's securing of new orders for the foreseeable future.

New orders affected include one to deliver a floating production, storage and offloading (FPSO) design solution for the Cambo field in the UK Continental Shelf. Its FID is now postponed to 2021.

Meanwhile, the Covid-19 pandemic has affected global shipping operations and "adversely affected" the group's repairs and upgrades business.

Singapore's virus-related restrictions had also substantially reduced the group's operating yard workforce to 850 from about 20,000 previously, "severely" constraining yard activities. This came after the Ministry of Manpower on April 21 announced movement-restriction measures disallowing migrant workers from leaving their dormitories for work. These and other circuit breaker measures have been extended to June 1.

The reduced workforce was deployed to manage critical works and support yard essential services such as emergency response teams, facilities and utilities management, dormitory operations, medical centres and yard security.

SemMarine said it will continue to assess the impact on its project schedules and is working closely with customers to manage ongoing projects. It aims to reactivate its workforce and resume work safely and efficiently when the measures are lifted.

On its outlook, SembMarine expects overall business volumes for all segments to further weaken for the rest of the year. The previous trend of losses is expected to continue in foreseeable quarters.

SembMarine shares ended at 73.5 cents on Tuesday, down 0.5 cent or 0.7 per cent.

With additional information from The Straits Times