A savage downturn in the oil and gas industry plunged Sembcorp Marine deeply into the red to the tune of over half a billion dollars for the quarter.
Not only is this its first quarterly loss since quarterly reports were introduced some 12 years ago, but it has also meant a rare full-year loss of $289.7 million.
The losses have brought home starkly the reason for the steep fall in SembMarine share price and vindicated bearish investors who had seen the stock plunge 16.6 per cent, worse than the 9.5 per cent drop in the benchmark Straits Times Index year to date.
Q4 NET LOSS
DIVIDEND PER SHARE
With oil prices 75 per cent down from their peak in June 2014, energy firms have seen earnings plunge and oil majors have slashed exploration spending, triggering fears of a global economic slowdown. This has taken its toll on SembMarine, which is one of the two largest jack-up rig builders in the world. The other is Keppel Offshore & Marine.
With one of its key clients, Brazilian drilling rig supplier Sete Brasil, potentially heading into bankruptcy, SembMarine had no choice but to make provisions for some of the earlier contracts that it had clinched. Other customers are trying to delay the delivery of the rigs they have ordered. There was also one contract that was terminated.
And the outlook is not pretty. SembMarine warned yesterday at its annual results briefing: "This downcycle is expected to be more protracted than previous cycles."
A reduction in its headcount has been another result of the oil price decline. SembMarine has shed some 17 per cent of its staff strength, or between 3,000 and 4,000 staff, through natural attrition, redeployment and the removal of less efficient subcontractors.
Concerns over the fate of Sete Brasil, which stopped payments to SembMarine in November 2014, dominated questions at the briefing yesterday. President and chief executive Wong Weng Sun said the company's order book would be reduced by about $3.2 billion if all seven Sete contracts are cancelled.
But the provisions it has made take into consideration "the full extent of our exposure to the Sete contracts, including the amount of unpaid invoices and construction progress and amounts to be paid to our suppliers and vendors", he noted. "We believe that under the present circumstances, our provision is sufficient to address any potential adverse outcomes to the Sete contracts."
As for the other provisions, Mr Wong said that several customers have requested delivery deferments in the light of delays in chartering out their rigs.
"Given the current depressed environment in the upstream sector, we have tried to accommodate their requests while preserving our commercial interests," he said, noting that SembMarine has terminated the contract for a customer which failed to take delivery of its rig. Legal action is under way to recover the amount due.
SembMarine made impairment and provisions of $609 million for rigs in the fourth quarter, including a hefty $329 million for Sete Brasil projects, bringing the fourth quarter's loss to $536.9 million.
Turnover for the quarter shrank 8.2 per cent to $1.33 billion due to "lower revenue recognition for rig- building projects", SembMarine said, citing a contract termination, customer deferment requests and customer restructuring.
The dismal quarter helped drag it into a net loss of $289.7 million for the 12 months, compared with a net profit of $560.1 million in 2014. Revenue slumped 14.8 per cent to $4.97 billion.
Mr Wong tried to keep an upbeat tone, saying that SembMarine will "continue to selectively recruit talent". He added: "We continue to be confident of the longer-term fundamentals of the offshore and marine industry. Together with our strategic investments in new capabilities and facilities, we believe that Sembcorp Marine will be able to ride out the current downcycle and be strategically better positioned for the upturn."
Losses per share for the quarter came in at 25.7 cents, well down on the earnings per share of 8.34 cents previously. Net asset value per share stood at 120.24 cents as of Dec 31, lower than the 141.92 cents at the same time the year before.
SembMarine declared a final dividend of two cents per share, bringing the total dividend for the year to six cents - less than half the 13 cents previously.