Sembmarine expects significant losses in second half with supply chain crunch

Sembcorp Marine (Sembmarine) expects to report "significant losses" in the second half-year ending Dec 31, 2021, potentially in the range of the $647 million loss in the first six months of the year, it announced in a Stock Exchange of Singapore filing on Tuesday.

This is mainly due to the increased costs to complete its projects, and losses arising from the added delays. Even though Sembmarine has made some headway in managing project completion delays, the pandemic continues to impact performance.

Its key challenges are delays in the delivery of equipment arising from border controls in some countries, purchase of new components requiring a longer lead time due to supply chain constraints, and slower than expected recruitment of additional skilled labour.

Sembmarine has also been hit by the continuing attrition of skilled workers and work disruptions, including stop work orders, due to measures to contain the pandemic.

Of its 16 projects under execution, five have been further delayed by between one and three months. The company expects to incur cost overruns of a "material amount". It is in talks with counterparties to mitigate the overruns.

Sembmarine will only be able to quantify the actual losses closer to the end of the year, depending on its fourth-quarter performance. The magnitude of losses incurred will depend on the continuing impact of Covid-19 measures on the construction progress of the projects, including the availability of labour, the health of workers and supply chain delays. Other factors include the outcome of ongoing negotiations to revise delivery dates, and the possibility of unexpected disruptions due to factors beyond the company's control.

"As the Covid-19 pandemic persists, the group continues to face serious challenges and risks. However, the group is determined to ride through this difficult period; and remains committed to completing its projects and doing its best for its customers and stakeholders," Sembmarine said in its filing.

Appealing for the support and patience of stakeholders, it added: "The group continues to believe that its ongoing strategic diversification and expansion into the clean energy sector will provide a foundation for it to achieve sustainable growth".

THE BUSINESS TIMES