SembMarine says recovery for firm could come later this year or 2020

Sembcorp Marine chairman Mohd Hassan Marican at Tuesday's annual general meeting flagged that the company may be approaching the bottom of "a very long downcycle", and recovery could come as soon as later this year or in 2020.

He also stressed that the group has shifted from fabrication and pure construction work to gradually becoming a marine engineering solutions provider, with a bias towards gas solutions.

It is now doing higher-value work such as developing engineering solutions for more demanding environments, and this will be supported by its new facilities at Tuas Boulevard Yard, which has the infrastructure to allow the group faster turnaround of vessels, and larger dry docks that can do more complex jobs. "What we couldn't do before, we can now do in Tuas," he said.

The group is currently head-quartered at Tanjong Kling. Asked by shareholders about the group's slim S$3 million gross profit and S$74 million net losses incurred in FY18, Mr Marican explained that margins have been very compressed and activity level at the yard very low, with not many completed or ongoing projects where income was recognised in 2018.

It was not a unique problem to SembMarine, but a malaise that infected the entire offshore and marine sector, he added.

In response, SembMarine has been beefing up its engineering capability through acquisitions; for instance, last year it acquired the intellectual property rights and design expertise of global circular hull solutions provider Sevan Marine ASA. The circular hull design offers an innovative alternative to conventional ships and floating platforms and addresses the challenge of operating in harsh environments.

Mr Marican said the group adapted its business model also in response to changes in the oil majors' approach to doing business. Because of this, it is now able to win major contracts from the oil companies. Last year, it won a contract by Shell to build and integrate the hull, topsides and living quarters of the Vito semi-submersible floating production unit.

Increasingly, it finds itself also being involved in the front-end discussions of projects with oil majors. It is a long gestation business that can comprise about two years of solution-designing before the oil company makes a final investment decision (FID). Following this, construction can take another three to four years.

"Once you've built this kind of confidence with your oil majors, then your ability to have repeat business improves. But you still have to be competitive in order to win business," he said, adding that SembMarine's strength lies in its ability to adapt and tailor to the specific needs of oil companies.

He is "cautiously optimistic" about a recovery later in the year or next year, noting an increased amount of spending by oil companies towards the later part of 2018. Income from previous orders received in 2017 and 2018 is also likely to be recognised as work progresses in 2019, he said.

"The activity level in the company is quite high... The challenge is to replenish our orders, and...as much as we are pushing very hard, leveraging our capabilities and relationships, it is all very much dependent on our customers achieving FID."

As at end-2018,the group had a net order book of about S$3.1 billion excluding Sete Brasil drillships (or about S$6.2 billion including them).

Asked about any potential merger with Keppel Corp's offshore and marine business, he said: "That is not for me to comment. That question - you have to raise to the majority shareholders of Sembcorp Industries."

Queried on the the hefty fees paid to directors, Mr Marican said that he had last year continued to take a 10 per cent reduction of his all-in fee as chairman, and does not receive the basic fee for directors nor any further fees or allowances for his services as chairman or member of any board committees. As a result of the lower attendance fees and chairman's fee, the total 2018 directors' fees was reduced by 11 per cent.

He also said the company has engaged Mercer (Singapore) to advise on the remuneration of directors and senior executives to ensure that they are aligned with the market. His answers failed to appease some shareholders. Still, all 12 resolutions - including one to approve directors' fees of up to S$2.3 million for the year ending December 2019, were passed at the meeting.

Sembcorp Marine shares ended a cent higher at S$1.67 on Tuesday. They have taken a beating and are down 40 per cent from February 2018.

Lee Meixian

17 April 2019