Recruitment issues, Covid-related problems and project delays contributed to an annus horribilis for Singapore’s Sembcorp Marine, which posted a S$1.171 billion (US$738.6 million) net loss for 2021 after making provisions totalling S$839 million.
However, Sembmarine management are convinced the worst is now behind the company.
“Because of the pandemic… the past two years have been among the most challenging years in recent memory,” said Sembmarine chief executive Wong Weng Sun.
“Our projects under execution faced shortages of skilled workers and supply chain constraints, which resulted in significant cost overruns.”
However, despite these operational challenges, the contractor last year completed four key projects and successfully delivered them to customers.
Sembmarine also managed to pare back its second-half 2021 losses compared to the first six months of the year.
“While this pandemic has been challenging it has given us the impetus to find solutions, new ways to approach issues and take concrete steps to address each evolving challenge,” said Wong.
“We took active measures, worked in even tighter cooperation with our customers and focused on a new rhythm to manage the pandemic and our operation.”
He noted that the labour situation at its Singapore yard facilities finally stabilised during the fourth quarter of 2021, which is making it easier for the contractor to smoothly complete its existing orders.
Against this backdrop, Sembmarine is actively working on securing more work and is bidding competitively for multiple “high-value and large-scale projects” including floating production, storage and offloading vessels and floating storage and offloading units.
Management would not be drawn on which specific projects it is currently chasing although William Goh, director group finance, said some of these projects are worth “certainly north of S$0.5 billion or even bordering into the S$1 billion kind of numbers”.
“It is important for the group to convert its order pipeline into firm contracts on a timely basis in the 2022 financial year... the group expects its financial performance [this year] to be significantly better than financial year 2021,” added Wong.
Sembmarine’s net order book currently stands at S$1.3 billion, comprising S$1.1 billion of projects under execution — with a total original contract sum of S$6.1 billion — and S$200 million of ongoing repairs and upgrade projects.
Approximately 43% of the group's net order book are for renewables and other “cleaner and greener solutions” sectors, said Wong.
“The improving industry outlook on the back of the rising oil price provides impetus for oil and gas companies to review plans for the resumption of different activities, final investment decisions and capital expenditure,” he said.
Sembmarine is also progressing negotiations with the Brazilian Navy on the construction of an Antarctic support vessel, with contract award expected in the first half of 2022.
“It is premature for us to be specific here. But we can guide… the orders' visibility has improved for this year, and we are hopeful accommodating more orders this year compared to last year,” said Goh.
He added that Sembmarine is “very mindful” of its experiences during the pandemic “in terms of supply chain impact as well as labour issues” and the company is now “much better prepared in terms of evaluating such kinds of potential issues”.
“What is important for us is to be able to manage our bottlenecks. And this is something which with past experience, we'll be much better able to manage that.
Russian invasion will impact entire sector
“Having said that, if there is a most recent development that is going to impact the entire sector… [it’s] the Ukraine invasion by Russia, this would have some impact.
“It's too early to determine… but certainly this will impact in terms of possible supply chain, especially in terms of the equipment procured in Europe. And also, in terms of overall inflation, it is something that we have to be mindful of,” added Goh.
“So, as we work towards the finalising of negotiations of our contracts with our customers, these factors we take into consideration so that we will not be unnecessarily caught in a situation of a significant increase in inflation.”
Sembmarine made full provision for the costs required to complete and deliver 12 existing projects during 2022 in the 2021 financial year. Three of these dozen projects have already been completed since the start of this year.
“The manpower situation for Sembcorp Marine has improved tremendously compared to October, September last year,” said Wong.
“Currently with the easing of the workers returning to Singapore I think this will further strengthen the rebuilding of the core workforce for Sembcorp Marine. So, at the moment we do not foresee any manpower shortages at all for us to complete the work.
Rebuilding the vacuum
“However, what we are looking [for] now is to replenish the temporary workers that we employed last year, especially to rebuild the vacuum caused by the workers returning to their home countries and could not return among our subcontractor workforce,” added Wong.
“We will continue with our mid-term planning that [is] to have these skilled workers to return back to the Sembcorp Marine group, including our subcontractor workforce, and progressively — so that when we have new orders secured, we will not have [an] issue again with the skilled workforce.”
He said that one particular focus of the company’s recruitment drive was rebuilding its engineering and procurement capacity in anticipation of the new orders it hopes to secure.
Sembmarine’s 2021 group revenue was S$1.862 billion, up 23% from the previous year, while the net loss before provisions was S$332 million — a 24% reduction from one year prior.
The S$839 million provisions that Sembmarine made for 2021 comprise additional labour and other costs to complete projects of S$696 million, S$75 million in costs to reinstate its yard facilities and S$68 million-worth of impairment losses and project stock write-downs.
To date, none of the contractor’s projects has been cancelled although discussions continue with some clients in regard to completion and delivery schedules, and potentially to the revision of its workscope.
“Throughout the pandemic situation, especially last year, we worked closely with the customer, coordinating with them closely about their overall requirement,” Wong told Upstream.
“For instance, some of the customers required the vessels… to be delivered from a yard earlier due to the heavy transportation vessels’ constraint. So… this is not considered as a cancellation, it's considered as a modification to scope of work.”
Wong revealed more more details about the Johan Castberg FPSO project it delivered last year to Equinor, including quelling any market speculation that it might have taken a costly financial hit due to revisions to the original workscope.
“When we discussed with the customer — to have a better solution on the timing of sending the hull back to Europe due to the constraint of the transportation vessel — we have come to a plan on what other works needed to be done in addition to the original contract for Sembcorp Marine, as well as what are the possible scope that we can reduce to accommodate the shorter time to the final stage of delivery as planned.
“So, as there is some ‘plus’ and there is some reduction… I think there is no significant variation in terms of resulting in lower revenue,” added Wong.
The offshore and marine contractor’s 2021 turnover was S$1.86 billion, a 23% increase from the previous 12 months. Turnover for the second half of last year was S$1.018 billion, compared to S$604 million in the six months ended 31 December 2020.
Floaters, primarily floating production units, contributed S$643 million to 2021’s revenues while the second largest segment was offshore platforms — mainly offshore wind substation platforms and modules — which brought in S$574million.
The third-largest contributor was Sembmarine’s repairs and upgrade segment, which delivered S$396 million in 2021, while the company's advanced drilling rig solutions segment that is constructing two drillships for Transocean added S$160 million to last year’s revenues.
Sembmarine’s net debt at the end of the 2021 financial year stood at S$1.97 billion compared with S$2.78 billion one year before, a reduction of 29%.
The contractor’s net working capital was positive at S$493 million compared with a negative net working capital of S$259 million at the end of 2020.
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