These 2 Companies Reported Weaker Net Profits Recently
We’re nearing the tail end of the earnings season.
Given that many companies are reporting their results at the same time, I thought it would be useful to group companies into three buckets: (1) Those with positive results; (2) those with negative results; and (3) those with mixed numbers.
What I want to focus on here are two companies in the second camp:
1. Keppel Corporation Limited (SGX: BN4) is the first company here. It released its 2017 second quarter results in late July.
As a quick introduction, Keppel Corp is a conglomerate with major business divisions that include Offshore and Marine, Property, Infrastructure, and Investment.
During the reporting quarter, revenue was marginally down by 4% year-on-year to S$1.55 billion, but operating profit plunged 41% to S$139 million. As a result, both net profit and earnings per share were down by 21% year-on-year to S$161 million and 8.9 cents, respectively. Moreover, the balance sheet also grew marginally weaker from the first quarter of 2017 with the net gearing ratio increasing from 0.57 to 0.58.
The main culprit for the poor performance at Keppel Corp is the Offshore and Marine division, which saw its pre-tax profit fall from S$80 million a year ago to S$8 million. On the other hand, the Property division delivered a good quarter due to higher contribution from Singapore property trading.
Speaking about the future of the Offshore and Marine division, Keppel Corp said in its earnings release that the division will “continue to focus on delivering its projects well, exploring new markets and opportunities, investing prudently in R&D and building new capabilities to position itself for the upturn.”
2. Oil rig builder Sembcorp Marine Ltd (SGX: S51) is another company that released its 2017 second quarter results in late July. Investors may want to note that it is majority-owned by the conglomerate Sembcorp Industries Limited (SGX: U96).
In sum, Sembcorp Marine reported another tough quarter. Revenue was down 27.8% to S$655.5 million while profit attributable to shareholders tumbled by 51.2% to S$5.6 million. Meanwhile, there was negative free cash flow of S$293.0 million, and the interim dividend declared was down by 33% from a year ago to 1.0 cent per share.
Moreover, the balance sheet deteriorated, with the net-debt position increasing from S$3.01 billion a year ago (S$966.3 million in cash and equivalents, and borrowings of S$3.98 billion) to S$3.38 billion (S$1.01 billion in cash and equivalents, and borrowings of S$4.39 billion).
As for Sembcorp Marine’s future outlook, management said the following:
“Global exploration and production spending is expected to increase. Offshore day rates appear to have stabilized and utilization levels have begun to improve. However, a more robust recovery will take longer.”
“Enquiries for non-drilling solutions continue to be encouraging. We have been actively involved with our potential customers in developing engineering solutions for the production segment. We remain cautiously optimistic of new orders for production facilities in the next few years.”