Singapore Corporate News - 8 Aug 2007

SembCorp Q2 profit surges 50.7% to $129.6m

SEMBCORP Industries presented a rosy report card for its second quarter financial results yesterday, buoyed by a stellar showing in its utilities and offshore marine businesses.

The conglomerate said its net profit surged a robust 50.7 per cent to $129.6 million from a year ago. But in terms of revenue, the group saw a 3.5 per cent year-on-year dip to $2 billion.

This was due to a decline in utilities turnover arising from maintenance and repair of its gas turbines in Singapore, lower contribution from its industrial parks as it divested Nirwana Gardens in May 2006, and Wuxi Garden City Mall in May 2007, and deconsolidated turnover from its Vietnam industrial parks.

Its utilities business remained the biggest net profit contributing unit, rising 45 per cent from a year ago to $68.91 million, thanks to sterling performance in its UK operations underpinned by favourable supply contracts as well as a turnaround in its operations in China.

'We have achieved very good margins from hedging of power contracts (in UK) that was done last year and effective this year,' chief financial officer Lim Joke Mui said in a press briefing yesterday.

The group's share of profits from its unit SembCorp Marine also rose 74 per cent from a year ago to $52.23 million, led by higher operating margins from its rig building and ship repair businesses and better contribution from its associates.

Despite stiff competition, SembCorp's environmental management division recorded a 16 per cent increase in net profit in the second quarter to $3.74 million as its Australian operations did well particularly in the landfill business. Its used lead acid batteries operations in China have also started to contribute to the group earnings.

For the first half of this year, however, SembCorp posted a 54.5 per cent slump in net profit from a year ago to $258.28 million because the year-ago earnings was boosted by a one-off exceptional gain from the sale of the two business units - logistics and, engineering and construction. Excluding exceptional items, net profit would have risen by 48 per cent from a year before.

Revenue for the first half also fell 8 per cent year-on-year to $3.85 billion due to the divestment.

But the group's president and CEO Tang Kim Fei projected a bullish outlook for the year, saying the group's overall operating performance in 2007 is likely to be better than that of 2006 on a comparable basis, excluding net profits arising from exceptional items in 2006.

Its green revenue, though currently insignificant, is expected to sustain its growth momentum going forward as the group seeks to secure new contracts in the UK and renew existing ones which are due to expire by end-2007 or the first quarter of 2008, Mrs Lim said.

Its new 30 megawatt renewable power plant in the UK, Wilton 10, which is expected to be fully onstream by the second half of this year, is eligible for ROCs (renewable obligation certificates) and LECs (levy exemption certificates).

Mrs Lim noted that the group's strong free cash flow of $599 million as of end-June, up from $136 million a year before puts the group 'in a good position to make major acquisitions going forward'.

Among the potential acquisition targets, SembCorp reiterated its interest in one of the three local gencos that will be put up for sale soon by parent Temasek Holdings.

'We would like to have one of them but we'll wait for the bidding process . . . there's no indication of the timing of the tenders yet,' Mrs Lim said, adding that SembCorp is open to doing so on its own or partnering with another party.

It is also keen to expand its utilities business in Jurong Island, where it already secured $210 million new and renewed utilities and gas contracts, and will supply to its first secured customer Ciba, in Tembusu at end-2007.