SembCorp Industries returned a modest profit
growth but achieved a stronger balance sheet despite a very difficult
Our Profit After Tax and Minority Interests (PATMI) including exceptional
items rose 3 per cent to S$178.3 million. Our Return on Equity was
14 per cent, a level comfortably above our minimum threshold of 12
per cent, and our Return on Total Assets edged down from 5.8 per cent
in 2001 to the present 5.6 per cent.
Our balance sheet has however been substantially strengthened. We
reduced borrowings by S$900 million and our gearing has been halved
from 1.3 times at end-2001 to 0.6 times. Efforts to divest our non-core
assets and operations continued and we received S$391 million in total
proceeds from the divestments completed this year.
Right: Peter Seah Lim Huat, Chairman
Left: Wong Kok Siew, Deputy Chairman & CEO
SembCorp Industries' Earnings Per Share would have risen
in tandem with earnings but fell to 9.89 cents against 10.83 cents in the prior
year due to our enlarged equity base following the issuance of about 214 million
new shares in a private placement carried out in February 2002. This placement
gave us around S$339 million in net proceeds.
RETURNING 36 PER CENT OF PATMI TO OUR SHAREHOLDERS
Our Board of Directors is recommending an 18 per cent gross dividend
(less tax of 22 per cent), comprising a 12 per cent (3.0 cents per
share) ordinary dividend and a 6 per cent (1.5 cents per share)
special dividend for 2002.
This proposed dividend is a 50 per cent increase over what was paid
out for 2001.
At the same time, the proposed dividend represents a 36 per cent
payout of PATMI or Net Earnings.
PERFORMANCE IN 2002
Utilities turnover exceeded S$1
billion for the first time and its PATMI showed a strong 55 per
cent increase to S$54.2 million. Earnings from integrated utilities
grew 30 per cent and offshore engineering posted a 26 per cent increase.
Their contribution to PATMI was S$25.1 million and S$20.5 million
We are happy with the performance of this Key Business, which promises
stable earnings from long-term offtake contracts spanning 12 to
30 years in duration. The offshore engineering unit also promises
growth with a record topside fabrication orderbook of S$740 million
with deliveries up to 2005.
The S$9 million earnings from our energy business would have been
higher had our power generation operation in Singapore (SembCorp
Cogen) not been adversely impacted by high spinning reserve costs
under the old market rules. However, the New Electricity Market
(NEM), introduced by the Singapore Energy Market Authority in January
2003, has a separate Spinning Reserve Market which is expected to
drive down spinning reserve costs. This, coupled with the introduction
of vesting contracts, should result in an improvement in the earnings
from our power generation operations.
Marine Engineering had a fairly good year
where it turned in a PATMI growth of 14 per cent and an earnings
contribution of S$57.3 million. For the first time, this Key Business
achieved a record turnover exceeding S$1 billion. The orderbook
at end-2002 stood at S$1.4 billion with ship conversions and offshore
projects accounting for 46 per cent of it.
Logistics showed strong operating performance
with a 37 per cent growth in our supply chain management operations
excluding exceptional items. However, profit contribution from this
Key Business fell 54 per cent to S$25.2 million mainly due to our
Logistics units associate, Kuehne & Nagel, charging a
CHF206 million (S$237 million) goodwill amortisation against its
full year 2002 accounts. This one-time charge has no cashflow impact
on our Group. On the other hand, our global logistics alliance with
Kuehne & Nagel has progressed well and is gaining pace. In 2002,
we jointly secured 16 major accounts globally and in just the first
two months of 2003, eight new accounts have been jointly secured.
Environmental Engineering returned a net
earnings contribution of S$9.2 million. This 14 per cent growth
against 2001 was lower than what we anticipated due largely to weaker
earnings from our Australian operations. Our Environmental Engineering
unit has existing contracts worth S$380 million (till 2005) and
as we take steps to improve our operating efficiency, we expect
its profitability to improve.
Engineering & Construction was a disappointment
with a loss of S$127 million for the full year caused by unforeseen
conditions encountered in two projects in Singapore. We carried
out a thorough review of the business and systems at SembE&C
and these are some of the changes we are implementing at the company:
|| SembE&C will be downsized
||The focus will shift to process engineering and design in
sectors like rail infrastructure, wastewater treatment, polymers
and oil and gas
||Projects in the S$1.8 billion orderbook will be more effectively
The In Development
companies turned in mixed results. Pacific Internet turned around
with a profit contribution of S$2.1 million. Singapore Food Industries
earnings attributable to the Group grew 8 per cent to S$22.4 million.
On the other hand, Building Materials suffered a loss of S$10.8
million for the year reflecting the depressed conditions facing
the building industry in Singapore.
OUR PRIORITIES AND THE OUTLOOK FOR 2003
For the coming year, we have set ourselves these priorities:
Utilities: We will focus on improving
SembCorp Cogens earnings performance under Singapores
NEM. We are also taking steps to expand our integrated utilities
and cogeneration business overseas.
Marine Engineering: Our Global Hub Strategy
is largely in place and we are devoting our energies to increasing
the profit contribution from our yards in Brazil and China. We also
want to strengthen our position in the global offshore conversion
market. In 2002, we won the Brazilian Petrobras P-50 conversion
contract worth US$244 million and we are better placed to compete
for upcoming conversion contracts in Latin America and Africa.
Logistics: We want to accelerate the growth
of our supply chain management businesses in China and India. In
China, we are already one of the largest foreign logistics companies
and in India, we are a clear leader. The contribution from these
markets is still in the ramp-up phase and we aim to return a stronger
earnings performance from our operations there.
Environmental Engineering: This business
unit still has another year of business re-engineering ahead of
it. In 2003, we want to participate in the upcoming bids for two
municipal waste collection contracts that are expected to be put
up for tender by the Ministry of the Environment in Singapore.
Engineering & Construction: We will
carry out our downsizing and turnaround programme. With the shift
in business focus, we expect the situation to improve in the coming
Divestments: The divestment programme
will continue although most of the major divestments have already
been done. Since 1999, we have divested S$1.86 billion in non-core
assets and operations. When the remaining non-core businesses are
fully divested, we expect to receive an estimated S$500 to S$600
million but this will take three to five years to complete.
The SembCorp Industries Group engineering orderbook (made
up of contracts secured by Utilities offshore engineering,
Environmental Engineering, Engineering & Construction and Marine
Engineering but excluding Utilities and Logistics long-term
contracts) now stands at a very healthy S$4.3 billion.
Notwithstanding, since we gave our shareholders an outlook for SembCorp
Industries in February 2003, two significant events have occurred:
a war is being fought in the Middle East and there is an outbreak
of SARS Severe Acute Respiratory Syndrome that has
spread beyond Asia to Europe and the American continent. All these
will spell major uncertainties ahead for economies and businesses
particularly in Asia, if not globally. Given the continuing uncertain
environment, we foresee 2003 to be a difficult and challenging year
OUR NEW BOARD MEMBER
On January 13, 2003, S Iswaran was appointed to our Board of Directors.
a Managing Director at Temasek Holdings and was Singapore Technologies
Director of Strategic Development before that. On behalf of the
Board, we would like to extend Iswaran a warm welcome and look forward
to his contribution.
2002 has been a difficult year for all of us. We are touched by
the way many of our stakeholders stood with us. We are also heartened
by the way our management and staff rallied together. We want to
thank all of you our shareholders, customers, suppliers and
staff for your loyalty and support through these times.
As a Group, we have a strong foundation in place for tomorrow's
growth and earnings. We want to move forward and make the SembCorp
Industries of our vision a reality.
Peter Seah Lim Huat
Wong Kok Siew
Deputy Chairman & CEO