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SembCorp Engineers and Constructors boasts a strong track record of state-of-the-art projects, including the award-winning North and South Piers of Singapore’s Changi International Airport Terminal 2.


  2004 2003
    S$m S$m  
Turnover 824.2 817.8
  PATMI 1.1 0.6  

Note: Figures are taken at SembCorp Engineers & Constructors Group Level




Key Facts
Largest EPC (Engineering, Procurement &
Construction) contractor for LDPE (Low Density
Polyethylene) plants in the world
Leading engineering and construction company
in Southeast Asia
Experience in more than 35 countries globally
Operations in Southeast Asia, China, India, Iran,
UAE, Mexico, Russia and the United Kingdom




 

     
   

Engineering & Construction:

We are the largest engineering and construction company in Southeast Asia, with core capabilities in process engineering and design, civil engineering and building construction.


| Operations Review | Outlook | Significant Contracts in Orderbook

2004 saw a strong inflow of new contracts for SembCorp Engineers and Constructors (SembE&C) – a result of concerted efforts to re-focus on overseas contracts and to secure more profitable process engineering projects. We also further strengthened our management of construction risks for our existing projects.

During the year, we also reinforced our risk management processes and implemented ways to hedge against fluctuations in the pricing of materials.

We will continue to pursue this strategy in 2005, and to focus on the profitable execution of all our projects in our orderbook.

Operations Review
In 2004, SembE&C recorded turnover of S$824.2 million, up from S$817.8 million the previous year. During the year, the division contributed a higher Profit After Tax and Minority Interest (PATMI) of S$1.1 million to the Group, from S$0.6 million in 2003.

The year saw us intensifying our marketing efforts overseas, and as a result we secured new orders totalling S$2.0 billion, double our original target. The bulk of the new orders was process engineering-based, and by end-2004 such projects accounted for 67% of our orderbook, up from 59% a year before. As of December 31, 2004, our orderbook stood at S$2.6 billion, of which 59% of our orders were from overseas as compared to 20% at the beginning of 2004.

Our overseas drive was fuelled by strong growth in construction spending internationally, and the stagnant market domestically. By end-2004, we had been awarded contracts in China, India, Indonesia, Iran and the United Arab Emirates totalling more than S$1.4 billion.

Some of the overseas projects we were awarded in 2004 include:

the S$640.0 million restart of the Essar oil refinery in Gujarat, India, which is the country’s largest;
EPC contracts totalling S$320.0 million for two petrochemical facilities in Iran, marking our first involvement in state-owned National Petrochemical Company’s extensive capital investment programme;
a S$220.0 million building contract for high-end residential apartments in Dubai; and
a S$110.0 million contract to build gas production facilities in East Kalimantan, Indonesia.
 

In 2004, however, our profits continued to be pressured by high costs of construction materials. One example was the spike in global steel prices, which at its peak caused local market prices to rise above S$950/tonne. While global steel prices softened in mid-2004 following Chinese intervention measures, local steel prices stayed volatile in the second and third quarters, reflecting supply concerns following the decision by Singapore’s Natsteel group to divest its steel business.

To mitigate against other significant cost increases, we have intensified our build up of global sourcing capabilities, and continued to strengthen our management of other construction risks. We have put in place more stringent cost control systems and risk management systems. In addition, we have been very selective of the projects that we pursue, and have only undertaken those which we are confident of implementing profitably.

In 2004, we also continued to refine our organisation structure and business model in order to address longer term challenges. To further reduce our risk exposure in unfamiliar markets, we have explored and pursued a cooperative framework with key contractors within the region to allow us to tap on each company’s strengths and expertise.

We have also continued to enhance our capabilities and resources in terms of conceptualisation, design and construction financing.

Outlook
To capitalise on stronger growth prospects in regional and international markets, we will continue to broaden our reach and extent of our overseas contracts, while focusing on the profitable execution of our existing orderbook.

We are optimistic of further enhancing our focus on process engineering projects by capitalising on our reputation as the global leader in such projects. We have started this year on a positive note – in January, SembCorp Simon-Carves won a contract to design a petrochemical facility in the UK for global chemical player Huntsman. This 400,000 tonne/year Low Density Polyethylene (LDPE) plant will be the world’s largest single-stream facility for this product. SembCorp Simon-Carves has supplied six of the world’s eleven most recently commissioned facilities for this product.

We plan to continue to seek opportunities in the oil and gas industry, where we are witnessing a resurgence on the back of sustained high oil prices. In addition, we will be evaluating prospects in upstream petrochemical projects, and continue to pursue contracts for downstream chemical facilities. We see positive prospects particularly in Asia and the Middle East.

At the same time, we will continue to selectively pursue civil engineering and construction projects overseas, by building on our expertise in master planning and design, the development and construction of housing townships, commuter rail systems and tourism-related infrastructure.

We see markets such as China, India, and Southeast Asia and the Middle East as having strong growth potential. Industry expectations are for regional construction spending to reach US$1,500 billion in 2005 – of this amount, China is expected to account for up to 35%. We are confident of leveraging on our reputation and track record in the process engineering sectors, and in delivering advanced construction methods in these markets.

Domestically, we do not expect substantial or broad-based improvement in construction demand, and foresee total construction demand to continue to level at S$10 to S$11 billion this year. Furthermore, we see civil engineering construction demand further softening in 2005 as all major contracts for the MRT Circle Line have already been awarded.

In terms of construction material costs, we expect these to remain firm in spite of the projected contraction of local construction volume during the year. Steel prices are expected to be sustained by strong global demand and high freight costs, while cement prices are likely to remain high in line with international prices.