Record Year | Outlook
| Major Contracts Secured
Strong demand in ship conversion and ship repair fuelled
a record year for SembCorp Marine (SembMarine) in 2004, with the company
reporting significant increases in both turnover and net profit.
During the year, we also clinched various significant contracts. Several
of these contracts were rig building contracts based on our proprietary
Baker Marine technology from subsidiary PPL Shipyard. In addition, we
won other contracts which cemented the company’s reputation as a
provider of superior and reliable service amongst its international clientele.
A Record Year
In 2004, SembMarine recorded a 21% rise in Profit After Tax and Minority
Interest (PATMI) to S$95.0 million, on the back of a 28% increase in turnover
to S$1,362.8 million. Operating profit rose 26% to S$93.9 million.
A main driver of the positive performance was the growth of our largest
business - ship conversion. This segment, which at present accounts for
45% of SembMarine’s total turnover, recorded a 57% increase in turnover
to S$615.0 million. Major projects completed during the year included
P-50, the marine conversion for Petrobras Netherlands; CNOOC 114, the
FSO conversion for International Andromeda; Berge Sisar, the LPG conversion
for Bergesen Offshore; and TT Nina, the FPSO conversion for Modec International.
In particular, major progressive completion work in the second half of
2004 of the P-50 marine conversion project and the P-50 topside fabrication
project, ensured that revenues were higher in spite of the total number
of vessels completed during the year being marginally lower at 6, down
from 7 in 2003.
In ship repair, SembMarine’s second largest segment, turnover rose
32% to S$456.2 million, reflecting our success in securing higher value
FPSO upgrading and bottom-damaged repair jobs. In 2004, the average value
per vessel was 45% higher than in 2003, at S$1.46 million per vessel –
tempering the negative impact from the decline in the number of vessels
repaired, which fell from 341 in 2003 to 313 in 2004. In 2004, upgrading
of FSO / FPSO units and tankers accounted for 46% of revenues from ship
repair. During the year, repairs of bulk carriers also significantly increased,
accounting for 24% of total ship repair revenues.
Rig building, which accounts for 9% of turnover, recorded the delivery
of the Constellation II jack-up rig by subsidiary PPL Shipyard to Global
SantaFe in 2004. Rig building projects in progress for completion in 2005
through to 2007 include the Development Drillers I and II for GlobalSantaFe,
and jack-up rigs for Kristiansand Drilling, Mosbarron, Petrojack and Apexindo.
The year proved also a good year for securing new contracts. In 2004,
we recorded contracts totalling S$2.1 billion – of this, ship conversion
and offshore orders accounted for S$1,126.0 million; rig building accounted
for S$594.0 million, and ship building accounted for another S$335.0 million.
These projects include the conversion of the P-54 FPSO, the conversion
of LPG carrier Berge Sisar, the construction of three units of Baker Marine
Pacific Class 375 jack-up rigs, and the building of four units of 2,600
The marine industry in Singapore is expected to continue to benefit from
continued strength in global freight rates, as well as in high oil prices.
With higher freight rates, ship owners are expected to prioritise factors
such as a shipyard’s reliability in completing repair works on schedule,
in order to minimise the length of time a ship is grounded because of
repair works. In addition, ship owners are less reluctant to repair their
ships only at yards located close to regular ports of call. These will
fuel demand for ship repairs.
High oil prices are also seen to benefit the marine engineering industry.
Strong demand for oil from countries such as China will continue to underpin
firm oil prices, and we expect this to have a knock-on effect on levels
of Exploration and Production (E&P) spending globally. In 2005, industry
estimates place E&P spending as expanding by 6% to US$176.8 billion
– in line with this, we expect to see demand for ship conversions
and rig building increasing further.
In the ship conversion and offshore sector, we see strong demand for the
conversion of floating production units, and estimate that, as of November
2004, there were approximately 85 systems currently under study or being
In rig building, we also expect to see continued demand given presently
high rates of utilisation and the aging of the current rig fleet –
industry statistics indicate that the average age of jack-up rigs is currently
21 years, while the average age of semi-submersibles is 20 years.
We have a four-pronged strategy to achieve sustained growth. Firstly,
we will continue to strengthen our operations in Singapore and China as
part of our global hub strategy. In July, we acquired a 30% stake in Cosco
Shipyard Group, which owns five major shipyards located in the key coastal
cities of Dalian, Nantong, Shanghai, Zhoushan and Guangzhou. We now have
a strong foothold in China and can offer ship owners an effective network
of marine engineering services across the entire length of China’s
We will continue to leverage on the complementary facilities between our
global marine hubs in Singapore and Brazil. Singapore, which is strong
in marine conversion and repair, will continue to focus on such work.
On the other hand, Brazil will focus on topside fabrication and topside
integration and commissioning, as well as pursue the profitable delivery
of the P-43, P-50 and P-54 projects.
Thirdly, we are committed to further build on our technology base, and
to leverage on the proprietary vessel and rig designs to increase our
share of the market. Since the introduction of our 2,600 TEU container
ship design, orders for ships of this capacity has been strong –
Wan Hai Lines has ordered six such vessels, while Reederei F. Laeisz and
Karl Schluter have each ordered two units. In rig building, our proprietary
design for jack-up rigs has led us to secure five orders to-date since
marketing efforts commenced early last year.
Lastly, we will continue to strengthen our strategic alliances with our
international clientele. Our alliance partners and regular customers ensure
a stable baseload for our yards. In 2004 we added three alliance partners
Taiwan Marine and Transport, Belgium-based TECTO, and Australia’s
North West Shelf Group. This increased the number of alliance partners
to 15. Our alliance partners accounted for about 29% of revenues in 2004,
up from 20% in 2003. We are confident that by providing our partners with
excellent services at our complementary facilities, we will continue to
see growing support from our strategic partners.