Sembcorp Industries Annual Report 2011 / Operating & Financial Review / Group Review
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Sembcorp delivered a strong performance in 2011. Our robust operating performance demonstrated the strength of our businesses. The Group’s net profit attributable to shareholders of the company (net profit) in 2011 grew by 2% to S$809.3 million, while turnover was up 3% from S$8.8 billion in the previous year to S$9.0 billion.


The Group achieved a turnover of S$9.0 billion, with the Utilities and Marine businesses contributing 98% of total turnover.

The Utilities business’ turnover increased by 23%, mainly attributable to our Singapore operations where part of the revenue was indexed to higher High Sulphur Fuel Oil (HSFO) prices recorded during the year. Furthermore, we started receiving our second tranche of natural gas from West Natuna, Indonesia, in November 2011, further boosting revenue during the year.

The Marine business’ 2011 turnover decreased by 13% to S$4.0 billion mainly due to lower revenue recognition from rig building projects, as well as the resumption of revenue recognition on delivery of PetroRig III semi-submersible rig and the sale of a CJ-70 harsh environment jack-up rig in 2010. This was partially offset by higher revenue recognition from ship conversion and offshore projects.

Net Profit

Group net profit in 2011 grew 2% from S$792.9 million to S$809.3 million, while profit from operations was S$1,271.7 million compared to S$1,396.0 million in the previous year.

Our Utilities business delivered robust profit growth in 2011, with net profit growing 32% to S$304.4 million. Record profits for the business were driven by good operating performance in Singapore, China and the Middle East & Africa. Marine’s 2011 net profit contribution to the Group was S$456.2 million compared to S$524.9 million in 2010. The Marine business’ net profit was lower mainly due to fewer jack-up and semi-submersible rig projects. The Integrated Urban Development business’ higher net profit in 2011 was primarily due to higher land sales recognised.
Cash Flow and Liquidity

As at December 31, 2011, the Group’s cash and cash equivalents stood at S$3.0 billion.

Cash flows from operating activities before changes in working capital decreased from S$1,440.2 million in 2010 to S$1,380.8 million in 2011. Net cash inflow from operating activities for 2011 was S$975.0 million compared to S$1,702.4 million in 2010, mainly due to Marine’s increase in working capital for the ongoing projects.

Net cash outflow for investing activities for 2011 was S$1,142.9 million. S$1,090.2 million was spent on purchase of property, plant and equipment and payment for intangible assets and S$197.6 million was used for equity interests into associates and joint ventures. The above cash outflows were partially offset by dividends and interest received of S$140.4 million.

Net cash outflow from financing activities for 2011 was S$323.5 million, mainly related to dividends and interest paid and purchase of treasury shares, partially offset by net proceeds from borrowings.

Financial Position

Group shareholders’ funds increased from S$3.8 billion as at December 31, 2010 to S$4.1 billion as at December 31, 2011.

Non-current assets increased primarily due to higher capital work-in-progress mainly for Utilities and Marine projects. Trade and other receivables and trade and other payables increased in line with turnover. Tax recoverable decreased mainly due to receipt of tax refunds from the Inland Revenue Authority of Singapore. Cash and cash equivalents decreased mainly as a result of payment of dividends and funding for capital expenditure. Interest-bearing borrowings increased due to increased bank borrowings from the drawdown of project finance debts.

Shareholder Returns

Return on equity (ROE) for the Group was a healthy 20.4% in 2011 and earnings per share (EPS) increased to 45.3 cents.

Subject to approval by shareholders at the next annual general meeting, a final tax exempt one-tier dividend of 17.0 cents per ordinary share, comprising an ordinary dividend of 15.0 cents and a bonus dividend of 2.0 cents, has been proposed for the financial year ended December 31, 2011.

Economic Value Added

The Group generated positive economic value added (EVA) of S$728.2 million in 2011.

Our net operating profit after tax for 2011 amounted to S$1.2 billion while capital charges increased to S$479.1 million, mainly due to a higher capital base.

Value Added and Productivity Data

In 2011, the Group’s total value added was S$2.4 billion. This was absorbed by employees in wages, salaries and benefits of S$739.2 million, by governments in income and other taxes of S$188.3 million and by providers of capital in interest and dividends of S$369.7 million, leaving a balance of S$1.1 billion reinvested in business.


Critical Accounting Policies

Sembcorp’s financial statements are prepared in accordance with Singapore Financial Reporting Standards (FRS).

With effect from January 1, 2011, the Group adopted the following new / amended FRSs and Interpretations of Financial Reporting Standards (INT FRS):
The adoption of the FRSs (including consequential amendments) does not have any significant impact on the Group’s financial statements.

Financial Risk Management

The Group’s activities expose it to a variety of financial risks, including changes in interest rates, foreign exchange rates and commodity prices as well as credit risk.

Please refer to the Risk Management & Mitigation Strategies chapter of this report for details on the management of these risks.

Treasury Management

Sembcorp’s financing and treasury activities continue to be mainly centralised within our wholly-owned subsidiary, Sembcorp Financial Services (SFS), the Group’s Treasury vehicle. SFS facilitates funding and on-lends funds borrowed by it to the businesses within the Group, where appropriate.

SFS also actively manages the cash within the Group by taking in surplus funds from businesses with excess cash and lending to those with funding requirements. We actively manage the Group’s excess cash, deploying it to a number of financial institutions, and actively track developments in the global banking sector. Such proactive cash management continues to be an efficient and cost-effective way of managing the Group’s cash and financing its funding requirements.


Including SFS’ S$1.5 billion and Sembcorp Marine’s S$2.0 billion medium-term note programme, the Group’s total funded facilities as at end 2011 amounted to S$8.2 billion (2010: S$7.6 billion), with unfunded facilities standing at S$2.0 billion (2010: S$1.9 billion).


In 2011, SFS signed a S$520.0 million bank loan comprising a S$230.0 million loan maturing in September 2017 and a S$290.0 million loan maturing in September 2020. The Group aims to term out the loans such that their maturity profile mirrors the life of our core assets, while we continue our focus on maintaining adequate liquidity for the Group’s businesses.

We continue to build on our banking relationships to ensure that we are able to secure funding on competitive terms as and when commercially viable and strategically attractive opportunities arise.

The Group remains committed to balancing the availability of funding and the cost of funding, together with the need to maintain prudent financial ratios. We also aim to maintain an efficient and optimal mix of committed and uncommitted facilities and fixed and floating rate borrowings. Of the overall debt portfolio, 83% (2010: 79%) constituted fixed rate debts which were not exposed to interest rate fluctuations.

As at December 31, 2011, gross borrowings amounted to S$2.2 billion (2010: S$1.7 billion) which was higher than last year. The incremental borrowings were mainly due to drawdown of project finance loans, which were funded at relatively higher interest rates, to fund the construction of our power and water plant in Oman. As a result, Group borrowings and interest expense were slightly higher in 2011 as compared to 2010. The weighted average cost of funding in 2011 was 5.09% (2010: 5.06%) while the interest cover ratio remained in a healthy range of 20.3 times in 2011 (2010: 24.2 times). The lower interest cover ratio in 2011 was due to the combination of lower EBITDA and slightly higher interest expense as compared to 2010.

As the Group strives to grow, the Group’s interest expense is expected to increase along with higher borrowings to fund its growth strategy.

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