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| Home > Operating & Financial Review > Group Review |
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In 2008, Sembcorp achieved 15% growth in turnover to S$9.9 billion. Group profit after tax and minority interest (PATMI) before exceptional items (EI) in 2008 was S$534.0 million compared to S$557.2 million in 2007. In 2007, excluding the one-off tax write-back of S$48 million, PATMI before EI was S$509.2 million.
During the year, the Group recorded an exceptional loss of S$26.9 million comprising of the Group's share of Marine business’ foreign exchange losses from the unauthorised transactions.
The Group achieved a record turnover of S$9.9 billion for the financial year 2008.
Utilities’ turnover increased by 20% to S$4.5 billion in 2008. The increase in turnover was fuelled by a rise in high sulphur fuel oil prices (HSFO) offset by the expiry of favourable supply contracts in the UK and depreciation of the pound sterling which resulted in lower turnover in Singapore dollar terms.
Turnover for Marine increased by 12% to S$5.1 billion. This was mainly due to a higher percentage of completion achieved in rig building, offshore, conversion projects and higher repair sales.
Environment’s turnover increased by 4% to S$213.8 million, mainly due to higher turnover from its paper recycling division.
The decrease in turnover for the Industrial Parks business was mainly attributable to the divestment of Wuxi Garden City Mall in May 2007.
Turnover of Others / Corporate was mainly contributed by subsidiaries dealing in specialised construction activities and minting.
Excluding the one-off write-back of S$48 million of tax provisions recorded in 2007, the Group achieved a growth of 6% in PATMI, mainly contributed by strong performance in Marine’s rig building and ship repair businesses.
Utilities’ 2008 PATMI was S$200.3 million compared to S$230.2 million in 2007. This was primarily due to lower contributions from its UK operations, which was impacted by lower profit margins and erosion of its contribution in Singapore dollar terms due to depreciation of the pound sterling. In 2007, the UK’s performance also enjoyed a boost from the profit on the sale of land. Utilities’ operations in Singapore recorded higher PATMI for the year primarily from a gain on the sale of transmission and distribution pipeline assets in Singapore to PowerGas, as well as the gain from the sale of strategic diesel. In 2007, Utilities’ operations in Singapore was impacted by the maintenance inspection and repair of gas turbines at its cogeneration plant during that year. Meanwhile, operations in China continued to do well and operations in the Middle East performed according to plan.
Marine’s contribution to Group PATMI rose 32% to S$290.6 million, mainly due to higher operating margins from its rig building and ship repair businesses, partially offset by lower share of results from its associates, mainly Cosco Shipyard Group.
The performance of our Environment business was affected by higher operational costs and lower recyclables volume, in addition to an impairment on part of its plant and machinery in 2008.
The decline in Sembcorp’s share of PATMI from our Industrial Parks business was mainly attributed to lower profit contribution from its associate, Gallant Venture.
The decline in Others / Corporate PATMI in 2008 was mainly due to weak performance by an offshore engineering associate in China. In 2007, there was a write-back of S$48 million of tax provisions made in prior years for the gains on divestment of an investment, following the favourable tax ruling by the Inland Revenue Authority of Singapore.
As at December 31, 2008, the Group had cash and cash equivalents of S$2.4 billion.
Net cash inflow from operating activities for the financial year 2008 was S$2.3 billion as compared to a net cash inflow of S$614.0 million for 2007. The strong operating cash flow was mainly contributed by our Marine business and our Utilities operations in Singapore and the UK.
Net cash outflow from investing activities in 2008 was S$115.8 million. The cash outflow of S$361.7 million on expansion and operational capital expenditure was partially offset by proceeds from the sale of property, plant and equipment, subsidiaries, associates and other investments of S$133.1 million and dividends and interest received of S$120.7 million.
Net cash outflow from financing activities for 2008 of S$1.0 billion relates mainly to dividends and interest paid as well as net repayment of borrowings.
Free cash flow, defined as operating cash flow plus investing cash flow adjusted for expansion capital expenditure, was S$2.3 billion as at December 31, 2008.
Group shareholders’ funds decreased from S$3.0 billion at December 31, 2007 to S$2.6 billion at December 31, 2008. ‘Other reserves’ decreased due to a lower fair value reserve as a result of fair value adjustments for Cosco Corporation (Cosco) shares held by Sembcorp Marine as well as hedging instruments. Translation losses arising from the translation of our foreign operations’ contributions resulted in a lower foreign currency translation reserve due to the weakening of the US dollar and pound sterling during the year. Treasury shares purchased by the Company and a listed subsidiary in 2008 also contributed to lower ‘Other reserves’ as at December 31, 2008.
The decrease in ‘Other financial assets’ was mainly due to fair value adjustments for Cosco shares held by Sembcorp Marine. The increase in the long-term receivables pertained to the Changi NEWater plant which is being constructed under a service concession arrangement. The Group has recognised the consideration receivable as long-term receivables in accordance with Interpretations to the Singapore Financial Reporting Standards (INT FRS) 112.
‘Trade and other payables’ increased due to higher operating activities by our Marine business. ‘Other payables’ increased due to a reclassification from non-current liabilities to current liabilities of our 40% share of the equity bridging loan taken up by an associate, Emirates Sembcorp Water & Power Company, which was repaid in February 2009. Our Utilities business also recorded lower receivables due to a drop in HSFO rates. Our Marine business recorded lower ‘Inventories and work-in-progress’ while ‘Excess of progress billings over work-in-progress’ and ‘Bank balances, fixed deposits and cash’ increased mainly due to receipts from customers for both rig building projects in progress and completed projects.
The Group’s return on equity stood at 18% and earnings per share was 28.5 cents in 2008.
Subject to approval by shareholders at the next annual general meeting, a final tax exempt one-tier dividend of 11.0 cents per ordinary share has been proposed for the financial year ended December 31, 2008.
In 2008, the Group generated positive economic value added (EVA) of S$510.7 million due to an increase in operating profits coupled with a lower capital charge.
Our net operating profit after tax for 2008 amounted to S$823.9 million whilst our capital charge decreased to S$313.2 million mainly due to a lower weighted average cost of capital of 5.8%.
In 2008, the total value added by the Group was S$1.8 billion. This was absorbed by employees in wages, salaries and benefits of S$682.2 million; by the government in income and other taxes of S$169.5 million and by providers of capital in interest and dividends of S$311.3 million, leaving the balance of S$670.7 million reinvested in business.
Sembcorp’s financial statements are prepared in accordance with the Singapore Financial Reporting Standards (FRS).
With effect from January 1, 2008, the Group adopted the following new or amended FRS and INT FRS which are relevant to our operations:
The effects of the adoption of the above INT FRS did not result in substantial changes to the Group’s accounting policies.
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.
In managing our interest rate and currency risks, the Group aims to reduce the impact of short-term fluctuations on the Group’s earnings. However, any prolonged adverse changes in foreign exchange and interest rates would have an impact on consolidated earnings.
Please refer to the sensitivity analysis as set out in Note 39 in the Notes to the Financial Statements.
During the year, the Company retired its S$2.0 billion medium term note programme in August 2008 after it repaid the last outstanding issuance of S$150 million in June 2008. Together with an existing S$1.5 billion medium term note programme with its wholly-owned subsidiary Sembcorp Financial Services (SFS) as the issuing vehicle and a S$500 million medium term note programme with Sembcorp Marine, the total available credit facilities as at end 2008 amounted to S$4.6 billion (2007: S$4.8 billion), with unfunded facilities at S$1.9 billion (2007: S$1.9 billion). The Group also accesses capital markets as and when appropriate. There has been no issuance under the SFS’s medium term note programme thus far.
With the unprecedented global financial turmoil and tightening credit markets, our focus is to ensure that adequate funding is available for the Group’s businesses and to manage cashflows prudently.
We continue to build on our banking relationships with a view to ensuring that when commercially viable and strategically attractive opportunities arise, we would be in a good position to secure funding.
The Group remains committed to balancing the availability of funding and the cost of funding 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.
As at December 31, 2008, gross borrowings amounted to S$817 million, of which 92% (2007: 86%) was committed funding. Of the overall debt portfolio, 86% (2007: 64%) constituted fixed rate debts which were not exposed to interest rate fluctuations.
The Group seeks to limit its interest rate exposure by adopting a prudent debt structure while balancing this with liquidity and cost considerations. The weighted average cost of funding was 3.83% (2007: 3.85%). Interest cover ratio remained healthy at 21.2 times (2007: 15.3 times).
The current maturity profile of the Group’s debt continues to favour the longer dated maturities, which reduces the impact of refinancing risk. As at end 2008, the portion of Group debt maturing beyond one year was 65% (2007: 62%). Only S$287 million of the Group’s debt is due within 12 months.
The Group’s financing and treasury activities continue to be mainly centralised within SFS, the funding vehicle of the Group. SFS on-lends funds borrowed by it to companies within the Group. SFS also actively manages the cash within the Group by taking in surplus funds from those with excess cash and lending to those with funding requirements. We actively manage the Group’s excess cash, deploying it in a diversity of financial institutions and actively tracking developments in the global banking sector. Such proactive cash management continues to be an efficient and cost-effective way of financing the Group’s requirements.
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