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Sembcorp’s good performance in 2009 has demonstrated the resilience of our strategy and businesses. The Group’s profit after tax and minority interest (PATMI) in 2009 grew by 35% to S$682.7 million whilst turnover was S$9.6 billion compared to S$9.9 billion
in the previous year.
The Group achieved a turnover of S$9.6 billion, with the Utilities and Marine businesses contributing 96% of the total turnover.
The reduction in the Utilities business’ turnover was mainly from its Singapore and UK operations. Singapore operations’ reduced turnover in 2009 was largely due to the drop in high sulphur fuel oil (HSFO) prices as its revenue is mainly indexed to HSFO. The UK operations’ 2009 turnover was affected by lower sales as a result of customers’ closure of their on-site facilities and the weakening of the pound sterling, which resulted in lower turnover in Singapore dollar terms. In addition, our UK operations’ turnover was impacted by the expiry of a favourable supply contract in March 2008.
The Marine business’ 2009 turnover increased by 13% to S$5.7 billion mainly due to higher contribution from rig building activities.
The Environment business’ turnover decreased primarily due to the divestment of certain businesses and lower sales tonnage and selling price of recyclables.
Revenue from the Others / Corporate segment was mainly contributed by a subsidiary dealing in specialised construction activities. Fluctuations in turnover were due to timing differences in the recognition of revenue from projects.
Group PATMI grew 35% from S$507.1 million to S$682.7 million.
The Utilities business’ PATMI grew by 6% to S$211.3 million, with operations in Singapore, China, Vietnam and the UAE showing growth. Despite the difficult economic environment during the year, the cogeneration unit in Singapore performed well, benefiting from higher margins despite undergoing major inspection and maintenance during the year. Further, it benefited from gains on sale of strategic diesel and lower corporate tax rate. Our UK operations’ performance was lower due to customers’ closure of their facilities on-site as well as the expiry of a favourable supply contract in March 2008.
The Marine business’ contribution to Group PATMI grew 48% from S$290.6 million to S$430.2 million, attributable to a combination of operational efficiency and execution of projects ahead of schedule, resulting in better margins and the resumption of margin recognition for some of the projects.
The Environment subsidiary’s underlying business in Singapore has improved as a result of lower operational costs. Its 2009 PATMI included a gain on the divestment of certain businesses.
The Industrial Parks business’ lower PATMI in 2009 was attributed to lower contributions from Gallant Venture and lower gains on the disposal of investments, partially offset by higher rental income and better performance from the China industrial parks.
The exceptional loss in 2008 related to the Group’s share of the Marine business’ foreign exchange losses from unauthorised transactions. |
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As at December 31, 2009, the Group had cash and cash equivalents of S$2.6 billion.
Cash flows from operating activities before changes in working capital increased from S$1.0 billion in 2008 to S$1.4 billion in 2009. Net cash inflow from operating activities for 2009 decreased to S$932.8 million due to increased inventories and work-in-progress in Marine.
Net cash outflow from investing activities for 2009 was S$474.6 million. The spending of S$407.4 million on expansion and operational capital expenditure, S$111.9 million on equity interests in associates and S$67.3 million on a shareholder’s loan to an associate in 2009, were partially offset by dividends and interest received of S$98.9 million.
Net cash outflow from financing activities for 2009 of
S$266.7 million related mainly to dividends and interest paid, partially offset by net proceeds from borrowings.
Free cash flow, defined as operating cash flow plus investing cash flow adjusted for expansion capital expenditure, was S$882.0 million as at December 31, 2009.
Group shareholders’ funds increased from S$2.6 billion as at December 31, 2008 to S$3.3 billion as at December 31, 2009. The increase in “Other reserves” was mainly due to (i) fair value gains on foreign currency forward and fuel oil swap contracts, (ii) fair value gains on Cosco Corporation (Singapore) (Cosco) shares held by the Marine business as well as (iii) the reversal of the fair value loss residing in the share of reserves of associates following the repayment of an equity bridge loan by Emirates Sembcorp Water & Power Company in February 2009.
“Interests in Associates and Joint Ventures” were higher in 2009 because of increased investments in associates in the UAE and Australia, a new investment in China and the addition of the Group’s share of profits from associates and joint ventures during the year. The increase in “Other financial assets” was mainly due to fair value adjustments for Cosco shares held by the Marine business. The increase in “Long-term receivables and prepayments” pertained mainly to the Sembcorp NEWater Plant, which is being constructed under a service concession arrangement and a long-term loan due from an associated company.
“Inventories and work-in-progress” increased and “Excess of progress billings over work-in-progress” decreased significantly, mainly due to an increase in rig building, offshore and conversion projects. “Trade and other receivables” and “Trade and other payables” were lower due to the respective timing of receipts and payments. The increase in “Provisions” was mainly due to higher specific provisions for warranty and claims.
Return on equity increased from 18% in 2008 to 23% in 2009, and earnings per share increased to 38.4 cents in 2009 from 28.5 cents in 2008.
Subject to approval by shareholders at the next annual general meeting, a final tax exempt one-tier dividend of 15.0 cents per ordinary share has been proposed for the financial year ended December 31, 2009.
The Group generated positive economic value added (EVA) of S$770.5 million in 2009. This positive EVA creation was mainly driven by better Group earnings.
Our net operating profit after tax (NOPAT) for 2009 amounted to S$1.1 billion whilst capital charges increased to S$322.6 million mainly due to a higher weighted average cost of capital (WACC) of 6%. |
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In 2009, the Group’s total value added was S$2.2 billion. This was absorbed by employees in wages, salaries and benefits of S$710.3 million, by governments in income and other taxes of S$243.5 million and by providers of capital in interest and dividends of S$236.9 million, leaving a balance of S$1.0 billion reinvested in business. |
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Sembcorp’s financial statements have been prepared in accordance with the Singapore Financial Reporting Standards (FRS).
With effect from January 1, 2009, the Group adopted the following new or amended FRS and INT FRS, which are relevant to the Group’s operations: |
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| The adoption of the above FRS and INT FRS did not result in substantial changes to the Group’s accounting policies. |
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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 40 in the Notes to the Financial Statements.
The Group’s financing and treasury activities continue to be mainly centralised within its wholly-owned subsidiary Sembcorp Financial Services (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 with a number 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 managing the Group’s cash and financing its funding requirements. |
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During the year, SFS issued an inaugural S$200 million five-year note maturing in April 2014 under its S$1.5 billion medium-term note programme. In addition, SFS also arranged bank financing amounting to approximately
S$411 million for a tenor of up to four years to fund the Group’s investment and working capital needs. Together with Sembcorp Marine’s S$500 million medium-term note programme, the Group’s total available credit facilities as at end-2009 amounted to S$6.7 billion (2008: S$4.6 billion), with unfunded facilities standing at S$1.9 billion (2008: S$1.9 billion).
Although the global financial turmoil and tightening credit markets have improved somewhat as compared to 2008, we continue to focus on maintaining adequate liquidity for the Group’s businesses.
We continue to build on our banking relationships with a view to ensuring that when commercially viable and strategically attractive opportunities arise, we are able to secure funding on competitive terms.
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.
As at December 31, 2009, gross borrowings amounted to S$967.7 million, of which 98% (2008: 92%) was committed funding. Of the overall debt portfolio, 90% (2008: 86%) 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 and balancing this with liquidity and cost considerations. The weighted average cost of funding was 4.14% (2008: 3.83%). Interest cover ratio remained healthy at
31.9 times (2008: 21.2 times).
The current maturity profile of the Group’s debt continues to be weighted more towards the longer dated maturities, which mitigates short-term refinancing risks. As at end-2009, the portion of the Group’s debt maturing beyond one year was 70% (2008: 65%). Only S$286.6 million of the Group’s debt is due within 12 months. |
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