TAN KIN FEI, CEO of utilities service provider and rig builder Sembcorp Industries, was given a relatively easy time during the company’s FY2010 results briefing on Feb 25. Despite mounting investor concern arising from the uncertainty in Africa and the Middle East, analysts and reporters present had no questions for him on how this would affect Sembcorp’s assets and operations in the region.
Sembcorp actually owns 60% of the US$1 billion ($1.27 billion) Salalah independent water and power plant (IWPP) in Oman, expected to be completed by 1H2012. A 15-year contract to supply water and power to the Omani government has already been secured. The company also owns a 40% stake in the US$1.7 billion Fujairah IWPP in the United Arab Emirates which is expected to be fully completed by 2013 but already supplies water and power on a fixed-price basis.
Analysts had earlier cautioned that any regime change could result in a loss of control of the IWPPs and affect group earnings, concerns Tang tried to address during the briefing. “Recent events in the Middle East and North Africa could create uncertainties and threaten global economic recovery,” he says, quickly adding that its projects in the region, Oman and the UAE have so far not been affected by the unrest. Still, he says Sembcorp will “continue to closely monitor the situation in the region” and expects its utilities and industrial parks businesses to continue delivering “a steady performance” in the coming year.
STRATEGY THAT WORKS
For the 12 months ended Dec 31, 2010, Sembcorp reported a 16% yoy rise in net profit to $793 million despite a 8% dip in revenue to $8.76 billion. During the period, profits earned at Sembcorp’s businesses in the Middle East and Africa grew by 80% yoy.
“We have once again achieved a good year in terms of growth in both our energy and water businesses,” Tang says. “Our Salalah project is on target to commence in July this year and we have also announced a new wastewater treatment plant, co-gen plant and multi-utilities centre to support our customers like Lanxess and JAC Aromatics Corp on Jurong Island.” Sembcorp is investing some $840 million to build the facilities.
Meanwhile, the company is seeing progress at its 49%-owned, $1.9 billion coal-fired power plant in Andhra Pradesh, India. On Feb 23, it announced that the green light had been given to contractors to begin engineering and construction work on the plant. It also announced that construction of its second co-generation plant on Jurong Island is on target to commence later this year.
“Because of this rapid growth we have increased our power generation capabilities from 3,800 MW to 5,800 MW and we are now able to produce 6 million tonnes of water to serve over 5 million people,” Tang adds.
FLAGSHIP UNIT
However, Sembcorp Marine, the company’s 61.3%-owned rig-building and ship-repair arm, still contributes the lion share of Sembcorp’s earnings for the year. During the period, SembMarine’s net profit stood at $492.8 million, up 15% yoy and contributing to about 62% of the company’s total profit. The improved earnings was due to margins recognised from the sale of a CJ70 harsh environment jack-up rig as well as the execution of repeat rig orders for customers during the year.
In contrast, earnings from the utilities business grew by just 2% to $147.3 million over the same period, as power and water generation plants typically have gestation periods of between three to seven years before they begin contributing to earnings.
Shares of SembMarine have risen 0.9% since its results were announced on Feb 23, closing at $5.26 each on Friday. Meanwhile, Sembcorp’s shares closed at $4.90 apiece, up 1.4% for the week.
....... ...... ....... I want!!!!!!!!!