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26-January-2017
Keppel Corporation Limited Unaudited Results for the Fourth Quarter and Full Year Ended 31 December 2016



The Directors of Keppel Corporation Limited advise the following unaudited results of the Group for the fourth quarter and full year ended 31 December 2016.

For more information, please contact:

Ivana Chua (Ms)
Assistant General Manager
Group Corporate Communications
Keppel Corporation Limited
DID: (65) 6413 6436
Email: ivana.chua@kepcorp.com


FOURTH QUARTER & FULL YEAR 2016 REPORT CARD

  1. FY 2016 net profit was S$784 million, down 49% from S$1,525 million for FY 2015, due largely to
    a. Lower contributions from the Offshore & Marine Division
    b. Additional provisions for impairment of S$336 million, mainly arising from rightsizing of Keppel Offshore & Marine and impairments of investments and work-in-progress.
  2. 4Q 2016 net profit of S$143 million, after additional provisions for impairment of S$313 million, was down 65% from S$405 million a year ago.
  3. Earnings per Share was 43.2 cents, down 49% from 84.0 cents a year ago.
  4. Proposed final dividend of 12.0 cents per share; total dividend of 20.0 cents per share for FY 2016.
  5. Cash inflow of S$576 million, compared to cash outflow of S$694 million a year ago.
  6. Net gearing was 0.56x as at end-Dec, compared to 0.57x as at end-Sep.
  7. Return on Equity was 6.9%, compared to 14.2% a year ago.
  8. FY 2016 Economic Value Added was negative S$140 million, compared to S$648 million a year ago.


ADDRESS BY MR LOH CHIN HUA, CHIEF EXECUTIVE OFFICER,
KEPPEL CORPORATION

FOURTH QUARTER AND FULL YEAR ENDED 31 DECEMBER 2016


Greetings

1. Good evening and welcome to the conference and webcast on Keppel Corporation's results and performance for the fourth quarter and full year of 2016.

2. To those of us celebrating the Chinese Lunar New Year later this week, may I wish all of you present here and those joining us over the web - good health, happiness and prosperity in the new year.


Macro Environment

3. 2016 was a challenging and eventful year, marked by the US Presidential election, Brexit, and slow global growth. A rising trend of insularism and increasing anti-globalisation sentiments, if left unchecked, could threaten free trade. The rapid evolution of new technologies and business models has also disintermediated many traditional businesses, while creating new opportunities for companies able to seize them.

4. A key development at the end of 2016 was the decision by oil producing nations, both in and outside OPEC, to reduce output, the first cut in over a decade. This brought renewed optimism and confidence to the industry, with oil prices rising to around US$55 per barrel, double the price seen a year ago.

5. While spending by oil majors is expected to increase, we do not envisage a quick recovery for the offshore business, which continues to be under pressure from weak utilisation of the existing operating fleet, coupled with a supply overhang of newbuilds. We are thus prepared for the challenging conditions in the offshore business to remain for some time.

6. At the same time, new horizons present themselves in the mega trends of urbanisation and digitalisation of the economy. This augurs well for a multi-business group such as Keppel, which can provide solutions to meet the growing demand for energy, infrastructure, clean environment, good urban space and connectivity.


Shaping the Future

7. In the past year, we carried out several strategic initiatives to shape our future and position Keppel for sustainable growth. We began the year by announcing the restructuring of our asset management businesses under Keppel Capital. The restructuring was completed in July and Keppel Capital has since obtained approval from MAS to centralise certain regulated activities. Keppel Capital is now an integral part of the Group's business model of creating real assets in infrastructure and real estate.

8. Keppel Land completed its Selective Capital Reduction exercise and we now have full ownership of the property business. Keppel Bay, which was formerly a joint venture between Keppel Corporation and Keppel Land, is now fully integrated under Keppel Land.

9. Over the year, we expanded our capabilities and solutions with our acquisition of the LETOURNEAUTM suite of jackup rig designs as well as aftersales and aftermarket services. We seized new growth opportunities in the LNG supply chain and in e-commerce fulfilment. We also built on our capabilities and track record in environmental infrastructure with Keppel being awarded the tender by PUB, the national water agency, for Singapore's fourth desalination plant. We will continue to look for ways to deepen collaboration as OneKeppel and hunt more effectively as a pack, to create compelling propositions for our customers and investors.


Financial Performance

10. I will now present our results.

11. For the whole of 2016, we achieved a net profit of S$784 million, down 49% from about S$1.5 billion in 2015. This was largely due to lower contributions from Offshore & Marine (O&M) as well as additional provisions for impairment during the year of S$336 million, mainly arising from rightsizing of Keppel Offshore & Marine and impairments of investments and work-in-progress.

12. In 4Q16, net profit was S$143 million. However, if we stripped out Revaluations, Impairments & Divestments (RIDs) and major provisions, net profit of S$300 million is comparable with that of 4Q15. CFO will elaborate later on them.

13. The Group's Economic Value Added was a negative S$140 million in 2016. Our Return on Equity (ROE) was 6.9%.

14. Despite the weaker operating results, our Free Cash Flow was positive year-on-year with an inflow of S$576 million for 2016, compared with an outflow of S$694 million in the previous year. Higher home sales, asset recycling and sale of non-core assets in the Property Division have helped improve return on assets and Free Cash Flow for the Group.

15. Net gearing remained at a comfortable level of 0.56x, slightly lower than at the end of the last quarter.

16. The Board of Directors will be proposing a final dividend of 12.0 cents per share. Together with the interim cash dividend of 8.0 cents per share distributed last August, we will be paying out a total cash dividend of 20.0 cents per share to shareholders for the whole of 2016.

17. I shall now take you through the developments in our business divisions.


Offshore & Marine

18. Our O&M Division has remained profitable despite the sharp downturn, with a net profit of S$29 million for FY 2016.

19. Keppel O&M's operating profit was S$412 million and operating margin was 14.4% for FY 2016, before impairments of S$277 million for fixed assets, stocks & work-in-progress and investments. Apart from reducing variable costs, we have also worked on cutting our overheads, achieving cost savings of some S$150 million year-on-year.

20. We have responded decisively to the challenging conditions facing our offshore and marine business, not just in anticipation of a long and harsh winter, but also to build a stronger, leaner and more competitive Keppel O&M.

21. The painful but necessary measures to rightsize our O&M Division must continue.

22. In 4Q 2016, Keppel O&M reduced its direct workforce by 2,620 or about 11.8% from the previous quarter. This includes a reduction of about 1,930 in Singapore and 690 in our overseas yards.

23. For the whole of 2016, Keppel O&M reduced its direct workforce by about 10,600 or 35%, with about 3,800 in Singapore and 6,800 overseas. Subcontract headcount in Singapore, which has already been lowered significantly, was further reduced by about 3,300.

24. In tandem, we are also cutting our yard capacity and have mothballed two overseas yards. In Singapore, we are in the process of closing three yards.

25. In 2016, the O&M Division secured new contracts worth about S$500 million and delivered more than 20 projects including several FPSO conversions and fabrication jobs, an accommodation semi, a land rig, four jackups, as well as a few specialised vessels.

26. We understand the strong headwinds in the offshore industry and continue to work closely with our customers to respond to the challenging conditions. On 30 December 2016, we announced that we had arrived at a settlement agreement with Parden's guarantor for the jackup, B361, at a sale price matching the remaining payment obligations of Parden in a new sales contract with an associate of the guarantor. The rig will be delivered in 4Q 2017.

27. We have received requests to defer the delivery of the jackup for Falcon Energy to the second quarter of this year, and that for BOT Lease Co to January 2019. For the Falcon rig, we have received 20% downpayment, and for the BOT rig, 60% of the milestone payments.

28. Meanwhile, the DSSTM38M semi, being built in our Caspian Shipyard Company in Azerbaijan, is on track for delivery, albeit slightly later, from 4Q 2016 to 2Q 2017 due to additional modifications needed for its charter to TOTAL. Meanwhile, the FPSO for Yinson is on track to set sail soon to begin work for Eni in Ghana.

29. In 2017, our yards will continue to focus on executing both existing and new contracts well. We expect to deliver some 20 newbuild and conversion projects including the world's first-of-its-type FLNG vessel conversion, Golar Hilli.

30. On the investigations in Brazil, Keppel continues to cooperate with relevant authorities towards resolving issues in relation to contracts with Petrobras and Sete Brasil. Keppel has a zero-tolerance stance against any form of illegal activity, including bribery and corruption, involving its employees or associates.

Pursuing Opportunities

31. Beyond dealing with immediate challenges, Keppel O&M is also positioning itself for the upturn.

32. We are investing prudently in R&D and building new capabilities while looking out for opportunities to service niche, adjacent, or even new markets. These include production solutions, non-drilling solutions as well as specialised vessels, such as the three dredgers awarded to Keppel O&M by the Jan De Nul Group in July last year.

33. Keppel is also well positioned to address growing requirements across the LNG value chain. In addition, we are exploring ways to re-purpose the technology that we developed in the offshore industry for other uses.

34. Ultimately, our efforts are geared towards entrenching our leadership position in the global offshore and marine industry.


Property

35. 2016 was another strong year for our Property Division as we stayed focused on our core markets of Singapore and China, and growth markets of Vietnam and Indonesia. The Division recorded a net profit of S$620 million for FY 2016, with Keppel Land recording a higher net profit of S$586 million compared to S$564 million in 2015.

36. Keppel Land continues to recycle capital from its property assets, in line with the Group's focus to seek higher returns. Over the year, we announced 11 divestments totaling about S$680 million, including the sale of Keppel Land's stakes in townships in Chengdu and Wuxi, and in Sedona Hotel Mandalay in the last quarter.

37. At the same time, we are seizing opportunities to redeploy our funds and have made investments of about S$460 million across China, Vietnam and Indonesia. These include inking a JV with Indonesian developer Metland to develop landed homes in West Jakarta and consolidating our ownership in the residential project, Riviera Cove, in Ho Chi Minh City in 4Q 2016.

38. Bolstered by rapid urbanisation across Asia, our Property Division achieved strong residential sales in 2016, especially in China and Vietnam. A total of 5,720 homes were sold in 2016, comprising about 3,800 units in China and another 1,520 units in Vietnam, with total sales value of about S$2.3 billion. This is about 25% higher than the 4,570 homes sold in 2015.

39. We are encouraged by the positive homebuyer sentiments in Vietnam. For example, we sold some 420 homes over one weekend in December when we launched Phase 1 of Empire City in Ho Chi Minh City. We will continue to capitalise on the positive market sentiments in Vietnam. With our sizeable landbank, we plan to launch projects for sale in quick succession in the coming years. In Singapore, despite the sluggish market, we doubled the number of homes sold to 380 from 190 in 2015.

40. Profit from about 4,200 overseas homes sold in and before 2016 will be recognised upon completion over the next three years.

Property Portfolio

41. In our residential pipeline of about 66,000 units, we have close to 19,000 launch-ready homes from now till 2019.

42. On the commercial front, Keppel Land has over a million square metres of gross floor area under development. These projects will be progressively completed and will contribute to our recurring income and eventually, to revaluation and divestment gains. Riding on the good repute and success of Saigon Centre in Ho Chi Minh City, we will commence marketing for its Phase 2 offices in 2H 2017.

43. We do not seek to amass the largest landbank or build the largest property business. Our goal is to be a developer that builds quality homes, offices and commercial developments which are highly sought after by buyers and tenants, and for Keppel Land to continue being a developer with one of the highest ROEs in Asia.


Infrastructure

44. Before I go on to developments in our Infrastructure Division, this is an image of the landscaped green buffer zone which Keppel had built as part of the Doha North Sewage Treatment Works. Keppel has begun the 10-year operations and maintenance contract for the project, which is the largest wastewater treatment, water reuse and sludge treatment facility in Qatar. We are pleased to have played a role in supporting Qatar's vision for sustainable development.

Energy & Environmental Infrastructure

45. Our Infrastructure Division posted a net profit of S$99 million for FY 2016.

46. Despite the tough conditions in the power market in Singapore, Keppel Infrastructure has done well from operations, registering a net profit of S$84 million for FY 2016, excluding RIDs. This was higher compared to S$46 million, on the same basis, in 2015.

47. We continue our focus on building Keppel Infrastructure into a stable contributor to the Group's bottom line, pursuing growth opportunities in energy and environmental infrastructure both in Singapore and overseas.

48. We are very heartened that Keppel Infrastructure will Design, Build, Own and Operate Singapore's fourth desalination plant with a concession period of 25 years. To be operational in 2020, it will be the first in Singapore with the ability to treat sea water, and fresh water from the Marina Reservoir, by using reverse osmosis and other advanced membrane technology.

49. Keppel Infrastructure has also won contracts to provide waste-to-energy (WTE) technology packs for two major WTE plants in Shenzhen in 2H 2016, building on its leadership position in China.

50. Meanwhile, Keppel Infrastructure is preparing competitive products and services to be ready for the full liberalisation of Singapore's electricity market expected in 2018.

Data Centres

51. In 2016, the Group's data centre business increased its footprint by more than 45%, in terms of net lettable area, in markets such as Hong Kong, Italy, the UK and Germany.

52. In the last quarter, Keppel Data Centres and Alpha Data Centre Fund jointly acquired a data centre in Frankfurt. We also completed the divestment of 90% stake in Keppel DC Singapore 3 to Keppel DC REIT, allowing Keppel Data Centres to recycle its capital and provide a valuable deal flow pipeline for unitholders of Keppel DC REIT.

53. Meanwhile, Keppel DC Singapore 4 is expected to achieve its TOP and complete the first phase of fit-out in 1Q 2017.

Logistics

54. Building on our foundation in third-party logistics, Keppel Logistics is focused on developing capabilities in omni channel distribution. The acquisition by Keppel Logistics of e-commerce fulfilment company, Courex, will strengthen our ability to tap the growing e-commerce sector in Singapore and Southeast Asia. For its reliable last-mile delivery services, Courex has recently been awarded a contract by a major international electronics group.


Investments

55. Our Investments Division recorded a net profit of S$36 million in FY 2016, down from S$185 million the year before, due to impairments of S$46 million and lower share of results from associated companies. Since its formation, Keppel Capital has been making steady progress, with profit of S$64 million, slightly higher than S$58 million in FY 2015.

56. During the last quarter, the two new funds launched by Keppel Capital, the Alpha Data Centre Fund and Alpha Asia Macro Trends Fund III, both made their first acquisitions. In addition, the Alpha Asia Macro Trends Fund II divested its Singapore suburban retail portfolio, achieving an IRR of over 50%.

57. Under Keppel DC REIT, assets under management have increased to approximately S$1.4 billion with 13 data centres, three of which were added to its portfolio in 2016.

58. To harness our synergies as a multi-business company, our verticals are collaborating even more closely with one another, capitalising on their wealth of expertise, industry knowledge and networks to create value for stakeholders.

59. Keppel leads the Singapore Consortium in the Sino-Singapore Tianjin Eco-City, which is now in its eighth year of development. With improving infrastructure, connectivity, and a growing range of amenities including schools, business parks and community centres, we are seeing a steady increase in demand for homes and land in the Eco-City.

60. At a land auction this month, our 50-50 joint venture in the Eco-City achieved the sale of three land parcels for about RMB 5 billion. This works out to be an average of close to
RMB 14,000 psm of GFA, higher than the last record sale price of RMB 8,000 psm of GFA achieved in July 2016.

61. The keen interest by developers and appreciating land price reflect the market's growing confidence in the Eco-City as it matures.

62. KrisEnergy's preferential offering of the zero coupon secured notes with free in-the-money detachable warrants was fully subscribed by its shareholders. We remain confident of the long-term fundamentals of the oil and gas industry, and believe we can extract good returns from our investment in KrisEnergy when the market improves. The successful Consent Solicitation Exercise to term out two existing notes, and issuance of the zero coupon secured notes mean that KrisEnergy will be on a stronger financial footing to weather any continuing volatility in oil price.


Multiple Income Streams

63. All parts of the Keppel Group are working hard to ensure that we remain resilient, despite the headwinds. Recurring income contributed to 42% of the Group's total net profit for the year. Gains from revaluations, divestments and reversal of prior impairments amounted to S$270 million, before additional provisions for impairment during the year of S$336 million.

64. We will continue to focus on growing stable, recurring income that will enable Keppel to ride out downcycles. Through the challenges, I am confident that Keppel will emerge stronger, anchored on our multi-business strategy.


Attachments:

Download - KCL 4Q2016 Report Card
Download - KCL 4Q2016 Unaudited Financial Statements
Download - KCL 4Q2016 Results Slides

 



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