Keppel Post 1Q 2015 Results

The Directors of Keppel Corporation Limited (KPELF) have reported the following unaudited results of the Group for the first quarter ended 31 March 2015.

 2015 REPORT CARD


1. Net Profit up 6% to S$360 million, compared to 1Q 2014's S$339 million.

2. Earnings per Share was 19.8 cents, up 6% from 1Q 2014's 18.7 cents.

3. Annualised Return on Equity was 12.9%.

4. Economic Value Added decreased from S$186 million to S$103 million.

5. Free cash inflow of S$226 million.

6. Net gearing was 0.37x.


In his report Mr Loh Chin Hua, Chief Executive Officer, Keppel Corporation Limited has presented the following:

Since the precipitous fall in oil prices last June, the price of Brent crude has rebounded from the mid US$40 a barrel range to an average of US$56 a barrel in March 2015. Despite the improvement, oil prices remain highly volatile as market focus swings from politics to a possible shift in OPEC policy to supply and demand factors, among other aspects. More recent progress on Iran's nuclear deal, which could trim sanctions on its future crude exports, has dealt another wildcard to the current oversupply situation.

Meanwhile, tailwinds from low oil prices are encouraging consumption and maintaining conditions for more accommodative monetary policies. In the US, growth for the year remains on track. A stronger greenback, among other factors, is expected to stall the interest rate hike for a bit longer. The Eurozone's fragile recovery has received some support from low oil prices and the European Central Bank's aggressive quantitative easing.

While the outlook for the global economy is generally brighter this year, the boost from low oil prices is expected to be more than offset by softer medium-term growth projections in many advanced and emerging economies. China has entered into a relatively slower but more sustainable pace of growth, supported by a gradual unwinding of property cooling measures since the second half of 2014.

And while some emerging economies such as China are benefitting from cheaper oil, others such as the commodity-exporters are bearing the brunt of an inversely stronger US dollar against their depreciating currencies. Russia, India and the Latin American countries are already seeing their revenues shaved, burden of debt increase and capital inflows choked.

Undoubtedly, the present low oil prices, if sustained, will negatively impact our offshore and marine business. It will however be our strategy to tide through such periods of downturn by managing our costs, while preparing the Group to seize opportunities as they arise. We have done it before and we will do it again.

Performance Highlights

In spite of the challenging environment, Keppel Corporation continues to perform creditably. We achieved a Net Profit of S$360 million in the first quarter of this year, an increase of 6% over the same period in 2014, which reflects a bigger share of Keppel Land's earnings and the sale of some equity investments.

On an annualised basis, the Return on Equity was lower at 12.9% compared to 13.4% a year ago. Economic Value Added for the period was S$103 million.

 Offshore & Marine

Rising costs, low oil prices and flat global oil production are squeezing the cash flows and profitability of upstream companies. Global exploration and production (E&P) capex is anticipated to drop by about 10-15% this year. As it is, the offshore industry has been sliding deeper into the doldrums. Across the board, not a single drilling rig order has been placed since the start of this year, and rig inquiries have also not been converted into any new contracts.

While the low oil prices are expected to last indefinitely, however they cannot be certain how long it will take for oil prices to stabilise and for E&P spending to recover. The board will however, continue to leverage our proprietary know-how and focus on partnering our customers to develop better and more innovative offshore solutions for areas beyond drilling, where demand is expected to remain resilient.

In the first quarter of 2015, Keppel Offshore & Marine clinched new orders amounting to about S$500 million, including a newbuild multi-purpose vessel based on our own design and fabrication work for FPSO-related equipment.

Examples of other niche, non-drilling solutions, which we are building, include accommodation semis, Plug & Abandonment jackups and liftboats. Most of these projects are already a part of our substantial net orderbook of $11.3 billion as at end-March 2015, which will keep our yards well-occupied for the next two years.

In 2015, their yards will be busy delivering 16 rigs, a Depletion Compression Platform, two FPSOs and a variety of other projects. In the first quarter alone, we have completed five jackups and upgraded an FPSO on top of other complex integration and repair projects. Among these deliveries are Keppel FELS's 100th newbuild jackup rig and the 100th LNG vessel repaired by Nakilat-Keppel Offshore & Marine in Qatar.

At 31 March 2015, the first three of six DSSTM 38E semisubmersibles that we are constructing for Sete Brasil were about 89%, 58% and 32% completed. As we had received payments for them up to November last year, as well as a 10% down payment for the remaining three units, we were in a net cash position for these projects at the end of the first quarter.

Considering the good progress that we have achieved on our rigs, as well as our track record for reliable delivery, we do not expect Sete Brasil to cancel their projects with Keppel. We are engaging our customer to see how we can best work together in the interim, and will explore all our options including the possibility of slowing down construction until Sete Brasil has sewn up long term financing for our projects.

Keppel has been disciplined about taking on well-defined contracts with acceptable pricing and payment terms from reputable customers to ensure that the Group is adequately compensated for the risks that it will assume. Given all of these, we believe the risk of project cancellations for Keppel is low, although a couple of customers have approached us to defer their rig deliveries.

As our orderbook is filled mainly by established customers who have made substantial down payments for their rigs, it would not make sense for any of them to cancel their projects, which are progressing well on track.

Even as we stay watchful of developments in the industry and our supply chain, I am confident of our ability to weather the present uncertainties with discipline and agility.


Keppel immediate tasks in navigating the headwinds we are facing in the Offshore & Marine and Property businesses. But we are staying the course on a multi-year roadmap into 2020 with reasonable targets to achieve growth, build a stronger Keppel, and develop and maximise the potential of our people.