Keppel's Q2 net profit falls 48.1%

Keppel's property business has proven to be a bright spot. Revenue rose 16 per cent to $469 million during the quarter, boosted by higher sales in China (above).
Keppel's property business has proven to be a bright spot. Revenue rose 16 per cent to $469 million during the quarter, boosted by higher sales in China (above).PHOTO: KEPPEL

Lengthy downturn in offshore and marine sector a key factor

Earnings of conglomerate Keppel Corporation took yet another hit in the second quarter, as the lengthy downturn in the offshore and marine industry continued to bite.

Net profit for the three months to June 30 slumped 48.1 per cent to $205.8 million, down from $396.7 million in the same period a year ago. Revenue sank 36.6 per cent to $1.63 billion.

Net profit fell 45 per cent to $416.3 million for the half year, while revenue dropped 37.4 per cent to $3.37 billion.

Earnings per share sank 48.4 per cent to 11.3 cents for the quarter, and dropped 45.1 per cent to 22.9 cents for the half year. Net asset value per share stood at $6.12 as at June 30, down 0.2 per cent from $6.13 as at Dec 31 last year. Keppel has declared an interim dividend of eight cents per share, down from the 12 cents per share previously.

The biggest drag on the group's overall performance, as in recent quarters, was its offshore and marine division, where turnover slid 54 per cent to $720 million due to lower work volumes, project deferments and the suspension of the Sete Brasil contracts.

Keppel chief executive Loh Chin Hua told a briefing yesterday that its offshore and marine arm has received more deferment requests: the delivery of three rigs for Grupo R and one for Parden Holdings will be pushed to next year.

  • AT A GLANCE

  • Q2 NET PROFIT: $205.8 million (-48.1%)

    REVENUE: $1.63 billion (-36.6%)

    DIVIDENDS: 8 cents per share (-33.3%)

With its major client Sete Brasil having filed for bankruptcy protection in April, the company has also excluded the $4 billion worth of Sete Brasil contracts from its order book, which now stands at around $4.3 billion - a level this low had not been seen since the $4.6 billion order book in 2010. Still, Mr Loh said the $230 million provision made for the projects last year remains "appropriate and adequate".

In "right-sizing" its operations, Keppel Offshore & Marine cut its direct staff strength, both in Singapore and overseas, by 4,900 or around 16 per cent in the first half of the year and reduced its subcontract workforce by 670.

Mr Loh added that such cost-cutting efforts will continue, and that it could also mothball yards with low work volumes.

"Given the oversupply in the rig market and falling day rates, we do not expect demand for drilling rigs to return soon," he said, noting that Keppel O&M is also responding to the downturn by looking at other market segments such as floating production solutions and LNG-related solutions and services. "The industry's capex cycle will take time to stabilise and recover, and we must be prepared for not only a long winter, but also a harsh one."

That said, Keppel's property business has proven to be a bright spot. Revenue rose 16 per cent to $469 million during the quarter, boosted by higher sales in China.

"Our positive home sales have been riding on continuing strong urbanisation trends and we have a 70,000-strong pipeline to meet the market's needs," said Mr Loh.

Elsewhere, revenue of Keppel's infrastructure division fell 25 per cent to $404 million, owing to lower prices and volumes in the power and gas business, while that of its investments segment slipped 11 per cent to $32 million.

Mr Loh remains confident that the group's "multi-business strategy (will continue) to stand us in good stead", adding that its new asset management arm Keppel Capital will strengthen its capital-recycling platform and provide a "steady pillar of recurring income" for the group.

Keppel shares closed two cents or 0.4 per cent lower at $5.58 yesterday, before the results were announced.

A version of this article appeared in the print edition of The Straits Times on July 22, 2016, with the headline 'Keppel's Q2 net profit falls 48.1%'. Print Edition | Subscribe