Keppel Corp results show strain on business, provision made for Sete Brasil woes

Keppel Corp earnings took another huge hit in the fourth quarter.
Keppel Corp earnings took another huge hit in the fourth quarter.PHOTO: KEPPEL

SINGAPORE - Keppel Corp earnings took another huge hit in the fourth quarter, as the market conditions worsened while uncertainties around Sete Brasil continue to loom.

In the three months to Dec 31, 2015, net profit for the group plunged 44.2 per cent year-on-year to S$404.78 million, while revenue pared 36.8 per cent to S$2.48 billion.

For the full year, net profit was 19.1 per cent lower at S$1.52 billion, and revenue was down 22.5 per cent to S$10.3 billion.

Announcing the group results on Thursday (Jan 21), chief executive Loh Chin Hua painted a grim operating environment.

"Since our last briefing in October 2015, the macro-environment has taken a turn for the worse. Oil price plunging below US$30 a barrel, its lowest in more than a decade, coupled with the Chinese stock market meltdown this month have hurled the global economy onto a turbulent trajectory," he said.

Unsurprisingly, Keppel's offshore and marine unit languished, with the division's fourth quarter turnover plunging S$1.05 billion to S$1.32 billion "because of lower volume of work, deferment of some projects and the suspension of the Sete Brasil contracts", Keppel said.

This pushed the quarterly O&M pretax profit to only S$21 million. For 2015, total O&M pretax profit dropped 54 per cent to S$481 million. Net order book also shrank, down 28 per cent to S$9 billion in 2015.

Oil producers are slashing production and cancelling rig orders globally, and Keppel is faced with further headwinds amid rumour that major client Sete Brasil is heading towards bankruptcy.

"We had taken steps to mitigate our exposure by slowing the construction of Sete's rigs after payments from our customer ceased over a year ago," Mr Loh noted, adding that Keppel has made a S$230 million provisions in the fourth quarter to cover for potential impact.

"We understand that Sete's board will soon be meeting to discuss future plans for the company… Until we hear from Sete officially, the above measures, in our opinion, are sound and adequate," he added.

The group's infrastructure unit also reported lower earnings. Pretax profit from the unit, which comprises energy infrastructures, data centres and logistics businesses, dropped 35 per cent to S$207 million in 2015. For the fourth quarter, infrastructure profit pared 79 per cent to S$63 million.

In the property division, fourth quarter profit was down S$86 million to S$442 million, due partly to the absence of property disposals in the fourth quarter in 2014. Otherwise the division's profit was stable, growing 45.4 per cent to S$701 million for 2015 when the group sold around 4,570 homes.

Total earnings per share dropped 44.1 per cent for the fourth quarter to 22.3 cents a share. For the full year, EPS dipped 19.1 per cent to 84 cents. Net asset value grew 7 per cent for the full year to S$6.13 per share.

The board is proposing a final dividend of 22 cents per share, down 39 per cent from a year ago.

Keppel Corp shares dropped three cents or 0.62 per cent to S$4.80, ahead of the results announcement.