Keppel posts $698 million net loss for Q2; fails to meet pre-condition for Temasek takeover bid

Without the impairments, Keppel would have seen a net profit of $222 million for the quarter.
Without the impairments, Keppel would have seen a net profit of $222 million for the quarter.PHOTO: KEPPEL CORP.

SINGAPORE (THE BUSINESS TIMES, REUTERS) - Keppel Corp posted a net loss of $697.6 million for the second quarter ended June, reversing a $153.1 million net profit a year ago. The company was hit by $919 million in provisions for Keppel Offshore & Marine's contract assets, doubtful debt, as well as share of impairment provision arising from its associate, Floatel.

Without the impairments, Keppel would have seen a net profit of $222 million for the quarter, up 45 per cent from a year ago. The company's quarterly revenue stood at $1.33 billion, down 25.7 per cent from a year ago. Contributions fell across all business divisions due measures to contain the spread of Covid-19.

Keppel declared an interim dividend of 3 cents per share, down from the 8-cent dividend it had declared for the same period a year ago. This will paid on Aug 20.

Its chief executive Loh Chin Hua, chief executive of Keppel said that Keppel has failed to meet a pre-condition to a $4 billion takeover offer from Temasek Holdings.

"We believe that the 20 per cent threshold in the MAC (material adverse change) clause in respect of net profit after tax has been crossed, which means that the MAC pre-condition in Temasek's pre-conditional partial offer has not been satisfied," he said.

MAC clauses can be invoked to end or renegotiate deals, particularly if events occur that are detrimental to the target company.

Last October, Temasek, which already owns about one-fifth of Keppel, offered to buy an additional 30.6 per cent stake at $7.35 per share in cash.

Still, the deal has a long-stop date of Oct 21, meaning Keppel could make up any shortfall in its third-quarter results, while Temasek also has the right to waive its pre-conditions.

For the first half of its financial year, Keppel's net loss amounted to $537 million, hit by $930 million of impairments from the offshore & marine division. Excluding the impairments, it would have registered a net profit of $393 million for the first six months of the year, 5 per cent higher than a year ago.

 
 
 

Revenue stood at $3.18 billion, down 4 per cent from a year ago. This was mainly due to lower contributions from property trading projects in China, power and gas sales, environmental engineering projects and asset management.

The offshore & marine division reported a net loss of $959 million, reversing the net profit of $10 million a year ago. Besides the impairments, Keppel's O&M Singapore workforce was reduced to about 1,200 persons for most of Q2, from about 24,000 in March 2020. The workforce has since risen to about 5,000 presently.

As at end-June 2020, the net orderbook stood at $3.5 billion, which is expected to last theoffshore &marine division for at least two years.

Keppel's property division recorded a net profit of S$197 million for H1, 25 per cent lower on-year, due to the absence of divestment gains from Dong Nai Waterfront City in Vietnam and lower investment income.

Meanwhile, its infrastructure division recorded a net profit of $252 million in H1, up from $59 million a year ago, due to a mark-to-market gain of $131 million from the reclassification of Keppel's interest in Keppel Infrastructure Trust from an associated company to an investment, alongside gains from selling Keppel DC REIT units.

The investments division sank into the red with a net loss of $27 million for H1, reversing a net profit of $25 million a year ago. This was mainly due to the absence of a re-measurement gain on previously held interests in M1, as well as mark-to-market losses from investments.

Mr Loh said that most of the company's businesses have remained resilient, underpinned by the essential services that it provides.

"However, due to the impact of the pandemic on the global economy and oil prices, we had to take significant impairments related to the O&M business. Without the impairments, Keppel's net profit for H1 2020 would have been higher year-on-year, even after including the loss of $69 million by Keppel O&M," he said.

He added: "We will forge ahead in this difficult landscape, guided by our Vision 2030, a long-term roadmap which transcends the current crisis. Harnessing the Group's capabilities and synergy, I am confident that we can emerge stronger."