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Keppel Corporation Limited Unaudited Results for the Second Quarter and Half Year Ended

The Directors of Keppel Corporation Limited advise the following unaudited results of the Group for the second quarter and half year ended 30 June 2014.

The 2Q and 1H 2014 Report Card and the Address by Mr Loh Chin Hua, Chief Executive Officer, are below.
SECOND QUARTER & FIRST HALF 2014 REPORT CARD

1. 2Q 2014 Net Profit up 17% to S$406 million, compared to 2Q 2013′s S$347 million.

2. 1H 2014 Net Profit up 6% to S$745 million, compared to 1H 2013′s S$704 million.

3. Earnings per Share of 41.0 cents, up 5% from 1H 2013′s 39.0 cents.

4. Annualised Return on Equity of 14.3%.

5. 1H 2014 Economic Value Added decreased to S$341 million from S$404 million YoY.

6. Cash outflow of S$785 million.

7. Net gearing of 0.22x.

8. Interim cash dividend of 12.0 cents per share.
Address by Mr Loh Chin Hua, Chief Executive Officer, Keppel Corporation Limited

SECOND QUARTER AND HALF YEAR ENDED 30 JUNE 2014

Welcome

1. A very good evening to all of you. On behalf of my colleagues, a warm welcome to this conference and webcast on our results and performance in the Second Quarter and First Half of 2014.

Global Recovery

2. Thus far, the global economy seems to be navigating through this period of change quite well. The US and European economies appear to be on track in their recoveries, although the former is probably in a stronger position.

3. Recently, there was a sell off in a Portuguese bank, Banco Espirito Santo which triggered concerns that the European recovery, especially in those countries that had needed bailout, would somehow be derailed. Although the problems at Banco Espirito Santo and its holding company appear to be company specific, the market nervousness shows that the recovery in Europe is still frail and tentative.

4. Closer to home, there are still some concerns that the slowing Chinese economy may be headed for a hard landing despite some evidence to the contrary. Abe’s economic revival plan for Japan appears on track, and has been well received by the market. Janet Yellen’s recent announcement that the US Federal Reserve does not see short term capital market exuberance as a potential threat to the financial system, and the signal that the easy monetary policy would be maintained to counteract a slowdown from the Fed’s tapering, gave the market much cheer.

5. The global economy has performed reasonably well and the markets have reacted favourably thus far. Goldilock’s porridge has been served just right by the policy makers – neither too hot nor too cold. That said, considerable risks still exist to derail this happy confluence of market, economy and policies. Tensions in various hotspots such as Ukraine, Syria, Iraq, Iran, and the South China Sea threaten to boil over. We have to make our plans on the basis that the global economy is on a firmer footing for modest growth with policy makers making the right decisions, whilst keeping a watchful eye on what could potentially flare up to change this reasonably favourable outlook.

Performance Highlights

6. Against this backdrop, our business divisions continued to build on their operational strengths, contributing positively to a net profit of S$406 million in the second quarter of 2014, or a 17% growth year-on-year.

7. On a half yearly basis, net profit rose to S$745 million in 2014, almost 6% above the same period in 2013. Annualised ROE was 14.3% while EVA was S$341 million for the period.

8. To reward shareholders, the Board of Directors has approved an interim distribution of 12.0 cents per share for the first half of 2014.

Business Updates

9. Despite some uncertainties in the global economy, we remain confident of the long-term fundamentals in our key businesses and industries.

Offshore & Marine

10. In recent years, global oil consumption growth has exceeded production by a wide margin, aggravated by declining oil fields worldwide and supply disruptions from major oil-producing countries particularly in the Middle East and North Africa. As macroeconomic conditions improve, global oil demand growth is set to rise by about 1.2 million barrels per day in 2014 and another 1.4 million barrels per day in 2015.

11. Hovering at above US$100 a barrel over the last three years, Brent oil price has been high but remarkably stable, and continues to support global exploration and production (E&P) spending. In spite of what we believe to be a temporary, selective pullback by some oil majors, global E&P spending is forecast to grow by 6% to US$712 billion this year, and will further improve in 2015 with increasing investments by national oil companies.

12. Amidst concerns of capital expenditure cutbacks and softening day rates particularly in the ultra deepwater sector, we continue to experience good enquiries for jackups and semisubmersibles in addition to other offshore vessels in our suite of proprietary offerings.

13. In the first half of 2014, Keppel Offshore & Marine secured S$3.2 billion worth of new contracts. Among these are our first Floating LNG (FLNG) vessel conversion project from Golar LNG and five newbuild jackup rigs including the first KFELS N Plus jackup for China. We also partnered the Seafox Group on a study to develop one of the world’s first plug and abandonment jackups with accommodation for subsea fields reaching the end of their productive lives.

14. We are heartened that returning customers as well as new customers across the world continue to place their confidence in Keppel’s proven track record for safe, on-time and on-budget deliveries, and ability to provide the best value proposition to them. As at end-June 2014, our net orderbook stood at S$14.1 billion, with a healthy spread of offshore and marine projects, spanning newbuild jackups and semis, FPSO and FLNG vessel conversions, as well as other construction, upgrading and repair work.

Updates on Projects for Sete Brasil

15. Our yards are executing well. The first three DSSTM38E semis that we are building for Sete Brasil are progressing efficiently and on schedule. To date, we have achieved 70% completion on the first unit, which arrived at our yard in Brazil earlier this year. The second semi is now over 30% completed and is scheduled to depart Singapore for Brazil in the fourth quarter of this year. Meanwhile, the third unit is in initial stages of construction.

16. Brazilian projects contributed nearly a fifth of the Offshore & Marine Division’s revenue in the first half of 2014. Excluding gains from the sale of Keppel Kazakhstan in February this year, Offshore & Marine operating margins continued to hold up at 14.5% for the first six months of 2014, registering a year-on-year improvement from 14.1% for the same period in 2013.

17. To Keppel, the bottom line is just as, if not more important, than the top line. We continue to be prudent in selecting projects that we are confident of executing well and earning the best risk-adjusted returns.

18. Our ability to manage and execute complex projects innovatively and with precision across various locations was made possible through sustained investments to improve the skills and productivity of our global yards. We stand committed to our Near Market, Near Customer strategy and delivering on our promises wherever we plant the Keppel flag.

Breaking New Ground

19. Towards the end of the second quarter, we clinched a highly-anticipated contract to convert a first-of-its-kind FLNG vessel for Golar LNG, worth US$735 million. This was the fruition of a year-long Front-End Engineering and Design study in partnership with our trend-setting and longtime customer, for whom we have already successfully converted the world’s first three Floating Storage and Re-gasification Units (FSRUs).

20. Natural gas markets are slowly transforming on the back of the shale gas “revolution” in the US and the increasing integration of fragmented regional markets, supported by the rapid expansion of LNG. The global FLNG industry is expected to attract more than US$65 billion of investments from now through to 2020, driven by rising costs of onshore LNG terminals. Asia-Pacific, in particular, is expected to draw a majority of investments in the FLNG sector with its sizeable line-up of regasification and liquefaction projects.

21. As the FLNG market expands, we see opportunities for Keppel to offer safe, reliable and cost-effective solutions catering to the small and mid-sized LNG segments. Keppel Offshore & Marine Technology Centre has developed its own solutions for LNG liquefaction and transfer to facilitate the production of stranded or associated gas at remote offshore locations. Our established track record of having completed over a hundred complex FPSO, FSO and FSRU conversion projects, coupled with a growing pool of in-house FLNG expertise, puts us in good stead to offer quality solutions to some of the challenges faced by the offshore LNG industry.
Infrastructure

22. Prevalent urbanisation trends, especially in the emerging economies that will continue to provide the bulk of global growth, underpin our long term commitment to develop our businesses in energy-related infrastructure, data centres and logistics solutions and services.

23. As we hone our strengths and develop new areas for growth in the Infrastructure Division, we remain focused on completing our EPC projects in Qatar and the UK. The Doha North Sewage Treatment Works is going through its testing and commissioning phase, and is ready to take in sewage. Meanwhile, Phase 1 of the Greater Manchester Energy-from-Waste Plant is on track for completion this year, after a successful first burn as part of its commissioning process.

24. In Singapore, demand for data centre space remains strong. Keppel Datahub 2, the first newbuilt data centre to achieve the BCA-IDA Green Mark Platinum Award, was completed in the second quarter of this year. Offering over 6,000 square metres of quality data centre space, Keppel Datahub 2, will enable Keppel Telecommunications & Transportation (Keppel T&T) to cater to the expansion needs of its clients while harnessing greater economies of scale. Following its first intake of clients, the new data centre is enjoying good occupancy, and continues to receive strong enquiries from the market.

25. Keppel T&T’s logistics projects in Singapore and Asia are also shaping up well and will soon augment our offerings of high-quality, reliable logistics solutions in Asia-Pacific. The Tampines Logistics Hub in Singapore, the Integrated Distribution Centre in Tianjin Eco-City, China, as well as the third party logistics distribution centre in Vietnam will be completed by the end of this year. We expect progressive contributions from these regional projects as they come on stream.

26. With eyes on the future, we will continue to nurture the fledgling businesses of our Infrastructure Division, investing prudently and taking thoughtful risks for growth. We will examine our value chains holistically to determine where the profit pools are, and for niches where we can add value consistently.
Property

27. On the back of policy headwinds, home transactions in Singapore and China continued to slide for the second quarter of this year. In June, Singapore’s home sales fell 68% from 1,488 units sold in May, as developers held back on projects launches amid cooling demand. Although home sales have dropped, prices remained relatively stable. The Singapore Government has expressed no intention to roll back the property cooling measures any time soon.

28. A slowing property sector, which makes up over 15% of China’s GDP, continues to put the country’s 2014 growth target of 7.5% at risk. Beijing has been steadily broadening the scope and depth of its assistance, through a partial lifting of some of the restrictions on property financing and reported moves by some local governments to ease home buying restrictions.

29. The softening property market is also opening up prospects that may not otherwise be available in more normal market conditions. We will position ourselves to seize opportunities with agility, building our pipeline of residential and commercial developments whilst recycling capital for better returns.

30. In the first six months of 2014, our Property Division sold 1,300 homes in Asia. Keppel Land will continue to monitor the markets closely to launch new residential projects across the region such as Highline Residences in Tiong Bahru and Hillcrest Villas in Chengdu.

31. In the commercial sector, Grade A offices in the Marina Bay area continue to command strong rentals and occupancy. Marina Bay Financial Centre, Tower 3 is about 96% committed with a good line-up of tenants from diverse sectors.

Unlocking Value and Recycling Capital
32. We will continue to actively recycle capital for higher returns, and weigh all available opportunities so as to maximise value from our investments. In the second quarter, the Property Division divested several projects in Singapore and India.

33. Keppel REIT optimised its portfolio with the sale of its 92.8% interest in Prudential Tower for S$512 million. Keppel Land and Alpha collectively divested their stakes in Equity Plaza for a total cash consideration of S$550 million. Proceeds from the sales of the two prime commercial buildings in Singapore will provide the Property Division with greater financial flexibility to pursue other higher-yielding projects.

34. In line with its asset recycling efforts, Keppel Land also divested its 37.7% stake in the Elita Garden Vista project in Kolkata, India. Strengthening its foothold in Indonesia, Keppel Land acquired a prime residential site along the Outer Ring Road in West Jakarta which will yield about 3,000 homes and ancillary shophouses targeted at middle-income homebuyers. Riding on improving sentiments in the Vietnamese residential market, Keppel Land seized the opportunity to raise its effective stake in Phases 2 and 3 of The Estella, a quality residential project in Ho Chi Minh City, which has been doing well for the company.

35. Looking ahead, the rest of 2014 is still expected to be somewhat challenging. However, I am confident that Keppel will be able to ride the improving global economy and market sentiments as we continue to configure the sum of our parts into an optimal whole, seizing opportunities with prudent financial discipline and rigorous innovation to create platforms for sustainable growth and value creation.

36. I shall now let our CFO, Hon Chew take you through a review of the Group’s financial performance.

Thank you.
Source: Keppel Corporation Limited

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