Keppel Corporation Limited (Keppel) reported a net loss of S$537 million for the half year ended 30 June 2020, compared to a net profit of S$356 million for 1H 2019, after S$930 million of impairments mainly related to Keppel Offshore & Marine’s (Keppel O&M) stranded assets, receivables, stocks and share of impairment provisions from Floatel. Excluding impairments, the Group would have registered net profit of S$393 million for 1H 2020, 5% higher year-on-year, underpinned by resilient operations from other businesses in the Group.

The Group’s 1H 2020 revenue of S$3,182 million, was slightly lower compared to the S$3,315 million achieved in 1H 2019. Lower contributions from property trading projects in China, power and gas sales, environmental engineering projects and asset management were partially offset by higher revenues from O&M projects and the consolidation of M1 from March 2019.

The Group’s net gearing rose to 1.0x as at 30 June 2020, compared to 0.85x as at 31 December 2019, mainly due to investments, working capital requirements, and the payment of the final dividends for FY 2019, as well as the impact from lower equity resulting from the significant impairments recorded in the current period. Cash outflow was S$278 million in 1H 2020, compared to an outflow of S$563 million in 1H 2019.

 

The Group’s net loss for 2Q 2020 was S$697 million, compared to a net profit of S$153 million for 2Q 2019, due mainly to impairments and weaker performance by Keppel O&M. Excluding impairments, net profit would have been S$222 million for 2Q 2020, up 45% from S$153 million in 2Q 2019.

 

Group revenue of S$1,325 million for 2Q 2020 was 26% lower than the S$1,784 million a year ago, with lower contributions from across business divisions due in part to a significantly lower level of activities as a result of COVID-19 and measures to contain its spread.

Mr Loh Chin Hua, CEO of Keppel Corporation, said, “Notwithstanding COVID-19, most of Keppel’s businesses have remained resilient, underpinned by the essential services that we provide. However, due to the impact of the pandemic on the global economy and oil prices, we had to take significant impairments related to the Offshore & Marine business. Without the impairments, Keppel’s net profit for 1H 2020 would have been higher year-on-year, even after including the loss of S$69 million by Keppel O&M.”

 

“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.”

 

Against this challenging backdrop, further rightsizing will be required at Keppel O&M to ensure that its fixed overhead costs can be brought down in line with the realities for the industry. To this end, the CEO and management of Keppel O&M have volunteered to take a base salary reduction of between 5% and 10% as a demonstration of collective resolve and to set the tone from the top. In solidarity with Keppel O&M, the senior executive management of Keppel Corporation will also take a base salary reduction of between 5% and 10%, while the directors of Keppel Corporation and Keppel O&M will take a 10% reduction in their annual fees.

 

 

 

The Offshore & Marine Division reported a net loss of S$959 million for 1H 2020, compared to a net profit of S$10 million a year ago, due mainly to S$890 million of impairments for contract assets, receivables, stocks and investments, including share of impairment provisions from Floatel. Excluding impairments for 1H 2020, Keppel O&M’s EBITDA was positive at S$40 million.

 

As a result of COVID-19 and measures to contain its spread, Keppel O&M’s Singapore workforce was reduced to about 1,200 persons for most of 2Q 2020, 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 S$3.5 billion, which is expected to keep the Division busy for at least two years. In the year to date, the O&M Division has secured S$107 million worth of offshore wind and FPSO projects.

 

 

 

The Property Division recorded a net profit of S$197 million for 1H 2020, 25% lower year on year, due to the absence of divestment gains from Dong Nai Waterfront City in Vietnam and lower investment income, which was partly offset by higher fair value gains on investment properties, as well as the disposal of interests in a mixed-use project in Jiangyin, China.

 

About 1,230 homes were sold in 1H 2020, underpinned by continued recovery in the Chinese market. In Singapore, residential sales have slowed, although the impact on office properties has been relatively muted. The Vietnamese property market remains healthy albeit the delay in government approvals for new project launches.

 

 

 

The Infrastructure Division recorded a net profit of S$252 million in 1H 2020, compared to S$59 million a year ago, mainly due to a mark-to-market gain of S$131 milion from the reclassification of the Group’s interest in Keppel Infrastructure Trust (KIT) from an associated company to an investment, as well as a gain from the sale Keppel DC REIT units. Keppel Infrastructure performed well in the first half of 2020, with all underlying businesses remaining resilient and reporting higher earnings despite the impact of the COVID-19 pandemic.

 

In 2Q 2020, Keppel Infrastructure led a consortium in securing a S$1.5 billion Engineering Procurement Construction contract for Singapore’s Tuas Nexus Integrated Waste Management Facility, and also commenced operations of the Keppel Marina East Desalination Plant. More recently in July 2020, Keppel DHCS, as part of a consortium, secured a contract worth over THB 7.5 billion (S$329 million) for a district cooling system in Bangkok, Thailand.

 

Meanwhile, demand remains strong for data centres. In June 2020, Keppel T&T secured government approval to develop a new data centre at Genting Lane, in partnership with SPH. In July 2020, the Group announced its first greenfield data centre development in China, through the Alpha Data Centre Fund.

 

 

 

The Investments Division recorded a net loss of S$27 million for 1H 2020, compared to a net profit of S$25 million a year ago. This was mainly due to the absence of a remeasurement gain on previously held interests in M1 at acquisition date, as well as mark-to-market losses from investments, which were partly offset by higher contributions from  M1’s consolidation from March 2019, the sale of a residential plot in the Sino-Singapore Tianjin Eco-City and Keppel Capital’s improved results.

 

In the year-to-date, Keppel Capital-managed funds have received total commitments of US$1.5 billion from investors including pension and sovereign wealth funds, reflecting investors’ demand for cashflow-generating real assets that can serve as an inflationary hedge over the long term.

 

With the joint license and ownership of the infrastructure for 5G, M1 will be able to share costs with StarHub to push out 5G services more aggressively. M1’s share of the initial investment to rollout 5G is expected to fall under S$200 million over a five-year period. As part of its transformation from a telco into a digital connectivity platform, M1 is currently undertaking a comprehensive rebuild of its technology stack that aims to transform customer experience. M1 is also actively collaborating with other Keppel entities to create smarter and future-ready offerings, as well as working closely with Singapore government agencies, industry players and enterprises to co-develop 5G use cases for selected markets.  

Financial Highlights

				Excluding Impairments
	1H 2020 (S$ m)	1H 2019 (S$ m)	Change (%)	1H 2020 (S$ m)	1H 2019 (S$ m)	Change (%)
Revenue	3,182	3,315​	(4)	3,182	3,315​	(4)
Operating (Loss)/Profit	(149)	482	n.m.f.	553	501	10
Net (Loss)/Profit	(537)	356	n.m.f.	393	375	5
(Loss)/Earnings per Share	(29.5) cents	19.6 cents	n.m.f.	21.6 cents	20.7 cents	4

				Excluding Impairments
	2Q 2020 (S$ m)	2Q 2019 (S$ m)	Change (%)	2Q 2020 (S$ m)	2Q 2019 (S$ m)	Change (%)
Revenue	1,325​	1,784	(26)	1,325​	1,784	(26)
Operating (Loss)/Profit	(422)	160	n.m.f.	270	160	69
Net (Loss)/Profit	(697)	153	n.m.f.	222	153	45
(Loss)/Earnings per Share	(38.3) cents	8.4 cents	n.m.f.	12.2 cents	8.4 cents	45

• Net gearing was 1.0x at end-June 2020
• Free cash outflow was S$278m in 1H 2020 compared to an outflow of S$563m in 1H 2019
• Declared interim cash dividend of 3.0 cents per share for 1H 2020

 

 

 

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