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Keppel Corp Q3 gains down 38%, plans more layoffs at O&M unit

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Singapore's giant conglomerate Keppel Corp posted a 38 per cent drop in third-quarter net profit to S$225 million from a year ago, as cheap oil and overcapacity hurt its offshore and marine (O&M) business, forcing another round of layoffs at the unit.

Singapore

SINGAPORE's giant conglomerate Keppel Corp posted a 38 per cent drop in third-quarter net profit to S$225 million from a year ago, as cheap oil and overcapacity hurt its offshore and marine (O&M) business, forcing another round of layoffs at the unit. Last year, the group had already shed 14,000 jobs from its global headcount and Singapore sub-contract workforce.

Its chief executive Loh Chin Hua said these "painful measures" will have to continue even as the world's biggest oil rig builder looks to other divisions to buttress its future earnings; under a "multi-business" plan, it is leaning on property - now the group's largest earnings contributor - and the infrastructure division, as well as new growth spots of data centre and asset management businesses.

As a sign of "solidarity", the senior management across all Keppel's business units have volunteered for pay cuts; Keppel Corp directors will propose lower directors' fees for 2016.

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Speaking at the firm's results briefing on Thursday, Mr Loh said: "The rightsizing for Keppel O&M has yielded, in difficult times, quite creditable results. It is still making money whereas many of our peers are not doing well."

In the three months to September, Keppel O&M cut its direct workforce by about 3,080, bringing layoffs over the first nine months of the year to nearly 8,000, or just over a quarter of its workforce. (Of the 3,080 axed, 660 were in Singapore.)

Natural attrition has led much of the reduction so far, but the group will look at early termination of contracts and selective retrenchment in Singapore from hereon, given that the market is expected to remain slow in the foreseeable future, said Mr Loh.

Keppel Corp made an impairment of fixed assets of S$34.5 million for the period under review. Of this sum, some S$10 million involved plant and equipment in the O&M division; the remaining arose from the infrastructure business.

The top line sank 40.2 per cent to S$1.5 billion in the quarter, down from S$2.4 billion; this was led by lower revenue across all divisions except property, which was buoyed by a better showing in Singapore but was, however, partly offset by lower sales from China.

The O&M business suffered a sharp fall in revenue of S$895 million to S$516 million over the quarter owing to fewer jobs, deferment of projects and suspension of the Sete Brasil contracts.

Earnings per share for the period under review came in at 12.4 Singapore cents, versus 20 Singapore cents for the third-quarter financial year in 2015. As in the previous third quarter, no dividend was recommended.

Mr Loh said the group was monitoring the political developments in Brazil and the ongoing Lava Jato (Operation car wash) investigations, which are "quite wide ranging".

Early this month, Keppel Corp said internal investigations showed up certain "suspicious" transactions associated with a former Brazil agent Zwi Skornicki. Keppel is investigating allegations that illegal payments were made by him on contracts entered into by Keppel entities with their long-standing customer, Brazil national oil company Petrobras, and rig charter firm Sete Brasil.

The group has made no additional provisions since the fourth quarter of FY2015, when it set aside S$230 million for the rigs it had been building for Sete Brasil; construction work has stopped since the end of 2015. Mr Loh said: "While we wait for more clarity on Sete's plans, the provision remains appropriate and adequate."

In the year to date, the O&M division has secured new contracts worth about S$500 million with four projects slated for delivery in the final quarter of the year. "We are hopeful for a brighter 2017, but our posture is to be prepared for things to continue to stay tough," he said.

Keppel shares added two Singapore cents or 0.4 per cent to finish at S$5.44 on Thursday.

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