Keppel closes O&M chapter with rigbuilding exit; H2 group profit dives to S$31m

Keppel Corporation said on Thursday that it will be restructuring its subsidiary Keppel Offshore & Marine (Keppel O&M) into a slimmer, more asset-light one, with Keppel O&M to exit the offshore rig building business after completing existing rigs under construction.

This was announced alongside Keppel’s second-half FY2020 results, where it recorded a net profit of S$31.3 million for its second-half ended Dec 31, 2020, down 91.1 per cent from a year ago on the back of decreased contributions across segments, with Energy & Environment hard-hit in particular.

The group said that the move to transform its O&M business reflects its “commitment to sustainability and climate change”. Its FY2020 results also reflected that the O&M arm bore the biggest brunt from the downturn, with impairments of S$952 million attributed mainly to O&M.

Keppel O&M will not undertake any new project requiring large upfront capex or without milestone payments, said the group. It will also progressively exit low value-adding repairs and other activities with low bottom-line contribution, and focus on higher value-adding work.

Loh Chin Hua, CEO of Keppel Corporation, said: “In the meantime, we are also exploring inorganic options for the O&M business, but there is no assurance that any transaction will materialise.”

“We believe that our organic restructuring of Keppel O&M will not only enhance its competitiveness, but also its attractiveness, if we were to undertake any inorganic action,” he added.

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For Keppel’s second-half 2020 results, revenue was 20.5 per cent lower at S$3.39 billion, again due to decreased contributions from the Energy & Environment as well as Connectivity segments.

Earnings per share for H2 2020 was 1.7 Singapore cents, down 91 per cent from 19.3 cents the same period a year ago.

For the full year, Keppel recorded a net loss of S$505.9 million for FY 2020, reversing from a net profit of S$707 million a year ago, on the back of impairments of S$952 million mainly due to the O&M business, the bulk of which was recognised in Q2 2020.

Revenue for the full year was down 13.3 per cent to S$6.57 billion, mostly due to lower contributions from the Energy & Environment, Urban Development and Asset Management segments, offset by higher revenue from Connectivity.

For the full year, loss per share was 27.8 Singapore cents, compared with earnings per share of 38.9 Singapore cents in FY19.

A final cash dividend of seven Singapore cents was declared for FY20, down from 12 Singapore cents previously.

If approved at the annual general meeting scheduled to be held on April 23, 2021, the proposed final dividend will be paid on May 11, 2021.

The group’s net gearing was lower at 0.91x as at Dec 31, 2020, compared to 0.96x as at end-September 2020, due to divestment proceeds received during the quarter, as well as a higher equity base. Free cash inflow was S$497 million in FY 2020, compared to an outflow of S$653 million in FY 2019.

On the latest results, Mr Loh noted: “Despite the impact of Covid-19, all key business units in the group remained profitable, except for Keppel O&M, which had been severely affected by the pandemic and the fall in global demand for oil.”

He pointed out that Keppel returned to profitability in H2 2020, but it was not enough to cover the losses for the full year due to impairments of S$952 million mainly from the O&M business.

But Keppel’s plans remain on track, according to Mr Loh. “Last September, we announced our plan to monetise S$3-5 billion of identified assets over the next three years to fund growth initiatives. Since then, we have announced over S$1.2 billion in divestments, and are well on our way to achieving our target,” he said.

As for the logistics business, Keppel has decided to sharpen its focus and divest its logistics and channel management business to a third party, which may be able to provide a better eco-system to scale up this business, he said.

Keppel T&T has appointed a financial adviser who is now engaging potential buyers, he added.

Keppel’s shares closed at S$5.46, down 12 Singapore cents or 2.15 per cent prior to the announcement.