SINGAPORE (Apr 29): Keppel Corp reported earnings of $160.5 million for 1QFY2020 ended March, some 20.9% lower than earnings of $202.9 million a year ago.
Keppel says that the decline came on the back of an absence of gain from the divestment of a 70% interest in Dong Nai Waterfront City in Vietnam last year.
Revenue for the quarter increased by 21.3% to $1.9 billion from $1.5 billion back in 1QFY2019. This was due primarily to higher revenue contributions from the group’s offshore & marine (O&M) and local property trading projects, power and gas business segment, as well as the consolidation of M1.
However, the higher revenue was partially offset by lower contributions from property trading projects in China, environmental engineering projects and asset management.
Segmentally, revenue from the O&M division increased by $237 million to $569 million due mainly to higher revenue recognition from ongoing projects. Major jobs delivered by Keppel in 1QFY2020 include a jackup rig, a dual-fuel bunker tanker and a Floating Production Storage and Offloading vessel (FPSO) modification and upgrading project.
On the flipside, revenue from Keppel’s property division slumped by $55 million to $302 million due mainly to lower revenue from property trading projects in China, but partially offset by higher revenue from property trading projects in Singapore.
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Notably, the group’s materials and subcontract costs surged 30% to $1.3 billion due to higher revenue from the O&M and investment divisions.
Consequently, the group’s profit before tax fell 12.7% to $246.8 million from $282.8 million a year ago.
Earnings per share fell 21% to 8.8 cents from 11.2 cents a year ago.
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As at end-March, cash and cash equivalents stood at $2.3 billion.
In its outlook statement, Keppel says that amid the Covid-19 outbreak, many of its business units continue to operate during the circuit breaker, on the proviso of providing essential services.
Despite not being impacted directly by the pandemic, Keppel CEO Loh Chin Hua says that the group’s businesses have inevitably been affected by a myriad of factors - including the fall in global economic activity, lockdowns in various countries, disruptions to the workforce and supply chains, as well as the sharp drop in oil prices.
“All our key business units remain profitable and Keppel continues to have a strong balance sheet and the necessary credit lines to finance our operations,” says Loh.
“Nevertheless, given the tightening liquidity environment, we are watching our cashflow and gearing carefully, and will manage costs across the group, as we prepare for a difficult operating environment that may persist for some time,” adds Loh.
During a results teleconference, Loh outlined the challenges faced by Keppel Offshore and Marine (KOM).
"Our six yards in Singapore are operational but we have reduced our headcount in Singapore. On the Mar 30, we had about 22,00 to 23,000 workers in total including sub-contractors. Today we have just over 1,000 . The government is stricter now on what is considered essential services. For the more urgent projects like repairs, we have more people there. For those projects that are less time critical like newbuilds, we have less people," Loh says.
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Elsewhere, Keppel’s Nantong yard is back at 100% but its two yards in the Philippines are under lockdown.
On the other hand, the property division is likely to hold up better this year.
"The group doesn’t have a lot of hospitality or retail assets so we have not suffered the full brunt of the pandemic. Offices are held through Keppel REIT and their occuppancy is still very healthy. As far as residential is concerned, China is coming back quite nicely. Last weekend we had a launch of Wuxi waterfront and we managed to sell 164 units. The pricing is the same as what it was last year. I would not want to think things are back to normal but these little signs are quite encouraging," Loh says.
He acknowledged though, that there could be some delay in projects that are due for completion. As a result, revenues will be recognised later. "We do not see a permanent dimunition of our margin. It’s more a case of pushing completion to the right and recognition will be a little later," Loh says.
On dividends, Loh says Keppel does not have a stated dividend policy but has been paying out around 40% of earnings. "This is a very unusual time. Traditionally we pay an interim dividend in the first half, Let's watch how things go and how our cashflow is impacted," he adds.
Shares in Keppel Corporation closed six cents lower, or down 1%, at $5.97 on Wednesday prior to the announcement.
