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Keppel Corporation Limited’s Earnings: Steady but Slow Growth

Keppel Corporation Limited (SGX: BN4) reported its fiscal fourth-quarter earnings on 22 January 2015. The reporting period was for 1 October 2014 to 31 December 2014.

The business of Keppel Corp can be organised into four different business units – Offshore and Marine; Infrastructure; Property; and Investments.

The business units house various subsidiaries such as Keppel Telecom. & Transport. Ltd. (SGX: K11)Keppel Infrastructure Trust (SGX: LH4U), and Keppel Land Ltd (SGX: K17). The first two subsidiaries fall under the Infrastructure umbrella, while the third is actually under the Property business unit.

Keppel Corp also has stakes in the investment firm K1 Ventures (SGX: K01), telecommunications outfit M1 Ltd (SGX: B2F), and oil and gas explorer KrisEnergy Holdings Ltd (SGX: SK3).

You can learn more about Keppel Corp here and here.

Financial highlights

Here’s a rundown on the financial figures found within Keppel Corp’s latest earnings release:

  1. For the quarter, revenue for Keppel Corp rose 9.1% to $3.9 billion on a year-on-year comparison. For the whole of 2014, revenue was up 7.3% to $13.3 billion compared to 2013.
  2. Profit attributable to shareholders rose by 6.1% to $725.9 million for the quarter. Interest expense increased by 149.9% while share of results from associated companies fell by 27%; these were culprits which slowed profit growth. For 2014, Keppel Corp’s profit attributable to shareholders only eked out a 2.1% increase to $1.88 billion.
  3. Quarterly earnings per share (EPS) followed suit with a 5.6% increase from 37.5 cents in the fourth quarter of 2013 to 39.6 cents. The conglomerate made 102.8 cents in EPS for the whole of 2014; that’s 1.5% higher compared to the EPS earned in 2013.
  4. Cashflow from operations came in at $492.6 million for the fourth quarter of 2014 with capital expenditures clocking in at $311.1 million. This gave Keppel Corp a positive free cash flow of $181.4 million. For the full year, free cash flow was a negative $376.8 million.
  5. As of 31 December 2014, the group had $5.74 billion in cash and equivalents and borrowings of $7.4 billion. Exactly a year ago, the two figures were $5.56 billion and $7.10 billion, respectively.

In all, Keppel Corp had experienced a steady but slow rise in revenue and profit on a year-on-year basis for both the fourth quarter of 2014 as well as for the whole year.

Management proposed a final dividend of 36 cents per share, which is an increase from last year’s dividend of 30 cents per share for the same period. The total dividend for 2014 comes up to 48 cents per share. This is slightly lower than the dividend of 49.5 cents per share for the whole of 2013.

Operational highlights

The big question on everyone’s mind with Keppel Corp would be the drop in oil prices. The company’s Chief Executive Officer (CEO), Loh Chin Hua, expressed confidence in the oil and gas industry during the earnings call:

“The world today is spooked by the drastic fall in oil price. Brent crude has lostmore than half of its value since June 2014, spiraling down from a height of US$115 a barrel to just under US$50 today. We are seeing a nervous start to the year with threats of slower growth and deflation from worries on how much lower oil price will go, and how long before it recovers and stabilises.

We stand alongside many who are of the view that the low oil prices we see today are not sustainable in the long run. The oil and gas sector will inevitably move towards a new equilibrium, driven by demand and supply dynamics, as seen in previous cycles.”

In the CEO’s view, Keppel Corp is entering a down cycle with a sizable order book which stretches to 2019. He expressed confidence that the companys offshore and marine segment will emerge stronger from this ordeal.

The other big news is the announcement by Keppel Corp to privatize Keppel Land. My colleague Ser Jing covered it here. With Keppel Corp’s negative free cash flow for the year and a balance sheet which is in a net debt position, Foolish investors will have to keep a close eye on how the company’s balance sheet evolves over 2015 and beyond.

Keppel Corp’s Infrastructure business unit has also seen its fair share of corporate action. CEO Loh sees the formation of Keppel Infrastructure as the sharpening of the group’s focus on energy-related infrastructure and services. For the quarter, we had seen Keppel DC REIT (SGX: AJBU) being listed and Keppel Infrastructure Trust merging with CitySpring Infrastructure Trust (SGX: A7RU). You can read more about both events here and here.

Foolish summary

As of Keppel Corp’s closing price on 23 January 2015 of $8.10, the company’s traded at a price-to-earnings ratio of 7.9, and has a dividend yield of around 5.9%.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chin Hui Leong doesn’t own shares in any companies mentioned.