Keppel Corporation Limited’s Latest Earnings: Revenue Falls 19.3% …

Keppel Corporation Limited (SGX: BN4) reported its fiscal second quarter earnings yesterday evening. The reporting period was for 1 April 2015 to 30 June 2015.

Keppel Corp, a bona fide conglomerate, organizes its business into four different units: Offshore and Marine; Infrastructure; Property; and Investments.

These business units houses various subsidiaries such as Keppel Telecom & Transport Ltd (SGX: K11) and Keppel Infrastructure Trust (SGX: A7RU). Both fall under Keppel Corp’s infrastructure umbrella. The company owns over 99% of real estate developer and investor Keppel Land Ltd (SGX: K17) following its privatization offer earlier this year.

Keppel Corp also has stakes in 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 in here and here or catch up with the company’s last earnings report here.

Financial highlights

The following’s a quick take of Keppel Corp’s latest financial figures:

  1. Keppel Corp’s overall revenue for the quarter plunged 19.3% to $2.6 billion on a year-on-year comparison.
  2. Fortunately, profit attributable to shareholders held up well as it fell by only 2.3% year-on-year to $397 million.
  3. Earnings per share (EPS) followed suit with a 1.8% decrease from 22.3 cents in the same quarter a year ago to 21.9 cents in the past quarter.
  4. Cashflow from operations came in at a negative $555.9 million for the second quarter of 2015 with capital expenditures clocking in at $157.9 million. Keppel Corp’s free cash flow (cashflow from operations minus capital expenditures) is thus a negative $713.8 million. These represent a significant regression from a year ago when the selfsame figures were –$305.5 million, $156.2 million, and -$461.7 million respectively.
  5. As of 30 June 2015, the group had $2.3 billion in cash and equivalents and borrowings of $7.4 billion. This is a significant decline from where its balance sheet was a year ago where it had $4.1 billion in cash and equivalents and borrowings of $7.4 billion.

In all, Keppel Corp saw a sizable haircut in its revenue and a small decline in its profit on a year over year basis. The negative free cash flow and weaker balance sheet is a cause for concern for investors and may be areas where we want to keep an eye on.

The management team had proposed an interim dividend of 12 cents per share for the quarter, unchanged from a year ago.

Operational highlights

Keppel Corp’s quarterly revenue fell 19.3% on the back of lower revenue from the offshore and marine segment as well as the infrastructure segment. All eyes, though, were on the offshore and marine segment. Loh Chin Hua, the Chief Executive of Keppel Corp, gave his take on the oil and gas industry during the earnings call:

“Since the steep fall in oil prices last June, the price of Brent crude has rebounded from the mid US$40 a barrel range, but still remains relatively low, hovering at about average US$60 a barrel. With the recent US-Iran nuclear deal, sanctions on Iran could be lifted soon and that will increase global oil supply.

Lower oil prices for a sustained period is a reality that oil and gas industry needs to grapple with. Longer term, when supply and demand is more elastic to price levels, many expect oil to stabilise at levels between $70-90. With the shale oil here to stay, we may not see US$100 oil for some time.”

Speaking of offshore and marine, the net orderbook year to date for the segment stands at $11 billion, down 22% from the $14.1 billion that was seen a year ago. On a brighter note, the offshore and marine segment had managed to secure $1.5 billion worth of new contracts for 2015 thus far. This is expected to keep its yards busy up till 2020.

Meanwhile, the privatisation of Keppel Land has been completed and shares of Keppel Land have been delisted. Loh commented that the privatization yielded an additional $73 million in net profit contribution to Keppel Corp.

On the infrastructure business unit, Loh commented that the formation of Keppel Infrastructure Trust  has created the largest Singapore infrastructure-focused business trust. The trust has an asset size of over $4 billion. Sticking with the same business unit, Keppel T&T also announced plans to develop its fourth data centre in Singapore.

On a separate note, Loh noted that 22% of Keppel Corp’s total net profit for the first half of 2015 came from recurring income. Keppel Corp’s management plans to improve this percentage to improve the quality of the company’s earnings.

Foolish summary

As of its closing price yesterday of $8.16, Keppel Corp traded at a trailing price-to-earnings ratio of 7.9, and has a trailing-12-months 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.