Keppel Corporation Limited’s Latest Earnings: Reality Bites into Revenue And Profit

Keppel Corporation Limited (SGX: BN4) reported its first-quarter earnings for the fiscal year ending 31 December 2016 yesterday evening. The reporting period was for 1 January 2016 to 31 March 2016.

The company can be considered a conglomerate with its four different business segments (in order of revenue in reporting quarter): Offshore and Marine, Property, Infrastructure, and Investments.

Keppel Corporation’s one of the largest oil rig builders in the world with its Offshore and Marine segment. Meanwhile, the company had privatised its previously listed real estate subsidiary Keppel Land early last year and that’s the bulk of the Property segment. Under Infrastructure, there are various subsidiaries such as Keppel Telecommunications & Transport Ltd (SGX: K11) and Keppel Infrastructure Trust (SGX: A7RU), among others.

You can learn more about Keppel Corporation in here and here or catch up with the last earnings report here.

Financial highlights

The following’s a quick summary of the latest financial figures from Keppel Corporation:

  1. Overall revenue for the company in the reporting quarter cratered by 38.1% year-on-year to $1.7 billion. In the first-quarter last year, Keppel Corporation recorded $2.8 billion in revenue.
  2. Profit attributable to shareholders followed suit, plunging 41.5% compared to a year ago to end at $210.6 million.
  3. Subsequently, earnings per share (EPS) was sliced by 41.4% from 19.8 cents in the first-quarter of 2015 to just 11.6 cents in the reporting quarter.
  4. Cash flow from operations was a negative $354 million in the first-quarter of 2016 while capital expenditure clocked in at $50.3 million. This gave Keppel Corporation negative free cash flow of over $404 million in the reporting quarter. For perspective, the company reported $284 million in positive cash flow from operations and $364 million in capex in the same quarter a year ago.
  5. As of 31 March 2016, Keppel Corporation had $1.64 billion in cash and cash equivalents and total borrowings of $8.44 billion. The conglomerate’s balance sheet had weakened compared to a year ago (31 March 2015) when it had $3.67 billion in cash and cash equivalents and total borrowings of $8.14 billion.

To sum up the numbers we’ve just seen, Keppel Corporation has gotten off to a rough start to 2016. The conglomerate saw both its top-line and bottom-line plunge significantly. Meanwhile, operating cash flow is negative and its cash position had declined substantially compared to a year ago.

Operational highlights

The following are some comments on the macro economy that Loh Chin Hua, Keppel Corporation’s chief executive, shared in the earnings release:

“The macro environment remains challenging, with slowing growth in emerging economies. China continues its shift towards slower but more sustainable growth. OECD has also recently warned of growth easing off in several of the major advanced economies.

While oil prices have recovered from below US$30 per barrel in January, it continues to hover at around US$40 per barrel. The sustained low oil price environment continues to take a toll on the global oil and gas industry, which is in the midst of one of the most severe downturns in recent years. In the global offshore industry, we are seeing layoffs, mergers as well as large reductions in capital expenditure as the industry prepares for a longer winter.”

Given Loh’s words above, it should not be a surprise to find that the Offshore and Marine segment continues to suffer. For the reporting quarter, the segment’s revenue and profit were both sliced by over half to S$818 million and S$95 million, respectively. The Offshore and Marine segment’s net order book stood at $8.6 billion as of 31 March 2016, a decline from the $9 billion and $11.3 billion recorded at end-2015 and 31 March 2015, respectively.

There wasn’t better news at the Infrastructure segment. The segment reported a 23% and 36% year-on-year decline in revenue and net profit, respectively.

Keppel Corporation’s Property segment was one of the few bright spots. Revenue there soared 66% year-on-year to $503 million while net profit attributable to shareholders was up 63% to $98.8 million. The company had attributed a better performance from China property trading and lower net interest expense for the higher profit seen at the segment.

Foolish summary

As of its close yesterday at $6.00, Keppel Corporation traded at a price-to-earnings ratio of 7.9 based on its latest trailing earnings. The conglomerate also had a trailing dividend yield of 5.7%.

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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 writer Chin Hui Leong doesn't own shares in any company mentioned.