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Keppel Corporation Limited’s Investors Should See These 5 Important Charts

Keppel Corporation Limited (SGX: BN4) has had a rough start to the year.

The property and oil & gas conglomerate saw its revenue and profit plunge by 38% and 41%, respectively, in the first-quarter of 2016. This follows a 22% fall in total revenue in 2015. Investors could probably use some solace at this moment.

A recent investors’ presentation by Keppel Corporation contained some slides that could interest investors. As it is with any investor presentation, management has the chance to put its best foot forward to convince investors on the merits of a company. Here are five key slides which I have picked out.

For the first three slides, click here.

Keppel Corporation’s four business segments are offshore and marine, property, infrastructure, and investments. The slide below is interesting as it shows the long term contributions from the various business segments along with some historical context:

2016-05-08 Cycles
Source: Keppel Corporation’s presentation

From the above, we can see that the offshore and marine segment (represented by the blue bar) has been hit hard in 2015. This isn’t the first time it has happened though. There have been other years between 2002 and 2015 when the offshore and marine segment had suffered periods of famine.

Loh Chin Hua, Keppel Corporation’s chief executive, made an argument for the troubled offshore and marine sector in a recent analyst briefing for the company’s 2016 first-quarter earnings release:

“We run a multi-business strategy and you can see that Offshore & Marine had been a very big contributor to the Group over the last 10 to 14 years. Now, it is facing some headwinds but we remain very hopeful that the other divisions will continue to contribute. And we can see that the Property Division is putting in more contributions to the Group last year and in the first quarter of this year.”

Loh believes that the offshore and marine segment will turnaround at some point. He also said the following in the 2016 first-quarter earnings briefing:

“In the long term, we believe that the oil price at today’s level is not sustainable. So, we believed that oil prices in the long term will move to a higher level that is more sustainable.”

Next up is the property segment. From the graph above, we can also see that the property segment (represented by the yellow bars) has grown in importance over time. To be sure, the property segment has also undergone its own boom and bust cycle over the past decade.

The question in investors’ minds, though, could be how this helps Keppel Corporation put money into the investors’ pockets.

2016-05-08 Dividends
Source: Keppel Corporation’s presentation

Up till 2015, Keppel Corporation’s dividend has generally risen. Last year, the dividend was cut by almost a quarter to reach its lowest point since 2009. Loh shared his thoughts on the company’s dividends as well in the aforementioned analyst briefing:

“The dividend payout will definitely be dependent on the profits, free cash flow as you have alluded to, as well as to the outlook. I think our goal is always to share as a Group. When we do well, we do share the fruits of that with our shareholders. But at the same time, we want to make sure that dividends that are paid are sustainable.”

Keppel Corporation’s lack of free cash flow and increase in debt could be the reasons for its dividend cut. For the quarter ended 31 March 2016, Keppel Corporation had negative free cash flow of $404 million and a net debt position of $6.8 billion.

Loh had made the following statement during his opening address in the briefing for the company’s 2016 first-quarter earnings:

“Amidst the headwinds, we are keeping a watchful eye on our gearing and cash flows, exercising financial discipline to maintain an institutional quality balance sheet.”

At the moment, Keppel Corporation’s lack of free cash flow and net debt position may restrict its ability to raise its dividends this year. Investors may want to see how the company’s cash flow situation develops over the next three quarters this year. The volatile nature of the company’s business segments may make it hard to have a consistent, rising dividend.

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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.