Keppel Corporation Limited (SGX: BN4) remains mired in problems. In 2015, the company saw its revenue and profit fall by 23% and 19%, respectively. Keppel Corp’s results for the first-half of 2016 were released less than two weeks ago. Unfortunately, the picture was not any better: The company’s revenue plunged by 37% and its bottom-line sank by 45%. The company’s presentation for its latest earnings had covered a myriad of issues it is facing. Here’re seven quotes from Keppel Corp’s management you might not want to miss. On a long and harsh winter Loh Chin Hua, Chief Executive Officer for Keppel…
Keppel Corporation Limited (SGX: BN4) remains mired in problems.
In 2015, the company saw its revenue and profit fall by 23% and 19%, respectively. Keppel Corp’s results for the first-half of 2016 were released less than two weeks ago. Unfortunately, the picture was not any better: The company’s revenue plunged by 37% and its bottom-line sank by 45%.
The company’s presentation for its latest earnings had covered a myriad of issues it is facing. Here’re seven quotes from Keppel Corp’s management you might not want to miss.
On a long and harsh winter
Loh Chin Hua, Chief Executive Officer for Keppel Corp, had warned about a long winter for the oil and gas industry late last year. In the latest earnings presentation, Loh said that oil prices have improved, but drilling rigs orders are not expected to increase soon. Loh said that the industry is still besieged by problems of oversupply and falling day rates.
As such, Loh said that the “winter” could be a harsh one:
“The industry’s capex cycle will take time to stabilise and recover, and we must be prepared for not only a long winter, but a harsh one. Eventually, E&P [exploration and production] capex in the industry will return when oil majors have to arrest falling production and replenish their declining reserves to meet the world’s continued demand for fossil fuels.”
On hunkering down
Keppel Corp has been cutting costs to adjust to its outlook. Loh said:
“Since we started rightsizing our operations a year and half ago, we have reduced our global direct workforce to date by a total of about 11,000 headcount, and about 8,600 headcount of our subcontract workforce in Singapore.”
Beyond the above, Keppel Corp may consider stopping activities in its yards with low work volumes. Loh explained:
“Our cost-cutting and rightsizing efforts will continue. Beyond natural attrition, we will look at ways to reorganise and streamline our yards and resources to become leaner and more efficient. For example, we can look into integrating our engineering resources across the different units in the Division. If necessary, we may also mothball yards with low work volumes.”
But it’s not about reducing costs alone. It may be a long and harsh winter as mentioned earlier, but Keppel Corp does not expect such conditions to last forever. Loh noted:
“For Keppel, it is not just about cost cutting. We also want to be ready, to have the ability to ramp up, when the upturn comes…
…The harsh winter will not last forever. Our aim is to keep Keppel O&M [Offshore and Marine] profitable during the downturn, while at the same time, explore new opportunities and develop new capabilities to strengthen the company.”
On staying afloat
Not all news with the comapny is bad. Keppel Corp’s Property division posted a 37% year-on-year increase in revenue in the first-half of 2016. Loh added some colour on the Property business in the presentation:
“Keppel Land has close to 18,500 launch-ready homes in its pipeline from now through 2018, most of which are in China, followed by Vietnam. To put this number in perspective, Keppel Land sold 4,570 homes in 2015, and 2,450 in 2014.
Our positive home sales have been riding on continuing strong urbanisation trends and we have a 70,000-strong pipeline to meet the market’s needs. Our aim is to increase the inventory turn and pro-actively launch more projects in those markets that have favorable conditions.”
Loh is also counting on Keppel Corp’s recurring income to keep the company afloat. He noted the following:
“For 1H2016, recurring income contributed S$178 million to the Group’s total net profit. This is comparable to our recurring income in 1H2015 in absolute dollar terms, and represents around 43% of our net profit for 1H2016.
It demonstrates, in challenging times, that recurring income can be a stabilizer for our performance with its consistent contributions. We will continue our focus on growing stable, recurring income for the long term.”
Elsewhere, Keppel Corp may choose to sell some of it non-core assets. These assets include its stake in Singapore’s smallest telecommunications company M1 Ltd (SGX: B2F). Loh mused:
“We do have some investments as you pointed out which are non-core. We are always looking to monetise them so investments that are non-core. It is not because of our gearing level, which I would emphasise that we are very comfortable with, rather, we want to find opportunities to monetise our non-core assets so that we can redeploy the capital to earn a better return.”
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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.