The oil price rout has hit Keppel Corporation Limited (SGX: BN4) in more ways than one.
One of its major customers, Sete Brasil, had filed for bankruptcy earlier in the year. Meanwhile, Keppel Corporation is also currently mired in a bribery and corruption scandal (dubbed the “Lava Jato” scandal) in Brazil, although the company has denied involvement. Elsewhere, the prolonged weakness in the oil & gas industry has led to salary cuts at the company at the management level.
In Keppel Corporation’s 2016 third-quarter earnings presentation, the company shed some light on these topics.
On Sete Brasil provisions
As a reminder, Keppel Corporation had taken a Sete Brasil-related S$230 million provision in the fourth-quarter of 2015.
During the 2016 third-quarter earnings presentation, the conglomerate’s management was asked to comment on whether the provision is still sufficient.
Loh Chin Hua, Keppel Corporation’s chief executive, replied:
“I think we have said this on past webcast that this is something that we will constantly evaluate at every quarter.
This is not just done by management but by working in conjunction with our auditors, as well as our audit committees both at Keppel Offshore & Marine, as well as Keppel Corp. As at end of third quarter, we believe this provision to be adequate.”
As it stands, there is no change. We will have to check-in during the next quarter.
On Lava Jato
Zvi Skornicki, the former third-party commercial representative for Keppel Corporation in Brazil, alleged that certain managers within the organization had authorised the bribes.
As mentioned earlier, Keppel Corporation has denied involvement in the scandal. In early October, the conglomerate said that further investigations revealed some transactions with Skornicki may be indeed be suspicious.
There were pointed questions raised during the 2016 third-quarter earnings presentation on the time taken for Keppel Corporation to discover the suspicious transactions. The conglomerate was also challenged on whether senior management knew about the bribes. Loh said:
“This so called “Lava Jato” investigation in Brazil is quite wide ranging. As we have said in the statement, our internal investigation has been ongoing. As we found some transactions we believe to be suspicious, we have stated that and we have started to look at working with the relevant authorities.
As this matter is still under investigation, I can’t say much more than that. At the appropriate time, as I’ve said in my remarks, if there is something to announce, we will announce.”
Investors will have to await further announcements by Keppel Corporation on this matter.
Management salary cuts
Keppel Corporation has been focused on rightsizing its business as it prepares for a prolonged slump in its Offshore and Marine segment. Management salaries have not been spared in the rightsizing efforts. Loh added:
“The way we’ve gone about it is that Keppel O&M [Offshore and Marine], which is facing the harshest headwinds, most of the senior management team there will bear the burden of the cut. That’s one principle.
I think the rest of the business units, especially when they are doing well, this is really more of an act of solidarity. Within the business unit, or within the Group, I think the most senior officers will always take the biggest cut.
We will need to bear in mind also that our salary structure has a lot of variable components so as the businesses do well or don’t do so well, there’s a lot of flexibility. The total compensation will correspond.”
It appears that salaries at the most troubled segment will be the hardest hit.
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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.