Keppel Corporation Limited’s 2016 Earnings Report: A Year To Forget As Dividends Are Slashed

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Yesterday, Keppel Corporation Limited (SGX: BN4) reported its earnings for the quarter and year ended 31 December 2016.

As a quick background, the business of Keppel Corp is organised into four different segments: Offshore & Marine; Infrastructure; Property; and Investments.

You can learn more about Keppel Corp in here and here. You can also catch the results from the company’s previous quarter here.

Financial highlights

The following’s a rundown on some of Keppel Corp’s latest financial figures:

  1. For the fourth quarter, Keppel Corp’s revenue fell 21.8% year-on-year to $1.94 billion. For the whole of 2016, revenue was down 34.3% to $6.77 billion.
  2. Profit attributable to shareholders plunged 64.7% to $143.1 million for the reporting quarter. For the full year, profit was down 48.6% to $783.9 million.
  3. Earnings per share (EPS) followed suit, crashing 64.6% from 22.3 cents in 2015’s fourth quarter to just 7.8 cents in the reporting quarter. The conglomerate made 42.9 cents in EPS in 2016, down 48.6% from 2015.
  4. Cash flow from operations came in at $193.7 million for the fourth quarter with capital expenditure clocking in at $278 million. This gives Keppel Corp negative free cash flow of $84.3 million, up from the negative free cash flow of $415.5 million seen in 2015’s fourth quarter ($103.2 million in cash flow from operations and $518.7 million in capex). For the full year, free cash flow was a negative $136 million, up from a negative $1.94 billion seen in 2015.
  5. As of 31 December 2016, Keppel Corp had $2.09 billion in cash and equivalents and total borrowings of $9.05 billion. A year ago, the company had $1.89 billion in cash and equivalents and $8.26 billion.

In all, it has been a year to forget for Keppel Corp. Revenue was sliced by more than a third, while profit was cut down by almost half.

Keppel Corp proposed a final dividend of $0.12 per share, which is big cut from 2015’s final dividend of $0.22. The total dividend to be paid out for 2016 will be $0.20 per share, down some 41% from 2015’s total dividend of $0.34 per share.

Operational highlights

The big question on everyone’s mind is likely the state of Keppel Corp’s Offshore & Marine business segment. In Keppel Corp’s earnings release, its chief executive officer, Loh Chin Hua, acknowledged the rise in oil prices but cautioned against an immediate recovery:

“A key development at the end of 2016 was the decision by oil producing nations, both in and outside OPEC, to reduce output, the first cut in over a decade. This brought renewed optimism and confidence to the industry, with oil prices rising to around US$55 per barrel, double the price seen a year ago.

While spending by oil majors is expected to increase, we do not envisage a quick recovery for the offshore business, which continues to be under pressure from weak utilisation of the existing operating fleet, coupled with a supply overhang of newbuilds. We are thus prepared for the challenging conditions in the offshore business to remain for some time.”

Net profit at the Offshore & Marine segment had declined the most, falling from $482 million in 2015 to just $29 million in 2016. A charge of $336 million was taken during the fourth quarter for the right-sizing of the segment and impairments to investments and works-in-progress.

The Property segment held up the profit stool for Keppel Corp with a $620 million contribution for 2016, though this is also down from 2015’s $661 million.

At its closing share price of $6.39 on Thursday, Keppel Corp trades at a price-to-earnings ratio of 14.9 and has a dividend yield of around 3.1%.

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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.