How Did Keppel Corporation Limited’s Offshore & Marine Business Fare In 2017?

Keppel Corporation Limited (SGX: BN4) is a conglomerate with four major business segments, namely, Offshore & Marine, Property, Infrastructure, and Investment.

In late January, Keppel Corp reported its 2017 full year earnings. Given that the company has a few businesses, I thought it would be useful to take a separate look at each of the segments. In this article, my focus is on the Offshore & Marine segment. [Editor’s note: Articles discussing the Property and Infrastructure segments have been published. They can be found here and here.]

The financial performance

Here’s a table showing some key financial numbers for the Offshore & Marine business for 2017:

Source: Keppel Corp 2017 full year earnings presentation

We can see that 2017 was not a good year for the segment. Its revenue was 37% lower, and it clocked a big pre-tax loss of S$862 million compared to a pre-tax profit of S$90 million in 2016.

The pre-tax loss was mainly due to stiff penalties that stemmed from fines related to corruption issues in Brazil that the Offshore & Marine business was involved with. But even when the penalties are adjusted for, the Offshore & Marine segment still logged a pre-tax loss of S$243 million in 2017. Lower revenue, a fall in associates’ profits, and the presence of impairments all contributed.

Clearly, the recent upturn in oil prices (an increase from around US$50 per barrel at the start of 2017 to around US$60 at end-2017) has yet to benefit the Offshore & Marine segment.

The order book

The Offshore & Marine segment’s order book is a good indicator of the overall health of this business. Any growth in the order book could mean that the segment has turned around.

As of 31 December 2017, the net order book of the segment (excluding orders from Sete Brasil) stood at S$3.9 billion. This is slightly higher than the net book order value seen at end-2016 (S$3.75 billion), and could indicate that the Offshore & Marine business may finally be seeing some light at the end of the tunnel.

The future

In Keppel Corporation’s earnings release, the conglomerate shared a few words on the Offshore & Marine segment’s future:

The Offshore & Marine Division’s net order book, excluding the Sete rigs, stands at $3.9 billion. The Division will continue to focus on delivering its projects well, exploring new markets and opportunities, investing prudently in R&D and building new capabilities to position itself for the upturn. The Division is also actively capturing opportunities in production assets, specialized vessels and the growing gas market and exploring ways to re-purpose its technology in the offshore industry for other uses.”

Some closing words

In sum, Keppel Corp’s Offshore & Marine segment had a challenging 2017. On a slightly positive note, with oil prices currently at over US$60 per barrel, companies in the oil & gas industry may want to start investing again. If this is true, it would be a positive to Keppel Corp’s Offshore & Marine business.

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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 Lawrence Nga doesn’t own shares in any companies mentioned.