keppel-corporation-limited-annual-report-2018.pdf - Transforming to Deliver Report to Shareholders 2018 Vision Mission Operating Principles A global

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Unformatted text preview: Transforming to Deliver Report to Shareholders 2018 Vision Mission Operating Principles A global company at the forefront of our chosen industries, shaping the future for the benefit of all our stakeholders – Sustaining Growth, Empowering Lives and Nurturing Communities. Guided by our operating principles and core values, we will deliver solutions for sustainable urbanisation profitably, safely and responsibly. 1 Best value propositions to customers. 2 Tapping and developing best talents from our global workforce. 3 Cultivating a spirit of innovation and enterprise. 4 Executing our projects well. 5 Being financially disciplined to earn the best risk-adjusted returns. 6 Clarity of focus and operating within our core competence. 7 Being prepared for the future. Governance Other Information Contents Group Overview Key Figures 8 Corporate Governance Interested Person Transactions 205 Group Financial Highlights 9 Risk Management 104 Key Executives 206 Regulatory Compliance 107 Major Properties 210 71 Chairman’s Statement 10 Interview with the CEO 16 Group Five-Year Performance 215 Board of Directors 22 Group Value-Added Statements 219 Keppel Group Boards of Directors 26 Share Performance 220 Keppel Technology Advisory Panel 28 Shareholding Statistics 221 Senior Management 30 Investor Relations 32 Notice of Annual General Meeting & Closure of Books 222 Significant Milestones 34 Corporate Information 227 Sustainability Framework 36 Financial Calendar 228 Eco-system for Value Creation 40 Proxy Form 229 Performance Review Operating & Financial Review Offshore & Marine 42 Property 47 Infrastructure 50 Investments 55 Management Discussion & Analysis 60 Financial Review & Outlook 62 Group Structure 70 Financial Report Directors’ Statement & Financial Statements Directors’ Statement 110 Independent Auditor’s Report 116 Balance Sheets 123 Consolidated Profit & Loss Account 124 Consolidated Statement of Comprehensive Income 125 Statements of Changes in Equity 126 Consolidated Statement of Cash Flows 129 Notes to the Financial Statements 132 Significant Subsidiaries & Associated Companies 193 Transforming to Deliver The building blocks of our transformation as a provider of solutions for sustainable urbanisation are in place. We will focus on executing and delivering on our growth initiatives to create value for all our stakeholders. Strengthening Key Verticals We have undertaken strategic initiatives to stay relevant, unlock new opportunities and drive growth in a fast-changing landscape. Our Offshore & Marine Division, for instance, has been re-positioned as an offshore energy and infrastructure solutions provider, expanding its markets beyond the oil drilling sector. In 2018, we secured LNG and scrubber projects worth $600 million. With the successful deployment of the world’s first converted Floating LNG (FLNG) vessel, Hilli Episeyo, we have demonstrated that converted FLNG solutions can be a quick and cost-efficient way of monetising stranded gas reserves. $2.4b Worth of gas-related orders secured since 2015. Seizing New Opportunities Urbanisation trends present many exciting and interconnected opportunities for Keppel, whether it is providing energy, property, environmental solutions or connectivity. With a view to developing future growth engines, we are actively exploring and investing in new businesses such as senior living and renewable energy infrastructure. We are also expanding our presence in consumer businesses including electricity retail, urban logistics and telecommunications. In Singapore, Keppel Electric became the largest electricity retailer in the commercial and industrial sector, as well as a leader in initial phases of the Open Electricity Market. Over 50,000 Household customers secured in the initial phases of the Open Electricity Market, expanding Keppel’s presence in consumer businesses. Unleashing Synergies Our businesses are collaborating with one another to seize opportunities with the common purpose of providing solutions for sustainable urbanisation. Keppel Urban Solutions (KUS) brings together the Group’s capabilities and track record in energy, property, infrastructure and connectivity to create smart, sustainable urban townships. KUS is working with Keppel Land to develop the 64‑hectare Saigon Sports City in Ho Chi Minh City, Vietnam. By working together as a group, we can enhance the value of our landbank and real estate, as well as enjoy multiple income streams from developing and managing properties and infrastructure, and providing a host of high‑quality urban services. About 800,000 sm Of residential and mixed-use gross floor area to be developed in Saigon Sports City. Group Overview Key Figures Revenue Net Profit Employee Engagement Comparable with that of FY 2017. Higher revenues from the Offshore & Marine and Infrastructure divisions were partially offset by lower revenues from the Property and Investments divisions. Increased 382% from FY 2017’s $196 million#. Excluding the one-off financial penalty and related costs of $619 million^ from FY 2017’s results, FY 2018 net profit would have increased 16% from FY 2017’s $815 million#. Percentage of employees who indicated that they would “go beyond the norm” to contribute to Keppel’s success. Return On Equity Earnings Per Share Workplace Safety And Health Awards Increased by 6.6 percentage points from FY 2017’s 1.7%#. Excluding the effects of the one-off financial penalty and related costs of $619 million^ from FY 2017’s results, Return on Equity of 8.3% would have been 1.4 percentage points higher than FY 2017’s 6.9%#. Increased 381% from FY 2017’s $0.11 per share#. Excluding the effects of the one-off financial penalty and related costs of $619 million^ from FY 2017’s results, Earnings Per Share of $0.52 would have increased 16% from FY 2017’s $0.45 per share#. The highest number of awards won by a single organisation in 2018. Net Gearing Ratio Free Cash Inflow* Beneficiaries Increased slightly from FY 2017’s net gearing of 0.46x. This was largely driven by a decrease in total equity as a result of lower non-controlling interests. Decreased from FY 2017’s $1,802 million. This was mainly due to working capital requirements. Beneficiaries whose lives have been touched by Keppel Volunteers in 2018. Cash Dividend Per Share Net Asset Value Per Share Social Investments Increased 36% from FY 2017’s cash dividend of 22.0 cents per share. Total distribution for FY 2018 comprised a proposed final cash dividend of 15.0 cents per share, an interim cash dividend of 10.0 cents per share and a special cash dividend of 5.0 cents per share. Decreased 1% from FY 2017’s $6.29 per share. Invested in social causes in 2018. $6.0b 8.3% 0.48x 30.0cts # $944m 52.0cts $515m $6.22 87% 28 Awards >2,600 $8.9m 2017 financial figures have been adjusted following the adoption of Singapore Financial Reporting Standards (International). ^ One-off financial penalty and related costs of $619 million in FY 2017 arose from Keppel Offshore & Marine’s global resolution with criminal authorities in the United States, Brazil and Singapore, and related legal, accounting & forensics costs. * Free cash flow excludes expansionary acquisitions and capital expenditure, and major divestments. 8 Group Financial Highlights Group Quarterly Results ($m) 2018 Revenue 2017# 1Q 2Q 3Q 4Q Total 1Q 2Q 3Q 4Q Total 1,470 1,523 1,295 1,677 5,965 1,248 1,554 1,617 1,545 5,964 EBITDA 532 314 325 55 1,226 243 210 364 197 1,014 Operating profit 486 270 282 5 1,043 187 153 314 147 801 Profit/(Loss) before tax 448 294 334 164 1,240 292 219 348 (417)^ 442^ Attributable profit/(loss) 337 246 226 135 944 252 171 265 (492)^ 196^ Earnings per share (cents) 18.6 13.6 12.4 7.4 52.0 13.9 9.4 14.6 (27.1)^ 10.8^ 2018 2017# % Change For the year ($m) Revenue 5,965 5,964 <0.1% EBITDA 1,226 1,014 21% Operating 1,043 801 30% Before tax 1,240 442^ 181% 196^ 382% Profit Net profit 944 Operating cash inflow 125 1,203 -90% Free cash inflow* 515 1,802 -71% Economic value added 252 (839)^ n.m. Earnings ($) 0.52 0.11^ 381% Net assets ($) 6.22 6.29 -1% Net tangible assets ($) 6.15 6.22 -1% 11,278 11,443 -1% 309 530 -42% 11,587 11,973 -3% 5,567 5,519 1% 0.48 0.46 4% Per share At year-end ($m) Shareholders’ funds Non-controlling interests Total equity Net debt Net gearing ratio (times) Return on shareholders’ funds (%) Profit before tax 11.6 3.6^ 222% 8.3 1.7^ 388% Interim dividend 10.0 8.0 25% Special dividend 5.0 – n.m. Final dividend 15.0 14.0 7% Total distribution 30.0 22.0 36% 5.91 7.35 -20% (16.4) 30.9 n.m. Net profit Shareholders’ value Distribution (cents per share) Share price ($) Total shareholder return (%) n.m. = not meaningful # 2017 financial figures have been adjusted following the adoption of Singapore Financial Reporting Standards (International). ^ Includes the one-off financial penalty and related costs of $619 million. * Free cash flow excludes expansionary acquisitions and capital expenditure, and major divestments. Keppel Corporation Limited Report to Shareholders 2018 9 Group Overview Chairman’s Statement 2018 was a transformational year for Keppel, during which we focused not only on executing our existing businesses well, but also on investing in and building new growth engines. Dear Shareholders, 2018 was an eventful year, marked by volatility in the international economy, with concerns over trade tensions between the United States (US) and China, slowing global growth, fluctuating oil prices and uncertainty over how BREXIT will unfold. At the same time, urbanisation trends and a growing middle class, especially in Asia, continue to drive demand and provide opportunities for companies able to supply solutions to meet their needs. Robotics, artificial intelligence and digitalisation are also empowering companies with new ways of working, and actionable insights which allow the provision of better and more efficient solutions for customers. For Keppel, 2018 was a transformational year, during which we focused not only on executing our existing businesses well, but also on investing in and building new growth engines. We began the year by refreshing the Group’s mission and uniting our different businesses behind the common goal of providing solutions for sustainable urbanisation. Today, Keppel is not a diverse group of companies that share a common name, or a company focused mainly on the offshore and marine (O&M) or property businesses, but an eco-system of companies working closely together, and harnessing the synergies of the multi-business group, as we provide much needed urbanisation solutions, from energy, to urban spaces and clean environments, to physical and digital connectivity. Last September, together with Singapore Press Holdings (SPH), we launched an offer to take majority control of M1. M1 complements Keppel’s mission to be a solutions provider for sustainable urbanisation. We believe there are synergies which can be harnessed by collaboration between M1 and other parts of the Keppel Group. This will require a major transformation of M1 which will take some years to achieve. The Offeror achieved majority control of M1 and the shareholding threshold required to de-list M1 in February, and on 6 March 2019, it announced that it would exercise its rights to compulsorily acquire all the remaining shares. Keppel and SPH will work with M1’s board and management to develop and implement the transformation strategy and pursue growth initiatives. We also announced a scheme of arrangement to privatise Keppel Telecommunications & Transportation (Keppel T&T), to further simplify our corporate structure and better integrate Keppel T&T’s interests with the rest of the Group. 10 Strong Performance The Group performed well in 2018, achieving a net profit of $944 million, up 382% from $196 million in 2017, or up 16% from $815 million, if we exclude the one-off financial penalty for Keppel Offshore & Marine’s (Keppel O&M) global resolution with criminal authorities in the US, Brazil and Singapore and other related costs amounting to $619 million. The growth in earnings was driven by improved performance across our O&M, Property and Infrastructure divisions, with Property making the biggest contribution to the Group. Significantly, our O&M Division made a profit at both the operating and net levels for the full year, excluding revaluations, major impairments and divestments (RIDs), underpinned by its extensive rightsizing efforts and new contract wins. However, the Division registered a loss of $109 million, after provisions, including an additional provision of $167 million for expected losses on the rig contracts with Sete Brasil, partially offset by write-back of provisions for claims. The Group’s Return on Equity (ROE) was 8.3%, while our Economic Value Added was $252 million in 2018. The Board of Directors has proposed a final cash dividend of 15.0 cents per share for FY 2018. Together with the interim cash dividend of 10.0 cents per share and special cash dividend of 5.0 cents per share distributed last August to commemorate Keppel’s golden jubilee, we will be paying out a total cash dividend of 30.0 cents per share to shareholders for the whole of 2018. Property Keppel Land is continuing its transformation to be a multi-dimensional real estate company, with one of the highest rates of return in Asia. Over two decades, the Group has expanded regionally and invested in several key Asian cities, where we enjoy a first mover advantage and have built up a sizeable landbank. China and Vietnam are two key markets for Keppel Land, where rapid urbanisation and rising affluence continue to drive demand for quality housing and commercial developments. In China, we are focusing on the Jing-Jin-Ji region, Yangtze River Delta, Greater Bay Area and the Chengdu metropolis, where we see strong growth potential, while in Vietnam, we are focused mainly on Ho Chi Minh City (HCMC), where Keppel Land has been operating for over 20 years. In 2018, Keppel Land actively executed its capital recycling strategy, completing acquisitions totalling about $0.8 billion, as well as divestments and en-bloc sales totalling about $1.7 billion. Lee Boon Yang Chairman We sold about 4,440 homes in 2018, of which around 2,200 were in China, achieving a total estimated sales value of about $1.8 billion. Over and above these home sales, we also sold five projects, which are equivalent to approximately 11,500 units sold en-bloc. Over the course of 2018, we replenished our landbank with the addition of about 3,600 units in China and 500 units in Indonesia, bringing our total landbank to close to 50,000 homes as at end-2018. In its commercial portfolio, Keppel Land has about 1.5 million square metres of gross floor area, of which about 60% is under development. As the commercial projects are progressively completed, they will contribute steady recurring income to the Group. Offshore & Marine Keppel O&M secured new contracts totalling $1.7 billion in 2018, a significant improvement over the $1.2 billion of new orders won in the whole of 2017. With the gradually declining rig supply overhang, as well as increased tendering activity, we are seeing growing optimism in the O&M business, although we believe it will take some time before we see sustained recovery across the board. The contract for a mid-water semisubmersible rig for harsh environment use from Awilco, our first newbuild drilling rig order since the start of the downturn in 2014, was a significant milestone. It demonstrated that despite the continuing challenges in the O&M sector, there continues to be strong preference in the industry for high-specification rigs, built by a reliable partner. Keppel O&M won four production projects during the year and is also seizing opportunities arising from the growing adoption of liquefied natural gas (LNG). With our ability to design, develop and integrate solutions across the gas value chain, Keppel is well positioned to be the gas industry’s preferred partner. Hilli Episeyo, the world’s first converted floating LNG (FLNG) vessel which we delivered in late-2017, has provided a successful proof of concept of a faster-to-market and cost-efficient solution for monetising stranded gas reserves, thus opening up new opportunities for Keppel in the liquefaction vessel space. It has maintained 100% uptime since commencing commercial operations and despatched 13 LNG cargoes as at the end of 2018. Keppel O&M has received a limited notice to proceed from Golar LNG to commence early conversion works on another FLNG vessel, Gimi. Keppel Shipyard will commence full construction activities when it receives the final notice to proceed. Keppel Corporation Limited Report to Shareholders 2018 11 Group Overview Chairman’s Statement 1 We also see increasing demand for scrubber retrofits as the International Maritime Organization’s 2020 deadline for the implementation of the 0.5% sulphur cap on marine fuels approaches. In 2018, Keppel O&M secured 65 contracts from a variety of customers for such projects. Beyond delivering our projects well, Keppel O&M is continuing to build new capabilities and capture new markets. It has also streamlined and reorganised its operations into a New Builds division, covering Offshore as well as Gas & Specialised Vessels, and a Conversions & Repairs division. With its business divisions working as an integrated body, Keppel O&M is able to achieve greater efficiency and provide customers with more competitive and reliable end-to-end solutions. At the same time, Keppel O&M is innovating to develop rigs of the future through increasing digitisation, capturing and analysing data, and offering enhanced solutions. Keppel O&M has also launched its proprietary RigCare Solution, which encompasses a suite of digital services to support a rig’s lifecycle needs, significantly increasing uptime and reducing maintenance costs. The jackup rig, Cantarell IV, that Keppel O&M delivered to Grupo R in February 2019, is the first rig equipped with our RigCare Solution, which 12 will significantly transform the efficiency, safety and operability of the rig. Keppel O&M is also enhancing the productivity and efficiency of its operations through developing yards of the future by leveraging more advanced engineering and production methods including the use of robotics and smart sensors. Infrastructure We are growing our Infrastructure Division as a stable pillar of earnings. Keppel Infrastructure continues to seek value-enhancing projects, leveraging its project development, engineering, as well as operations and maintenance expertise. In 2018, Keppel Infrastructure secured some $120 million worth of contracts for energy and environmental infrastructure across Singapore, Australia and Europe. This includes a contract to supply technology solutions to Australia’s first waste-to-energy plant, located in Kwinana, reflecting our efforts to expand into new markets. The construction of the Keppel Marina East Desalination Plant has achieved 65% completion, while the Hong Kong Integrated Waste Management Facility is now at the design and engineering phase and is expected to contribute to our bottomline from 2019. While pursuing new markets and opportunities, we are growing our stable and recurring income from the quality operations and maintenance services provided by Infrastructure Services. for long-term growth, including expanding into new markets and asset classes, focusing on areas which harness the capabilities of the Keppel Group. Keppel Electric has been the largest electricity retailer in Singapore in terms of market share in the commercial and industrial sector. Following the launch of the Open Electricity Market (OEM) in Singapore, Keppel Electric is also making headway into the housing electricity market. Starting from 1 November 2018, the OEM is being progressively extended to all consumers across Singapore by zones. The response to Keppel Electric’s retail offe...
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