Keppel Corporation saw a 45% fall in earnings to $416 million for the half year ended June from a year ago, with its property division now the largest contributor.
Keppel says this was mainly due to weaker operating results from its offshore & marine (O&M) division and also the absence of one-time gains from the infrastructure division compared to the same period a year ago.
Net profit from the O&M business fell 59% to $156 million. In contrast, the property division’s net profit rose 18% to $194 million. Net profit from its infrastructure division declined more than 66% to $41 million.
Earlier this year, Keppel Corp’s largest customer Sete Brasil started to undergo debt restructuring. “We believe that the provision of $230 million made last year remains appropriate and adequate” says Loh Chin Hua, CEO of Keppel Corp.
“We made the provision on the assumption that Sete may not continue its business as before. Now that Sete has filed for judicial recovery, we have excluded Sete’s projects from our net orderbook. The contracts remain legally valid, and we will continue to work with Sete towards achieving a win-win outcome,” he adds.
As at June 30, net O&M orderbook stands at about $4.3 billion, down from $5.6 billion as at Dec 31. The Sete projects which had amounted to $4 billion are excluded.
Loh revealed that Keppel Corp has retrenched 11,000 workers globally, and 8,600 of its contract workforce in Singapore.
For its property division, Keppel Land sold 2,140 homes with a total value of $960 million. This was an 18% increase from a year ago, supported by sales in China. In Singapore, sales rebounded to 190 units in the first half compared with 100 units last year.
In China, Keppel Land has a landbank that can yield more than 36,000 units. Of these, 1,995 are ready for launch for the second half of this year, and a further 4,013 are ready for launch in 2017.
Although oil prices have recovered to US$47/bbl, the offshore and marine sector continues to face challenges as oil major are conserving capital.
“Given the oversupply in the rig market and falling day rates, we do not expect demand for drilling rigs to return soon” Loh says. “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.”
Keppel closed 0.35% lower at $5.58.
This article first appeared in The Edge Singapore Market Report.