Keppel Corporation Limited’s Latest Result: Offshore & Marine Segment Continues to Face Challenges
Keppel Corporation Limited (SGX: BN4) is a conglomerate with four major business segments, namely, Offshore & Marine, Property, Infrastructure, and Investment.
The company reported its 2017 second quarter earnings last week. In this article, I will take a deeper look at the performance of its Offshore & Marine segment.
The financial performance
Here’s a table showing some key financial numbers for the segment for the quarter:
Source: Keppel Corporation 2017 second quarter earnings release
Revenue was down by 38% year-on-year mainly due to lower volume of work. Meanwhile, net profit fell drastically from S$61 million in the second quarter of 2016 to just S$1 million.
The larger decline in net profit as compared to revenue was due to higher interest expenses and a lower share of profits from associated companies.
Oil prices were around US$50 per barrel for most of 2017. That’s much higher than a recent multi-year low of less than US$30 per barrel. But clearly, the upturn in oil prices has yet to benefit Keppel Corporation’s 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 30 June 2017, Keppel Corporation’s net order book for its Offshore & Marine segment (excluding orders from the bankrupt Sete Brasil) stood at S$3.42 billion. This is slightly lower than both the net order book values seen in end-2016 (S$3.75 billion) and the end of March 2017 (S$3.54 billion).
So, there is still no clear sign of a turnaround yet in the Offshore & Marine business.
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 $3.4 billion.
Faced with the global sector downturn, the Division has been rightsizing its operations for what is expected to be an extended slowdown.
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, specialised vessels and the growing gas market and exploring ways to re-purpose its technology in the offshore industry for other uses.”
As you can see, Keppel Corporation is expecting more tough times ahead. The only slight positive here is that the segment is still eking out a profit despite the challenging environment.