Keppel nets profit of S$944 million for FY 2018, up 382% yoy

Keppel Corporation Limited (Keppel) reported a net profit of S$944 million for the 12 months ended 31 December 2018. This was 382% higher than the S$196 million net profit for FY 2017, which included the S$619 million one-off financial penalty and related costs arising from Keppel O&M's global resolution with criminal authorities in the United States, Brazil and Singapore, Keppel said in its press release.

The Group's FY 2018 net profit of S$944 million would have been 16% higher year on year, excluding the one-off financial penalty and related costs in FY 2017. Earnings growth for the period was underpinned by stronger performance from across the Offshore & Marine, Property and Infrastructure divisions.

Group revenue of S$5,965 million for FY 2018 was comparable year on year. In FY 2018, the Group achieved a return on equity of 8.3%. Net gearing was 0.48x as at end-2018, compared to 0.46x as at end-2017. Free cash inflow of S$515 million in FY 2018 was lower compared to S$1,802 million in FY 2017.

On a quarterly basis, the Group registered a net profit of S$135 million for 4Q 2018, compared to a net loss of S$492 million for 4Q 2017. Excluding the one-off global resolution and related costs of S$619 million, the Group's net profit for the quarter would have been 6% higher year on year. The Group's revenue for 4Q 2018 was S$1,677 million, 9% higher than the S$1,545 million achieved a year ago.

Offshore & Marine
The Offshore & Marine (O&M) Division registered a net loss of S$109 million for FY 2018, an improvement of 87% over the net loss of S$826 million for FY 2017, which included the one-off financial penalty and related costs arising from Keppel O&M's global resolution. Excluding this, the O&M Division's net loss of S$109 million for FY 2018 would have been reduced by 47% from S$207 million a year ago.

The improved performance for FY 2018 was mainly due to higher revenue, a write-back of provisions for claims and lower net interest expense, partly offset by provisions for expected losses on the contracts with Sete Brasil and other asset impairments. The O&M Division would have made a net profit of S$6 million for FY 2018, excluding the provisions and write-back made at the end of 2018.

In 2018, the Division secured new contracts of about S$1.7 billion, including a mid-water harsh environment semisubmersible and over S$600 million worth of LNG and scrubber projects.

Property
The Property Division, which recorded a 44% increase in net profit to S$938 million, remained the largest contributor to the Group in FY 2018. The increase was due mainly to the en-bloc sales of development projects and gains from the divestment of a stake in a Beijing commercial project. The positive variance was partly offset by lower fair value gains on investment properties, contributions from property trading and share of associated companies' profits.

In 2018, the Property Division replenished its landbank with about 3,600 units in China and about 500 units in Indonesia, bringing the total to 50,000 homes across key Asian cities. Of these, about 19,000 homes will be launch-ready from 2019 to 2021.

Infrastructure
The Infrastructure Division recorded a 26% year on year growth in net profit to S$169 million for FY 2018. This was mainly due to dilution gain following Keppel DC REIT's private placement exercise, the gain arising from a sale of stake in Keppel DC REIT, as well as higher contributions from Environmental Infrastructure and Infrastructure Services. This was partly offset by lower contributions from Energy Infrastructure and share of profits from Keppel Infrastructure Trust, as well as the absence of gains from the divestment of GE Keppel Energy Services Pte Ltd.

In 2018, the Division secured about S$120 million worth of contracts for energy and environmental infrastructure projects, and also added four new data centre assets bringing its total portfolio to 22 data centres across Asia-Pacific and Europe.

Investments
The Investments Division, which serves as the Group's incubator for growth engines, registered a net loss of S$54 million for FY 2018 compared to a net profit of S$238 million a year ago, mainly due to the share of losses from KrisEnergy and an impairment of investment in an associated company, as well as lower contributions from the asset management business and the Sino-Singapore Tianjin Eco-City. In 2017, the Investments Division had also benefited from the share of profit from k1 Ventures, a write-back of provision for impairment of an associated company, and profit from sale of investments.

Asset management continued to contribute steadily to the Group, although earnings in 2018 were lower year on year due to higher expenses for growth initiatives, lower fees following the divestment of several assets and lower one-off performance fees. During the year, Keppel Capital announced acquisitions of over S$2.0 billion and closed the Asia Macro Trends Fund III at US$1.1 billion.

In 2018, Keppel Corporation announced a strategic initiative, together with Singapore Press Holdings Limited, to gain majority control of M1 Limited, with a view to transforming the business to compete more effectively. The Company has concurrently announced a scheme of arrangement to privatise Keppel Telecommunications & Transportation Ltd, a move which will see closer alignment of the Group's interests.

The Directors of Keppel Corporation will be proposing a final cash dividend of 15.0 cents per share for FY 2018. Including the interim cash dividend of 10.0 cents per share and special cash dividend of 5.0 cents per share paid to shareholders in August 2018, the total distribution for FY 2018 will be 30.0 cents per share, compared to the 22.0 cents per share paid out for FY 2017. Excluding the special dividend, the total distribution proposed for FY 2018 represents a payout ratio of about 48% on the Group's net profit of S$944 million.