Published October 24, 2008

Keppel profit rises 10.2% in Q3 despite higher costs

Revenue jumps 24% to $3.2b, boosted by new orders; O&M biggest earner

By VINCENT WEE

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KEPPEL Corp managed to maintain its growth momentum in Q3 with a 10.2 per cent rise in profit to $272.9 million on the back of a 24.1 per cent increase in revenue to $3.2 billion.

Mr Lim: We will seize opportunities as the financial turmoil unfolds

Profit for the first nine months also kept pace with a 10.1 per cent gain to $833.9 million on revenue of $8.1 billion. Q3 earnings per share was 10.4 per cent higher at 17 cents.

Costs, however, shot up. Continuing a rising trend, staff costs increased 38.4 per cent from the previous corresponding period to $382.2 million and this was $95.3 million or a third more than the preceding quarter. Materials and subcontract costs rose 19.7 per cent to $2.4 billion while other operating expenses ballooned more than five times to $112 million.

All these extra costs were attributed to the offshore and marine (O&M) division. Increased activities and higher headcount raised materials and subcontract costs as well as staff costs. Higher overheads for items like yard rentals and maintenance, lower write-back of provision for stocks and work-in-progress, fair-value loss on investments and higher foreign exchange loss caused the jump in other operating expenses.

But the division was still the largest revenue and profit generator, contributing 58 per cent of group profit. For the first nine months, revenue from O&M rose 11 per cent to $5.6 billion, yielding a profit of $483.9 million.

The increased revenue was due to the healthy order book which was boosted by about $1.6 billion of contracts in the third quarter and brought the nine months total to $5.2 billion.

With the new contracts, net order book as at Sept 30 stood at $13 billion, with deliveries into 2012, executive chairman Lim Chee Onn noted.

Revenue from the property division fell 47 per cent to $722.2 million due to the absence of significant launches in the current year, Keppel said. Profit also fell 27 per cent to $116.2 million due to lower profit recognition as a result of fewer residential units sold. The major projects in Marina Bay and Keppel Bay will attain TOP in 2010 and 2013 respectively.

Revenue from the infrastructure division more than doubled to $1.7 billion from $633.5 million previously. Revenue generated from the cogen power plant in Singapore and environmental EPC contracts contributed to the significant increase in revenue. But with profit of $41.4 million, the division contributed just 5 per cent to overall gains. The division plans to set up and eventually list the world's first green business trust, said Mr Lim.

The investment division, meanwhile, saw profit rise to $192.4 million due to lower interest cost and higher investment gains which were partially offset by lower profit from SPC.

Looking ahead, Mr Lim said the outlook for the global economy has deteriorated and the world is grappling with the prospect of slower economic growth. 'Nonetheless, this is not expected to have a significant impact on the overall performance of the group for the full year 2008,' he said.

With robust free cashflow of $1.5 billion for the first nine months, Keppel's gearing has been lowered to 3 per cent. 'The group is virtually debt free and the balance sheet is strong. We will brace ourselves to meet the challenges in this difficult market and seize opportunities as the financial turmoil unfolds,' concluded Mr Lim.

Keppel shares closed 17 cents lower at $4 yesterday.