Keppel Offshore & Marine’s provisions for client disputes relating to some projects at its US yard conspired to take their toll on parent Keppel’s 2022 net profit, which was down 9% year on year to S$927 million (US$707 million).

Provisions were made for “cost overruns on certain ongoing projects in Keppel O&M’s yard in the US, mainly arising from a shortage of manpower, higher than expected labour costs, as well as Covid-related supply chain disruptions”, the contractor told Upstream.

However, this and other issues dragging down the parent’s bottom line were partially offset by the S$293 million part reversal of impairments made in 2020 for some of Keppel O&M’s legacy rig assets when oil prices had plummeted following the Covid-19 outbreak.

Order book highest since 2007

Last year, Keppel O&M secured S$8.1 billion of new orders, “which are expected to yield reasonable margins”, Keppel chief financial officer Chan Hon Chew said.

These new orders bring its net orderbook to S$11 billion as of 31 December, the highest level since 2007. Its ongoing contracts include floating production, storage and offloading vessels for Brazil’s state-owned Petrobras, “which are currently tracking on schedule and within budget”, Keppel chief executive Loh Chin Hua noted.

“Notably, significant deposits were also received for the newbuild P-80 and P-83 FPSO projects, which have contributed to… a healthy net cash position [as of year-end],” Chan added.

Keppel O&M last year also made good progress in putting its legacy rigs to use. All the available KFels B Class jack-up rigs in its fleet have now secured bareboat charters, while the company’s remaining legacy rigs continue to “attract active enquiries”, Loh said on Thursday.

No regrets

Keppel appears to have no regrets about agreeing to divest its subsidiary despite improving market conditions following the sector’s slump in the wake of the Covid-19 pandemic.

“We have a very good business in Keppel O&M and… the O&M sector is also improving. But this is really in keeping with our Vision 2030 — as we look for more recurring income, rather than lumpy profits — that we are doing this divestment, or spinoff,” Loh noted.

“Of course, there are other reasons associated with that, such as creating a stronger global player that can play a bigger part in the energy transition.

“We believe the combined entity will be well positioned to seize opportunities in the evolving landscape.”

Financial turnaround

Keppel’s Energy & Environment segment, including now discontinued operations, recorded a net profit of S$260 million for 2022; a turnaround from the net loss of S$414 million one year prior that had included a S$318 million impairment related to the group’s exposure to failed E&P company KrisEnergy.

Meanwhile, Keppel Infrastructure geared up for the low-carbon economy, actively expanding into sustainability-related developments and investments, from power and renewables, to environment to new energy solutions.

Keppel Infrastructure is developing Singapore’s first hydrogen-ready combined-cycle gas turbine power plant, as well as exploring carbon capture, utilisation and sequestration solutions with industry partners at home and overseas.

“Keppel continued to deliver a robust set of results amid a difficult environment in 2022 while accelerating the execution of our Vision 2030 strategy,” Loh added.

“2023 will be an important year for Keppel, as we take the next leap forward in our Vision 2030 trajectory to be a global asset manager and operator, creating solutions for a sustainable future.”

Return on equity falls

However, Keppel’s return on equity (ROE) last year was 8.1%, down a percentage point from 2021, and well shy of its targeted 15% ROE for Vision 2023.

“We are still some way off the 15%, but we are working towards that, even in the Keppel you see today,” Loh told an analysts call for its 2022 results.

“You can see that through the asset monetisation, we are creating a lot more headroom on our balance sheet to take on new growth opportunities in energy transition, in ‘Real estate-as-a-Service’, in connectivity solutions and asset management as well. So, we are working towards that 15% ROE and we remain confident that we will achieve that well within our Vision 2030.”

Should Sembcorp Marine’s shareholders later this month approve the $4.5 billion acquisition of Keppel O&M — the deal already has strong support from Keppel shareholders — Keppel shareholders will receive about 19.1 Sembmarine shares with an implied value of S$2.33 for every Keppel share held on completion of the proposed transaction.

Updated to highlight the provisions made by Keppel O&M’s yard in the US.

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