Presentation by
Group Finance Director Teo Soon Hoe on 30th January 2002
Keppel Corporation Limited FY2001 Annual Results Announcement
Financial Highlights & Segmental Results
Good evening, Ladies and Gentlemen,
I shall begin by giving you the financial highlights of our performance last year and attempt to give you a better insight into the financial contributions from each core business division. In the process, I hope you will see how our capital structure has become more optimal.
I shall end by giving you a flavour of the strong cash flow position of the Keppel Group.
Last year, Keppel’s attributable profit before exceptional items grew 15% over the previous year’s to $273m in spite of the loss of 4 months of profit contribution from Keppel Capital which we had sold in August 2001. If we had excluded the Keppel Capital contribution completely and compared it with a similarly constituted Keppel Group in FY2000, attributable profit would have actually improved by 50%.
Taking exceptional items into account, attributable profit after exceptionals grew by 171%.
Including Keppel Capital, the Group divested assets worth $2.2b during the year.
Today, we have announced a 16 cents per share dividend distribution consisting of a 13 cent final dividend and a special dividend of 3 cents per share. Together with the 50 cents per share that we had paid out to shareholders last November by way of a capital distribution, shareholders will have received a handsome total payout of 66 cents per share for fiscal year 2001.
The sale of Keppel Capital gave Keppel the means to make the capital distribution, restructure the Group through the privatisation of KFEI in late November 2001 and the early redemption of RCCPS in late December 2001.
The privatisations of Keppel Hitachi and Keppel T&T are also in progress, with EGMs set for February and March respectively.
Looking at the numbers, revenue, EBITDA and pre-tax profit dipped slightly because of the consolidation of only 8 months of Keppel Capital’s earnings for the year.
However, attributable profit increased markedly both before and after taking into account the exceptional items. This is due to the full recognition of Keppel FELS’ earnings after its privatisation and the better performances of Keppel Hitachi and Keppel T&T more than offsetting the loss of part of the attributed earnings of Keppel Capital and the lower profit from Keppel Land.
As a result, Earnings per Share increased 16% to a pre-1997 crisis level of 36 cents.
This chart shows you more clearly in segmental form what I have just said, namely that the reduced contributions from the Property and Banking & Financial businesses were more than made up by the growth in Offshore & Marine and Infrastructure earnings leading to an overall Group profit growth of 15% before exceptionals.
Another way to demonstrate the good performance of the non-financial services groups is to strip out the contribution of Keppel Capital in both 2000 and 2001 for comparison. As you can see from these figures, not only would attributable profit (represented by PATMI) have increased at a higher rate of 50% but revenue, EBITDA and pre-tax profit would also have increased rather than decreased.
This is graphically depicted in this chart.
In accordance with the new accounting standard (SAS 32), we have treated our RCCPS as debt rather than capital in 2001. To be consistent and to compare like with like, the FY2000 figures have also been similarly reclassified.
Arising from the RCCPS redemption and the capital distribution to Keppel shareholders of 50 cents per share, both net debt and shareholders’ funds showed a decrease. Capital Employed showed a dramatic 41% fall from $7b to just over $4b with the sale and deconsolidation of Keppel Capital.
As a result of the higher profit achieved in 2001 and the restructuring of capital, our total Return on Equity has reached double digits at 10.1%. ROE (excluding Keppel Land) increased strongly from 10.6% to 13.5%. We had used this definition of ROE in 1998 to set our ROE target of 12% as it is not appropriate to measure Keppel Land by a ROE yardstick when its assets comprise primarily of investment property assets that are subject to annual value appraisal fluctuations that affect the E but not the R. With the change in focus at KLL to divest itself of investment property assets and concentrate on property development for sale and fund management services, it will not be necessary for us to exclude KLL from the ROE computation henceforth.
This slide gives you a clear breakdown of the contributions not only of the three new core business divisions of the Group but also of the contributions of each of the business components within each of them.
You can clearly see that the void left by KCH in the last four months of 2001 has practically been filled by the much-improved contributions from the Offshore & Marine and Infrastructure divisions. Amongst the three core business divisions, it is also evident that the weaker 2001 performance of Property has been more than offset by the improvements in the other two. This demonstrates the counter-cyclicality that we hope to achieve through such business diversification within our core competencies.
These pie-charts show even more clearly the increased pre-tax profit contributions from the Offshore & Marine and Infrastructure divisions between 2000 and 2001. These divisions made up only 33% of total contributions in 2000 but 58% in 2001 (KCH excluded). This bears out our belief that in the short term, Offshore & Marine could eventually make up about 50% of the total, Infrastructure 25% and Property 20%.
In 2001, the exceptional gain made from the sale of KCH helped to offset the write-downs in the values of the Group’s land bank and other investment assets affected by the recessionary conditions prevailing during the year. This resulted in a net exceptional gain of $112m.
The left hand chart shows how Keppel Corp has tried over the years to progressively reward shareholders with higher absolute dividend payments per share. This year’s 16 cents per share works out at 32% of the new par value of 50 cents per share.
In terms of payout ratio, it amounts to 34% of the net operating profit. This is in line with our historical payout ratio of about 30 - 35%.
Going forward, we will rely on internally generated funds as far as possible for business growth. Two main sources of funds are:
- From Divestments, and
2. From net operational cash flow generation.
In FY2001, a total of $2.2b was realised through the sale of Keppel Capital and other non-core investments listed here in 2001.
This programme of non-core asset divestments will continue with at least one major divestment in 2002.
A large part of the S$2.2b proceeds from divestments was used to finance the Keppel Corp capital distribution, the early redemption of RCCPS and the cash offer to privatise Keppel FELS, Energy & Infrastructure.
Expected major uses of funds this year include the privatisation of Keppel Hitachi and Keppel T&T as well as investments in power generation and desalination plants.
The planned capital expenditure for 2002 is to be funded with internally generated cash flows. We are also very confident that our divestments will generate further cash flow.
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