• February 9, 2023

Keppel says goodbye to rig business, pivots to clean energy, Companies & Markets

Singapore

KEPPEL Corp, the world’s largest manufacturer of offshore oil rigs, introduced a radical restart to end the depressed oil rigs business and move to clean energy as the sting of the oil crash caused its offshore and marine unit to be in the year Record losses of S $ 1.19 billion in 2020.

The “bold” overhaul of Keppel Offshore & Marine (Keppel O&M) – the result of a much-anticipated strategic review – will result in a leaner and “greener” entity capable of bettering job profits in a booming energy transition to win. be it offshore wind or solar parks, gas solutions or hydrogen.

“The energy transition is just around the corner and has accelerated. The headwinds in the O&M industry are intense … critical. Therefore, it is important for Keppel O & M to develop a good, organic plan that we can work on immediately can be. We will change. ” The company has grown into a nimble, asset-light and people-light operating company (Op Co), “said Kehel’s managing director Loh Chin Hua during the group’s earnings meeting on Thursday.

The drastic overhaul will free Keppel O & M from the “stranded” systems and ensure a healthy balance sheet. With a solid net backlog of S $ 3.3 billion – over 80 percent of that is renewable energy and gas solutions – the unit will hopefully carry its weight to Keppel to meet its target of a return on equity (ROE) of 15 percent that will be a 10-year roadmap called Vision 2030.

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Keppel O & M’s 10,500 workforce will be “significantly reduced” while repairs and other low-value, low-profit activities will be phased out and focus on higher value work.

One analyst didn’t seem surprised: “This is not unexpected. Keppel’s Vision 2030 is designed to deliver more value and less metal bashing with low margins.”

As part of the plan, Keppel O & M’s farm operations will be streamlined. Mr. Loh explained: “We don’t need the (yard) footprint as we have it today. It is possible to reuse it. We can of course also sell the excess yards. But we go into a lot of activities that don’t exist -Oil rigs may also need production space. “

Whether this could lead to possible write-offs is still too early.

Keppel O & M will be restructured into three parts to facilitate the separation and eventual relocation of the rig business. These include a Rig Co and a Development Co (Dev Co) – temporary units that will each hold the completed and unfinished rigs or “legacy assets” worth approximately S $ 2.9 billion. The completed rigs would be commissioned or monetized, while the incomplete rigs would be shipped to customers or handed over to Rig Co after completion to be commissioned or sold there when the oil market recovers.

The third is Op Co, a key entity that will hold the rest of Keppel O&M and act as an “offshore energy and infrastructure integrator”. It is expected to be self-sustaining, financially independent, and profitable over time.

“The goal of creating three departments is to clearly identify the assets that are in place and to fence them off. We can’t solve all of this right away (but) there is a very good plan to solve them. In the meantime, we want those not burden Op Co, which has an important role to play in transforming itself to make itself more relevant, “added Mr. Loh, who is also the chairman of Keppel O&M.

CGS-CIMB Research analyst Lim Siew Khee said, “Exiting completely is not easy. This is the best thing you can do right now.”

Indeed, it was a difficult time for Singapore’s oil rigs construction heavyweights after oil prices fell to historic lows when the Covid-19 pandemic decimated energy needs and the oil cartel turned the taps on last year.

Hard times require radical changes.

Last year, Sembcorp Marine, another giant rig manufacturer, was split from its parent company Sembcorp Industries and recapitalized to survive the onslaught of oil slump. While the downturn is likely to result in a long-awaited merger of the giants – SembMarine and Keppel O&M – Keppel’s recent move could destroy hopes for such a union in the near future.

Nonetheless, inorganic options cannot be completely ruled out as Mr. Loh added that Keppel will continue to consider such options.

He quickly added, “However, there is no certainty that a transaction will materialize. We will execute this organic plan immediately. However, if there are inorganic options that strengthen Keppel O&M and provide better value proposition to stakeholders, we will to do.” Definitely keep that in mind. “

Keppel’s testimony for the second half of the year published on Thursday showed that the future is likely to have its worst year.

For the six months ended December 2020, the conglomerate’s net income decreased 91 percent from S $ 350.7 million in the previous year to S $ 31.3 million. This is due to lower contributions in all major urban development, connectivity and wealth management segments, mainly due to losses in the EU energy and environmental businesses.

However, this sequentially marked a recovery from the first half loss of S $ 537 million. Sales fell compared to the previous year by 21 percent to 3.4 billion S $. Accordingly, earnings per share fell from 19.3 Singapore cents to 1.7 Singapore cents in the six months.

For the full year, Keppel posted the largest loss since the Asian financial crisis of S $ 505.9 million, a reversal of net income from S $ 707 million a year ago. Heavy write-downs of S $ 952 million, primarily in the O&M business, were the main culprit for poor performance. Most of the impairments were recorded in the second quarter, a disastrous time for the industry worldwide.

Without impairment, net income for the full year would have been S $ 446 million, 37 percent less than a year ago. Sales in 2020 fell 13 percent to S $ 6.6 billion.

A final cash dividend per share of seven Singapore cents versus 12 Singapore cents was resolved for fiscal year 20. Including the interim dividend of three Singapore cents, the total distribution for fiscal year 20 will be 10 Singapore cents per share compared to 20 Singapore cents in fiscal year 19. If approved by the Annual General Meeting on April 23, 2021, the proposed final dividend will be on May 11, 2021 paid off.

Keppel’s stock price fell 12 cents, or 2.15 percent, to close at S $ 5.46 on Thursday.

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