Singapore’s Keppel Corp Ltd posted its smallest annual profit in a decade, dented by a lack of orders at its key rig-building business and provisions for impairments, and cautioned that oversupply would continue to drag on the offshore business.
The city-state’s offshore and marine industry has been pummelled as clients cut spending to weather a slide in oil prices, hurting Keppel and cross-town rival Sembcorp Marine and forcing them to cut their workforce by thousands.
“While spending by oil majors is expected to increase, we do not envisage a quick recovery for the offshore business, which continues to be under pressure from weak utilisation of the existing operating fleet, coupled with a supply overhang of new builds,” Chief Executive Loh Chin Hua said at a briefing.
Keppel, in which Singapore state investor Temasek is the biggest shareholder, on Thursday reported a net profit of S$784 million ($552.11 million) for 2016, the lowest since 2006. This was far short of an average analysts’ estimate of S$895 million, Thomson Reuters data shows.
For the October-December quarter, the firm’s net profit came in at S$143 million, down from S$405 million a year ago. Revenue for the quarter dropped 22 percent to S$1.94 billion.
Excluding provisions for impairment and one-off items, Keppel’s quarterly net profit would have come in at S$300 million, steady versus a year ago.
The company – whose businesses include property development and infrastructure – made provisions for impairment of S$336 million during the year.
“For next year, expectations are still muted as orders may take one or two years to return,” said Joel Ng, an analyst at KGI Fraser Securities. “What’s positive is that they are cutting down on costs.”
Keppel and Sembcorp have both suffered from an oversupply of offshore oil drilling rigs, with customers delaying existing contracts and staying away from new orders amid weak oil prices that are at about half their 2014 peaks.
To ride out the tough conditions, Keppel said it was cutting yard capacity and that it had mothballed two overseas yards. In Singapore, it is closing three yards.
For 2016, Keppel reduced its direct workforce by about 10,600, or 35 percent, in its offshore and marine segment.
It slashed its final cash dividend to 12 Singapore cents for 2016, from 22 Singapore cents in 2015.
Despite a slight recovery in global oil prices, offshore rig utilisation remains low at about 50 percent compared to 70 percent in 2015, brokerage Maybank Kim Eng said last month.
Keppel’s offshore and marine (O&M) division, which builds offshore drilling rigs and support vessels, posted a loss of S$138 million in the fourth quarter, versus a S$60 million year-ago loss. The segment’s revenue fell 40 percent.
The division recorded a net order book of S$3.7 billion. That excludes orders from one of its biggest customers, rig leaser Sete Brasil Participacoes SA, which filed for bankruptcy protection last year amid a corruption scandal.
Keppel’s property division, which in 2015 overtook the O&M segment as the biggest income contributor, posted a 10 percent fall in quarterly revenue, hurt by lower revenue from China.