Keppel(KPELY) - 2020 Q4 - Earnings Call Transcript

Financial Performance and Key Metrics - The company recorded a net loss of S$506 million for Financial Year 2020, compared to a net profit of S$707 million in 2019, primarily due to impairments of S$952 million, mainly in the Offshore & Marine (O&M) business [20][62][81] - Excluding impairments, the net profit for Financial Year 2020 would have been S$446 million, down 46% from S$828 million in 2019 [20][80] - Free cash inflow was S$497 million in 2020, a significant improvement from a free cash outflow of S$653 million in 2019, attributed to lower working capital requirements and higher divestment proceeds [22][63][84] - Net gearing improved slightly to 0.91 at the end of 2020 from 0.96 at the end of September 2020, with a pro forma net gearing of 0.81 if certain asset monetization initiatives had been completed by year-end [23][64] Business Segment Performance - Energy & Environment reported a net loss of S$1.181 billion for Financial Year 2020, primarily due to losses in the O&M business, which had a net loss of S$1.194 billion [26][62] - Urban Development recorded a net profit of S$438 million, a decrease of 10% from S$452 million in 2019, mainly due to lower contributions from Keppel Land [31][62] - Connectivity's net profit fell to S$13 million from S$136 million in 2019, largely due to the absence of fair value gains recognized in 2019 [35][62] - Asset Management's net profit increased by 31% to S$280 million, driven by gains from the reclassification of Keppel Infrastructure Trust and improved performance by Keppel Capital [40][62] Market and Strategic Developments - The company announced its Vision 2030 strategy, focusing on sustainable urbanization and asset-light business models, with plans to monetize S$3 billion to S$5 billion of identified assets over three years [3][4][5] - Keppel O&M is transitioning to focus on renewable energy and cleaner fossil fuels, with new order wins of approximately S$1.0 billion in 2020, 65% of which were in offshore renewables and LNG solutions [27][28] - The logistics business is being divested to sharpen focus, despite benefiting from increased demand due to COVID-19, with potential buyers showing interest [18][19][100] Management Commentary on Future Outlook - Management expressed cautious optimism about the future, acknowledging the ongoing challenges posed by the pandemic but highlighting opportunities arising from accelerated trends in digitalization and energy transition [44][45] - The company is committed to executing its Vision 2030 strategy, which includes a focus on improving the quality of earnings through recurring income and divesting non-core assets [25][45] Other Important Information - The Board proposed a final dividend of S$0.07 per share, bringing the total cash dividend for 2020 to S$0.10 per share [24][81] - The company established a Transformation Office to oversee the execution of Vision 2030 across six workstreams, including growth initiatives and sustainability [6][7] Q&A Session Summary Question: What is the rationale for restructuring the business into Rig Co and Dev Co? - The restructuring aims to clearly identify legacy assets and provide a focused path for their resolution, allowing the operating company to concentrate on transformation efforts [87] Question: What types of projects will Keppel O&M pursue post-restructuring? - Keppel O&M will continue to pursue FPSO and FSRU projects, reinforcing its capabilities as an integrator and project management company [89][91] Question: Is the company actively looking for buyers for KOM? - While exploring inorganic options, the company is focused on executing its organic restructuring plan to enhance competitiveness [93][94] Question: Why is Keppel divesting its logistics business? - The decision to divest is part of a disciplined capital allocation strategy under Vision 2030, with the belief that another player may grow the business faster [100][101] Question: What is the expected impact of the O&M restructuring on costs? - The restructuring is projected to achieve a run rate of S$90 million in overhead cost savings starting January 2021 [110]