Dear Shareholders,

2014 has been a challenging year, fraught with uncertainties in the global economy and geo-political tensions. Market jitters intensified as oil prices plunged in the latter half of the year, from a height of US$115 a barrel in June 2014 to under US$50 at the start of 2015.

Volatility is expected to persist in 2015 as markets react to the slowing global growth and price declines in oil and other commodities. Escalating geo-political tensions in some regions will continue to threaten the uneven and brittle global recovery.

Resilient Performance

Amidst these headwinds, Keppel continues to deliver solid results. In 2014, we achieved a full year net profit of $1.9 billion, 2% higher than 2013. Return on Equity (ROE) was marginally lower at 18.8% compared to 19.5% a year ago. Economic Value Added grew 56% to a record of $1.8 billion.

The Group registered four successive quarters of revenue growth in 2014. Turnover of $13.3 billion for the whole year improved 7% or $0.9 billion over the previous year, as a result of higher revenue from our Offshore & Marine (O&M) Division. With greater revenue and divestment gains, operating profit grew 11% to $2.4 billion.

Keppel has been consistent in sharing the rewards of its sterling performance. On average, almost half of our annual net profit is distributed to shareholders each year. The Board is pleased to propose a final dividend of 36 cents per share for 2014. This takes the full year cash dividend to 48 cents per share, compared to the total cash payout of 40 cents per share in 2013.

Our vision is to be a global company at the forefront of our chosen industries, shaping the future for the benefit of all our stakeholders. We will focus on our core competencies, to execute our businesses in O&M, Property, Infrastructure and Investments profitably, safely and responsibly.

Offshore & Marine

Rising costs and the sharp decline in oil prices in the last three quarters have eroded returns for oil companies, causing them to review and put some of their planned exploration and production projects on hold. Current dayrates for ultradeep and deepwater rigs have fallen by a third since 2013, although that for high specification jackups have remained more resilient, declining by about 15% since early 2014. The oncoming fleet of unchartered shallow and deepwater rigs, to be delivered in the 2015-2016 period, has also fueled concerns of an oversupply.

As a global leader in the offshore and marine industry, Keppel is not immune to business cycles and market headwinds. While we cannot be certain of how long oil prices will take to recover and stabilise, we believe that they are not sustainable at the current low levels for an extended period. The market will have to move towards a new equilibrium, driven by demand and supply.

The environment in Brazil, where we have been operating for the past 15 years, continues to be challenging. Recent funding difficulties for Sete Brasil have raised concerns on the rigs that we are building for them. However, we are confident that Brazil will require these rigs and we have been assured by our customer of their relentless efforts to secure financing for them. We remain committed to delivering these rigs according to the contracts.

Keppel O&M's solid contract backlog of $12.5 billion with established customers will keep our yards busy for the next two years.

The oil and gas industry has had a long history of volatility. Keppel Offshore & Marine (Keppel O&M), however, has emerged more resilient through several past crises. Despite the present uncertainties, we are convinced of the long-term fundamentals discussed in the industry review section of this report. I am also confident that Keppel O&M is robust enough to ride out of this downturn as it had done in previous cycles.

Today, Keppel O&M is in a much stronger position. In FY 2014, the company secured $5.5 billion of contracts, bringing several new and innovative solutions to market such as the Floating LNG vessel conversions, the KFELS N Plus jackup and the LB310 liftboat, among others. By year-end, the Division had amassed a solid $12.5 billion backlog with established customers. This will cushion us comfortably for the next two years.

Building on our Near Market, Near Customer strategy, we look forward to finalise our partnerships with Petroleos Mexicanos (PEMEX) and the Titan Petrochemicals Group, both of which promise quality growth for Keppel in different geographies.

Our joint venture with PEMEX to develop a yard in Altamira is well-timed with the opening up of the Mexico's oil and gas sector. There will be demand growth for offshore solutions for years to come as the country seeks to boost its crude oil production, which has fallen since 2004, by a million barrels a day.

The 30-year Management Services Agreement to operate the Titan Quanzhou Shipyard in Fujian Province will enable us to compete for orders to serve the exploration and production demand in Chinese waters.

We will continue to build on our Near Market, Near Customer strategy as well as core strengths in execution and technology innovation through sustained investments in research and development and productivity. Our efforts will position Keppel to ride the next up cycle, offering even better solutions to customers worldwide.


Our concerted efforts to reshape and strengthen the Infrastructure Division into a sturdy pillar for the Group are starting to bear fruit. In December 2014, we successfully listed Asia's first data centre REIT on the Singapore Exchange, raising a total of $513 million through a landmark initial public offering (IPO).

Keppel DC REIT's portfolio, constituting $1 billion of Assets Under Management (AUM), comprises eight high-quality data centres which are strategically located in seven key data centre hubs across Asia-Pacific and Europe. We are confident of developing Keppel DC REIT into a strategic contributor to the Group just as how we have grown Keppel REIT into one of Singapore's largest listed REITs with an AUM of $8.2 billion today, from just $631 million in 2005.

Riding on strong demand for quality data centre space in Europe, Keppel Telecommunications & Transportation (Keppel T&T) acquired Almere Data Centre 2 in the Netherlands last year. Almere 2 offers over 5,000 square metres (sm) of data centre space, and is strategically located next to Almere 1, which has already been injected into Keppel DC REIT. Keppel T&T also commenced operations of a 10,000-sm warehouse in Australia, as well as completed its Tampines Logistics Hub in Singapore and a distribution centre in Vietnam.

Since the formation of Keppel Infrastructure (KI) over a year ago, we have made steady progress streamlining our focus on energy-related infrastructure and services. In November 2014, we announced the proposed combination of Keppel Infrastructure Trust (KIT) with CitySpring Infrastructure Trust, and the planned injection of 51% interest in Keppel Merlimau Cogen Pte Ltd, which owns the 1,300 MW co-generation plant, into the enlarged entity.

These transactions will create the largest listed Singapore infrastructure-focused business trust with a market capitalisation of more than $2 billion and total assets of over $4 billion. KIT, with improved scale and liquidity, will be better positioned for future growth.

We will continue to grow Keppel DC REIT and KIT by creating and stabilising a pipeline of quality assets for injection while recycling our capital for better returns.

With the completion of the Doha North Sewage Treatment Works in Qatar and Phase 2 of the Greater Manchester Energy-from-Waste Plant in the UK close at hand, we are turning our attention to grow KI as a stable contributor to the Group's bottom line. During the year, we continued to streamline our operations with the divestment of our facilities management business, Keppel FMO.


The protracted effects of cooling measures in Singapore and China have resulted in slower home sales for Keppel Land, which sold over 2,000 units in Asia in 2014, compared to about 4,400 units a year ago. The headwinds are likely to keep a lid on demand from homebuyers and residential prices in Singapore. China, on the other hand, has started to relax its housing and monetary policies in some cities since 3Q 2014, resulting in better sales volumes.

Keppel Land will continue to monitor the markets closely to launch residential projects from its pipeline of about 70,000 homes across Asia. It is also actively developing its portfolio of commercial properties overseas, which comprises about 819,000 sm of gross floor area. Its joint venture with Array Holdings, a retail management firm which is involved in managing one of the larger portfolios of regional malls in Singapore and Malaysia, is part of our strategy to develop Keppel Land into a multi-faceted property player.

Even as we extend our pipeline of residential and commercial developments, we will continue to actively prune our portfolio, unlocking value and recycling capital for better returns. We have extracted almost $1 billion from the sale of Marina Bay Financial Centre (MBFC) Tower 3 and other divestments in 2014. This adds to our war chest for opportunistic investments such as the mixed-use development in New York and a freehold office building in London, which will enable us to tap into key global cities with growth potential.

Both New York and London investments will be managed by Keppel Land's fund management subsidiary, Alpha Investment Partners. More than an example of dexterity in seizing opportunities for higher returns, it also showcases how we leverage the collective strength of Keppel's business units for growth. Our fund management businesses will continue to feature strongly in the Group's capital recycling strategy for matured projects, while providing stable income streams over the longer term.

The divestment of MBFC Tower 3 adds to the war chest for new investments.
Corporate Sustainability

Sustainability is a key factor in underpinning Keppel's long-term competitiveness. We are committed to Sustaining Growth in our businesses, Empowering Lives of people and Nurturing Communities wherever we operate.

We started building our sustainability framework in 2009 to guide the Group's efforts in managing and developing such priorities. Our efforts, driven by the top management, have also imbued a greater consciousness of and ownership for Environmental, Social and Governance (ESG) matters within the Group over the years.

In 2014, Keppel Corporation was listed as a component of several global sustainability indices for outstanding ESG performance. These include the Euronext Vigeo World 120 index, the MSCI Global Sustainability Index and the Dow Jones Sustainability Asia Pacific Index 2013/14. Keppel Corporation also topped the Governance & Transparency Index as the best governed and most transparent listed company in Singapore.

Safety is a core value which influences decisions at every level in Keppel. Our Board Safety Committee was established in 2006 to lead efforts in building a strong safety culture in the Group.

We are committed to creating a safe workplace for all our employees and other stakeholders. We regret that despite our best efforts, we suffered four fatalities globally in 2014. We are deeply saddened by the loss of colleagues and friends. We have investigated these incidents thoroughly and instituted measures to prevent any such recurrence. Lessons learnt have been extensively shared across the Group. Our resolve to ensure that no one gets hurt at Keppel's workplaces has only strengthened.

In addition to ensuring the safety and well-being of our employees, we encourage and enable them to pursue learning and professional development opportunities. In 2014, we invested $14.2 million in the training and development of our employees globally. Besides collaborating with reputable business schools and industry experts to develop effective and holistic leadership programmes, we established training centres to upgrade employees' technical skills and qualifications. Our practice of providing employees with multiple pathways for career advancement was lauded by Singapore's Prime Minister Lee Hsien Loong during his National Day Rally Speech in 2014.

Our commitment to sustainability extends to our communities. Keppel Care Foundation was launched in 2012, with the objectives to assist the needy and underprivileged, promote education, and encourage eco-conscious initiatives. Our Keppel Volunteers have expanded the range of supported causes to include elderly care, education and environmental protection, as well as introduced initiatives that leverage our employees' skills and interests.

In the past year, we have made efforts to better integrate our community initiatives for greater focus and impact. Beyond monetary contributions, Keppel Volunteers will be supporting Keppel Care Foundation through engaging its beneficiaries and taking part in joint activities. Keppel Volunteers will also be forming overseas chapters to further encourage corporate volunteerism in the countries where we operate.

We will be publishing Keppel Corporation's fifth sustainability report, which discusses the economic, environmental and social aspects of our activities in line with the Global Reporting Initiative standards. Highlights of our sustainability efforts are outlined in this Annual Report.

Board Appointment

I would like to express my deep appreciation of the late Mr Teo Soon Hoe who had served on the Board as an Executive Director for 28 of his 40 years of faithful service to Keppel. Mr Teo had made tremendous contributions to the Group's growth through the decades.

Keppel's leadership transition in 2014 has been smooth and successful. I am confident that with continued support of all stakeholders, our leadership team headed by Group CEO, Mr Loh Chin Hua will be able to propel the Group to greater heights.

On behalf of the Board, I am pleased to welcome Mr Till Vestring as Independent Director on the Company's Board. Mr Vestring is a partner in Bain & Company's Southeast Asia office. He has spent over two decades in Asia, providing management consulting to a wide spectrum of companies in industrials, airlines and telecoms. As Keppel continues to grow multiple businesses on a global scale, Mr Vestring's expertise in portfolio strategy, mergers and acquisitions, organisation and performance improvement will be invaluable.

Looking Ahead

With our emphasis on sustainable and long-term growth, the Board and management team have shaped a clear vision and strategy to guide the Group towards our goals. This means building on our multi-business model and diverse strengths to ensure that we not only perform well today but also shape future success.

I would like to thank my fellow directors for the hard work and valuable input, and our many partners and stakeholders for their unwavering support. This, coupled with the dedication of Keppelites worldwide, puts us in a strong position to meet challenges and seize new opportunities to grow the Keppel Group as a strong and best-in-class conglomerate.

Yours sincerely,

Lee Boon Yang
3 March 2015