Key Developments in 2015
  • The privatisation of Keppel Land fully aligned the interests of our Property Division with the Group, providing a strong pillar for earnings.
  • Keppel Infrastructure Trust was successfully combined with CitySpring Infrastructure Trust and 51% of Keppel Merlimau Cogen was injected into the enlarged trust.
  • Keppel Offshore & Marine is in the process of acquiring the LETOURNEAU™ rig designs and aftermarket business to further broaden our suite of solutions.
Dear Shareholders,

2015 was a very eventful year for Singapore. We celebrated SG50 to mark fifty successful years as a nation, built on foundations laid by the pioneer generation. We marked the passing of our Founding Prime Minister Mr Lee Kuan Yew. We had a General Election which saw the government return with a resounding mandate thus renewing confidence in Singapore’s further growth and vitality for the future.

It was also a challenging year for businesses buffeted by international financial volatility and slowing growth in emerging markets including China. At the same time, violent acts of terrorism and pockets of geopolitical tension continue to threaten the already vulnerable global economy.

The continuing mismatch between supply and demand for oil had also depressed oil prices, to below US$30 per barrel at the start of 2016. The sharp fall in oil price has had significant repercussions not just on the oil and gas industry, but the international economy.

Resilient Conglomerate

Against this challenging backdrop, Keppel performed creditably, demonstrating how our multi-business strategy stands Keppel in good stead during testing times.

For the whole of 2015, we achieved a net profit of about $1.53 billion, albeit down 19% from $1.89 billion in 2014. Higher contributions from Property and Investments were offset by lower profits from Offshore & Marine and Infrastructure, which included the provisions for the Sete Brasil projects and Doha North Sewage Treatment Works, as well as lower income from the power and gas business and the absence of gains from data centre assets which were divested in 2014 to Keppel DC REIT.

The Group generated positive Economic Value Added of $648 million in 2015, while our Return on Equity (ROE) was 14.2%. Taking into account the Group’s performance as well as the Company’s needs for future growth, the Board is pleased to propose a final dividend of 22 cents per share. Together with the interim cash dividend of 12 cents per share, this brings the full year cash dividend to 34 cents per share for 2015.

Strategic Moves

One of Keppel’s key strengths as a multi-business conglomerate with a strong balance sheet is our access to capital and ability to invest during tough times when opportunities present themselves.

We are committed to strengthen and transform the Company into a global best-in-class conglomerate at the forefront of our chosen industries. We have simplified our corporate structure, and will be sharpening our business model, recycling capital to seek the best possible returns, and promoting innovation, collaboration and synergy across the Group’s businesses.

The privatisation of Keppel Land in 2015 was a strategic move that has fully aligned the interests of our Property Division with the Group. It was immediately accretive and is providing a strong pillar for earnings and long-term value creation, with the Property Division contributing 46% of the Group’s net profit in 2015.

The full ownership of this Division has strengthened our ability to rightsize the balance sheet of our property business to capture opportunities, recycle capital and allocate resources across the Group for optimal returns and deliver on our multi-business strategy.

In January 2016, in a major restructuring exercise to grow the contribution from our Investments Division, Keppel Corporation announced plans to consolidate our interests in business trust management, real estate investment trust management and fund management businesses (collectively, Asset Management) under the wholly-owned subsidiary Keppel Capital Holdings Pte Ltd (Keppel Capital).

Keppel’s Asset Management businesses currently manage $26 billion of quality assets and contributed about $60 million of profits in 2015.

The consolidation under Keppel Capital is also part of our transformation strategy. We plan to grow our assets under management and expand our capital platform for co-investing. Creating and developing high quality real estate and infrastructure assets, as well as stabilising and monetising them to generate strong cash flow and recurring income are integral parts of Keppel’s business. Subject to obtaining the relevant approvals, we aim to complete the proposed consolidation by the second half of 2016.

Offshore & Marine

With oil price plunging to its lowest in more than a decade, oil companies have cut back spending on exploration and production, and several drilling contractors have scaled back their fleet renewal and expansion plans. As a global leader in offshore and marine, Keppel is not spared from the storm hitting the industry.

In Brazil, a key customer base, political and economic challenges as well as the Lava Jato scandal continue to erode confidence. After our customer Sete Brasil ceased payments over a year ago, Keppel had proactively taken steps to mitigate our exposure by slowing the construction of their rigs.

Net Profit
of which the Property Division
contributed 46% to the Group’s
net profit.

By the end of 2015, we stopped construction altogether and will not resume work until we receive further payments.

We await further clarity on the situation as the Sete Brasil board mulls over the future plans for the company. In prudence, we have made a provision of about $230 million for the Sete Brasil projects, after assessing the status of the construction progress, payments received, amounts due to vendors and other factors.

Notwithstanding the challenges we currently face, Keppel remains positive about the long-term fundamentals of the offshore and marine industry. Despite the increasing focus on renewable energy, we believe fossil fuels will continue to account for the lion’s share of global energy demand in the foreseeable future. We expect oil price to eventually reach a sustainable equilibrium, driven by, among others, continuing demand for energy from a rising middle class and the increasing urbanisation in developing countries.

With our extensive suite of offshore and marine solutions and continuous investment in R&D, Keppel Offshore & Marine is able to serve a wide spectrum of customers in both drilling and non-drilling markets, who continue to require various solutions, be it for oil production, subsea construction, or offshore liquefaction. In 2015, we secured orders amounting to about $1.8 billion. Of Keppel O&M’s current $9.0 billion net orderbook, non-drilling solutions make up more than a third.

To deal with the downturn, we are keeping our overheads under control and rightsizing our operations and resources. Our network of yards and large pool of contract workers give us considerable flexibility in workforce deployment.

Even as we work at reducing costs and optimising current operations, we are still investing prudently in R&D, as well as improving our productivity and core competencies. For instance, Keppel O&M is in the process of acquiring the LETOURNEAU™ rig designs and aftermarket business to broaden our suite of jackup rig design solutions and aftermarket sales and services.

In 2015, a new design and technology arm, Gas Technology Development, was set up to sharpen our efforts in developing solutions for Liquefied Natural Gas (LNG) markets. This includes the development of a suite of products with LNG applications as well as designs for LNG support vessels and LNG systems for vessels.

In January 2016, Keppel O&M and the BG Group (now part of Royal Dutch Shell) won a joint bid to supply LNG bunker to vessels in the Port of Singapore. The move is in line with Keppel’s strategy to provide solutions for the global LNG market.

As the shipping industry’s demand for green solutions continues to rise, we will also be able to help meet the needs for sustainable shipping with our growing LNG solutions, such as tug designs with dual-fuel diesel LNG engines and the retrofitting of vessel engines to run on LNG.


Our Property Division performed well in 2015, despite headwinds. In Singapore, with the property market cooling measures remaining in force, the residential market continued to be subdued. However, this was offset by the improved sales of homes in other key cities in Asia.

In 2015, Keppel Land sold about 4,570 homes, almost double the units taken up in 2014. About 72% of these were sold in China and another 20% in Vietnam. Despite media reports of an oversupplied property market in China, Keppel’s experience has been positive in the cities where we operate. We sold 3,280 homes in the country, as compared to some 1,900 units in 2014.

China’s easing of monetary measures has improved market sentiments and housing demand. Given real estate’s status as a pillar industry of the economy, we believe the Chinese government will provide the necessary support for the sector, and maintain stable and sustainable growth in the property market over the long term.

Vietnam, our second largest overseas residential market after China, has recovered after almost five years of housing slump. With the country’s strong GDP growth, growing middle class and low interest rate, we expect the upward momentum in the residential market to continue.

Keppel Land seized opportunities to recycle capital from its property assets in line with the Group’s focus on higher returns, including for example, the sale of BG Junction in Surabaya, Indonesia. We also invested some $615 million in a residential site in West Jakarta, an office building in London, and a joint venture for a prime residential development in Chengdu with partner China Vanke.

Continued economic development as well as a rising middle-class population will fuel demand for quality homes and prime commercial space in Asia. Keppel Land will continue to tap demand in property markets across Asia with about 20,000 launch-ready homes in its portfolio, mostly in China. At the same time, Keppel Land is actively developing its portfolio of commercial properties which has increased to about 840,000 square metres of gross floor area.

In the property fund management business, total assets under management by Keppel REIT and Alpha Investment Partners have increased 10% from $18.7 billion as at end-2014 to $20.5 billion as at end-2015.

The world’s first-of-its-kind FLNG Vessel conversion project, the Hilli, undertaken by Keppel Shipyard for its customer Golar LNG, is progressing on schedule and on budget.

In 2015, Keppel REIT completed its acquisition of three prime retail units at 8 Exhibition Street in Melbourne and in early 2016, it divested its 100% interest in 77 King Street in Sydney, Australia, for A$160 million, resulting in a gain of approximately A$28 million. Meanwhile, Alpha Asia Macro Trends Fund II has invested in three prime office properties with City Developments. With the success of the first two Asia Macro Trends Funds, it is embarking on its third such fund.

Our asset management businesses will continue to feature strongly in the Group’s capital recycling strategy and provide stable income streams over the longer term.


Over the past year, developments in our Infrastructure Division demonstrate our continuing plans to grow this third business vertical.

We achieved significant milestones for our Engineering, Procurement and Construction (EPC) projects in 2015. In the first half of the year, Keppel Seghers handed over Phases 1 and 2 of the Greater Manchester Energy-from-Waste facility in the UK to the client. We closed the year with Keppel Seghers achieving a substantial handover of the Doha North Sewage Treatment Works in Qatar to the client. At the same time, Keppel Seghers also commenced the operations and maintenance phase of the contract for its liquids stream, solids thickening and dewatering facilities for 10 years.

Over in Poland, Keppel Seghers handed over, on schedule and on budget, the Bialystok waste-to-energy combined heat and power project to the client, Bialystok’s municipal solid waste management company, on 31 December 2015.

With the weight of the EPC projects off our shoulders, our team can now focus on building Keppel Infrastructure into a stable contributor to the Group’s bottom line, pursuing growth opportunities in areas such as gas-to-power and waste-to-energy, both in Singapore and overseas.

Our data centre and logistics businesses under Keppel Telecommunications & Transportation (Keppel T&T) are also making good progress. Keppel T&T embarked on its fourth data centre development in Singapore. In October, Keppel T&T opened Almere Data Centre 2, its first greenfield data centre in Europe. Meanwhile, our T27 data centre in Tampines, which is more than 80% occupied, is on track for injection into Keppel DC REIT. In Logistics, Keppel T&T commenced operations at its Tampines Logistics Hub in Singapore and a distribution centre in Vietnam.

Keppel DC REIT, Asia’s first data centre REIT to be listed on the Singapore Exchange, was active in its first year of operations. It acquired Intellicentre 2 in Australia and maincubes Data Centre in Germany, adding to its portfolio of high-quality data centres across Asia Pacific and Europe, which amounted to over $1 billion of assets under management.

Another major milestone was the combination of Keppel Infrastructure Trust (KIT) with CitySpring Infrastructure Trust.

During the year, Keppel Infrastructure injected 51% of Keppel Merlimau Cogen (KMC), which owns the 1,300-MW power plant on Jurong Island, into the enlarged KIT, as part of its efforts to unlock value from matured assets in its portfolio. The enlarged trust, with the inclusion of KMC, is Singapore’s largest listed infrastructure business trust with total assets of over $4 billion.

Commitment to Sustainability

In 2015, a historic agreement was reached at COP21 in Paris, with the commitment by 195 nations to reduce emissions and work at keeping global warming to below 2 degrees. While governments around the world will come up with their respective national contributions and measures to achieve these targets, it will take the will and support of all sectors of society to combat climate change effectively.

As a conglomerate operating globally, Keppel places sustainability at the heart of our corporate strategy and operations, so as to create enduring value for all our stakeholders – sustaining growth, empowering lives and nurturing communities. Sustainability is a key factor in underpinning Keppel’s long-term competitiveness, and we will work with our stakeholders to create a more sustainable future.

Reflecting our strong commitment to sustainable development, Keppel Corporation earned a place amongst the prestigious Global 100 Most Sustainable Corporations in the World 2016, ranking at the top of the Industrial Conglomerates category and 55th worldwide. We are also listed as an index component of the Dow Jones Sustainability Indices (DJSI) Asia Pacific Index, the MSCI Global Sustainability Index and the Euronext Vigeo World 120 Index. The Company recently won the Singapore Sustainable Business Awards for Strategy and Sustainability Management.

Keppelites are our most important asset, and Keppel is committed to providing multiple pathways to success for those who will rise to the challenge across geographies, industries and functions. During the year, the Company invested $14.2 million in the training and development of its employees.

In April 2015, we opened the Keppel Leadership Institute, whose vision is developing global leaders who exemplify Keppel’s core values to grow sustainable businesses and touch lives. Since its opening, the Institute has provided a spectrum of enriching courses and events as well as collaborative spaces for thousands of Keppelites from Singapore and overseas.

Safety, our core value, will always be first priority. Our Board Safety Committee, established in 2006, continues its relentless efforts to build a strong safety culture in the Group. In spite of our safety focus, sadly, we suffered four fatalities in 2015. We are deeply saddened by the loss of our colleagues. We have investigated these incidents thoroughly and rigorously, and instituted measures to prevent any recurrence.

Our commitment to sustainability extends to our communities. Shaping the future of our communities, the Keppel Centre for Art Education at the National Gallery Singapore was opened in November 2015. As a Founding Patron of the Gallery, we committed $12 million to establish the Centre, which is set to benefit some 250,000 children, youths and families a year, nurturing generations of creative and critical thinkers through art education.

In the past year, Keppel Volunteers continued to support Keppel Care Foundation through engaging and caring for our beneficiaries through a variety of activities promoting education and wellness. On top of the existing programmes, Keppel Volunteers aims to further engage our middle management and senior staff by tapping their experience and expertise for skills-based volunteering. This initiative will not only enhance the management skills of our charities but also make every sponsored dollar go the extra mile for our beneficiaries.

To communicate its sustainability strategy, practices and performance, Keppel Corporation produces an annual Sustainability Report in accordance with Global Reporting Initiative guidelines and Singapore Exchange’s Guide to Sustainability Reporting for Listed Companies.

Our Sustainability Report is validated in accordance with the DNV GL Protocol for Verification of Sustainability Reporting, which draws on Account Ability’s AA1000 Assurance Standard 2008 and the International Standard on Assurance Engagements 3000 by the International Federation of Accountants.

We will be publishing Keppel Corporation’s sixth sustainability report, which discusses the economic, environmental and social aspects of our activities and initiatives. Highlights of our sustainability efforts are outlined in this Annual Report.

Keppel Land will continue to unlock value and recycle capital to generate better returns for the Group.

On behalf of the Board, I would like to express my deep appreciation to Mr Tony Chew, who retired from the Board in May 2015 after 13 years of distinguished service. The Keppel Group benefited from his extensive business experience, wisdom and entrepreneurial spirit. Tony was Lead Independent Director from 2006 to 2009, and had served as Chairman of the Nominating Committee from 2009 to 2015.

We are pleased to welcome Ms Veronica Eng as Independent Director on the Board. Ms Eng comes to Keppel with extensive and in-depth knowledge and experience in capital management, investment, value creation and risk management. She will contribute to the Board’s efforts to guide Management to achieve better performance for the Group.

The business environment that we operate in is changing rapidly. Amidst the challenging economic landscape, the Board and Management will continue to build on the Company’s business model and push ahead with our transformative efforts.

I would like to thank my fellow directors for their invaluable advice, guidance and commitment to steer Keppel safely through the troubled waters. I also thank our many partners and stakeholders for their unwavering confidence in Keppel. Last but not least, I commend Keppelites worldwide for their dedication and drive, which enable the Keppel Group to turn adversity to advantage and emerge stronger than before.

Yours sincerely,

Lee Boon Yang
2 March 2016