Financial Review & Outlook
We will sustain value creation through execution excellence, technology innovation as well as financial discipline.

The Offshore & Marine Division secured $1.8 billion of new orders in 2015. Its net orderbook stands at $9.0 billion, with deliveries extending into 2020. Faced with the global sector downturn, the Division is rightsizing its operations and staying vigilant for what could be an extended slowdown, while at the same time building new capabilities and positioning itself to seize opportunities when the upturn comes.

The Property Division sold about 4,570 homes in 2015, comprising about 3,280 in China, 930 in Vietnam, 190 in Singapore and 130 in Indonesia. This is significantly higher than the 2,450 homes sold in 2014. The improvement is mainly attributable to sales in China and Vietnam. Total assets under management by Keppel REIT and Alpha have grown from $18.7 billion as at end-2014 to $20.5 billion as at end-2015. Keppel REIT’s office buildings in Singapore and Australia continued to maintain high occupancy of 99.3% as at end-2015. The Division will remain focused on strengthening its presence in its core and growth markets, seeking opportunities to unlock value and recycle capital, as well as growing its fund management business for a sustainable recurring income stream.

In the Infrastructure Division, Keppel Infrastructure (KI) will remain focused on its power and gas, as well as its other energy-related infrastructure businesses. The successful handing over of both phases of the Greater Manchester Energy-from-Waste Plant in the UK and the Bialystok waste-to-energy combined heat and power project in Poland, as well as the substantial handover of the Doha North Sewage Treatment Works in Qatar, allow KI to pursue other promising growth areas in infrastructure. The Singapore electricity market is still expected to remain competitive, but KI’s integrated power and gas business platform will enable it to weather the challenges ahead through driving synergies and value creation across its diversified portfolio. Keppel Telecommunications & Transportation will continue to develop both logistics and data centre businesses locally and overseas. It will also focus on growing a portfolio of quality data centre assets for injection into Keppel DC REIT. Total assets under management by Keppel DC REIT were about $1.2 billion as at end-2015.

The Group will continue to execute its multi-business strategy, capturing value by harnessing its core strengths and growing collaboration across divisions to unleash potential synergies, while being agile and investing for the future.

Total Assets
Total assets decreased from $31.6b to $28.9b. The decrease in current assets was partially offset by an increase in non-current assets

Total Cash Dividend Per Share
Total distribution for the year was approximately $617 million.
Shareholder Returns

ROE decreased to 14.2% in 2015 from 18.8% in 2014.

The Company will be distributing total cash dividend of 34.0 cents per share for 2015, comprising a final proposed cash dividend of 22.0 cents per share and the interim cash dividend of 12.0 cents per share distributed in the third quarter of 2015. Total cash dividend for 2015 represents 40% of Group net profit. On a per share basis, it translates into a gross yield of 5.2% on the Company’s last transacted share price of $6.51 as at 31 December 2015.

Economic Value Added

In 2015, Economic Value Added (EVA) decreased by $1,130 million to $648 million. This was attributable to lower net operating profit after tax, partially offset by lower capital charge.

Capital charge decreased by $81 million as a result of lower Weighted Average Cost of Capital (WACC) and lower Average EVA Capital. WACC decreased from 6.45% to 5.88% mainly due to a decrease in risk-free rate, partly offset by higher cost of debt.

Average EVA Capital decreased by $673 million from $19.23 billion to $18.56 billion mainly because of lower non-controlling interest, resulting from the privatisation of Keppel Land Limited and the consolidation of the remaining 30% interest in Harbourfront One Pte Ltd.

The Group registered positive EVA since 2004, which reflects the Group’s commitment to maximise shareholders’ value through effective and efficient management of resources.

$ million
15 vs 14
$ million
14 vs 13
$ million
Profit after tax (Note 1) 1,414 -1,342 2,756 +781 1,975
Adjustment for:    
Interest expense 155 +22 133 -31 164
Interest expense on non-capitalised leases 25 +2 23 +7 16
Tax effect on interest expense adjustment (Note 2) (32) -5 (27) -2 (25)
Provisions, deferred tax, amortisation & other adjustments 177 +112 65 -83 148
Net Operating Profit After Tax (NOPAT) 1,739 -1,211 2,950 +672 2,278
Average EVA Capital Employed (Note 3) 18,558 -673 19,231 +297 18,934
Weighted Average Cost of Capital (Note 4) 5.88% -0.57% 6.45% +0.45% 6.00%
Adjustment for surplus cash (Note 5) - -68 68 +68
Capital Charge (1,091) +81 (1,172) -36 (1,136)
Economic Value Added 648 -1,130 1,778 +636 1,142
  1. Profit after tax excludes net revaluation gain on investment properties.
  2. The reported current tax is adjusted for statutory tax impact on interest expenses.
  3. Average EVA Capital Employed is derived from the quarterly averages of net assets, interest-bearing liabilities, timing of provisions, present value of operating leases and other adjustments.
  4. Weighted Average Cost of Capital is calculated in accordance with the Keppel Group EVA Policy as follows:
    1. Cost of Equity using Capital Asset Pricing Model with market risk premium set at 5.0% (2014: 5.5%);
    2. Risk-free rate of 2.25% (2014: 2.45%) based on yield-to-maturity of Singapore Government 10-year Bonds;
    3. Unlevered beta at 0.83 (2014: 0.83); and
    4. Pre-tax Cost of Debt at 1.76% (2014: 1.58%) using 5-year Singapore Dollar Swap Offer Rate plus 45 basis points (2014: 45 basis points).
  5. For FY 2014, capital charge on surplus cash of $1,939 million was at the concession rate of 2.93% instead of WACC of 6.45%. This was due to the accumulation of surplus cash resulting from the advanced borrowing programme.
Financial Position

Group shareholders’ funds increased from $10.38 billion as at 31 December 2014 to $11.10 billion as at 31 December 2015. The increase was mainly attributable to retained profits for 2015. In addition, the difference between non-controlling interests adjusted and the fair value of the consideration paid, arising from the privatisation of Keppel Land Limited, was recognised in equity attributable to shareholders of the Company. This was partially offset by payment of final dividend of 36.0 cents per share in respect of financial year 2014 and interim dividend of 12.0 cents per share in respect of the first half year ended 30 June 2015, fair value loss on cash flow hedges and available-for-sale assets as well as fair value realised on disposal of available-for-sale assets. Non-controlling interest of $0.83 billion was $3.52 billion lower because of the privatisation of Keppel Land Limited and the consolidation of the remaining 30% interest in Harbourfront One Pte Ltd, which holds Keppel Bay Tower.

Group total assets of $28.92 billion as at 31 December 2015 were $2.67 billion or 8% lower than the previous year end. Decrease in current assets was partially offset by increase in non-current assets.

The decrease in current assets was due mainly to disposal of Keppel Merlimau Cogen Pte Ltd (KMC), lower bank balances, deposits & cash, largely due to fund used for the privatisation of Keppel Land Limited and capital expenditure, as well as repayment of advances due from associated companies. This was partly offset by higher level of debtors, due mainly to higher billings from the Offshore & Marine and Property Divisions.

Non-current assets were higher due mainly to increase in investment properties from the acquisition of a freehold office building in London and the fair value gain on investment properties in 2015. Park Avenue Central in Shanghai was reclassified from stocks & work-in-progress to investment properties, in line with the intention to develop the property for investment purpose. In addition, the increase in associated companies was largely due to the recognition of KMC as an associated company following the sale of 51% interest under the Infrastructure Division as well as the additional investments and acquisitions in the Property Division, additional investment in KrisEnergy Ltd, partly offset by divestment of 39% interest in Harbourfront Two Pte Ltd, which holds Harbourfront Towers 1 and 2. Group total liabilities of $16.99 billion as at 31 December 2015 were $0.13 billion or 1% higher than the previous year end. This was mainly due to increased bank borrowings for working capital requirements, operational capital expenditure, increase in creditors arising from higher billings by suppliers and privatisation of Keppel Land Limited.

This was offset by the derecognition of liabilities directly associated with KMC and the lower billings on work-in-progress in excess of related costs in the Offshore & Marine Division.

Group net debt of $6.37 billion was $4.72 billion higher than that as at 31 December 2014 due mainly to the cash payments for the acquisition of Keppel Land’s shares, dividend payments (by the Company and its listed subsidiaries), acquisition of a freehold office building in London, acquisition of the remaining 30% interest in Keppel Bay Tower, and other operational and capex cash requirements. These were partly offset by proceeds from the disposal of KMC and 39% interest in Harbourfront Towers 1 and 2 as well as repayment of advances due from associated companies.

Total Shareholder Return

Keppel is committed to deliver value to shareholders through earnings growth. Towards achieving this, the Group will rely on its multi-business strategy and its core strengths, build on what it had done successfully and seize new opportunities when they arise.

Our 2015 Total Shareholder Return (TSR) of negative 22.3% was 10.9 percentage points below the benchmark Straits Times Index’s (STI) TSR of negative 11.4%. This was mainly due to a sharp decline in Keppel’s share prices as at end-2015 arising from the corresponding sharp decline in oil prices. However, our 10-year annualised TSR growth rate of 7.8% was higher than STI’s 5.0%.

Cash Flow

To better reflect its operational free cash flow, the Group had excluded expansionary acquisitions (e.g. investment properties) and capital expenditure (e.g. building of new logistics or data centre facilities) meant for long-term growth for the Group, and major divestments.

Net cash used in operating activities was $705 million for 2015 as compared to net cash from operating activities of $5 million for 2014. This was due mainly to lower operational cash inflow.

After excluding expansionary acquisitions, capital expenditure and major divestments, net cash from investment activities was $11 million. The Group spent $357 million on investments and operational capital expenditure, mainly for the Offshore & Marine Division. After taking into account the proceeds from divestments and dividend income of $368 million, the free cash outflow was $694 million.

Total distribution to shareholders of the Company and non-controlling shareholders of subsidiaries for the year amounted to $956 million.

Free Cash Flow
$ million
15 vs 14
$ million
14 vs 13
$ million
Operating profit 1,514 -859 2,373 +239 2,134
Depreciation, amortisation & other non-cash items (158) +103 (261) -47 (214)
Cash flow provided by operations before changes in working capital 1,356 -756 2,112 +192 1,920
Working capital changes (1,725) +54 (1,779) -1,056 (723)
Interest receipt and payment & tax paid (336) -8 (328) +232 (560)
Net cash (used in) / from operating activities (705) -710 5 -632 637
Investments & capital expenditure (357) +305 (662) -173 (489)
Divestments & dividend income 368 -1,018 1,386 +880 506
Net cash from investing activities 11 -713 724 +707 17
Free Cash flow* (694) -1,423 729 +75 654
* Free cash flow excludes expansionary acquisitions & capex, and major divestments.    
Dividend paid to shareholders of the Company & subsidiaries (956) +73 (1,029) -186 (843)

Financial Risk Management

The Group operates internationally and is exposed to a variety of financial risks, comprising market risk (including currency risk, interest rate risk and price risk), credit risk and liquidity risk. Financial risk management is carried out by the Keppel Group Treasury Department in accordance with established policies and guidelines.

These policies and guidelines are established by the Group Central Finance Committee and are updated to take into account changes in the operating environment. This committee is chaired by the Chief Financial Officer of the Company and includes Chief Financial Officers of the Group’s key operating companies and Head Office specialists.

The Group’s financial risk management is discussed in more detail in the notes to the financial statements. In summary:

  • The Group has receivables and payables denominated in foreign currencies viz US dollars, European and other Asian currencies. Foreign currency exposure arises mainly from the exchange rate movement of these foreign currencies against the Singapore dollar, which is the Group’s measurement currency. The Group utilises forward foreign currency contracts to hedge its exposure to specific currency risks relating to receivables and payables. The bulk of these forward foreign currency contracts are entered into to hedge any excess US dollars arising from the Offshore & Marine contracts based on the expected timing of receipts. The Group does not engage in foreign currency trading.
  • The Group hedges against price fluctuations arising on purchase of natural gas. Exposure is managed via fuel oil forward contracts, whereby the price of natural gas is indexed to benchmark fuel price indices, High Sulphur Fuel Oil (HSFO) 180-CST and Dated Brent.
  • The Group hedges against fluctuations in electricity prices via its daily sales of electricity. Exposure to price fluctuations is managed via electricity futures contracts.
  • The Group maintains a mix of fixed and variable rate debt/loan instruments with varying maturities. Where necessary, the Group uses derivative financial instruments to hedge interest rate risks. This may include interest rate swaps and interest rate caps.
  • The Group maintains flexibility in funding by ensuring that ample working capital lines are available at any one time.
  • The Group adopts stringent procedures on extending credit terms to customers and the monitoring of credit risk.


The Group borrows from local and foreign banks in the form of short-term and long-term loans, project loans and bonds. Total Group borrowings as at the end of 2015 were $8.3 billion (2014: $7.4 billion and 2013: $7.1 billion). At the end of 2015, 10% (2014: 24% and 2013: 7%) of Group borrowings were repayable within one year with the balance largely repayable more than three years later.

Unsecured borrowings constituted 85% (2014: 86% and 2013: 87%) of total borrowings with the balance secured by properties and other assets. Secured borrowings are mainly for financing of investment properties and project finance loans for property development projects. The net book value of properties and assets pledged/mortgaged to financial institutions amounted to $2.46 billion (2014: $2.70 billion and 2013: $2.90 billion).

Fixed rate borrowings constituted 65% (2014: 66% and 2013: 53%) of total borrowings with the balance at floating rates. The Group has interest rate swap agreements with notional amount totalling $1,711 million whereby it receives variable rates equal to SIBOR, LIBOR and SHIBOR and pays fixed rates of between 0.85% and 4.90% on the notional amount. Details of these derivative instruments are disclosed in the notes to the financial statements.

Singapore dollar borrowings represented 65% (2014: 65% and 2013: 67%) of total borrowings. The balances were mainly in US dollars and Renminbi. Foreign currency borrowings were drawn to hedge against the Group’s overseas investments and receivables, which were denominated in foreign currencies.

Weighted average tenor of the loan book was around five years at the beginning and end of 2015 with an increase in average cost of funds.

Capital Structure & Financial Resources

The Group maintains a strong balance sheet and an efficient capital structure to maximise return for shareholders.

Every new investment will have to satisfy strict criteria for return on investment, cash flow generation, EVA creation and risk management. New investments will be structured with an appropriate mix of equity and debt after careful evaluation and management of risks.

Capital Structure

Capital employed as at the end of 2015 was $11.93 billion as compared to $14.73 billion as at end-2014 and $13.69 billion as at end-2013. The Group was in a net debt position of $6,366 million as at end-2015, which was above the $1,647 million as at end-2014 and $1,535 million as at end-2013. The Group’s net gearing ratio was 0.53 times as at the end of 2015, compared to 0.11 times as at the end of 2014.

Interest coverage was 13.89 times in 2013, increasing to 15.35 times in 2014 before decreasing to 9.66 times in 2015. Interest coverage in 2015 is lower due to lower EBIT and higher interest costs.

Cash flow coverage dropped from 4.03 times in 2013 to 1.02 times in 2014 and negative 2.17 times in 2015. This was mainly due to lower operational cash inflow in 2015.

At the Annual General Meeting in 2015, shareholders gave their approval for the mandate to buy back shares. As at 1 January 2015, the Company has 5,932,000 treasury shares. During the year, 6,808,000 shares were bought back. The Company also transferred 5,977,020 treasury shares to employees upon vesting of shares released under the KCL Share Plans and Share Option Scheme. As at 31 December 2015, the Company has 6,762,980 treasury shares. Except for the transfer, there was no other sale, transfer, disposal, cancellation and/or use of treasury shares during the year.

Financial Resources

The Group continues to be able to tap into the debt capital market at competitive terms.

As part of its liquidity management, the Group has built up adequate cash reserves and short-term marketable securities as well as sufficient undrawn banking facilities and capital market programme. Funding of working capital requirements, capital expenditure and investment needs was made through a mix of short-term money market borrowings and medium/long-term loans and bonds and through the equity capital market.

The Group maintains flexibility in funding by ensuring that ample working capital lines are available at any one time. Cash flow, debt maturity profile and overall liquidity position is actively reviewed on an ongoing basis.

As at end of 2015, total funds available and unutilised facilities amounted to $8.81 billion (2014: $11.02 billion).

Critical Accounting Policies

The Group’s significant accounting policies are discussed in more detail in the notes to the financial statements. The preparation of financial statements requires management to exercise its judgment in the process of applying the accounting policies. It also requires the use of accounting estimates and assumptions which affect the reported amounts of assets, liabilities, income and expenses. Critical accounting estimates and judgment are described below.

Impairment of Loans and Receivables

The Group assesses at each balance sheet date whether there is any objective evidence that a loan and receivable is impaired. The Group considers factors such as the probability of insolvency or significant financial difficulties of the debtor and default or significant delay in payments. When there is objective evidence of impairment, the amount and timing of future cash flows are estimated based on historical loss experience for assets with similar credit risk characteristics. The carrying amounts of trade, intercompany and other receivables are disclosed in the balance sheet. As at 31 December 2015, the Group has credit risk exposure to an external group of companies for receivables that are past due. Management has considered any changes in the credit quality of the debtors, the possibility of discontinuance of the projects and the cost incurred to-date when determining the allowance for doubtful receivables and its expected loss. Management performs ongoing assessments on the ability of its debtors to repay the amounts owing to the Group. These assessments include the review of the customers’ credit-standing and the possibility of discontinuance of the projects. Management has assessed that no allowance for doubtful debt and expected loss is required.

Impairment of Available-for-Sale Investments

The Group follows the guidance of FRS 39 in determining whether available-for-sale investments are considered impaired. The Group evaluates, among other factors, the duration and extent to which the fair value of an investment is less than its cost, the financial health of and the near-term business outlook of the investee, including factors such as industry and sector performance, changes in technology and operational and financing cash flows. The fair values of available-for-sale investments are disclosed in the balance sheet.

Impairment of Non-Financial Assets

Determining whether the carrying value of a non-financial asset is impaired requires an estimation of the value in use of the cash-generating units. This requires the Group to estimate the future cash flows expected from the cash-generating units and an appropriate discount rate in order to calculate the present value of the future cash flows. The carrying amounts of fixed assets, investments in subsidiaries, investment in associates and joint ventures, investment properties and intangibles are disclosed in the balance sheet.

Revenue Recognition

The Group recognises contract revenue based on the percentage of completion method. The stage of completion is measured in accordance with the accounting policy stated in Note 2(q). Significant assumptions are required in determining the stage of completion, the extent of the contract cost incurred, the estimated total contract revenue and contract cost and the recoverability of the contracts. In making the assumption, the Group evaluates by relying on past experience and the work of engineers. Revenue from construction contracts is disclosed in Note 23 and an expected loss of $228,000,000 (2014: Nil) was recognised in 2015 based on the estimated costs to completion, including cost of discountinuance and salvage cost with regards to certain rig building contracts.

Revenue arising from additional claims and variation orders, whether billed or unbilled, is recognised when negotiations have reached an advanced stage such that it is probable that the customer will accept the claims or approve the variation orders, and the amount that it is probable will be accepted by the customer can be measured reliably.

Income Taxes

The Group has exposure to income taxes in numerous jurisdictions. Significant assumptions are required in determining the provision for income taxes. There are certain transactions and computations for which the ultimate tax determination is uncertain during the ordinary course of business. The Group recognises liabilities for expected tax issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recognised, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made. The carrying amounts of taxation and deferred taxation are disclosed in the balance sheet.

Financial Capacity
  $ million Remarks
Cash at
Corporate Treasury
265 14% of total cash of $1.89 billion
Credit facilities
extended to the Group
8,595 Credit facilities of $11.50 billion, of which $2.91 billion was utilised

Claims, Litigations and Reviews

The Group entered into various contracts with third parties in its ordinary course of business and is exposed to the risk of claims, litigations, latent defects or review from the contractual parties and/or government agencies. These can arise for various reasons, including change in scope of work, delay and disputes, defective specifications or routine checks etc. The scope, enforceability and validity of any claim, litigation or review may be highly uncertain. In making its judgment as to whether it is probable that any such claim, litigation or review will result in a liability and whether any such liability can be measured reliably, management relies on past experience and the opinion of legal and technical expertise.

Control over Keppel REIT

The Group has approximately 46% (2014: approximately 45%) gross ownership interest of units in Keppel REIT as at 31 December 2015. Keppel REIT is managed by Keppel REIT Management Limited (KRML), a wholly-owned subsidiary of the Group. The Group has provided an undertaking to the trustee of Keppel REIT to grant the other unitholders the right to endorse or re-endorse the appointment of directors of KRML at the annual general meetings of Keppel REIT. The Group has determined that it continues to have significant influence over Keppel REIT.

Control over KrisEnergy

The Group has approximately 40% (2014: approximately 31%) gross ownership interest of shares in KrisEnergy Limited (KrisEnergy) as at 31 December 2015. The management assessed whether or not the Group has control over KrisEnergy based on whether it has the practical ability to direct the relevant activities of KrisEnergy. In exercising its judgment, management considers the relative size and dispersion of the shareholdings owned by the other shareholders. Taking into consideration the approximately 38% (2014: approximately 45%) interest held by another single shareholder of KrisEnergy, management concluded that the Group does not have sufficient dominant vesting interest to exert control over KrisEnergy and therefore continues to have significant influence over KrisEnergy.