Financial Review & Outlook
Total Assets
revenue 4%

Total assets decreased by $1.1b to $28.1b. The decrease in current assets was partially offset by increase in non‑current assets.

Total Cash Dividend Per Share
revenue 10%

Total distribution to shareholders of the Company and non‑controlling shareholders of subsidiaries for the year amounted to $390m.


The Offshore & Marine (O&M) Division’s net order book, excluding the Sete rigs, stands at $3.9 billion. The Division will continue to focus on delivering its projects well, exploring new markets and opportunities, investing in R&D and building new capabilities to position itself for the upturn. The Division is also actively capturing opportunities in production assets, specialised vessels and the growing gas market and exploring ways to re‑purpose its offshore technology for other uses.

The Property Division sold more than 5,480 homes in 2017, comprising about 3,725 in China, 1,110 in Vietnam, 380 in Singapore and 270 in Indonesia. This is 4.2% lower than the 5,720 homes sold in 2016. In addition, three projects, equivalent to about 4,330 homes sold en bloc, were divested in 2017. Keppel REIT’s office buildings in Singapore and Australia maintained a high portfolio committed occupancy rate of 99.7% as at end‑2017. The Division will remain focused on strengthening its presence in its core and growth markets, while seeking opportunities to unlock value and recycle capital.

In the Infrastructure Division, Keppel Infrastructure will continue to build on its core competencies in energy and environment‑related infrastructure, as well as infrastructure services businesses to pursue promising growth areas.

Keppel Telecommunications & Transportation (Keppel T&T) will continue to develop its data centre business locally and overseas. Besides building complementary capabilities in the growing e‑commerce business, Keppel T&T plans to transform the logistics business from an asset‑heavy business to a high‑performing asset‑light service provider in urban logistics.

In the Investments Division, Keppel Capital will continue to allow the Group to more effectively recycle capital and expand its capital base with co‑investments, giving the Group greater capacity to seize opportunities for growth. Keppel Capital will also create value for investors and grow the Group’s asset management business.

The newly established Keppel Urban Solutions will harness opportunities as an integrated master developer of smart, sustainable precincts, starting with Saigon Sports City in Ho Chi Minh City, while the Sino‑Singapore Tianjin Eco‑City Investment and Development Co., Ltd will continue to develop the Eco‑City, including selling further land parcels in 2018.

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 in the future.

Shareholder Returns

Return on Equity (ROE) decreased to 1.9% in 2017 from 6.9% in the previous year, largely due to the one‑off financial penalty from the global resolution and related costs, and higher average total equity. Excluding the one‑off financial penalty from the global resolution and related costs of $619 million, ROE was 7.0% in 2017.

The Company will be distributing a total cash dividend of 22.0 cents per share for 2017, comprising a proposed final cash dividend of 14.0 cents per share and the interim cash dividend of 8.0 cents per share distributed in the third quarter of 2017. Total cash dividend for 2017 represents 185% of Group net profit. Excluding the one‑off financial penalty from the global resolution and related costs of $619 million, total cash dividend for 2017 represents 48% of Group net profit. On a per share basis, it translates into a gross yield of 3.0% on the Company’s last transacted share price of $7.35 as at 31 December 2017.

ROE & Dividend
^ Includes the one‑off financial penalty from the global resolution and related costs of $619 million.

Economic Value Added

In 2017, Economic Value Added (EVA) was negative $834 million as compared to negative $140 million in the previous year. Excluding the one‑off financial penalty from the global resolution and related costs of $619 million, EVA was negative $215 million in 2017. This was attributable to lower net operating profit after tax, partially offset by lower capital charge.

Capital charge decreased by $24 million as a result of lower Average EVA Capital and lower Weighted Average Cost of Capital (WACC). WACC decreased from 5.82% to 5.75% due mainly to a decrease in equity value resulting from lower market capitalisation, partly offset by higher cost of debt. Average EVA Capital decreased by $183 million from $19.12 billion to $18.94 billion mainly because of lower borrowings.

$ million
17 vs 16
$ million
16 vs 15
$ million
Profit after tax (Note 1) 2 -764 766 -648 1,414
Adjustment for:
Interest expense 189 -36 225 +70 155
Interest expense on non-capitalised leases 26 -3 29 +4 25
Tax effect on interest expense adjustments (Note 2) (38) +6 (44) -12 (32)
Provisions, deferred tax, amortisation & other adjustments 76 +79 (3) -180 177
Net Operating Profit After Tax (NOPAT) 255 -718 973 -766 1,739
Average EVA Capital Employed (Note 3) 18,936 -183 19,119 +561 18,558
Weighted Average Cost of Capital (Note 4) 5.75% -0.07% 5.82% -0.06% 5.88%
Capital Charge (1,809) +24 (1,113) -22 (1,091)
Economic Value Added (834)* -694 (140) -788 648
  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% (2016: 5.0%);
    2. Risk‑free rate of 2.41% (2016: 2.50%) based on yield‑to‑maturity of Singapore Government 10‑year Bonds;
    3. Unlevered beta at 0.75 (2016: 0.75); and
    4. Pre‑tax Cost of Debt at 2.30% (2016: 2.45%) using 5‑year Singapore Dollar Swap Offer Rate plus 60 basis points (2016: 45 basis points).
  • Includes the one‑off financial penalty from the global resolution and related costs of $619 million.
^ Includes the one‑off financial penalty from the global resolution and related costs of $619 million.

Financial Position

Group shareholders’ funds decreased from $11.66 billion as at 31 December 2016 to $11.43 billion as at 31 December 2017. The decrease was mainly attributable to payment of the final dividend of 12.0 cents per share in respect of financial year 2016 and the interim dividend of 8.0 cents per share in respect of the first half year ended 30 June 2017, and foreign exchange translation losses. This was partially offset by retained profits for 2017 and an increase in fair value on cash flow hedges.

Group total assets of $28.11 billion at 31 December 2017 were $1.1 billion or 4% lower than at 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 the lower stocks & work‑in‑progress and debtors from the O&M and Property divisions, partially offset by higher bank balances, deposits and cash. The increase in non‑current assets was due mainly to acquisition and further investment in associated companies, partially offset by depreciation of fixed assets.

Group total liabilities of $16.15 billion at 31 December 2017 were $0.7 billion or 4% lower than at the previous year end. This was mainly due to net repayment of term loans and a reduction in derivative liabilities, partially offset by an increase in creditors arising from higher billings by suppliers, and accruals for the one‑off financial penalty from the global resolution and related costs.

Group net debt of $5.52 billion was $1.4 billion lower than that as at 31 December 2016. This was mainly due to proceeds from the disposal of subsidiaries in the Property and Infrastructure divisions as well as dividends received from investments and associated companies. These were offset by dividend payments (by the Company and its listed subsidiaries), acquisition and further investment in associated companies, as well as other capital expenditure cash requirements.

Group net gearing ratio improved from 56% at the end of 2016 to 46% at the end of 2017. This was mainly due to decrease in group net debt, partially offset by lower group shareholders’ funds.

Total Assests Owned
Financial Review and Outlook

Total Shareholder Return

Keppel is committed to delivering value to shareholders through earnings growth. Towards achieving this, the Group will rely on our multi‑business strategy and core strengths to build on what we have done successfully, as well as seize new opportunities when they arise.

Our 2017 Total Shareholder Return (TSR) of 30.9% was 8.9 percentage points above the benchmark Straits Times Index’s (STI) TSR of 22.0%. Our 10‑year annualised TSR growth rate of 0.3% was lower than STI’s 3.1%.

Total Shareholder Return
Source: Bloomberg

Cash Flow

To better reflect our 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 from operating activities was $1,377 million for 2017 as compared to $294 million for 2016. This was due mainly to cash inflow from working capital changes as compared to outflow in the prior year.

After excluding expansionary acquisitions, capital expenditure and major divestments, net cash from investment activities was $425 million. The Group spent $187 million on investments and operational capital expenditure, mainly for the O&M and Property divisions. After taking into account the proceeds from divestments and dividend income of $655 million, as well as advances to associated companies of $43 million, the free cash inflow was $1,802 million.

Total distribution to shareholders of the Company and non‑controlling shareholders of subsidiaries for the year amounted to $390 million.

Cash Flow
$ million
17 vs 16
$ million
16 vs 15
$ million
Operating profit 776 -19 795 -719 1,514
Depreciation, amortisation & other non‑cash items (313) -720 407 +569 (162)
Cash flow provided by operations before changes in working capital 463 -739 1,202 -150 1,352
Working capital changes 1,290 +1,876 (586) +1,215 (1,801)
Interest receipt and payment & tax paid (376) -54 (322) +14 (336)
Net cash from / (used in) operating activities 1,377 +1,083 294 +1,079 (785)
Investments & capital expenditure (187) -31 (156) +201 (357)
Divestments & dividend income 655 +195 460 +92 368
Advances (to) / from associated companies (43) +15 (58) -138 80
Net cash from investing activities 425 +179 246 +155 91
Free Cash Flow* 1,802 +1,262 540 +1,234 (694)
Dividend paid to shareholders of the Company & subsidiaries (390) +232 (622) +334 (956)
* Free cash flow excludes expansionary acquisitions & capex, and major divestments.

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 with the largest exposure arising from US dollars and Renminbi. Foreign currency exposures arise 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 O&M contracts based on the expected timing of receipts. The Group does not engage in foreign currency trading.
  • The Group hedges against price fluctuations arising from the purchase of natural gas that affect cost. Exposure to price fluctuations is managed via fuel oil forward contracts, whereby the price of natural gas is indexed to benchmark fuel price indices of High Sulphur Fuel Oil (HSFO) 180‑CST and Dated Brent.
  • The Group hedges against fluctuations in electricity prices arising from 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. These may include cross currency swaps, 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 2017 were $7.8 billion (2016: $9.1 billion and 2015: $8.3 billion). At the end of 2017, 22% (2016: 20% and 2015: 10%) of Group borrowings were repayable within one year with the balance largely repayable more than three years later.

Unsecured borrowings constituted 91% (2016: 87% and 2015: 85%) 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 $1.89 billion (2016: $2.81 billion and 2015: $2.46 billion).

Fixed rate borrowings constituted 65% (2016: 58% and 2015: 67%) of total borrowings with the balance at floating rates. The Group has cross currency swap and interest rate swap agreements with notional amount totalling $1,779 million whereby it receives foreign currency fixed rates (in the case of the cross currency swaps) and variable rates equal to SOR and LIBOR (in the case of interest rate swaps) and pays fixed rates of between 1.27% and 3.62% on the notional amount. Details of these derivative instruments are disclosed in the notes to the financial statements.

Singapore dollar borrowings represented 73% (2016: 69% and 2015: 65%) 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 that were denominated in foreign currencies.

Weighted average tenor of the loan book was around four years at the beginning of 2017 and also around four years at the end of 2017 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

Total equity as at the end‑2017 was $11.96 billion as compared to $12.33 billion as at end‑2016 and $11.93 billion as at end‑2015. The Group was in a net debt position of $5,519 million as at end‑2017, which was below the $6,966 million as at end‑2016 and $6,366 million as at end‑2015. The Group’s net gearing ratio was 0.46 times as at end‑2017, compared to 0.56 times as at end‑2016.

Interest coverage was 9.66 times in 2015, decreasing to 4.35 times in 2016 and to 2.92 times in 2017. Interest coverage in 2017 was lower due to lower Earnings before Interest expense and Tax (EBIT).

Cash flow coverage increased from negative 2.53 times in 2015 to 2.00 times in 2016 and to 6.71 times in 2017. This was mainly due to higher operational cash inflow in 2017.

At the Annual General Meeting in 2017, shareholders gave their approval for the mandate to buy back shares. During the year, 2,850,000 shares were bought back and held as treasury shares. The Company also transferred 5,071,722 treasury shares to employees upon vesting of shares released under the KCL Share Plans and Share Option Scheme. As at the end of the year, the Company had 10,788 treasury shares. Except for the transfer, there was no other sale, transfer, disposal, cancellation and/or use of treasury shares during the year.

Net Cash
Interest Coverage
Cash Flow Coverage
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 programs. Funding of working capital requirements, capital expenditure and investment needs was made through a mix of short‑term money market borrowings, bank loans as well as medium/long term bonds via the debt 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 are actively reviewed on an ongoing basis.

As at end‑2017, total available credit facilities, including cash at Corporate Treasury, amounted to $11.51 billion (2016: $8.71 billion).

Debt Maturity
Financial Capacity
$ million Remarks
Cash at Corporate Treasury 527 23% of total cash of $2.27 billion
Available credit facilities to the Group 10,985 Credit facilities of $12.94 billion, of which $1.95 billion was utilised
Total 11,512

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 2017, 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 on‑going 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.

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, investments in associates and joint ventures, and intangibles are disclosed in the balance sheet.

Revenue Recognition and Contract Cost

The Group recognises contract revenue and contract cost 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 22.

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.

Recoverability of Work‑in‑Progress Balances in Relation to Offshore & Marine Construction Contracts and Stocks for Sale

Contracts with Sete Brasil (Sete)

The Group had previously entered into contracts with Sete for the construction of six rigs for which progress payments from Sete had ceased since November 2014. In April 2016, Sete filed for bankruptcy protection and its authorised representatives had been in discussion with the Group on the eventual completion and delivery of some of the rigs. Management has continually assessed the probable outcomes of these contracts by taking into consideration the progress and status of the discussions and market conditions in Brazil. During the financial year ended 31 December 2017, an expected loss of $81 million was recognised, taking into consideration cost of completion, cost of discontinuance, salvage cost and unpaid progress billings with regards to these rigs, bringing the total loss recognised on these rigs to $309 million.

Other Contracts

As at 31 December 2017, the Group had several rigs/vessels that were under construction for customers or had been completed and were awaiting delivery to the customers. See Note 13 on work‑in‑progress balances.

During 2017, some of the Group’s customers had requested for further deferral of delivery dates of the rigs/vessels.

Management has assessed each deferred construction project individually to make judgment as to whether the customers will be able to fulfil their contractual obligations and take delivery of the rigs at the revised delivery dates.

Management has also estimated the net realisable values of rigs/vessels under construction as stocks for sale in assessing whether a provision for loss on work‑in‑progress is necessary.

Management has further assessed if the values of the rigs/vessels would exceed the carrying values of work‑in‑progress and stocks for sale. Management has estimated, with the assistance of an independent professional firm, the values of the rigs/vessels using Discounted Cash Flow (DCF) calculations that cover each class of rig/vessel under construction. The most significant inputs to the DCF calculations include day rates, utilisation rates, forecasted oil price movements and discount rates.

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.

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.