Chairman’s Statement

Lee Boon Yang, Chairman

Dear Shareholders,

2018 was an eventful year, marked by volatility in the international economy, with concerns over trade tensions between the United States (US) and China, slowing global growth, fluctuating oil prices and uncertainty over how BREXIT will unfold.

At the same time, urbanisation trends and a growing middle class, especially in Asia, continue to drive demand and provide opportunities for companies able to supply solutions to meet their needs. Robotics, artificial intelligence and digitalisation are also empowering companies with new ways of working, and actionable insights which allow the provision of better and more efficient solutions for customers.

For Keppel, 2018 was a transformational year, during which we focused not only on executing our existing businesses well, but also on investing in and building new growth engines.

We began the year by refreshing the Group’s mission and uniting our different businesses behind the common goal of providing solutions for sustainable urbanisation. Today, Keppel is not a diverse group of companies that share a common name, or a company focused mainly on the offshore and marine (O&M) or property businesses, but an eco-system of companies working closely together, and harnessing the synergies of the multi-business group, as we provide much needed urbanisation solutions, from energy, to urban spaces and clean environments, to physical and digital connectivity.

Last September, together with Singapore Press Holdings (SPH), we launched an offer to take majority control of M1. M1 complements Keppel’s mission to be a solutions provider for sustainable urbanisation. We believe there are synergies which can be harnessed by collaboration between M1 and other parts of the Keppel Group. This will require a major transformation of M1 which will take some years to achieve. The Offeror achieved majority control of M1 and the shareholding threshold required to de-list M1 in February, and on 6 March 2019, it announced that it would exercise its rights to compulsorily acquire all the remaining shares. Keppel and SPH will work with M1’s board and management to develop and implement the transformation strategy and pursue growth initiatives.

We also announced a scheme of arrangement to privatise Keppel Telecommunications & Transportation (Keppel T&T), to further simplify our corporate structure and better integrate Keppel T&T’s interests with the rest of the Group.

Strong Performance

The Group performed well in 2018, achieving a net profit of $944 million, up 382% from $196 million in 2017, or up 16% from $815 million, if we exclude the one-off financial penalty for Keppel Offshore & Marine’s (Keppel O&M) global resolution with criminal authorities in the US, Brazil and Singapore and other related costs amounting to $619 million.

The growth in earnings was driven by improved performance across our O&M, Property and Infrastructure divisions, with Property making the biggest contribution to the Group. Significantly, our O&M Division made a profit at both the operating and net levels for the full year, excluding revaluations, major impairments and divestments (RIDs), underpinned by its extensive rightsizing efforts and new contract wins. However, the Division registered a loss of $109 million, after provisions, including an additional provision of $167 million for expected losses on the rig contracts with Sete Brasil, partially offset by write-back of provisions for claims.

The Group’s Return on Equity (ROE) was 8.3%, while our Economic Value Added was $252 million in 2018.

The Board of Directors has proposed a final cash dividend of 15.0 cents per share for FY 2018. Together with the interim cash dividend of 10.0 cents per share and special cash dividend of 5.0 cents per share distributed last August to commemorate Keppel’s golden jubilee, we will be paying out a total cash dividend of 30.0 cents per share to shareholders for the whole of 2018.


Keppel Land is continuing its transformation to be a multi-dimensional real estate company, with one of the highest rates of return in Asia.

Over two decades, the Group has expanded regionally and invested in several key Asian cities, where we enjoy a first mover advantage and have built up a sizeable landbank.

China and Vietnam are two key markets for Keppel Land, where rapid urbanisation and rising affluence continue to drive demand for quality housing and commercial developments. In China, we are focusing on the Jing-Jin-Ji region, Yangtze River Delta, Greater Bay Area and the Chengdu metropolis, where we see strong growth potential, while in Vietnam, we are focused mainly on Ho Chi Minh City (HCMC), where Keppel Land has been operating for over 20 years.

In 2018, Keppel Land actively executed its capital recycling strategy, completing acquisitions totalling about $0.8 billion, as well as divestments and en-bloc sales totalling about $1.7 billion.

We sold about 4,440 homes in 2018, of which around 2,200 were in China, achieving a total estimated sales value of about $1.8 billion. Over and above these home sales, we also sold five projects, which are equivalent to approximately 11,500 units sold en-bloc.

Over the course of 2018, we replenished our landbank with the addition of about 3,600 units in China and 500 units in Indonesia, bringing our total landbank to close to 50,000 homes as at end-2018.

In its commercial portfolio, Keppel Land has about 1.5 million square metres of gross floor area, of which about 60% is under development. As the commercial projects are progressively completed, they will contribute steady recurring income to the Group.

Offshore & Marine

Keppel O&M secured new contracts totalling $1.7 billion in 2018, a significant improvement over the $1.2 billion of new orders won in the whole of 2017.

With the gradually declining rig supply overhang, as well as increased tendering activity, we are seeing growing optimism in the O&M business, although we believe it will take some time before we see sustained recovery across the board.

The contract for a mid-water semisubmersible rig for harsh environment use from Awilco, our first newbuild drilling rig order since the start of the downturn in 2014, was a significant milestone. It demonstrated that despite the continuing challenges in the O&M sector, there continues to be strong preference in the industry for high-specification rigs, built by a reliable partner.

Keppel O&M won four production projects during the year and is also seizing opportunities arising from the growing adoption of liquefied natural gas (LNG). With our ability to design, develop and integrate solutions across the gas value chain, Keppel is well positioned to be the gas industry’s preferred partner.

Hilli Episeyo, the world’s first converted floating LNG (FLNG) vessel which we delivered in late-2017, has provided a successful proof of concept of a faster-to-market and cost-efficient solution for monetising stranded gas reserves, thus opening up new opportunities for Keppel in the liquefaction vessel space. It has maintained 100% uptime since commencing commercial operations and despatched 13 LNG cargoes as at the end of 2018. Keppel O&M has received a limited notice to proceed from Golar LNG to commence early conversion works on another FLNG vessel, Gimi. Keppel Shipyard will commence full construction activities when it receives the final notice to proceed.

We also see increasing demand for scrubber retrofits as the International Maritime Organization’s 2020 deadline for the implementation of the 0.5% sulphur cap on marine fuels approaches. In 2018, Keppel O&M secured 65 contracts from a variety of customers for such projects.

Beyond delivering our projects well, Keppel O&M is continuing to build new capabilities and capture new markets. It has also streamlined and reorganised its operations into a New Builds division, covering Offshore as well as Gas & Specialised Vessels, and a Conversions & Repairs division. With its business divisions working as an integrated body, Keppel O&M is able to achieve greater efficiency and provide customers with more competitive and reliable end-to-end solutions.

At the same time, Keppel O&M is innovating to develop rigs of the future through increasing digitisation, capturing and analysing data, and offering enhanced solutions. Keppel O&M has also launched its proprietary RigCare Solution, which encompasses a suite of digital services to support a rig’s lifecycle needs, significantly increasing uptime and reducing maintenance costs. The jackup rig, Cantarell IV, that Keppel O&M delivered to Grupo R in February 2019, is the first rig equipped with our RigCare Solution, which will significantly transform the efficiency, safety and operability of the rig.

Keppel O&M is also enhancing the productivity and efficiency of its operations through developing yards of the future by leveraging more advanced engineering and production methods including the use of robotics and smart sensors.


We are growing our Infrastructure Division as a stable pillar of earnings. Keppel Infrastructure continues to seek value-enhancing projects, leveraging its project development, engineering, as well as operations and maintenance expertise.

In 2018, Keppel Infrastructure secured some $120 million worth of contracts for energy and environmental infrastructure across Singapore, Australia and Europe. This includes a contract to supply technology solutions to Australia’s first waste-to-energy plant, located in Kwinana, reflecting our efforts to expand into new markets.

The construction of the Keppel Marina East Desalination Plant has achieved 65% completion, while the Hong Kong Integrated Waste Management Facility is now at the design and engineering phase and is expected to contribute to our bottomline from 2019.

While pursuing new markets and opportunities, we are growing our stable and recurring income from the quality operations and maintenance services provided by Infrastructure Services.

Keppel Electric has been the largest electricity retailer in Singapore in terms of market share in the commercial and industrial sector. Following the launch of the Open Electricity Market (OEM) in Singapore, Keppel Electric is also making headway into the housing electricity market. Starting from 1 November 2018, the OEM is being progressively extended to all consumers across Singapore by zones. The response to Keppel Electric’s retail offerings for households has been encouraging, with preliminary results showing that it is among the retailers with the largest market shares in the OEM.

Keppel T&T is scaling up its logistics and data centre solutions to tap opportunities created by the fast-growing digital economy. With the burgeoning growth of cloud service providers as well as increasing storage and processing requirements, our data centre business is well positioned to tap growth opportunities.

In 2018, we added four new data centre projects across Asia and Europe to our portfolio. This expands our portfolio to 22 data centres with a total value of about $2.7 billion. To further grow its capabilities, Keppel T&T is also exploring innovative solutions such as high-rise green data centres and floating water-cooled data centre parks, which tap Keppel O&M’s expertise in floating infrastructure.

Expanding into new markets, we have, through the Alpha Data Centre Fund (Alpha DC Fund) and Keppel Data Centres Holding (KDCH), signed conditional agreements with the Salim Group to jointly develop and operate a high-availability data centre in Bogor, about 35 kilometres from Jakarta. Alpha DC Fund and KDCH have also inked agreements with a leading technology company to develop and operate their first greenfield data centre in Johor, Malaysia. Meanwhile, Keppel Logistics focused on streamlining processes and resources for better cost management while seeking new opportunities in urban logistics. We continued to drive the growth of UrbanFox, our omnichannel logistics and channel management solutions brand. UrbanFox’s customer base has grown significantly, with deliveries doubling over the course of 2018. UrbanFox also plans to launch its integrated channel management in other countries in Southeast Asia, leveraging Keppel’s presence in those markets.


2018 was an active year for our Investments Division.

Keppel Capital announced acquisitions worth over $2 billion and explored new platforms for long-term growth, including expanding into new markets and asset classes, focusing on areas which harness the capabilities of the Keppel Group.

With a view to tapping opportunities in the fast-growing senior living market, Keppel Capital entered into a conditional equity purchase agreement to acquire a 50% stake in leading US senior living operator, Watermark Retirement Communities. It has also signed Memoranda of Understanding (MOUs) to establish new private funds to invest in education real estate, and retail properties in Australia.

Our listed REITs and Trust have also been expanding their portfolios. In Australia, Keppel DC REIT is enlarging its data centre footprint with a new shell and core data centre, to be built in the Macquarie Business Park precinct in Sydney. In the US, Keppel-KBS US REIT continued to capture strong leasing demand from the technology and professional services sectors in Seattle. Keppel Infrastructure Trust has completed its acquisition of a 100% interest in Ixom, which is among the leading industrial infrastructure businesses in Australia and New Zealand, supplying and distributing water treatment chemicals, as well as industrial and specialty chemicals.

2018 also marked the 10th anniversary of the Sino-Singapore Tianjin Eco-City, a flagship government-to-government project between China and Singapore. With the Eco-City’s growing maturity, we are seeing increasing demand for homes and land in the city. Our joint venture, the Sino-Singapore Tianjin Eco-City Investment and Development Co., Ltd., sold three residential land plots for RMB 3.4 billion in 2018, one of which was acquired by Keppel Land to tap the healthy demand for its green homes in the Eco-City.

Leveraging the Group’s strong track record in master development, Keppel Urban Solutions (KUS) continues to make good progress in its pilot project, the 64-hectare Saigon Sports City in HCMC, which is being developed in collaboration with Keppel Land. KUS is also expanding its presence into new geographies, with the signing of an MOU with Envision Group and the Wuxi government to collaborate in the development of a new Smart IoT City in Wuxi, China.

Sharpening Our Focus on Sustainability

Keppel is committed to sustainability, both as a responsible corporate citizen, and as a provider of solutions, that can contribute to a better, more sustainable world.

We have identified the key material environmental, social and governance factors for the Company, and take them into consideration in the determination of the Company’s strategic direction and policies.

Compliance remains a key focus for the Group. During the year, Keppel O&M carried out a risk review and audit of anti-corruption compliance. In November, Keppel O&M’s entities in Singapore achieved certification for the ISO 37001 Anti-Bribery Management System. The Group is committed to putting in place effective and robust compliance and governance regimes and honouring the undertakings given as part of the 2017 global resolution involving Keppel O&M.

Keppel Corporation has also engaged KPMG to provide an independent platform for employees and external parties such as customers, suppliers and contractors to raise concerns about any perceived irregularity or misconduct. We have also enhanced reporting channels and increased the geographical coverage for whistle-blower hotlines to include 10 countries, including Brazil, China, Vietnam and the US.

We will continue to strengthen our policies and procedures and ensure that we win business legally and ethically, based on the strengths of the Group and quality of our solutions.

Reflecting our strong focus on safety, Keppel won 28 awards at the Singapore Workplace Safety and Health (WSH) Awards 2018, emerging again, as the organisation which won the highest number of WSH awards in the year. Sadly, despite our best efforts, we lost a colleague during the year. We have thoroughly investigated the incident and will continue to strengthen efforts in our safety journey to ensure Keppelites are able to go home safe every day.

Keppelites are our most important resource as we seek to grow the Company into the future. We have continued to invest in training and people development, including providing opportunities for staff to expand their horizons in different countries and business units. As the Group expands into new businesses, we have also bolstered our bench strength with external hires, to bring onboard external perspectives and new skillsets. We will continue to place emphasis on nurturing and developing our global talent pool, as we build a better and stronger Keppel that is able to effectively navigate today’s fast-changing business environment.

Further demonstrating our commitment to sustainability, Keppel Corporation became a signatory of the UN Global Compact in May 2018. We have also made a public pledge with the Singapore Ministry of Environment and Water Resources, articulating our commitment to address climate change, including through having more eco-friendly features in our products, investing in green technology and increasing the usage of renewable energy.

We are encouraged that Keppel’s sustainability efforts continue to be recognised internationally, with the Company’s inclusion in the Euronext Vigeo Eiris Index – World 120 and MSCI World ESG Leaders Index, amongst others. Keppel was also Winner of the UN SDG Category at the Sustainable Business Awards 2018 in Singapore.

Keppel believes in doing good as we do well. We strive to make a difference wherever we operate, be it with the underprivileged, through promoting education or caring for the environment. We commemorated our 50th anniversary by giving back to the community, including through making a $10 million donation to Singapore’s Institute of Technical Education to support education for students from financially disadvantaged backgrounds.

Keppelites clocked more than 14,000 volunteer hours in 2018, touching lives in Singapore, China, Vietnam, Indonesia and Brazil, among other countries. Recognising our social impact in the community, Keppel was listed as Champion of Good 2018 by the National Volunteer and Philanthropy Centre.


We are pleased to welcome Professor Jean-François Manzoni as an Independent Director on the Board. Professor Manzoni’s strong background in the areas of leadership, corporate governance and the development of high-performance organisations will be extremely valuable to the Board as we steer the Group’s operations across multiple businesses and jurisdictions in a dynamic environment.

I would also like to thank my fellow directors for their commitment, guidance and generous sharing of their experience during this transformative time for Keppel. I am also grateful to our many partners and stakeholders for their unwavering support and confidence in Keppel. My deep appreciation also goes to the thousands of Keppelites around the world, whose tenacity, hard work and dedication continue to drive Keppel’s transformation and growth.

We have a clear path forward, as OneKeppel, advancing our mission of being a solutions provider for sustainable urbanisation, and committed to creating a sustainable future.

Yours sincerely,

Yours sincerely,
Lee Boon Yang

8 March 2019