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2001 marked a year of transformational change for Keppel. Your
Company also had a record year in its 32 years’ history.
- Attributable profit before exceptionals was $273 million, an
increase of 15%.
- Earnings per share (before exceptionals) increased 16% from
31 cents to 36 cents.
- Revenues, EBITDA, and Profit before tax registered a slight
decline of between 4-6% largely due to the sale of our Financial
Services division which has traditionally contributed about 50%
of our earnings.
- Return on Equity (before exceptionals) improved from 8.5% to
reach 10.1%.
- Free cash flow was a strong $1.1 billion.
- In addition to the capital distribution of 50 cents per share
paid in December
2001, the Board declared a dividend per share of 16 cents, inclusive
of a special dividend of 3 cents in relation to the sale of the
Financial Services division.
2001 turned out to be an even more difficult year than the previous
one. The economic weakness, aggravated by political and security
upheaval affected businesses and consumers alike. Despite this difficult
business environment, I am pleased that the Keppel Group succeeded
in delivering a significant improvement in its results. Based on
proforma attributable profit without the Financial Services’
contribution and without exceptional items, attributable profit
grew by 50%. These are solid earnings to report for 2001 given last
year’s challenging environment.
The past year saw mixed results among our businesses. Offshore &
Marine produced
double-digit growth in turnover and profit; the rest of the portfolio
showed less growth and Property showed a decline. It is clear from
this pattern that all our businesses are following their respective
business cycles. It is for this reason that our Group strategy is
to focus on three businesses in which we have core competencies
and which we believe will help the Group even out earnings fluctuations.
Overall, we strive to continue creating value for our shareholders
by improving the Group’s Return on Equity. We continue to expand
our global reach in
all our businesses and each incremental investment will continue
to be EVA-driven.
Apart from the challenging macro-economic environment, we were
undergoing a period of unprecedented change within the Group. In
August 2001, we sold our Financial Services division to OCBC Bank.
This division had historically contributed about 50% of our annual
profit. Using the proceeds, we were able to complete the privatisation
of Keppel FELS Energy & Infrastructure (KFEI) within three months
of selling Keppel Capital Holdings. Within a month of the KFEI privatisation,
we announced the privatisations of Keppel Hitachi Zosen (KHZ) and
Keppel Telecommunications & Transportation (KTT). Through this
privatisation effort, we unveiled the Group’s strategy of focusing
on three key businesses – Offshore & Marine, Infrastructure
and Property Development.
During our 2000 Results announcement, I had identified Network
Engineering and
power generation as two of the embedded growth options within the
Keppel Group.
Within 10 months, we had put in place the different pieces to execute
this strategy of
developing an Infrastructure business division within Keppel.
KHZ shareholders approved the privatisation and it was completed
in March 2002. The Offshore & Marine units are now working hard
to integrate their businesses and
capture the synergies from the combination of their resources. The
scheme to privatise KTT did not get the requisite approval from
shareholders. While this is a disappointment, it will not impede
our efforts to grow Network Engineering as a key business within
the Infrastructure business division. Most importantly, Management
will continue undeterred to implement the strategy of focusing on
three key businesses to deliver growth in shareholder value.
Our three core businesses were chosen because they leverage the
core competencies that Keppel has developed over the years. We believe
that the selected businesses have both the headstart and the potential
to be global leaders in their respective fields. We intend to grow
these businesses aggressively, but with utmost capital discipline.
New investments will only be made if they contribute towards the
growth of our core businesses. In addition, these investments must
be EVA-positive and expect to yield an ROE of at least 12%.
Our financial target for our earnings growth is 15-20% CAGR for
the period of 2001
through 2003. By then, we expect the Group’s ROE to exceed
12%. This target is
considered quite challenging against a backdrop of a sluggish global
economy,
although there are some sporadic signs of an improving situation.
Nonetheless we shall endeavour to enhance shareholder value by leveraging
assets that are not captured in our balance sheet but which Keppel
has grown over the decades, namely, our brand name, our management,
our networks and our global presence.
Let me now share with you the issues that will preoccupy Management
going forward.
Looking solely at our accounting data, it is easy for someone to
mistake Keppel for a
Singapore-centric company. Although much of our revenue is booked
in Singapore, the sourcing of that revenue takes place all over
the world, especially for the Offshore & Marine, Utilities and
Network Engineering businesses. Our customer base clearly shows
that Keppel is active globally. With the exception of property-related
businesses and our mobile phone operations through MobileOne, our
performance tends to be much more correlated with the global economy
than with the Singapore economy.
The Offshore & Marine business has already established its
presence in strategic offshore and marine hubs, namely Azerbaijan,
Brazil, the Gulf of Mexico, Middle East, the Philippines and Norway.
Our vision is to service and support our customers where they operate,
and our “near market, near customer” strategy will see
us expanding our global footprint to new regions that require our
services.
In the medium term, emerging economies in Asia such as China and
Vietnam will grow in importance for our businesses. We have over
the years established strong
relationships, good networks and business know-how in these countries
and should be well-placed to grow in tandem with them.
But globalisation is not just about the establishment of global
presence to service
our customers. Nor is it just about sourcing of products and services
for the best value.
Globalisation is also about searching the world for the best people
and global teams
who will help Keppel achieve what we have set out to do. As an example,
our Network Engineering business has assembled a team drawn from
the global pool of experienced managers and engineers. We have in
our team telecom software engineers in Luxembourg, as well as network
designers in Germany and Malaysia; and project engineers in the
Philippines. Our objective is to be the “global employer of
choice” in the fields we operate. We strive to create exciting
career opportunities for these talented managers to help us establish
global champions in our three businesses. We shall continue to develop
policies and schemes that will enable us to effectively motivate
local resources and mobilize them to wherever they are needed.
Keppel generated $1.1 billion of free cash flow in 2001. We recognise
the importance of earnings quality and cash management. Our centralised
cash management processes stewarded by the Central Finance Committee
provides us with the lowest cost of funds to meet our business expansion.
Our strong balance sheet will give us the flexibility and capability
to capitalise on anticipated opportunities to grow our key businesses
without frequent equity calls.
This will allow us to respond more quickly to opportunities giving
us an edge over our competitors. It might be pertinent to note here
that the privatisation of KFEI and KHZ was funded from internally
generated cash and divestments.
We will continue to work with joint venture partners and form strategic
alliances to make even better use of our financial and human resources.
These approaches have enabled us to gather local knowledge more
effectively for quick start-ups.
Key corporate and business managers hold intensive Business Stewardship
reviews to steward the performance of our businesses on a quarterly
basis. This process allows us to better gauge the future and key
drivers ahead of events, so that we can make timely course corrections.
2002 marks the year that Keppel begins reporting our quarterly
results to the investing community and the public. This is part
of Management’s efforts to improve
transparency in Keppel. We believe that the increased frequency
of reporting, in addition to more detailed discussion of business
performance, will help the investing
community better understand Keppel’s businesses and the drivers
of our performance. As managers, we want to communicate what we
are doing to grow
shareholder value.
Keppel has always believed in having high standards of corporate
governance, and is committed to making sure that effective self-regulatory
corporate practices are in
place to protect the interests of its shareholders and maximise
long term shareholder value. At a recent Board meeting, the KCL
Board agreed to my recommendation that it would take on the task
of monitoring the Board’s own effectiveness in terms of coverage
and skill set in addition to monitoring senior management’s
performance. At my suggestion, the Board is also considering how
best to assess the Chairman’s effectiveness in leading the
Board. While performance monitoring has always been part of a Board’s
responsibility, assessing the Chairman’s effectiveness appears
to be a fairly new one.
The Board has set up various Board Committees including an Executive
Committee to help it carry out its duties effectively. The KCL Audit,
Nominating and Remuneration Committees are entirely made up of independent
directors. The Board is assisted by a number of management committees
covering different areas such as investment/divestment, risk management
& audit and management development. All these efforts are meant
to increase the accountability of Management to the Board and the
Board to shareholders and the Board will continue to refine its
corporate governance processes to improve such accountability.
This is the most crucial factor in the restructuring of Keppel’s
businesses.
A key initiative that KCL will be embarking on in 2002 is succession
planning. While our current management is still fairly young, the
KCL Board and Management recognise the importance of developing
a strong management line-up. We must start early in such initiatives
to allow our future management sufficient time and
opportunities to learn and grow. The urgency increases as our businesses
continue
to expand overseas. A global reach will tax management resources
if we do not have adequate bench strengths.
Owing to keen business competition, KCL will have to be even more
demanding than
ever in our expectations of our staff. We cannot afford to tolerate
recurring under-performance, and we must also be prepared to reward
good performers for
their contributions. In 2001, all employees have been ranked according
to performance and this assessment will continue annually. The intention
of ranking is to identify, reward and groom the top performers as
well as to identify and eliminate the causes of underperformance.
In the past, management remuneration was linked only to the Group’s
profitability.
Going forward, we will further refine the remuneration and performance
appraisal
system to link rewards with the Group’s business objectives
and the staff’s personal
performance. With EVA being an important business decision-making
tool, EVA targets will be incorporated into the remuneration system
to achieve more effectively our business performance targets.
Organisations perish not because they do not change. They disappear
because they do not change as fast as what the business environment
demands of them. The dim
global economic prospects in 2001 required us to re-invent ourselves
with great urgency. I believe that to-date our team responded creditably.
For a Group like Keppel that has grown successfully over the decades,
transforming
the way we do business is not an easy task. Taking the hard decision
to divest our Financial Services division when it contributed about
50% of Keppel’s year 2000 bottomline marked the beginning of
the Company’s transformation. After the Financial Services
division was monetised, we moved quickly to restructure the Company
into what we wish it to be. We have in the process changed mindsets.
The change has breathed new life into our organisation. Instead
of saying, “how have we always done it”, we now ask “how
can we do it better”. Nonetheless, we still have some way to
go before we become a Company that truly sees change as a source
of excitement and opportunity, rather than as a threat or a crisis.
Ideally, we should thirst for change.
The global economy will continue to become more challenging and
unpredictable and we are not in any position to predict the exact
course that the business environment will take. However, we believe
that our healthy attitude towards change will equip us to meet the
challenges of the future.
Year 2001 was the year of transformation for Keppel. We now have
a Company that is able to embrace change more confidently.
Barring the unexpected, I believe we will continue to deliver on
our promise to increase value for our shareholders.
I wish to take this opportunity to thank all our staff for the
sterling service they have
put in during a challenging year. Without their total commitment
to the tasks at hand
we would not have come this far. To our Board, I wish to thank our
Directors for the
advice and guidance Management and I received throughout the year.
And to our shareholders, investors, customers and business associates,
I want to convey my deep appreciation for their patience and encouragement
to press on with the re-invention of Keppel.
I am pleased to welcome Dr Lee Tsao Yuan and Mr Tony Chew Leong-Chee
to the Keppel Board. They are not newcomers to the Group having
served on the Boards of our subsidiaries.
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