Keppel has noted that 2008 was a very eventful year for the corporation. By any account, it was a year of reckoning. Keppel started off with good prospects for continued economic growth and development, building on excellent results for 2007. By the end of 2008, however, the global economic situation had deteriorated so far that the world tanked into a recession.
Large developed economies in North America and Europe led the free fall. Banks came under pressure and some went bankrupt. The bad news undermined consumer and investor confidence, and stock markets around the world plunged, wiping out billions of dollars of value. Millions of jobs were lost. Governments around the world had to cobble together rescue packages.
In the midst of such dire economic turbulence, Keppel Corporation performed well in 2008. PATMI went up to a new record of $1,097 million, while EVA increased to $692 million at year end. Keppel achieved an ROE of 22.4 %. Free cash flow remained strong at $1,876 million, and this enabled the Group to end the year with negative gearing. Your Board of Directors would be recommending a final dividend of 21 cents per share, making a total distribution to shareholders of 35 cents per share for the whole year.
Following that sterling set of results, 2009 is likely to be a challenging year. The Ministry of Trade & Industry has just revised Singapore's GDP growth forecast for 2009, indicating that we are heading for its worst recession ever, and the Government is expected to announce measures to help businesses tide over this difficult period. However, recovery is not expected to come quickly.
Building on Our strengths
How long the recession will last, no one can tell. But Keppel has spent the good years enhancing our capabilities, strengthening our competitive position and increasing the robustness in its businesses.
Over the years, the Group has built up a solid reputation for execution excellence, prudent financial management, strong corporate governance, and increased focus on technology and innovation. In the current economic downturn, Keppel's strengths will stand the Group in good stead to ride out the difficulties, but Keppel must continue to sharpen our competitive edge and bring out its distinct advantages, to grow and expand its earnings base to ensure that we emerge from this crisis stronger and fitter.
One of Keppel's most important competitive advantages is its people. It is the expertise, experience and diligence of our 40,000-strong workforce across our businesses which have propelled the Group forward. Keppel shall continue to harness the skills and minds of its people to face the challenges ahead. Key to this is the skills upgrading of as many Keppelites as possible so that the Group is ready to seize the opportunities when the global economy turns around. Keppel will also ensure that the newer Keppelites are imbibed with the Keppel culture of excellence, focus and commitment, and its core principles of Sustaining Growth, Empowering Lives and Nurturing Communities.
Keppel's investments in technology and innovations have enabled it to offer leadingedge solutions to meet the varied and changing needs of our customers. In these challenging times, it is all the more important that we keep up with these activities. The Group needs to find newer, better and more cost-effective ways of doing things, be it in building oil rigs, waste-to-energy plants, or developing townships. Its future growth will depend on how creatively Keppel continues to harness technology. Priority at its R&D centres will be placed on those innovations with greater potential for commercialization in the near term and which are likely to let the Group reap returns sooner.
Staying Focused for Sustained Value Creation
There is little doubt that Keppel will be impacted by the global crisis. But the Group have been through crises before, such as the mid-1980s recession and the late 1990s Asian Financial Crisis. Keppel has always emerged stronger. Today, the Group has a strong balance sheet and a commendable cash hoard to weather this storm. Its orderbook in the Offshore & Marine division remains strong, and our infrastructure projects in energy and environmental engineering include long-term operation & maintenance contracts with recurring income streams.
There will be challenges and opportunities ahead of the Group, and Keppel must be well prepared. Keppel will be taking a closer look at all its businesses, to seek increased operating efficiencies so that they can contribute to their maximum potential. The Group will also continue to leverage on the Group’s strengths and endeavour to exploit synergies across the Group, so as to identify possible new growth engines or platforms.
Keppel shall review its current businesses and competitive position, while continuing to stay on track, honing our competitive edge and adding value to our customers. The goal is to make Keppel a stronger group with profitable businesses, so as to deliver sustained value creation for all our stakeholders. Keppel is confident that it will emerge from this crisis in good shape.
The global economic slowdown and financial crisis as well as the drop in oil prices have affected the oil and gas industry. This is expected to result in fewer rig contracts. Shiprepair is also expected to be affected by slumping freight rates and more vessels being laid up. However, the demand for FPSO conversions remains strong. The outstanding order book of $10.8 billion with deliveries into 2012 will keep Keppel Offshore & Marine's yards busy. Offshore & Marine Division will continue to be the largest contributor to the profit of the Group. The Division will continue to focus on cutting edge technologies and long-term relationships with its customers.
The property market in the region has also softened with fewer sales transactions and declining prices. Sales of Singapore and regional private residential properties in the year have been subdued. The progressive recognition of revenue and profits of residential properties sold in the past two years is expected to provide some respite for the Property Division, until confidence returns to the market. The demographic fundamentals of the countries that Keppel operate in are still intact and the Property Division is in a position to ride through the current market weakness and seize opportunity as the market stabilizes.
In the Infrastructure Division, the projects that Keppel is constructing are progressing on track. These will provide the division with a core base of revenue and profits. The Division will continue to seek out opportunities to offer technologically-advanced cost effective solutions to its customers.
The Group is in a net cash position and the balance sheet is strong. Keppel will continue to strengthen our businesses and brace ourselves to meet the challenges in these difficult market conditions.
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