Keppel Corp hit by S$495m loss in the fourth quarter last year

SINGAPORE — Keppel Corp, whose offshore and marine unit is embroiled in an international bribery scandal, has posted a net loss of S$495 million in the fourth quarter of last year — largely due to the financial penalty paid to the authorities — dragging its full-year net profit down by 72 per cent compared to the previous year.

The results included the one-off financial penalty arising from Keppel Offshore & Marine's (KOM) global resolution with criminal authorities in the United States, Brazil and Singapore, and related legal, accounting and forensics costs which amounted to S$619 million in total.

For the financial year ending Dec 31 last year, Keppel achieved a net profit of S$217 million — compared to S$784 million posted in FY2016 — after taking into account the financial penalty of S$570 million, and S$49 million of related costs. Excluding these one-off items, the company said it would have achieved a net profit of S$836 million, an increase of 7 per cent over FY2016. In the fourth quarter of 2016, Keppel made a net profit of S$143 million.

Despite the heavy losses in the fourth quarter, Keppel is proposing a final cash dividend of 14 cents per share. The dividend takes into account the group's improved performance (excluding KOM's one-off financial penalty and related costs), the stronger cash flow position and lower gearing. Including the interim cash dividend of 8 cents per share paid to shareholders in August, the total distribution will be 22 cents per share — which is higher than the 20 cents per share paid out for FY2016, said Keppel.

The company announced its annual financial results after trading hours on Thursday (Jan 25). Keppel's share price closed at S$8.58, 0.6 per cent lower than the opening price. News of the financial penalty imposed on Keppel broke on Dec 23 last year. Despite the scandal, its share price has been on an upward trend. Its shares were trading at S$7.47 a piece on Dec 22.

Speaking at the results briefing which lasted almost two hours and was dominated by questions about the scandal, Keppel CEO Loh Chin Hua said: "The global resolution reached by KOM over past misdeeds in Brazil brings an end to what has been a painful chapter for Keppel - one that we have recognised and dealt firmly with. This is not Keppel. We care not just about results, but also how they are obtained."

Mr Loh stressed that Keppel's board and management have "thoroughly investigated the allegations and dealt with the issues that were uncovered". "We have put in place enhanced compliance controls, including comprehensive training and certification, to prevent any repeat of such misdeeds," said Mr Loh.

He added: "Our core value of integrity prohibits Keppel from engaging in any unethical practices or behaviour. This is absolutely clear to me as CEO. We will not tolerate any behaviour or action from Keppelites that deviates from this fundamental principle. The Board and management are determined to regain the trust that has been lost. We will win business legally and ethically, based on our collective strengths of superior customer-centric solutions and good track record of execution."

NO ONE HAS STOPPED WORKING WITH US: KEPPEL CEO

The scandal received an airing in Parliament earlier this month. Responding to parliamentary questions filed by several Workers' Party (WP) Members of Parliament, Senior Minister of State for Finance and Law Indranee Rajah said the Government was "extremely disappointed" with the conduct of Keppel Corp and stressed it does not condone improper conduct overseas by Singapore companies. Ms Indranee also reiterated that the Government has zero tolerance for corruption, and warned firms not to "import" corrupt practices into Singapore.

She added that state investment firm Temasek Holdings, which holds stakes in large companies such as Keppel under its portfolio, holds board members of these government-linked firms responsible for doing the right thing, and they could be replaced if they fall short of the required standards.

On whether the bribery scandal has jeopardised any of Keppel's business relationships, Mr Loh said the company has been engaging all its customers and it has received some enquiries on its "enhanced compliance framework".

"By and large we have not seen any of our customers stop working with us. Of course, the company would have to continue to work very hard to demonstrate that we have a very strict compliance regime and that we will only engage in ethical and legal activities," he added.

Mr Loh was also asked whether any incumbent senior management or board members are being investigated. In response, he said: "It was a very thorough investigation, we have reached a resolution with the three criminal authorities and we are only be able to do that if it has been thorough… Those affected persons have already been separated from the group."

Mr Loh also dismissed market talk of a possible merger between Sembcorp Marine and KOM. He said: "KOM have undertaken quite a significant right-sizing exercise starting from 2015. At the peak, we had about 36,000 direct employees. Today we are down to about 16,000, so it is quite a significant reduction, and our footprint has also been made more efficient. We believe that this is the right size for us in light of the market outlook."

He added: "We do not see, at this point in time, any upside in terms of having capacity… If there is no value in adding capacity, any merger — not necessarily with Sembcorp — may not make sense for us."