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Keppel Corporation Report to Shareholders 2008 Driving a Difference Contents 1 Group Financial Highlights 146 Directors’ Report & Financial Statements 2 Chairman’s Statement 146 – Directors’ Report 6 Interview with CEO 150 – Balance Sheets 10 Key Messages: Driving a Difference 151 – Consolidated Profi t and Loss Account 20 Key Figures 152 – Statements of Changes in Equity 21 Group Strategic Directions 155 – Consolidated Cash Flow Statement 22 Group at a Glance 157 – Notes to the Financial Statements 24 Keppel Around the World 200 – Signifi cant Subsidiaries and 26 Board of Directors Associated Companies 30 Keppel Group Boards of Directors 210 – Statement by Directors 32 Keppel Technology Advisory Panel 211 – Independent Auditors’ Report 34 Senior Management 212 Interested Person Transactions 36 Investor Relations 213 Directors and Key Executives 38 Awards and Accolades 222 Major Properties 40 Special Feature – Safety Excellence 225 Group Five-Year Performance 48 Operating & Financial Review 228 Group Value-Added Statements 49 – Group Structure 229 Share Performance 50 – Management Discussion and Analysis 230 Shareholding Statistics 52 – Offshore & Marine 231 Notice of Annual General Meeting and 64 – Property Closure of Books 72 – Infrastructure 237 Financial Calendar 80 – Investments 238 Corporate Information 86 – Financial Review and Outlook 94 Sustainability Report 96 – Sustainable Development Framework 97 – Sustaining Growth 97 – Corporate Governance 117 – Risk Management 119 – Technology Development 122 – Environment Protection 126 – Empowering Lives 126 – People Development 131 – Health and Safety 132 – Nuturing Communities 132 – Society and Environment 136 – Community Involvement 144 – Highlights in 2008 Driving a Difference Keppel is 40 and fi ghting fi t, chiselled through the many recessions and business cycles and fortifi ed by the resilience of our people. This economic downturn will again test our core strengths, but we are resolute as before, to emerge stronger and more competitive. As a Group, we are Driving a Difference by aggressively tapping on our collective competence and business platforms to achieve our goals and sustain earnings growth for greater shareholder value. Group Financial Highlights Earnings Per Share 69 cents % 2008 2007 Change For the year ($ million) Revenue 11,805 10,431 +13 Profi t EBITDA 1,377 1,176 +17 +6% Operating 1,238 1,051 +18 Before tax & exceptional items 1,597 1,556 +3 Attributable before exceptional items 1,097 1,026 +7 Attributable after exceptional items 1,098 1,131 -3 Return on Equity 22.4% Operating cash fl ow 2,047 1,697 +21 Free cash fl ow 1,876 1,151 +63 Economic Value Added (EVA) 692 604 +15 Per share Earnings (cents) +3% Before tax & exceptional items 84.2 81.4 +3 Attributable before exceptional items 69.0 64.9 +6 Attributable after exceptional items 69.0 71.5 -3 Net assets ($) 2.89 3.28 -12 Economic Value Added (EVA) $692m Net tangible assets ($) 2.84 3.24 -12 At year-end ($ million) Shareholders’ funds 4,596 5,205 -12 Minority interests 2,153 1,830 +18 Capital employed 6,749 7,035 -4 +15% Net cash / (borrowings) 275 (634) N.M. Net cash / (gearing) (times) 0.04 (0.09) N.M. Return on shareholders’ funds (%) Profi t before tax & exceptional items 27.3 27.4 – Attributable profi t before exceptional items 22.4 21.8 +3 Shareholders’ value Distribution (cents per share) Interim dividend 14.0 9.0 +56 Final dividend 21.0 10.0 +110 Special dividend – 45.0 N.M. Total distribution 35.0 64.0 -45 Share price ($) 4.33 13.00 -67 2008 2007 1Q 2Q 3Q 4Q Total 1Q 2Q 3Q 4Q Total Group quarterly results ($ million) Revenue 2,211 2,643 3,217 3,734 11,805 2,028 2,454 2,591 3,358 10,431 EBITDA 295 294 360 428 1,377 268 284 322 302 1,176 Operating profi t 262 261 325 390 1,238 242 252 289 268 1,051 Profi t before tax & exceptional items 366 434 400 397 1,597 360 381 394 421 1,556 Attributable profi t before exceptional items 262 299 273 263 1,097 252 258 248 268 1,026 Earnings Per Share (cents) 16.5 18.8 17.1 16.6 69.0 15.9 16.4 15.6 17.0 64.9 Group Financial Highlights 1 Chairman’s Statement Dear Shareholders, to reach a record $692 million. “...prudent The second half of 2008 saw macro- More importantly, prudent fi nancial fi nancial economic conditions deteriorate management has further strengthened rapidly as the global fi nancial crisis our balance sheet, positioning our management deepened. This adversely affected businesses to ride the downturn businesses across broad industry and capitalise on opportunities as has further sectors as aggregate demand shrank they arise. Free cash fl ow increased strengthened our and capital became diffi cult to access 63% from a year ago to $1.9 billion, and expensive. Notwithstanding this, improving net gearing from 0.09x balance sheet, the Keppel Group has weathered the to net cash of 0.04x. diffi cult operating conditions to turn positioning our in a creditable performance for 2008. Our portfolio of businesses has had businesses to a mixed year. The Offshore & Marine Achieving Sterling Results Division was again the major contributor ride the downturn Full year profi t after tax and minority to PATMI with $705 million or 64%, up interests (PATMI) improved 7% over from $522 million last year. Contribution and capitalise on 2007 to notch a record $1.1 billion, from Property and Investments opportunities as cresting the $1 billion mark for the declined on the back of the property second consecutive year. Earnings market slowdown and volatility in the they arise.” Per Share rose 6% to 69 cents. oil and gas sector. The Infrastructure Group revenue increased 13% year- Division continued its steady build-up, on-year to just under $12 billion. more than doubling PATMI earnings from $27 million to $63 million. Key performance measures were higher – Return on Equity remained To reward Keppel shareholders, the well above 20% and Economic Value Board has recommended a full year Added grew another $88 million total ordinary dividend of 35 cents Keppel Corporation Limited 2 Report to Shareholders 2008 The results achieved by Keppel against The credit crunch has placed fi nancing this grim backdrop underscore the constraints on rig owners and oil strength of our multi-business growth service companies. As a result, $1.9b strategy, pursued steadfastly through Keppel O&M saw the cancellation several business cycles. Over the last of two orders amounting to around +63% 40 years since inception amidst a succession $650 million and the re-scheduling of of economic feasts and famines, payment terms with one customer. As Free cash fl ow increased 63% Keppel’s drive to constantly rationalise Keppel O&M had received substantial from a year ago to $1.9 billion, and grow its businesses has buttressed payments for most of its projects improving net gearing from 0.09x to net cash of 0.04x. the Group’s overall prospects. by end-2008, there was no material impact on the Group. Furthermore, During the year, even as confi dence its diversifi ed client base comprises and business activities declined, the established international drilling service Keppel Group maintained focus on companies and national oil companies PATMI ($ million) execution across its multi-business which have longer horizons on their platforms, leveraging its comprehensive fl eet programmes and exploration and skillsets and networks to further production (E&P) activities. 2008 1,097 strengthen its competitive position. During the year, Keppel O&M 2007 1,026 We shall continue to strengthen our secured $5.2 billion in new contracts, portfolio of complementary businesses including a substantial $0.7 billion that we believe will serve us well amidst the during a diffi cult last quarter. The current potentially protracted downturn. spread of semisubmersibles (semis), jackups, conversions and a variety Offshore & Marine of specialised shipbuilding projects, Keppel Offshore & Marine (Keppel refl ect our broad competencies. O&M) steadily executed its robust Repeat orders demonstrate customers’ orderbook, leveraging its global trust in our execution reliability, such as per share (including 14 cents interim network of 20 yards to deliver ENSCO’s three additional deepwater dividend), which is almost twice the 49 projects across its rigbuilding, semis; Seadrill’s seventh semi drilling 2007 ordinary dividend of 19 cents conversion and specialised shipbuilding tender; another semi rig for Brazilian per share. Last year, an additional arms, up from 41 projects a year driller Queiroz Galvão Óleo e Gás 45 cents per share was paid as a earlier. All deliveries were on time, and Golar’s second Floating Storage special dividend in celebration of our affi rming Keppel O&M’s credentials as Regasifi cation Unit conversion. 40th anniversary. a premier yard with a strong execution track record. Keppel FELS was lauded Offshore fundamentals remain sound. Building Resilient Businesses as the fi rst local enterprise to clinch the With no viable large-scale alternative The operating environment last MAXA Award bestowed on outstanding to hydrocarbons, sustained E&P year was exceptionally challenging, fi rms achieving innovative, world-class investment is required to avert a supply particularly in the second half of manufacturing standards. crunch. Major oil and gas producers 2008 as the credit crunch worsened have announced hefty E&P budgets and deleveraging escalated. Major Yard schedule is tighter this year as for 2009 for ongoing activities to economies in the United States the business units work on fulfi lling bolster depleting reserves and (US), Eurozone and Japan sank the Division’s $10.8 billion orderbook declining production. into recession, even as the regional well into 2012. A prudent amount economies slowed rapidly.
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