Keppel Corp Ltd Annual Report 2007

Plain-text annual report

Report to Shareholders 2007 Delivering More Scale & Spread Leveraging the collective strengths and global network of its key businesses, Keppel Corporation is poised for robust growth and delivering more to stakeholders. OFFSHORE & MARINE $522 million PROPERTY $209 million PATMI ● 2005 ● 2006 ● 2007 CONTENTS OFFSHORE & MARINE $448 million PROPERTY $96 million INFRASTRUCTURE $27 million OFFSHORE & MARINE $239 million PROPERTY $118 million INFRASTRUCTURE –$35 million INFRASTRUCTURE –$24 million INVESTMENTS $231 million INVESTMENTS $242 million INVESTMENTS $268 million KEPPEL CORPORATION LIMITED Group Financial Highlights Chairman’s Statement Infrastructure Investments Financial Review and Outlook Group Structure Management Discussion and Analysis Offshore & Marine Property 1 2 10 Key Messages: Delivering More 18 Key Figures 19 Group Strategic Directions 20 Group at a Glance 22 Keppel Around the World 24 Board of Directors 28 Keppel Group Boards of Directors 30 Keppel Technology Advisory Panel 32 Senior Management 34 Corporate Governance 56 Investor Relations 58 Awards and Accolades 60 Promoting a Green Culture 66 Sino-Singapore Tianjin Eco-City 74 Operating & Financial Review 75 76 78 90 98 106 114 122 Operations Sustainability 132 Nurturing People 138 Corporate Social Responsibility 145 Directors’ Report & Financial Statements 146 Directors’ Report 150 Balance Sheets 151 Consolidated Proﬁ t and Loss Account 152 Statements of Changes in Equity 155 Consolidated Cashﬂ ow Statement 156 Notes to Consolidated Cashﬂ ow Statement 157 Notes to the Financial Statements 200 Signiﬁ cant Subsidiaries and Associated Companies 210 Statement by Directors 211 212 Interested Person Transactions 213 Directors and Key Executives 221 Major Properties 224 Group Five-Year Performance 227 Group Value-Added Statements 228 Share Performance 229 Shareholding Statistics 230 Notice of Annual General Meeting and Closure of Books 234 Financial Calendar 235 Corporate Information Independent Auditors’ Report GROUP FINANCIAL HIGHLIGHTS 2007 2006 % change Earnings per share (cents) For the year ($ million) Revenue Proﬁ t EBITDA Operating Before tax & exceptional items Attributable before exceptional items Attributable after exceptional items Operating cashﬂ ow Free cashﬂ ow Economic Value Added (EVA) 10,431 7,601 +37 1,176 931 +26 1,051 804 +31 1,556 1,139 +37 1,026 751 +37 1,131 751 +51 1,697 1,854 -8 1,151 1,480 -22 423 +43 604 Per share* Earnings (cents) Before tax & exceptional items Attributable before exceptional items Attributable after exceptional items Net assets ($) Net tangible assets ($) 81.4 64.9 71.5 3.28 3.24 61.5 +32 47.7 +36 47.7 +50 2.67 +23 2.58 +26 2006 2007 47.7 64.9 Return on Equity (%) 2006 2007 19.1 21.8 Distribution per share (cents) At year-end ($ million) Shareholders’ funds Minority interests Capital employed Net borrowings Net gearing (times) 5,205 4,205 +24 1,830 1,393 +31 7,035 5,598 +26 -53 -63 634 1,339 0.09 0.24 2006 2007 28.0 64.0 Return on shareholders’ funds (%) Proﬁ t before tax & exceptional items Attributable proﬁ t before exceptional items 27.4 21.8 24.7 +11 19.1 +14 Economic Value Added (EVA) ($ million) Shareholders’ value* Distribution (cents per share) Interim dividend Final dividend Special dividend Capital distribution Total distribution Share price ($) Total Shareholder Return (%) 9.0 10.0 45.0 – 64.0 13.00 51.7 6.0 +50 8.0 +25 n.m. – 14.0 n.m. 28.0 +129 8.80 +48 -21 65.3 2006 2007 423 604 1Q 2Q 3Q 4Q Total 1Q 2Q 3Q 4Q Total 2007 2006 Group quarterly results ($ million) Revenue EBITDA Operating proﬁ t Proﬁ t before tax & exceptional items Attributable proﬁ t before exceptional items Earnings Per Share (cents)* 2,028 2,454 2,591 3,358 10,431 1,544 1,646 1,969 2,442 7,601 931 258 225 804 275 1,139 751 184 47.7 11.7 322 284 268 289 252 242 394 381 360 248 258 252 15.9 16.4 15.6 302 1,176 207 268 1,051 176 421 1,556 255 268 1,026 170 17.0 64.9 10.8 249 218 277 201 12.8 217 185 332 196 12.4 *Comparatives have been adusted for sub-division of shares in 200 n.m. not meaningful 7 Keppel Corporation Limited Report to Shareholders 2007 Group Financial Highlights 1 CHAIRMAN’S STATEMENT Return on Equity 21.8% With prudent management and sound policies, the Group is on-track to deliver sustained growth and enhance shareholder value. DEAR SHAREHOLDERS, I am pleased to report that we have achieved another record year for Keppel. Group Proﬁ t After Tax And Minority Interests (PATMI) exceeded the billion- dollar mark for the ﬁ rst time, an increase of 37% compared to the previous year. Earnings per share (EPS) grew 36% to $0.65. This brings our CAGR for both PATMI and EPS to about 23% over the last seven years (2001– 2007). We sustained consistent improvements in Return on Equity (ROE) and Economic Value Added (EVA), with ROE reaching 21.8%, from 19.1% in 2006; EVA increased $181m to $604m. With a robust balance sheet and healthy free cashﬂ ows, net gearing declined to only 0.09x. All our businesses performed better in 2007. Offshore & Marine again contributed more than half of our earnings with $522m, up from $448m the previous year. Property division posted a 118% earnings increase to $209m, while Infrastructure regained its footing to ﬁ nish the year proﬁ tably with $27m, reversing its previous $35m loss. Our Investments division recorded an 11% increase in earnings, as Singapore Petroleum Company hit a record PATMI exceeding half-billion dollars. 2 Keppel Corporation Limited Report to Shareholders 2007 Chairman’s Statement In view of the sterling results, and with this year being the 40th anniversary of Keppel Corporation, the Board has recommended a ﬁ nal dividend of 10 cents per share and a special dividend of 45 cents per share. This brings the total payout for 2007 to 64 cents per share, representing a payout ratio of almost 100%. Total Shareholder Return (TSR) for the year was 52%, more than twice the benchmark Straits Times Index’s TSR of 21%. DELIVERING MORE WITH MULTIPLE GROWTH PLATFORMS Offshore & Marine Keppel Offshore & Marine (Keppel O&M) continued to grow its market reach, leveraging its extensive network of yards worldwide to deliver more to its customers. Global yard capacity remained tight, with worldwide Exploration & Production (E&P) expenditures exceeding planned budgets on the back of sustained high oil prices. Riding on this strong market, Keppel O&M’s net orderbook in 2007 grew by 16% to $12.2b, bolstered by another record $7.4b of new contracts secured during the year. With 43 rigs under construction as at year-end, Keppel O&M has already commenced accepting orders for delivery as far ahead as 2011. We cultivated new customers whilst existing customers continued to entrust us with repeat orders. Keppel O&M was awarded by Petrobras a US$1.2b contract to build the P-56 production semisubmersible, a repeat of the P-51 currently being built at its Brazil yard. Rowan also selected Keppel O&M to build four jackups for the ﬁ rst time, even though their rigs are historically built in-house. As ENSCO’s preferred yard, Keppel O&M secured its fourth ultra-deepwater semisubmersible rig contract worth US$427m while delivering their ninth premium jackup early last year. In an operating environment characterised by tight labour and equipment constraints resulting in project delays, our customers value Keppel O&M’s execution reliability thus ensuring that their rig deliveries are in good time to fulﬁ ll their own business commitments. Equally signiﬁ cant, Keppel O&M’s spread of orders secured during the year underscore its broad competencies beyond just drilling jackups and semisubmersible rigs. In particular, Keppel O&M is well-positioned to exploit the development and production phases of the global E&P cycle with its comprehensive suite of solutions. More than 30% of orders secured by Keppel O&M in 2007 were production rigs and FPSO conversions, with another 18% from rigs capable of undertaking drilling and production concurrently, comprising its proprietary KFELS N Class, as well as the world’s ﬁ rst FDPSO (ﬂ oating-drilling-production- storage-ofﬂ oading) conversion. Keppel O&M also secured two accommodation ﬂ oatels, one of which is the ﬁ rst for the harsh North Sea environment in over 20 years. These ﬂ oatels, together with several specialised vessels, accounted for 20% of contracts secured. Keppel O&M also added another strategic footprint with a shipyard now jointly under construction in Qatar’s Ras Laffan port with Qatar Gas Transport Company (NAKILAT). NAKILAT owns and operates one of the largest LNG ﬂ eets in the world. This strategic initiative will further entrench our participation in the growing LNG carrier market, in which Keppel O&M is a leading LNG shiprepairer in Asia-Paciﬁ c outside Japan. Qatar holds the third largest gas reserves in the world and this facility, when ready in 2010, will become a hub for the repair and maintenance of LNG carriers. The facility complements our existing ﬁ ve- year drydocking arrangements for repair and maintenance of a ﬂ eet of ten LNG carriers on charter to Qatar Liqueﬁ ed Gas Company. It also lays yet another important pivot for Keppel O&M’s offshore and specialised shipbuilding activities in the heart of the key Middle East oil and gas production region. Oil & Gas Singapore Petroleum Company (SPC) had a successful year executing its PATMI ($ million) 2006 2007 751 1,026 $1,026m +36.6% PATMI improved 36.6% to $1,026 million crossing the $1 billion mark for the ﬁ rst time. Keppel Corporation Limited Report to Shareholders 2007 Chairman’s Statement 3 CHAIRMAN’S STATEMENT strategy to grow its upstream business, scaling up its efforts to evolve into a signiﬁ cant integrated energy player in the region. In the past year, SPC expanded its E&P portfolio beyond Southeast Asia, establishing beachheads into China as well as Australia. A relatively young player in this space, SPC made its largest acquisition, paying US$223m for two offshore Production Sharing Contracts (PSCs) in China’s Bohai Bay, and took on operatorship in an exploration acreage in the Pearl River Mouth Basin, China. These acquisitions enable it to tap the potential of the booming Chinese energy market while building up invaluable oilﬁ eld operator experience and expertise at the Pearl River Mouth acreage. In Australia, SPC took up a 35% participating interest in Block T/47P in the Bass Basin. SPC now has eight PSCs and one exploration permit in the region, namely in Indonesia, Cambodia, Vietnam, China and Australia. Including its 4,300 barrels of oil per day share of the Bohai Bay production, SPC’s production capacity has ramped up from a single PSC producing just 2,500 boepd (barrels of oil equivalent per day) a year ago to four separate PSCs yielding about 10,000 boepd currently. Over time, SPC’s upstream drive is intended to counterbalance the volatile nature of the reﬁ ning sector to provide a more stable earnings proﬁ le. Indeed, SPC’s operating proﬁ t contribution from E&P activities has increased more than three-fold from $14.6m in 2006 to $52.4m in 2007. 2007 proved to be an exceptionally strong year for SPC’s reﬁ ning activities. Both demand and supply-side factors pushed oil prices to record highs. Regional reﬁ ning capacity remained constrained in the face of robust demand. As a result, SPC achieved higher average reﬁ ning margins of about US$7.00 per barrel, up from about US$4.50 per barrel in 2006, and operated at 97% capacity utilisation despite a scheduled maintenance shutdown. During the year, it also actively pursued initiatives to enhance downstream capabilities, even as it boosted its upstream assets. With its reﬁ nery hydro-desulphuriser upgrade, SPC is positioned to produce diesel clean fuels meeting stricter standards such as Euro-IV speciﬁ cations as these are introduced across the region. Property Keppel Land also delivered on its regional strategic initiatives last year, extending its geographic reach and strengthening its residential platforms comprising high value townships and integrated lifestyle communities. Its deliberate and targeted focus on large scale, integrated and lifestyle community homes is primed to tap the rising demand for quality housing across regional emerging markets, which are witnessing unprecedented levels of afﬂ uence and urbanisation. Inroads were made into the Middle East market, with a landmark waterfront project in Jeddah, and its footprint in China was enlarged through another large scale residential development in Shanghai and a township in Shenyang. In Vietnam alone, a total of eight new projects were secured, raising the strong residential pipeline there six-fold to 53 million square feet (sf) of Gross Floor Area (GFA). Keppel Land’s substantial landbank of close to 100 million sf of GFA spanning across key regional growth markets such as China, Vietnam, India and the Middle East, as well as other regional markets, will underpin its drive to grow its regional earnings contribution. In 2008 and 2009, it will launch about 18,000 homes compared to 2,800 overseas homes sold last year. In Singapore, the launch of Phase 1 of our iconic waterfront lifestyle homes, Reﬂ ections at Keppel Bay, designed by world-renowned architect Daniel Libeskind, met with strong response with all 620 units launched sold. Keppel Corporation owns a 70% stake in the entire Keppel Bay development, where our former shipyard was located, with Keppel Land owning a 30% stake. The Keppel Bay development will span 4 Keppel Corporation Limited Report to Shareholders 2007 Chairman’s Statement Total distribution (cents per share) Economic Value Added (EVA) 33.0 15.0 18.5 20.0 23.0 28.0 2001 2002 2003 2004 2005 2006 2007 $604m +$1,269m 64.0 EVA improved from negative $665 million to positive $604 million over the last seven years since 2001. A common thread across the Group is our capacity to leverage the Keppel brand equity, collective networks and competencies. several stages. In creating more value out of this unique premium waterfront development, Marina at Keppel Bay was opened in January this year to a grand welcome fanfare for the Clipper 07-08 Round-the-World Yacht Race. Featuring 170 berths which can accommodate boats ranging from 20 ft to mega yachts more than 200 ft long, the marina located on Keppel Island is connected to the mainland and Keppel Bay development through a new landmark cable stayed bridge named Keppel Bay Bridge. Keppel Land’s steady execution of its ofﬁ ce strategy has transformed it into a leading player in Singapore with a prime stable of ofﬁ ce assets centred within the Rafﬂ es Place and New Downtown conurbation. Its ofﬁ ce portfolio capitalised on the robust market to lock in long-term leases. Both DBS Bank and Standard Chartered Bank, which will occupy over 40% of Marina Bay Financial Centre (MBFC) when ready in 2010–2012, have signed 12-year leases. Already more than half of the 2.9 million sf net lettable space in MBFC has been pre- committed more than two years ahead of its completion. Together with the redevelopment of its ﬂ agship Ocean Building, Keppel Land has now largely completed the makeover of its ofﬁ ce portfolio and positioned itself in the premium prime ofﬁ ce market with some 5 million sf of net lettable area, including 3.8 million sf under development in the CBD and New Downtown. Our ofﬁ ce strategy is targeted at identifying and developing premium ofﬁ ce projects for rent, and extracting value at the appropriate time, through leveraging our platform in K-REIT Asia. During the year, Keppel Land restructured its one-third stake in One Rafﬂ es Quay (ORQ) through K-REIT Asia, resulting in Keppel Land recording a gain of $235m. Both K-REIT Asia and Alpha Investment Partners (Alpha), the property fund management arm of Keppel Land, Keppel Corporation Limited Report to Shareholders 2007 Chairman’s Statement 5 CHAIRMAN’S STATEMENT contributed to an almost two-thirds increase in total assets under management from $3.7b in 2006 to $6.1b in 2007 (when fully invested and leveraged). K-REIT Asia’s asset portfolio expanded from $677m to $2.1b with the addition of the one-third stake in ORQ, another major step towards realising its ambition of becoming a premier ofﬁ ce commercial REIT. With over 40% of K-REIT Asia’s portfolio in the core CBD area and the rest just at the outskirts, K-REIT Asia is poised to beneﬁ t from positive rental reversions, the portfolio rental average being $6.02 psf inclusive of income support as compared to average prime rentals of $15 psf at end-2007. Infrastructure In Infrastructure, Keppel Integrated Engineering’s (KIE) strategic focus on building a regional presence through large scale projects has paid off handsomely with a second landmark project awarded in Qatar. Last October, it won a $1.5b project to design, build and operate a wastewater treatment, water reuse and sludge treatment facility in Qatar’s Doha North, the largest such facility in the Middle East. Back home, the opening of Keppel Seghers Ulu Pandan NEWater Plant in the ﬁ rst quarter last year marked our contribution to enhance Singapore’s water production capabilities. The largest water reuse plant in East Asia and second largest in the world, its 148,000 cubic metres per day capacity will supply over half of the country’s current NEWater needs. As the world faces the realities of escalating water, energy and environmental challenges, these projects underscore Keppel’s commitment to create cost-effective and innovative solutions that address communities’ needs for alternative water and energy sources. This is a culmination of our efforts over the years in developing the requisite technical and technological expertise to bring scalable and proven environmental capabilities to global markets. Harnessing our strengths across both water and thermal treatment technologies, we have now built the competencies and platforms to deliver integrated packages customised to meet users’ long-term needs as well as wider community interests. For example, the Doha North facility will not only recycle wastewater for irrigation needs. Its sludge treatment plant, Qatar’s only such plant, will receive and treat sludge from water treatment plants all around the country for use as organic fertiliser or as supplementary green energy source. Further, our concept proposal announced earlier this year seeks to carve out an irrigated green space and enhance and transform the Doha North surroundings into an EcoPark. This illustrates how we constantly push beyond the boundaries to differentiate ourselves from the competition by creating new value propositions for the market. As at end-2007, KIE has grown its orderbook to about $3.5b. A signiﬁ cant proportion of the orderbook comprises long-term operation and maintenance contracts. This will ensure a stable recurrent income stream over the next 10–20 years following completion of the respective projects. On another front, Keppel Energy (KE) planted its ﬂ ag in the local power generation market with its new 500 MW Keeping at the forefront of technology and developing leading-edge solutions to meet or anticipate market needs continues to be an imperative for us. 6 Keppel Corporation Limited Report to Shareholders 2007 Chairman’s Statement co-generation plant in the second quarter. Due to our efforts to speedily address the gas transport infrastructure issue with the regulatory bodies in order to ﬂ ow our contracted gas supply from Malaysia, this hurdle has now been successfully overcome. In February 2008, KE secured a long-term contract valued at over $3b to supply gas to ExxonMobil’s existing and upcoming petrochemical facilities. This follows from our earlier initiative back in 2005 to secure an 18-year gas supply deal from Petronas. Yet again, this is another illustration of our efforts to develop new platforms and tap adjacent opportunities. LEVERAGING MARKETS AND CUSTOMERS A common thread across the Group is our capacity to leverage the Keppel brand equity, collective networks and competencies. The market knowledge and operational synergies shared by our business units serve as a mutually- supportive framework to penetrate common markets such as the Middle East, China and Vietnam. Some of our efforts in creating growth opportunities across common markets are now becoming more evident. Middle East Let me start with the Middle East market, a relatively new market just a few years ago. Now, Keppel O&M, Keppel Land and KIE have all established a presence there. Keppel was amongst the ﬁ rst Singapore companies to enter this market in the 1990s through its joint venture shipyard, Arab Heavy Industries (AHI), in UAE. Today, AHI is part of Keppel O&M’s global network of 20 yards. KIE is working on two major projects worth $3.2b in Qatar. One will be the largest integrated waste management facility in Qatar and the ﬁ rst such environmental engineering plant in the Middle East. The other which I mentioned earlier will also be the largest wastewater treatment and water reuse facility in the Middle East. Another unit of KIE is presently undertaking facilities management contracts at Doha International Airport in Qatar, while pursuing similar prospects in the region. Keppel Land is embarking on its ﬁ rst project in the Middle East with the Saudi Economic and Development Co. Ltd. to develop 1,000 luxury seafront apartments along the Corniche waterfront in Jeddah and it also successfully marketed two blocks comprising 56 villa apartments at Reﬂ ections at Keppel Bay for $286m to the Al-Nibras Islamic Real Estate Fund. In fact, Keppel Land’s fund management arm, Alpha, previously secured its ﬁ rst shariah-compliant fund mandate from a Middle Eastern investor in 2006. The Islamic fund is presently fully invested in four countries with US$119m committed equity. In addition to its AHI base in UAE, Keppel O&M has now acquired a 20% stake in a joint venture with NAKILAT to operate a greenﬁ eld shipyard facility in Ras Laffan port which will be completed in 2010. Qatar Petroleum will fund and lease the yard infrastructure to the joint venture. Vietnam Vietnam is a market with which we have maintained close ties over the past two decades and as a result established a strong track record and network. Keppel Land is one of its pioneer and largest real estate investors with over a dozen projects in Ho Chi Minh City, Hanoi and Dong Nai. Similarly, Keppel O&M has actively engaged Vietnam since the 1980s. It built Vietnam’s ﬁ rst drilling rig in 1988 for Vietsovpetro, a Vietnam- Russian joint venture, and secured a second order for its proprietary KFELS B Class jackup from PetroVietnam last May. This follows on the heels of Keppel O&M’s delivery of its ﬁ rst jackup to PetroVietnam two months ahead of schedule in March last year. Then, in December 2007, KIE received in-principle approval to develop a waste-to-energy (WTE) plant in Ho Chi Minh City. The proposed plant will have the capacity to treat 2,000 tonnes of waste per day, and generate more than 20 MW of green energy. It will be the ﬁ rst in Vietnam, and the largest in Southeast Asia outside Singapore. In oil & gas exploration, SPC has PSCs in offshore Vietnam – a 20% interest in Blocks 102 and 106 in the Song Hong Basin in the Gulf of Tonkin, acquired in September 2005, and a 45% interest in Block 101-100/04, acquired in October 2006. China In the competitive Chinese market, KIE has steadily strengthened its market leadership for imported WTE environmental solutions. In the past year, it secured contracts to provide solid waste technologies and services in Suzhou and Zhongshan, and is undertaking WTE projects in Changshu, Shenzhen, Tianjin, Jiangyin and Guangzhou. These contracts further extend Keppel’s presence in these markets as Keppel Land already operates in some of these cities in addition to Shanghai, Beijing, Chengdu, Wuxi, Shenyang, Changzhou and Kunming. Keppel O&M, through its Nantong Keppel Corporation Limited Report to Shareholders 2007 Chairman’s Statement 7 CHAIRMAN’S STATEMENT yard located northwest of Shanghai, is equipped to meet demand for specialised vessels such as offshore support vessels and tugs. As at 2007 year-end, the Nantong yard had accumulated an orderbook of 21 vessels under construction after adding another eight tugs last October. As earlier mentioned, SPC has operating interests and production assets in Pearl River Mouth Basin and Bohai Bay. LEVERAGING COMPETENCIES Another key aspect of our portfolio of multiple businesses deserves mention. Although the scope of our businesses is different, the Group has positioned itself to capture value through offering comprehensive solutions that draw on the complementary strengths of each business. In particular, with the global drive towards sustainable development, there are complementarities in competencies and expertise between our different businesses such as Property and Infrastructure which the Group is uniquely placed to exploit. We constantly monitor and take advantage of such opportunities as they arise. Sino-Singapore Tianjin Eco-City The Sino-Singapore Tianjin Eco-City (SSTEC) best exempliﬁ es the manner in which our property and environmental businesses are able to jointly address new opportunities by harnessing their collective knowledge and expertise. To be established under the auspices of a Framework Agreement signed between China and Singapore last November, SSTEC is a joint collaboration of Singapore and Chinese private-sector consortia supported by their respective governments. It aims to showcase sustainable development in terms of environmental as well as social aspects. It is envisioned to be a model city in which the inhabitants live, work and play in a balanced and healthy environment, whilst conserving and protecting the environment and natural resources. You can read more about our new initiative in a separate feature on SSTEC in this Annual Report. As frontrunner for the Singapore consortium, Keppel will work with its partners to tap on Singapore’s experience in large-scale urban design and township planning, as well as landscaping and environment preservation. In this respect, Keppel is well-placed to spearhead the partner consortia in drawing together the complex land and environmental design, engineering and construction elements to crystallise the founding vision while implementing its distinctive features. Our own strengths in integrated township and lifestyle communities, together with environmental development capabilities, in each case backed by a solid track record, networks and market knowledge gained in the Chinese market, will provide a ﬁ rm foundation for the Group’s efforts in helping our two governments achieve their mutual vision for SSTEC. Reﬂ ecting its conﬁ dence in the Keppel brand, Qatar Investment Authority has expressed its intent to participate in the Singapore consortium under a MOU signed in January. Again, this testiﬁ es to our ability as a Group to leverage networks, bridging our distinct business interests across operating and geographical dimensions. LEVERAGING INNOVATION AND TECHNOLOGY Keeping at the forefront of technology and developing leading-edge solutions to meet or anticipate market needs continues to be an imperative for us, our raison d’être. Our high value, high performance offerings serve to differentiate us and sustain our competitive edge. In Offshore & Marine, technological innovation is key to addressing customers’ operational challenges in niche markets. Global oil and gas reserves are drawing down with limited near-term prospect of replenishment, prompting the search for hydrocarbons to intensify into deeper waters and more difﬁ cult frontiers such as the North Sea and Arctic regions. Through our extensive R&D programmes and partnerships, we have assembled a premium suite of deepwater and production solutions, ranging from FPSOs, production and drilling semisubmersibles, TLPs and SPARs to accommodation ﬂ oatels, a ﬁ rst for the North Sea in more than 20 years, the drilling-cum-production KFELS N Class jackup, icebreaking vessels and Ice-Class FSO, as well as specialised support vessels. Two centres of excellence have been launched to drive technology innovation and leadership. The Keppel Offshore & Marine Technology Centre (KOMtech) and Keppel Environmental Technology Centre (KETC) will augment existing R&D initiatives in their respective research spheres and raise these efforts to the next level. Keppel O&M will inject $150m seed money into KOMtech over ﬁ ve years while KIE is investing $50m into KETC. In environmental engineering, KETC will spearhead KIE’s thrust in developing world-class environmental solutions based on technological innovation and leadership, in-house expertise and strategic partnerships. KETC intends to focus in the immediate term on energy recovery and by-product minimisation from waste and wastewater treatment, and membrane applications for producing water from non-conventional sources. Keppel Seghers’ proprietary water-cooled grate technology, DANO DRUM system which recycles and pre-treats waste, and Rotary Atomiser system for ﬂ ue gas treatment are already being applied in the Qatar Solid Waste Management project. In Property, Keppel Land is also incorporating state-of-the-art green features in its properties. MAINTAINING SAFETY It is appropriate for me to touch brieﬂ y on the premium that the Group places on workplace safety. We recognise a safe and healthy working environment as one of the critical success factors contributing to our superior business performance. Since 2006, with the formation of the Keppel Corporation 8 Keppel Corporation Limited Report to Shareholders 2007 Chairman’s Statement stronger and more resilient businesses. Despite the challenging global economic environment, I have great faith that Keppelites around the world will once again demonstrate their formidable mettle and rise to the occasion. With prudent management and sound policies, we are conﬁ dent that the Group is well on track to deliver sustained growth and enhance shareholder value. I would also like to take this opportunity to express, on behalf of the Group, my deep appreciation to Mr Leung Chun Ying, who stepped down from the Board in 2007, for his wise counsel and invaluable contributions during his tenure as independent Director and member of the Board Remuneration Committee. We wish him all the very best in his undertakings. Last but not least, on behalf of management, I thank our Board of Directors, business partners, customers, employees and all stakeholders for all the guidance and support given to us during the year. We shall continue to try to create more stakeholders value against the backdrop of increasing uncertainty in the global economy. Yours sincerely, LIM CHEE ONN Executive Chairman 11 March 2008 Board Safety Committee, progress has been made in driving the safety message down the line. Last November, the ﬁ rst of an annual series of safety conventions was inaugurated to share best practices, recognise efforts at enhancing safety and encourage safety standards to be raised across the Group. In the same spirit, Keppel Land has also set up its own Board Safety Committee last year to oversee safety aspects within its own business arena. I am pleased to report that Keppel O&M has improved upon its already strong safety record in 2007 with an Accident Frequency Rate (AFR) of 0.37 reportable cases per million manhours worked, its lowest since records were kept in the 1980s and down from an AFR of 1.2 the previous year. This is no mean feat considering its record-breaking orderbook and extremely busy yard schedules last year. Not to mention that Keppel Seghers chalked up 1.2 million accident-free manhours for its work on the Kallang-Paya Lebar Expressway and the Keppel Seghers Ulu Pandan NEWater Plant. These favourable outcomes are only possible because of our holistic approach towards safety, fusing organisational systems and processes with an ingrained culture emphasising substance over form, while forging safety partnerships along the entire value chain comprising external suppliers, vendors, contractors and customers. We shall continue to actively roll out our safety initiatives across the Group worldwide this year, with a further increase in our ﬁ nancial commitment of no less than $15m this year, from $13m last year and $10.6m the year before. WEATHERING CHALLENGES, DELIVERING SUSTAINED GROWTH Looking forward, we are encouraged to see many opportunities for us to leverage our efforts to build sustainable growth platforms. Our strategy to build a core portfolio of distinct businesses will keep us on an even keel to weather the turbulent operating conditions as we press on with our efforts to build Keppel Corporation Limited Report to Shareholders 2007 Chairman’s Statement 9 Growth Returns Value With its scale and spread, Keppel Corporation is Delivering More 10 Keppel Corporation Limited Report to Shareholders 2007 Delivering More KEPPEL CORPORATION IS DELIVERING MORE GROWTH Robust From stable to robust growth. Drawing on the complementary strengths and networks of each key business, we seize new opportunities and capture real value. We stay focused on building sustainable growth platforms in our business to ride out different market conditions. 1,026 564 356 PATMI $ million 2007 2005 2002 Stable KEPPEL CORPORATION IS DELIVERING MORE RETURNS Stellar From sterling to stellar returns. Our strategy to grow our key businesses has consistently yielded strong results for shareholders. We seek out new prospects and fuel earnings growth through technology innovation and projects with good potential. 21.8 16.4 13.4 ROE % 2007 2005 2002 Sterling KEPPEL CORPORATION IS DELIVERING MORE VALUE Vigilant From diligent to vigilant stewardship. Beyond striving for strong ﬁ nancial results, we enhance shareholder value through prudent management, sound policies and high standards of corporate governance. Our commitment towards safety and environment protection boost stakeholders’ conﬁ dence in our leadership and operations. 604 199 (295) EVA $ million 2007 2005 2002 Diligent KEY FIGURES Revenue Increased 37% from FY06’s $7.6 billion Revenue surpassed $10 billion for the ﬁ rst time in the Group’s 40-year history with improvement by all key divisions. Revenue from Infrastructure was particularly strong. PATMI Increased 37% from FY06’s $751 million Earnings reached a new full year high, with PATMI crossing the billion-dollar mark. Compounded annual growth rate for PATMI from 2002 to 2007 was 23%. Double-digit growth was achieved year-on-year for the past ﬁ ve years. $10.4b $1,026m ROE Increased 2.7% above FY06’s 19.1% ROE has improved year-on-year for the ninth year. It surpassed 10% since 2001, exceeded 15% in 2004 and breached 20% in 2007. EVA Increased $181 million from FY06’s $423 million Increased EVA was due to better NOPAT, partly offset by slight increase in capital charge. EVA at $604 million in 2007 was an improvement of $1.3 billion over seven years. 21.8% $604m EPS Increased 36% from FY06’s 47.7 cents per share EPS growth kept pace with PATMI growth. No signiﬁ cant dilution in EPS because no major capital call was made since 1997. Distribution Increased 129% from FY06’s 28.0 cents per share Total distribution for 2007 comprises ﬁ nal dividend of 10 cents, special dividend of 45 cents and interim dividend of 9 cents already paid. Total distribution to our shareholders will be about $1 billion or almost 100% of PATMI. 64.9¢ 64.0¢ Free cashﬂ ow Continued to be above $1 billion Operational cashﬂ ow before working capital changes exceeded $1 billion. Working capital changes were also positive with progress payments received from contracts. Gearing Reduced from FY06’s 0.24x Strong cashﬂ ow resulted in lower net gearing. Gearing has been reduced from 1.12x in 2001 to 0.77x in 2003 to the current 0.09x. This places the Group in a good position to further strengthen its earnings base going forward. $1,151m 0.09x 18 Keppel Corporation Limited Report to Shareholders 2007 Key Figures GROUP STRATEGIC DIRECTIONS Keppel is delivering more value for stakeholders by growing our businesses through innovation, discipline and integrity. STRATEGIC DIRECTIONS Fortifying core competencies • Underpin value creation by investing in R&D for long-term growth • Foster growth by enhancing operational competitiveness through strategic investments and partnerships with trendsetters • Nurture people to share a common culture and a drive to deliver more STRATEGY IN ACTION Example: Launch of Keppel Offshore & Marine Technology Centre (KOMtech) Keppel Offshore & Marine launched a technology centre to boost its R&D edge and position the company for long-term growth. KOMtech is an extension and strengthening of current R&D initiatives undertaken by the company’s technology units – Offshore Technology Development, Deepwater Technology Group and Marine Technology Group. The Centre will also work closely with industry partners to conceive effective solutions for the market. Expanding global footprint Example: Doha North Sewage Treatment Works • Build on the Group’s strong global network for new business opportunities • Leverage the Keppel brand equity to enhance its presence in existing markets and penetrate new markets Increasing business robustness • Protect long-term earnings through commercial excellence and mitigation of risks • Drive best practice initiatives through operational excellence, superior cashﬂ ow and strong earnings return to shareholders Building on its landmark $1.7 billion contract for a solid waste plant in 2007, Keppel Integrated Engineering secured from the Qatari Government another contract for the design, construction, operation and maintenance of a wastewater treatment and water reuse plant for $1.5 billion. The largest in the Middle East when completed in 2010, this facility will have a peak design capacity to treat wastewater of up to 439,000 cubic metres per day. The contract signing was witnessed by the Heir Apparent of Qatar, His Highness Sheikh Tamim Bin Khalifa Bin Hamad Al-Thani and Mr Wong Kan Seng, Singapore Deputy Prime Minister and Home Affairs Minister. Example: Environmental Steering Committee The Environmental Steering Committee will be formed to set out an environmental master plan, which details the vision, policies, directions and roadmap for the Group over the next 5–10 years. The master plan will serve to align environmental policies and practices across various business units, as well as to help Keppel strengthen its operations, stay ahead of the competition, and possibly move into new business areas. Leveraging growth platforms Example: Sino-Singapore Tianjin Eco-City • Leverage the Group’s scale and the spread of its businesses, and their embedded growth options, to develop new platforms for robust and sustainable earnings streams Keppel Corporation was appointed to lead the Singapore consortium in developing the 30 sq km Sino-Singapore Tianjin Eco-City (SSTEC) over 10 to 15 years. SSTEC is envisioned to be a development that integrates society, the economy and the environment harmoniously to create an optimal setting for Live, Work and Play. The Keppel Group will tap on its strengths and experience in large-scale townships and robust environmental solutions to make SSTEC a successful model for sustainable development. Singapore Foreign Minister George Yeo (right) launches KOMtech on 3 December 2007. Sealing the agreement. (Left) Ms Grace Fu, MOS for National Development, ofﬁ ciated a Keppel- sponsored project to save corals. China Premier Wen Jia Bao and Singapore Prime Minister Lee Hsien Loong at the SSTEC agreement signing ceremony. Keppel Corporation Limited Report to Shareholders 2007 Group Strategic Directions 19 GROUP AT A GLANCE The Keppel Group is focused on enhancing the value of our portfolio. KEPPEL CORPORATION DIVISIONS Strong governance The Group ﬁ rmly believes that a genuine commitment to good governance is essential to the sustainability of our businesses and performance. Key to good governance is a strong and independent Board, engaging the executive directors and management, and at the same time, providing wise counsel and excellent insights. Our Board of Directors comprises six independent directors, one non-executive director and three executive directors. Presiding over strategic directions and corporate governance of Keppel Corporation, the Board also oversees the businesses and processes of the Company. Offshore & Marine To be the choice provider and solutions partner in its selected segments of the offshore and marine industry. Focus for 2008/2009 • Deliver value through excellent project management and execution • Enhance R&D initiatives to strengthen group position as market leader in selected segments • Strengthen presence in deepwater rigs, adjacent business areas and new markets • Increase capacity through expansion and facility upgrading • Focus on Health, Safety and the Environment Strategic management Based in Singapore, Keppel Corporation provides strategic direction to the business units and co-ordinates corporate services including audit and risk management, corporate planning, corporate communications, ﬁ nance, human resources, information services, legal, tax and treasury. Disciplined approach We remain steadfast in our strategy of building our key businesses of Offshore & Marine, Property, Infrastructure and maximising the value embedded in our Investments. To achieve consistent performance, our disciplined investment approach supports long-term growth and balances this with fair returns to stakeholders. High priority is placed on talent management, technology development and acquisition, brand equity enhancement, network building with strategic partners and trendsetters as well as cultivating a corporate culture of integrity and the Can Do! spirit. Collective strength With operations spanning 34 countries, our strength is underpinned by Group cohesiveness across different business units and between business units and the Headquarters. We use our collective experience, expertise and network to realise the Group’s common vision whilst adhering to one another’s priorities and focus. There is open communication between management and the Board, and as a result, Keppel Corporation beneﬁ ts from the counsel, guidance and expertise of Board members. We believe that this concerted approach to grow our businesses will enable us to stay focused on delivering more to stakeholders amidst an increasingly uncertain and competitive global environment. Property To be a leading property developer and a premier property fund manager in Asia. Focus for 2008/2009 • Selectively pursue residential and commercial developments in Singapore, and capitalise on the development of Marina Bay and Keppel Bay • Continue to roll out townships and other residential projects in Vietnam, China, India and Indonesia • Expand K-REIT Asia’s property portfolio through acquisitions • Invest in funds under management to generate good returns Infrastructure To build a selected portfolio of environmental engineering, power generation, network engineering and logistics businesses. Focus for 2008/2009 • KIE – offer sustainable energy and water solutions to communities through recovery of energy from waste and water from wastewater • Keppel Energy – build a strong power generation and gas supply business • Keppel T&T – strengthen its Logistics and Network Engineering businesses Investments To maximise value of businesses and investments for shareholders. Focus for 2008/2009 • SPC – continue to increase E&P portfolio, while developing existing acreages • k1 – continue to grow existing investment platforms to maximise performance • M1 – tap on the opportunities arising from telecom media convergence and develop new businesses anchored on its core competencies 20 Keppel Corporation Limited Report to Shareholders 2007 Group at a Glance RESULTS Revenue ($ million) PATMI 2005 2006 2007 4,112 5,755 7,258 Offshore & Marine continues to be the largest contributor to Group revenue with a 26% growth in 2007. $522m Earnings from the division increased by 17% in 2007 and accounted for 51% of the Group’s PATMI. Revenue ($ million) PATMI 2005 2006 2007 847 1,155 1,835 Property achieved a 59% revenue growth in 2007 on the back of robust residential property sales. $209m In 2007, the division grew its earnings by 118%, which in turn accounted for 20% of the Group’s earnings. Revenue ($ million) PATMI 2005 2006 2007 671 570 1,277 Infrastructure staged a full year turnaround with a record growth of 124% due to new projects. $27m Having achieved a revenue base of over $1 billion in 2007, the division’s contributions to Group earnings are expected to rise gradually. Revenue ($ million) PATMI 2005 2006 2007 58 61 Investments’ revenue was lower in 2007 because the previous year beneﬁ ted from gains on sale of investments. 121 $268m Proﬁ t contributions by Investments grew 11% from $242 million in 2006 largely on account of higher earnings by SPC. Keppel Corporation Limited Report to Shareholders 2007 Group at a Glance 21 KEPPEL AROUND THE WORLD We have a global presence in 34 countries with overseas customers as our earnings mainstay. Revenue by market Total FY07 Revenue: $10,431m Europe ASEAN North America China/HK South America India Middle East Australia/NZ Japan/Korea/Taiwan $ $ Central America $ 3,089m $ 2,769m $ 2,635m $ 571m $ 516m $ 456m $ 154m $ 104m 70m 67m Offshore & Marine Azerbaijan Brazil Bulgaria China India Indonesia Japan Kazakhstan Norway Qatar Singapore The Netherlands The Philippines United Arab Emirates United States of America Vietnam Property China India Indonesia Japan Korea Malaysia Myanmar Saudi Arabia Singapore Thailand The Philippines United States of America Vietnam Infrastructure Algeria Argentina Australia Belgium China/Hong Kong Ecuador France Germany Indonesia Malaysia Mexico Nicaragua Qatar Singapore Spain Sweden Thailand The Philippines United Kingdom United States of America Vietnam Investments Australia Cambodia China/Hong Kong Indonesia Singapore Thailand United States of America Vietnam North America $2,635m United States of America Mexico Central America $67m Nicaragua Ecuador South America $516m Brazil Argentina 22 Keppel Corporation Limited Report to Shareholders 2007 Keppel Around the World Sweden Norway The Netherlands United Kingdom Belgium Germany Europe $3,089m France Bulgaria Kazakhstan Spain Algeria Azerbaijan Saudi Arabia Qatar United Arab Emirates Middle East $154m India $456m India China/HK $571m Myanmar Vietnam Thailand Cambodia Malaysia Japan Korea China Hong Kong Japan/ Korea/ Taiwan $70m The Philippines ASEAN $2,769m SINGAPORE Indonesia Australia Australia/NZ $104m Keppel Corporation Limited Report to Shareholders 2007 Keppel Around the World 23 BOARD OF DIRECTORS Our Directors bring their wealth of experience to the strategic governance of the Group. 1 1. LIM CHEE ONN, 63 Executive Chairman Chairman, Executive Committee Member, Board Safety Committee 24 Keppel Corporation Limited Report to Shareholders 2007 Board of Directors 2 3 2. TONY CHEW LEONG-CHEE, 61 Lead Independent Director Executive Chairman, Asia Resource Corporation Member, Executive Committee Member, Audit Committee 3. LIM HOCK SAN, 61 Independent Director Chief Executive Ofﬁ cer, United Industrial Corporation Chief Executive Ofﬁ cer, Singapore Land Chairman, Audit Committee Member, Executive Committee Member, Board Risk Committee 4 4. SVEN BANG ULLRING, 72 Independent Director Chairman, Board of The Fridtjof Nansen Institute, Oslo, Norway Chairman, Nominating Committee Chairman, Remuneration Committee Member, Board Safety Committee Keppel Corporation Limited Report to Shareholders 2007 Board of Directors 25 BOARD OF DIRECTORS 5 5. TSAO YUAN MRS LEE SOO ANN, 52 Independent Director Executive Director, SDC Consulting Member, Nominating Committee Member, Remuneration Committee Member, Board Safety Committee 6 7 6. OON KUM LOON, 57 Independent Director Chairperson, Board Risk Committee Member, Audit Committee Member, Executive Committee Member, Nominating Committee 7. TOW HENG TAN, 52 Non-Independent and Non-executive Director Chief Investment Ofﬁ cer, Temasek Holdings Member, Executive Committee Member, Remuneration Committee Member, Board Risk Committee 26 Keppel Corporation Limited Report to Shareholders 2007 Board of Directors 8 9 8. YEO WEE KIONG, 52 Independent Director Director, Drew & Napier LLC Chairman, Board Safety Committee Member, Board Risk Committee 9. CHOO CHIAU BENG, 60 Senior Executive Director Member, Executive Committee 10 10. TEO SOON HOE, 58 Senior Executive Director and Group Finance Director Member, Executive Committee Keppel Corporation Limited Report to Shareholders 2007 Board of Directors 27 KEPPEL GROUP BOARDS OF DIRECTORS KEPPEL OFFSHORE & MARINE Choo Chiau Beng Chairman/Chief Executive Ofﬁ cer Tong Chong Heong Managing Director/ Chief Operating Ofﬁ cer KEPPEL LAND Lim Chee Onn Chairman; Executive Chairman, Keppel Corporation Kevin Wong Group Chief Executive Ofﬁ cer Charles Foo Chee Lee Managing Director (Special Projects) Khor Poh Hwa Senior Adviser to CPG Corporation Sit Peng Sang Chief Financial Ofﬁ cer Lim Ho Kee Chairman, Singapore Post Bjarne Hansen Senior Partner, Wing Partners I/S, Denmark Prof Tsui Kai Chong Provost and Professor of Finance, SIM University Prof Neo Boon Siong Director, Asia Competitiveness Institute, Lee Kuan Yew School of Public Policy, National University of Singapore Stephen Pan Yue Kuo Chairman, World-Wide Shipping Agency Lee Ai Ming (Mrs) Deputy Managing Partner, Rodyk & Davidson Tan Yam Pin Former Managing Director, Fraser and Neave Group Prof Minoo Homi Patel Head of School & Professor of Engineering, School of Engineering, Cranﬁ eld University, UK Niam Chiang Meng Permanent Secretary, Ministry of Community Development, Youth and Sports Dr Malcolm Sharples President, Offshore Risk & Technology Consulting, USA Heng Chiang Meng Principal/Director, Spear Consultancy Pte Ltd Teo Soon Hoe Senior Executive Director and Group Finance Director, Keppel Corporation Edward Lee Former Ambassador to Indonesia Choo Chiau Beng Chairman/Chief Executive Ofﬁ cer, Keppel Offshore & Marine Teo Soon Hoe Senior Executive Director and Group Finance Director, Keppel Corporation KEPPEL TELECOMMUNICATIONS & TRANSPORTATION Teo Soon Hoe Chairman; Senior Executive Director and Group Finance Director, Keppel Corporation Lam Kwok Chong Managing Director Dr Tan Tin Wee Associate Professor of Biochemistry, National University of Singapore (NUS) Prof Bernard Tan Tiong Gie Professor of Physics, NUS Reggie Thein Independent Director Wee Sin Tho Chief Strategist, Endowment Programme, NUS Tan Boon Huat Chief Executive Director, People’s Association KEPPEL INTEGRATED ENGINEERING Wong Boon Kong Chairman Chua Chee Wui Chief Executive Ofﬁ cer Lawrence Lim Director Luc De Ryck Senior General Manager Soh Chee Keong Executive Director Tong Chong Heong Managing Director/Chief Operating Ofﬁ cer, Keppel Offshore & Marine 28 Keppel Corporation Limited Report to Shareholders 2007 Keppel Group Boards of Directors KEPPEL ENERGY k1 VENTURES Lee Ai Ming (Mrs) Deputy Managing Partner, Rodyk & Davidson Lim Chee Onn Executive Chairman, Keppel Corporation Ong Tiong Guan Managing Director Choo Chiau Beng Chairman/Chief Executive Ofﬁ cer, Keppel Offshore & Marine Teo Soon Hoe Senior Executive Director and Group Finance Director, Keppel Corporation SINGAPORE PETROLEUM COMPANY Choo Chiau Beng Chairman; Chairman/Chief Executive Ofﬁ cer, Keppel Offshore & Marine Koh Ban Heng Chief Executive Ofﬁ cer Bertie Cheng Shao Shiong Chairman, TeleChoice International Cheng Hong Kok Director Dr Chin Wei-Li, Audrey Marie Chairman, Vietnam Investing Associates – Financials (S) Pte Ltd Goon Kok-Loon Chairman, Global Marine & Port Services Pte. Ltd. Geoffrey John King Director, Vermilion Oil & Gas Australia Datuk Paduka Timothy Ong Teck Mong Acting Chairman, Brunei Economic Development Board Teo Soon Hoe Senior Executive Director and Group Finance Director, Keppel Corporation Steven Jay Green Chairman/Chief Executive Ofﬁ cer; Former US Ambassador to Singapore Lim Poh Chuan Director, Income Partners funds Kamal Bahamadan Founder and Managing Partner, The BV Group Dr Chin Wei-Li, Audrey Marie Chairman, Vietnam Investing Associates – Financials (S) Pte Ltd Choo Chiau Beng Chairman/Chief Executive Ofﬁ cer, Keppel Offshore & Marine Dr Lee Suan Yew Medical Practitioner and Past President of the Singapore Medical Council Lim Chee Onn Executive Chairman, Keppel Corporation EVERGRO PROPERTIES Chew Heng Ching Chairman; Chairman, Governing Council Singapore Institute of Directors Kevin Wong Non-executive Vice Chairman; Group Chief Executive Ofﬁ cer, Keppel Land Prof Tan Teck Meng Professor of Accounting, Singapore Management University Goh Toh Sim Chief Executive Ofﬁ cer/ Executive Director Teo Soon Hoe Senior Executive Director and Group Finance Director, Keppel Corporation Yong Pung How Former Chief Justice, Republic of Singapore K-REIT ASIA MANAGEMENT Prof Tsui Kai Chong Chairman; Provost and Professor of Finance, SIM University Kevin Wong Deputy Chairman; Group Chief Executive Ofﬁ cer, Keppel Land Tan Swee Yiow Chief Executive Ofﬁ cer/Director; Chief Executive Ofﬁ cer (Singapore Commercial), Keppel Land Ang Wee Gee Executive Director and Chief Executive Ofﬁ cer (International), Keppel Land International Choo Chin Teck Director (Corporate Services), Keppel Land International; Group Company Secretary, Keppel Land Chow Wing Kin Anthony Partner, Peter C.Wong, Chow & Chow Patrick Choy Chairman, Global Strategy Company Limited; Chairman, China Financial Leasing Group Goh Yong Hong Chairman, Advisory Board of Rafﬂ es Town Club Pte Ltd Keppel Corporation Limited Report to Shareholders 2007 Keppel Group Boards of Directors 29 KEPPEL TECHNOLOGY ADVISORY PANEL Cultivating a culture of innovation guided by eminent business leaders, professionals and industry experts. 1 3 2 4 5 6 8 7 9 10 11 (5th & 6th from left) Senior Executive Director Choo Chiau Beng and Executive Chairman Lim Chee Onn with KTAP members. 1 Dr Brian Clark 2 Dr Tan Gee Paw 3 Dr Malcolm Sharples 4 Professor Sir Eric Ash 7 Professor Minoo Homi Patel 8 Professor Cham Tao Soon (Chairman) 9 Dr Yeo Ning Hong 10 Professor James Leckie 11 Professor Tom Curtis PROFESSOR SIR ERIC ASH BSc and PhD, Imperial College London; CBE FREng FRS. He is presently on the Board of Ocean Power Inc and Chairman of OPT Ltd. A past president of the IEE, he is a Foreign Member of the US National Academy of Engineering. He was Rector of Imperial College 1985–93, Vice President of the Royal Society 1997–2002. He has several honorary doctorates including one from NTU Singapore. PROFESSOR CHAM TAO SOON Chairman BEng (Civil), 1st Class Honours, University of Malaya; BSc (Maths), University of London; PhD (Fluid Mechanics), University of Cambridge. He was the founding President of Nanyang Technological University (Singapore) in 1981 and had relinquished the post in 2002 and is now its President (Emeritus). Presently, he is the Chancellor and Chairman of SIM University. He has received several honorary doctorates and foreign academy awards including the International Medal of the British Royal Academy of Engineering. 30 Keppel Corporation Limited Report to Shareholders 2007 Keppel Technology Advisory Panel He also sits on the Board of JTC Corporation, NTU-Stanford Management Board, Exploit Technologies Pte Ltd, and the Singapore Millennium Foundation Limited. He is the Advisor for the Centre for Water Research and Adjunct Research Professor for the Division of Environmental Science & Engineering at NUS. He is also the Co-Chairman of the Environmental & Water Technologies International Advisory Panel, Ministry of the Environment & Water Resources. He chairs the Nominating Committee of the Lee Kuan Yew Water Prize, Singapore International Water Week. He is also a member of the Committee on Strategy for National Medical Specialisation Centres of the Ministry of Health; a member of the 2008 National Science & Technology Awards Main Committee, and Chairman of the 2008 National Technology Award Selection Committee of the Agency for Science, Technology & Research. PROFESSOR THOMAS (TOM) CURTIS BSc (Hons) Microbiology, University of Leeds; M.Eng and PhD Civil Engineering, University of Leeds. He is a professor of Environmental Engineering of the University of Newcastle upon Tyne, as well as a recipient of the Royal Academy of Engineering Global Research Fellowship and the Biotechnology and Biological Sciences Research Council (BBSRC) Research Development Fellowship. His major areas of research include microbial ecology, engineered biological systems in general and wastewater treatment in particular. DR BRIAN CLARK Schlumberger Fellow; B.S. Ohio State University; PhD, Harvard University (1977). He holds 50 patents related to the exploration and development of oil and gas, primarily in wireline logging and Logging While Drilling. He was recognised as the Outstanding Inventor of the Year for 2002, by the Houston Intellectual Property Law Association and as the Texas Inventor of the Year for 2002, by the Texas State Bar Association. DR YEO NING HONG BSc (Chemistry), First Class Honours, MSc, University of Singapore; Master of Arts and PhD, Cambridge University (1970). Dr Yeo is Advisor to Far East Organisation and formerly Advisor to Temasek Holdings (Pte) Ltd and Hyﬂ ux Ltd. He is also Chairman of SQL View Pte Ltd and Universal Gateway International (Pte) Ltd, and serves as a Director of Singapore Press Holdings Ltd. Dr Yeo was a Cabinet Minister in the Singapore Government from 1981 to 1994 holding appointments as Minister for Communications, Information, National Development and Defence. PROFESSOR MINOO HOMI PATEL Fellow of the Royal Academy of Engineering, the Institution of Mechanical Engineers and the Royal Institution of Naval Architects; Chartered Engineer; BSc (Eng) and PhD, University of London and an Honorary Member of the Royal Corps of Naval Constructors. He is Head of the School of Engineering at Cranﬁ eld University and a Founder Director of the science park company BPP Technical Services Ltd. DR MALCOLM SHARPLES Consulting Engineer, Offshore Risk & Technology; B. E. Sc Engineering Science, University of Western Ontario; PhD Structural Engineering, University of Cambridge; Athlone Fellow; Fellow of the Society of Naval Architects; Registered Professional Engineer. His company provides consulting on offshore-related projects including project technical risk/safety cases, ﬁ nancial due diligence, regulatory advice, business development assistance, and he has been involved as an expert witness in a number of legal proceedings. He is a Director of Keppel Offshore & Marine. PROFESSOR JAMES LECKIE The C. L. Peck, Class of 1906 Professor of Environmental Engineering and Applied Earth Sciences, Stanford University; Director of the Environmental Engineering Laboratory; Director, Paciﬁ c Rim Environmental Research Centre; Director, Stanford-China Executive Leadership Programme; Co-Director, Singapore Stanford Partnership. He has appointments in both Civil and Environmental Engineering, and Geological and Environmental Sciences at Stanford. He is a member of the National Academy of Engineering. His areas of teaching and research are in environmental chemistry and human exposure analysis. DR TAN GEE PAW BEng (Civil), First Class Honours, University of Malaya; MSc (Systems Engineering), University of Singapore; Doctor of Science (Honorary), University of Westminster; Doctorate in Engineering (Honorary), University of Shefﬁ eld. He also sits on the Boards of Keppel Offshore & Marine, Cranﬁ eld Aerospace and Cranﬁ eld Engineering Innovations. He is the Chairman of Public Utilities Board (PUB), the national water agency of Singapore since 1 April 2001. Keppel Corporation Limited Report to Shareholders 2007 Keppel Technology Advisory Panel 31 SENIOR MANAGEMENT & MARINE Our leaders provide the strategic direction to the business units to grow beyond today. KEPPEL CORPORATION Lim Chee Onn Executive Chairman Choo Chiau Beng Senior Executive Director Teo Soon Hoe Senior Executive Director & Group Finance Director CORPORATE SERVICES Chan Soo Sen Director (Chairman’s Ofﬁ ce) Paul Tan Group Controller Wang Look Fung General Manager (Group Corporate Communications) Lynn Koh General Manager (Group Treasury) Tan Poh Hong Director (Group Human Resources) Magdeline Wong General Manager (Group Tax) Tina Chin General Manager (Group Risk Management) Caroline Chang General Manager (Group Legal) Sim Chey Hoon General Manager (Corporate Development/Planning) Sharon Lua General Manager (Group Human Resources) Tan Eng Hwa General Manager (Group Internal Audit) Martin Ling Deputy General Manager (Group Information Technology) OFFSHORE & MARINE Choo Chiau Beng Chairman/Chief Executive Ofﬁ cer Keppel Offshore & Marine Tong Chong Heong Managing Director/ Chief Operating Ofﬁ cer Keppel Offshore & Marine Sit Peng Sang Chief Financial Ofﬁ cer Keppel Offshore & Marine Charles Foo Chee Lee Managing Director (Special Projects) Keppel Offshore & Marine Chee Jin Kiong Executive Director (Human Resources) Keppel Offshore & Marine Michael Chia Hock Chye Executive Director Keppel FELS Wong Kok Seng Executive Director (Operations) Keppel FELS Nelson Yeo Chien Sheng Executive Director Keppel Shipyard Hoe Eng Hock Executive Director Keppel Singmarine PROPERTY Kevin Wong Group Chief Executive Ofﬁ cer Keppel Land Ang Wee Gee Executive Director and Chief Executive Ofﬁ cer (International) Keppel Land International Choo Chin Teck Director (Corporate Services) and Group Company Secretary Keppel Land International Lim Kei Hin Chief Financial Ofﬁ cer Keppel Land International Tan Swee Yiow Chief Executive Ofﬁ cer (Singapore Commercial) Keppel Land International Chief Executive Ofﬁ cer/Director K-REIT Asia Management 32 Keppel Corporation Limited Report to Shareholders 2007 Senior Management UNIONS KEPPEL FELS EMPLOYEES UNION Muhamad Shah President KEPPEL EMPLOYEES UNION Mohd Yusop B Mansor President SHIPBUILDING & MARINE ENGINEERING EMPLOYEES UNION Wong Weng Onn President Lim Chin Siew Executive Secretary KEPPEL SERVICE STAFF UNION Quah Kim Boon President Augustine Tan Chief Executive Ofﬁ cer (Singapore Residential) Keppel Land International Loh Chin Hua Managing Director Alpha Investment Partners Goh Toh Sim Chief Executive Ofﬁ cer Evergro Properties INFRASTRUCTURE Lam Kwok Chong Managing Director Keppel Telecommunications & Transportation Ong Tiong Guan Managing Director Keppel Energy Chua Chee Wui Chief Executive Ofﬁ cer Keppel Integrated Engineering INVESTMENTS Koh Ban Heng Chief Executive Ofﬁ cer Singapore Petroleum Company Steven Jay Green Chairman/Chief Executive Ofﬁ cer k1 Ventures Neil Monteﬁ ore Chief Executive Ofﬁ cer MobileOne Keppel Corporation Limited Report to Shareholders 2007 Senior Management 33 CORPORATE GOVERNANCE A sound code of corporate governance steers us towards our goals with greater conﬁ dence and efﬁ cacy. The board and management of Keppel Corporation Limited (“KCL” or the “Company”) ﬁ rmly believe that a genuine commitment to good corporate governance is essential to the sustainability of the Company’s businesses and performance, and are pleased to conﬁ rm that the Company has adhered to the principles and guidelines of the Code of Corporate Governance 20051 (the “2005 Code”), save for Guideline 3.1 (Chairman and CEO should be separate persons) the reason for which deviation is explained in this report. The following describes the Company’s corporate governance practices with speciﬁ c reference to the 2005 Code. Note: 1 The Code of Corporate Governance 2005 issued by the Ministry of Finance on 14 July 2005. Executive Chairman Lim Chee Onn shares his convictions that good corporate governance strengthens the conﬁ dence of stakeholders. 34 Keppel Corporation Limited Report to Shareholders 2007 Corporate Governance Code of corporate governance 2005 Speciﬁ c principles and guidelines for disclosure Relevant guideline or principle Page reference in this report Guideline 1.3 Delegation of authority, by the board to any board committee, to make decisions on certain board matters Pages 36 and 37 Guideline 1.4 The number of board and board committee meetings held in the year, as well as the attendance of every board member at these meetings Page 37 Guideline 1.5 The type of material transactions that require board approval under internal guidelines Guideline 2.2 Where the company considers a director to be independent in spite of the existence of a relationship as stated in the Code that would otherwise deem him as non-independent, the nature of the director’s relationship and the reason for considering him as independent should be disclosed Guideline 3.1 Relationship between the Chairman and CEO where they are related to each other Guideline 4.1 Composition of nominating committee Guideline 4.5 Process for selection and appointment of new directors to the board Pages 36 and 37 Page 37 Not Applicable Page 40 Pages 40 and 41 Guideline 4.6 Key information regarding directors, which directors are executive, non-executive or considered by the nominating committee to be independent Pages 213 to 216 and 219 Guideline 5.1 Process for assessing the effectiveness of the board as a whole and the contribution of each individual director to the effectiveness of the board Pages 41, 42, 54 and 55 Principle 9 Clear disclosure of its remuneration policy, level and mix of remuneration, procedure for setting remuneration and link between remuneration paid to directors and key executives, and performance Pages 44 and 45 Guideline 9.1 Composition of remuneration committee Guideline 9.2 Names and remuneration of each director. The disclosure of remuneration should be in bands of $250,000. There will be a breakdown (in percentage terms) of each director’s remuneration earned through base/ﬁ xed salary, variable or performance-related income/bonuses, beneﬁ ts in kind, and stock options granted and other long-term incentives Names and remuneration of at least the top ﬁ ve key executives (who are not also directors). The disclosure should be in bands of $250,000 and include a breakdown of remuneration Guideline 9.3 Remuneration of employees who are immediate family members of a director or the CEO, and whose remuneration exceed $150,000 during the year. The disclosure should be made in bands of $250,000 and include a breakdown of remuneration Page 43 Page 45 Page 45 Page 46 Guideline 9.4 Details of employee share schemes Guideline 11.8 Composition of audit committee and details of the committee’s activities Guideline 12.2 Adequacy of internal controls, including ﬁ nancial, operational and compliance controls, and risk management systems Pages 148, 149, 167, 168 and 169 Pages 46 to 48 Pages 48 to 50 Keppel Corporation Limited Report to Shareholders 2007 Corporate Governance 35 CORPORATE GOVERNANCE BOARD’S CONDUCT OF AFFAIRS Principle 1: Effective board to lead and control the company The principal functions of the board are to: • decide on matters in relation to the Group’s activities which are of a signiﬁ cant nature, including decisions on strategic directions and guidelines and the approval of periodic plans and major investments and divestments; • oversee the business and affairs of the Company, establish, with management, the strategies and ﬁ nancial objectives to be implemented by management, and monitor the performance of management; • oversee processes for evaluating the adequacy of internal controls, risk management, ﬁ nancial reporting and compliance, and satisfy itself as to the adequacy of such processes; and • assume responsibility for corporate governance. All KCL directors are expected to exercise independent judgment in the best interests of the Company. This is one of the performance criteria for the peer and self assessment on the effectiveness of the individual directors. Based on the results of the peer and self assessment carried out by the KCL directors, all KCL directors have discharged this duty consistently well. To assist the board in the discharge of its oversight function, various board committees, namely the Executive Committee, Audit Committee, Board Risk Committee, Nominating Committee, and Remuneration Committee, have been constituted with clear written terms of reference. All the Committees are actively engaged and play an important role in ensuring good corporate governance in the Company and within the Group. In addition, a Board Safety Committee was formed in January 2006. The terms of reference of the respective board committees are disclosed in the Appendix to this report. The board meets six times a year and as warranted by particular circumstances. Telephonic attendance and conference via audio-visual communication at board meetings are allowed under the Company’s Articles of Association. The number of board and board committee meetings held in FY 2007, as well as the attendance of each board member at these meetings, are disclosed in Table 1. The Company has adopted internal guidelines setting forth matters that require board approval. Under these guidelines, new investments or increase in investments and divestments exceeding $100 million by any Group company, and all commitments to term loans and lines of credit from banks and ﬁ nancial institutions by the Company, require the approval of the Board. With keen interest in all aspects of Keppel’s businesses, board members visit operating units including the new Keppel Merlimau co-generation plant. Directors and senior management turned up in full force at the Inaugural Annual Safety Convention 2007. 36 Keppel Corporation Limited Report to Shareholders 2007 Corporate Governance Board Committee Meetings Table 1 Lim Chee Onn Tony Chew Leong-Chee Lim Hock San Sven Bang Ullring Tsao Yuan Mrs Lee Soon Ann Leung Chun Ying1 Oon Kum Loon Tow Heng Tan Yeo Wee Kiong Choo Chiau Beng Teo Soon Hoe No. of Meetings Held Board Meetings 9 8 9 7 8 2 of 7 9 8 7 8 9 9 Audit Executive Nominating Remuneration Safety – 5 5 – – – 5 – – – – 5 – – – – – – – – – – – 0 – – – 2 2 – 2 – – – – 2 – – – 5 5 1 of 4 – 4 – – – 5 3 – – 4 3 – – – 4 – – 4 Note: 1 Mr Leung Chun Ying resigned as Director with effect from 1 October 2007. Non-executive Directors’ Meeting (without presence of Risk management) – – 4 – – – 4 4 3 – – 4 – 5 5 5 5 1 of 3 5 4 of 5 4 of 5 – – 5 Further, any investment of $100 million and below but which does not have strategic ﬁ t with any of the Company’s core businesses, is not EVA positive, or does not generate Return on Equity of at least 12% on a standalone basis, would require speciﬁ c board approval. Each board member has equal responsibility to oversee the business and affairs of the Company. Management on the other hand is responsible for the day-to-day operation and administration of the Company in accordance with the policies and strategy set by the board. A formal letter is sent to newly-appointed directors upon their appointment explaining their duties and obligations as director. All newly-appointed directors undergo a comprehensive orientation programme which includes management presentations on the Group’s businesses and strategic plans and objectives, and site visits. The directors are provided with continuing education in areas such as directors’ duties and responsibilities, corporate governance, changes in ﬁ nancial reporting standards, insider trading, changes in the Companies Act and industry-related matters, so as to update and refresh them on matters that affect or may enhance their performance as board or board committee members. BOARD COMPOSITION AND GUIDANCE Principle 2: Strong and independent element on the board To carry out its oversight function well, the board must be an effective board which can lead and control the business of the Group. The KCL directors believe that, in view of the many complex businesses that the Company is involved in, the KCL board should comprise executive directors, who have intimate knowledge of the business, and independent directors, who can take a broader view of the Group’s activities and bring independent judgment to bear on issues for the board’s consideration. The Nominating Committee determines on an annual basis whether or not a director is independent, bearing in mind the 2005 Code’s deﬁ nition of an “independent director” and guidance as to relationships the existence of which would deem a director not to be independent. The Nominating Committee also deems a director who is directly associated with a substantial shareholder as non-independent, although such a relationship has not been expressly adopted in the 2005 Code as one that would deem a director not to be independent. Mr Tow Heng Tan, who is Chief Investment Ofﬁ cer, Temasek Holdings, is therefore deemed non-independent by the Nominating Committee. The Nominating Committee is of the view that, taking into account the nature and scope of the Company’s businesses, the board should consist of 9 to 11 members. The board currently has majority independent directors with a total of 10 directors of whom 6 are independent. Keppel Corporation Limited Report to Shareholders 2007 Corporate Governance 37 CORPORATE GOVERNANCE The nature of the directors’ appointments on the board and details of their membership on board committees are set out in the Appendix hereto. The Nominating Committee is satisﬁ ed that the board comprises directors who as a group provide core competencies such as accounting or ﬁ nance, business or management experience, industry knowledge, strategic planning experience and customer-based experience or knowledge, required for the board to be effective. The KCL board and management fully appreciate that fundamental to good corporate governance is an effective and robust board whose members engage in open and constructive debate and challenge management on its assumptions and proposals, and that for this to happen, the board, in particular, the non-executive directors, must be kept well informed of the Company’s businesses and affairs and be knowledgeable about the industry in which the businesses operate. The Company has therefore adopted initiatives to put in place processes to ensure that the non-executive directors are well supported by accurate, complete and timely information, have unrestricted access to management, and have sufﬁ cient time and resources to discharge their oversight function effectively. These initiatives include regular informal meetings for management to brief the directors on prospective deals and potential developments at an early stage before formal board approval is sought, and the circulation of relevant information on business initiatives, industry developments and analyst and press commentaries on matters in relation to the Company or the industries in which it operates. A two-day off-site board strategy meeting was also organised for in-depth discussions on strategic issues, to give the non-executive directors a better understanding of the Group and its businesses, and to provide an opportunity for the non-executive directors to familiarise themselves with the management team to facilitate the board’s review of the Company’s succession planning and leadership development programme. The Company has also made available on the Company’s premises an ofﬁ ce for the non-executive directors’ use at any time to facilitate direct access to management. Further, a Directors’ Portal was established in 2004 as a secured web-based resource centre for the depositing and retrieval of board materials, information on industry developments, and analysts’ and other reports on matters relating to the Group, and to provide an alternative medium for the continuous exchange of information and views among board members via secured Internet access. The KCL non-executive directors meet regularly without the presence of management to discuss matters such as the changes which they would like to see in board processes, corporate governance initiatives, matters which they wish to discuss during the board off-site strategy meeting, succession planning and leadership development, and the remuneration of the Executive Chairman and those of the other two Executive Directors. CHAIRMAN AND CHIEF EXECUTIVE OFFICER Principle 3: Chairman and Chief Executive Ofﬁ cer to be separate persons to ensure appropriate balance of power, increased accountability and greater capacity of the board for independent decision making Mr Lim Chee Onn is both the Chairman and Chief Executive Ofﬁ cer of the Company. The board conﬁ rms that this has not concentrated power in the hands of one individual or compromised accountability and independent decision- making for the following reasons: 1. the independent directors form the majority on the KCL board; 2. the independent directors actively participate during board meetings and challenge the assumptions and proposals of management unreservedly, both during and outside of board meetings via e-mail or the telephone, on pertinent issues affecting the affairs and business of the Group; and 3. to enhance the independence of the board, a Lead Independent Director has been appointed to coordinate the activities of the independent directors and act as the principal liaison between the independent directors and the Chair on sensitive issues. The Lead Independent Director holds meetings with the independent directors (without the presence of management) twice a year and on other occasions when required. In the case of KCL which is in three large core businesses, the board is of the ﬁ rm and unanimous view that it is in the best interests of the Company to continue to have an Executive Chairman so that the board, and in particular the non-executive 38 Keppel Corporation Limited Report to Shareholders 2007 Corporate Governance directors, can have the beneﬁ t of a Chairman who is knowledgeable about the businesses of the Company and is thereby better able to guide discussions and ensure that the board is properly briefed in a timely manner on pertinent issues and developments, and at the same time have the beneﬁ t of objective and independent views from the independent directors. It is evident from the results of the assessment on the effectiveness of the board, and the assessment on the performance of the Chairman, that the Executive Chairman has enhanced the effectiveness of the individual non-executive directors, and the board as a whole, by providing the board with a thorough understanding of the businesses and ensuring open and robust dialogue between the board and management. It is the KCL board’s belief that it is the person who ﬁ lls the role that matters, rather than whether the roles are separate or combined per se. The board retains the right to review the current status as facts and circumstances change. The Executive Chairman, with the assistance of the Company Secretary, schedules meetings and prepares meeting agenda to enable the board to perform its duties responsibly having regard to the ﬂ ow of the Company’s operations. The Executive Chairman sets guidelines on and monitors the ﬂ ow of information from management to the board to ensure that all material information are provided timeously to the board for the board to make good decisions. He also encourages constructive relations between the board and management, Mr Tony Chew (third from left), Lead Independent Director, directors and senior management from the business units at the Securities Investors Association’s 8th Investors’ Choice Awards. Keppel Corporation Limited Report to Shareholders 2007 Corporate Governance 39 CORPORATE GOVERNANCE Process for appointment of new directors In 2004, the Nominating Committee recommended, and the board approved, a formal process for the selection of new directors to increase transparency of the nominating process in identifying and evaluating nominees for directors. The Nominating Committee (NC) leads the process and makes recommendations to the board as follows: a. NC evaluates the balance of skills, knowledge and experience on the board and, in the light of such evaluation and in consultation with management, prepares a description of the role and the essential and desirable competencies for a particular appointment. b. External help (for example, Singapore Institute of Directors, search consultants, open advertisement) to be used to source for potential candidates if need be. Directors and management may also make suggestions. c. NC conducts formal interview of short-listed candidates to assess suitability and to ensure that the candidate(s) are aware of the expectations and the level of commitment required. d. NC makes recommendations to the board for approval. Criteria for appointment of new directors All new appointments are subject to the recommendation of the Nominating Committee based on the following objective criteria: 1. Integrity 2. Independent mindedness 3. Diversity – Possess core competencies that meet the current needs of the Company Keppel’s board and management place importance in grooming talents including those in our overseas units. and between the Executive Directors and non-executive directors. In this regard, the Executive Chairman has initiated informal meetings on a regular basis for management to brief the directors on prospective deals and potential developments at an early stage before formal board approval is sought. He also ensures that relevant information on business initiatives, industry developments and analyst and press commentaries on matters in relation to the Company or the industries in which it operates are continuously circulated to board members so as to enable them to be updated and thereby enhance the effectiveness of the non-executive directors and the board as a whole. He has also made available on the Company’s premises an ofﬁ ce for the non-executive directors’ use at any time to facilitate direct access to management. The Executive Chairman takes a leading role in the Company’s drive to achieve and maintain a high standard of corporate governance with the full support of the directors, Company Secretary and management. BOARD MEMBERSHIP Principle 4: Formal and transparent process for the appointment of new directors to the board Nominating Committee The Company has established a Nominating Committee to, among other things, make recommendations to the board on all board appointments and oversee the Company’s succession and leadership development plans. The Nominating Committee comprises entirely independent directors; namely, Mr Sven Ullring (Chairman), Tsao Yuan Mrs Lee Soo Ann (Member) and Mrs Oon Kum Loon (Member). The Executive Chairman also ensures effective communication with shareholders. The terms of reference of the Nominating Committee are disclosed in the Appendix hereto. 40 Keppel Corporation Limited Report to Shareholders 2007 Corporate Governance and complement the skills and competencies of the existing directors on the board 4. Able to commit time and effort to carry out duties and responsibilities effectively – proposed director is on not more than six principal boards 5. Track record of making good decisions 6. Experience in high-performing companies 7. Financially literate The Nominating Committee is also charged with the responsibility of re-nomination having regard to the director’s contribution and performance (such as attendance, preparedness, participation and candour), with reference to the results of the assessment of the performance of the individual director by his peers for the previous ﬁ nancial year. The directors submit themselves for re-nomination and re-election at regular intervals of at least once every three years. Pursuant to the Company’s Articles of Association, one-third of the directors retire from ofﬁ ce at the Company’s annual general meeting, and a newly appointed director must submit himself for re-election at the annual general meeting immediately following his appointment. extend the term and retain the services of the director rather than lose the beneﬁ t of his contribution. The NC is also charged with determining the “independence” status of the directors annually. Please refer to page 37 on the basis of the NC’s determination as to whether a director should or should not be deemed independent. The NC also determines annually whether a director with multiple board representations is able to and has been adequately carrying out his duties as a director of the Company. The NC took into account the results of the assessment of the effectiveness of the individual director, and the respective directors’ actual conduct on the board, in making this determination, and is satisﬁ ed that all the directors have been able to and have adequately carried out their duties as director notwithstanding their multiple board representations. The NC has adopted internal guidelines addressing competing time commitments that are faced when directors serve on multiple boards. As a guide, directors should not serve on more than six principal boards. As a matter of policy, a non-executive director would serve a maximum of two three-year terms of appointment. However, the board recognises the contribution of directors who over time have developed deep insight into the Group’s businesses and operations and who are therefore able to provide invaluable contribution to the board as a whole. In such cases, the board would exercise its discretion to The following key information regarding directors are set out in the following pages of this Annual Report: Pages 213 to 216 and 219: Academic and professional qualiﬁ cations, board committees served on (as a member or Chairman), date of ﬁ rst appointment as director, date of last re-election as director, directorships or chairmanships both present and past held over the preceding ﬁ ve years in other listed companies and other major appointments, whether appointment is executive or non-executive, whether considered by the Nominating Committee to be independent; and Pages 147 to 148: Shareholding in the Company and its subsidiaries. BOARD PERFORMANCE Principle 5: Formal assessment of the effectiveness of the board as a whole and the contribution by each director to the effectiveness of the board The board has implemented formal processes for assessing the effectiveness of the board as a whole, the contribution by each individual director to the effectiveness of the board, as well as the effectiveness of the Chairman of the board. To ensure that the assessments are done promptly and fairly, the board has appointed an independent third party (the “Independent Co-ordinator”) to assist in collating and analysing the returns of the board members. Mrs Fang Ai Lian, Chairman, Ernst & Young, was appointed for this role. The evaluation processes and performance criteria are disclosed in the Appendix to this report. In her consolidated report to the board, the Independent Co-ordinator made the following comments in relation to the Company’s board processes: “there continues to be improvement in KCL’s board processes, and feedback had been taken on board and addressed by the relevant parties.” Keppel Corporation Limited Report to Shareholders 2007 Corporate Governance 41 CORPORATE GOVERNANCE matters at hand would be present at the relevant time during the board meeting. The directors are also provided with the names and contact details of the Company’s senior management and the Company Secretary to facilitate direct access to senior management and the Company Secretary. The Company fully recognises that the ﬂ ow of relevant information on an accurate and timely basis is critical for the board to be effective in the discharge of its duties. Management is therefore expected to provide the board with accurate information in a timely manner concerning the Company’s progress or shortcomings in meeting its strategic business objectives or ﬁ nancial targets and other information relevant to the strategic issues facing the Company. Management also provides the board members with management accounts on a monthly basis. Such reports keep the board informed, on a balanced and understandable basis, of the Group’s performance, ﬁ nancial position and prospects and consist of the consolidated proﬁ t and loss accounts, analysis of sales, operating proﬁ t, pre-tax and attributable proﬁ t by major divisions compared against the budgets, together with explanation given for signiﬁ cant variances for the month and year-to-date. The Company Secretary administers, attends and prepares minutes of board proceedings. She assists the Chairman to ensure that board procedures (including but not limited to assisting the Chairman to ensure the timely and good information ﬂ ow to the board and board committees, and between senior management and the non-executive directors, and facilitating orientation Regular results conferences, complete with webcast, are held to ensure timely and comprehensive disclosure of shareholders information. The board assessment exercise provided an opportunity to obtain constructive feedback from each director on whether the board’s procedures and processes allowed him to discharge his duties effectively and the changes which should be made to enhance the effectiveness of the board as a whole. The assessment exercise also helped the directors to focus on their key responsibilities. The individual director assessment exercise allowed for peer review with a view to raising the quality of board members. It also assisted the Nominating Committee in determining whether to re-nominate directors who are due for retirement at the next annual general meeting, and in determining whether directors with multiple board representations are nevertheless able to and have adequately discharged their duties as directors of the Company. ACCESS TO INFORMATION Principle 6: Board members to have complete, adequate and timely information As a general rule, board papers are required to be sent to directors at least seven days before the board meeting so that the members may better understand the matters prior to the board meeting and discussion may be focused on questions that the directors may have. However, sensitive matters may be tabled at the meeting itself or discussed without any papers being distributed. Managers who can provide additional insight into the 42 Keppel Corporation Limited Report to Shareholders 2007 Corporate Governance Principle 9: There should be clear disclosure of remuneration policy, level and mix of remuneration, and procedure for setting remuneration Remuneration Committee The Remuneration Committee comprises entirely non-executive directors, 3 out of 4 of whom (including the Chairman) are independent; namely: Mr Sven Ullring (Chairman), Tsao Yuan Mrs Lee Soo Ann (Member), Mr Leung Chun Ying2 (Member) and Mr Tow Heng Tan (Member). The Remuneration Committee is responsible for ensuring a formal and transparent procedure for developing policy on executive remuneration and for determining the remuneration packages of individual directors and senior management. The Remuneration Committee assists the board to ensure that remuneration policies and practices are sound in that they are able to attract, retain and motivate without being excessive, and thereby maximise shareholder value. The Remuneration Committee recommends to the board for endorsement a framework of remuneration (which covers all aspects of remuneration including directors’ fees, salaries, allowances, bonuses, options and beneﬁ ts in kind) and the speciﬁ c remuneration packages for each director and the Executive Chairman. The Remuneration Committee also reviews the remuneration of senior management and administers the KCL Share Option Scheme. The Committee has access to expert advice in the ﬁ eld of executive compensation outside the Company where required. 2 Mr Leung Chung Ying resigned as member of the Remuneration Committee with effect from 1 October 2007. Board members interact with young managers from its worldwide operations at an annual talent development programme. and assisting in the professional development of the directors) are followed and regularly reviewed to ensure effective functioning of the board, and that the Company’s memorandum and articles of association and relevant rules and regulations, including requirements of the Companies Act, Securities & Futures Act and Listing Manual of the Singapore Exchange Securities Trading Limited (“SGX”), are complied with. She also assists the Chairman and the board to implement and strengthen corporate governance practices and processes with a view to enhancing long-term shareholder value. She is also the primary channel of communication between the Company and the SGX. The appointment and removal of the Company Secretary are subject to the approval of the board. Subject to the approval of the Chairman, the directors, whether as a group or individually, may seek and obtain independent professional advice to assist them in their duties, at the expense of the Company. REMUNERATION MATTERS Principle 7: The procedure for developing policy on executive remuneration and for ﬁ xing remuneration packages of individual directors should be formal and transparent Principle 8: Remuneration of directors should be adequate but not excessive Keppel Corporation Limited Report to Shareholders 2007 Corporate Governance 43 CORPORATE GOVERNANCE ANNUAL REMUNERATION REPORT Policy in respect of non-executive directors’ remuneration The remuneration of the non-executive directors is paid by way of directors’ fees in cash and/or in a ﬁ xed number of KCL shares as follows: i. Cash Component: The amount of directors’ fees payable in cash is dependent on the respective non- executive directors’ level of responsibility. Each non-executive director is paid a basic fee. In addition, non-executive directors who perform additional services in Board Committees are paid an additional fee for such services. The members of the Audit, Board Risk, and Executive Committees are paid a higher fee than the members of the other Board Committees because of the heavier responsibilities and more frequent meetings required of them. The Chairman of each Board Committee is also paid a higher fee compared with the members of the respective Committees in view of the greater responsibility carried by that ofﬁ ce. Executive directors are not paid directors’ fees. The framework for determining the amount of director’s fees payable in cash is set out in Table 2. (ii) Share Component: At an extraordinary general meeting of the Company held in 2007, the shareholders approved the board’s recommendation to amend Article 82 of the Company’s Articles of Association relating to the remuneration of directors to permit the Company to award a ﬁ xed number of KCL shares in the capital of the Company, as shall from time to time be determined by an Ordinary Resolution of the Company, to the non-executive directors as part of their remuneration. The Company is therefore able to remunerate its non- executive directors in the form of KCL shares by the purchase of KCL shares from the market for delivery to the non- executive directors. The incorporation of an equity component in the total remuneration of the non-executive directors is intended to achieve the objective of aligning the interests of the non-executive directors with those of the shareholders and the long-term interests of the Company. The remuneration payable to non- executive directors is subject to shareholders’ approval at the Company’s annual general meetings. Remuneration policy in respect of executive directors and other key executives The Company advocates a performance- based remuneration system that is highly ﬂ exible and responsive to the market, Company’s, business unit’s and individual employee’s performance. The total remuneration mix comprises 3 key components; annual ﬁ xed cash, annual performance incentive and long-term incentive. The annual ﬁ xed cash component comprises the annual basic salary plus any other ﬁ xed allowances. The annual performance incentive is tied to the Company’s, business unit’s and individual employee’s performance, inclusive of a portion which is tied to EVA performance1. The long-term incentive is in the form of share options which are granted based on the individual’s performance and contribution. The compensation structure is designed to enable the Company to stay competitive and relevant. The Company benchmarks its annual ﬁ xed salary at the market median with the variable compensation being performance-driven. More emphasis is placed on the ‘pay-at-risk’ compensation as an employee moves up the corporate ladder. This allows the Company to better align executive compensation towards shareholders’ value creation. The Executive Directors participate in a long-term incentive scheme in the form of the KCL Share Option Scheme, details of which are set out on pages 148, 149, 167, 168 and 169. Table 2 Non-executive director Audit, Board Risk & Executive Committees Remuneration, Nominating & Board Safety Committees – Chairman Member Chairman Member Ratio to retainer of $40,000 $40,000 per annum $30,000 per annum $15,000 per annum $15,000 per annum $7,500 per annum 1.00 0.75 0.38 0.38 0.19 44 Keppel Corporation Limited Report to Shareholders 2007 Corporate Governance Level and mix of remuneration of Directors and Key Executives (who are not also Directors) for the year ended 31 December 2007 The level and mix of each of the directors’ remuneration, and that of each of the key executives (who are not also directors), in bands of $250,000 are set out below. Remuneration Band and Name of Director Abv $9,000,000 Nil Abv $8,750,000 to $9,000,000 Lim Chee Onn Abv $6,250,000 to $8,750,000 Nil Abv $6,000,000 to $6,250,000 Choo Chiau Beng Abv $4,750,000 to $6,000,000 Nil Abv $4,500,000 to $4,750,000 Teo Soon Hoe $250,000 to $4,500,000 Nil Below $250,000 Tony Chew Leong-Chee Lim Hock San Sven Bang Ullring Tsao Yuan Mrs Lee Soo Ann Leung Chun Ying Oon Kum Loon Tow Heng Tan Yeo Wee Kiong Variable or Performance- Related Income/ Bonuses Base/ Fixed Salary – – 13% 77% – – 14% 76% – – 17% 70% – – – – – – – – – – – – – – – – – – Remuneration Band and Name of Key Executive Above $3,250,000 to $3,500,000 Tong Chong Heong Wong Kingcheung, Kevin Above $2,750,000 to $3,250,000 Nil Above $2,500,000 to $2,750,000 Koh Ban Heng Above $1,250,000 to $2,500,000 Nil Above $1,000,000 to $1,250,000 Lam Kwok Chong Above $750,000 to $1,000,000 Ong Tiong Guan Chua Chee Wui 19% 23% 66% 64% – – 22% 30% – – 29% 30% 36% 28% 20% 56% Directors’ Fees Directors’ Allowance Beneﬁ ts- in-Kind Options Remuneration Shares5 Granted – – – – – – – 71% 77% 70% 68% 65% 78% 75% 71% – – – – – – – – – – – – – – – 2% 3% 6% 4% – 3% – 2% – – – – – – – – – – n.m.2 10% – – n.m.2 10% – – n.m.2 13% – – – – – – – – – – – – – – – – – n.m.2 n.m.2 – 15% 13%3 – n.m.2 48%4 – n.m.2 n.m.2 n.m.2 – 41% 44% 16% – – – – – – – 27% 20% 24% 28% 35% 19% 25% 27% – – – – – – – – Notes: 1. A portion of the annual performance incentive is tied to EVA performance whereby one half from current year EVA and one third from accrued EVA bank is paid out, provided EVA remains positive. The balance will be accrued as EVA Bank and this bank is at risk and can become negative should EVA performance be adversely impacted. 2. n.m. – not material. 3. Received Keppel Land Limited Share Options. 4. Received Singapore Petroleum Company Restricted Shares. 5. Estimated value based on KCL shares’ closing price of $13.00 on the last trading day of FY2007. 1 Keppel Corporation Limited Report to Shareholders 2007 Corporate Governance 45 CORPORATE GOVERNANCE Remuneration of employees who are immediate family members of a director or the Executive Chairman No employee of the Company and its subsidiaries was an immediate family member of a director or the Executive Chairman and whose remuneration exceeded $150,000 during the ﬁ nancial year ended 31 December 2007. “Immediate family member” means the spouse, child, adopted child, step-child, brother, sister and parent. Details of the KCL Share Option Scheme The KCL Share Option Scheme (“Scheme”), which has been approved by shareholders of the Company, is administered by the Remuneration Committee. Please refer to pages 148, 149, 167, 168 and 169 for details on the Scheme. ACCOUNTABILITY AND AUDIT Principle 10: The board should present a balanced and understandable assessment of the Company’s performance, position and prospects Principle 11: Establishment of Audit Committee with written terms of reference The board is responsible for providing a balanced and understandable assessment of the Company’s performance, position and prospects, including interim and other price sensitive public reports, and reports to regulators (if required). Management provides all members of the board with management accounts which present a balanced and understandable assessment of the company’s performance, position and prospects on a monthly basis. of the Company’s affairs, whilst preserving the commercial interests of the Company. Financial reports and other price sensitive information are disseminated to shareholders through announcements via SGXnet to the SGX, press releases, the Company’s website, and public webcast and media and analyst brieﬁ ngs. The Company’s Summary Financial Report is sent to all shareholders and its Annual Report is available on request and accessible on the Company’s website. Management provides all board members with management accounts on a monthly basis. Such reports keep the board members informed of the Group’s performance, position and prospects and consist of the consolidated proﬁ t and loss accounts, analysis of sales, operating proﬁ t, pre-tax and attributable proﬁ t by major divisions compared against the respective budgets, together with explanations for signiﬁ cant variances for the month and year-to-date. Audit Committee The Audit Committee comprises the following non-executive directors, all of whom are independent: Mr Lim Hock San (Chairman), Mr Tony Chew Leong-Chee (Member) and Mrs Oon Kum Loon (Member). Mr Lim Hock San and Mrs Oon Kum Loon have accounting and related ﬁ nancial management expertise and experience. The board considers Mr Tony Chew as having sufﬁ cient ﬁ nancial management knowledge and experience to discharge his responsibilities as a member of the Committee. The board has embraced openness and transparency in the conduct The Audit Committee’s main role is to assist the board to ensure integrity of ﬁ nancial reporting and that there is in place sound internal control systems. The Committee’s terms of reference are set out on page 52 herein. The Audit Committee has explicit authority to investigate any matter within its terms of reference, full access to and co-operation by management and full discretion to invite any director or executive ofﬁ cer to attend its meetings, and reasonable resources to enable it to discharge its functions properly. The Company has an internal audit team and together with the external auditors, report independently their ﬁ ndings and recommendations to the Audit Committee. The Audit Committee met with the external auditors 3 times and with the internal auditors 5 times during the year, and once in January 2008 without the presence of management. During the year, the Audit Committee performed independent review of the ﬁ nancial statements of the Company before the announcement of the Company’s quarterly and full-year results. In the process, the Committee reviewed the key areas of management judgment applied for adequate provisioning and disclosure, critical accounting policies and any signiﬁ cant changes made that would have a great impact on the ﬁ nancials. The Audit Committee also reviewed and approved both the Group internal auditor’s and external auditor’s plans to ensure that the plans covered sufﬁ ciently in terms of audit scope in reviewing the signiﬁ cant internal controls of the Company. Such signiﬁ cant controls comprise ﬁ nancial, and operational and compliance controls. All audit ﬁ ndings and recommendations put up by the 46 Keppel Corporation Limited Report to Shareholders 2007 Corporate Governance Keppel strengthens its risk management processes with regular pandemic exercises for our large workforce. internal and the external auditors were forwarded to the Audit Committee. Signiﬁ cant issues were discussed at these meetings. In addition, the Audit Committee undertook a review of the independence and objectivity of the external auditors through discussions with the external auditors as well as reviewing the non- audit fees awarded to them, and has conﬁ rmed that the non-audit services performed by the external auditors would not affect their independence. The Committee also reviewed the adequacy of the internal audit function and is satisﬁ ed that the team is adequately resourced and has appropriate standing within the Company. The Committee has reviewed the “Keppel: Whistle-Blower Protection Policy” (the “Policy”) which provides for the mechanisms by which employees and other persons may, in conﬁ dence, raise concerns about possible improprieties in ﬁ nancial reporting or other matters, and was satisﬁ ed that arrangements are in place for the independent investigation of such matters and for appropriate follow-up action. Following the launch of the Policy, a set of guidelines which was reviewed by the Audit Committee and approved by the board, was issued to assist the Audit Committee in managing allegations of fraud or other misconduct which may be made pursuant to the Policy, so that: • investigations are carried out in an appropriate and timely manner; • administrative, disciplinary, civil and/or criminal actions that are initiated following completion of investigations, are appropriate, balanced, and fair; and • action is taken to correct the weaknesses in the existing system of internal processes and policies which allowed the perpetration of the fraud and/or misconduct, and to prevent a recurrence. On a quarterly basis, management reported to the Audit Committee the interested person transactions (“IPTs”) Keppel Corporation Limited Report to Shareholders 2007 Corporate Governance 47 CORPORATE GOVERNANCE 1 The 2007 Inaugural Annual Safety Convention initiated by the Board Safety Committee saw 22 innovative projects Group-wide. in accordance with the Company’s Shareholders’ Mandate for IPT. The IPTs were reviewed by the internal auditors. All ﬁ ndings were reported during Audit Committee meetings. INTERNAL CONTROLS AND RISK MANAGEMENT Principle 12: Sound system of internal controls The Company’s approach to risk management and internal control is set out in the “Operating and Financial Review” section on pages 123 to 125 of this Annual Report. The Company’s internal and external auditors conduct an annual review of the effectiveness of the Company’s material internal controls, including ﬁ nancial, operational and compliance controls, and risk management. Any material non-compliance or failures in internal controls and recommendations for improvements are reported to the Audit Committee. The Audit Committee also reviews the effectiveness of the actions taken by management on the recommendations made by the internal and external auditors in this respect. During the year, the Audit Committee reviewed the effectiveness of the Company’s internal control and risk management procedures and was satisﬁ ed that the Company’s risk management processes and internal controls are adequate to meet the needs of the Company in its current business environment. 48 Keppel Corporation Limited Report to Shareholders 2007 Corporate Governance Board Risk Committee In October 2004, as part of the effort to further strengthen the Company’s risk management processes, a Board Risk Committee was formed to assist the board in examining the effectiveness of the Group’s risk management system to ensure that a robust risk management system is maintained. The Committee reviews and guides management in the formulation of risk policies and processes to effectively identify, evaluate and manage signiﬁ cant risks, and discusses risk management strategies with management. The Committee reports to the board on material ﬁ ndings and recommendations in respect of signiﬁ cant risk matters. The detailed terms of reference of this Committee is disclosed on page 53 herein. The Board Risk Committee is made up of 3 independent directors (including the Chairman) and a non-executive director who is independent of management. Mrs Oon Kum Loon was appointed Chairman of the Committee because of her wealth of experience in the area of risk management. Prior to serving as Chief Financial Ofﬁ cer in the Development Bank of Singapore (DBS), she was the Managing Director & Head of Group Risk Management, responsible for the development and implementation of a group-wide integrated risk management framework for the DBS Group. Mr Lim Hock San, who is the Chairman of the Audit Committee, has in-depth knowledge and experience in ﬁ nance accountancy, business and management and is the second member of the Board Risk Committee. The third member is Mr Tow Heng Tan who has deep management experience from his extensive business career spanning the management consultancy, investment banking and stock-broking industries. Mr Tow is currently the Chief Investment Ofﬁ cer of Temasek Holdings. The fourth member is Mr Yeo Wee Kiong who is a director in Drew & Napier LLC, a leading law corporation in Singapore, practicing in the areas of corporate law, corporate ﬁ nance, mergers and acquisitions, listings on stock exchange, venture capital, banking and securities. Mr Yeo sits on the boards of several companies (listed and non-listed) and has vast experience in the corporate world and wide knowledge ranging from engineering, ﬁ nance and law. Mr Choo Chiau Beng, Senior Executive Director and Chairman & CEO of Keppel O&M, shares insights with investors and fund managers. Keppel Corporation Limited Report to Shareholders 2007 Corporate Governance 49 CORPORATE GOVERNANCE INTERNAL AUDIT Principle 13: Independent internal audit function The role of the internal auditors is to assist the Audit Committee to ensure that the Company maintains a sound system of internal controls by regular monitoring of key controls and procedures and ensuring their effectiveness, undertaking investigations as directed by the Audit Committee, and conducting regular in-depth audits of high risk areas. The Company’s internal audit functions are serviced in-house (“Group Internal Audit”). Staffed by suitably qualiﬁ ed executives, Group Internal Audit has unrestricted direct access to the Audit Committee. The Head of Group Internal Audit’s primary line of reporting is to the Chairman of the Audit Committee, although she reports administratively to the Executive Chairman of the Company. As a corporate member of the Singapore branch of the Institute of Internal Auditors Incorporated, USA (“IIA”), Group Internal Audit is guided by the Standards for the Professional Practice of Internal Auditing set by the IIA. These standards consist of attribute standards, performance standards and implementation standards. During the year, Group Internal Audit adopted a risk-based auditing approach that focuses on material internal controls, including ﬁ nancial, operational and compliance controls. Audits were carried out on all signiﬁ cant business units in the Company, inclusive of limited review performed on dormant and inactive companies. All Group Group Finance Director Teo Soon Hoe interacts with shareholders of Keppel Corporation. Internal Audit’s reports are submitted to the Audit Committee for deliberation with copies of these reports extended to the Executive Chairman and the relevant senior management ofﬁ cers. In addition, internal audit’s summary of ﬁ ndings and recommendations are discussed at the Audit Committee meetings. Company’s Group Corporate Communications Department (with assistance from the Group Control & Accounts and Group Legal Departments, when required) regularly communicates with shareholders and receives and attends to their queries and concerns. COMMUNICATION WITH SHAREHOLDERS Principle 14: Regular, effective and fair communication with shareholders Principle 15: Greater shareholder participation at Annual General Meetings In addition to the matters mentioned above in relation to “Access to Information/Accountability”, the Material information are disclosed in a comprehensive, accurate and timely manner via SGXnet and the press. To ensure a level playing ﬁ eld and provide conﬁ dence to shareholders, unpublished price sensitive information are not selectively disclosed, and on the rare occasion when such information are inadvertently disclosed, they are immediately released to the public via SGXnet and the press. 50 Keppel Corporation Limited Report to Shareholders 2007 Corporate Governance The annual general meeting is a platform for the Board of Directors to engage shareholders. Shareholders are informed of shareholders’ meetings through notices published in the newspapers and reports or circulars sent to all shareholders. Shareholders are invited at such meetings to put forth any questions they may have on the motions to be debated and decided upon. If any shareholder is unable to attend, he is allowed to appoint up to two proxies to vote on his behalf at the meeting through proxy forms sent in advance. At shareholders’ meetings, each distinct issue is proposed as a separate resolution. present at such Meeting to assist the directors to address shareholders’ queries, if necessary. The Company is not implementing absentia voting methods such as voting via mail, e-mail or fax until security, integrity and other pertinent issues are satisfactorily resolved. The Company Secretary prepares minutes of shareholders’ meetings, which incorporates substantial comments or queries from shareholders and responses from the board and management. These minutes are available to shareholders upon their requests. The Chairmen of each Board Committee are required to be present to address questions at the Annual General Meeting. External auditors are also SECURITIES TRANSACTIONS Insider Trading Policy The Company has a formal Insider Trading Policy on dealings in the securities of the Company and its listed subsidiaries, which sets out the implications of insider trading and guidance on such dealings. The policy has been distributed to the Group’s directors and ofﬁ cers. It has also adopted the Best Practices Guide on Dealings in Securities issued by the SGX. In line with Best Practice Guide on Dealing in Securities issued by the SGX, the Company issues circulars to its Directors and ofﬁ cers informing that the Company and its ofﬁ cers must not deal in listed securities of the Company one month before the release of the full-year results and two weeks before the release of quarterly results, and if they are in possession of unpublished price- sensitive information. Keppel Corporation Limited Report to Shareholders 2007 Corporate Governance 51 CORPORATE GOVERNANCE APPENDIX BOARD COMMITTEES – TERMS OF REFERENCE A. Executive Committee 1. Consider and, if deemed ﬁ t, approve investments, acquisitions and disposal of assets of the Company and its subsidiaries which are above $10 million or 10% of the net tangible assets (whichever is the lower) of the respective companies but less than $100 million. 2. Consider and recommend to the Board proposed investments, acquisitions and disposal of assets of the Company and its subsidiaries which are $100 million or above. 3. Consider and recommend to the Board proposed investments and acquisitions of the Company and its subsidiaries which do not fall within the Company’s core businesses but which are considered strategic investments for the long-term prospects of the Company. 4. Consider and, if deemed ﬁ t, approve capital equipment purchases and leases of the Company and its subsidiaries which are above $10 million but less than $100 million. 5. Consider and recommend to the Board on proposed capital equipment purchases and leases of the Company and its subsidiaries which are above $100 million. 6. Consider and, if deemed ﬁ t, approve performance bonds and guarantees to be furnished by the Company or its subsidiaries which are above $10 million but less than $100 million. 7. Consider and recommend to the Board on proposed performance bonds and guarantees to be furnished by the Company or its subsidiaries which are above $100 million. 8. Consider and, if deemed ﬁ t, approve loans to companies within the Keppel Group of an amount exceeding $30 million but up to $100 million. 9. Consider and, if deemed ﬁ t, approve foreign exchange transactions for companies within the Keppel Group of an amount exceeding $100 million but up to $200 million. 10. In relation to matters which require the approval of this Committee pursuant to other provisions of these terms of reference, approve the afﬁ xation of the Common Seal onto any legal document in accordance with the Company’s Articles of Association. 11. Approve the banks in Singapore and overseas with which the Company may transact. 12. Approve the establishment and registration of local and foreign ofﬁ ces of the Company. 13. Carry out such other functions as may be delegated to it by the Board. 14. Sub-delegate any of its powers within its terms of reference as listed above, from time to time, as this Committee may deem ﬁ t. Matters arising at meetings of the Executive Committee shall be decided by a simple majority of votes including the afﬁ rmative vote of at least one member who is an independent director. B. Audit Committee 1. Examine the effectiveness of the Group’s internal control system, including ﬁ nancial, operational and compliance controls, to ensure that a sound system of internal controls is maintained. 2. Review audit plans and reports of the external auditors and internal auditors, and consider the effectiveness of actions or policies taken by management on the recommendations and observations. 3. Review ﬁ nancial statements and formal announcements relating to ﬁ nancial performance, and review signiﬁ cant ﬁ nancial reporting issues and judgments contained in them, to ensure integrity of such statements and announcements. 4. Review the independence and objectivity of the external auditors annually. 5. Review the nature and extent of non- audit services performed by the auditors. 6. Meet with external auditors and internal auditors, without the presence of management, at least annually. 7. Make recommendations to the Board on the appointment, re-appointment and removal of the external auditor, and approve the remuneration and terms of engagement of the external auditor. 8. Review the effectiveness of the Company’s internal audit function. 9. Ensure that the internal audit function is adequately resourced and has appropriate standing within the Company, at least annually. 10. Review arrangements by which employees of the Company may, in conﬁ dence, raise concerns about possible improprieties in matters of ﬁ nancial reporting or other matters, to ensure that arrangements are in place for the independent investigation of such matters and for appropriate follow up action. 11. Review interested person transactions. 12. Investigate any matters within the Audit Committee’s purview, whenever it deems necessary. 13. Report to the Board on material matters, ﬁ ndings and recommendations. 14. Perform such other functions as the Board may determine. 52 Keppel Corporation Limited Report to Shareholders 2007 Corporate Governance 15. Sub-delegate any of its powers within its terms of reference as listed above from time to time as this Committee may deem ﬁ t. C. Board Risk Committee 1. Review and guide the Group in formulating its risk policies. 2. Discuss risk mitigation strategies with management. 3. Examine the effectiveness of the Group’s risk management system to ensure that a robust risk management system is maintained. 4. Review and guide in establishing a process to effectively identify, evaluate and manage signiﬁ cant risks. 5. Review risk limits where applicable. 6. Review the Group’s risk proﬁ le periodically. 7. Provide a forum for discussion on risk issues. 8. Report to the Board on material matters, ﬁ ndings and recommendations. 9. Perform such other functions as the Board may determine. 10. Sub-delegate any of its powers within its terms of reference as listed above from time to time as this Committee may deem ﬁ t. D. Nominating Committee 1. Recommend to the Board the appointment/re-appointment of directors. 2. Annual review of skills required by the Board, and the size of the Board. 3. Annual review of independence of each director, and to ensure that the Board comprises at least one-third independent directors. 4. Decide where a director has multiple board representation, whether the director is able to and has been adequately carrying out his duties as director of the Company. 5. Decide how the Board’s performance may be evaluated, and propose objective performance criteria to assess effectiveness of the Board as a whole and the contribution of Save that a member of this Committee shall not be involved in the deliberations in respect of any remuneration, compensation, options or any form of beneﬁ ts to be granted to him. each director. 6. Annual assessment of the effectiveness of the Board as a whole and individual directors. 7. Review succession and leadership development plans. 8. Sub-delegate any of its powers within its terms of reference as listed above, from time to time, as this Committee may deem ﬁ t. E. Remuneration Committee 1. Recommend to the Board a framework of remuneration for Board members and key executives, and the speciﬁ c remuneration packages for each director and the Chief Executive Ofﬁ cer (if the Chief Executive Ofﬁ cer is not an Executive Director). 2. Decide the early termination compensation (if any) of directors. 3. Consider whether directors should be eligible for beneﬁ ts under long- term incentive schemes (including weighing the use of share schemes against the other types of long-term incentive scheme). 4. Review the terms, conditions and remuneration of the senior management. 5. Administer the Company’s employee share option scheme (the “KCL Share Option Scheme”) in accordance with the rules of the scheme. 6. Grant share options under the KCL Share Option Scheme as this Committee may deem ﬁ t. F. Board Safety Committee 1. Review and examine the effectiveness of the Keppel Group companies’ safety management system, including training and monitoring systems, to ensure that a robust safety management system is maintained. 2. Review and examine the Keppel Group companies’ safety procedures against industry best practices, and monitor its implementation. 3. Provide a discussion forum on developments and best practices in safety standards and practices, and the feasibility of implementing such developments and best practices. 4. Assist in enhancing safety awareness and culture within the Keppel Group. 5. Ensure that the safety functions in Keppel Group Companies are adequately resourced (in terms of number, qualiﬁ cation, and budget) and has appropriate standing within the organisation. 6. Consider management’s proposals on safety-related matters. 7. Carry out such investigations into safety-related matters as the Committee deems ﬁ t. 8. Report to the Board on material matters, ﬁ ndings and recommendations. 9. Perform such other functions as the Board may determine. 7. Sub-delegate any of its powers within its terms of reference as listed above, from time to time, as this Committee may deem ﬁ t. 10. Sub-delegate any of its powers within its terms of reference as listed above from time to time as the Committee may deem ﬁ t. Keppel Corporation Limited Report to Shareholders 2007 Corporate Governance 53 CORPORATE GOVERNANCE NATURE OF CURRENT DIRECTORS’ APPOINTMENTS AND MEMBERSHIP ON BOARD COMMITTEES Director Board Membership Audit Executive Nominating Remuneration Risk Safety Committee Membership Lim Chee Onn Tony Chew Leong-Chee Executive Chairman – Chairman Lead Independent Member Member – – – – – Member – – Director Lim Hock San Sven Bang Ullring Tsao Yuan Mrs Lee Soo Ann Leong Chun Ying1 Oon Kum Loon Tow Heng Tan Yeo Wee Kiong Choo Chiau Beng Teo Soon Hoe Independent Chairman Member – Independent – Independent – Independent Independent Member Member Member – – Chairman Chairman – Member Member – Member – – – Member – Member – – – – Chairman – – Member Member – Member Non-Independent & Non-Executive Independent Executive Director Executive Director & Group Finance Director – Member – – – Member – Member – – – – Member Chairman – – – – – – Note 1 Mr Leung Chun Ying resigned as Director from 1 October 2007. PROCESS FOR SELECTING NEW DIRECTORS EVALUATION PROCESSES Board Each Board member is required to complete a Board Evaluation Questionnaire and send the Questionnaire direct to the Independent Co-ordinator (“IC”) within ﬁ ve working days. An “Explanatory Note’” is attached to the Questionnaire to clarify the background, rationale and objectives of the various performance criteria used in the Board Evaluation Questionnaire with the aim of achieving consistency in the understanding and interpretation of the questions. Based on the returns from each of the directors, the Independent Co-ordinator prepares a consolidated report and briefs the Chairman of the Nominating Committee (“NC”) on the report. Thereafter, the IC presents the report for discussion at a meeting of the non-executive directors (“NEDs”), chaired by the Lead Independent Director. Following the NED meeting, the IC will, together with the Chairman of the NC, brief the Chairman of the Board on the report and the recommendations of the NEDs. The IC will thereafter present the report to the Board together with the recommendations of the NEDs for discussion on the changes which should be made to help the Board discharge its duties more effectively. Individual Directors The Board differentiates the assessment of an Executive Director from that of a non-executive director (“NED”). In the case of the assessment of the individual Executive Director, each NED is required to complete the Executive Director’s assessment form and send the form directly to the IC within ﬁ ve working days. It is emphasised that the purpose of the assessment is to assess each of the Executive Directors on their respective performance on the Board (as opposed to their respective executive performance). The Executive Directors are not required to perform a self, nor a peer, assessment. Based on the returns from each of the NEDs, the IC prepares a consolidated report and briefs the Chairman of the Nominating Committee (“NC”) on the report. Thereafter, the IC presents the report for discussion at a meeting of the non- executive directors (“NEDs”), chaired by the Lead Independent Director. Following the NED meeting, the IC will, together with the Chairman of the NC, brief the Chairman of the Board on the report and the recommendations of the 54 Keppel Corporation Limited Report to Shareholders 2007 Corporate Governance NEDs. The IC will thereafter present the report to the Board together with the recommendations of the NEDs. The Chairman of the NC will thereafter meet with the Executive Directors individually to provide the necessary feedback on their respective Board performance with a view to improving their Board performance and shareholder value. report for discussion at a meeting of the NEDs, chaired by the Lead Independent Director. Following the NED meeting, the IC will, together with the Chairman of the NC, brief the Chairman of the Board on the report and the recommendations of the NEDs. The IC will thereafter present the report to the Board together with the recommendations of the NEDs. As for the assessment of the performance of the NEDs, each director (both NEDs and Executive Directors) is required to complete the NED’s assessment form and send the form directly to the IC within ﬁ ve working days. Each NED is also required to perform a self-assessment in addition to a peer assessment. Based on the returns, the IC prepares a consolidated report and briefs the Chairman of the NC on the report. Thereafter, the IC presents the report for discussion at a meeting of the NEDs, chaired by the Lead Independent Director. Following the NED meeting, the IC will, together with the Chairman of the NC, brief the Chairman of the Board on the report and the recommendations of the NEDs. The IC will thereafter present the report to the Board together with the recommendations of the NEDs. The Chairman of the NC will thereafter meet with the NEDs individually to provide the necessary feedback on their respective board performance with a view to improving their Board performance and shareholder value. Chairman The Chairman Evaluation Form is completed by each NED and sent directly to the IC within ﬁ ve working days. Based on the returns, the IC prepares a consolidated report and briefs the Chairman of the NC on the report. Thereafter, the IC presents the PERFORMANCE CRITERIA The performance criteria for the Board evaluation are in respect of the Board size and composition, Board independence, Board processes, Board information and accountability, Board performance in relation to discharging its principal functions, Board committee performance in relation to discharging their responsibilities set out in their respective terms of reference, and ﬁ nancial targets which includes return on capital employed, return on equity, debt/equity ratio, dividend pay-out ratio, economic value added, earnings per share, and total shareholder return (i.e. dividend plus share price increase over the year). The individual director’s performance criteria are categorised into 5 segments; namely, (1) interactive skills (under which factors as to whether the director works well with other directors, and participates actively are taken into account); (2) knowledge (under which factors as to the director’s industry and business knowledge, functional expertise, whether he provides valuable inputs, his ability to analyse, communicate and contribute to the productivity of meetings, and his understanding of ﬁ nance and accounts are taken into consideration; (3) director’s duties (under which factors as to the director’s board committee work contribution, whether the director takes his role of director seriously and works to further improve his own performance, whether he listens and discusses objectively and exercises independent judgment, and meeting preparation are taken into consideration); (4) availability (under which the director’s attendance at Board and Board committee meetings, whether he is available when needed, and his informal contribution via e-mail, telephone, written notes etc are considered, and (5) overall contribution, bearing in mind that each director was appointed for his/her strength in certain areas which taken together provides the Board with the required mix of skills and competencies. The assessment of the Chairman of the Board is based on his ability to lead, whether he established proper procedures to ensure the effective functioning of the Board, whether he ensured that the time devoted to Board meetings were appropriate (in terms of number of meetings held a year and duration of each Board meeting) for effective discussion and decision-making by the Board, whether he ensured that information provided to the Board was adequate (in terms of adequacy and timeliness) for the Board to make informed and considered decisions, whether he guides discussions effectively so that there is timely resolution of issues, whether he ensured that meetings are conducted in a manner that facilitates open communication and meaningful participation, and whether he ensured that Board committees are formed where appropriate, with clear terms of reference, to assist the Board in the discharge of its duties and responsibilities. Keppel Corporation Limited Report to Shareholders 2007 Corporate Governance 55 INVESTOR RELATIONS We are committed to engage and further strengthen relationships with our stakeholders. 2000 2001 2002 2003 2004 2005 2006 2007 Total Shareholder Return (TSR) (%) Keppel Corporation Straits Times Index (18.2) (20.0) 2.0 (13.4) 37.6 (14.5) 75.2 38.3 48.7 21.6 32.5 19.3 65.3 32.4 51.7 21.0 PROACTIVE COMMUNICATION Clear, consistent and regular communication is a hallmark of Keppel Corporation’s relationship with investors and analysts worldwide. Our Investor Relations is guided by the principle of achieving best practices in corporate governance and disclosure. Led by the management, our dedicated Investor Relations team and heads of business units meet institutional investors and analysts throughout the year. The increased level of interest in the progress and prospects of the Company has generated a higher level of investor- related activities in 2007. We held 143 face-to-face investor meetings in Singapore alone. Through non-deal roadshows to the US, UK, Europe, Japan and Hong Kong, our senior management continued to maintain relationships with our loyal shareholders and sustain the huge interest among overseas fund managers. Investors and analysts gain better insights into the offshore and marine operations through yard visits. 56 Keppel Corporation Limited Report to Shareholders 2007 Investor Relations We extended our outreach with meetings in the Middle East in 2007. Such one-on-one meetings allow us to give investors insights into the Group’s key developments, strategic directions and plans for sustainable earnings growth. To aid in the better understanding of our business units and operations, we facilitated meetings with management of key subsidiaries which included tours of the facilities. Investors from the UK, Scandinavia, US and the Asian region visited our shipyards for insights into our rigbuilding operations and facilities. Since the inauguration of the Keppel Seghers Ulu Pandan NEWater Plant in March 2007, a number of fund managers have toured the water reuse facility, familiarising themselves with the technologies of the plant. During the year, we continued to invite investors and analysts to major corporate functions, ranging from vessel-naming ceremonies to arts and charity events sponsored by the Group. Such events were excellent platforms for the investing community to interact with the senior executives of our business units. Our management and Investor Relations team also engaged overseas funds through conference calls, enabling us to clarify issues and provide updates on our businesses. In August 2007, we participated in a major oil and offshore conference, the 14th Annual Oil & Offshore Conference, held by Pareto Securities in Norway. Senior Executive Director Choo Chiau Beng, who is also the Chairman/CEO of Keppel Offshore & Marine, shared his thoughts on the rigbuilding business at the conference, attended by over 1,400 personnel from the global ﬁ nancial community and leading oil and gas related companies. To reach more stakeholders in a timely and effective manner, we continued our ‘live’ webcasts of our quarterly results Keppel Seghers Ulu Pandan NEWater Plant receives its ﬁ rst visit from institutional fund managers. presentations on our performance and business outlook. These webcasts allow viewers from around the globe to post questions through the Internet for management to respond to in real time. As Keppel continues to build sustainable businesses, we are committed to keeping our communication channels accessible and timely so as to serve the interests of the investing community well. News releases are promptly posted on our website, www.kepcorp.com, at the end or beginning of each market day, in addition to the Singapore Exchange website. Duty ofﬁ cers are readily accessible to take queries. SHAREHOLDER ENDORSEMENT At the last Annual General Meeting, shareholders gave approval to the proposal by Keppel’s management for the subdivision of each Keppel Corporation Share into two. The Share began trading on the ex-date at $10.80 and reached an all-time high of $15.30 on 8 October 2007. Despite the overall stock market decline as a result of uncertainties arising from the US sub-prime fallout, Keppel Corporation’s share price closed at a creditable $13.00 per share at the end of the year. This represents a share price gain of 48% over 2006’s, outpacing the improvement of 17% recorded by the Straits Times Index (STI) for 2007. Keppel Corporation’s Total Shareholder Return (TSR) of 52% in 2007 was higher than the STI’s TSR of 21%, its eighth straight year of outperforming STI’s TSR. RECOGNITION Our proactive investor relations approach and commitment to corporate transparency was recognised by the investing community and regulatory bodies. During the year, Keppel was ranked the best in Investor Relations at the Singapore Corporate Awards, clinching a Gold Award. We won the esteemed Golden Circle Award for being the best in transparency across all categories and overall winner in the Most Transparent Company category for multi-industry/ conglomerate companies at the eighth SIAS Investors’ Choice Awards. Executive Chairman Lim Chee Onn was honoured with the Best Investor Relations by a CEO Award at the IR Magazine South East Asia Awards while Keppel received commendation for its efforts in investor relations. We were ranked second for excellence in ﬁ nancial information disclosures by The Business Times Corporate Transparency Index (October 2007). Keppel Corporation Limited Report to Shareholders 2007 Investor Relations 57 AWARDS AND ACCOLADES Keppel is lauded for achievements in business excellence. CORPORATE GOVERNANCE AND TRANSPARENCY Singapore Corporate Awards Keppel Corporation • Gold Award, Best Managed Board • Gold Award, Best Investor Relations • Gold Award, Best Annual Report – all awards won are in the category for listed ﬁ rms with more than $500 million market capitalisation Securities Investors Association of Singapore 8th Investors’ Choice Awards Keppel Corporation • Golden Circle Award, for being the best in transparency across all categories • Winner, Most Transparent Company Award (Multi-Industry/Conglomerate) • Winner, Singapore Corporate Governance Award Keppel took triple honours at the Singapore Corporate Awards 2007. From left, Group Finance Director Teo Soon Hoe, Executive Chairman Lim Chee Onn and Group Corporate Communications General Manager Wang Look Fung. 58 Keppel Corporation Limited Report to Shareholders 2007 Awards and Accolades Keppel Land garnered recognition for its projects as follows: Spring City Golf & Lake Resort, Kunming, China Ranked by Business Initiative Directions of Spain • Gold Winner, International Star Award for Quality Ranked by Asian Golf Monthly • Winner, Best Course in Asia • Winner, Best Course in China Ranked by China Golf Digest • No. 1 Golf Course in China Ria Bintan Golf Club, Bintan, Indonesia Ranked by Asian Golf Monthly • Winner, Best Course in Indonesia • Runner-up, Best Course in Asia Marina Bay Residences, Singapore Awarded by Singapore’s Building and Construction Authority • Green Mark Award CORPORATE CITIZENSHIP Keppel Corporation was presented with Singapore’s highest recognition for arts sponsorship – the Patron of the Arts Award, while SPC received the Associate of the Arts Award. Keppel Singmarine won the SHARE Platinum Award and the 5-Year Outstanding SHARE Award in recognition of its patronage of the Community Chest SHARE Programme. Keppel FELS received the SHARE Achiever Award and the SHARE Corporate Gold Award for matching its employees’ contributions while Keppel Shipyard and Keppel Logistics both won the SHARE Gold Award. SAFETY National Workplace Safety and Health Campaign Keppel O&M • Outstanding Contribution Award for garnering the most pledges to its industry’s workplace safety and health Keppel O&M’s senior management receives the inaugural Offshore & Marine Engineering Award 2007. Keppel Land • Runner-up, Most Transparent Company Award (Property) category in the Forbes’ Global 2000 ranking in March 2007 • Keppel Corporation, Keppel Singapore Petroleum Company (SPC) • Third, Singapore Corporate Governance Award • Runner-up, Most Transparent Company Award (Non-Electronics Manufacturing) Business Times Corporate Transparency Index (Oct 2007) Keppel Corporation, Keppel Land and Keppel T&T were ranked second, fourth and sixth respectively out of 672 Singapore-listed companies for excellence in ﬁ nancial information disclosures. IR Magazine South East Asia Awards Keppel Corporation • Best Investor Relations by a CEO Award • Commendation for the Best Overall Investor Relations, Best Corporate Governance and Best Investor Relations Website categories BUSINESS EXCELLENCE • Keppel Corporation was classed a “global superstar” in the conglomerate Offshore & Marine (Keppel O&M) and Keppel FELS were ranked sixth, seventh and sixteenth respectively in the Singapore International 100 Ranking, based on 2006 overseas revenue • Keppel O&M was conferred the Offshore & Marine Engineering Award 2007 for its distinguished contributions to the industry at the Singapore International Maritime Awards • Keppel O&M was elected to the Offshore Energy Center’s Hall of Fame as a Technology Pioneer in the Construction – Rig Building Shipyards category • SPC won the Energy Company of the Year Award at the Energy Business Awards, Asia • Keppel Shipyard secured Lloyd’s List Maritime Asia Award for being the best shiprepair yard in Asia • Keppel Logistics was bestowed the Best Retail Logistics Service Provider Award (Singapore) in the Frost & Sullivan’s 2007 ASEAN Logistics Keppel Corporation Limited Report to Shareholders 2007 Awards and Accolades 59 The greening of our lifestyle at home, work and play is crucial to the sustainability of our environment. It also makes business sense. Promoting a Green Culture Every effort counts when it comes to protecting our planet for future generations. Global warming, pollution and loss of biodiversity have been attributed to an increase in human activities and negligent acts, causing harm to the environment. The report issued in February 2007 by the United Nations Intergovernmental Panel on Climate Change attests to this. It stated, “Warming of the climate system is unequivocal”, and highlighted that human activities have played a signiﬁ cant part in overloading the atmosphere with carbon dioxide. These and many other environmental issues now top global agendas as people become more aware of the effects of global warming and its impact on their lives and on those of future generations. Keppel is committed to pursue green strategies and processes in our businesses and encourage our people to adopt a green lifestyle. GREEN PRACTICES AT WORK More than supporting the green movement, the Keppel Group has been implementing green strategies and practices in our business operations. In developing property, we take great care to improve the quality of life while minimising the ecological impact. Keppel Land’s developments The Tresor and Marina Bay Residences were conferred the Green Mark Gold Awards by the Singapore Building and Construction Authority for environment-friendly building practices and innovative green features. Keppel was the presenting sponsor of the telecast of documentary Life in the Undergrowth on MediaCorp Arts Central. 61 PROMOTING A GREEN CULTURE “Green practices are the new business imperative. We must set a clear direction, such as an environmental framework, to guide the Group in taking strategic strides to play our part in protecting the environment and growing our businesses.” MR LIM CHEE ONN EXECUTIVE CHAIRMAN, KEPPEL CORPORATION Keppel Land is also redeveloping a new Grade A ofﬁ ce building known as Ocean Financial Centre on the site of the former Ocean Building. It will be state-of-the-art in green and environment- friendly qualities featuring the largest solar panel system and the ﬁ rst hybrid chilled water system in Singapore. Keppel Land plans to introduce green building technologies for all its new property development designs and rigorously conduct energy audits on current buildings to better manage them in a cost and energy-efﬁ cient way. It also aims to obtain ISO 14001 Environment Management System (EMS) certiﬁ cation for its commercial and residential operations by end 2008. Keppel Integrated Engineering (KIE), whose main business is environmental engineering, is focusing its research and development on energy-efﬁ cient recycling technologies for solid waste and wastewater. It is committed to reduce its carbon footprint and improve energy and process efﬁ ciency through value engineering. A signiﬁ cant milestone achieved in 2007 was the adoption of a green blueprint for its businesses. This was followed up with workshops to seek employee feedback and promote ownership of the plan. Amidst its support of various community sustainability projects such as the ‘Bring Your Own Bag Day’, the company also held the inaugural KIE Health, Safety and Environment (HSE) Convention in October 2007 for employees and partners. During the year, its Environmental Division, Keppel Seghers Engineering Singapore, achieved certiﬁ cation for ISO 14001 EMS. In 2008, as KIE presses on to cultivate an eco-mindset in its employees, it is also rolling out green initiatives for its overseas operations. Another initiative would be implementing a ‘preference for eco-compliant vendor/supplier’ during tender evaluation. A concept plan to irrigate and transform the surrounding area of the Doha North Sewage Treatment Works Plant into an EcoPark was unveiled during the Foundation Stone Unveiling Ceremony in January 2008. The proposed EcoPark, if approved, is expected to be the ﬁ rst-of- its-kind to provide a green space for the local community to learn, work and play. Keppel Offshore & Marine (Keppel O&M), led by Keppel FELS, has been conducting its steel blasting in chambers since 1997. Keppel FELS 1 1 62 Keppel Corporation Limited Report to Shareholders 2007 Promoting a Green Culture 2 1. Keppel dove in to launch Singapore’s ﬁ rst coral nursery. 2. Personnel of Keppel Batangas Shipyard soiled their hands for the ‘Tree for Life Project’ under the Green Philippines Programme. and Keppel Shipyard have long been certiﬁ ed with Occupational Health and Safety Assessment Series (OHSAS) 18001 and ISO 14000 EMS respectively. Keppel FELS Brasil has attained both certiﬁ cations. Keppel Shipyard took a step farther to set up an Environmental Task Force in June 2007 dedicated to monitor environmental issues. In the US, Keppel AmFELS has conformed to Texas State Air Quality Permit and Federal Operating Permit requirements. FRAMEWORK FOR A GREEN CULTURE To further consolidate and align the Group’s myriad of green initiatives and provide a clear strategic direction, Keppel Corporation is planning to set up an Environmental Steering Committee (ESC) aimed at developing a Group-wide Environment Masterplan. Members of the ESC are expected to comprise managing directors and chief executive ofﬁ cers of the business units as well as Group Corporate Communications and Group Human Resources. SPC’s co-owned Singapore Reﬁ ning Company initiated a project to increase production of ultra low sulphur diesel or ‘clean fuels’ of Euro-IV standard by 2009. SPC’s Jalan Buroh station offers the cleaner Compressed Natural Gas (CNG) to motorists with cars that can use CNG. Currently, there are about 500 CNG cars on Singapore roads, and the number is expected to grow with increasing environmental awareness. The Environment Masterplan would set out the Group’s green vision, policies, directions and framework for the next ﬁ ve to 10 years. The framework would outline how Keppel could create a sustainable business culture through corporate environmental governance and practices, efﬁ cient use of energy, conservation of resources, identiﬁ cation of new business opportunities in environmental technologies and involvement of employees in environment-protection activities. The framework would also chart areas such as partnerships with government agencies, Non-Government Organisations (NGOs), vendors and suppliers through sponsorship and participation in environment-protection projects and educational programmes. Environmental compliance certiﬁ cation of the Group’s businesses is yet another aspect. A working group led by KIE and Environmental Champions from the various business units has been set up. These Environmental Champions would form taskforces to support the units’ CEOs to educate, promote and implement green programmes at the business unit level. Towards primarily educating and raising awareness of environmental sustainability, Keppel also supported several key green initiatives in 2007. Keppel Corporation Limited Report to Shareholders 2007 Promoting a Green Culture 63 PROMOTING A GREEN CULTURE Keppel’s green message reached out to the heartlands, distributing 100,000 reusable bags in support of NEA’s ‘Bring Your Own Bag Day’. sea and conducting monthly cleaning and brushing of tables to remove fouling organisms. Another programme that Keppel sponsored was the Corporate Environmental Outreach (CEO) Run held on 17 November 2007 at Pulau Semakau. Organised by NEA, Keppel sponsored $70,000 and participated with several corporations in the inaugural run event. Funds raised were channelled to six local environmental NGOs. Keppel was the ﬁ rst private organisation to buy 500 tote bags from the Tanglin-Cairnhill Citizens Consultancy Committee under the ‘Make Your Own Bag’ project to help low-income families. The materials were recycled from old PVC event banners. At the B4E Global Business Summit for the Environment held in April 2007, Keppel participated as a supporting sponsor. Hosted by the United Nations Environment Programme and The Global Compact, this was Asia’s ﬁ rst major international conference for corporations, governments and NGOs to discuss initiatives to create a greener future. Keppel was the exclusive sponsor for the telecast of Life in the Undergrowth, a highly acclaimed ﬁ ve-part documentary series produced by the BBC, and presented by world-renowned David Attenborough. The series, which took two years to produce, explores CARING FOR THE ENVIRONMENT On 6 June 2007, we became the ﬁ rst private organisation to support the National Environment Agency’s (NEA) ‘Bring Your Own Bag Day’ by partnering NTUC FairPrice to give out 100,000 reusable bags at its supermarkets. Over a hundred Keppelites volunteered as Green Ambassadors at various NTUC FairPrice outlets to encourage shoppers to use the reusable bags for their shopping. Within the Group, reusable bags were distributed and the message was reinforced. In doing our part to preserve our environment, Keppel launched the ﬁ rst Coral Nursery Project in Singapore at a site off Pulau Semakau on 30 July 2007 together with the National University of Singapore (NUS), National Parks Board and NEA. Ms Grace Fu, Minister of State for National Development ofﬁ ciated at the launch of the coral nursery. This is Singapore’s ﬁ rst corporate- sponsored marine environmental initiative, the ﬁ rst of its kind in the region and part of a national effort to conserve the coral cover in Singapore. Keppel is sponsoring $250,000 over two years towards the project. Keppelites with diving experiences participated as Volunteer Divers under the auspices of Keppel Volunteers (KV), an employee-driven Corporate Social Responsibility group. The Volunteer Divers will support the efforts to nurture and re-grow the coral fragments. Together with the NUS, they will help monitor the progress of the coral nursery. Volunteer Divers have begun deploying nursery tables into the 64 Keppel Corporation Limited Report to Shareholders 2007 Promoting a Green Culture 1 2 the spectacular micro universe of invertebrates and covers the forests across the Amazon to Costa Rica, Australia, Malaysia, Hungary and Switzerland. Keppel Corporation is a Founding Sponsor of the Singapore International Water Week (SIWW) for two years. The SIWW is a ﬁ ve-day international event to be held from 23 to 27 June 2008. Government, industry representatives and specialists would meet to discuss the theme ‘Sustainable Water Solutions for Cities’. premiered on Channel NewsAsia on 23 July 2007. This series examined the ways in which Asian countries are addressing issues on global warming and climate change. Keppel Shipyard participated in NEA’s Annual Clean & Green Week Schools Carnival. It hosted students from Chung Cheng High School (Main) on a tour to showcase the green initiatives at the yard. This is the fourth year that Keppel Shipyard is supporting the school’s green education for its students. On World Environment Day, Keppel Land held a series of green initiatives and events to raise awareness of environment and energy conservation for staff and tenants. Employees were also given reusable bags and urged to use less plastic bags. A ‘Green Living’ exhibition was held to emphasise the importance of going green. SPC participated in MediaCorp’s six-part documentary series, Saving Gaia, which Keppel Batangas Shipyard and Keppel Cebu Shipyard contributed to the ‘Tree for Life Project’ under the Green Philippines Programme initiated by the Department of Environment and Natural Resources (DENR). The project was aimed at planting 20 million trees all over the archipelago from July to November 2007. Keppel Batangas gave 1,400 seedlings of various fruit and non-fruit bearing trees to DENR while Keppel Cebu planted 100 seedlings inside its shipyard compound. The two yards also participated in the 22nd Annual International Coastal Cleanup on 15 September 2007. Yard volunteers picked up trash along the coastlines of Batangas and Cebu to help preserve the local marine life. 1. The Keppel Group contributed to the fund in aid of environmental NGOs. 2. Keppel was the ﬁ rst private organisation to buy 500 tote bags recycled from old PVC event banners. Keppel Corporation Limited Report to Shareholders 2007 Promoting a Green Culture 65 Sino- Singapore Tianjin Eco-City The project is expected to strengthen the earnings platforms for Keppel’s environmental engineering and real estate divisions. I INCEPTING A LANDMARK PROJECT n November 2007, China and Singapore signed a Framework Agreement to co-operate in developing an eco-city in Tianjin, China. The project was ﬁ rst mooted in April 2007 when Singapore’s Senior Minister Goh Chok Tong, whilst on a state visit to China, proposed to the Chinese Premier Wen Jiabao a strategic collaboration to develop a city in China that will be a model for sustainable development. The proposal was timely as it complements the Chinese government’s strategic efforts to shift China’s rapid economic growth onto a more sustainable trajectory. Sino-Singapore Tianjin Eco-City (SSTEC), as it is to be called, will demonstrate the determination of both countries to tackle global climate changes, strengthen environmental protection and resource conservation, and build a harmonious society. ESTABLISHING LEADERSHIP FOR THE SINGAPORE CONSORTIUM The development will be jointly-owned and managed by a Singapore consortium and a Chinese consortium. The Keppel Group was asked by the Singapore government to lead the Singapore consortium. We are excited to be involved in this 66 Keppel Corporation Limited Report to Shareholders 2007 Sino-Singapore Tianjin Eco-City will see a sustainable environment for future generations. SINO-SINGAPORE TIANJIN ECO-CITY BEIJING N Highway Tianjin Binhai Light Rail Haihe River Tianjin Binhai New Area Tianjin City Centre Tianjin Economic Development Area TIANJIN HEBEI PROVINCE Hangu District HEBEI PROVINCE Tanggu District Tianjin Airport Sino-Singapore Tianjin Eco-City Xinqing District Jinnan District Tianjin Port SSTEC is strategically located in the Tianjin Binhai New Area. Dagang District Bohai Bay milestone project, which we believe will further strengthen our earnings platforms for our environmental engineering and real estate divisions. It presents a unique opportunity for the Group to participate in environment sustainability developments, in which we are already offering world-class and proven solutions in environmental engineering, and through which we can expand our operational footprint. The development of SSTEC will require us to apply our full range of experience acquired during our participation in the Suzhou Industrial Park (SIP), China’s model industrial park, over the past 15 years. We will also put to good use our experience in township development in China and Southeast Asia. Keppel’s role in SSTEC will further increase our already extensive presence in China, represented by all our businesses – Offshore & Marine, Oil & Gas, Property and Infrastructure. Keppel Land’s projects in China cover over 30 million sf gross ﬂ oor area and it applied its know-how and proven track record in large-scale township development to the region particularly in Vietnam and Indonesia. LAYING THE GROUND IN THE TIANJIN BINHAI NEW AREA As a raison d’être for its existence, SSTEC is required to be sited in a location that is non-agricultural and water scarce. The challenge is to transform such a greenﬁ eld site into a sustainable city that is an attraction for people to live, work and play. After several months of site reviews and intensive consultations, a site located in Tianjin Binhai New Area was chosen. The 30 km2 site which partly covers the Hangu and Tanggu districts in Tianjin was selected after careful consideration. The site possesses the best conditions that would facilitate a quick and successful take-off for the project. HEIGHTENING PUBLIC AND PRIVATE SECTOR COLLABORATION The project will be another Public-Private Partnership in which the Singapore government will share its “software” 68 Keppel Corporation Limited Report to Shareholders 2007 Sino-Singapore Tianjin Eco-City The knowledge and experience of Keppel’s senior executives in the Suzhou Industrial Park will be an asset in the development of SSTEC. and extensive experience in sustainable urban development. Authority, National Parks Board, Public Utilities Board and others. In particular, the Singapore government agencies will contribute its proven experience and know-how in large-scale urban design and master planning, environmental protection, resource conservation, recycling economy, ecological infrastructure development, use of renewable energy, reuse of wastewater, sustainable development and promotion of social harmony. As a testament to the broad scope of expertise that SSTEC can tap upon, the participating Singapore ministries and agencies comprise a diverse team that includes the Ministry of National Development, the Ministry of the Environment and Water Resources, Urban Redevelopment Authority, Housing and Development Board, Land Transport Authority, Building and Construction LEVERAGING TOP-LEVEL ENDORSEMENT AND SUPPORT Whilst SSTEC will enjoy high-level support and endorsement from both governments, it is jointly undertaken on a commercial basis by the private sector through the Chinese and Singapore consortia. An administrative structure has been set up to ensure that the project is accorded top priority and attention, and will facilitate execution and implementation by providing an expeditious platform to resolve complex issues common in projects of such scale. Under the agreed framework for bilateral coordination, the implementation team will report to a Joint Working Committee (JWC) headed by Singapore’s Minister Keppel Corporation Limited Report to Shareholders 2007 Sino-Singapore Tianjin Eco-City 69 SINO-SINGAPORE TIANJIN ECO-CITY THREE HARMONIES OF THE SINO-SINGAPORE TIANJIN ECO-CITY Work Harmony with the economy • Service industries and tourism hub • Energy-efﬁ cient buildings • Green commuting • Reduced pollution Sustainable Development L i v e Harmony with society • Cultural diversity and social stability • Lifestyle and recreational amenities • Communal spaces Harmony with the environment • Renewable energy sources • Waste management and water treatment • Recycling and environmental conservation • Ecological zones and wildlife corridors y Pla for National Development and China’s Minister of Construction. The JWC will in turn report to the Joint Steering Committee co-chaired by Singapore’s Deputy Prime Minister and China’s Vice Premier. The ﬁ rst meeting of the JWC took place on 31 January 2008. An in-principle endorsement of the Key Performance Indicators (KPI) framework was achieved, setting the foundation for the planning and development of SSTEC. PRACTISING SUSTAINABLE DEVELOPMENT Sustainable development, as deﬁ ned by the Brundtland Commission, is “development that meets the needs of the present without compromising the 70 Keppel Corporation Limited Report to Shareholders 2007 Sino-Singapore Tianjin Eco-City THREE ABILITIES OF SINO-SINGAPORE TIANJIN ECO-CITY Practicable Sino-Singapore Tianjin Eco-City Replicable Scalable SSTEC is expected to be a model for the development of other cities in China. ability of future generations to meet their own needs”. SSTEC will play the role of a pilot city, serving as a sustainable development model to be replicated in other cities in China. As such, the concepts and technologies adopted have to fulﬁ l the criteria of Practicability, Scalability and Replicability – collectively known as the Three Abilities. Practicable, in the sense that the technologies introduced, even if they are cutting-edge, must be affordable and commercially viable. Replicable and Scalable in that the technologies introduced are applicable both in the localised context as well as on a larger scale to other cities and even countries. The intent is to develop a practical, livable city, as opposed to a test-tube city that cannot be replicated or is too costly to build elsewhere. As an example, the thrust towards low carbon emission should necessarily be targeted sensibly and gradually over time. Work has commenced on the formulation of KPIs and related technical standards for SSTEC. It is envisaged that the long- term target is for at least 90% of the residents walking, using public transport or cycling when commuting within SSTEC. Sustainable development traverses beyond a state of economic vibrancy that is in harmony with resource-efﬁ ciency, environmental protection and ecological conservation. It should be a city that is socially harmonious and stable. This goal underscores the other core tenet underpinning SSTEC – the Three Harmonies, i.e. Harmony with economic development, Harmony with the environment, and Harmony with society. Building a strong social fabric with inclusive, close-knit communities that transcend economic and social disparities is much more difﬁ cult than creating a physical environment-friendly place. It requires complementary policies, community enablers such as associations and support groups, and the fostering of a strong community spirit. Whilst no one may claim to possess the “right” template, our shared roots and common cultural heritage place us in good stead to add value. We believe that it is when the building blocks for the Three Harmonies are in place that a city becomes a truly sustainable place to live in for future generations. RIDING ON TIANJIN’S GROWTH In the 1980s and 1990s, China’s central government focused its economic thrust in the Pearl River Delta and Yangtze River Delta. As a result, the regions around Shenzhen and Shanghai prospered, enjoying unfettered economic growth. Keppel Corporation Limited Report to Shareholders 2007 Sino-Singapore Tianjin Eco-City 71 SINO-SINGAPORE TIANJIN ECO-CITY 1 1. Green buildings will be a feature of SSTEC. 2. Light rail trains will be one of the main transportation. 2 and comes under the direct supervision of the central government. It is a major manufacturing hub, and being one of China’s principal deepwater ports, has historically been a key gateway into Northern China. Beijing has earmarked the Tianjin Binhai New Area to catalyse growth for the northeast region in a manner that is consistent with holistic, sustainable principles. As an example, the State Council’s blueprint for the Binhai New Area, as set out in May 2006, envisioned it to be a place which is resource-efﬁ cient, environment-friendly, and promoting the all-round development of a harmonious society. To fulﬁ l the plan, the State Council formally designated Binhai as a pilot zone to experiment with “comprehensive supporting reforms” – this means Binhai has the autonomy to make creative changes to achieve Beijing’s objectives, making it a most appropriate location to host the eco-city which is also a pioneering experimental project. As part of its national strategy to spread out prosperity across China, the next growth hub that the Chinese government wants to create is in the Northeast region, and the Bohai Rim has been ofﬁ cially designated the development zone to implement this strategy. Tianjin is situated near the centre of the Bohai Rim, which has a sizeable population of 230 million. Bohai consists of ﬁ ve provinces and municipalities – Beijing, Tianjin, Hebei, Shandong and Liaoning; combined, they contribute about 25% of China’s 2006 GDP. As one of the four municipalities in China, Tianjin enjoys greater autonomy 72 Keppel Corporation Limited Report to Shareholders 2007 Sino-Singapore Tianjin Eco-City EMBARKING ON THE VISION SSTEC is a high-proﬁ le project that complements the Chinese central government’s strategic thrusts to promote sustainable development. When completed, it will be a showcase of how economic development, environmental protection and social harmony can be reconciled. Master planning work has commenced and groundbreaking is scheduled for July 2008. We are in the process of inviting international parties to take a stake in the Singapore consortium, with Qatar Investment Authority recently signing a Memorandum Of Understanding (MOU) with Keppel Corporation to participate as an equity investor. Much work lies ahead to achieve our vision of transforming a piece of non-arable and arid land into a thriving city that is socially harmonious, environment-friendly and resource-efﬁ cient, and one that will serve as a model for sustainable development, both in China and the world. Signing the MOU for QIA to participate in SSTEC are Mr Hussein Ali Al-Abdullah, Board Member of QIA (second from left) and Mr Lim Chee Onn, Executive Chairman, Keppel Corporation (right), witnessed by HE Sheikh Yousef Hussein Kamal, Finance Minister of Qatar (left) and Senior Minister Goh Chok Tong (centre). Keppel Corporation Limited Report to Shareholders 2007 Sino-Singapore Tianjin Eco-City People will live, work and play in a green environment. 73 OPERATING & FINANCIAL REVIEW The Keppel Group is in the Offshore & Marine, Property, Infrastructure and Investments businesses to deliver sustainable earnings growth. With total assets of about $15.8 billion, the Group is strategically invested in 34 countries with a global customer base. Some of the key factors inﬂ uencing our businesses are global and regional economic conditions, oil and gas exploration and production activities, real estate markets, threats, currency ﬂ uctuations, capital ﬂ ows, interest rates, taxation and regulatory legislation. As the Group’s operations consist of providing a range of products and services to a broad spectrum of customers in many geographic locations, no one factor, in the management’s opinion, determines the Group’s ﬁ nancial condition or the proﬁ tability of our operations. In this chapter on the operating and ﬁ nancial review, we seek to provide a strategic, market and business overview of the Keppel Group’s operations and ﬁ nancial performance. This chapter describes the key activities of our businesses and their impact on our performance. It also discusses the challenges in our operating environment and our strategies in growing beyond. This discussion and analysis is based on the Keppel Group’s consolidated ﬁ nancial statements as at 31 December 2007. CONTENTS 75 Group Structure 76 Management Discussion and Analysis 78 Offshore & Marine 90 Property 98 106 Investments 114 Financial Review and Outlook 122 Operations Sustainability Infrastructure 74 Keppel Corporation Limited Report to Shareholders 2007 Operating & Financial Review GROUP STRUCTURE KEPPEL CORPORATION LIMITED Offshore & Marine • Offshore rig design, construction, repair and upgrading • Ship conversions and repair • Specialised shipbuilding Property • Property development • Property fund management • Property trusts Infrastructure • Environmental engineering • Power generation • Network engineering • Logistics Investments • Oil and gas • Investments • Telco Keppel Offshore & Marine Ltd 100% 70% Keppel Bay Pte Ltd 100% Environmental Engineering Singapore Petroleum Company Ltd 45% Keppel FELS Ltd Keppel Shipyard Ltd Keppel Singmarine Pte Ltd 100% 100% 100% 30% Keppel Land Limited 53% Keppel Integrated Engineering Ltd 42% 31% K-REIT Asia 73% Keppel Seghers Engineering Singapore Pte Ltd 100% 100% k1 Ventures Limited MobileOne Ltd * 36% 20% Keppel Land International Limited 100% Keppel Seghers NEWater Development Co Pte Ltd 100% * Owned by Keppel Telecommunications & Transportation Ltd, an 80%-owned subsidiary of the Company Keppel Nantong Shipyard Company Limited China 100% K-REIT Asia Management Limited 100% Offshore Technology Development Pte Ltd 100% Alpha Investment Partners Ltd 100% Keppel Seghers Belgium NV Belgium Keppel FMO Pte Ltd 100% 100% Deepwater Technology Group Pte Ltd 100% Evergro Properties Ltd Singapore/China 71% Power Generation Marine Technology Development Pte Ltd 100% Keppel Thai Properties Public Co Ltd Thailand 45% Keppel Energy Pte Ltd Keppel AmFELS Inc USA 100% 50% 30% Keppel Philippines Properties Inc The Philippines 80% Keppel Merlimau Cogen Pte Ltd Keppel Verolme BV The Netherlands 100% Keppel FELS Brasil SA Brazil 100% Keppel Norway AS Norway 100% Keppel Philippines Marine Inc The Philippines Caspian Shipyard Company Ltd Azerbaijan Arab Heavy Industries PJSC UAE Keppel Kazakhstan LLP Kazakhstan 93% 45% 33% 50% Group Corporate Services 100% 100% 100% 100% Keppel Electric Pte Ltd Keppel Gas Pte Ltd Logistics and Network Engineering 100% Keppel Telecommunications & Transportation Ltd Keppel Logistics Pte Ltd Keppel Logistics (Foshan) Ltd China Trisilco Folec Sdn Bhd Malaysia 80% 100% 70% 55% Control & Accounts Corporate Communications Corporate & Strategic Development/Planning Human Resources Information Technology Legal Risk Management Audit Tax Treasury The complete list of subsidiaries and signiﬁ cant associated companies is available on Keppel Corporation’s website www.kepcorp.com Keppel Corporation Limited Report to Shareholders 2007 Operating & Financial Review Group Structure 75 OPERATING & FINANCIAL REVIEW MANAGEMENT DISCUSSION AND ANALYSIS Key performance indicators of Keppel Corporation scaled new heights in 2007. GROUP OPERATIONS Revenue increased by 37% to $10.4 billion, surpassing $10 billion for the ﬁ rst time in the Group’s history. PATMI crossed the billion-dollar mark to reach $1,026 million, an increase of 37% compared with $751 million in the previous year. The compounded annual growth rate for PATMI from 2002 to 2007 was 23%. Attributable proﬁ t improved by 51% to $1,131 million. Exceptional gains of $105 million comprised principally net appreciation in the value of investment properties partially offset by provision for impairment of non- performing assets in Keppel Energy and the Brazilian operations. Earnings per share (EPS) of 64.9 cents were 17.2 cents above 2006 and 28.8 cents above 2005. EPS growth of 36% in 2006 and 32% in 2005 kept pace with PATMI growth. Return on Equity exceeded 20% to a new high of 21.8% and Economic Value Added of $604 million was $181 million above the previous year. Operational cashﬂ ow before changes in working capital exceeded $1 billion. Working capital changes were also positive with progress payments received from contracts. The Group utilised half a billion dollars on investing activities, comprising largely further investments in Marina Bay Financial Centre and capital expenditure on the co-generation plant. As a result, free cashﬂ ow for the year amounted to $1.2 billion. With the record performance, the Company proposed to reward shareholders with total distribution of 64 cents per share for 2007. This comprised a ﬁ nal dividend of 10 cents per share a special dividend of 45 cents per share and the interim dividend of 9 cents per share paid in August 2007. The total payout represents 98% of Group PATMI. 76 Keppel Corporation Limited Report to Shareholders 2007 Operating & Financial Review Management Discussion and Analysis Group overview Revenue Proﬁ t after Tax & Minority Interests (PATMI) Exceptional items Attributable proﬁ t Operating cashﬂ ow Free cashﬂ ow Economic Value Added (EVA) Earnings per share (EPS) Return on Equity (ROE) Total distribution per share to shareholders Revenue $ million 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 7,258 5,755 4,112 1,835 1,155 847 1,277 671 570 Offshore & Marine Property Infrastructure Investments 58 121 61 2007 $ million 07v06 % +/(-) 2006 $ million 06v05 % +/(-) 2005 $ million 10,431 1,026 105 1,131 1,697 1,151 604 64.9 cts 21.8% 64.0 cts +37 +37 n.m. +51 -8 -22 +43 +36 +14 +129 7,601 751 – 751 1,854 1,480 423 47.7 cts 19.1% 28.0 cts +34 +33 – +33 +19 +113 +113 +32 +16 +22 5,688 564 – 564 1,559 694 199 36.1 cts 16.4% 23.0 cts PATMI $ million 550 475 400 325 250 175 100 25 (50) 522 448 239 268 242 231 209 118 96 27 (24) (35) Offshore & Marine Property Infrastructure Investments 2005 $5,688 million 2006 $7,601 million 2007 $10,431 million 2005 $564 million 2006 $751 million 2007 $1,026 million SEGMENT OPERATIONS Group revenue of $10,431 million was $2,830 million or 37% higher than that of the previous year. Revenue from Offshore & Marine Division of $7,258 million was $1,503 million or 26% higher and accounted for 70% of Group revenue. The increased revenue was due to healthy order book of the division. Revenue from Property Division of $1,835 million was $680 million or 59% higher and accounted for 17% of Group revenue. The increased revenue was due to new revenue streams from trading projects in Singapore (Reﬂ ections at Keppel Bay and Sixth Avenue Residences) and China (Villa Riviera and The Arcadia) as well as higher revenue from current property trading projects in Singapore (Park Inﬁ nia at Wee Nam, Urbana, The Suites at Central and Belvedere), China (The Seasons), Vietnam (Villa Riviera) and India (Elita Promenade). Rental income from investment properties also increased as a result of the tight supply of prime ofﬁ ce buildings in the Singapore Central Business District. Revenue from Infrastructure Division of $1,277 million was $707 million or 124% higher and accounted for 12% of Group revenue. The increased revenue was due to new sources of revenue from the co-generation power plant, NEWater Plant and Qatar domestic solid waste management project as well as the full year operation of power barges. Group PATMI of $1,026 million was $275 million or 37% higher than that of the previous year. PATMI from Offshore & Marine Division of $522 million was $74 million or 17% higher and the division remains the largest contributor to Group PATMI with 51% share. PATMI from Property Division of $209 million was $113 million or 118% higher. The division’s contribution to Group PATMI increased from 13% to 20% because of higher revenue and operating margins from trading, share of proﬁ t of Marina Bay Residences and release of cost provisions no longer required for Singapore trading projects. Infrastructure Division reported a proﬁ t of $27 million compared to a loss of $35 million for 2006. This was largely attributable to contribution from the operation of the power barges, co-generation power plant, Keppel Seghers NEWater Plant and Qatar domestic solid waste management project. PATMI from Investments of $268 million was $26 million or 11% above that of 2006 due to increased contribution from SPC. Keppel Corporation Limited Report to Shareholders 2007 Operating & Financial Review Management Discussion and Analysis 77 OPERATING & FINANCIAL REVIEW OFFSHORE & MARINE The Offshore & Marine Division aims to be the choice provider and solutions partner in its selected segments of the offshore and marine industry. MAJOR DEVELOPMENTS IN 2007 FOCUS FOR 2008/2009 EARNINGS HIGHLIGHTS • Delivered 33 major projects on time • Deliver value through excellent project Operating profit ($ million) • Secured $7.4 billion of contracts with deliveries into 2011 • Launched R&D centre KOMtech with seed money of $150 million over ﬁ ve years • Clinched landmark US$1.2 billion contract to build a ﬂ oating production unit • Made another breakthrough with contracts to build two units of proprietary KFELS N Class drilling-cum-production jackup rigs management and execution • Enhance R&D initiatives to strengthen group position as market leader in selected segments • Strengthen presence in deepwater rigs, adjacent business areas and new markets • Increase capacity through expansion and facility upgrading • Focus on Health, Safety and the Environment 2005 2006 2007 318 539 570 Proﬁ t before tax $700m PATMI $522m EARNINGS HIGHLIGHTS 2007 $ million 2006 $ million 2005 $ million Revenue EBITDA Operating proﬁ t Proﬁ t before tax PATMI Manpower (number) Manpower cost ROE 7,258 648 570 700 522 24,448 802 604 539 624 448 5,755 4,112 377 318 351 239 22,352 17,522 546 660 46% 50% 35% 78 Keppel Corporation Limited Report to Shareholders 2007 Operating & Financial Review Offshore & Marine Provider of Choice, Partner in Solutions Delivering value to customers and partners through excellent project management Leveraging global network for incremental businesses, enhanced cost-effectiveness and operational efﬁ ciency Replicating the group’s proven shipyard management systems in our other “Near Market, Near Customer” locations Strengthening presence in promising markets Net order book (as at 31 December) $ billion 15 12 9 6 3 0 12.2 10.5 7.2 3.4 1.9 2003 2004 2005 2006 2007 Expanding the knowledge and technology base with clear product focus at each of our yards Creating alliances with trend-setting customers, designers and vendors to develop new products and solutions Establishing centres of excellence that would promote technological and business development Striving for continuous improvements EARNINGS REVIEW Offshore & Marine Division secured a record $7.4 billion of new orders in 2007, bringing the net order book at the end of the year to $12.2 billion. The Division’s proﬁ t before tax of $700 million was $76 million or 12% higher than 2006, and $349 million or two times more than 2005. However, operating margins were lower because of lower margins from the Brazilian operations. Proﬁ t after tax increased from $239 million in 2005 to $448 million in 2006, and increased further by 17% to reach $522 million in 2007. MARKET REVIEW Overall fundamentals in the Offshore & Marine (O&M) sector was strong throughout 2007, underpinned by the surging demand for energy, an imbalance in the demand and supply of rigs and the moving of Exploration & Production (E&P) activities into deeper waters. Oil prices were at record levels and went brieﬂ y beyond US$100/bbl for the ﬁ rst time in the year. Prices averaged about US$72/bbl for 2007 [based on Energy Information Administration (EIA) report on West Texas Intermediate crude oil]. Rig utilisation in all categories continued to maintain at near 100% levels and in short supply for the semisubmersible (semi) category. Day rates remained at record high except for the Gulf of Mexico which continued to weaken. Keppel AmFELS in Brownsville, Texas, secured contracts to build ﬁ ve jackups and made two deliveries in 2007. Keppel Corporation Limited Report to Shareholders 2007 Operating & Financial Review Offshore & Marine 79 OPERATING & FINANCIAL REVIEW OFFSHORE & MARINE While the contracting industry beneﬁ ted from the high oil prices, it did not translate into the proportionate proﬁ t margins for the industry. This was due mainly to overall escalating costs, shortage of manpower and tightness in material and equipment supply. This trend is expected to continue into 2008. Enquiries for deepwater drilling rigs continued unabated, in particular for the deepwater semi drilling rigs. OPERATING REVIEW Keppel O&M turned in another sterling performance in 2007 delivering 33 major projects on time and within budget. Return on Equity (ROE) for the Division was 46%. All segments of the group operations of offshore, marine and specialised shipbuilding posted improved net proﬁ ts, with Keppel Shipyard performing especially well. The record amount of contracts secured at $7.4 billion included eight jackups, ﬁ ve semis, seven FPSO-related conversion and outﬁ tting projects, one drillship outﬁ tting and 23 offshore support and other specialised vessels. The Division has invested a total of $430 million in the last ﬁ ve years in yard development and expansion. It is expected to put in another nearly $300 million to enhance capacity to meet its contractual obligations as well as to boost capacity for more projects. OFFSHORE Keppel FELS was kept busy throughout 2007 with over 30 projects ongoing concurrently in the yard. In addition, seven newbuilding contracts were secured during the year. The US yard, Keppel AmFELS, achieved a revenue Keppel-built FPU P-52 struck ﬁ rst oil for Petrobras in November 2007 and is producing 10% of Brazil’s total oil output of 1.8 million barrels per day. SIGNIFICANT EVENTS (Expected deliveries indicated in brackets) February Keppel FELS secured an order for a KFELS N Class jackup rig for US$392 million from the Skeie Group. (3Q 2010) March Keppel O&M and Qatar Gas Transport Company Ltd (NAKILAT) formed a 20/80 joint venture to develop a shipyard in the Port of Ras Laffan by 2010. April Keppel Shipyard secured two Brazilian FPSO projects, while associate Keppel Verolme received an order for the outﬁ tting of the world’s second cylindrical FPSO. (4Q 2007–3Q 2008) Keppel FELS received a US$305 million order for a North Sea accommodation semi from Floatel International (Floatel). (2Q 2010) May PetroVietnam Drilling Investment Corp (PVD Invest) awarded Keppel FELS a contract to build its second jackup drilling rig worth US$191 million. (4Q 2009) June Keppel FELS secured a fourth order for a US$427 million ultra-deepwater semi drilling rig from ENSCO International (ENSCO). (3Q 2010) 1 80 2 1 Keppel Corporation Limited Report to Shareholders 2007 Operating & Financial Review Offshore & Marine SIGNIFICANT EVENTS (Expected deliveries indicated in brackets) The Skeie Group awarded a US$400 million KFELS N Class jackup contract to Keppel FELS. (4Q 2010) August Keppel Nantong Shipyard was ofﬁ cially opened in Nantong, Jiangsu province, China. Keppel FELS won a US$134 million contract for a semi drilling tender (SSDT) for Seadrill Management AS (Seadrill). (4Q 2009) July Keppel Shipyard secured a $150 million contract to install equipment packages on a new drillship. (4Q 2009) Keppel Singmarine secured contracts worth $350 million to build six offshore support vessels (OSV) and a derrick pipelay vessel. (2H 2009–1H 2010) Keppel Singmarine won a contract to build two platform supply vessels (PSV) for Greatship Global Offshore Services Pte Ltd (Greatship). (end 2009–1Q 2010) Mexican company Perforadora Central SA de CV awarded Keppel AmFELS a contract to build a jackup rig valued at approximately US$190 million. (4Q 2009) 2 improvement of 27%, due mainly to an increased number of new construction projects. The ﬂ oating production unit (FPU), P-52, left our Brazilian yard, BrasFELS, and achieved ﬁ rst oil in November 2007. Keppel Verolme BV in The Netherlands performed exceptionally well with 61% improvement in revenue in 2007. Caspian Shipyard in Azerbaijan continued to support Keppel Kazakhstan in a constant stream of fabrication jobs from Agip KCO. MARINE Revenue of Keppel Shipyard in 2007 increased by 30% over 2006 due largely to higher-value repair jobs and a larger number of FPSO/FSO conversions and outﬁ tting. A total of 360 vessels were repaired, with revenue from shiprepair enjoying a healthy 25% increase. By year-end, it completed seven FPSO/FSO projects with 10 more conversion projects in progress. In the Philippines, Keppel Philippines Marine Inc, comprising Keppel Batangas, Keppel Cebu and Subic Shipyard, attained a robust increase in revenue of 73% with newbuilding and fabrication work accounting for 52% of the revenue. Arab Heavy Industries, too, had a productive year repairing 271 ships, up 22% from the previous year. SPECIALISED SHIPBUILDING Keppel Singmarine chalked up another exceptional year in 2007 with a rise of 64% in revenue over 2006. This was achieved on the back of ﬁ ve vessels and two jackup hull deliveries. By the end of 2007, Keppel Singmarine secured an order book of 19 vessels with a total value of $1 billion. With Keppel Nantong working at increasing capacity, more 3 1. Singapore Minister for Trade and Industry Mr Lim Hng Kiang (centre) graced the naming ceremony of PV Drilling’s ﬁ rst jackup rig. 2. Delivering Umuroa to Prosafe, one of the ﬁ rst FPSO vessels for 2007, Keppel Shipyard maintained its leadership in shiprepair and conversion services. 3. (Fifth from left) Brunei Minister of Energy, HE Pehin Dato Yahya, visits Keppel Shipyard. Keppel Corporation Limited Report to Shareholders 2007 Operating & Financial Review Offshore & Marine 81 OPERATING & FINANCIAL REVIEW OFFSHORE & MARINE SIGNIFICANT EVENTS (Expected deliveries indicated in brackets) September Keppel Shipyard was awarded two conversion contracts worth $100 million by Prosafe Production Pte Ltd (Prosafe) and Shipping Logistics Incorporated. (1Q 2008–4Q 2008) October Keppel Nantong clinched three contracts worth a total of $110 million to build eight tugs. (1H 2010–2011) The consortium of Keppel FELS Brasil S/A and Technip Brasil Engenharia, Instalacoes e Apoio Maritimo S/A (Technip), FSTP Pte Ltd, secured a US$1.2 billion contract to build a ﬂ oating production unit (FPU), P-56, for Petrobras Netherlands BV (PNBV). (4Q 2010) November Keppel AmFELS received an order from Rowan Companies, Inc. (Rowan) to build four jackup rigs worth US$780 million. (2Q 2010–2Q 2011) Floatel awarded Keppel FELS a US$206 million contract for an accommodation semi vessel. (4Q 2010) Keppel Shipyard secured a contract worth around $100 million to convert the world’s ﬁ rst Floating, Drilling, Production, Storage and Ofﬂ oading facility (FDPSO) for Prosafe. (4Q 2008) The P-52 FPU was completed for Petrobras and achieved ﬁ rst oil in November. December Keppel O&M launched Keppel Offshore & Marine Technology Centre (KOMtech) to boost its R&D with $150 million seed money to be utilised over ﬁ ve years. A commemorative book More than Mettle, the Keppel Offshore & Marine Story was launched in conjunction with the company’s 5th anniversary celebrations. Keppel Verolme secured two contracts totalling $160 million for the outﬁ tting of the third cylindrical FPSO facility, Sevan Voyageur, for Sevan and the drydocking of Saipem 7000, a semi crane and pipelaying DP vessel for Saipem S.p.A. (1Q 2008–Summer 2008) vessel contracts are expected to be won. This expansion is poised to give Keppel Singmarine the opportunity to secure its position in building large offshore support vessels. INDUSTRY OUTLOOK The O&M sector is expected to remain strong in the next few years. Demand for oil and gas continues to grow at a strong pace to support global economic development. Supply is tight with global oil reserves declining despite increased E&P activities. The mid-year E&P survey showed that the oil and gas companies would increase spending by about 10%, a positive indicator for the rig sector. Brazil The major underwater oil ﬁ eld found in 2007 by Brazil’s state-owned oil company, Petrobras, has the potential to turn South America’s largest country into a net oil exporter. The Tupi ﬁ eld has the potential of churning out 1 million barrels per day. The current proven reserves under Brazil stands at 12.8 billlion barrels of oil and 247 billion m3 of natural gas. In 2007, Petrobras also revised their investment plans for 2008–2012 to US$112.4 billion – a 29% increase over their previous budget. Out of this, US$65.1 billion will be used for E&P. With the national ambition for greater Brazilian content and Petrobras’ aim to be among the top ﬁ ve integrated energy companies by 2020, O&M players in Brazil, including Keppel O&M, are poised to beneﬁ t from the very buoyant market in the next ﬁ ve years. According to industry analysts, about 75% of Brazil’s oil reserves are under at least 400m of water. 1 82 Keppel Corporation Limited Report to Shareholders 2007 Operating & Financial Review Offshore & Marine 2 Russia The Russian Federation is a major player in world energy markets. It has more proven natural gas reserves than any other country and is among the top ten in proven oil reserves. Energy exports have become a major driver of Russia’s economic growth over the last ﬁ ve years, as Russian oil production rose strongly and world oil prices improved. In 2007, the Russian federal budget announced it will set aside US$3.5 billion to boost civil shipbuilding from 2008 to 2015. Russian companies’ requirement for new ships and oil rigs is estimated to be worth US$22.8 billion over this time frame. This augurs well for Keppel O&M which has gained a toehold in the Russian market in recent years. Mexico Mexico is currently the largest offshore oil producer in the world – producing nearly 4 million barrels per day. Nearly 40% of the Mexican national budget is linked to taxes paid by Petróleos Mexicanos (PEMEX), Mexico’s state-owned petroleum company. To meet the increasing demand for oil from both domestic and international markets, considerable investments in E&P activities will therefore be necessary for PEMEX. Investment in E&P activities for 2007 was reported to be 43% higher than the average of the past ﬁ ve years. In the next ﬁ ve years, PEMEX requires resources in the order of US$22 billion per year of capital expenditure. 3 1. The addition of Keppel Nantong Shipyard to Keppel O&M’s network of yards complements the group’s “Near Market, Near Customer” strategy. 2. Keppel Singmarine delivered two Ice-Class AHTS vessels, M.V. Svetlyy and VZMORYE, to Russian customer LUKOIL Kaliningradmorneft. 3. The second icebreaker vessel for Russian customer LUKOIL was launched in January 2008. Keppel Corporation Limited Report to Shareholders 2007 Operating & Financial Review Offshore & Marine 83 OPERATING & FINANCIAL REVIEW OFFSHORE & MARINE between 17 and 49 billion barrels. By 2010, it is expected that production would be between 2.9 and 3.8 million barrels per day, exceeding annual production from South America’s largest oil producer, Venezuela. Sizeable oil production growth has come primarily from the north Caspian states of Kazakhstan and Azerbaijan, where Keppel O&M has a presence. Gas reserves are also very signiﬁ cant with recent ﬁ nds in the countries surrounding the Caspian Sea. The Caspian Sea region’s estimated proven natural gas reserves are at 232 trillion cubic feet (Tcf), comparable to those in Nigeria. European countries are paying special attention to the natural gas resources that could lie beneath the Caspian Sea as a way to diversify their sources of gas imports. Closer to home, Australasia regions will continue to see strong interest by national oil companies and independents for offshore oil and gas E&P activities. Keppel Kazakhstan completes the delivery of four huge barges. West Africa Africa has about 10% of the world’s proven oil reserves. With depletion rates of oil ﬁ elds outside OPEC running high, West Africa is proving to be an exciting alternative source notwithstanding political instability in a good part of the continent. The region’s oil is light and sweet, making it easier and cheaper to reﬁ ne than other major sources of oil. From a regional perspective, the ‘Golden Triangle’ of West Africa, Gulf of Mexico and Brazil will continue to be the focus for deepwater projects in the next ﬁ ve years. West Africa is expected to retain its status as the leader in deepwater capital expenditure up to 2012, with Brazil and Gulf of Mexico making up the other major deepwater players. Caspian Sea According to EIA, estimated proven oil reserves in the Caspian region range Jackups – age profile 85% of jackup fleet is more than 20 years old. Semisubmersibles – age profile 77% of semis fleet is more than 20 years old. no. of units no. of units 180 160 140 120 100 80 60 40 20 0 153 118 37 52 10 5 6 5 0-5 6-10 11-15 16-20 21-25 26-30 31-35 >35 60 50 40 30 20 10 0 55 49 27 3 0-5 6-10 0 11-15 9 5 16-20 21-25 26-30 31-35 >35 1 2005 $5,688 million Age of jackup 2006 $7,601 million 2007 $10,431 million 2005 $5,688 million Age of semisubmersibles 2006 $7,601 million 2007 $10,431 million Source: ODS-Petrodata Source: ODS-Petrodata 84 Keppel Corporation Limited Report to Shareholders 2007 Operating & Financial Review Offshore & Marine Keppel FELS is buzzing with activities with over 30 projects currently under construction. Keppel Corporation Limited Report to Shareholders 2007 Operating & Financial Review Offshore & Marine 85 OPERATING & FINANCIAL REVIEW OFFSHORE & MARINE Deep Driller 5 (left) and West Prospero were delivered to satisﬁ ed customers within a month of each other in June 2007. 86 Keppel Corporation Limited Report to Shareholders 2007 Operating & Financial Review Offshore & Marine Market driver – growing industry expenditure $ billion 200 180 160 140 120 100 80 60 40 20 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Shallow Deep Sources: • Citi Investment Research paper “Singapore Conglomerates 2008 Outlook” (dated 4th Dec 2007) • Douglas-Westwood presentation “World Offshore Drilling Business – $62B market by 2011” (dated 4th Oct 2007) RIG UTILISATION AND AGEING RIGS In view of these favourable E&P business outlook, the drilling rig utilisation rate and charter rate remain healthy. Furthermore, the current jackups and semis on order only account for 19% and 27% of the global ﬂ eet – levels that are manageable considering the more advanced and complex drilling requirements that will favour the newer rigs. safely in their twilight years. The need to replace some of these old rigs continues to drive demand for newbuilding. According to ODS-Petrodata’s Offshore Rig Day Rate Index, deepwater drilling rig day rates are at record highs across rig types and geographical locations, except Gulf of Mexico day rates which continue to weaken. Fleet utilisation is at or close to 100% except for the Gulf of Mexico. The global rig ﬂ eet for jackups and semis continues to age with 83% of the total ﬂ eet above 20 years old. Part of the ﬂ eet is likely to be replaced and recent news on the dangers of these old assets may prompt further investments to replace the existing ﬂ eet. According to the UK safety watchdog, most of the UK’s North Sea oil and gas assets are near or beyond the end of their intended design life and not getting the attention they need to keep operating It is therefore not surprising that enquiries for deepwater drilling rigs continue to be strong, in particular for the deepwater semi drilling rigs. INCREASING DEMAND FOR PRODUCTION FLOATERS AND NON-DRILLING FACILITIES Demand for production assets, especially for FPSO/FSOs, is expected to increase and we already see ﬁ rm demand for Keppel Corporation Limited Report to Shareholders 2007 Operating & Financial Review Offshore & Marine 87 OPERATING & FINANCIAL REVIEW OFFSHORE & MARINE Keppel Shipyard is a leader in FPSO conversion and shiprepair. these equipments. There are currently 69 deepwater production units under contract and 119 production projects either planned, at the bidding stage or under design. FPSOs are the dominant type of FPUs in the market and this trend is expected to continue over the next few years. Industry analysts predict that over the next ﬁ ve years, deepwater capital expenditure will double as compared to the previous ﬁ ve years. Majority of the activity will involve the ‘Golden Triangle’ of West Africa, Gulf of Mexico and Brazil. There are currently about 100 projects that require FPSO/FSOs and the number of ﬂ oating productions on order is expected to remain healthy. Keppel O&M is currently the leader in FPSO conversions and seeks to retain its competitive edge by continuing to work closely with its customers and delivering quality products and services with its hallmark of reliability and ﬂ exibility. With an increase in deeper waters exploration and the possibility of developing Arctic reserves in the near future, more sophisticated FPSO/FSOs will be required to meet the harsh exploration environment. Other segments of the offshore industry continue to see active enquiries for assets such as accommodation ﬂ oatels, crane barges, offshore supply vessels (OSV), and other related equipment. The OSV market continued to ﬂ ourish throughout 2007 due to the unprecedented high oil price and healthy offshore activities. As we enter into 2008 and beyond, there is a shift of focus towards larger sized OSVs in order to support deepwater activities and replace the ageing ﬂ eet. In addition, there is growing interest in OSVs capable of operating in Arctic or sub-zero climatic conditions. Keppel O&M has delivered two Ice-Class AHTS to LUKOIL so far and are expected to deliver more 88 Keppel Corporation Limited Report to Shareholders 2007 Operating & Financial Review Offshore & Marine Ice-Class vessels in 2008 and beyond. With our continuing efforts in R&D in Arctic technology, we see huge potential in this particular niche market and expect to play a larger role in this sector. This macro-economic environment would potentially pose new challenges for shipyards. However, Keppel O&M customers can look to the group as the more experienced and reliable yard to help them reduce their execution risks. Class drilling-cum-production jackups, icebreakers & Ice-Class vessels as well as undertake more complex conversion projects such as the ﬂ oating, drilling, production, storage & ofﬂ oading (FDPSO) vessels. Keppel O&M’s current product development efforts, coupled with the newly set up $150 million Keppel O&M Technology Centre (KOMtech) will put the group in strong footing to continue to deliver products to meet customers’ needs. It will continue to deliver innovative products such as new generation ﬂ oatels, KFELS N 1. Parts of the ENSCO 8501 semi are constructed by Keppel Batangas in the Philippines. Plans are underway to further expand the Philippines yards to take on higher-value projects. 2. Keppel Verolme which outﬁ tted two cylindrical FPSO facilities for Sevan Production turned in a sterling performance in 2007. Keppel O&M has seen new orders for non-drilling related rigs and vessels increase from 20% in 2006 to 42% in 2007. While there is a possible slowdown in orders for shallow water drilling assets, overall the industry remains positive as demand for other offshore facilities continues to be strong. CHALLENGES With tightening credit (risk to customers), a depreciating US dollar (forex impact risk), and jittery markets due to fear of a recession in the US, the market’s willingness to pay for risk may be lowered. These macro risks may lead to a scaled-back risk appetite for some oil and gas and O&M industry projects. 1 2 Keppel Corporation Limited Report to Shareholders 2007 Operating & Financial Review Offshore & Marine 89 OPERATING & FINANCIAL REVIEW PROPERTY Keppel Land aims to be a leading property developer in Asia and a premier manager of property funds. MAJOR DEVELOPMENTS IN 2007 FOCUS FOR 2008/2009 • Sold more than 760 residential units in Singapore and over 2,800 residential units overseas • Strengthened presence in Asia with the acquisition of 11 new residential township and waterfront homes in China, Vietnam and Middle East • Embarked on the development of Ocean Financial Centre, which is expected to be completed in 2011 • Selectively pursue residential and commercial developments in Singapore, and capitalise on the development of Marina Bay and Keppel Bay • Broaden and deepen the Group’s footprint in Asia’s growth cities with more residential townships and integrated lifestyle developments • Continue to unlock asset value and recycle capital to generate higher yields • Sale of Keppel Land’s one-third interest in One Rafﬂ es Quay to K-REIT Asia • Expand K-REIT Asia’s property portfolio through acquisitions • Alpha Investment Partners achieved ﬁ nal closing of AIB Alpha Japan Fund, a new Japan-focused fund with Allied Irish Bank, and raised $258m. • Alpha will continue to work on investing funds under management to generate good returns, besides launching new products EARNINGS HIGHLIGHTS Operating profit ($ million) 2005 2006 2007 195 235 440 Proﬁ t before tax $471m PATMI $209m EARNINGS HIGHLIGHTS Revenue EBITDA Operating proﬁ t Proﬁ t before tax PATMI Manpower (number) Manpower cost ROE 2007 $ million 2006 $ million 2005 $ million 1,835 453 440 471 209 2,918 90 1,155 251 235 233 96 2,674 63 847 215 195 222 118 2,219 50 46% 12% 9.5% 90 Keppel Corporation Limited Report to Shareholders 2007 Operating & Financial Review Property 1 EARNINGS REVIEW The Property Division achieved revenue of $1,835 million, $680 million or 59% above the previous year. Higher revenue was driven by robust sales of residential properties both in Singapore and overseas. Rental income from investment properties was higher as a result of the tight supply of prime ofﬁ ce buildings in the Singapore Central Business District. Earnings doubled to $471 million due to the strong residential and ofﬁ ce markets. MARKET REVIEW The Singapore economy expanded 7.7% in 2007, slightly lower than the 8.2% growth registered in 2006, as growth moderated in the fourth quarter of 2007 due to weaker manufacturing activity. Despite weaker external economic conditions due to the sub-prime fallout and weakening of the housing market and consumption in the US, growth in the region remained positive in 2007, with economies like China, India and Vietnam sustaining a strong pace of expansion. The ofﬁ ce market in Singapore remained strong, with take-up of 2.07 million sf in 2007. Strong demand from ﬁ nancial institutions, services and oil and gas companies, coupled with tight supply pushed Grade A ofﬁ ce occupancy rate to 99.8% as at end-2007 from 99.2% in the previous year. Average Grade A ofﬁ ce rents reached a high of $17.15 psf per month as at end-2007, up 96.5% from $8.73 psf at end-2006. Total take-up of new private residential properties reached a record 14,811 units, 32.9% more than the 11,147 new homes sold in 2006. Overall, private residential prices rose by 31.2% in 2007, the largest gain since 1999. To discourage speculative activity, the Singapore government withdrew the use of the deferred payment scheme for uncompleted private residential properties from October 2007. 2 1. Marina Bay Financial Centre is changing the skyline of Singapore’s Central Business District. 2. Mr Mah Bow Tan, Minister for National Development, unveils the Marina Bay Financial Centre. Keppel Corporation Limited Report to Shareholders 2007 Operating & Financial Review Property 91 OPERATING & FINANCIAL REVIEW PROPERTY OPERATING REVIEW Singapore Bolstered by rising conﬁ dence and positive sentiments, Keppel Land sold over 760 homes in Singapore in 2007, positioning itself among the top three listed developers in residential sales in Singapore. Reﬂ ections at Keppel Bay was unveiled in January amid keen interest for world-class waterfront living from local and foreign buyers and investors. Designed by internationally-acclaimed architect Daniel Libeskind, the iconic waterfront development has fully sold all 620 units in Phase 1. With the strong demand for Grade A ofﬁ ce space, Keppel Land, together with consortium members Cheung Kong (Holdings) and Hongkong Land, exercised its option for Phase 2 of the Marina Bay Financial Centre (MBFC) site. This phase will add another 1.3 million sf of net lettable area to the 1.6 million sf currently under development in Phase 1, and will comprise both Grade A ofﬁ ce space and high-end residential homes. To date, more than 50% of the entire MBFC development has been pre-committed by major ﬁ nancial institutions including Standard Chartered Bank and DBS Bank. Keppel Land is re-developing the site of Ocean Building into an iconic ofﬁ ce building known as Ocean Financial Centre (OFC). When completed in 2011, the 43-storey OFC will contribute 850,000 sf of prime ofﬁ ce space, with one of the largest ﬂ oor plates in Rafﬂ es Place. During the year, Keppel Land sold its one-third stake in One Rafﬂ es Quay (ORQ) to K-REIT Asia. The strategic move unlocks value in ORQ and recycles capital into its twin core businesses of property development and fund management. K-REIT Asia has proposed a fully renounceable rights issue to raise up to $700 million. This will be used to partially reﬁ nance part of the $942 million bridging loan from Keppel Corporation for the acquisition of the one-third interest in ORQ. Both Keppel Corporation and Keppel Land will take up their respective allotment of the rights units and will undertake to subscribe for any excess rights units not subscribed for by minority Unitholders. SIGNIFICANT EVENTS January Keppel unveiled the prestigious Reﬂ ections at Keppel Bay designed by master architect Daniel Libeskind. March Keppel Land entered into a joint venture (JV) to acquire and develop a 4.8-ha prime residential development, The Estella, in Ho Chi Minh City (HCMC), Vietnam. April Keppel Land made further inroads into HCMC’s residential sector with the acquisition of a 1.74-ha prime land to develop waterfront condominiums by the Saigon River. June Keppel Land announced the joint development of luxury condominiums on a 8.5-ha site fronting the Ca Cam River in HCMC. Keppel Land will develop a pipeline of mega lifestyle precincts in Tianjin. These include the ﬁ rst in a series of township projects along the new Tianjin-Binhai mass transit line; an exclusive arrangement to plan and prepare land for a 44.1 sq km model town in Gegu as well as an integrated Business Process Outsourcing park in the Xiqing Economic & Development Area. through the acquisition of one-third interest in One Rafﬂ es Quay from Keppel Land. August Keppel Land was awarded an initial 353 mu (about 24-ha) site for the development of a residential township in Shenyang’s Shenbei New District, which can eventually yield up to 5,400 homes. July Keppel Land inked an agreement to develop the second township in Vietnam comprising about 14,000 homes, which will be on a 509- ha site in the Dong Nai province. Keppel Land signed Memorandums of Understanding to develop two residential townships in Hanoi, Vietnam. K-REIT Asia increased its Assets Under Management (AUM) to about $1.62 billion September Making its ﬁ rst foray into Saudi Arabia, Keppel Land signed a JV Agreement with the Saudi Economic and Development Co. Ltd. (SEDCO) to develop luxury residences on a 3.6-ha site along the Corniche waterfront in Jeddah. October Keppel Land signed its ﬁ fth new residential project in Vietnam to develop waterfront residences on a 5.1-ha site in District 2 of HCMC. 92 Keppel Corporation Limited Report to Shareholders 2007 Operating & Financial Review Property SIGNIFICANT EVENTS The new name and design of the 43-storey Ocean Financial Centre, a re-development of Ocean Building, was unveiled at a special ceremony. November Keppel Land entered into two JVs with An Phu Corporation to develop luxury villas and condominiums in District 9 of HCMC. Keppel Land embarked on its fourth residential development in Shanghai, China, through the 100% acquisition of Shanghai Hongda Property Development Co. Ltd., which owns a 26.4-ha site in Xinchang Town, Nanhui District. A 9.7-ha site in District 9 of HCMC would be developed into a premier waterfront enclave of 140 luxury homes by Keppel Land. 1 Overseas Demand for quality housing across Asia remains robust, supported by economic growth, home-ownership aspirations, urbanisation and a rising middle class. Against this backdrop, Keppel Land’s residential launches continued to do well, with over 2,800 homes sold overseas in 2007, mostly in China and India. In line with its overseas strategy to tap on the demand for quality housing in Asia’s growth cities, Keppel Land continued to strengthen its overseas portfolio with waterfront housing and large-scale integrated townships. Capitalising on the rising Vietnam market, Keppel Land secured a total of eight residential sites in 2007, increasing its landbank six-fold from 8.5 million sf to 53 million sf of gross ﬂ oor area. These include seven projects in Ho Chi Minh City and a 14,000-unit waterfront township development in Dong Nai province. Including the earlier acquired Saigon Sports City township, these projects will yield a total of more than 25,000 homes, making Keppel Land the largest property developer in Vietnam. In 2007, Keppel Land expanded its presence in China with the acquisition of new sites in Shanghai and Shenyang. Keppel Land’s listed subsidiary Evergro Properties provides another growth platform into China’s second- tier cities with its business networks and sizeable residential landbank in Tianjin, Jiangyin and Changzhou. Together with Evergro Properties, the Keppel Land group has a total residential landbank of 33 million sf with a potential pipeline of 21,000 homes in China. In the Middle East, Keppel Land has tied up with Saudi Economic and Development Co. Ltd. to develop luxury residences on a 3.6-ha site along the Corniche waterfront in Jeddah, Saudi Arabia. Comprising high-rise towers with about 1,000 apartments, the development will be undertaken in phases, according to market demand. It will target the high-end market and is expected to be launched in the second half of 2008. 2 1. Chairman Lim Chee Onn with the Vietnamese Prime Minister during the latter’s visit to Singapore in 2007. 2. K-REIT Asia’s acquisition of one-third interest in One Rafﬂ es Quay brings the number of commercial ofﬁ ce assets in its portfolio to ﬁ ve. Keppel Corporation Limited Report to Shareholders 2007 Operating & Financial Review Property 93 OPERATING & FINANCIAL REVIEW PROPERTY Keppel Bay is set to position Singapore as a global destination for luxury waterfront living. 94 Keppel Corporation Limited Report to Shareholders 2007 Operating & Financial Review Property gains from asset divestments and appreciation in property value. Land remains cautiously optimistic about the Singapore property market. Keppel Bay Bridge is part of the masterplan and infrastructure in the transformation of Keppel Bay into a premier waterfront precinct. Fund management Keppel Land-sponsored K-REIT Asia achieved a distributable income of $21.8 million in 2007, up 42.5% from 2006. Net property income grew by 19.6% year-on-year to reach $28.3 million, driven mainly by higher gross rental income from K-REIT Asia’s properties. As a result, K-REIT Asia’s distribution per unit increased by 30.5% from 2006 to 8.82 cents for 2007. In December 2007, K-REIT Asia completed its acquisition of a one-third interest in ORQ for $953.6 million, bringing the number of commercial ofﬁ ce assets in its portfolio to ﬁ ve. This yield-accretive acquisition coupled with the initial portfolio’s revaluation gains of $433 million enlarged K-REIT Asia’s portfolio size by 210.5% to $2.1 billion as at end-2007 from $677 million as at end-2006. In 2007, Alpha closed its Japan-focused fund with Allied Irish Bank, raising equity of $258 million (US$172 million). The AIB Alpha Japan Fund has since made three investments. Together with K-REIT Asia’s portfolio value of $2.1 billion, the total Assets Under Management (AUM) of the Keppel Land group will be about $6.1 billion as at end-2007, when the funds are fully leveraged and fully invested. BUSINESS OUTLOOK Singapore Singapore’s economy is expected to remain healthy, albeit with a more moderate pace of growth in 2008 due mainly to economic uncertainties. The Ministry of Trade and Industry is forecasting real GDP growth of 4 to 6% for 2008. Keppel Land’s other property fund management vehicle Alpha Investment Partners (Alpha) continued to deliver higher-than-expected returns to investors with active management of its funds, Growth in prime ofﬁ ce rentals and high-end home prices is also expected to moderate in 2008 after their robust growth in 2007. Nevertheless, Keppel Limited ofﬁ ce supply at an average of 1.7 million sf per annum over the next few years and good demand from ﬁ nancial institutions and multi- national corporations, which continue to anchor and expand their presence in Singapore, will underpin rentals and occupancy rates for Grade A ofﬁ ce space. The group will continue its leasing activity at MBFC, while construction of the new OFC will commence soon. Through the group’s interests in MBFC Phase I and II, OFC and K-REIT Asia, Keppel Land will remain a dominant landlord in the prime ofﬁ ce market in Singapore. For the residential sector, market fundamentals remain healthy with sustained demand for private residential housing. While high-end prices are dependent on the outcome of the US sub-prime problems, sales activity and prices in the middle and mass market are expected to move up gradually. Keppel Corporation Limited Report to Shareholders 2007 Operating & Financial Review Property 95 OPERATING & FINANCIAL REVIEW PROPERTY Completed and fully sold in 2007, Villa Riviera is Keppel Land’s ﬁ rst residential project in Vietnam. 96 Keppel Corporation Limited Report to Shareholders 2007 Operating & Financial Review Property 1 Keppel Land will be releasing more units of Reﬂ ections at Keppel Bay for sale in 2008. The 221-unit Marina Bay Suites, the second and last luxurious residential development within MBFC and other prime residential projects will be progressively released. Overseas Following the last ﬁ nancial crisis in 1997, Asian economies are now more resilient and have created their own strong domestic consumer demand. This should ameliorate the slowdown of export demand should the US slip into recession. Keppel Land aims to launch about 8,200 homes for 2008. In line with its strategy to tap on rising demand for quality housing in Asia’s growth cities, the group will continue to build up its overseas property portfolio with waterfront housing and large-scale integrated developments in existing and new markets. Demand for quality housing across Asia will continue to be driven by economic growth, urbanisation trends, a growing middle class and rising home-ownership aspirations. With Keppel Land’s reputation as a premier developer, the group is well-positioned to ride on such a growing trend. 1. Keppel Land’s ﬁ rst foray into property development in Saudi Arabia along the Corniche waterfront in Jeddah. 2. In line with Keppel Land’s focus on developing large-scale township homes in Asia’s growth cities, it is launching 18,000 homes over two years. One of these townships is Central Park City in Wuxi, China. 2 Keppel Corporation Limited Report to Shareholders 2007 Operating & Financial Review Property 97 OPERATING & FINANCIAL REVIEW INFRASTRUCTURE The Infrastructure Division will continue to build a selected portfolio of environmental engineering, power generation, network engineering and logistics businesses. MAJOR DEVELOPMENTS IN 2007 FOCUS FOR 2008/2009 • Clinched a $1.5 billion contract to design, build and operate a wastewater treatment, water reuse and sludge treatment plant in Qatar • Keppel Seghers Ulu Pandan NEWater Plant ofﬁ cially opened in March • 500 MW co-generation plant began operations in April • Setting up of Keppel Environmental Technology Centre • Securing an In-Principle Approval from the People’s Committee of Ho Chi Minh City for the ﬁ rst large-scale WTE plant in Vietnam • Gas from Petronas began to ﬂ ow into the Singapore Gas Network for Keppel Energy • KIE to continue its focus on large-scale design and build projects with long-term operating contracts. Build recurring income streams by investing selectively in such projects. • R&D of water and waste management technologies • KIE to participate in the Sino-Singapore Tianjin Eco-City project • KE to maintain its thrust to build an integrated energy business in gas and power in Singapore, which will be the platform for growth in Asia • Logistics – tap China’s growth in land transportation and warehousing needs • Network Engineering – expand into emerging markets and grow WiFi business EARNINGS HIGHLIGHTS Operating profit ($ million) 2005 (53) 2006 (65) 2007 11 Proﬁ t before tax $51m PATMI $27m EARNINGS HIGHLIGHTS 2007 $ million 2006 $ million 2005 $ million Revenue EBITDA Operating proﬁ t Proﬁ t before tax PATMI Manpower (number) Manpower cost 1,277 45 11 51 27 4,392 180 98 Keppel Corporation Limited Report to Shareholders 2007 Operating & Financial Review Infrastructure 570 (19) (65) (24) (35) 671 (2) (53) (17) (24) 3,998 3,724 166 158 EARNINGS REVIEW Revenue from Infrastructure Division more than doubled to $1,277 million with new sources of revenue from the co-generation power plant, the Keppel Seghers Ulu Pandan NEWater Plant, power barges and the contract for the solid waste management complex in Qatar. The Division returned ﬁ rmly to proﬁ tability contributing proﬁ t before tax of $51 million. The turnaround was achieved despite higher costs incurred in completing some old contracts and the higher gas cost to operate the co-generation plant. ENVIRONMENTAL ENGINEERING Strategic direction of Keppel Integrated Engineering (KIE) Combining technology with project management, KIE adopts a three- pronged business model of developing and selling technology packages; designing, building, operating and maintaining wastewater and waste treatment plants on a turnkey basis; and owning and operating such plants developed by KIE. MARKET REVIEW China is committed to curb pollutions and mitigate adverse climate change 1. Mr Lim Chee Onn, Executive Chairman of Keppel Corporation (second from left) presents Keppel’s Doha North EcoPark concept proposal to Eng Zayed Mansour Al-Khayarin, CEO of Ashghal (second from right) at the stone laying ceremony for the $1.5 billion Doha North wastewater treatment plant. Senior Minister Goh Chok Tong (left) and HE Sheikh Yousef Hussein Kamal, Finance Minister of Qatar graced the occasion. 2. The Infrastructure Division continues to seize opportunities in growth markets to build sustainable long-term earnings. A constant stream of income is expected from these assets. 1 Ecuador Power Barges 150 MW Operation: 4Q 2006 Keppel Seghers Ulu Pandan NEWater Plant 148,000 m3 of NEWater per day Operation: 1Q 2007 Keppel Merlimau Cogen Plant 500 MW Operation: 1H 2007 Flow of Petronas Gas 120 billion BTU per day Commencement: December 2007 Tuas South Waste-to- Energy Plant 800 tonnes of solid waste a day to generate more than 20 MW of green energy Operation: 2009 Qatar Domestic Solid Waste Management Centre Over 1,550 tonnes of solid waste a day Contribution from: 4Q 2007 Operation: 2009 Doha North Sewage Treatment Works project Up to 439,000 m3 per day of treated wastewater Contribution from: 2009 Operation: 2010 2006 2 2007 2008 2009 2010 Keppel Corporation Limited Report to Shareholders 2007 Operating & Financial Review Infrastructure 99 OPERATING & FINANCIAL REVIEW INFRASTRUCTURE while powering strong economic growth. Several Chinese cities are currently undertaking environmental impact studies with the intention to construct waste-to-energy (WTE) plants in the near term. Others have become solar cities under government direction. The country has signed agreements with Britain and Singapore to co-develop ﬁ ve and one eco-cities respectively. Keppel Corporation has been selected to lead the Singapore consortium in developing the Sino-Singapore Tianjin Eco-City. This offers opportunities for Keppel Seghers, which is currently the market leader in providing WTE solutions in China, to participate in the planning and development of renewable energy, waste and water infrastructure. In Europe where Keppel Seghers has creditable presence, soaring fuel prices are pushing industrial companies to explore alternative sources of energy including renewable energy. Keppel Seghers is working closely with forward-looking large chemical plants and paper mills to generate steam and electricity from solid waste. This co-operation is expected to yield contracts in 2008–2009. offer individual and integrated solutions for wastewater treatment, water reuse and biosolids treatment. REVIEW OF OPERATIONS KIE began 2007 with the ofﬁ cial opening of the Keppel Seghers Ulu Pandan NEWater Plant by Singapore Prime Minister Lee Hsien Loong in March. The plant is the largest in Asia and the second largest in the world, producing 148,000m3/day. The same event saw the opening of the Keppel Environmental Technology Centre (KETC) which is located in the same premises as the Keppel Seghers Ulu Pandan NEWater Plant. KETC has an initial budget of $50 million to develop know-how and technologies in water treatment and energy recovery from waste. In China, the company secured contracts to supply solid waste treatment technologies to repeat customer China Everbright International and new customer Zhongshan Tianyi Energy Sources Company. The company also obtained an In-Principle Approval for the development of the ﬁ rst large-scale WTE plant in Ho Chi Minh City, Vietnam. The Water scarcity and water stress in North Africa and the Middle East are opening up opportunities for Keppel Seghers to Singapore Prime Minister Lee Hsien Loong and Minister for Environment and Water Resources, Dr Yaacob Ibrahim, at the opening of the KETC. SIGNIFICANT EVENTS February Keppel Telecommunications & Transportation (Keppel T&T) expanded its data centre business into Europe with the acquisition of a 50% stake in data centre operator, Citadel 100 Datacenters Limited (formerly known as Premier Data Centres Limited). Keppel Seghers secured a $35 million contract to provide technologies and services to expand an existing WTE plant in Moerdijk, The Netherlands. March The 148,000m3/day Keppel Seghers Ulu Pandan NEWater Plant was ofﬁ cially opened by Prime Minister Lee Hsien Loong. Keppel Integrated Engineering (KIE) established the Keppel Environmental Technology Centre (KETC) with seed money of $50 million. Keppel Seghers secured two contracts totalling $23 million to provide solid waste treatment technologies and services in Suzhou, Jiangsu province, and Zhongshan, Guangdong province. April Keppel Energy’s 500 MW combined cycle power plant, Keppel Merlimau Cogen (KMC), commenced commercial operations. KMC is licensed to generate up to 1,400 MW of electricity. 100 Keppel Corporation Limited Report to Shareholders 2007 Operating & Financial Review Infrastructure SIGNIFICANT EVENTS September Keppel Seghers secured a $22 million contract to design, build and operate a wastewater treatment and reuse plant for Algeria. Keppel Seghers won a landmark Design-Build-Operate contract worth approximately $1.5 billion from Ashghal, the Public Works Authority in Qatar, to build the largest greenﬁ eld wastewater treatment and water reuse facility in the Middle East. December Keppel FMO was awarded a $26.3 million facility management and maintenance contract from Republic Polytechnic. Keppel Seghers received In-Principle Approval for the development of the ﬁ rst large-scale WTE plant in Vietnam. proposed plant will have the capacity to treat 2,000 tonnes of waste per day and generate more than 20 MW of green energy. It also secured a contract to supply technology and services to Barwon Water in Victoria, Australia, for its biosolids thermal drying facility. The plant will process 54,000 tonnes of biosolids produced in the region each year. The residual will have ‘T1’ grade for maximum use as a fossil fuel replacement or fertiliser. In the Middle East, KIE clinched a wastewater contract worth $1.5 billion to design, build and operate, for 10 years, what will be the largest wastewater treatment, water reuse and sludge treatment project in the region. With a peak capacity to treat 439,000m3 of wastewater per day, the treated water will be used for irrigation. It also strengthened its presence in Algeria securing two water treatment contracts during the year. In Europe, KIE received a contract to provide technologies and services from Afvalverbranding Zuid-Nederland NV to expand the third largest WTE plant in The Netherlands. 1 BUSINESS OUTLOOK High cost of energy and concerns about climate change are driving both industrial and municipal users to seek renewable sources of energy derived from waste. Incinerators with comprehensive ﬂ ue gas treatments are poised to gain from this trend in Europe and China. Sludge management is expected to gain importance with the shift away from landﬁ lls to incineration, agriculture and composting. Keppel Seghers has the technologies and capabilities to meet customers’ needs arising from these trends. The Middle East, which has little access to water and wastewater infrastructure, is seeing an increase in government-led investments in public infrastructure. Demand has increased for non-conventional water sources such 2 1. Keppel Seghers harnesses its proprietary technology and experience to build the integrated waste management project in Qatar. 2. The Singapore WTE plant, which will process 800 tonnes of solid waste a day and generate above 20 MW of green energy, is expected to be operational in 2009. Keppel Corporation Limited Report to Shareholders 2007 Operating & Financial Review Infrastructure 101 OPERATING & FINANCIAL REVIEW INFRASTRUCTURE Keppel Energy’s 500 MW combined cycle power plant, Keppel Merlimau Cogen (KMC), commenced commercial operations in April 2007. as desalination and water reuse due to declining costs of such technologies as well as growing acceptance of such water sources. Water reuse continues to be a signiﬁ cantly lower cost option than desalination due to its lower energy demand, but consumers have to be won over to such water reuse projects. To cater to the long-term demand for water reuse and desalination, KIE is actively researching on reducing the energy quotient and thus minimising the environment impact of both desalination and water reuse projects. ENERGY Strategic direction of Keppel Energy Keppel Energy aims to build a strong and well-balanced power and gas business. Operating review 2007 was a challenging but rewarding year for Keppel Energy. The company successfully executed its business plans and brought its projects to fruition, namely the commercial operation of its wholly-owned 500 MW Keppel Merlimau Cogen (KMC) combined cycle power plant in Singapore and the ﬁ rst full year operation of Termaguayas Generation S.A. (TGSA), the power barges that were previously deployed in Brazil and in the Philippines. Both companies achieved proﬁ table operations in 2007. Keppel Energy’s operating businesses are namely in Singapore and in the Americas. The commercial operation of its generation facilities in Singapore and Ecuador effectively raised Keppel Energy’s asset ownership of the three power plants to more than 700 MW, with more than 500 employees engaged in power generation, electricity trading and retail, utilities and gas marketing and operations. Singapore’s electricity peak demand grew from 5,451 MW in 2006 to 5,782 MW in 2007. While the power plant achieved commercial operation status in April 2007, the delay in the opening of the liberalised gas market resulted in a delay in the KMC plant being able to use the Petroliam Nasional Berhad (Petronas) gas imported by Keppel Gas. The holdup resulted in signiﬁ cantly higher operating costs for the Singapore business, which was resolved by December. Keppel Gas, a wholly- owned subsidiary of Keppel Energy, achieved the important milestone of 102 Keppel Corporation Limited Report to Shareholders 2007 Operating & Financial Review Infrastructure importing natural gas under its long-term gas supply agreement with Petronas into the Singapore Gas Network. Singapore are timely. They can potentially capture part of these expected increases in demand for electricity, gas and utilities. Keppel Gas entered into a long-term gas supply agreement to supply natural gas to ExxonMobil’s facilities on Jurong Island starting from 2009. This marked a signiﬁ cant milestone for Keppel Energy as it positions itself strategically as an integrated electricity and gas service provider. Temasek Holdings’ decision to divest its ownership of three large power generation companies in Singapore would present an opportunity for Keppel Energy to acquire a sizeable operating business with immediate earnings to Keppel Corporation’s shareholders. The two projects in the Americas experienced challenges. Cost of power generation rose dramatically, brought on by record high fuel prices. Some of the countries relied on government subsidies to meet these increased costs rather than pass them on to the consumers. The change in governments in Nicaragua and Ecuador could also lead to changes in laws and regulations that may have impact on operations in these countries. Business outlook While the power and gas industries have many defensive characteristics, it is not immune to potential economic slowdowns and the effects of a tightening credit market in 2008. The continued economic growth in Singapore, including commitments by large chemical industry investments and other undertakings such as the spin-off beneﬁ ts from the integrated resorts is expected to propel electricity demand. Keppel Energy’s investments in Over the last decade and more, competition was the theme that permeated through the energy markets in many countries, albeit at different stages of liberalisation. The distinctive shift over the last year has been a particular emphasis on energy security. Singapore is looking into diversifying its sources of energy while demand for efﬁ cient clean fuels such as gas has been growing. There may be opportunities for Keppel Energy to beneﬁ t from this development in its future growth plans. The growing global attention to climate change would certainly impact how more of our electricity would be generated. Keppel Energy would be paying close attention to the emergence of renewable energy as costs of such technologies continue to decline over time and to the impact of tighter environmental management on our thermal generation facilities. Keppel Gas, a subsidiary of Keppel Energy, will supply natural gas to ExxonMobil’s facilities on Jurong Island from 2009. 1 Keppel Corporation Limited Report to Shareholders 2007 Operating & Financial Review Infrastructure 103 OPERATING & FINANCIAL REVIEW INFRASTRUCTURE Keppel Logistics operates 1.5 million sf of warehousing space in Singapore. LOGISTICS AND NETWORK ENGINEERING Strategic direction of Keppel Telecommunications & Transportation (Keppel T&T) Keppel T&T aims to leverage core competencies to enhance existing businesses. LOGISTICS Market review In Singapore, the strong domestic economy saw a higher level of logistics activities. Both occupancy rates and rentals increased on the back of limited supply of new warehouse space. In China, overall cargo throughput at the ports and intra-China cargo movement grew at double-digit levels. Logistics buying patterns are changing with MNCs now more willing to pay for higher quality integrated logistics solutions. Business review & outlook Occupancy rates at Keppel T&T’s Singapore warehouses were close to 100% in 2007. Its operations rented additional warehouse space to cope with the increased demand. The Division continued to leverage its strength in the Fast Moving Consumer Goods sector with strategic wins with Danone and Kimberly-Clark. In the niche logistics segments, Keppel Logistics expanded its cold-chain facility with a custom-designed cold room at 7 Gul Circle. It also began providing logistics services for equipment and steel materials. year, it renewed its contract with Osram International which also awarded the company a distribution project. China Tobacco warehousing contract was also secured for three years. Through Wuhu Annto Logistics Company Limited (Annto), Keppel Logistics entered the niche segment of cold-chain services in China. Annto’s newly launched cold-chain services, with a ﬂ eet of imported reefer trucks, attracted quality customers who are willing to pay a premium for consistent services. In Malaysia, Keppel Logistics, which manages one of the largest Central Distribution Centres in excess of 250,000 sq ft of warehouse space, won the Kimberly-Clark project in Kluang. In China, Keppel Logistics (Foshan) Limited continued to operate at maximum capacity. Warehouse occupancy was close to 100% and the distribution network was strengthened by a ﬂ eet of new prime-movers and trucks. During the NETWORK ENGINEERING Market review In Indonesia, mobile penetration rates remained under 30% with most of the growth centred in the populated city areas. In the Philippines and Thailand, penetration rates continued to be low despite incumbent telcos completing their intended network coverage. The low penetration rates present opportunities for the network engineering division. 104 Keppel Corporation Limited Report to Shareholders 2007 Operating & Financial Review Infrastructure Low mobile penetration in emerging markets presents opportunities for the network engineering division. In both Europe and the United States, sustained growth in demand for higher broadband speeds and usage are challenging operators to upgrade their networks. Some operators are also cautiously moving into “quadruple-play”, which includes TV services. Demand for Geographical Information System (GIS) services grew as utility providers made use of such tools to better document their network inventory and information. Business review & outlook Mobile Network During the year, Keppel T&T took advantage of the growth in in-building and base station deployment works provided by both incumbent and new telcos in Indonesia. In Thailand, it leveraged close partnerships with major telcos and supported them in their in-building coverage expansion programmes. In the Philippines, it also diversiﬁ ed its customer base. iCELL Network Pte Ltd continued its roll-out of WiFi hotspots in the eastern region of Singapore under the nation- wide broadband wireless programme. Wireline and GIS ECHO Broadband (ECHO) in the US leveraged its project with Cablevision to digitise and migrate its network infrastructure data. ECHO also secured a 24-month project with COX for data capture and digitisation of its networks. In Europe, it carried out documentation works for Unity Media. The company also supported Net Cologne to carry out design and as-built works for a Fibre-to-the-Home project. ECHO extended its reach into the UK and Ireland, carrying out network planning and engineering work for NTL and Chorus. The Division’s entry into the data centres market in Europe also performed well during the year. Citadel 100 Datacenters Limited (formerly known as Premier Data Centres Limited), which provides state-of- the-art third-party data centre co-location and contingency services, achieved over 95% occupancy rate and boasts blue-chip customers such as Hewlett Packard (HP). Keppel Corporation Limited Report to Shareholders 2007 Operating & Financial Review Infrastructure 105 OPERATING & FINANCIAL REVIEW INVESTMENTS We will continue to add value to our investments to generate maximum returns for shareholders. MAJOR DEVELOPMENTS IN 2007 FOCUS FOR 2008/2009 • SPC began oil production at the Oyong ﬁ eld of its Sampang PSC in Indonesia • SPC expanded its upstream activities to China with the acquisition of offshore producing oilﬁ elds and exploration working interests in Bohai Bay and a PSC with China National Offshore Oil Corporation (CNOOC) to operate Block 26/18 • k1 Ventures’ operating subsidiary Helm Holding Corporation (Helm) expanded its ﬂ eet size to 692 locomotives and 8,691 railcars (including those owned and leased) • SPC will continue to invest in oil and gas production assets, while developing the existing acreages • k1 Ventures is assessing its rail equipment capital improvement plans, as well as looking for opportunities to strategically rebalance its rail-related inventories • M1 will tap on the opportunities arising from telecom media convergence and develop new businesses anchored on its core competencies EARNINGS HIGHLIGHTS Profit before tax ($ million) 2005 2006 2007 270 306 334 Proﬁ t before tax $334m PATMI $268m EARNINGS HIGHLIGHTS Revenue EBITDA Operating proﬁ t Proﬁ t before tax PATMI Manpower (number) Manpower cost 2007 $ million 2006 $ million 2005 $ million 61 30 30 334 268 156 60 121 95 95 306 242 161 50 58 9 7 270 231 160 41 106 Keppel Corporation Limited Report to Shareholders 2007 Operating & Financial Review Investments EARNINGS REVIEW Investments registered lower revenue of $61 million in 2007, a decline of 50% from $121 million in 2006 due to lower investment income. Earnings were higher as a result of increased contribution from SPC, which also reported record proﬁ ts. SINGAPORE PETROLEUM COMPANY (SPC) SPC aims to be a strong integrated oil and gas company with a premium brand in the Asia-Paciﬁ c region. MARKET REVIEW 2007 was a year of strong growth for the global economy. In line with this growth, crude oil demand was estimated to be 85.7 million barrels per day (bpd), a 1.2% increase from the 84.7 million bpd consumption in 2006. Geopolitical tensions, supply uncertainties and reﬁ nery outages combined to push crude oil prices from around US$55.00 per barrel to a new peak of US$99.29 per barrel for the benchmark West Texas Intermediate (WTI), before ending the year at US$95.98 per barrel. Reﬁ ning margins were likewise volatile, moving from a high of US$9.00 per barrel to a low of US$5.00 per barrel. Strong demand for reﬁ ned petroleum products was also seen throughout the year. Despite 2007 being one of the most volatile years in the oil industry, SPC was able to achieve its best ever performance. OPERATING REVIEW SPC scored signiﬁ cant successes in the Exploration & Production (E&P) business in 2007. 1 2 SPC Regional oil and gas company k1 Ventures Diversiﬁ ed investment company M1 Singapore- based telco Building upstream assets Upgrading and enhancing reﬁ ning assets Scouring opportunities in the two core platforms of energy, education/health/wellness Expansion into third core platform of transport leasing Continue to drive growth in 3G services with innovative services Differentiate and strengthen business through alliances 1. SPC entered into a PSC with CNOOC to operate Block 26/18 with 100% participating interest. 2. Managing our portfolio to enhance the value of these investments to bring maximum returns to shareholders. Keppel Corporation Limited Report to Shareholders 2007 Operating & Financial Review Investments 107 OPERATING & FINANCIAL REVIEW INVESTMENTS The SPC brand is recognised for its quality products marketed in Singapore and across the Asia-Paciﬁ c region. 108 Keppel Corporation Limited Report to Shareholders 2007 Operating & Financial Review Investments It entered two new E&P markets in Australia and China, growing its oil and gas production to an average of 10,000 bpd at year-end. This was a three-fold increase from early 2007. Since SPC’s move into the upstream business in 2000, the E&P portfolio and footprint has grown considerably to eight Production Sharing Contracts (PSC) and one exploration permit in ﬁ ve countries. In China, SPC made its largest overseas investment to date by acquiring producing ﬁ elds in the Bohai Bay for US$223 million. It also acquired a 100% interest in a PSC exploration block, Block 26/18 in China, and an exploration permit in Australia. SPC’s producing oilﬁ elds are Kakap and Oyong oilﬁ elds in Indonesia and Bohai Bay in China. SPC’s downstream business continued to be the main revenue generator. High crude and product prices, and tight global reﬁ ning capacity enabled SPC to achieve average reﬁ ning margins of US$7.00 per barrel. marketing of its fuels and lubricants was strengthened with investments in Indonesia and China respectively. The ﬁ rm demand for reﬁ ned products kept SPC’s 50%-owned reﬁ nery, SRC, running at an average utilisation of 97% throughout the year, with 51.5 million barrels of crude processed. SRC successfully carried out a scheduled maintenance of the Crude Distillation Unit No. 1 complex, a major exercise which was completed smoothly and safely. It initiated a US$121 million project to increase production of ultra-low sulphur diesel or ‘clean fuels’ of Euro-IV standard by 2009. BUSINESS OUTLOOK Global reﬁ ning capacity is expected to remain constrained by high construction costs and skill shortages. While volatility in global ﬁ nancial markets may restrain economic activity, reﬁ ning margins are expected to remain relatively healthy in 2008. This is in view of the continued lack of meaningful spare reﬁ ning capacity and continuing strong demand for petroleum products from Asia, the Middle East and Russia. SPC’s island-wide service station network continued to ﬁ nd new ways to better serve the motoring public and expand its base of loyal customers. SPC is the ﬁ rst retail network on mainland Singapore to provide compressed natural gas in early 2008. The SPC aims to continually upgrade the capability of its reﬁ ning operations to produce cleaner fuels, including clean motor gasoline, and to be able to process a wider range of difﬁ cult crudes that will improve its margins. SIGNIFICANT EVENTS January SPC and its partners increased their participating interest in Cambodia Block B to 33.3% each. M1 launched MeTV, Singapore’s ﬁ rst video sharing service on mobile phones. February M1 and Hong Kong Broadband Network Ltd (HKBN) signed a Memorandum of Understanding (MOU) to participate in Singapore’s Next Generation National Broadband Network (NBN) project together. SPC expanded its Exploration & Production portfolio with new acreage in Australia through a 35% participating interest in Block T/47P in the Bass Basin. August SPC entered into a PSC with CNOOC to operate Block 26/18 with 100% participating interest. In Indonesia, SPC acquired a 60% interest in PT Solar Premium Central (PT Solar) which will build on and expand SPC’s marketing presence in the country. September SPC began oil production at the Oyong ﬁ eld of its Sampang PSC in Indonesia, which is expected to have a gross production of 8,000 and 10,000 barrels of oil per day (bopd). SPC acquired offshore producing oilﬁ elds and exploration working interests in Bohai Bay, China. October k1 Ventures completed the sale of Mid Pac, its retail gasoline business in Hawaii, for a total consideration of US$44 million and US$10.4 million for working capital adjustments. k1 Ventures’ Helm Holdings completed the sale of its investment in Dakota, Minnesota & Eastern Railroad Corp, with PATMI contribution expected to be about $22 million. December k1 Ventures announced additional investment in China Auto I Co-Investors LLC of US$4.4 million. Keppel Corporation Limited Report to Shareholders 2007 Operating & Financial Review Investments 109 OPERATING & FINANCIAL REVIEW INVESTMENTS Block 04/36, Bohai Bay, China 18.2% (Exploration) 8.9% (Production) Block 05/36, China 23% (Exploration) 7.8% (Production) % denotes SPC’s interest in the PSC Block 26/18, China 100% Block 102 & 106, Vietnam 20% Block 101-100/04, Vietnam 45% Kakap PSC, Indonesia 15% Block B, Cambodia 33.3% BLOCK B, CAMBODIA Located 250 km off the coast of Cambodia, Block B acreage lies on the southeast of Khmer Basin where a number of oil and gas discoveries were made. In January 2007, SPC and its joint venture partners exercised their pre-emption rights to acquire the entire 10% participating interest of CE Cambodia B Ltd. As a result, SPC currently holds a 33.3% participating interest in this block. A 3-D seismic survey of 650 km2 was completed. Exploration drilling is planned for second half of 2008. Sampang PSC, Indonesia 40% (Oyong) 40% (Wortel) 21.8% (Jeruk) BLOCK T/47P, AUSTRALIA Located in the Bass Basin, offshore Southeast Australia about 200 km from Melbourne and in water depths ranging from 50 to 100m, Block T/47P contains Cormorant oil, condensate and gas discovery and several exploration prospects and leads. In addition to the Cormorant discoveries, T/47P also contains several exploration prospects and leads within its 2,890 km2 acreage. The joint venture partners are pursuing an aggressive exploration strategy to estimate the potential of the block. In January 2008, a 3-D seismic programme covering 525 km2 was completed. The partners have secured a drilling rig to conduct exploration drilling in the permit area, commencing early 2009. Block T/47P, Australia 35% 110 Keppel Corporation Limited Report to Shareholders 2007 Operating & Financial Review Investments BOHAI BAY, CHINA Currently SPC’s largest producing asset, Blocks 04/36 and 05/36 are located in western Bohai Bay, 190 km east of Beijing. Covering 3,080 km2, the blocks contain several Cao Fei Dian producing ﬁ elds with a total gross production of approximately 50,000 bpd. Produced gas is gathered by six platforms and processed by a Floating Production Storage and Ofﬂ oading (FPSO) under a long-term lease. Blocks 04/36 and 05/36 Effective 1 July 2007, the Bohai Bay assets contributed approximately 4,300 bpd to SPC’s production. Ongoing inﬁ ll drilling and well workover are being conducted by the operator to maximise production from the ﬁ elds. BLOCK 26/18, CHINA Located 150 km from shore in the Pearl River Mouth Basin, South China Sea, Block 26/18 covers 4,961 km2 in water depths between 85 and 200m. Block 26/18 contains the EP-20-3-1 discovery well drilled in 1998. Commercial oil production in the basin is centred in the Wenchang, Penyu, Huizhou, Lufeng and Liuhua ﬁ elds. Preliminary geological and geophysical studies indicate several prospects. Under the initial three-year exploration phase, SPC is responsible to carry out an agreed work commitment on this block which includes acquiring 2,000 km of 2-D seismic survey and the drilling of one exploration well. Upon commercial hydrocarbon discovery, CNOOC has the right to participate up to an interest of 51% in the PSC. BLOCKS 102 AND 106, VIETNAM Blocks 102 and 106 cover approximately 14,000 km2 and are located in the Song Hong Basin in the Gulf of Tonkin, Vietnam. The blocks contain the Yentu-1X and Thai Binh oil and gas discoveries. In 2007, the partners completed a 2,189 km 2-D seismic survey in these blocks. The joint venture partners are planning to conduct a three-well exploration/appraisal drilling programme in 2008. BLOCKS 101-100/04, VIETNAM Covering approximately 6,174 km2 , Block 101-100/04 is located next to Blocks 102 and 106 in the Gulf of Tonkin, Northern Vietnam and has gas and condensate discovery. Under the exploration phase of the PSC term, the joint venture partners are committed to the processing and interpretation of existing seismic data, acquisition of new 3-D seismic surveys and drilling of one exploration well within the ﬁ rst three years. To date, the 3-D seismic survey covering 689 km2 has been completed. Exploration drilling is planned for early 2009. KAKAP, PSC, INDONESIA Covering approximately 2,000 km2, Kakap PSC is located in the West Natuna Sea, Indonesia, 486 km from Singapore. There are nine producing oil and gas ﬁ elds integrated by four platforms and ﬁ ve subsea tie-backs. Produced oil is processed by a FPSO vessel and gas is transported through the West Natuna Transportation System pipeline to Singapore. Floating Storage and Ofﬂ oading (FSO) vessel. Oil started ﬂ owing from the Oyong ﬁ eld in September 2007. This is SPC’s second producing asset after the Kakap PSC. At the commencement, Oyong produced oil at approximately 8,000 to 10,000 bpd, which equates to 3,200 to 4,000 bpd for SPC’s 40% interest. SPC continued to enjoy healthy and stable production from the Kakap PSC. For 2007, the combined ﬁ eld production was approximately 975,000 boe for SPC’s share. During the year, an exploration well Pancing-1X was drilled which resulted in a non-commercial oil discovery. Continued efforts to bring additional gas production onstream were carried out with the drilling of the KG West-1 well. This well and the Lukah gas discovery made in 2006 are currently scheduled for tie-back to existing platforms. The two wells will maintain the Kakap gas production for supply to Singapore. With the completion of the Oyong oil development, the Sampang partners have started to monetise its gas reserves. Front End Engineering Design (FEED) has completed and tendering of engineering, procurement, construction and installation (EPCI) contract is ongoing for the second phase development. Gas production is expected to commence in 2009. The gas to be produced will be transported through a 55 km pipeline to an onshore processing facility adjacent to the Grati Power Station in East Java. A gas sales agreement was signed with PT Indonesia Power for the entire gas reserves of the ﬁ eld. SAMPANG PSC, INDONESIA Sampang PSC is located offshore East Java, Indonesia. The Sampang PSC contains the Oyong oil and gas ﬁ eld, the Jeruk oil discovery, the Wortel gas discovery, and several exploration prospects and leads. Wortel The partners are evaluating the full potential of the Wortel discovery located 7 km west of the Oyong ﬁ eld. An appraisal well Wortel-3, located east of Wortel-1 well, is scheduled for drilling in 2008. The Wortel discovery is planned as a tie-back to the Oyong gas production. Oyong In 2007, the ﬁ nal milestone in the development of Oyong oil was completed with the successful conversion of the production barge and subsequent tie-in with the wells and the Jeruk The Sampang partners continue to examine possible development scenarios to commercialise Jeruk’s resources. Keppel Corporation Limited Report to Shareholders 2007 Operating & Financial Review Investments 111 OPERATING & FINANCIAL REVIEW INVESTMENTS The investment in China Auto I Co-Investors LLC enables k1 Ventures to leverage the growth in demand of passenger cars in the Chinese market. k1 VENTURES The company is committed to maintaining its focus on existing investments in an effort to increase operating proﬁ ts and value. k1 Ventures recorded proﬁ ts of $26.2 million in 2007 due to increased contributions from Mid Pac Petroleum, LLC (Mid Pac) and gains from the disposal of investments and ﬁ xed assets. Helm Holding Corporation (Helm), the largest independent locomotive and railcar leasing company in North America, continued to contribute positively to the ﬁ nancial results. For the year ended 30 June 2007, k1 Ventures made a signiﬁ cant capital distribution of 6 cents per share for shareholders. Subsequent to k1 Ventures’ year ended 30 June 2007, Mid Pac was sold for a total consideration of US$50.4 million. k1 Ventures also recognised a gain on the sale of Helm’s investment in Dakota, Minnesota & Eastern Railroad Corp. of $22 million. k1 Ventures made two investments totalling US$8.83 million in China Auto I Co-Investors LLC, a company formed to co-invest in the expansion of the existing automobile dealership platform of the Guanghui Group. k1 Ventures will continue to be proactive in its current investments of energy, transportation leasing and investments, and seek to enhance shareholder value. MOBILEONE (M1) In 2007, the Keppel Group increased its 17% equity in M1 to almost 20%. Growth in mobile voice trafﬁ c remains stable while data trafﬁ c is expected to continue to grow strongly. Major initiatives in Singapore to develop ﬁ xed line and wireless broadband infrastructure, such as the Next Generation National Broadband Network (NGNBN), will provide the platform for the growth of data intensive applications. M1 continues to be a signiﬁ cant contributor to Keppel T&T’s earnings and cashﬂ ow. M1’s net proﬁ t grew by 4.4% from $164.6 million to $171.8 million. 112 Keppel Corporation Limited Report to Shareholders 2007 Operating & Financial Review Investments M1 is a leading mobile communications provider in Singapore with a range of mobile voice and data communications services over its networks. Helm manages a diverse ﬂ eet of 692 locomotives and 8,691 railcars to meet customers’ speciﬁ c operating requirements. During the year, Keppel T&T received $64.0 million from its investment in M1, with $46.7 million arising from capital reduction and $17.3 million from dividends. In the near future, M1 expects to see sustained growth in data trafﬁ c arising from wider adoption of mobile data usage on M1 broadband and mobile devices. It will tap on opportunities arising from convergence in the telecommunications and media space to develop new businesses anchored on its core competencies. This involves moving beyond mobile voice services to offer new services such as mobile advertising and mobile TV. M1 will also continue to explore growth opportunities locally and overseas, adopting those which will create shareholder value. Keppel Corporation Limited Report to Shareholders 2007 Operating & Financial Review Investments 113 OPERATING & FINANCIAL REVIEW FINANCIAL REVIEW AND OUTLOOK With 75% of its total revenue coming from overseas customers, Keppel Group stays focused on building regional and global winners. REVENUE BY MARKETS IN 2007 Revenue $10,431m Singapore 25% 75% Overseas Singapore ASEAN Rest of Asia-Pacific Middle East / India Europe North America South America Central America 5% 1% 25% 25% 2% 7% 6% 29% REVENUE BY MARKETS IN 2006 REVENUE BY MARKETS IN 2005 Revenue Revenue $7,601m 9% Singapore 16% 84% Overseas Singapore ASEAN Rest of Asia-Pacific Middle East / India Europe North America South America Central America 21% 5% 16% $5,688m Singapore 17% 83% Overseas 18% 2% 17% 5% 8% 4% Singapore ASEAN Rest of Asia-Pacific Middle East / India Europe North America South America Central America 15% 5% 9% 4% 32% 30% 114 Keppel Corporation Limited Report to Shareholders 2007 Operating & Financial Review Financial Review and Outlook Ocean Financial Centre is developed on the site of the former Ocean Building. When completed in 2011, the 43-storey Grade A environment-friendly building will yield 850,000 sf ofﬁ ce space. with its suite of proprietary designs, excellent track records and expertise in project execution is poised to beneﬁ t from the growing demands of different customers in the industry. Keppel Offshore & Marine will continue to drive its business through its “Near Market, Near Customer” strategy, bolstered by a global network of 20 yards and nine engineering and R&D centres. Keppel Offshore & Marine is expected to augment the capacities of its yards and operations with capital expenditure of nearly $300 million in 2008 to meet existing contract obligations and in anticipation of new contracts. Its capital expenditure in the last ﬁ ve years totalled $430 million. The creation of the Keppel Offshore & Marine Technology Centre, in addition to its three existing technology units, reﬂ ects its commitment to achieve a quantum leap in technology. It will also move with the market into deeper water activities by channelling resources to the development of deepwater rig solutions and larger specialised vessels for operations in more difﬁ cult terrains. The Property Division has landed housing, townships and resorts homes development in various parts of Asia, including China, Indonesia, India and Vietnam. Its regional thrust has yielded results with securing more project sites. While poised for Singapore’s transformation as a global business, ﬁ nancial and lifestyle hub, Keppel Land is making signiﬁ cant breakthrough into the Vietnamese and Chinese markets. With the Keppel brand and collective network of the Group, Keppel Land penetrated the Middle East market with the joint acquisition and development of a waterfront project in Saudi Arabia. This will enable the Division to establish a new regional platform for the property business. For 2008, Keppel Land plans to launch about 8,200 homes overseas including China, Vietnam, India, Indonesia and Saudi Arabia. In Singapore, Phase II of Reﬂ ections at Keppel Bay and Marina Bay Suites is expected to be launched this year. The ﬁ nancial performance of the Property Division will be boosted by the revenue and proﬁ t recognition from its pipeline of current and new trading property projects both in Singapore and the region. Keppel Land’s stable of prime investment buildings in the CBD and New Downtown in Marina South is expected to beneﬁ t from rental reversion in the tight ofﬁ ce supply market in Singapore. The contracts secured for the $1.5 billion Doha North wastewater treatment facility and the $1.7 billion Qatar domestic solid waste management complex in the last 18 months have boosted Infrastructure Division’s track record in environmental engineering. Keppel Energy is also expected to perform better after gaining access to its contracted Malaysia gas supplies and restructuring its overseas assets. SPC, driving the Group’s oil and gas business, is gaining ground as an integrated regional oil and gas company. It has successfully invested in upstream activities in Vietnam, Indonesia, Cambodia, Australia and now China. M1 and k1 Ventures, derive their respective revenues from Singapore and USA. PROSPECTS For the current year, we expect continued growth in all our key divisions. The 37% year-on-year growth in Group earnings for 2007 was achieved on the back of a 33% year-on-year growth in 2006. With a signiﬁ cantly higher earnings base and taking into account current economic uncertainties, a more modest growth rate is expected for the current year. Offshore & Marine Division secured a record $7.4 billion of new orders in 2007, bringing the net order book at the end of the year to an all time high of $12.2 billion. The outlook for the offshore and marine industry is expected to remain buoyant. High oil prices and marginal growth in world’s hydrocarbon reserves are expected to sustain Exploration & Production activities. There is also a growing need for sophisticated solutions as more Exploration & Production move into deeper waters and harsher environments. Offshore & Marine Division Keppel Corporation Limited Report to Shareholders 2007 Operating & Financial Review Financial Review and Outlook 115 OPERATING & FINANCIAL REVIEW FINANCIAL REVIEW AND OUTLOOK ROE & dividend per share Capital distribution 6.0cts/share Capital distribution 9.0cts/share Capital distribution 10.0cts/share Capital distribution 11.5cts/share Capital distribution 14.0cts/share Special dividend 45.0cts/share Plus Plus Plus Plus Plus Plus 19.0cts 14.0cts 21.8% 9.0cts 9.5cts 13.4% 14.1% 10.0cts 15.5% 11.5cts 19.1% 16.4% % 25 20 15 10 5 0 2002 2003 2004 2005 2006 2007 ROE Dividend cents 25 20 15 10 5 0 ROE & DIVIDEND PER SHARE Return on Equity reached a new high of 21.8%, reﬂ ecting our effort to pursue higher returns for our shareholders. The Company will be paying a ﬁ nal dividend of 10 cents per share and a special dividend of 45 cents per share. The special dividend is proposed to commemorate the Company’s 40th anniversary since its incorporation. Together with the interim dividend of 9 cents per share, total payout for 2007 is 64 cents per share. This is higher than the 28 cents distributed in 2006 and 23 cents distributed in 2005. Economic Value Added (EVA) Proﬁ t after tax and exceptional items (Note 1) Adjustment for: Interest expense Interest expense on non-capitalised leases Tax effect on interest expense adjustments (Note 2) Provisions, deferred tax, amortisation and other adjustments Net Operating Proﬁ t After Tax (NOPAT) Average EVA Capital Employed (Note 3) Weighted Average Cost of Capital (Note 4) Capital Charge 2007 $ million 07v06 +/(-) 2006 $ million 06v05 +/(-) 2005 $ million 1,062 +172 890 +215 675 134 20 (19) 32 1,229 +24 +1 -2 +21 +216 110 19 (17) 11 1,013 +56 +3 -8 +20 +286 54 16 (9) (9) 727 8,950 6.99% (625) -132 +0.49% -35 9,082 +239 6.50% +0.53% -62 (590) 8,843 5.97% (528) Economic Value Added 604 +181 423 +224 199 Comprising: EVA excluding exceptional items EVA of exceptional items 779 (175) 604 +363 -182 +181 416 7 423 +219 +5 +224 197 2 199 Notes: 1 Proﬁ t after tax and exceptional items excludes fair value adjustments for investment properties. 2 The reported current tax is adjusted for statutory tax impact on interest expenses. 3 Average EVA Capital Employed is derived from the quarterly averages of net assets plus interest-bearing liabilities, provision and present value of operating leases. 4 Weighted Average Cost of Capital is calculated in accordance with Keppel Group EVA Policy as follows: a Cost of Equity using Capital Asset Pricing Model with market risk premium set at 6% (2005/6: 6%); b Risk-free rate of 3.041% (2006: 3.282%, 2005: 2.737%) based on yield-to-maturity of Singapore Government 10-year Bonds; c Unlevered beta at 0.72 (2005/6: 0.63); and d Pre-tax Cost of Debt at 3.72% (2006: 3.72%, 2005: 3.07%) using 5-year Singapore Dollar Swap Offer Rate plus 40 basis points (2005/6: 75 basis points). 116 Keppel Corporation Limited Report to Shareholders 2007 Operating & Financial Review Financial Review and Outlook Total distribution to shareholders will be approximately $1 billion and represents 98% of Group PATMI. This is equivalent to a gross yield of 5.5% on the Company’s volume weighted average share price for 2007. beta. Average EVA Capital decreased by $132 million from $9.08 billion to $8.95 billion. In all, total EVA growth was $405 million over the last two years. The distribution to shareholders is paid on account of increased proﬁ tability and strong operational cashﬂ ow. We are committed to reward shareholders with generous payouts as we achieve healthy year-on-year improvement in earnings growth. ECONOMIC VALUE ADDED (EVA) We have been reporting positive EVA since 2004, achieving a record $604 million in 2007. This positive EVA was due mainly to the improvement in Net Operating Proﬁ t After Tax (NOPAT), an efﬁ cient capital structure, stringent investment criteria and strong cashﬂ ow. The improvement in EVA by $181 million was attributed largely to higher NOPAT partially offset by higher Capital Charge. NOPAT increased by $216 million due to an increase in after-tax proﬁ t of $172 million. Capital Charge increased by $35 million due to a higher Weighted Average Cost of Capital (WACC) partially offset by lower EVA Capital. WACC increased from 6.5% to 6.99% attributed largely to a higher unlevered TOTAL SHAREHOLDER RETURN (TSR) Keppel is committed to deliver value to shareholders through earnings growth. We will continue to identify, develop and build growth platforms for our businesses, sharpen our strategic focus, streamline our businesses, launch new products, strengthen customer relationships and penetrate new markets. This has contributed to an impressive value creation for our shareholders. Total Shareholder Return (TSR) in 2007 was 52%, 31% higher than the benchmark Straits Times Index’s (STI) TSR of 21%. Over the past ﬁ ve years, CAGR TSR of 54% was also signiﬁ cantly higher than STI’s TSR of 26%. The yearly TSR outperformed STI’s for the past eight years. CASHFLOW Operational cashﬂ ow before working capital changes exceeded $1 billion. Working capital changes were also positive with progress payments received from contracts. Economic Value Added (EVA) Total Shareholder Return (TSR) $ million 700 350 0 (350) (700) +$181m 604 423 +$224m +$164m 199 35 +$160m (125) +$170m (295) +$370m % 80 60 40 20 0 75.2 65.3 48.7 37.6 38.3 32.5 32.4 21.6 19.3 51.7 21.0 2.0 (18.2) (20) (20.0) (13.4) (14.5) 2000 2001 2002 2003 2004 2005 2006 2007 (665) 2001 2002 2003 2004 2005 2006 2007 Keppel STI Keppel Corporation Limited Report to Shareholders 2007 Operating & Financial Review Financial Review and Outlook 117 OPERATING & FINANCIAL REVIEW FINANCIAL REVIEW AND OUTLOOK Cashﬂ ow Operating proﬁ t Depreciation, amortisation and other non-cash items Cashﬂ ow provided by operations before changes in working capital Working capital changes Interest receipt and payment and tax paid Net cash from operating activities Divestments Investments and capital expenditure Dividend income Net cash used in investing activities 2007 $ million 07v06 +/(-) 2006 $ million 06v05 +/(-) 2005 $ million 1,051 139 1,190 638 (131) 1,697 32 (841) 263 (546) +247 -8 +239 -367 -29 -157 -146 -82 +56 -172 804 147 951 1,005 (102) 1,854 178 (759) 207 (374) +337 +8 +345 +12 -62 +295 +89 +355 +47 +491 467 139 606 993 (40) 1,559 89 (1,114) 160 (865) Free Cashﬂ ow 1,151 -329 1,480 +786 694 Dividend paid to shareholders of the Company & subsidiaries (511) -101 (410) -86 (324) Net cash used in investing activities was $546 million compared to $374 million in 2006. Acquisitions and operational capital expenditure accounted for $841 million. This comprised principally further investments in Marina Bay Financial Centre, capital expenditure on the co-generation plant and other operational expenses. Divestment and dividend received totalled $295 million. As a result, free cashﬂ ow for the year amounted to $1.2 billion. Total distribution to shareholders of the Company and minority shareholders of subsidiaries for the year amounted to $511 million, an increase of 25% compared to the previous year. FINANCIAL POSITION Total assets of $15.80 billion at 31 December 2007 were $1.90 billion or 13.6% higher than the previous year-end. Increase in investment properties was due mainly to fair value gains arising from valuation of the Group’s portfolio of ofﬁ ce buildings. Increase in associated companies was due to equity accounting for share of proﬁ ts and further investments in Marina Bay Financial Centre, MobileOne and Citadel 100 Datacenters Limited. Increase in investments was due to fair value adjustments of ﬁ nancial assets and purchases made during the year. Increase in debtors was due mainly to higher operating activities in Offshore & Marine Division and Infrastructure Division. These were partly offset by decrease in ﬁ xed assets due to depreciation charges and write-down of certain ﬁ xed assets net of capital expenditure. Impairment of goodwill resulted in decrease in intangibles. Shareholders’ funds increased from $4.21 billion at 31 December 2006 to $5.21 billion at 31 December 2007. The increase was attributed mainly to retained proﬁ ts for the year and fair value adjustments of ﬁ nancial assets. This was partly offset by a total payout of $463 million comprising ﬁ nal dividend and capital distribution in respect of ﬁ nancial year 2006 and interim dividend in respect of the ﬁ rst half year ended 30 June 2007. Minority interests increased from $1.39 billion at 31 December 2006 to $1.83 billion at 31 December 2007 because of higher retained proﬁ ts of non-wholly owned subsidiaries. Total liabilities of $8.76 billion at 31 December 2007 were $459 million or 5.5% higher than the previous year- end. Increase in creditors was due mainly to higher operating activities in Offshore & Marine Division and Infrastructure Division. Increase in provision for taxation was due to higher proﬁ ts of the Group. 118 Keppel Corporation Limited Report to Shareholders 2007 Operating & Financial Review Financial Review and Outlook Increase in deferred taxation was due to provision for deferred tax on fair value gains of investment properties taken to the proﬁ t & loss account. BORROWINGS The Group borrows from local and foreign banks in the form of short-term and long-term loans, project loans and bonds. At the end of 2007, 22% (2006: 23% and 2005: 36%) of Group borrowings were repayable within one year with the balance largely payable between two to ﬁ ve years. Unsecured borrowings constituted 70% (2006: 38% and 2005: 60%) of total borrowings with the balance secured by properties and assets. Secured borrowings are mainly for ﬁ nancing investment properties and project ﬁ nancing loans for property development projects. The net book value of properties and assets pledged/ mortgaged to ﬁ nancial institutions amounted to $1.83 billion (2006: $1.97 billion and 2005: $1.07 billion). Fixed rate borrowings constituted 21% (2006: 16% and 2005: 8%) of total borrowings with the balance at ﬂ oating rates. The Group has interest rate swap agreements with notional amount totalling $626 million whereby it receives variable rates equal to SIBOR and pays ﬁ xed rates of between 2.83% and 3.50% on the notional amount. The Group also has interest rate cap agreements to hedge the interest rate risk exposure arising from its US$ and S$ variable rate term loans. As at the end of the ﬁ nancial year, the Group has outstanding interest rate cap agreements of $58 million. Details of these derivative instruments are disclosed in the notes to the ﬁ nancial statements. Singapore dollars borrowings represented 76% (2006: 93% and 2005: 73%) and US$ borrowings represented 20% (2006: 4% and 2005: 24%) of total borrowings. The balances were in Australian, European and other Asian currencies. Foreign currencies borrowings were drawn to hedge against the Group’s overseas investments and receivables, which were denominated in foreign currencies. CAPITAL STRUCTURE & FINANCIAL RESOURCES The Group maintains a strong balance sheet and an efﬁ cient capital structure to maximise return for shareholders. The strong operational cashﬂ ow of the Group and divestment proceeds from low yielding and non-core assets will provide resources to grow the Group’s businesses. Every new investment will have to satisfy strict criteria for return on investment, cashﬂ ow generation, EVA creation and risk management. New investments will be structured with an appropriate mix of equity and debt after careful evaluation and management of risks. Capital structure Capital employed at the end of 2007 was $7.04 billion, an increase of $1.44 billion over 2006 and $2.10 billion over 2005. Net borrowings stood at $634 million at end of 2007, a further Total assets owned Total liabilities owed and capital invested $ million 20,000 15,000 10,000 5,000 0 $ million 20,000 15,797 15,797 12,590 1,653 2,254 2,664 2,762 1,846 1,411 13,901 1,741 2,446 3,113 2,862 2,120 1,619 1,698 3,133 4,024 2,791 2,550 1,601 15,000 13,901 5,205 12,590 10,000 1,830 4,205 1,393 5,000 0 6,139 5,188 2,234 389 2,957 158 3,646 1,289 3,750 3,731 174 2005 2006 2007 2007 2006 2005 Bank balances, deposits & cash Debtors & others Stocks & work-in-progress Other liabilities Term loans & bank overdrafts Creditors Investments Properties Fixed assets Minority interests Shareholders’ funds Keppel Corporation Limited Report to Shareholders 2007 Operating & Financial Review Financial Review and Outlook 119 OPERATING & FINANCIAL REVIEW FINANCIAL REVIEW AND OUTLOOK Gearing $ million 8,000 6,000 4,000 4,935 2,320 2,000 0.47 5,598 1,339 0.24 0 2005 2006 Interest coverage no. of times $ million 2.0 1,800 7,035 1.5 1,500 1,200 8.48 1.0 900 848 no. of times 1,619 13.96 1,202 9.85 0.5 634 2007 0.09 0 600 300 0 100 2005 122 2006 116 2007 15 12 9 6 3 0 Net debt Capital employed Gearing EBIT Total interest cost Interest cover reduction from $1.34 billion in 2006 and $2.32 billion in 2005. With higher capital employed and lower borrowings, net gearing was reduced from 0.47 times in 2005 to 0.09 times in 2007. Interest coverage improved from 8.48 times in 2005 to 13.96 times in 2007. This was achieved on increasing EBIT despite the escalating cost of funds. Cashﬂ ow coverage decreased from 16.59 times in 2005 to 15.63 times in 2007. Cashﬂ ow coverage remained healthy due to the robust operating cashﬂ ow generated by the Group. At the AGM in 2007, shareholders gave their approval for mandates to issue and buy back shares. The Company did not exercise these mandates. Financial resources The Group maintains sufﬁ cient cash and cash equivalents, short-term marketable securities and an adequate amount of standby credit facilities. Funding of our working capital requirements and capital expenditure/investments is made through a mix of short-term money market borrowings and medium/long-term loans. At the end of 2007, credit facilities in the form of short-term loans, bank overdrafts, letters of credit, and other banking facilities provided by major banks to the Group amounted to $5.32 billion of which $1.33 billion was utilised. FINANCIAL RISK MANAGEMENT The Group operates globally and is exposed to a variety of ﬁ nancial risks, including market risk (foreign currency exchange rates, interest rates and commodity/equity prices), credit risk and liquidity risk. Financial risk management is carried out by the Keppel Group Treasury Department in accordance with established policies and guidelines. These policies and guidelines are established by the Group Central Finance Committee and are updated to take into account changes in the operating environment. This committee is chaired by the Group Finance Director and comprises chief ﬁ nancial ofﬁ cers of the Group’s key operating companies and Head Ofﬁ ce specialists. The Group’s ﬁ nancial risk management is discussed in more detail in the notes to the ﬁ nancial statements. In summary: Due to the dynamic nature of the Group’s businesses, it maintains ﬂ exibility in funding by ensuring that ample working capital lines are available at any one time. • The Group has receivables and payables denominated in foreign currencies, viz US dollars, European and other Asian currencies. Foreign 120 Keppel Corporation Limited Report to Shareholders 2007 Operating & Financial Review Financial Review and Outlook Cashflow coverage $ million 2,500 2,000 1,500 1,000 500 0 no. of times 16.59 1,659 1,976 16.20 1,813 15.63 100 2005 122 2006 116 2007 20 16 12 8 4 0 Operating cashflow + interest Total interest cost Cashflow coverage currency exposures arise mainly from the exchange rate movement of these foreign currencies against Singapore dollar, which is the Group’s measurement currency. The Group utilises forward foreign currency contracts to hedge its exposure to speciﬁ c currency risks relating to receivables and payables. The bulk of these forward foreign currency contracts are entered into to hedge any excess US dollars arising from Offshore & Marine contracts based on the expected timing of receipts. The Group does not engage in foreign currency trading; • The Group hedges against price ﬂ uctuations arising on purchase of natural gas. Exposure is managed via fuel oil forward contracts, whereby the price of natural gas is indexed to a benchmark fuel price index, High Sulphur Fuel Oil (HSFO) 180-CST; • The Group maintains a mix of ﬁ xed and variable rate debt/loan instruments with varying maturities. Where necessary, the Group uses derivative ﬁ nancial instruments to hedge interest rate risks. This may include interest rate swaps and interest rate caps; • The Group maintains ﬂ exibility in funding by ensuring that ample working capital lines are available at any one time; and • The Group adopts stringent procedures on extending credit terms to customers and the monitoring of credit risk. CRITICAL ACCOUNTING POLICIES The Group’s signiﬁ cant accounting policies are discussed in more detail in the notes to the ﬁ nancial statements. The preparation of ﬁ nancial statements requires management to exercise its judgement in the process of applying the accounting policies. It also requires the use of accounting estimates and assumptions which affect the reported amounts of assets, liabilities, income and expenses. Critical accounting estimates and judgement are described below. Impairment of ﬁ xed assets Determining whether ﬁ xed asset value is impaired requires an estimation of the value in use of the cash-generating units. This requires the Group to estimate the future cashﬂ ows expected from the cash-generating units and an appropriate discount rate in order to calculate the present value of the future cashﬂ ows. Impairment of goodwill Determining whether goodwill is impaired requires an estimation of the value in use of the cash-generating units to which the goodwill is allocated. This requires the Group to estimate the future cashﬂ ows expected from the cash-generating units and an appropriate discount rate in order to calculate the present value of the future cashﬂ ows. Impairment of available-for-sale investments The Group follows the guidance of FRS 39 in determining whether available- for-sale investments are considered impaired. The Group evaluates, among other factors, the duration and extent to which the fair value of an investment is less than its cost, the ﬁ nancial health of and the near-term business outlook of the investee, including factors such as industry and sector performance, changes in technology and operational and ﬁ nancing cashﬂ ow. Revenue recognition The Group recognises contract revenue based on the stage of completion method which is measured by reference to the proportion of contract work completed. Signiﬁ cant assumption is required in determining the stage of completion, the extent of the contract cost incurred, the estimated total contract revenue and contract cost and the recoverability of the contracts. In making the assumption, the Group evaluates by relying on past experience and the work of specialists. Income taxes The Group has exposure to income taxes in numerous jurisdictions. Signiﬁ cant assumption is required in determining the provision for income taxes. There are certain transactions and computations for which the ultimate tax determination is uncertain during the ordinary course of business. The Group recognises liabilities for expected tax issues based on estimates of whether additional taxes will be due. Where the ﬁ nal tax outcome of these matters is different from the amounts that were initially recognised, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made. Keppel Corporation Limited Report to Shareholders 2007 Operating & Financial Review Financial Review and Outlook 121 OPERATING & FINANCIAL REVIEW OPERATIONS SUSTAINABILITY Keppel Corporation is well placed to meet the challenges of a dynamic business environment. 122 Keppel Corporation Limited Report to Shareholders 2007 Operating & Financial Review Operations Sustainability The Group is positioned to meet the challenges of a dynamic business environment and sustain its diversiﬁ ed operations well into the long-term, through a framework of best practices, processes and initiatives designed to enhance operational resilience whilst maintaining strategic direction. Our strong execution capabilities are supported by core competencies and operational focus on risk and business continuity management, technology, health and occupational safety, as well as environmental protection. This provides a robust platform for sustainable growth across markets while creating a compelling value proposition for stakeholders. MANAGING RISKS AND UNCERTAINTIES Cultivating a strong risk-centric culture The Board of Directors, assisted by the Board Risk Committee (BRC), has oversight of risk management in the Group. The BRC examines the effectiveness of the Group’s risk management system and guides management in the formulation of risk policies, systems, processes and procedures. Our Enterprise Risk Management (ERM) framework provides a holistic and systematic risk management process and approach for the Group in terms of risk identiﬁ cation, evaluation, mitigation and monitoring. Risk management tools and methodology are widely applied to different aspects Workers participate in a pandemic ﬂ u exercise at Keppel Shipyard (Tuas). of our business. Risk management is embedded in business processes to ensure early risk detection for effective management and control, and forms an integral aspect of strategic and budget review, project evaluation and planning, and performance evaluation. Maintaining clear visibility of risks is emphasised to ensure prompt mitigation and decision-making. Key risk issues and signiﬁ cant identiﬁ ed projects are closely monitored through regular reviews, project meetings, discussion of key risk indicators and issues with senior management and highlighting of key risks in reports to management, BRC and the Board. Strong top level management commitment in driving Group-wide ERM initiatives ensures effective implementation with dedicated resources, standardised methodology, established measures, clear communication and feedback channels. Individual business units are accountable for and cognisant of the need to integrate risk management into their business operations. Group Risk Management provides guidance, assistance and resources to facilitate their ERM implementation. Risk management capabilities are enhanced through in-house training, including customised workshops incorporating case studies and surveys. Conferences and forums also crystallise key messages. Sharing of best practices and in-depth project post-mortem analysis provide further learning avenues. Preparing for external volatility and operational disruptions In an increasingly volatile operating environment, the Group seeks to enhance business resilience through business continuity management and scenario planning. Business continuity management enables our businesses to respond seamlessly to external events while minimising operational disruptions. For example, the Group has developed Business Continuity Plans (BCP) for a pandemic ﬂ u outbreak scenario. BCP activities carried out include reﬁ ning business units’ BCPs, simulation exercises for pandemic ﬂ u outbreaks at local and overseas business units and testing remote work access procedures from home or alternative sites. This enhances our overall operational preparedness. External conditions may impact the Group’s operations and challenge key underlying parameters. Scenario planning is a useful tool involving long-range scanning to draw additional perspectives that can be incorporated into the process of shaping the Group’s strategic direction, meeting potential challenges as well as business opportunities. Ongoing scenario planning augments the risk management system and strengthens the Group’s strategic decision-making processes. Our key emphasis is to promote an effective risk management system across the Group, intensifying our efforts in building a risk-centric culture closely aligned with both near- and long-term corporate goals. AIMING FOR ZERO TOLERANCE Safety issues are discussed at every board meeting thus underscoring its importance. Aside from the Board Safety Committee at Keppel Corporation, Keppel Corporation Limited Report to Shareholders 2007 Operating & Financial Review Operations Sustainability 123 OPERATING & FINANCIAL REVIEW OPERATIONS SUSTAINABILITY Keppel Land also established its Board Safety Committee on 1 March 2007, to further drive home the importance of safety management. The Group held its Inaugural Annual Group Safety Convention in 2007, aimed to share best practices, recognise efforts to enhance safety and motivate employees to raise safety standards. A total of 22 projects were submitted to a panel of judges from the Ministry of Manpower, Singapore Construction Association and Ngee Ann Polytechnic. Guest of Honour, Minister of State for Manpower and Education, Mr Gan Kim Yong, Mr Lim Chee Onn, Executive Chairman, Keppel Corporation, and Mr Yeo Wee Kiong, Chairman of Board Safety Committee launched the Group’s ﬁ ve safety principles at the Convention. The safety principles highlight the Group’s philosophy towards safety management, as well as the Group’s passion and commitment towards improving safety at the work place. We have also committed no less than $15 million in 2008 to step up our efforts to improve the Group’s safety performance. This is an increase from $13 million in 2007 and $10.6 million in 2006. At the Keppel O&M group, ongoing efforts have been undertaken to imbue a safety mindset in all employees and subcontract workers. In 2006, Keppel O&M achieved its lowest accident rate since it started records in the 1980s. In 2007, the Safety Leadership Programme was launched to ensure that safe work practices are built into everyday work processes. This safety initiative has been implemented on projects across all three of Keppel Shipyard’s facilities in Singapore. Our safety standards can be attested by the Accident Frequency Rate (AFR) at Keppel Shipyard with its much improved accident frequency rate of 0.25 in 2007 compared to 1.34 in 2006. AFR measures the total number of reportable accidents per million manhours worked. Keppel Seghers Engineering also achieved 1.2 million accident-free manhours for its work on the Kallang-Paya Lebar Expressway and Keppel Seghers Ulu Pandan NEWater Plant. In China, setting safety standards were also a key priority. The project team and main contractor of the Central Park City (Wuxi) worksite was awarded a recognition plaque by Keppel Land’s Board Safety Committee (BSC) for its exemplary safety practices. 8 Park Avenue (Shanghai) and Central Park City (Wuxi) have also received safety recognition awards from the local safety bureaus for good safety practices. Promoting a safety culture The HSE efforts of Keppel O&M focus on four main thrusts, namely communications, training, proactive actions, rewards and recognition. Safety initiatives are planned by the yards throughout the year to ensure that HSE aspects receive sufﬁ cient coverage. Keppel O&M continued to build a safety culture based on “interdependent” teamwork. The Workforce Safety Councils in the Tuas, Benoi and Gul yards of Keppel Shipyard and Keppel Singmarine were its active partners. Support was also received from Contractors HSE Watch Groups and from customers’ project teams. At Keppel Shipyard, client representatives from ExxonMobil, SBM and Shell sit on the Safety Steering Committee under the yard’s Safety Plus Programme. Keppel O&M participated in the inaugural Keppel Group Annual Safety Convention held in November 2007, with Keppel Singmarine winning the Keppel Group Chairman Safety Challenge Trophy. Keppel Shipyard launched its Safety Leadership Programme in April 2007, aligning top management down to the workforce to ensure safety is built into everyday work processes. This initiative is a tripartite effort by ExxonMobil, SBM and Keppel Shipyard. FIVE KEY PRINCIPLES FOR SAFETY • If Safety is Expensive, Disasters Cost More • Value Everyone’s Safety • Zero Tolerance for Incidents • Recognise Safe Behaviours • Passion for HSE Excellence Mock exercises are carried out at the yards to hone our security skills and safety procedures. 124 Keppel Corporation Limited Report to Shareholders 2007 Operating & Financial Review Operations Sustainability Keppel Verolme appointed Safety Ambassadors to promote safety awareness in the yard. participated in the Coastal Clean Up Day as part of the Green Philippines Programme in September 2007. Keppel FMO and Keppel Land’s property management team carry out ﬁ re drills to ensure a smooth evacuation for tenants of Keppel Towers. Keppel FELS held its Annual Safety Campaign in April 2007, emphasising Prevention of Hand & Finger Injuries, the highest occurrence category in its incident records. Protection of the environment Our yards worldwide played their part in ensuring that operational activities were conducted in a responsible manner without negative impact to the environment and surrounding community. Keppel AmFELS conformed to Texas State Air Quality Permit and Federal Operating Permit requirements. Keppel Batangas is a member of the Batangas Coastal Resources Management Foundation which conducts surveillance to ensure sea water quality around the Batangas Bay region. Both Keppel Batangas and Keppel Cebu also Keppel Shipyard set up an Environmental Task Force in June 2007 dedicated to monitoring environmental issues. Achieving recognition At the last Ministry of Manpower Annual Safety & Health Performance Award, Keppel Singmarine won the Silver Award for Workplace Safety & Health. Keppel FELS won the Safety & Health Award Recognition for Projects (SHARP) for the Maersk B273 project while Keppel Shipyard won the same award for the Petrobras P-53 project. At the 10th Convention for Workplace Safety & Health Innovations Teams in Marine Industry organised by the Association of Singapore Marine Industries, two teams from Keppel Shipyard Gul won the Gold and Silver Awards respectively. Keppel Corporation Limited Report to Shareholders 2007 Operating & Financial Review Operations Sustainability 125 OPERATING & FINANCIAL REVIEW OPERATIONS SUSTAINABILITY Launching Keppel’s Five Key Safety Principles are (from left to right) Mr Lim Chee Onn, Executive Chairman, Keppel Corporation, Minister of State for Manpower and Education, Mr Gan Kim Yong and Mr Yeo Wee Kiong, Chairman of Board Safety Committee, Keppel Corporation. During the year 2007, R&D projects discussed include Keppel O&M’s technology collaboration with ConocoPhillips. Environmental discussions focused on water and solid waste related issues and technologies, as well as alternative energy generation. The ﬁ rst Inter-SBU R&D project approved under Central Innovation & Technology Development Funding for offshore gas-to-liquids technology applications feasibility study was successfully completed. Looking ahead, KTAP will foster a vibrant R&D culture within the Group and lead our technology drive through the TRAM concept – identify Trends impacting our businesses, assist our businesses to remain Relevant to markets, advise on Acquisition of expertise or technology development processes and Mentor the Group in related R&D issues. Offshore and marine technology development KOMtech was launched in December 2007, underscoring Keppel O&M’s commitment to long-term research driving innovation beyond its current business and markets. An initial funding of $150 million for ﬁ ve years sets the stage for its R&D activities in the near future. The centre also received signiﬁ cant support from The Economic Development Board. KOMtech augments the work of three existing technology units, Offshore Technology Development, Deepwater Technology Group, and Marine Technology Development. They will focus more intensively on design and engineering, while KOMtech concentrates on new technologies with long-term strategic impact. Caspian Shipyard and Keppel Kazakhstan gained impressive safety records of 4.24 million manhours combined without lost time incidents. Keppel Kazakhstan was lauded by Agip KCO for achieving 1.5 million manhours without any lost time incidents in their project. Singapore yards continued to achieve both impressive safety records in various projects and receive safety rewards from customers. SUSTAINING OUR TECHNOLOGY EDGE Keppel Technology Advisory Panel Since its 2004 inauguration, the Keppel Technology Advisory Panel (KTAP) has convened semi-annually on eight occasions, with active participation from the Board, senior management and Group companies. Chaired by Professor Cham Tao Soon, President Emeritus of Nanyang Technological University and Chancellor of UniSIM, KTAP’s current membership comprises eight other internationally- renowned researchers, practitioners and industry leaders. 126 Keppel Corporation Limited Report to Shareholders 2007 Operating & Financial Review Operations Sustainability New ideas and fresh perspectives will be injected through planned staff rotation while research working stints provide invaluable staff development opportunities. Research collaborations with the National University of Singapore (NUS), Nanyang Technological University (NTU), and leading overseas universities in Norway and The Netherlands, will further sharpen our technological edge. KOMtech fulﬁ ls a key technology foresight role in spearheading Keppel O&M’s thrust into new markets and opportunities, leveraging its market knowledge and developing technologies to meet its future needs. Keppel O&M continues to play a prominent role in the industry, keeping abreast of latest technology and developments as it contributes to the shaping of signiﬁ cant trends and overall development of our offshore and marine industry. Major events during 2007 included the following: • The 21st Chua Chor Teck Memorial Lecture was delivered in January by Mr Chris Horrocks, past Secretary General of the International Chamber of Shipping and International Shipping Federation. He spoke on “Raising the Proﬁ le of the Shipping Industry”; • Keppel O&M participated in the • Offshore Technology Programme launched at NUS and signed a bilateral agreement with its Centre of Offshore & Research Engineering in March; In April, Prof Andrew Palmer succeeded Prof Torgeir Moan as Keppel Chair Professor at NUS, researching offshore pipelines & engineering, geotechnics and ice; • The 5th Keppel Lecture was delivered by Prof Andrew Palmer, Keppel Chair Professor at NUS, on “Arctic Offshore Structures, Ice Engineering & Ice Mechanics”, in June; • Semi-sub/Floaters Asia 2007 conference took place in September. Organised by Petromin, Deepwater Technology Group, together with ENSCO and Siemens, was one of the main sponsors. A broad industry segment presented, including design houses, classiﬁ cation societies, FPSO operators, academia, model test basins and subsea pipelines specialists; and • OSV Singapore 2007 was another international conference held in Singapore. Keppel Singmarine was the main sponsor. The conference, held in November, provided a forum for open exchange of ideas on offshore support vessels and networking. Group business units also participated in knowledge-sharing discussions and presentations providing opportunities to explore and derive insights and synergies with the technologies, operations, experiences and expertise of other business units. The Keppel Technology Advisory Panel held its seventh meeting in Belgium. Keppel Corporation Limited Report to Shareholders 2007 Operating & Financial Review Operations Sustainability 127 OPERATING & FINANCIAL REVIEW OPERATIONS SUSTAINABILITY Development Council (EWI) and PUB will supplement EDB funding. To complement internal R&D and augment its technology solutions portfolio, KIE also reaches out to external constituencies and stakeholders: • Research collaboration with leading academic and industrial research institutions around the world including NUS, NTU, PUB, NEA, Stanford University (US), Cranﬁ eld University (UK), TNO and KIWA (The Netherlands) and the Von Karman Institute (Belgium), ensures direct access to latest research programmes and technology platforms; • Working closely with business partners and customers to harmonise research efforts with market needs; and • Tapping KTAP insights and strategic guidance in R&D activities, technology trends, relevancy and technology acquisition. Signiﬁ cant projects carried out to meet global environmental challenges include: • NextGenBioWaste project – EU integrated project in sustainable energy production; • Keppel Seghers Ulu Pandan NEWater Plant; • Keppel Seghers & TNO Memstill® membrane distillation project; • Keppel Seghers & KIWA Project – industrial scale membrane systems study; • MEMSCAN Project – industrial scale membrane systems study; • Keppel Seghers & Cranﬁ eld University membrane bioreactor optimisation project; and • Keppel Seghers membrane bioreactor optimisation project for Dutch city of Heenvliet. KIE is committed to further developing technologies in wastewater treatment. ENVIRONMENTAL TECHNOLOGIES FOR A CLEANER FUTURE Our environmental business endeavours to address global challenges of sustainable development and contribute to better living environments through its resource-efﬁ cient water and thermal treatment capabilities. Technological innovations are harnessed to deliver cost- effective quality environmental solutions while maintaining our competitive edge. Efforts are targeted at energy efﬁ ciency improvements by enhancing energy conversion or by tapping previously unusable sources of energy such as waste heat. We seek to create a robust R&D framework to support our environmental initiatives through centres of excellence spearheading innovation in environmental technologies. In Europe, Keppel Seghers’ Environmental Technology Research Centre focuses on thermal and solid waste technologies and projects, and is equipped to conduct small-scale trials and pilot testing. Keppel Seghers continues to focus its resources on development and commercialisation of proprietary technologies and engineering capabilities as part of its long-term strategy. It aims to be a world leader in advanced environmental technologies for water and wastewater treatment, solid waste management and air pollution control. Keppel Environmental Technology Centre (KETC) was set up in Singapore in 2007 to drive environmental research initiatives. It will focus on energy recovery and by-product minimisation from waste and wastewater treatment, and membrane applications for producing water from non-conventional sources. Project funding from Environmental & Water Industry 128 Keppel Corporation Limited Report to Shareholders 2007 Operating & Financial Review Operations Sustainability The Memstill® project seeks to develop a novel, low cost desalination process. Prequaliﬁ cation and research proposals have been submitted to EWI and PUB for funding. A large full-scale demonstration plant is targeted to be set up in 36 months. The REDOXAN project applies Keppel’s patented process using anaerobic/aerobic digestion to reduce sludge and improve biogas production. A laboratory scale test unit is being constructed to test various combinations of mesophyllic/thermophyllic anaerobic and aerobic operations with or without acidogenic steps on primary and secondary sludge to demonstrate superiority over existing technologies. Two membrane bioreactor pilot projects are ongoing in collaboration with Cranﬁ eld University and Asahi. QUALITY LIVING AND ENVIRONMENTAL PRESERVATION Building green alliances Keppel Land is committed to developing properties that improve the quality of life while minimising their ecological impact. It joined Singapore Green Business Alliance, which promotes awareness and co-operation for environmental protection, and is a member of Singapore Compact, a national corporate social responsibility movement in Singapore. In June 2007 marking World Environment Day, a series of green initiatives and events was rolled out to promote awareness of conservation. A ‘Green Living’ exhibition was held at Bugis Junction Towers. ‘Go Green with Keppel Land’ recycle-able bags were distributed and employees were encouraged to pledge their commitment to environmental protection through its online portal. As part of the Group-wide Environment Masterplan, Keppel Land formed an Environment Management Committee to address green issues and spearhead environmental sustainability initiatives. A key priority is to obtain ISO 14001 certiﬁ cation for its environmental management system. Work is underway to achieve certiﬁ cation for local commercial and residential operations by end-2008. Keppel Land embraces environmental and social performance transparency. At the inaugural Singapore Green Summit 2007 jointly organised by the Singapore Environment Council and Association of Chartered Certiﬁ ed Accountants (ACCA), it was a ﬁ nalist in the ACCA Singapore Environmental and Social Reporting Awards. Since 1997, a dedicated section in its annual report details its environmental initiatives. A link to the latest environment report is included in its website. Redeﬁ ning waterfront living Keppel Bay, a 32-ha waterfront precinct astride the former Keppel Shipyard site, is meticulously designed to optimise the site’s rare natural attributes for exciting seafront living. Reﬂ ections at Keppel Bay offers its residents a world-class waterfront lifestyle coupled with environment-friendly features. Keppel Corporation Limited Report to Shareholders 2007 Operating & Financial Review Operations Sustainability 129 OPERATING & FINANCIAL REVIEW OPERATIONS SUSTAINABILITY Keppel Land incorporates eco-friendly features in its developments in the pursuit of green excellence. Marina at Keppel Bay, located on the exclusive Keppel Island, is a world-class marina featuring state-of-the-art facilities such as modern concrete ﬂ oating berths with capacity for 170 yachts, including mega-yachts up to 250 feet. It is linked to the mainland by the landmark Keppel Bay Bridge, Singapore’s longest cable- stayed bridge at 250 metres. Designed by leading architects and marina consultants, Marina at Keppel Bay sets new standards in marina construction and services. Iconic Reﬂ ections at Keppel Bay, designed by world-renowned architect Daniel Libeskind, has applied for Green Mark. Green features include energy efﬁ cient air-conditioners, motion sensors, automated irrigation and recycling facilities within the development. Caribbean at Keppel Bay, the FIABCI Prix d’ Excellence award-winning condominium and ﬁ rst residential development at Keppel Bay, boasts more than 2,200 shrubs and 800 trees of diverse species within its grounds. Spearheading green developments Harmonising with and improving the environment is a design and development priority. Its latest prime ofﬁ ce building, Ocean Financial Centre, to be completed in 2011, will showcase state-of-the-art green and environment-friendly features. Designed by well-known architectural ﬁ rm Pelli Clarke Pelli, the 43-storey building will include green features such as Singapore’s largest solar panel system for ofﬁ ces, the ﬁ rst hybrid chilled water system in Singapore, high green plot ratio, energy efﬁ cient design and use of environmental management and water conservation systems. One Rafﬂ es Quay, in the New Downtown, hosts a district cooling plant providing centralised and efﬁ cient air-conditioning for adjoining sites. To minimise the building’s weight and movements, an environment-friendly innovative hybrid structural system comprising concrete core, perimeter concrete-ﬁ lled steel tube columns, outrigger trusses and diaphragm ﬂ oors was used in its construction. Other resource-efﬁ cient features incorporated in the landmark building include devices optimising air-conditioning control, energy efﬁ cient light ﬁ ttings, motion sensors, condensate water recycling for irrigation, and an air ﬂ ushing system to remove foul air. Marina Bay Residences was conferred the Green Mark Gold Award in 2007 in recognition of its environmentally sustainable building practices and innovative green features. Another condominium project, The Tresor, also received the same award in 2006. These successive wins attest to Keppel Land’s commitment and effort in making its properties eco-friendly and afﬁ rm its pursuit of green excellence. 130 Keppel Corporation Limited Report to Shareholders 2007 Operating & Financial Review Operations Sustainability Going green across borders Keppel Land demonstrates similar commitment to the environment and sets new benchmarks for sustainable development through its quality overseas projects. efﬂ uent water for landscape irrigation and toilet ﬂ ushing system. Solar energy is harvested for all external lightings at Elita Promenade. About 40% of land at Elita Horizon has been set aside for green belt and landscaping. Jakarta Garden City, a 270-ha residential township in eastern Jakarta to be launched in 2008, will offer a green haven for families, with communal gardens and parks, tree-lined walkways and landscaped public areas. In India, sewage treatment plants have been set up at Elita Promenade and Elita Horizon condominium developments to treat and recycle In China, 8 Park Avenue in Shanghai has water and energy conservation features such as solar-powered landscape lamps, rain water recycling system and a heat recovery pump which conserves energy for its swimming pool. In Beijing, The Seasons condominium features a mix of evergreen and deciduous trees to ensure residents can enjoy nature’s changing scenery through the four seasons. The planned Sino-Singapore Tianjin Eco-City (SSTEC) development will incorporate the latest green technologies and environment-friendly systems, such as state-of-the-art water recycling and waste treatment systems. SSTEC will be developed by a joint venture formed by consortia from both sides, with Keppel Corporation playing a lead role and Keppel Land supporting the Group’s effort. Jakarta Garden City is expected to be a development that harmonises quality homes with nature. Keppel Corporation Limited Report to Shareholders 2007 Operating & Financial Review Operations Sustainability 131 NURTURING PEOPLE Keppel Senior Management is actively involved in the identiﬁ cation and development of talents. Mr Kenny Yap (centre) of Qian Hu Corporation and Mr Adrin Loi (right) of Ya Kun International were the speakers for 2007’s ‘Grow Beyond’ motivational series for Keppelites. 132 Keppel Corporation Limited Report to Shareholders 2007 Nurturing People TALENT DEVELOPMENT We continue to strive to be a preferred employer, to existing and future employees. Our senior management drives the development of young talents across the Group. They meet these young managers quarterly for tea. This enables interaction and exchange of views. Young managers from our overseas ofﬁ ces also converge annually for training, interaction with board members and senior executives and participation in Group-wide programmes to build cohesion as a larger Keppel family. Bi-annual motivational talks are held as part of the ‘Grow Beyond’ series. In 2007, our speakers included Mr Khoo Swee Chiow, a well-known Singaporean adventurer; Mr Jack Sim, founder of World Toilet Organisation; Mr Adrin Loi of Ya Kun International, and Mr Kenny Yap of Qian Hu Corporation. Some 300 Keppelites, including board members and senior executives attended these half-day sessions. A key development opportunity for our young talents is postings to our many operations overseas, for global exposure and grooming. Cross- posting, for example, from China to the Middle East or from one Strategic Business Unit (SBU) to another is currently being institutionalised. Leadership training is ongoing and has been allocated a generous Learning and Development budget. New programmes have been added in 2007, including conﬂ ict management and negotiation skills to equip our managers to work effectively with multi-cultural customers and employees as we expand. Many of our young managers also participated in IE Singapore’s Executive Programmes Keppelites from across the globe stepped up in unity at the Global Young Managers Programme 2007. Global Young Managers Programme 2007 Hailing from Azerbaijan to China, 33 Keppelites embarked on a ﬁ ve-day journey of discovery during Keppel’s second Global Young Managers Programme in September. The leadership development programme is designed to introduce young managers from Keppel’s overseas operations to Group operations. The programme included workshops that honed negotiation skills and personal effectiveness. Visits to shipyards, the Keppel Seghers Ulu Pandan NEWater Plant and the developments at Keppel Bay were arranged. To further enrich trainee experience, the programme was structured to coincide with two other events, the Keppel Group Orientation and the ‘Grow Beyond’ Series talk. Keppel Corporation Limited Report to Shareholders 2007 Nurturing People 133 NUrTUrING PEOPLE under the International Business Fellowship, and spent two weeks in Dubai and Abu Dhabi, and Beijing and Shanghai in China. Our SBUs also supplement such leadership training with their own programmes. Manpower by segments number 156 4,392 2,918 Offshore & Marine Property Infrastructure Investments Building Bench Strength for Key PoSitionS To ensure we have adequate bench strength for key positions, both the Board and our Senior Executive Directors regularly review their list of potential successors, and assess them against a list of leadership attributes developed in-house. In addition, regular face-to-face interactions with these candidates are organised. These candidates are also developed through executive coaching, executive development programmes, and leading major projects. To ensure a deliberate and effective implementation of succession planning, this effort is stewarded as a Key Performance Indicator in the supervisor’s Balanced Scorecard. ScholarShiPS and internShiP ProgrammeS Under the Keppel Group Local Scholarship, a total of 12 scholarships were awarded by various SBUs in 2007, for studies in accountancy, business administration, engineering and real estate in universities in Singapore. Scholarships under the auspices of the Keppel International Scholarship, launched since 2004, were awarded to two students from Vietnam and China for studies in the National University of Singapore. In addition, four scholarships were offered to pre-university students from Vietnam and India to study in St. Joseph’s Institution International. 24,448 Singapore China/HK Asia USA Brazil Others 16,429 Manpower by countries number 1,179 6,764 1,059 5,057 1,426 Executives/Non-Executives number 6,774 Non-Executives Executives 25,140 134 Keppel Corporation Limited Report to Shareholders 2007 Nurturing People Arab Asian Internship Exchange Programme Asian Internship Exchange Programme is starting in 2008 to provide opportunities for Arab and Asian youths to experience working in each other’s country, facilitate knowledge sharing and foster greater understanding. The programme is part of the Arab Asian Task Force’s strategy and action plans to promote co-operation between Asia and the Arab world. 1 2 1. Global Action Forum Arab Asian Dialogue was held in Singapore in April 2007. 2. Mr Moustapha Sarhank, Member of the BOD for YAL and Honorary Chairman of Sarhank Group and Mr Michael Chia, ED of Keppel FELS signed the agreement for an exchange programme. Career Fairs A career at Keppel promises a myriad of opportunities and experiences. This is what graduating students from Nanyang Technological University (NTU) and National University of Singapore (NUS) found out at career fairs held in early-2007. Students packed the Keppel booth at the career fairs to enquire about job opportunities in the Group. Keppel’s talent attraction campaign drew good response from undergraduates. Keppel Corporation Limited Report to Shareholders 2007 Nurturing People 135 NURTURING PEOPLE In conjunction with the Young Arab Leaders (YAL), we launched the Arab Asian Internship Exchange Programme in 2007. YAL is a network of Arab men and women with the vision of building a prosperous environment by creating opportunities for Arab youth in the areas of education, leadership development and entrepreneurship. A group of 10 bright young men and women from various Middle East countries would spend three months at Keppel ofﬁ ces as interns. The programme will provide opportunities for Arab and Asian youths to experience working in each other’s country, facilitate knowledge sharing and foster greater understanding. EMPLOYEE WELLNESS AND WORK-LIFE BALANCE Employee well-being is a key priority. A string of activities were lined up to promote wellness and work-life balance for our employees. The annual Keppel Group Inter-SBU Games (iSBUG) were held for the ﬁ fth year running. Keppel O&M had its Family Day at Siloso Beach, Sentosa on 21 October 2007. To celebrate the group’s ﬁ fth anniversary, a record- breaking chain of 18,000 helmets were utilised to secure a place in the Guinness World Records and the Singapore Book of Records. Keppel Land’s theme for 2007 was ‘Live! Work! Play!’, which sought to create a healthy Team Building in Qatar 1 management of life. Keppel T&T took part in several sports and competitions. In May, the company held the annual Keppel T&T Bowling Tournament. Organised by Key Media, the HRM Awards celebrates the best Singapore- based human resources practices and professionals. HRM AWARDS 2007 Keppel Corporation was nominated for the ‘Best Employer Branding’ in the Human Resource Manager (HRM) Awards 2007 for building top-of-mind recall as an employer of choice. The ‘Best Employer Branding’ category in the HRM Awards recognises employers for their effective and distinctive branding policies and strategies. KEPPEL SCHOLARS ALUMNI ASSOCIATION (KSAA) KSAA was formed in August 2001 to augment Group synergy and promote networking across Keppel’s SBUs. Over the years, the Association has initiated a wide array of events and programmes, encouraging Keppelites to engage in corporate volunteerism and social pursuits at Group level. Through such activities, KSAA hopes to As the operations of Keppel Integrated Engineering (KIE) in Qatar grew in staff strength, a customised teambuilding workshop was organised to promote camaraderie among the staff. On the morning of Saturday 8 December 2007, more than 50 KIE employees and their family members gathered for the inaugural Team Building Workshop. The half-day workshop kicked off with an overview of Keppel Corporation and KIE, followed by a series of teambuilding activities specially tailored to the international crowd of more than 40 staff from nine countries. KIE is creating an atmosphere of “home-away-from-home” for its staff based in Qatar. 136 Keppel Corporation Limited Report to Shareholders 2007 Nurturing People increase employee interaction, nurture camaraderie and unlock synergies across the business units. The highlight of 2007 for KSAA was the organising of the iSBUG held between June and August. For its ﬁ fth year, iSBUG adopted the theme, ‘Rising Beyond’, chosen to align with the company’s thrust for the year – ‘Grow Beyond’. Team managers from the SBUs were appointed to instil a sense of ownership and responsibility towards their teams. The Vertical Marathon was a new event held at One Rafﬂ es Quay on 19 August 2007. It garnered enthusiastic support from participants. The annual iSBUG fundraiser involving Keppel Volunteers (KV) and students from the Association for Persons with Special Needs (APSN) was an accomplishment as it succeeded in raising the full sum of $30,000 from the various SBUs. The games once again reinforced management support and encouraged Keppelites’ enthusiasm for Group-wide activities. Participation for iSBUG 2007 stood at 893, a 4% increase from 862 in 2006. KSAA kicked off 2007 with a theatre event ‘Everything But The Brain’, the ﬁ rst play lined up in its quarterly series of Kepture! art performances. Following this well-received play, two other plays were recommended. 1. Engaging a Can Do! gameplan on court. 2. Team Beta in high spirits after clinching the coveted soccer challenge trophy at the annual iSBUG. Discounted tickets to all three plays were snapped up by Keppelites. The enthusiastic response spurred KSAA to further promote greater interest in the arts. The events also enhanced interaction among the families and friends of Keppelites. KSAA continued to support Group Human Resources in organising the 2007 Keppel Group Scholarships Award Ceremony. A total of 12 candidates, twice the usual number, received scholarships. Held on 3 July at the Reﬂ ections at Keppel Bay show gallery, the ceremony also screened a video produced by KSAA featuring the 12 young talents besting their element in sports, community involvement or the arts. 2008 will be another exciting year as KSAA delivers more attractive initiatives and programmes to increase interaction among Keppelites as well as their families and friends. 2 Keppel Corporation Limited Report to Shareholders 2007 Nurturing People 137 CORPORATE SOCIAL RESPONSIBILITY Showcasing Singapore to the world PRESENTING THE BEST OF SINGAPORE IN CHINA With a growing presence of over 20 Chinese cities in 20 years, Keppel is committed to create avenues for meaningful exchange and deepening relationships with China through its key businesses. As a presenting sponsor of Singapore Season in China, the Keppel Group worked in concert with the Ministry of Information, Communications and the Arts and the National Arts Council to bring the best of Singapore arts to Chinese audiences. Staged in Beijing and Shanghai from October to November 2007, the Season concluded with huge success, drawing more than 165,000 people to its series of 44 lifestyle, creative and business programmes. Extending its support for the Season’s outreach, Keppel also sponsored the Singapore Dance Theatre’s (SDT) additional performance in Tianjin, where the Group is present. SDT was among 300 artistes and arts groups that performed during the Singapore Season. As the Group expands into new frontiers, we seek to deliver more in corporate social responsibility. Corporate Social Responsibility (CSR) is our business. We have adopted a multi-faceted approach towards CSR encompassing caring for the environment, showcasing Singapore to the world, public policy research and education, supporting the arts, charity and community engagements and corporate volunteerism. CARING FOR THE ENVIRONMENT In 2007, we supported several major environment-friendly initiatives while continuing with efforts to create a cleaner environment and greener living spaces. Key amongst the projects to care for our environment are our support of the National Environment Agency’s (NEA) ‘Bring Your Own Bag Day’, sponsorship and involvement in the conservation of corals surrounding Singapore and contributions to six local environmental Non-Government Organisations (NGOs). It is also the practice of our strategic business units to improve the quality of life in their communities and minimising the ecological impact of the environment they operate in. Read pages 60 to 65 for more on the Group’s green efforts. 138 Keppel Corporation Limited Report to Shareholders 2007 Corporate Social Responsibility FRONTING THE INTERNATIONAL CLIPPER RACE Keppel Corporation is the main sponsor of the Uniquely Singapore yacht and the host port sponsor for the Singapore stopover in the Clipper 07-08 Round-the-World Yacht Race. This is the second time that Singapore is ﬁ elding an entry in the biennial international sailing race for amateurs. Promoting public and private sector collaboration, the Singapore Tourism Board came alongside Keppel as an ofﬁ cial race partner to promote Singapore globally as a must-visit destination. To provide added exposure and self-development opportunities for the Group’s employees, six Keppel ambassadors were sponsored on various legs of the current expedition, up four from the previous 05-06 race. The Uniquely Singapore yacht was launched into the Clipper 07-08 Race in May 2007 by Mr Tharman Shanmugaratnam, Singapore’s Minister for Finance and Minister for Education at St. Katherine’s Dock in London. The 07-08 competition which took off from Liverpool in September 2007 will culminate in June 2008 after traversing seven legs and eight ports of call, over ten months. The world sailed into Keppel Bay on 19 January 2008. Ten international Clippers from Fremantle made an eventful nine-day stop-over at Singapore’s new waterfront playground, Marina at Keppel Bay, enroute to Qingdao. Senior Minister Goh Chok Tong who opened the Marina in conjunction with the Clippers’ arrival was present to accord the international crew a Uniquely Singapore welcome. Rising to the Clipper challenge are people of all ages, social backgrounds and nationalities who despite their differences, share a similar thirst for adventure. On its homecoming voyage, the Uniquely Singapore Clipper provided fertile ground for greater interaction among the youths of Southeast Asia. The ASEAN contingent, who sailed as crew members on the Fremantle-Qingdao leg, was supported by the Ministry of Foreign Affairs to commemorate ASEAN’s 40th anniversary and Singapore’s chairmanship of the Association. During the Singapore stop-over, families, friends and fans of crew members from all across the globe rallied to cheer on the Clipper ﬂ eet at Keppel Bay. Not only has the arrival of the Clippers added colour and excitement to Singapore’s vibrant southern waterfront hub, it has also generated goodwill for the local sailing fraternity and raised public interest in the sport. Keppel Corporation Limited Report to Shareholders 2007 Corporate Social Responsibility 139 CORPORATE SOCIAL RESPONSIBILITY Pitching in for the community CELEBRATING SINGAPORE The Keppel Group returned for the ﬁ fth year as a sponsor of the National Day Parade in 2007. Joining in the celebrations were students from Keppel’s adopted charity, the Association for Persons with Special Needs, accompanied by the Keppel Volunteers. In February 2008, Keppelites donated the equivalent of what they would spend for lunch in support of the Mainly I Love Kids (MILK) Fund’s Share-a-Meal. The sum collected was matched dollar for dollar by the Company. CHAMPIONING THE SINGAPORE DREAM To inspire young Singaporeans to become agents of change, Keppel sponsored Mr Tan Yong Soon’s book entitled Living the Singapore Dream, which features the life experiences of 23 Singaporeans. The book was published under the auspices of the Harvard Singapore Foundation. Venturing the extra mile to support enterprising individuals, Keppel sponsored adventurer Khoo Swee Chiow’s ‘World Longest Journey on Skate’ expedition. Launched from Hanoi in Vietnam, Khoo skated 6,088 km across ﬁ ve countries in 94 days creating a new Guinness World Record. Keppel was also the Platinum Sponsor of the 600-strong National Volunteerism & Philanthropy and Corporate Social Responsibility (CSR) Conference in 2007, organised by the National Volunteer & Philanthropy Centre and Singapore Compact for CSR. 140 Keppel Corporation Limited Report to Shareholders 2007 Corporate Social Responsibility AIDING CANCER PATIENTS In memory of the late Mr Sim Kee Boon, who passed away on 9 November 2007 at age 78, the Keppel Group and employees made contributions to the Singapore Cancer Society. Mr Sim was the Executive Chairman of Keppel Corporation from 1984 to 2000. REJUVENATING COMMUNITIES IN BROWNSVILLE Be it in Singapore or across the world, Keppel O&M’s group of companies are mindful of their roles as responsible corporate citizens in their respective host countries. Keppel AmFELS was singled out by government agencies such as the Brownsville Economic Development Council, and various charities in Brownsville, USA for its strong support of the community, especially in the areas of education and welfare. Students from the University of Texas at Brownsville (UTB) and the University of Texas at Pan American received engineering scholarships from the company. In addition, UTB also sent students to work as apprentices at the yard. WALKING WITH CHARITIES In addition to the sponsorship of the Community Chest’s Heartstrings Walk at Marina Bay 2007, Keppel also ﬁ elded a contingent of Keppelites in the march for charity. The VIVA Foundation, a partnership between St Jude Children’s Research Hospital in the US, the National University Hospital and the National University of Singapore, is another beneﬁ ciary of Keppel’s philanthropy. By working closely with local high schools to develop and provide welder training programmes, Keppel AmFELS also provides job opportunities to thousands in the community each year. RELIEVING THE LESS FORTUNATE Whilst celebrating the company’s ﬁ fth anniversary in 2007, Keppel O&M raised about $1.1 million through in-house donation drives and roadshows for various charities. Being a major partner of the SingHealth Foundation’s Savemoney Savelives Campaign 2007, Keppel O&M staff participated in its public fundraising activities. It also made a cash contribution to the Society for the Physically Disabled. Over the last seven years, Keppel AmFELS has contributed signiﬁ cantly to improve the lives of families and children in Brownsville through non-proﬁ t volunteer organisation, United Way of Southern Cameron County (United Way). In April 2007, Keppel AmFELS was recognised by United Way’s Million Dollar Club for surpassing the million-dollar mark in contributions towards its programmes. In addition to donations from employees, the yard also consistently supplied manpower and logistical resources to support United Way’s fundraising events. Keppel Corporation Limited Report to Shareholders 2007 Corporate Social Responsibility 141 CORPORATE SOCIAL RESPONSIBILITY Advancing platforms for business and education PROMOTING REGIONAL DIALOGUE AND LEARNING Keppel Corporation co-presented the three-day ASEAN Business & Investment Summit, Singapore 2007 aimed at facilitating greater dialogue between the business community and ASEAN leaders. During the year, Keppel contributed some $1.2 million to help position Singapore as a world-class education hub. The Company’s sponsorships have beneﬁ ted a number of local institutions and their students, including the Lee Kuan Yew School of Public Policy, the S Rajaratnam School of International Studies and the St. Joseph’s Institution (SJI). Over and above monetary support, Executive Chairman Lim Chee Onn and other prominent SJI alumni formed a Leadership Council to assist and advise the school on its international fund for scholarships. Keppel also supported the Securities Investors Association of Singapore in its education programmes to help retail investors grow and protect their wealth. CREATING FORUMS FOR ASEAN THINK TANKS On ASEAN’s 40th anniversary, Keppel O&M sponsored the inaugural ASEAN Think Tank Forum, co-organised by the Singapore Institute of International Affairs and the Institute of Policy Studies. The two-day forum, themed ASEAN at 40: Achievements and Challenges, attracted 150 experts and leaders from think tanks and academic institutions in the region. As Main Sponsor of the 6th IISS Asia Security Summit under the auspices of The Shangri-La Dialogue, attended by defence ministers and senior ofﬁ cials from 25 nations, Keppel supported efforts to promote Asian defence diplomacy. The Group also contributed towards the Global Entrepolis Singapore 2007 jointly organised by the Singapore Business Federation and the Economic Development Board. 142 Keppel Corporation Limited Report to Shareholders 2007 Corporate Social Responsibility Cultivating audiences for the arts PREMIERING SINGAPORE ARTISTES Keppel presented a milestone concert by Singapore’s very own King of Swing and Cultural Medallion Holder, Jeremy Monteiro at the Esplanade in July 2007. Coinciding with the Singapore Arts Festival’s 30th anniversary, the concert was graced with performances by jazz luminaries Jimmy Cobb, Jay Anderson, Bob Sheppard and Roberta Gambarini. DEVELOPING THE LOCAL ARTS SCENE With unwavering support for homegrown talents, Keppel sponsored several local arts productions during the year namely, The Legacy of Goh Choo San: In Memory & Tribute, the local movie Gone Shopping! as well as HSBC Education’s Gabriel Ng @ Esplanade concert in support of Kids Fund for needy school children. STRIKING A CHORD WITH VIETNAMESE AUDIENCES Keppel Group presented the Vietnam-Singapore Friendship Concert, held at the Hanoi Opera House. Aptly themed Chords, the classical music concert was held in conjunction with Singapore’s 42nd National Day celebrations in Vietnam. Performed by the Vietnam National Symphony Orchestra and led by Singapore conductor, Adrian Tan, the concert also featured three Keppel music scholars from the Yong Siew Toh Conservatory — Tran Thi Tam Ngoc, Tran Duc Minh and Pham Thi Minh — who returned to perform in their homeland. In 2003, Keppel Group established the Keppel Music Scholarship programme to nurture artistic talents and to support the Yong Siew Toh Conservatory of Music at the National University of Singapore (NUS). The Group has committed $600,000 to sponsor 10 students over a period of ﬁ ve years for a music degree programme at the conservatory. In recognition of its contributions to the local arts scene in 2007, Keppel Corporation received the Patron of the Arts Award from the National Arts Council. Other companies in the Group were also lauded including MobileOne Ltd which received the Patron of the Arts Award and SPC, the Arts Supporter Award. As at July 2007, ﬁ ve Keppel music scholars emerged in the ﬁ rst cohort of students to graduate with a Bachelor of Music degree jointly awarded by NUS and the Peabody Institute of the John Hopkins University in Baltimore, USA. CELEBRATING WORLD MUSIC AT WOMAD For the second consecutive year, Keppel O&M sponsored the World of Music, Arts and Dance (WOMAD) Singapore festival held at Fort Canning Park. The international festival brought together artistes from all over the globe in celebration of the diverse forms of music, arts and dance. As part of its WOMAD sponsorship, Keppel O&M presented renowned Brazilian Samba Group, Clube Do Balançoin. SHOWCASING BRAZILIAN ARTS AND CULTURE In October 2007, Keppel O&M brought to Singapore Brazil’s reigning Queen of Bossa Nova, Bebel Gilberto, for another sell-out performance at the Esplanade. Keppel O&M had presented her Singapore debut back in 2005. Apart from music, Keppel O&M also collaborated with Brazil’s Ministry of External Relations to showcase the best of Brazilian design and architecture here through the Singapore Design Festival. This exhibition featured works of Oscar Niemeyer, who is recognised worldwide for his contributions to modernist architecture. The company also endorsed the Association of Capoeira’s efforts to promote the Brazilian martial arts dance movement in Singapore. STEPPING UP CULTURAL EXCHANGE WITH MEXICO In line with its support for cultural and business exchange with Latin America, Keppel O&M presented the Tamaulipas Folk Dance as part of the Festival Mexicano. Keppel Corporation Limited Report to Shareholders 2007 Corporate Social Responsibility 143 CORPORATE SOCIAL RESPONSIBILITY Driving corporate volunteerism In 2007, the Keppel Group sought to do more for its adopted charity, the Association for Persons with Special Needs (APSN). Executive Chairman Lim Chee Onn hosted a luncheon for the APSN Executive Committee joined by representatives of the Keppel Scholars Alumni Association (KSAA) and Keppel Volunteers. Together, they explore further collaborations with APSN. A key area was the development of the Centre for Adults (CFA) to help boost the employability of APSN’s clients. The fruitful session gave rise to a joint pilot project for a hydroponics farm by Keppel Volunteers and APSN. The farm will serve as a sheltered workshop, as well as a means to create a revenue stream for the CFA. The training provided at this facility will enable the clients to acquire skills in hydroponics farming such as seeding, transplanting, harvesting, cropping, packaging and selling the produce, which will in turn enhance their employability. The hydroponics farm was launched on 18 January 2008 with additional contribution by Keppel. Keppel Volunteers also collaborated with APSN to revive a recycling project in 2007. This project will allow CFA’s clients to collect unwanted materials, recycle them and eventually sell the items through the centre’s thrift shop. This project can enhance CFA’s clients interaction skills with the public and teamwork ethics. 1 2 In 2008, Keppel Volunteers intends to encourage more Keppelites to be proactive in the collection of used items as well as to assist in raising awareness of the thrift shop and boosting its sales. At the schools’ level, Keppel Volunteers continued to organise activities to meet the learning needs of the students. During the year, Keppel Volunteers embarked on a long-term collaboration with the Practice Performing Arts School (PPAS) to introduce arts and culture related activities to the APSN children via a pilot Creative Arts Programme (CAP). PPAS, a non-proﬁ t organisation registered with the Ministry of Education, is a premier arts school founded by the late Kuo Pao Kun and Goh Lay Kuan. Two CAP workshops were held. They featured performances by the students of Chao Yang School. CAP has helped the APSN students to develop their psycho-motor abilities as well as to provide them with an avenue for creative expression. Through the programme, students have improved their ability to understand and respond to simple instructions. As a means of preparing the students to enter the workforce, the Move Your Body series was initiated to help improve their physical ﬁ tness and health. A total of 50 students from Katong, Tanglin, Delta Senior School and CFA joined the Keppel Volunteers to scale the 29-storey high One Rafﬂ es Quay South Tower on 19 August 2007 as part of a fundraising event in Keppel’s Inter-SBU Games. In the Do-It-Yourself series, 13 members of the ASPN, CFA and Keppel Volunteers gathered at Funan DigiMall over two Saturdays to learn how to make and paint their own clay mugs. The activity provided a platform for the APSN participants to express themselves artistically. 1. The hydroponics farm was launched in January 2008 to provide related training that will enhance the employability of CFA’s clients. 2. Keppel Volunteers works closely with APSN and various non-proﬁ t organisations to enhance its existing programmes for the intellectually-challenged youths and adults. 3. Volunteer activities throughout the year garnered substantial employee involvement across the Group. 4. Via the Creative Arts Programme, Keppel Volunteers have helped APSN children improve their ability to understand and respond to simple instructions. 3 144 4 Keppel Corporation Limited Report to Shareholders 2007 Corporate Social Responsibility DIRECToRS’ REPoRT & FINANCIAL STATE mENTS contents 146 Directors’ Report 150 Balance Sheets 151 Consolidated Profit and Loss Account 152 Statements of Changes in Equity 155 Consolidated Cashflow Statement 156 Notes to Consolidated Cashflow Statement 157 Notes to the Financial Statements 200 Significant Subsidiaries and Associated Companies 210 Statement by Directors 211 212 Independent Auditors’ Report Interested Person Transactions 213 Directors and Key Executives 221 major Properties 224 Group Five-Year Performance 227 Group Value-Added Statements 228 Share Performance 229 Shareholding Statistics 230 Notice of Annual General meeting and Closure of Books Financial Calendar 234 235 Corporate Information DIRECToRS’ REPoRT For the financial year ended 31 December 2007 The Directors present their report together with the audited consolidated financial statements of the Group and balance sheet and statement of changes in equity of the Company for the financial year ended 31 December 2007. 1. Directors The Directors of the Company in office at the date of this report are: Lim Chee Onn (Chairman) Tony Chew Leong-Chee Lim Hock San Sven Bang Ullring Tsao Yuan Mrs Lee Soo Ann Oon Kum Loon (Mrs) Tow Heng Tan Yeo Wee Kiong Choo Chiau Beng Teo Soon Hoe 2. Audit committee The Audit Committee of the Board of Directors comprises three independent Directors. Members of the Committee are: Lim Hock San (Chairman) Tony Chew Leong-Chee Oon Kum Loon (Mrs) The Audit Committee carried out its function in accordance with the Companies Act, including the following: - Review audit plans and reports of the Company’s external auditors and internal auditors and consider effectiveness of actions/policies taken by management on the recommendations and observations; Independent review of quarterly financial reports and year-end financial statements; - Review the assistance given by the Company’s officers to the auditors; - - Examine effectiveness of financial, operating and compliance controls; - Review the independence and objectivity of the external auditors annually; - Review the nature and extent of non-audit services performed by auditors; - Meet with external auditors and internal auditors, without the presence of management, at least annually; - Ensure that the internal audit function is adequately resourced and has appropriate standing within the Company, at least annually; - Review interested person transactions; and - Investigate any matters within the Audit Committee’s term of reference, whenever it deems necessary. The Audit Committee recommended to the Board of Directors the re-appointment of Deloitte & Touche as auditors of the Company at the forthcoming Annual General Meeting. 3. Arrangements to enable Directors to acquire shares and debentures Neither at the end of the financial year nor at any time during the financial year did there subsist any arrangement whose object is to enable the Directors of the Company to acquire benefits by means of the acquisition of shares or debentures in the Company or any other body corporate other than the KCL Share Option Scheme. 146 Keppel Corporation Limited Report to Shareholders 2007 Directors’ Report 4. Directors’ interest in shares and debentures According to the Register of Directors’ shareholdings kept by the Company for the purpose of Section 164 of the Companies Act, none of the Directors holding office at the end of the financial year had any interest in the shares and debentures of the Company and related corporations, except as follows: Keppel Corporation Limited (Ordinary shares) Lim Chee Onn Tony Chew Leong-Chee Lim Hock San Sven Bang Ullring Tsao Yuan Mrs Lee Soo Ann Oon Kum Loon (Mrs) Oon Kum Loon (Mrs) (deemed interest) Tow Heng Tan Tow Heng Tan (deemed interest) Yeo Wee Kiong Choo Chiau Beng Choo Chiau Beng (deemed interest) Teo Soon Hoe (Share options) Lim Chee Onn Choo Chiau Beng Teo Soon Hoe Keppel Land Limited (Ordinary shares) Tow Heng Tan (deemed interest) Keppel Telecommunications & Transportation Ltd (Ordinary shares) Lim Chee Onn Teo Soon Hoe K-ReiT Asia (Units) Tow Heng Tan 1.1.2007 Holdings At 31.12.2007 21.1.2008 1,357,083 - - 31,000 - 20,000 20,000 313 13,086 - 860,833 100,000 1,354,166 2,714,166 2,000 2,000 70,000 2,000 42,000 40,000 2,626 26,172 2,000 981,666 200,000 2,708,332 3,334,166 2,000 2,000 70,000 2,000 42,000 40,000 2,626 26,172 2,000 1,181,666 200,000 3,168,332 1,550,000 920,000 1,150,000 3,720,000 1,840,000 2,760,000 3,100,000 1,610,000 2,300,000 50 50 50 23,000 28,000 23,000 28,000 23,000 28,000 10 10 10 Keppel Structured Notes Pte Limited (S$ Commodity Linked Guaranteed Note Series 1 due 2011) Teo Soon Hoe $100,000 $100,000 $100,000 Keppel Philippines Holdings, inc (“B” shares of one Peso each) Lim Chee Onn Choo Chiau Beng Teo Soon Hoe 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 Keppel Corporation Limited Report to Shareholders 2007 Directors’ Report 147 DIRECToRS’ REPoRT 4. Directors’ interest in shares and debentures (continued) Keppel Philippines Marine, inc (Shares of one Peso each) Lim Chee Onn Choo Chiau Beng Teo Soon Hoe Keppel Philippines Properties, inc (Shares of one Peso each) Teo Soon Hoe 1.1.2007 Holdings At 31.12.2007 21.1.2008 246,457 283,611 302,830 246,457 283,611 302,830 246,457 283,611 302,830 2,916 2,916 2,916 5. 6. Directors’ receipt and entitlement to contractual benefits Since the beginning of the financial year, no Director of the Company has received or become entitled to receive a benefit which is required to be disclosed under Section 201(8) of the Singapore Companies Act, by reason of a contract made by the Company or a related corporation with the Director or with a firm of which he is a member, or with a company in which he has a substantial financial interest except for salaries, bonuses and other benefits in their capacity as directors of the Company which are disclosed in the Corporate Governance Report. share options of the company Details of share options granted under the KCL Share Option Scheme (“Scheme”) are disclosed in Note 3 to the financial statements. Options to take up 11,379,500 Ordinary Shares (“Shares”) were granted during the financial year. There were 7,150,999 Shares issued by virtue of exercise of options and options to take up 443,000 Shares were cancelled during the financial year. The sub-division of Shares during the financial year resulted in an adjustment of 17,750,333 Shares under option. At the end of the financial year, there were 37,768,000 Shares under option as follows: Number of Share Options Balance at 1.1.2007 or later date of grant 35,000 17,000 715,000 538,333 662,500 1,043,500 1,442,500 2,535,833 2,913,000 2,898,500 3,431,000 3,496,500 7,883,000 Date of grant 01.11.99 27.09.01 20.12.02 11.02.03 14.08.03 13.02.04 12.08.04 11.02.05 11.08.05 09.02.06 10.08.06 13.02.07 10.08.07 Exercised Cancelled Adjustment* Balance at 31.12.2007 Exercise price^ Date of expiry (35,000) (17,000) (170,000) (244,166) (447,500) (732,000) (907,500) (2,227,333) (2,270,500) (44,500) (40,500) (15,000) - - - - - - - - (20,000) (57,000) (90,000) (134,000) (112,000) (30,000) - 2,000 665,000 370,833 465,000 808,500 1,025,000 1,741,500 2,900,500 2,886,000 3,418,500 3,467,500 - - 2,000 1,210,000 665,000 680,000 1,120,000 1,560,000 2,030,000 3,486,000 5,650,000 6,675,000 6,837,000 7,853,000 $3.23 $0.62 $1.30 $1.32 $2.24 $3.01 $3.24 $4.42 $6.24 $6.39 $7.66 $9.13 $12.95 31.10.09 26.09.11 19.12.12 10.02.13 13.08.13 12.02.14 11.08.14 10.02.15 10.08.15 08.02.16 09.08.16 12.02.17 09.08.17 27,611,666 (7,150,999) (443,000) 17,750,333 37,768,000 ^ Exercise prices are adjusted for capital distribution and sub-division of Shares * Adjustment as a result of the sub-division of Shares 148 Keppel Corporation Limited Report to Shareholders 2007 Directors’ Report The information on Directors of the Company participating in the Scheme is as follows: Aggregate options granted since commencement of the Scheme to the end of financial year Aggregate options exercised since commencement of the Scheme to the end of financial year Aggregate options lapsed since commencement of the Scheme to the end of financial year Options granted during the financial year Adjustment* 465,000 345,000 345,000 4,005,000 3,315,000 3,315,000 1,416,250 1,706,250 1,246,250 573,750 573,750 573,750 1,705,000 805,000 1,265,000 Aggregate options outstanding as at the end of financial year 3,720,000 1,840,000 2,760,000 Name of Director Lim Chee Onn Choo Chiau Beng Teo Soon Hoe * Adjustment as a result of the sub-division of Shares No employee received 5 percent or more of the total number of options available under the Scheme. There are no options granted to any of the Company’s controlling shareholders or their associates under the Scheme. 7. share options of subsidiaries The particulars of share options of subsidiaries of the Company are as follows: (a) (b) Keppel Land Limited (“Keppel Land”) At the end of the financial year, there were 49,803,526 unissued shares of Keppel Land Limited under option. This comprised $300 million principal amount of 2.5% Convertible Bonds due 2013 at a conversion price of $6.55 per share and 4,002,000 options under the Keppel Land Share Option Scheme. Details and terms of the options have been disclosed in the Directors’ Report of Keppel Land Limited. Keppel Telecommunications & Transportation Ltd (“Keppel T&T”) At the end of the financial year, there were 2,051,000 unissued shares of Keppel Telecommunications & Transportation Ltd under option relating to the Keppel T&T Share Option Scheme. Details and terms of the options have been disclosed in the Directors’ Report of Keppel Telecommunications & Transportation Ltd. 8. Auditors The auditors, Deloitte & Touche, have expressed their willingness to accept re-appointment. On behalf of the Board LIM cHee onn Executive Chairman Singapore, 11 March 2008 teo soon Hoe Group Finance Director Keppel Corporation Limited Report to Shareholders 2007 Directors’ Report 149 BALANCE SHEETS As at 31 December 2007 Share capital Reserves 4 Share capital & reserves Minority interests Capital employed Represented by: Fixed assets 5 investment properties Development properties Subsidiaries 8 Associated companies 9 investments Long term receivables intangibles Current assets Stocks & work-in-progress in excess of related billings Amounts due from: - subsidiaries - associated companies Debtors Short term investments Bank balances, deposits & cash Current liabilities Creditors Billings on work-in-progress in excess of related costs Provisions Amounts due to: - subsidiaries - associated companies Term loans Taxation Bank overdrafts Net current assets Non-current liabilities Term loans Deferred taxation Note 3 6 7 - 10 11 12 13 14 14 15 16 17 18 13 19 14 14 20 21 20 22 Group coMpAny 2007 $’000 2006 $’000 2007 $’000 2006 $’000 790,407 4,414,326 5,204,733 1,830,459 972,926 3,232,170 4,205,096 1,392,591 790,407 2,557,968 3,348,375 - - 972,926 2,332,232 3,305,158 7,035,192 5,597,687 3,348,375 3,305,158 1,698,231 2,960,347 172,758 3,140,594 335,849 134,857 67,823 8,510,459 1,740,808 2,249,216 197,080 - 2,410,716 275,892 160,720 135,058 7,169,490 5,668 - - - - 2,876,962 3,074 - - 301,099 - - 3,186,803 5,680 3,080,896 3,074 300,977 3,390,627 2,790,649 2,861,960 - - - 594,353 1,753,434 547,437 1,600,850 7,286,723 3,072,012 2,542,517 37,900 - 134,331 499,104 351,864 3,767 6,641,495 - 307,968 1,516,259 426,714 1,618,558 6,731,459 2,168,904 2,621,815 29,961 - 93,620 681,635 273,883 3,351 5,873,169 958,507 284 157,054 - - 3,884 1,119,729 75,657 - - - - 418,887 2 134,820 - 15,305 - - 644,671 410,092 87 82,013 520 492,712 58,885 194,718 11 10,182 263,796 645,228 858,290 475,058 228,916 1,731,526 388,969 2,120,495 2,272,152 157,941 2,430,093 300,000 13,486 313,486 300,000 14,385 314,385 Net assets 7,035,192 5,597,687 3,348,375 3,305,158 The accompanying notes form an integral part of the financial statements. 150 Keppel Corporation Limited Report to Shareholders 2007 Balance Sheets CoNSoLIDATED PRoFIT AND L oSS ACCoUNT For the financial year ended 31 December 2007 Revenue Materials and subcontract costs Staff costs Depreciation and amortisation Other operating expenses Operating profit Investment income Interest income Interest expenses Share of results of associated companies Profit before tax and exceptional items Exceptional items Profit before taxation Taxation Profit for the year Attributable to: Shareholders of the Company Profit before exceptional items Exceptional items Minority interests Earnings per ordinary share Before exceptional items - basic - diluted After exceptional items - basic - diluted Gross dividend per ordinary share Interim dividend paid Final dividend proposed Special dividend proposed Total annual dividend Capital distribution Total distribution Note 23 24 25 26 26 26 9 27 28 27 29 30 30 Group 2007 $’000 2006 $’000 10,431,250 (8,037,393) (1,132,125) (125,692) (85,391) 1,050,649 2,867 88,542 (62,710) 476,882 7,600,940 (5,570,175) (931,340) (127,438) (167,922) 804,065 3,777 79,758 (62,470) 314,662 1,556,230 564,933 1,139,792 7,304 2,121,163 (468,635) 1,147,096 (257,372) 1,652,528 889,724 1,025,596 105,105 1,130,701 521,827 750,832 (82) 750,750 138,974 1,652,528 889,724 64.9 cts 64.3 cts 71.5 cts 70.4 cts 9.0 cts 10.0 cts 45.0 cts - 64.0 cts - 64.0 cts 47.7 cts 47.2 cts 47.7 cts 47.2 cts 6.0 cts 8.0 cts 14.0 cts 14.0 cts 28.0 cts The accompanying notes form an integral part of the financial statements. Keppel Corporation Limited Report to Shareholders 2007 Consolidated Profit and Loss Account 151 STATEmENTS oF CHANGES IN EQUITY For the financial year ended 31 December 2007 Attributable to equity holders of the Company Share Capital $’000 Capital Reserves $’000 Revenue Reserves $’000 Foreign Exchange Translation Account $’000 Share Capital & Reserves $’000 Minority Interests $’000 Capital Employed $’000 972,926 - 493,230 (11,975) 2,797,896 11,975 (58,956) 4,205,096 - - 1,392,591 - 5,597,687 - - 972,926 - 481,255 (57,777) 2,752,094 - (57,777) (58,956) 4,147,319 (64,617) 1,327,974 (122,394) 5,475,293 - 218,270 (4,926) 131,412 (16,784) - - - - - - - - - 218,270 4,185 222,455 - - (4,926) 131,412 38 (60) (4,888) 131,352 - (39,806) (16,784) (39,806) (167) 43 (16,951) (39,763) 41,012 41,012 20,357 61,369 327,972 - 327,972 - 21,513 - 1,130,701 1,130,701 (241,754) - 1,206 - 1,206 - - 329,178 1,130,701 1,459,879 (241,754) 21,513 24,396 521,827 546,223 - 1,476 353,574 1,652,528 2,006,102 (241,754) 22,989 (3,562) 3,221 341 - - - - - 393 - - - - - - - (98) - - - - - - - - - - - - - - - - - (48,014) (48,014) (25,350) (25,350) 25,580 4,490 25,580 4,490 - 295 38,694 (221,213) (1,650) (270) - - (1,650) 25 38,694 (221,213) 790,407 827,571 3,644,164 (57,409) 5,204,733 1,830,459 7,035,192 - - - - - - - - - - - - - - - - - 38,694 (221,213) Group 2007 As at 1 January As previously reported Effect of FRS 40 Deferred tax adjustment for investment properties As restated Fair value changes on available-for-sale assets Fair value gain on available-for-sale assets realised and transferred to profit & loss account Fair value changes on cashflow hedges Fair value gain on cashflow hedges realised and transferred to profit & loss account Currency translation loss Currency translation loss transferred to profit & loss account Net income recognised directly in equity Net profit for the year Total income recognised for the year Dividend paid Share-based payment Transfer of statutory, capital and other reserves to revenue reserves Dividend paid to minority shareholders Return of capital to minority shareholders Cash subscribed by minority shareholders Acquisition of subsidiaries Acquisition of additional interest in subsidiaries Other adjustments Shares issued Capital distribution As at 31 December 152 Keppel Corporation Limited Report to Shareholders 2007 Statements of Changes in equity Attributable to equity holders of the Company Share Capital $’000 Share Premium Account $’000 Capital Reserves $’000 Revenue Reserves $’000 Foreign Exchange Translation Account $’000 Share Capital & Reserves $’000 Minority Interests $’000 Capital Employed $’000 391,903 720,229 345,761 2,192,117 (3,934) 3,646,076 1,288,566 4,934,642 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 24,267 (6,901) 73,577 (81,356) 148,029 (9,864) - - - - - - - - - - - 24,267 (16,494) 7,773 - - - - (6,901) - (6,901) 73,577 (2,182) 71,395 (81,356) 148,029 - (947) (81,356) 147,082 - (70,327) (9,864) (70,327) - (28,753) (9,864) (99,080) 15,305 15,305 - 15,305 147,752 - - 750,750 (55,022) - 92,730 750,750 (48,376) 138,974 44,354 889,724 147,752 - 18,868 750,750 (157,374) - (55,022) - - 843,480 (157,374) 18,868 90,598 - 842 934,078 (157,374) 19,710 16,850 - (12,369) 12,369 (868) - - - - - - - - - - - - - - 34 - - - - - - - - - - - - - - - 16,850 15,067 31,917 - - - (868) - - - - (71,745) 20,058 14,925 (868) (71,745) 20,058 14,925 - (28,936) (28,936) - 34 19,070 (181,040) 65,498 (2,282) - - 65,498 (2,248) 19,070 (181,040) - - - - - 16,306 (181,040) - - 2,764 - 745,757 (722,993) (22,764) Group 2006 As at 1 January Revaluation surplus of investment properties Revaluation surplus of investment properties realised and transferred to profit & loss account Fair value changes on available-for-sale assets Fair value gain on available-for-sale assets realised and transferred to profit & loss account Fair value changes on cashflow hedges Fair value gain on cashflow hedges realised and transferred to profit & loss account Currency translation loss Currency translation loss transferred to profit & loss account Net income/(expense) recognised directly in equity Net profit for the year Total income/(expense) recognised for the year Dividend paid Share-based payment Equity component of convertible bond issued by a subsidiary Transfer of statutory, capital and other reserves to revenue reserves Share of capital reserves of an associated company Dividend paid to minority shareholders Cash subscribed by minority shareholders Acquisition of subsidiaries Acquisition of additional interest in subsidiaries Set off against advance from minority shareholders Other adjustments Shares issued Capital distribution Effect of Companies (Amendment) Act 2005 As at 31 December 972,926 - 493,230 2,797,896 (58,956) 4,205,096 1,392,591 5,597,687 The accompanying notes form an integral part of the financial statements. Keppel Corporation Limited Report to Shareholders 2007 Statements of Changes in equity 153 STATEmENTS oF CHANGES IN EQUITY Company 2007 As at 1 January Net profit for the year Dividend paid Share-based payment Shares issued Capital distribution As at 31 December 2006 As at 1 January Net profit for the year Dividend paid Share-based payment Shares issued Capital distribution Effect of Companies (Amendment) Act 2005 Share Capital $’000 Share Premium Account $’000 Capital Reserves $’000 Revenue Reserves $’000 Total $’000 972,926 - - - 38,694 (221,213) 790,407 - - - - - - - 29,577 2,302,655 3,305,158 449,611 449,611 (241,754) (241,754) 17,879 - 38,694 - (221,213) - - - 17,879 - - 47,456 2,510,512 3,348,375 391,903 - - - 16,306 (181,040) 745,757 720,229 - - - 2,764 - (722,993) 37,057 1,732,855 2,882,044 727,174 727,174 (157,374) (157,374) 15,284 - - 19,070 (181,040) - - - - - 15,284 - - (22,764) As at 31 December 972,926 - 29,577 2,302,655 3,305,158 The accompanying notes form an integral part of the financial statements. 154 Keppel Corporation Limited Report to Shareholders 2007 Statements of Changes in equity CoNSoLIDATED CASHFLoW STATEmENT For the financial year ended 31 December 2007 Operating activities Operating profit Adjustments: Depreciation and amortisation Share-based payment expenses Profit on sale of fixed assets Others Operational cashflow before changes in working capital Working capital changes: Stocks & work-in-progress Debtors Creditors Investments in bonds and shares Advances to associated companies Translation of foreign subsidiaries Interest received Interest paid Income taxes paid Net cash from operating activities investing activities Acquisition of subsidiaries Acquisition of additional shares in subsidiaries Acquisition and further investment in associated companies Acquisition of fixed assets and investment properties Expenditure on development properties Proceeds from disposal of associated companies Proceeds from disposal of fixed assets Dividend received from investments and associated companies Net cash used in investing activities Financing activities Proceeds from share issues Proceeds from minority shareholders of subsidiaries Proceeds from term loans Capital distribution Repayment of term loans Dividend paid to shareholders of the Company Dividend paid to minority shareholders of subsidiaries Net cash used in financing activities Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents as at 1 January Note 2007 $’000 2006 $’000 1,050,649 804,065 A 125,692 21,307 (7,126) (918) 1,189,604 61,750 (86,460) 827,372 53,488 (247,466) 29,560 1,827,848 79,755 (73,548) (136,719) 1,697,336 (96,879) (1,598) (482,767) (255,909) (3,605) 14,277 16,788 263,351 (546,342) 127,438 14,949 (3,610) 8,657 951,499 814,324 9,679 473,022 (178,976) (134,422) 20,416 1,955,542 81,006 (69,027) (113,637) 1,853,884 (3,159) (28,204) (282,107) (430,348) (15,241) 138,084 39,303 207,362 (374,310) 38,694 25,580 377,130 (221,213) (1,099,541) (241,754) (48,014) (1,169,118) 19,070 20,058 756,301 (181,040) (1,643,671) (157,374) (71,745) (1,258,401) (18,124) 1,615,207 221,173 1,394,034 Cash and cash equivalents as at 31 December B 1,597,083 1,615,207 The accompanying notes form an integral part of the financial statements. Keppel Corporation Limited Report to Shareholders 2007 Consolidated Cashflow Statement 155 NoTES To CoNSoLIDATED CASHFLoW STATEmENT A. Acquisition of subsidiaries During the financial year, the fair values of net assets of subsidiaries acquired were as follows: Fixed assets and investment properties Investments Stocks & work-in-progress Intangibles Debtors Bank balances and cash Creditors Loans Current and deferred tax Minority interests Goodwill on consolidation Amount previously accounted for as associated companies Purchase consideration Less: Bank balances and cash acquired 2007 $’000 2006 $’000 - 8,286 97,059 - 3 941 (23) - (22) - (4,490) 101,754 - (3,934) 97,820 (941) 220,461 16,024 3,659 1,011 11,258 20,590 (49,481) (159,050) (6,357) 58,115 2,677 (37,043) 23,749 (20,590) Cashflow on acquisition net of cash acquired 96,879 3,159 The carrying amounts of net assets of subsidiaries acquired in the acquirees’ books at the point of acquisition approximate their fair values. B. Cash and cash equivalents Cash and cash equivalents consist of cash on hand and balances with banks. Cash and cash equivalents in the consolidated cashflow statement comprise the following balance sheet amounts: Bank balances, deposits and cash (Note 17) Bank overdrafts (Note 21) 1,600,850 (3,767) 1,618,558 (3,351) 1,597,083 1,615,207 The accompanying notes form an integral part of the financial statements. 156 Keppel Corporation Limited Report to Shareholders 2007 Notes to Consolidated Cashflow Statement NoTES To THE FINANCIAL STATE mENTS For the financial year ended 31 December 2007 These notes form an integral part of and should be read in conjunction with the accompanying financial statements. 1. General The Company is incorporated and domiciled in Singapore and is listed on the Singapore Exchange Securities Trading Limited. The address of its principal place of business and registered office is 1 HarbourFront Avenue #18-01, Keppel Bay Tower, Singapore 098632. The Company’s principal activity is that of an investment holding and management company. The principal activities of the companies in the Group consist of: - offshore oil-rig construction, shipbuilding & shiprepair and conversion; - property development & investment and property fund management; - environmental engineering, power generation and network engineering; and - investments. There has been no significant change in the nature of these principal activities during the financial year. The financial statements of the Group for the financial year ended 31 December 2007 and the balance sheet and statement of changes in equity of the Company at 31 December 2007 were authorised for issue in accordance with a resolution of the Board of Directors on 11 March 2008. 2. significant accounting policies (a) Basis of Preparation The financial statements have been prepared in accordance with the provisions of the Singapore Companies Act and Singapore Financial Reporting Standards (“FRS”). The financial statements have been prepared under the historical cost convention, except as disclosed in the accounting policies below. Adoption of New and Revised Standards In the current year, the Group adopted the new/revised FRS and Interpretations of FRS (“INT FRS”) that are effective for annual periods beginning on or after 1 January 2007. The following are the new or amended FRS and INT FRS that are relevant to the Group: Amendments to FRS 1 FRS 40 FRS 107 Presentation of Financial Statements – Capital Disclosures Investment Property Financial Instruments: Disclosures Changes to the Group’s accounting policies have been made as required, in accordance with the transitional provisions in the respective FRS and INT FRS. The adoption of these new/revised FRS and INT FRS did not result in any substantial change to the Group’s accounting policies nor any significant impact on the financial statements, except for the adoption of FRS 40, the effects of which are disclosed below. FRS 107 and the complementary amended FRS 1 introduce new disclosures relating to financial instruments and capital respectively. FRS 40 investment Property The Group has adopted FRS 40 Investment Property on 1 January 2007, which is the effective date of the Standard. Prior to 1 January 2007, investment properties were accounted for as long term investments and stated at valuations performed each year. Surpluses arising on revaluation were credited directly to capital reserves. Revaluation deficits were taken to the profit and loss account in the absence of or to the extent that they exceed any surpluses held in reserves relating to previous revaluations of the same class of assets. Under FRS 40, changes in fair values of investment properties are recognised in the profit and loss account. Keppel Corporation Limited Report to Shareholders 2007 Notes to the Financial Statements 157 NoTES To THE FINANCIAL STATE mENTS 2. significant accounting policies (continued) Prior to 1 January 2007, deferred tax liability on the revaluation surplus of investment properties was not recognised. Upon the adoption of FRS 40, the Group has re-evaluated the requirement to account for the deferred tax liability arising from the revaluation surplus on its investment properties and has accounted for the related deferred tax liability on 1 January 2007. This change in accounting policy has been accounted for prospectively from 1 January 2007 in accordance to the transitional provision of FRS 40. The effects of adopting FRS 40 are as follows: Consolidated Balance Sheet: Capital reserves Revenue reserves Minority interests Investment properties Associated companies Deferred taxation Consolidated Profit & Loss Account: Exceptional items Current financial year 2007 * Before adopting FRS 40 $’000 After adopting FRS 40 $’000 477,370 - 426,232 691,444 212,158 - - 396,190 357,912 691,444 174,435 111,777 As at 1.1.2007 $’000 (11,975) (45,802) (64,617) - (23,564) 98,830 - 396,190 - * This shows the effects of applying the previous accounting policy under FRS 25 Accounting for Investments The adoption of FRS 40 has resulted in an increase in basic and diluted earnings per share after exceptional items of 25.1 cts and 24.2 cts respectively for the financial year ended 31 December 2007. There is no impact on the basic and diluted earnings per share before exceptional items for the financial year ended 31 December 2007. Early Adoption of INT FRS 112 On 1 January 2007, the Group adopted INT FRS 112 Service Concession Arrangements for a 20-year contract to build and operate a water treatment plant and a 25-year contract to build and operate a waste-to-energy plant entered into by a subsidiary of the Company. INT FRS 112 which would otherwise be mandatory from 1 January 2008 was early adopted to account for the two contracts based on the latest interpretation. The effects of adopting of INT FRS 112 are disclosed in Note 11. (b) Basis of Consolidation The consolidated financial statements include the financial statements of the Company and its subsidiaries as at the balance sheet date. The results of subsidiaries acquired or disposed of during the financial year are included or excluded from the consolidated financial statements from their respective dates of acquisition or disposal. All intercompany transactions, balances and unrealised gains on transactions between group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Where necessary, adjustments are made to the financial statements of subsidiaries to ensure consistency of accounting policies with those of the Group. Acquisition of subsidiaries is accounted for using the purchase method. The cost of an acquisition is measured at the aggregate of the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. Costs directly attributable to an acquisition are included as part of the cost of acquisition. 158 Keppel Corporation Limited Report to Shareholders 2007 Notes to the Financial Statements Any excess of the cost of business combination over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities represents goodwill. Any excess of the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities over the cost of business combination is recognised in the profit and loss account on the date of acquisition. (c) Fixed Assets Fixed assets are stated at cost less accumulated depreciation and any impairment in value. When the carrying amount of an asset is greater than its estimated recoverable amount, it is written down to its recoverable amount. Profits or losses on disposal of fixed assets are included in the profit and loss account. Depreciation of fixed assets is calculated on a straight-line basis to write off the cost of the fixed assets over their estimated useful lives. No depreciation is provided on freehold land and capital work-in-progress. The estimated useful lives of other fixed assets are as follows: Freehold buildings Leasehold land & buildings Vessels & floating docks Plant, machinery & equipment 30 to 50 years Over period of lease (ranging from 2 to 65 years) 10 to 20 years 1 to 30 years The estimated useful lives, residual values and depreciation method are reviewed at each year end, with the effect of any changes in estimate accounted for on a prospective basis. (d) investment Properties Investment properties are initially recognised at cost and subsequently measured at fair value, determined annually by independent professional valuers. Changes in fair value are recognised in the profit and loss account. On disposal of an investment property, the difference between the disposal proceeds and the carrying amount is recognised in the profit and loss account with effect from 1 January 2007. (e) Development Properties Development properties are stated at cost less impairment losses. Cost includes cost of land and construction, related overhead expenditure and financing charges and other net costs incurred during the period of development. They are considered completed and are transferred to investment properties or fixed assets when they are ready for their intended use. Each property under development is accounted for as a separate project. Where a project comprises more than one component, each component is treated as a separate project, and interest and other net costs are apportioned accordingly. (f) Subsidiaries A subsidiary is an entity over which the Group has the power to govern the financial and operating policies so as to obtain benefits from its activities. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. Investments in subsidiaries are stated in the Company’s financial statements at cost less any impairment losses. On disposal of a subsidiary, the difference between net disposal proceeds and the carrying amount of the investment is taken to profit and loss account. Keppel Corporation Limited Report to Shareholders 2007 Notes to the Financial Statements 159 NoTES To THE FINANCIAL STATE mENTS 2. significant accounting policies (continued) (g) Associated Companies An associated company is an entity, not being a subsidiary, over which the Group has significant influence, but not control, in the operating and financial policy decisions. Investments in associated companies are stated in the Company’s financial statements at cost less any impairment losses. On disposal of an associated company, the difference between net disposal proceeds and the carrying amount of the investment is taken to profit and loss account. Investments in associated companies are accounted for in the consolidated financial statements using the equity method of accounting whereby the Group’s share of profit or loss of the associated company is included in the profit and loss account and the Group’s share of net assets of the associated company is included in the balance sheet. Any excess of the cost of acquisition over the Group’s share of the net fair value of the identifiable assets, liabilities and contingent liabilities of the associate recognised at the date of acquisition is recognised as goodwill. The goodwill is included within the carrying amount of the investment and is assessed for impairment as part of the investment. Any excess of the Group’s share of the net fair value of the identifiable assets, liabilities and contingent liabilities over the cost of acquisition, after reassessment, is recognised immediately in profit or loss. (h) intangibles Goodwill Goodwill arising on the acquisition of a subsidiary represents the excess of the cost of the business combination over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities. Goodwill is initially recognised as an asset at cost and is subsequently measured at cost less any impairment losses. For the purpose of impairment testing, goodwill is allocated to each of the Group’s cash-generating units expected to benefit from the synergies of the combination. Cash-generating units to which goodwill has been allocated are tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. An impairment loss is recognised in the profit and loss account when the carrying amount of the cash-generating unit, including goodwill, exceeds the recoverable amount of the cash-generating unit. The impairment loss is allocated first to reduce the carrying amount of goodwill allocated to the cash-generating units and then, to reduce the carrying amount of the other assets in the unit on a pro-rata basis. An impairment loss recognised for goodwill is not reversed in a subsequent period. Other Intangible Assets Intangible assets include development expenditure. Costs incurred which are expected to generate future economic benefits are recognised as intangibles and amortised on a straight line basis over their useful lives, ranging from 5 to 15 years. (i) investments Investments are classified as held for trading or available-for-sale. Investments acquired for the purpose of selling in the short term are classified as held for trading. Other investments held by the Group are classified as available-for- sale. Investments are recognised and derecognised on the trade date where the purchase or sale of an investment is under a contract whose terms required delivery of investment within the timeframe established by the market concerned. Investments are initially measured at fair value plus transaction costs except for investments held for trading, which are recognised at fair value. For investments held for trading, gains and losses arising from changes in fair value are included in the profit and loss account. 160 Keppel Corporation Limited Report to Shareholders 2007 Notes to the Financial Statements For available-for-sale investments, gains and losses arising from changes in fair value are recognised directly in equity, until the investment is disposed of or is determined to be impaired, at which time the cumulative gain or loss previously recognised in equity is included in the profit and loss account. The fair value of quoted investments is based on current bid prices. For investments where there is no active market, the fair value is determined using valuation techniques. Such techniques include using recent arm’s length transactions, reference to the underlying net asset value of the investee companies and discounted cashflow analysis. The Group assesses at each balance sheet date whether there is objective evidence that an investment is impaired. In the case of investment classified as available-for-sale, a significant or prolonged decline in the fair value of the investment below its cost is considered in determining whether the investment is impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss - measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in profit or loss - is removed from equity and recognised in the profit and loss account. Impairment losses recognised in the profit and loss account are not reversed through the profit and loss account until the investment is disposed of. (j) Derivative Financial instruments and Hedge Accounting Derivative financial instruments are initially recognised at fair value on the date a derivative contract is entered into and are subsequently re-measured at fair value. Derivative financial instruments are carried as assets when the fair value is positive and as liabilities when the fair value is negative. Gains or losses arising from changes in fair value of derivative financial instruments that do not qualify for hedge accounting are taken to the profit and loss account. For cashflow hedges, the effective portion of the gains or losses on the hedging instrument is recognised directly in the hedging reserve, while the ineffective portion is recognised in the profit and loss account. Amounts taken to hedging reserve are transferred to the profit and loss account when the hedged transaction affects profit or loss. The fair value of forward foreign currency contracts is determined using forward exchange market rates at the balance sheet date. The fair value of interest rate caps and interest rate swaps are based on valuations provided by the Group’s bankers. The fair value of High Sulphur Fuel Oil (“HSFO”) forward contracts is determined using forward HSFO prices provided by the Group’s key counterparty. (k) impairment of Assets At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that these assets may be impaired. If any such indication exists, the recoverable amount (i.e. the higher of fair value less cost to sell and value in use) of the asset is estimated to determine the amount of impairment loss. For the purpose of impairment testing of these assets, recoverable amount is determined on an individual asset basis unless the asset does not generate cashflows that are largely independent of those from other assets. If this is the case, recoverable amount is determined for cash generating unit to which the asset belongs. If the recoverable amount of the asset is estimated to be less than its carrying amount, the carrying amount of an asset is reduced to its recoverable amount. The impairment loss is recognised in the profit and loss account. An impairment loss for an asset is reversed if, and only if, there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognised. The carrying amount of the asset is increased to its revised recoverable amount, provided that this amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior years. A reversal of impairment loss for an asset is recognised in the profit and loss account. Keppel Corporation Limited Report to Shareholders 2007 Notes to the Financial Statements 161 NoTES To THE FINANCIAL STATE mENTS 2. significant accounting policies (continued) (l) Stocks & Work-in-Progress Stocks, consumable materials and supplies are stated at the lower of cost and net realisable value, cost being principally determined on the weighted average method. Work-in-progress is stated at the lower of cost (comprising direct labour, material costs, direct expenses and an appropriate allocation of production overheads) and net realisable value, which is arrived at after providing for anticipated losses, if any, when the possibility of loss is ascertained. Progress claims made against work-in-progress are offset against the cost of work-in-progress and the profits recognised on partly completed long-term contracts less any provision required to reduce cost to estimated realisable value. Completed properties held for sale are stated at the lower of cost and net realisable value. Cost includes cost of land and construction, and interest incurred during the period of construction. Properties held for sale under development are stated at the lower of cost or net realisable value. Upon receipt of temporary occupation permits, these are transferred to completed properties held for sale. (m) (n) Financial Assets Financial assets include cash and bank balances, trade, intercompany and other receivables and investments. Trade, intercompany and other receivables are stated at their fair value as reduced by appropriate allowances for estimated irrecoverable amounts. Financial Liabilities Financial liabilities include trade, intercompany and other payables, bank loans and overdrafts. Trade, intercompany and other payables are stated at their fair value. Interest-bearing bank loans and overdrafts are initially measured at fair value and are subsequently measured at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption value is taken to the profit and loss account over the period of the borrowings using the effective interest method. (o) Provisions Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation, and a reliable estimate of the amount can be made. Provision for warranties is set up upon completion of a contract to cover the estimated liability which may arise during the warranty period. This provision is based on service history. Any surplus of provision will be written back at the end of the warranty period while additional provisions where necessary are made when known. These liabilities are expected to be incurred over the applicable warranty periods. Provision for claims is made for the estimated cost of all claims notified but not settled at the balance sheet date, less recoveries, using the information available at the time. Provision is also made for claims incurred but not reported at the balance sheet date based on historical claims experience, modified for variations in expected future settlement. The utilisation of provisions is dependent on the timing of claims. 162 Keppel Corporation Limited Report to Shareholders 2007 Notes to the Financial Statements (p) Leases When a group company is the lessee Finance leases Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. Assets held under finance leases are recognised as assets of the Group at their fair value at the inception of the lease or, if lower, at the present value of the minimum lease payments. The corresponding liability to the lessor is included in the balance sheet as a finance lease obligation. Lease payments are apportioned between finance charges and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly to the profit and loss account. Contingent rentals are recognised as expenses in the periods in which they are incurred. Operating leases Leases of assets in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentive received from lessor) are taken to the profit and loss account on a straight-line basis over the period of the lease. When an operating lease is terminated before the lease period has expired, any payment required to be made to the lessor by way of penalty is recognised as an expense in the period in which termination takes place. When a group company is the lessor Finance leases Amounts due from lessees under finance leases are recorded as receivables at the amount of the group’s net investment in the leases. Finance lease income is allocated to accounting periods so as to reflect a constant periodic rate of return on the Group’s net investment outstanding in respect of the leases. Operating leases Assets leased out under operating leases are included in investment properties and are stated at revalued amounts and not depreciated. Rental income (net of any incentive given to lessee) is recognised on a straight-line basis over the lease term. (q) Revenue Revenue consists of: - Revenue recognised on contracts, under the percentage of completion method when the outcome of the contract can be estimated reliably; Invoiced value of goods and services; - - Rental income from investment properties; and Investment income, interest and fee income. - (r) Revenue and income Recognition Revenue from rigbuildings, shipbuildings and repairs is recognised based on the percentage of completion method in proportion to the stage of completion, provided that the work is at least 20% complete and the outcome of such work can be reliably estimated. For offshore rigbuildings and repairs division, the percentage of completion is measured by reference to the percentage of the physical proportion of the contract work completed as determined by engineers’ estimates. For marine shipbuildings and repairs division, the percentage of completion is measured by reference to the percentage of costs incurred to-date to the estimated total costs for each contract, with due consideration made to include only those costs that reflect work performed. Provision is made where applicable for anticipated losses on contracts in progress. Income recognition on long term engineering contracts is based on the percentage of completion method in proportion to the stage of completion, provided that the work is at least 20% complete and the outcome of such work can be reliably estimated. The percentage of completion is measured by reference to the percentage of the physical proportion of the contract work completed as determined by engineers’ estimates. Provision is made where applicable for anticipated losses on contracts in progress. Keppel Corporation Limited Report to Shareholders 2007 Notes to the Financial Statements 163 NoTES To THE FINANCIAL STATE mENTS 2. significant accounting policies (continued) Income recognition on partly completed properties held for sale is based on the percentage of completion method as follows: - For Singapore trading properties under development, the profit recognition upon the signing of sales contracts is 20% of the total estimated profit attributable to the actual contracts signed. Subsequent recognition of profit is based on the stage of physical completion; - For overseas trading properties under development, the profit recognition upon the signing of sales contracts is the direct proportion of total expected project profit attributable to the actual sales contract signed, but only to the extent that it relates to the stage of physical completion; and - In respect of large residential property projects, income recognition is applied by phases. When losses are expected, full provision is made in the accounts after adequate allowance has been made for estimated costs to completion. Any expenditure incurred on abortive projects is written off in the profit and loss account. Revenue from the sale of products is recognised upon shipment to customers and collectibility of the related receivables is reasonably assured. Sales are stated net of goods and services tax and sales returns. Revenue from the rendering of services including electricity supply and logistic services is recognised over the period in which the services are rendered, by reference to completion of the specific transaction assessed on the basis of the actual services provided as a proportion of the total services to be performed. Dividend income from investments is recognised when the right to receive payment is established, and in the case of fixed interest bearing investments, on a time proportion basis using the effective interest method. Rental income from operating leases on investment properties are recognised on a straight-line basis over the lease term. Interest income is recognised on a time proportion basis using the effective interest method. (s) (t) Borrowing Costs Borrowing costs incurred to finance the development of properties are capitalised during the period of time that is required to complete and prepare the asset for its intended use. Other borrowing costs are taken to the profit and loss account over the period of borrowing using the effective interest rate method. employee Benefits Defined Contribution Plan The Group makes contributions to pension schemes as defined by the laws of the countries in which it has operations. In particular, the Singapore companies make contributions to the Central Provident Fund in Singapore, a defined contribution pension scheme. Contributions to pension schemes are recognised as an expense in the period in which the related service is performed. Employee Leave Entitlement Employee entitlements to annual leave are recognised when they accrue to employees. A provision is made for the estimated liability for leave as a result of services rendered by employees up to the balance sheet date. Share Option Scheme The Group operates an equity-settled, share-based compensation plan. The fair value of the employee services received in exchange for the grant of the options is recognised as an expense in the profit and loss account with a corresponding increase in the share option reserve over the vesting period. The total amount to be recognised over the vesting period is determined by reference to the fair value of the options granted on the date of grant. 164 Keppel Corporation Limited Report to Shareholders 2007 Notes to the Financial Statements (u) income Taxes Current income tax liabilities (and assets) for current and prior periods are recognised at the amounts expected to be paid to (or recovered from) the tax authorities, using the tax rates (and tax laws) that have been enacted or substantively enacted by the balance sheet date. Deferred income tax assets/liabilities are recognised for deductible/taxable temporary differences arising between the tax bases of assets and liabilities and their carrying amounts. The principal temporary differences arise from depreciation, valuation of investment properties, unremitted offshore income and future tax benefits from certain provisions not allowed for tax purposes until a later period. Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis. Current and deferred tax are recognised as an expense or income in the profit and loss account, except when they relate to items credited or debited directly to equity, in which case the tax is also recognised directly in equity, or where they arise from the initial accounting for a business combination. In the case of a business combination, the tax effect is taken into account in calculating goodwill or determining the excess of the acquirer’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities over cost. (v) Foreign Currencies Functional Currency Items included in the financial statements of each entity in the Group are measured using the currency that best reflects the economic substance of the underlying events and circumstances relevant to that entity (“functional currency”). The financial statements of the Group and the balance sheet and statement of changes in equity of the Company are presented in Singapore Dollars, which is the functional currency of the Company. Foreign Currency Transactions Transactions in foreign currencies are translated at exchange rates approximating those ruling at the transaction dates. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated at exchange rates approximating those ruling at that date. Exchange differences arising from translation of monetary assets and liabilities are taken to the profit and loss account. Exchange differences on non-monetary items such as investments held for trading are reported as part of the fair value gain or loss. Exchange differences on non- monetary items such as available-for-sale investments are included in the fair value reserve. Foreign Currency Translation For inclusion in the Group’s financial statements, the assets and liabilities of foreign subsidiaries and associated companies that are in functional currencies other than Singapore Dollars are translated into Singapore Dollars at the exchange rates ruling at the balance sheet date. The trading results of foreign subsidiaries and associated companies are translated into Singapore Dollars using the average exchange rates for the financial year. Exchange differences due to such currency translation are classified as reserves and taken directly to the foreign exchange translation account. Goodwill and fair value adjustments arising on acquisition of a foreign entity are treated as non- monetary foreign currency assets and liabilities of the acquirer and recorded at the closing exchange rate. Keppel Corporation Limited Report to Shareholders 2007 Notes to the Financial Statements 165 NoTES To THE FINANCIAL STATE mENTS 2. significant accounting policies (continued) (w) Critical Accounting estimates and Judgements (i) (ii) Critical judgements in applying the Group’s accounting policies In the process of applying the Group’s accounting policies, the management is of the opinion that there is no instance of application of judgements which is expected to have a significant effect on the amounts recognised in the financial statements, apart from those involving estimations described below. Key sources of estimation uncertainty The key assumptions concerning the future and other key sources of estimation uncertainty at the balance sheet date that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are as follows: Impairment of fixed assets Determining whether fixed asset value is impaired requires an estimation of the value in use of the cash- generating units. This requires the Group to estimate the future cashflows expected from the cash- generating units and an appropriate discount rate in order to calculate the present value of the future cashflows. The carrying amount of fixed assets at the balance sheet date is disclosed in Note 5. Impairment of goodwill Determining whether goodwill is impaired requires an estimation of the value in use of the cash-generating units to which the goodwill is allocated. This requires the Group to estimate the future cashflows expected from the cash-generating units and an appropriate discount rate in order to calculate the present value of the future cashflows. The carrying amount of goodwill at the balance sheet date is disclosed in Note 12. Impairment of available-for-sale investments The Group follows the guidance of FRS 39 in determining whether available-for-sale investments are considered impaired. The Group evaluates, among other factors, the duration and extent to which the fair value of an investment is less than its cost, the financial health of and the near-term business outlook of the investee, including factors such as industry and sector performance, changes in technology and operational and financing cashflow. The fair values of available-for-sale investments is disclosed in Notes 10 and 16. Revenue recognition The Group recognises contract revenue based on the stage of completion method. The stage of completion is measured in accordance with the accounting policy stated in Note 2(r). Significant assumption is required in determining the stage of completion, the extent of the contract cost incurred, the estimated total contract revenue and contract cost and the recoverability of the contracts. In making the assumption, the Group evaluates by relying on past experience and the work of specialists. Revenue from construction contracts is disclosed in Note 23. Income taxes The Group has exposure to income taxes in numerous jurisdictions. Significant assumption is required in determining the provision for income taxes. There are certain transactions and computations for which the ultimate tax determination is uncertain during the ordinary course of business. The Group recognises liabilities for expected tax issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recognised, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made. The carrying amount of taxation and deferred taxation is disclosed in the balance sheet. 166 Keppel Corporation Limited Report to Shareholders 2007 Notes to the Financial Statements 3. share capital Ordinary Shares (“Shares”) issued and paid up: Balance 1 January 787,992,924 Shares (2006: 783,805,424 Shares) Issued before sub-division of Shares 1,949,333 Shares (2006: 4,187,500 Shares) Sub-division of 1 Share into 2 Shares 789,942,257 Shares (2006: Nil) Issued after sub-division of Shares 5,201,666 Shares (2006: Nil) Capital distribution Effect of Companies (Amendment) Act 2005 Balance 31 December Group AnD coMpAny 2007 2006 $’000 $’000 972,926 391,903 13,783 16,306 - - 24,911 - (221,213) - (181,040) 745,757 1,585,086,180 Shares (2006: 787,992,924 Shares) 790,407 972,926 From 1 January 2007 to 7 May 2007, the Company issued 1,949,333 Shares for cash upon exercise of options under the KCL Share Option Scheme. This comprised 15,000 Shares at $1.52 per Share, 50,000 Shares at $2.89 per Share, 167,500 Shares at $2.93 per Share, 35,000 Shares at $3.23 per Share, 197,500 Shares at $4.76 per Share, 235,000 Shares at $6.31 per Share, 417,500 Shares at $6.77 per Share, 794,333 Shares at $9.12 per Share, 12,500 Shares at $12.77 per Share, 12,500 Shares at $13.07 per Share and 12,500 Shares at $15.60 per Share. On 7 May 2007, each Share of the Company was sub-divided into two Shares. The share capital of the Company on that date was 789,942,257 Shares. The sub-division resulted in 1,579,884,514 sub-divided Shares as at 7 May 2007. The sub-division of Shares was effected pursuant to the approval of shareholders at an Extraordinary General Meeting held on 27 April 2007. Since 7 May 2007, the Company issued 5,201,666 Shares for cash upon exercise of options under the KCL Share Option Scheme. This comprised 2,000 Shares at $0.62 per Share, 120,000 Shares at $1.30 per Share, 76,666 Shares at $1.32 per Share, 250,000 Shares at $2.24 per Share, 452,000 Shares at $3.01 per Share, 45,000 Shares at $3.15 per Share, 460,000 Shares at $3.24 per Share, 30,000 Shares at $3.38 per Share, 1,309,000 Shares at $4.42 per Share, 124,000 Shares at $4.56 per Share, 2,256,000 Shares at $6.24 per Share, 2,000 Shares at $6.38 per Share, 30,000 Shares at $6.39 per Share, 2,000 Shares at $6.53 per Share, 26,000 Shares at $7.66 per Share, 2,000 Shares at $7.80 per Share and 15,000 Shares at $9.13 per Share. In 2006, pursuant to the Companies (Amendment) Act 2005, amounts standing to the credit of share premium account and capital redemption reserve have been transferred to the share capital account as at that date. KCL Share Option Scheme The KCL Share Option Scheme (“Scheme”), which has been approved by the shareholders of the Company, is administered by the Remuneration Committee whose members are: Sven Bang Ullring (Chairman) Tsao Yuan Mrs Lee Soo Ann Tow Heng Tan Under the Scheme, an option may, except in certain special circumstances, be exercised at any time after two years but no later than the expiry date. The two-year vesting period is intended to encourage employees to take a longer-term view of the Company. Keppel Corporation Limited Report to Shareholders 2007 Notes to the Financial Statements 167 NoTES To THE FINANCIAL STATE mENTS 3. share capital (continued) The Shares under option may be exercised in full or in respect of 100 Shares or a multiple thereof, on the payment of the subscription price. The subscription price is based on the average last done prices for the Shares of the Company on the Singapore Exchange Securities Trading Limited for the three market days preceding the date of offer. The Remuneration Committee may at its discretion fix the subscription price at a discount not exceeding 20 percent to the above price. None of the options offered in the financial year was granted at a discount. To promote transparency, the Board of Directors had in 2002 resolved that the date of offer of share options under the Scheme shall be a pre-determined date; that is, the date falling 14 days immediately after the date of announcement of the Company’s half-year or full-year results, as the case may be. The number of Shares available under the Scheme shall not exceed 15% of the issued share capital of the Company. The employees to whom the options have been granted do not have the right to participate by virtue of the options in a share issue of any other company. Certain employees who have been transferred from subsidiaries to the Company and to whom options have been granted may also hold options granted by subsidiaries prior to their transfer to the Company, while certain employees who have been granted options by the Company and were subsequently transferred from the Company to subsidiaries may be entitled to options under the subsidiaries’ share option schemes. Movements in the number of share options and their weighted average exercise prices are as follows: Balance at 1 January Granted Exercised Cancelled Balance before sub-division Adjustment Granted Exercised Cancelled Balance at 31 December 2007 2006 Number of options 16,232,166 3,496,500 (1,949,333) (29,000) 17,750,333 17,750,333 7,883,000 (5,201,666) (414,000) 37,768,000 Weighted average exercise price $10.78 $18.55 $7.07 $18.55 $12.71 - $12.95 $4.79 $7.71 $7.80 Number of options 14,247,166 6,429,500 (4,187,500) (257,000) 16,232,166 - - - - 16,232,166 Weighted average exercise price $7.26 $14.43 $4.37 $11.20 $10.78 - - - - $10.78 Exercisable at 31 December 10,765,000 $4.02 4,577,833 $5.41 The weighted average share price at the date of exercise for options exercised from 1 January 2007 to 7 May 2007 was $18.09 (before adjustment for sub-division of Shares) and thereafter to 31 December 2007 was $12.83 (2006: $13.61). The options outstanding at the end of the financial year had a weighted average exercise price of $7.80 (2006: $10.78) and a weighted average remaining contractual life of 8.3 years (2006: 8.4 years). 168 Keppel Corporation Limited Report to Shareholders 2007 Notes to the Financial Statements On 13 February 2007 and 10 August 2007, the Company granted 3,496,500 options (before adjustment for sub-division of Shares) and 7,883,000 options respectively under the KCL Share Option Scheme. The estimated fair values of the options granted on those dates are $2.94 per share (before adjustment for sub-division of Shares) and $1.84 per share respectively. These fair values are determined using The Black-Scholes pricing model. The significant inputs into the model are as follows: Date of grant Prevailing share price at grant Exercise price Expected volatility Expected life Risk free rate Expected dividend yield ^ Before adjustment for capital distribution and sub-division of Shares 2007 2006 13.2.2007 ^$18.55 ^$18.55 24.30% 3.5 years 2.32% 2.72% 10.8.2007 $12.95 $12.95 24.35% 3.5 years 2.45% 3.73% 9.2.2006 ^$13.30 ^$13.30 23.17% 4 years 3.09% 3.11% 10.8.2006 ^$15.60 ^$15.60 23.25% 4 years 3.18% 2.76% The expected volatility is determined by calculating the historical volatility of the Company’s share price over the previous 3.5 years (2006: 4 years). The expected lives used in the model has been adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations. Details of share options granted by Keppel Land Limited and Keppel Telecommunications & Transportation Ltd, subsidiaries of the Company are disclosed in the annual reports of the respective publicly-listed subsidiaries. 4. reserves Capital Reserves Asset revaluation surplus Share option reserve Fair value reserve Hedging reserve Bonus issue by subsidiaries Others Revenue Reserves Foreign Exchange Translation Account Group 2007 $’000 2006 $’000 coMpAny 2007 $’000 2006 $’000 - 59,879 438,308 255,305 40,000 34,079 827,571 11,975 38,366 224,964 140,677 40,000 37,248 493,230 - - 47,456 - - - - - - - - 47,456 29,577 29,577 3,644,164 2,797,896 2,510,512 2,302,655 (57,409) (58,956) - - 4,414,326 3,232,170 2,557,968 2,332,232 Amount standing to the credit of asset revaluation surplus has been adjusted against the revenue reserves as at 1 January 2007 on transition to FRS 40 Investment Property on that date. Movements in reserves are set out in the Statements of Changes in Equity. Keppel Corporation Limited Report to Shareholders 2007 Notes to the Financial Statements 169 NoTES To THE FINANCIAL STATE mENTS 5. Fixed assets Group 2007 Cost At 1 January Additions Disposals Write-off Reclassification - Stocks - Investment properties - Other fixed assets categories Exchange differences At 31 December Accumulated Depreciation & impairment Losses At 1 January Depreciation charge Impairment loss (Note 27) Disposals Write-off Reclassification - Stocks - Investment properties - Other fixed assets categories Exchange differences At 31 December Freehold Land & Buildings $’000 Leasehold Land & Buildings $’000 Vessels & Floating Docks $’000 Plant, Machinery & Equipment $’000 Capital Work-in-Progress $’000 Total $’000 75,837 1,953 (1,806) - 1,148,340 18,696 (5,766) - 221,810 5,078 (17,646) - 1,079,242 109,238 (24,245) (560) 482,814 111,507 (612) - 3,008,043 246,472 (50,075) (560) (23,262) - - (27,813) - - - (2,704) (4,693) - (27,955) (30,517) 301 1,205 54,228 37,140 (12,133) 1,158,464 - 488 209,730 448,783 (11,083) 1,598,671 (486,224) 438 103,230 - (21,085) 3,124,323 18,564 3,204 1,598 (318) - 405,874 33,514 31,952 (1,413) - 102,358 15,607 - (15,574) - 739,827 73,058 74,407 (22,396) (517) (2,122) - - (10,099) - - - (2,578) 1,109 (254) 21,781 21 (6,117) 453,732 - (1,827) 100,564 (1,130) (10,656) 850,015 612 - - (612) - - - - - - 1,267,235 125,383 107,957 (40,313) (517) (2,122) (12,677) - (18,854) 1,426,092 Net Book Value 32,447 704,732 109,166 748,656 103,230 1,698,231 During the financial year, the Group recognised impairment losses of $107,957,000 of which $32,000,000 relates to write- down of two hotels in Myanmar in the Property division and $75,957,000 relates to write-down of power barges and other non-performing assets in the Infrastructure division. The carrying amounts of the two hotels in Myanmar were reduced to their recoverable amounts determined by discounting the estimated future cashflow from operations to present value at 14%. The carrying amounts of the power barges were reduced to their recoverable amounts determined by discounting the estimated future cashflow from operations to present value at 15%. The other non-performing assets were fully written down. Certain plant, machinery and equipment of subsidiaries are mortgaged to banks for loan facilities (Note 20). 170 Keppel Corporation Limited Report to Shareholders 2007 Notes to the Financial Statements Group 2006 Cost At 1 January Additions Disposals Write-off Subsidiaries acquired Reclassification - Long term receivables - Stocks - Recoverable account - Other fixed assets categories Exchange differences At 31 December Accumulated Depreciation & impairment Losses At 1 January Depreciation charge Impairment loss (Note 27) Disposals Write-off Subsidiaries acquired Reclassification - Other fixed assets categories Exchange differences At 31 December Freehold Land & Buildings $’000 Leasehold Land & Buildings $’000 Vessels & Floating Docks $’000 Plant, Machinery & Equipment $’000 Capital Work-in-Progress $’000 Total $’000 76,417 4,174 (4,187) - - 1,122,466 13,851 (5,323) (911) - 251,115 15,705 (42,920) - - 1,027,165 83,635 (35,141) - 5,810 341,060 290,291 - - - 2,818,223 407,656 (87,571) (911) 5,810 - - - - - - - - - - - - (12,485) (21,444) (37,288) (12,485) (21,444) (37,288) 2,770 (3,337) 75,837 48,254 (29,997) 1,148,340 2,091 (4,181) 221,810 22,746 (24,973) 1,079,242 (75,861) (1,459) 482,814 - (63,947) 3,008,043 17,507 3,134 - (1,376) - - 367,004 30,568 42,139 (1,651) (19) - 107,855 14,483 - (23,933) - - 672,050 77,688 4,220 (33,165) - 5,332 261 (962) 18,564 (25,051) (7,116) 405,874 5,714 (1,761) 102,358 19,076 (5,374) 739,827 612 - - - - - - - 612 1,165,028 125,873 46,359 (60,125) (19) 5,332 - (15,213) 1,267,235 Net Book Value 57,273 742,466 119,452 339,415 482,202 1,740,808 In 2006, the Group recognised impairment losses of $46,359,000 which relates to write-down of two hotels in Myanmar in the Property division. The carrying amounts of these assets were reduced to their recoverable amounts determined by discounting the estimated future cashflow from operations to present value at 12%. Keppel Corporation Limited Report to Shareholders 2007 Notes to the Financial Statements 171 NoTES To THE FINANCIAL STATE mENTS 5. Fixed assets (continued) Company 2007 Cost At 1 January Additions Disposals At 31 December Accumulated Depreciation At 1 January Depreciation charge Disposals At 31 December Net Book Value 2006 Cost At 1 January Additions Disposals At 31 December Accumulated Depreciation At 1 January Depreciation charge Disposals At 31 December Net Book Value 6. Investment properties At 1 January Improvement to buildings Fair value gain (Note 27) Revaluation loss included in revaluation reserve Disposals Reclassification Subsidiary acquired Exchange differences At 31 December Freehold Land & Buildings $’000 Leasehold Land & Buildings $’000 Plant, Machinery & Equipment $’000 Total $’000 6,545 - (3) 6,542 1,631 40 - 1,671 4,871 6,410 135 - 6,545 1,591 40 - 1,631 4,914 484 - - 484 62 10 - 72 6,048 376 (78) 6,346 5,704 335 (78) 5,961 13,077 376 (81) 13,372 7,397 385 (78) 7,704 412 385 5,668 484 - - 484 52 10 - 62 5,889 217 (58) 6,048 5,520 242 (58) 5,704 12,783 352 (58) 13,077 7,163 292 (58) 7,397 422 344 5,680 Group 2007 $’000 2006 $’000 2,249,216 19,476 691,444 - - (501) 17,840 - (17,128) 2,025,501 22,692 (44,176) (1,300) 42,681 220,000 (16,182) 2,960,347 2,249,216 172 Keppel Corporation Limited Report to Shareholders 2007 Notes to the Financial Statements The Group’s investment properties (including integral plant and machinery) are stated at Directors’ valuations based on the following valuations (open market value basis) by independent firms of professional valuers as at 31 December 2007: - Colliers International Consultancy & Valuation (Singapore) Pte Ltd and Knight Frank Pte Ltd for properties in Singapore; - Associated Properties Consultants for properties in Vietnam; and - PT. Wilson Properti Advisindo, PT. SuryaPrapta Permai and PT. Piesta Penilai for properties in Indonesia. Certain investment properties of subsidiaries are mortgaged to banks for loan facilities (Note 20). 7. Development properties Land cost Development cost incurred to-date 8. subsidiaries Quoted shares, at cost Market value: $5,336,248,000 (2006: $3,330,740,000) Unquoted shares, at cost Provision for impairment Advances from subsidiaries Movements in the provision for impairment of subsidiaries are as follows: At 1 January Charge/(write-back) to profit and loss account At 31 December Group 2007 $’000 2006 $’000 103,020 69,738 125,778 71,302 172,758 197,080 coMpAny 2007 $’000 2006 $’000 1,329,571 1,750,126 3,079,697 (199,135) 2,880,562 (3,600) 1,329,571 1,779,925 3,109,496 (25,000) 3,084,496 (3,600) 2,876,962 3,080,896 25,000 174,135 25,200 (200) 199,135 25,000 Advances from subsidiaries are unsecured, interest free and are not repayable within the next 12 months. Information relating to significant subsidiaries consolidated in the financial statements is given in Note 39. Keppel Corporation Limited Report to Shareholders 2007 Notes to the Financial Statements 173 NoTES To THE FINANCIAL STATE mENTS 9. Associated companies Quoted shares, at cost Market value: $2,318,996,000 (2006: $1,600,697,000) Unquoted shares, at cost Provision for impairment Share of reserves Advances to associated companies Group 2007 $’000 2006 $’000 coMpAny 2007 $’000 2006 $’000 640,508 694,015 1,334,523 (28,131) 1,306,392 741,074 2,047,466 1,093,128 572,185 653,733 1,225,918 (28,258) 1,197,660 459,840 1,657,500 753,216 - - 3,074 3,074 - - 3,074 - - 3,074 - - 3,074 3,074 3,074 3,074 3,140,594 2,410,716 3,074 3,074 Movements in the provision for impairment of associated companies are as follows: At 1 January Exchange differences Charge to profit and loss account Amount written off/disposed At 31 December 28,258 (578) 451 - 17,090 (987) 12,590 (435) 28,131 28,258 - - - - - - - - - - Advances to associated companies are unsecured and are not repayable within the next 12 months. Interest is charged at rates ranging from 3.3% to 4.31% (2006: 4.05% to 4.52%) per annum. The share of attributable profit of associated companies for the financial year is as follows: Share of profit before tax and exceptional items Share of exceptional items (Note 27) Share of profit before taxation Share of taxation (Note 28) Share of attributable profit The summarised financial information of associated companies is as follows: Total assets Total liabilities Revenue Attributable profit before exceptional items Attributable profit after exceptional items Group 2007 $’000 2006 $’000 476,882 212,158 689,040 (115,462) 314,662 31,878 346,540 (69,000) 573,578 277,540 15,470,300 9,356,233 12,310,073 1,056,427 1,564,354 11,302,963 6,896,781 11,982,129 780,985 917,817 Investments in MobileOne Limited (“M1”) and Asia Airfreight Terminal Company Limited (“AAT”) are equity accounted for in the consolidated financial statements not withstanding that the Group holds less than 20% of the voting power in these companies on grounds that the Group exercises significant influence by virtue of its contractual right to appoint two directors to the board of M1 and one director to the board of AAT. Information relating to significant associated companies whose results are included in the financial statements is given in Note 39. 174 Keppel Corporation Limited Report to Shareholders 2007 Notes to the Financial Statements 10. Investments Available-for-sale investments: Quoted equity shares Quoted bonds Unquoted equity shares Unquoted property fund 11. Long term receivables Group 2007 $’000 2006 $’000 228,891 7,373 - 53,659 45,926 223,518 25,857 26,517 335,849 275,892 Receivables from service concession arrangements Staff loans Long term trade receivables Loan to a subsidiary Other loans Less: Amounts due within one year and included in debtors (Note 15) Provision for doubtful debts Movements in the provision for doubtful debts are as follows: Group 2007 $’000 2006 $’000 coMpAny 2007 $’000 2006 $’000 134,100 3,817 387 - 7,992 146,296 96,920 3,648 60,035 - 9,561 170,164 (7,081) 139,215 (4,358) (3,251) 166,913 (6,193) - - 1,452 - - 300,000 - - 301,452 (353) 301,099 - - 1,276 300,000 301,276 (299) 300,977 134,857 160,720 301,099 300,977 At 1 January Exchange differences Charge to profit and loss account Amount written off At 31 December 6,193 286 - (2,121) 2,466 (104) 3,831 - 4,358 6,193 - - - - - - - - - - Receivables arising from service concession arrangements arose from the following: (a) (b) a 20-year contract to build and operate a water treatment plant. The plant started commercial operations during the financial year; and a 25-year contract to build and operate a waste-to-energy plant. As at 31 December 2007, the plant is still under construction and has not commenced operations. The above arrangements have been classified as service concession arrangements under INT FRS 112. Under the terms of the arrangements, the Group will receive an aggregate minimum amount of $16,300,000 yearly from the contracted parties (grantors) in exchange for services performed by the Group when the plants are in commercial operations. Revenue and profits arising from these arrangements for the provision of construction services amounted to $51,700,000 and $3,000,000 (2006: $Nil and $Nil) respectively. The waste-to-energy plant has been pledged to secure bank loans (Note 20). Keppel Corporation Limited Report to Shareholders 2007 Notes to the Financial Statements 175 NoTES To THE FINANCIAL STATE mENTS 11. Long term receivables (continued) Included in staff loans are interest free advances to certain Directors amounting to $264,000 (2006: $341,000) and to directors of related corporations amounting to $684,000 (2006: $580,000) under an approved car loan scheme. Loan to a subsidiary is unsecured and bear interest ranging from 2.79% to 3.89% (2006: 3.53% to 3.89%) per annum. The fair value of long term receivables for the Group is $134,773,000 (2006: $162,988,000). The carrying amount of long term receivables for the Company approximates its fair value. These fair values are computed on the discounted cashflow method using a discount rate based upon the market-related rate for a similar instrument as at the balance sheet date. 12. Intangibles Group 2007 At 1 January Exchange differences Additions Amortisation Impairment loss (Note 27) Reclassification At 31 December Cost Accumulated amortisation 2006 At 1 January Exchange differences Additions Amortisation Impairment loss (Note 27) Subsidiaries acquired Reclassification At 31 December Cost Accumulated amortisation Goodwill $’000 Development Expenditure $’000 Total $’000 133,011 6,042 - - (76,664) - 2,047 (60) 4,333 (309) - (577) 135,058 5,982 4,333 (309) (76,664) (577) 62,389 5,434 67,823 62,389 - 8,995 (3,561) 71,384 (3,561) 62,389 5,434 67,823 138,231 (5,220) 2,677 - (2,677) - - 7,017 (165) 221 (1,565) - 1,011 (4,472) 145,248 (5,385) 2,898 (1,565) (2,677) 1,011 (4,472) 133,011 2,047 135,058 133,011 - 5,939 (3,892) 138,950 (3,892) 133,011 2,047 135,058 Goodwill is allocated to cash generating units identified according to business segment. Goodwill allocated to Offshore & Marine division amounted to $5,211,000 (2006: $75,833,000). The recoverable amount is determined based on value-in-use calculation using cashflow projections derived from the most recent financial budgets approved by management for the next five years using discount rates ranging from 7.56% to 25% (2006: 6.89% to 20%). The key assumptions are those regarding the discount rate and expected changes to selling prices and direct costs. Management estimates discount rate using pre-tax rate that reflects current market assessment of the time value of money and risks specific to the unit. Changes in selling prices and direct costs are based on past practices and expectations of future changes in the market. Goodwill allocated to Infrastructure division amounted to $57,178,000 (2006: $57,178,000). The recoverable amount is determined based on the fair value less cost to sell using the current bid prices. 176 Keppel Corporation Limited Report to Shareholders 2007 Notes to the Financial Statements 13. stocks and work-in-progress Work-in-progress in excess of related billings Stocks Properties held for sale Billings on work-in-progress in excess of related costs (a) Work-in-Progress in excess of Related Billings Costs incurred and attributable profits Provision for loss on work-in-progress Less: Progress billings (a) (c) (d) (b) Movements in the provision for loss on work-in-progress are as follows: At 1 January Exchange differences Charge to profit and loss account Amount utilised At 31 December (b) Billings on Work-in-Progress in excess of Related Costs Costs incurred and attributable profits Less: Progress billings (c) Stocks Consumable materials and supplies Finished products for sale (d) Properties Held For Sale Properties under development Land cost Development cost incurred to date Related overhead expenditure Progress billing received and recognised profit Completed properties held for sale Provision for properties held for sale Group 2007 $’000 2006 $’000 356,081 204,804 2,229,764 400,171 157,260 2,304,529 2,790,649 2,861,960 (2,542,517) (2,621,815) 2,213,340 (37,284) 2,176,056 (1,819,975) 1,489,044 (9,609) 1,479,435 (1,079,264) 356,081 400,171 9,609 (35) 28,005 (295) 19,839 (135) 6,033 (16,128) 37,284 9,609 11,881,586 (14,424,103) 4,934,762 (7,556,577) (2,542,517) (2,621,815) 184,243 20,561 108,699 48,561 204,804 157,260 2,138,119 1,175,759 682,911 (1,888,472) 2,108,317 237,362 2,345,679 (115,915) 2,165,507 845,120 606,849 (1,203,537) 2,413,939 219,538 2,633,477 (328,948) 2,229,764 2,304,529 Keppel Corporation Limited Report to Shareholders 2007 Notes to the Financial Statements 177 NoTES To THE FINANCIAL STATE mENTS 13. stocks and work-in-progress (continued) Movements in the provision for properties held for sale are as follows: At 1 January Exchange differences Write-back to profit and loss account Amount utilised At 31 December Group 2007 $’000 2006 $’000 328,948 (2) (109,414) (103,617) 623,598 (25) (48,493) (246,132) 115,915 328,948 Interest capitalised during the financial year amounted to $53,429,000 (2006: $60,332,000) at rates ranging from 2.78% to 4.44% (2006: 2.75% to 4.5%) per annum for Singapore properties and 1.62% to 10.05% (2006: 1.62% to 16%) per annum for overseas properties. Certain properties held for sale of subsidiaries are mortgaged to banks for loan facilities (Note 20). 14. Amounts due from/to Subsidiaries Amounts due from - trade - advances Provision for doubtful debts Amounts due to - trade - advances Movements in the provision for doubtful debts are as follows: At 1 January Charge to profit and loss account At 31 December coMpAny 2007 $’000 2006 $’000 7,393 956,814 964,207 (5,700) 7,543 406,411 413,954 (3,862) 958,507 410,092 160,030 258,857 37,478 157,240 418,887 194,718 3,862 1,838 - 3,862 5,700 3,862 Advances to and from subsidiaries are unsecured and are repayable on demand. Interest is charged at rates ranging from 1.4% to 4.5% (2006: 3.89% to 5.93%) per annum on interest-bearing advances. 178 Keppel Corporation Limited Report to Shareholders 2007 Notes to the Financial Statements Group 2007 $’000 2006 $’000 coMpAny 2007 $’000 2006 $’000 Associated Companies Amounts due from - trade - advances Provision for doubtful debts Amounts due to - trade - advances 70,734 524,565 595,299 (946) 89,780 219,282 309,062 (1,094) 594,353 307,968 16,851 117,480 11,651 81,969 134,331 93,620 Movements in the provision for doubtful debts are as follows: At 1 January (Write-back)/charge to profit and loss account At 31 December 1,094 (148) 871 223 946 1,094 87 87 87 11 11 284 - - 284 - - 284 2 - - 2 - - - - - - Advances to and from associated companies are unsecured and are repayable on demand. Interest is charged at rates ranging from 1% to 9.72% (2006: 1% to 9.38%) per annum on interest-bearing advances. 15. Debtors Trade debtors Provision for doubtful debts Long term receivables due within one year (Note 11) Sundry debtors Prepaid project cost & prepayments Derivative financial instruments (Note 35) Tax recoverable GST receivable Interest receivable Deposits paid Recoverable accounts Receivables not billed Advances to subcontractors Advances to corporations in which the Group has investment interests Advances to minority shareholders of subsidiaries Provision for doubtful debts Group 2007 $’000 2006 $’000 coMpAny 2007 $’000 2006 $’000 1,098,822 (20,703) 1,078,119 1,111,216 (25,531) 1,085,685 7,081 97,775 65,391 168,646 92,916 39,895 16,145 16,110 56,649 9,232 55,583 19,040 62,285 706,748 (31,433) 675,315 3,251 118,863 45,227 87,010 58,267 22,692 7,358 11,364 53,113 4,236 14,221 31,281 4,047 460,930 (30,356) 430,574 - - - - - - 353 382 174 155,753 - - - - 3 - 389 - - - - - - - - - - 157,054 - - 157,054 299 407 111 80,709 487 82,013 82,013 Total 1,753,434 1,516,259 157,054 82,013 Keppel Corporation Limited Report to Shareholders 2007 Notes to the Financial Statements 179 NoTES To THE FINANCIAL STATE mENTS 15. Debtors (continued) Movements in the provision for debtors are as follows: Group 2007 $’000 2006 $’000 coMpAny 2007 $’000 At 1 January Exchange differences (Write-back)/charge to profit and loss account Impairment loss (Note 27) Amount written off Reclassification 55,887 (24) (6,040) 6,603 (4,753) 463 57,839 288 1,461 940 (3,468) (1,173) At 31 December 52,136 55,887 - - - - - - - - - - - - 2006 $’000 531 (531) 16. short term investments Available-for-sale investments: Quoted equity shares Quoted unit trust Total available-for-sale investments Investments held for trading: Quoted equity shares Quoted unit trust Total investments held for trading Total short term investments 17. Bank balances, deposits and cash Bank balances and cash Fixed deposits with banks Amounts held under escrow accounts for overseas acquisition of land, payment of construction cost and liabilities Bank balances of property subsidiaries held under Group 2007 $’000 2006 $’000 328,870 1,039,231 523,257 928,610 22,149 1,407 Project Account Rules 1985 210,600 165,284 Group 2007 $’000 2006 $’000 399,663 54,561 454,224 297,235 39,627 336,862 77,494 15,719 93,213 76,573 13,279 89,852 547,437 426,714 coMpAny 2006 $’000 520 2007 $’000 3,806 78 - - - - - 1,600,850 1,618,558 3,884 520 Fixed deposits with banks of the Group mature on varying periods mainly between 1 day to 12 months (2006: 1 day to 3 months). Fixed deposits with banks comprised $33,773,000 of deposits denominated in Singapore dollar and $1,005,458,000 of foreign currency deposits. The interest rates of deposits denominated in Singapore dollar as at 31 December 2007 range from 0.33% to 3.31% (2006: 0.33% to 4.96%) per annum. The interest rates of foreign currency deposits as at 31 December 2007 range from 0.5% to 9.25% (2006: 0.31% to 11%) per annum. Fixed deposits with banks of the Company mature on varying periods between 1 month to 6 months. The interest rates of these deposits as at 31 December 2007 range from 5.95% to 6.5% per annum. 180 Keppel Corporation Limited Report to Shareholders 2007 Notes to the Financial Statements 18. creditors Group 2007 $’000 2006 $’000 coMpAny 2007 $’000 Trade creditors Customers’ advances and deposits Derivative financial instruments (Note 35) Sundry creditors Accrued operating expenses Advances from minority shareholders Interest payables Other payables 652,457 47,530 20,422 558,434 1,474,327 245,773 19,177 53,892 547,319 61,828 4,622 386,024 826,064 266,408 30,015 46,624 137 74 - 13,952 6,995 53,646 - - 853 - - 2006 $’000 68 12,633 7,782 37,187 1,215 Advances from minority shareholders of certain subsidiaries are unsecured and are repayable on demand. Interest is charged at rates ranging from 2.78% to 12.06% (2006: 4.06% to 5%) per annum on interest-bearing loans. 3,072,012 2,168,904 75,657 58,885 19. provisions Group 2007 At 1 January Exchange differences Charge to profit and loss account Amount utilised At 31 December 2006 At 1 January Exchange differences Charge to profit and loss account Amount utilised Reclassification At 31 December Warranties $’000 Claims $’000 Total $’000 29,729 (326) 6,143 (279) 232 (13) 2,414 - 29,961 (339) 8,557 (279) 35,267 2,633 37,900 17,372 318 11,840 (235) 434 232 (3) 3 - - 17,604 315 11,843 (235) 434 29,729 232 29,961 Keppel Corporation Limited Report to Shareholders 2007 Notes to the Financial Statements 181 NoTES To THE FINANCIAL STATE mENTS 20. term loans 2007 Keppel Corporation Medium Term Notes Keppel Land Medium Term Notes Keppel Land 2.5% Convertible Bonds 2013 Keppel Structured Notes Commodity-linked Notes K-REIT Asia term loans Bank loans - secured - unsecured Other loans - unsecured (a) (b) (c) (d) (e) (f) (g) (h) Group coMpAny Due within one year $’000 Due after one year $’000 Due within one year $’000 Due after one year $’000 - 192,250 - - - 6,085 297,342 300,000 200,000 263,488 41,920 190,085 323,480 391,760 - - - - - 300,000 - - - - - 134,820 - - - 3,427 20,793 - 2006 (a) (b) (c) 499,104 1,731,526 134,820 300,000 681,635 2,272,152 - 300,000 The $300,000,000 Floating Rate Notes 2010 were issued in 2005 under the US$600,000,000 Multi-Currency Medium Term Note Programme by the Company. The notes are unsecured and are issued in tranches which will mature five years from the date of issue. Interest is based on money market rates ranging from 2.79% to 3.89% (2006: 3.53% to 3.89%) per annum. At the end of the financial year, notes issued under the US$800,000,000 Multi-Currency Medium Term Note Programme by Keppel Land Limited, a subsidiary of the Company, amounted to $392,250,000. The notes are unsecured and are issued in series or tranches, and comprised (i) fixed rate notes due 2008 of $90,000,000 and (ii) variable rate notes due 2008, 2009, 2010 and 2013 of $302,250,000. Interest payable is based on money markets rates ranging from 2.3% to 4.18% (2006: 2.23% to 4.39%) per annum. The $300,000,000 2.5%, 7 year convertible bonds were issued in 2006 by Keppel Land Limited. Interest is payable semi-annually. The bonds, maturing on 23 June 2013, are convertible at the option of bondholders to Keppel Land ordinary shares at a conversion price of $6.55 per share. Any bondholder may request to redeem all or some of its bonds on 23 June 2011 or in the event that its shares cease to be listed or admitted to trading on the Singapore Stock Exchange. The convertible bonds are recognised on the balance sheet as follows: Balance at 1 January Face value of convertible bonds issued Equity conversion component, net of deferred tax liability Deferred tax liability Liability component on initial recognition Interest expense Interest paid Prepaid issue expenses Group 2007 $’000 2006 $’000 257,639 - - - - - 12,570 (7,500) 779 300,000 (31,917) (7,979) 260,104 6,899 (3,914) (5,450) Liability component at 31 December 263,488 257,639 182 Keppel Corporation Limited Report to Shareholders 2007 Notes to the Financial Statements (d) (e) (f) Interest expense on the convertible bonds is calculated based on the effective interest method by applying the interest rate of 4.78% (2006: 4.78%) per annum for an equivalent non-convertible bond to the liability component of the convertible bonds. The S$23,960,000 (“Tranche A”) and US$11,565,000 (“Tranche B”) commodity-linked notes were issued in 2006 by Keppel Structured Notes Pte Ltd (“KSN”), a subsidiary of the Company. The commodity-linked notes, maturing on 28 November 2011, may be redeemed at par at the option of KSN, in whole, on notice, in the event of certain changes in the tax laws of Singapore, subject to certain other conditions. The notes are unsecured and a commodity- linked fixed interest is payable annually at a rate ranging from 6% to 13% per annum for the period from 27 November 2006 to 28 November 2011. The notes are unconditionally and irrevocably guaranteed by the Company. KSN has entered into a 5-year commodity-linked interest rate swap transaction relating to Tranche A notes and a 5-year commodity-linked cross currency and interest rate swap transaction relating to the Tranche B notes to hedge the foreign exchange and interest rate risks of the notes. The effect of the swap transactions is that KSN pays an interest rate based on money market rates ranging from 2.77% to 3.51% (2006: 3.51%) per annum. K-REIT Asia, a subsidiary of the Company, secured two fixed rate mortgage loans in 2006 totalling $190,085,000 from a special purpose company, Blossom Assets Ltd. The loans consist of a Tranche A Mortgage Loan amounting to $160,197,000 and a Tranche B Mortgage Loan amounting to $29,888,000, which are funded by the proceeds of commercial mortgaged-backed securities notes issued by Blossom Assets. The loans are due on 17 May 2011 and are secured on the investment properties and certain assets of K-REIT Asia. Interest is payable ranging from 3.91% to 4.06% (2006: 3.91% to 4.06%) per annum. The secured bank loans consist of: - A $32,650,000 bank loan drawn down by a subsidiary during the year. The term loan is repayable in 2029 and is secured on certain fixed assets of the subsidiary. Interest is swapped to fixed rates ranging from 3.52% to 3.63% per annum. - A term loan of $158,600,000 drawn down by a subsidiary. The term loan is repayable in 2009 and is secured on the investment property of the subsidiary. Interest is based on money market rates ranging from 3.08% to 4.05% (2006: 4.56% to 4.81%) per annum. - Other secured bank loans totalling $138,315,000 comprised $121,914,000 of loans denominated in Singapore dollar and $16,401,000 of foreign currency loans. They are repayable between one and five years and are secured on certain fixed and other assets of subsidiaries. Interest on loans denominated in Singapore dollar is based on money market rates ranging from 3.17% to 4.14% (2006: 3.1% to 5.5%) per annum. Interest on foreign currency loans is based on money market rates ranging from 7.1% to 8% (2006: 7.7% to 12.69%) per annum. (g) The unsecured bank loans of the Group totalling $689,102,000 comprised $504,820,000 of loans denominated in Singapore dollar and $184,282,000 of foreign currency loans. They are repayable between one and five years. Interest on loans denominated in Singapore dollar is based on money market rates ranging from 1.11% to 4.17% (2006: 2% to 4.52%) per annum. Interest on foreign currency loans is based on money market rates ranging from 4.7% to 10.15% (2006: 3.86% to 10%) per annum. The short-term unsecured bank loans of the Company bears interest ranging from 1.11% to 1.18% per annum. (h) The other unsecured loans include term loan facilities and hire purchase contracts entered into with various finance and leasing companies for purchase of machinery and equipment. Interest range from 3.06% to 7.74% (2006: 1.75% to 7.9%) per annum. The net book value of property and assets mortgaged to the banks amounted to $1,834,575,000 (2006: $1,908,005,000). These are securities given to the banks for loans and overdraft facilities. The fair values of term loans for the Group and Company are $2,253,263,000 (2006: $2,978,195,000) and $434,820,000 (2006: $300,000,000) respectively. These fair values are computed on the discounted cashflow method using a discount rate based upon the borrowing rate which the Directors expect would be available as at the balance sheet date. Keppel Corporation Limited Report to Shareholders 2007 Notes to the Financial Statements 183 NoTES To THE FINANCIAL STATE mENTS 20. term loans (continued) Loans due after one year are estimated to be repayable as follows: Years after year-end: After one but within two years After two but within five years After five years 21. Bank overdrafts Secured Unsecured Group 2007 $’000 2006 $’000 coMpAny 2007 $’000 2006 $’000 73,602 1,348,601 309,323 297,835 1,434,803 539,514 - - 300,000 - - 300,000 1,731,526 2,272,152 300,000 300,000 2007 $’000 1,942 1,825 3,767 Group 2006 $’000 3,339 12 3,351 Interest on the bank overdrafts is payable at the banks’ prevailing prime rates ranging from 1.66% to 10.1% (2006: 1.63% to 9.2%) per annum. The secured bank overdrafts are secured by short term investments portfolio and fixed assets of subsidiaries. 22. Deferred taxation Deferred tax liabilities: Accelerated tax depreciation Investment properties valuation Offshore income & others Deferred tax assets: Other provisions Unutilised tax benefits Group 2007 $’000 2006 $’000 coMpAny 2007 $’000 2006 $’000 117,665 210,607 111,674 439,946 (31,232) (19,745) (50,977) 74,226 - 95,322 169,548 (5,898) (5,709) (11,607) - - - - 13,486 13,486 - - - - - - 14,385 14,385 Net deferred tax liabilities 388,969 157,941 13,486 14,385 Deferred tax assets are recognised for unutilised tax benefits carried forward to the extent that realisation of the related tax benefits through future taxable profits is probable. The Group has unutilised tax losses and capital allowances of $434,802,000 (2006: $459,026,000) for which no deferred tax benefit is recognised in the balance sheet. These tax losses and capital allowances can be carried forward and used to offset against future taxable income subject to meeting certain statutory requirements by those companies with unrecognised tax losses and capital allowances in their respective countries of incorporation. The unutilised tax losses and capital allowances do not have expiry dates. 184 Keppel Corporation Limited Report to Shareholders 2007 Notes to the Financial Statements 23. revenue Revenue from construction contracts Sale of property and goods Rental income from investment properties Revenue from services rendered Dividend income from quoted shares Others 24. staff costs Wages and salaries Employer’s contribution to Central Provident Fund Share options granted to Directors and employees Other staff benefits 25. operating profit Operating profit is arrived at after charging/(crediting) the following: Auditors’ remuneration - auditors of the Company - other auditors of subsidiaries Fees and other remuneration to Directors of the Company Shares granted to Directors of the Company Contracts for services rendered by Directors or with a company in which a Director has a substantial financial interest Key management’s emoluments - short-term employee benefits - post-employment benefits - share options granted Depreciation of fixed assets Write-off of fixed assets Amortisation of intangibles Profit on sale of fixed assets Profit on sale of investments Fair value loss/(gain) on - investments held for trading - forward foreign exchange contracts (swap cost) Group 2007 $’000 2006 $’000 7,593,574 1,663,686 136,042 1,002,406 8,065 27,477 5,764,526 1,064,761 123,701 619,178 8,950 19,824 10,431,250 7,600,940 Group 2007 $’000 2006 $’000 948,634 47,734 21,307 114,450 781,254 39,451 14,949 95,686 1,132,125 931,340 Group 2007 $’000 2006 $’000 950 3,131 624 262 - 881 2,954 610 39 476 25,072 54 4,029 125,383 43 309 (7,126) (54,577) 19,634 50 3,310 125,873 892 1,565 (3,610) (88,132) (3,441) 81,558 (15,603) 17,380 Keppel Corporation Limited Report to Shareholders 2007 Notes to the Financial Statements 185 NoTES To THE FINANCIAL STATE mENTS 25. operating profit (continued) Provision for - warranties - claims Provision/(write-back) for - work-in-progress - properties held for sale Provision/(write-back) for doubtful debts - trade debts - receivables - other debts Bad debts written off/(recovered) - trade debts - other debts Stocks written off Rental expense - operating leases Direct operating expenses - investment properties that generated rental income - investment properties that did not generate rental income Loss/(gain) on differences in foreign exchange Non-audit fees paid to - auditors of the Company - other auditors of subsidiaries Group 2007 $’000 2006 $’000 6,143 2,414 3 11,840 28,005 (109,414) 6,033 (48,493) (6,678) 2,967 (2,329) (3) 14 2,831 1,711 1,068 (1,318) 2,844 (54) 2,569 45,261 46,811 50,488 2,910 14,499 40,026 1,324 (6,361) 27 359 294 511 The Audit Committee has undertaken a review of all non-audit services provided by the auditors and in the opinion of the Audit Committee, these services would not affect the independence of the auditors. 26. Investment income, interest income and interest expenses Investment income from: Shares - quoted in Singapore Shares - quoted outside Singapore Shares - unquoted Interest income from: Bonds, debentures, deposits and associated companies Interest expenses on: Bonds, debentures, fixed term loans and overdrafts Fair value loss on interest rate caps and swaps Group 2007 $’000 2006 $’000 1,170 - 1,532 165 2,867 72 3,705 3,777 88,542 79,758 (54,179) (8,531) (60,160) (2,310) (62,710) (62,470) 186 Keppel Corporation Limited Report to Shareholders 2007 Notes to the Financial Statements 27. exceptional items Gain on disposal of subsidiaries, associated companies and investments Impairment loss of fixed assets (Note 5) Impairment loss of goodwill (Note 12) Impairment loss of debtors (Note 15) Impairment of assets, currency translation loss and provision for claims of certain overseas operations Fair value gain on investment properties (Note 6) Share of associated companies (Note 9) Cost associated with restructuring of operations Taxation (Note 28) Minority interests Group 2007 $’000 2006 $’000 2,291 (107,957) (76,664) (6,603) (133,131) 691,444 - 212,158 (16,605) 564,933 (149,500) - 415,433 (310,328) 33,527 (46,359) (2,677) (940) (6,727) 31,878 (1,398) 7,304 7,304 (7,386) Attributable exceptional items 105,105 (82) 28. taxation Tax expense comprised: Current tax Adjustment for prior year’s tax Share of taxation of associated companies (Note 9) Others Deferred tax movement: Movement in temporary differences Reduction in tax rate Deferred tax movement comprised: Accelerated tax depreciation Investment properties valuation Offshore income & others Other provisions Unutilised tax benefits Group 2007 $’000 2006 $’000 222,151 (9,011) 115,462 2,286 193,209 6,318 69,000 4,084 149,683 (11,936) - (15,239) 468,635 257,372 48,471 111,777 - 21,526 (15,821) (16,270) (8,492) (3,283) (1,142) (2,322) 149,683 (15,239) Keppel Corporation Limited Report to Shareholders 2007 Notes to the Financial Statements 187 NoTES To THE FINANCIAL STATE mENTS 28. taxation (continued) The income tax expense on the results of the Group differ from the amount of income tax expense determined by applying the Singapore standard rate of income tax to profit before tax and exceptional items due to the following: Profit before tax and exceptional items Tax calculated at tax rate of 18% (2006: 20%) Income not subject to tax Expenses not deductible for tax purposes Utilisation of previously unrecognised tax benefits Effect of reduction in tax rate Effect of different tax rates in other countries Adjustment for prior year’s tax Tax expense of exceptional items (Note 27) 29. earnings per ordinary share Net profit attributable to shareholders before exceptional items Adjustment for dilutive potential ordinary shares of subsidiaries and associated companies, before exceptional items Adjusted net profit before exceptional items Exceptional items Adjustment for dilutive potential ordinary shares of subsidiaries and associated companies, after exceptional items Group 2007 $’000 2006 $’000 1,556,230 1,139,792 280,121 (72,208) 117,652 (1,995) (11,936) - 16,512 (9,011) 149,500 - 227,958 (69,596) 63,002 (9,610) 39,300 6,318 468,635 257,372 Group 2007 $’000 2006 $’000 Basic Diluted Basic Diluted 1,025,596 1,025,596 750,832 750,832 - 1,025,596 105,105 (2,548) 1,023,048 105,105 - 750,832 (82) (3,378) 747,454 (82) - (7,974) - - Adjusted net profit after exceptional items 1,130,701 1,120,179 750,750 747,372 Number of Shares ’000 Number of Shares ’000 Weighted average number of ordinary shares Adjustment for dilutive potential ordinary shares Weighted average number of ordinary shares used to compute earnings per share 1,580,786 - 1,580,786 11,199 1,573,278 - 1,573,278 10,243 1,580,786 1,591,985 1,573,278 1,583,521 Earnings per ordinary share Before exceptional items After exceptional items 64.9 cts 71.5 cts 64.3 cts 70.4 cts 47.7 cts 47.7 cts 47.2 cts 47.2 cts 188 Keppel Corporation Limited Report to Shareholders 2007 Notes to the Financial Statements 30. Dividends/capital distribution The Directors are pleased to recommend a tax exempt one-tier final dividend of 10 cents per share and a tax exempt one- tier special dividend of 45 cents per share (2006: final dividend of 8 cents per share less tax) in respect of the financial year ended 31 December 2007 for approval by shareholders at the next Annual General Meeting to be convened. The special dividend is proposed to commemorate the Company’s 40th anniversary since its incorporation. Together with the interim dividend of 9 cents per share comprising 1.5 cents per share less tax and 7.5 cents per share tax exempt one-tier (2006: 6 cents per share less tax), total dividend paid and proposed in respect of the financial year ended 31 December 2007 will be 64 cents per share comprising 1.5 cents per share less tax and 62.5 cents per share tax exempt one-tier (2006: 14 cents per share less tax). During the financial year, the following dividends and capital distribution were paid: A final dividend of 8 cents per share less tax at 18% on the issued and fully paid ordinary shares in respect of the previous financial year A capital distribution of 14 cents per share on the issued and fully paid ordinary shares in respect of the previous financial year An interim dividend of 9 cents per share comprising 1.5 cents per share less tax at 18% and 7.5 cents per share tax exempt one-tier on the issued and fully paid ordinary shares in respect of the current financial year 31. Acquisition of subsidiaries The following subsidiaries were acquired during the financial year: $’000 103,640 221,213 138,114 462,967 Name of subsidiary Date of acquisition Gross interest before acquisition Interest acquired Gross interest after acquisition Net assets acquired $’000 Consideration $’000 Shanghai Hongda Property Development Co. Ltd The Vietnam Investment Fund (Singapore) Ltd 15.11.2007 - 100% 100% 97,059 97,059 1.1.2007 40% 11% 51% 761 761 97,820 97,820 Profit of the acquired subsidiaries from the date of acquisition to 31 December 2007 amounted to $110,000. There is no material impact to Group revenue and attributable profit before exceptional items if the acquisitions had occurred on 1 January 2007. Details of net assets acquired are disclosed in the Consolidated Cashflow Statement. Keppel Corporation Limited Report to Shareholders 2007 Notes to the Financial Statements 189 NoTES To THE FINANCIAL STATE mENTS 32. commitments (a) Capital commitments Capital expenditure not provided for in the financial statements: In respect of contracts placed: - - - for purchase and construction of development properties for purchase of other fixed assets for purchase/subscription of shares in other companies Amounts approved by Directors in addition to contracts placed: for purchase and construction of development properties - for purchase of other fixed assets - for purchase/subscription of shares in other companies - Less: Minority shareholders’ shares Group 2007 $’000 2006 $’000 1,476,307 25,765 315,916 633,365 228,801 224,115 2,824,886 175,948 227,877 5,046,699 (1,666,324) 2,244,828 110,603 397,980 3,839,692 (1,168,585) 3,380,375 2,671,107 There was no future capital expenditure/commitment of the Company. (b) Lessee’s lease commitments The Group leases land and office buildings from non-related parties under non-cancellable operating lease agreements. The leases have varying terms, escalation clauses and renewal rights. The future minimum lease payable in respect of significant non-cancellable operating leases as at the end of the financial year are as follows: Years after year-end: Within one year From two to five years After five years Group 2007 $’000 2006 $’000 coMpAny 2007 $’000 2006 $’000 52,087 161,839 601,713 43,147 149,830 588,039 1,452 604 - - 1,455 2,061 815,639 781,016 2,056 3,516 (c) Lessor’s lease commitments The Group leases out commercial space to non-related parties under non-cancellable operating leases. The future minimum lease receivable in respect of significant non-cancellable operating leases as at the end of the financial year are as follows: Group 2007 $’000 2006 $’000 coMpAny 2007 $’000 2006 $’000 Years after year-end: Within one year From two to five years After five years 124,224 155,594 43,802 98,927 148,958 29,754 323,620 277,639 - - - - - - - - Some of the operating leases are subject to revision of lease rentals at periodic intervals. For the purposes of the above, the prevailing lease rentals are used. 190 Keppel Corporation Limited Report to Shareholders 2007 Notes to the Financial Statements 33. contingent liabilities (unsecured) Guarantees in respect of banks and other loans granted to subsidiaries and associated companies Performance guarantees issued for contracts awarded to subsidiaries and associated companies Bank guarantees Others Group 2007 $’000 2006 $’000 coMpAny 2007 $’000 2006 $’000 24,772 20,395 427,080 512,057 300 8,500 53,573 43,908 59,584 22,927 - - - - - - 138,229 95,730 427,080 512,057 The financial effects of the Amendments to FRS 39 relating to financial guarantee contracts issued by the Company are not material to the financial statements of the Company and therefore are not recognised. The Directors do not expect material losses under these guarantees. 34. significant related party transactions In addition to the related party information disclosed elsewhere in the financial statements, there were the following significant related party transactions which were carried out in the normal course of business on terms agreed between the parties during the financial year: Sale of residential properties to directors and their associates Group 2007 $’000 2006 $’000 17,447 13,360 35. Financial risk management The Group operates internationally and is exposed to a variety of financial risks, comprising market risk (including currency risk, interest rate risk and price risk), credit risk and liquidity risk. Financial risk management is carried out by the Keppel Group Treasury Department in accordance with established policies and guidelines. These policies and guidelines are established by the Group Central Finance Committee and are updated to take into account changes in the operating environment. This committee is chaired by the Group Finance Director and comprises Chief Financial Officers of the Group’s key operating companies and Head Office specialists. Keppel Corporation Limited Report to Shareholders 2007 Notes to the Financial Statements 191 NoTES To THE FINANCIAL STATE mENTS 35. Financial risk management (continued) Market Risk (i) Currency risk The Group has receivables and payables denominated in foreign currencies viz US dollars, European and other Asian currencies. The Group’s foreign currency exposures arise mainly from the exchange rate movement of these foreign currencies against the Singapore dollar, which is the Group’s presentation currency. To hedge against the volatility of future cashflows caused by changes in foreign currency rates, the Group utilises forward foreign currency contracts and other foreign currency hedging instruments to hedge the Group’s exposure to specific currency risks relating to investments, receivables, payables and other commitments. Group Treasury Department monitors the current and projected foreign currency cashflow of the Group and aims to reduce the exposure of the net position in each currency by borrowing in foreign currency and other currency contracts where appropriate. As at the end of the financial year, the Group has outstanding forward foreign exchange contracts with notional amounts totalling $4,981,064,000 (2006: $4,099,049,000). The net positive fair values of forward foreign exchange contracts is $143,828,000 (2006: $72,147,000) comprising assets of $157,845,000 (2006: $72,970,000) and liabilities of $14,017,000 (2006: $823,000). These amounts are recognised as derivative financial instruments in debtors (Note 15) and creditors (Note 18). As at the end of the financial year, the Company has outstanding forward foreign exchange contracts with notional amounts totalling $4,936,711,000 (2006: $4,059,696,000). The net positive fair values of forward foreign exchange contracts is $141,801,000 (2006: $68,076,000) comprising assets of $155,753,000 (2006: $80,709,000) and liabilities of $13,952,000 (2006: $12,633,000). These amounts are recognised as derivative financial instruments in debtors (Note 15) and creditors (Note 18). Other than the above hedged foreign currency contracts, the unhedged currency exposure of financial assets and financial liabilities denominated in currencies other than the respective entities’ functional currencies are as follows: USD $’000 2007 euro $’000 Others $’000 USD $’000 2006 Euro $’000 others $’000 Group Financial Assets Debtors Investments Bank balances, deposits & cash Financial Liabilities Creditors Term loans Company Financial Assets Debtors Bank balances, deposits & cash Financial Liabilities Creditors 65,237 30,175 66,335 10,938 21,018 232,499 135,160 372,013 194,466 35,888 25,060 146,709 3,423 3,640 159,750 136,590 191,057 55,004 45,557 109,370 23,999 - 168,915 32,650 60,396 164,519 10,525 - 49,199 1,615 186 16 93 2,088 - 587 3,526 1,400 15 - 98 1,215 85 - - 177 225 - 192 Keppel Corporation Limited Report to Shareholders 2007 Notes to the Financial Statements Sensitivity analysis for currency risk If the relevant foreign currency change against SGD by 5% (2006: 5%) with all other variables held constant, the effects will be as follows: Group USD against SGD - Strengthened - Weakened Euro against SGD - Strengthened - Weakened Company USD against SGD - Strengthened - Weakened Euro against SGD - Strengthened - Weakened profit after tax 2007 $’000 2006 $’000 2007 $’000 equity 2006 $’000 (1,161) 1,161 123 (123) 6 (6) 105 (105) (2,111) 2,111 2,889 (2,889) 10 (10) 4 (4) 1,510 (1,510) 956 (956) 1,254 (1,254) 10 (10) - - - - - - - - (ii) Interest rate risk The Group is exposed to interest rate risk for changes in interest rates primarily for debt obligations, placements in the money market and investments in bonds. The Group policy is to maintain a mix of fixed and variable rate debt instruments with varying maturities. Where necessary, the Group uses derivative financial instruments to hedge interest rate risks. The Group purchases interest rate caps to hedge the interest rate risk exposure arising from its US$ and S$ variable rate term loans (Note 20). As at the end of the financial year, the Group has the following outstanding interest rate cap agreements. Year 2007 2006 Notional amount Maturity Interest rate caps $58,131,000 2009 - 2011 1.8% - 3% $1,064,853,000 2007 - 2011 1.8% - 3% The positive fair values of interest rate caps for the Group are $493,000 (2006: $1,389,000). This amount is recognised as derivative financial instruments in debtors (Note 15). The Group enters into interest rate swap agreements to hedge the interest rate risk exposure arising from its S$ variable rate term loans (Note 20). As at the end of the financial year, the Group has interest rate swap agreements with notional amount totalling $625,995,000 (2006: $731,679,000) whereby it receives variable rates equal to SIBOR (2006: SIBOR) and pays fixed rates of between 2.83% and 3.5% (2006: 2.33% and 3.14%) on the notional amount. The net negative fair values of interest rate swaps for the Group are $4,113,000 (2006: net positive fair values of $8,852,000) comprising assets of $2,292,000 (2006: $12,651,000) and liabilities of $6,405,000 (2006: $3,799,000). These amounts are recognised as derivative financial instruments in debtors (Note 15) and creditors (Note 18). Keppel Corporation Limited Report to Shareholders 2007 Notes to the Financial Statements 193 NoTES To THE FINANCIAL STATE mENTS 35. Financial risk management (continued) Sensitivity analysis for interest rate risk If interest rates increase/decrease by 0.5% (2006: 0.5%) with all other variables held constant, the Group’s and Company’s profit after tax would have been lower/higher by $4,618,000 (2006: $7,140,000) and $2,174,000 (2006: $1,500,000) respectively as a result of higher/lower interest expense on floating rate loans. (iii) Price risk The Group hedges against fluctuations arising on the purchase of natural gas that affect cost. Exposure to price fluctuations is managed via fuel oil forward contracts, whereby the price of natural gas is indexed to a benchmark fuel price index, High Sulphur Fuel Oil (HSFO) 180-CST. As at the end of the financial year, the Group has outstanding HSFO forward contracts with notional amounts totalling $165,638,000 (2006: $Nil). The positive fair values of HSFO forward contracts for the Group are $8,016,000 (2006: $Nil). This amount is recognised as derivative financial instruments in debtors (Note 15). The Group is exposed to equity securities price risk arising from equity investments classified as investments held for trading and available-for-sale investments. To manage its price risk arising from investments in equity securities, the Group diversifies its portfolio. Diversification of the portfolio is done in accordance with the limits set by the Group. Sensitivity analysis for price risk If prices for HSFO increase/decrease by 5% with all other variables held constant, the Group’s hedging reserve in equity would have been higher/lower by $4,365,000 (2006: $Nil) as a result of fair value changes on cashflow hedges. If prices for quoted investments increase/decrease by 5% (2006: 5%) with all other variables held constant, the Group’s profit after tax would have been higher/lower by $4,661,000 (2006: $4,493,000) as a result of higher/ lower fair value gains on investments held for trading, and the Group’s fair value reserve in equity would have been higher/lower by $34,524,000 (2006: $28,019,000) as a result of higher/lower fair value gains on available-for-sale investments. Credit Risk Credit risk refers to the risk that debtors will default on their obligation to repay the amount owing to the Group. A substantial portion of the Group’s revenue is on credit terms or stage of completion. These credit terms are normally contractual. The Group adopts stringent procedures on extending credit terms to customers and on the monitoring of credit risk. The credit policy spells out clearly the guidelines on extending credit terms to customers, including monitoring the process and using related industry’s practices as reference. This includes assessment and valuation of customers’ credit reliability and periodic review of their financial status to determine the credit limits to be granted. Customers are also assessed based on their historical payment records. Where necessary, customers may also be requested to provide security or advance payment before services are rendered. The Group’s policy does not permit non-secured credit risk to be significantly centralised in one customer or a group of customers. The maximum exposure to credit risk is the carrying amount of financial assets which are mainly trade debtors and bank balances, deposits and cash. (i) Financial assets that are neither past due nor impaired Trade debtors that are neither past due nor impaired are substantially companies with good collection track record with the Group. Bank deposits, forward foreign exchange contracts, interest rate caps and interest rate swaps are mainly transacted with banks of high credit ratings assigned by international credit-rating agencies. 194 Keppel Corporation Limited Report to Shareholders 2007 Notes to the Financial Statements (ii) Financial assets that are past due and/or impaired The age analysis of trade debtors past due and/or impaired is as follows: Past due 0 to 3 months Past due 3 to 6 months Past due over 6 months and partially impaired Group 2007 $’000 2006 $’000 241,917 22,675 37,816 151,389 55,741 45,628 302,408 252,758 Trade debtors that are individually determined to be impaired at the balance sheet date relate to debtors that are in significant financial difficulties and have defaulted on payments. Information relating to the provision for doubtful debts is given in Note 15. Liquidity Risk Prudent liquidity risk management requires the Group to maintain sufficient cash and marketable securities, internally generated cashflows, and the availability of funding resources through an adequate amount of committed credit facilities. Group Treasury also maintains a mix of short-term money market borrowings and medium/long term loans to fund working capital requirements and capital expenditures/investments. Due to the dynamic nature of business, the Group maintains flexibility in funding by ensuring that ample working capital lines are available at any one time. Information relating to the maturity profile of loans is given in Note 20. Capital Risk The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern and to maintain an optimal capital structure so as to maximise shareholder value. In order to maintain or achieve an optimal capital structure, the Group may adjust the amount of dividend payment, return capital to shareholders, issue new shares, obtain new borrowings or sell assets to reduce borrowings. Management monitors capital based on the Group net gearing (times). The Group net gearing (times) is calculated as net borrowings divided by total capital. Net borrowings are calculated as total term loans (Note 20) plus bank overdrafts (Note 21) less bank balances, deposits & cash (Note 17). Total capital refers to capital employed under equity. Net borrowings Total capital Group net gearing (times) Group 2007 $’000 2006 $’000 633,547 1,338,580 7,035,192 5,597,687 0.09x 0.24x Keppel Corporation Limited Report to Shareholders 2007 Notes to the Financial Statements 195 NoTES To THE FINANCIAL STATE mENTS 36. segment analysis 2007 Business segment Revenue External sales Inter-segment sales Total Results Operating profit Net investment income & interest income Share of results of associated companies Profit before tax & exceptional items Exceptional items Profit before taxation Taxation Profit for the year Offshore & Marine $’000 Property $’000 Infrastructure $’000 Investments $’000 Elimination $’000 Total $’000 7,258,364 - 7,258,364 1,834,886 2,540 1,837,426 1,276,929 131,762 1,408,691 61,071 52,647 113,718 - 10,431,250 (186,949) - (186,949) 10,431,250 570,007 440,062 10,942 13,442 16,196 1,050,649 98,476 (35,419) (4,784) (13,378) (16,196) 28,699 31,662 66,840 44,940 333,440 700,145 (81,011) 619,134 (141,756) 477,378 471,483 810,121 1,281,604 (249,751) 1,031,853 51,098 (165,616) (114,518) (18,065) (132,583) 333,504 1,439 334,943 (59,063) 275,880 - - - - - - - - - - - 476,882 1,556,230 564,933 2,121,163 (468,635) 1,652,528 1,025,596 105,105 1,130,701 521,827 1,652,528 Attributable to: Shareholders of Company Profit before exceptional items Exceptional items Minority interests 522,323 (81,011) 441,312 36,066 477,378 209,387 350,543 559,930 471,923 1,031,853 26,410 (165,866) (139,456) 6,873 (132,583) 267,476 1,439 268,915 6,965 275,880 Other information Segment assets Investment in associated companies Total Segment liabilities Net tax provision & deferred taxation Total Net assets 5,628,504 6,991,699 1,684,391 4,654,856 (6,302,862) 12,656,588 88,058 5,716,562 1,710,317 8,702,016 143,695 1,828,086 1,198,524 5,853,380 3,140,594 (6,302,862) 15,797,182 - 4,200,951 5,245,833 1,412,510 3,464,725 (6,302,862) 8,021,157 279,676 4,480,627 402,171 5,648,004 18,311 1,430,821 40,675 3,505,400 - (6,302,862) 740,833 8,761,990 1,235,935 3,054,012 397,265 2,347,980 - - - 7,035,192 255,909 125,692 Capital expenditure Depreciation & amortisation 193,983 78,453 25,005 12,784 36,542 33,916 379 539 Geographical segment External sales Segment assets Capital expenditure Singapore $’000 Far East & other ASEAN countries $’000 America $’000 7,473,211 9,247,609 180,930 1,062,871 2,929,664 43,943 1,323,231 860,011 19,008 Other countries $’000 571,937 486,880 12,028 Elimination $’000 Total $’000 - 10,431,250 (867,576) 12,656,588 255,909 - 196 Keppel Corporation Limited Report to Shareholders 2007 Notes to the Financial Statements 2006 Business segment Revenue External sales Inter-segment sales Total Results Operating profit Net investment income & interest income Share of results of Offshore & Marine $’000 Property $’000 Infrastructure $’000 Investments $’000 Elimination $’000 Total $’000 5,755,336 - 5,755,336 1,154,639 11,776 1,166,415 569,868 86,656 656,524 121,097 45,065 166,162 - (143,497) (143,497) 7,600,940 - 7,600,940 538,815 235,755 (65,587) 77,378 17,704 804,065 72,229 (27,207) 2,319 (8,572) (17,704) 21,065 associated companies 13,354 24,487 39,328 237,493 624,398 2,617 627,015 (149,006) 478,009 233,035 17,521 250,556 (50,379) 200,177 (23,940) (1) (23,941) (1,673) (25,614) 306,299 (12,833) 293,466 (56,314) 237,152 447,817 2,617 450,434 27,575 478,009 96,107 8,261 104,368 95,809 200,177 (34,736) 872 (33,864) 8,250 (25,614) 241,644 (11,832) 229,812 7,340 237,152 - - - - - - - - - - - 314,662 1,139,792 7,304 1,147,096 (257,372) 889,724 750,832 (82) 750,750 138,974 889,724 Profit before tax & exceptional items Exceptional items Profit before taxation Taxation Profit for the year Attributable to: Shareholders of Company Profit before exceptional items Exceptional items Minority interests Other information Segment assets Investment in 5,137,992 6,344,514 1,509,512 3,528,759 (5,030,544) 11,490,233 associated companies Total 74,191 5,212,183 1,171,167 7,515,681 108,932 1,618,444 1,056,426 4,585,185 2,410,716 (5,030,544) 13,900,949 - Segment liabilities Net tax provision & deferred taxation Total 3,772,191 5,190,857 1,081,464 2,857,470 (5,030,544) 7,871,438 249,545 4,021,736 151,567 5,342,424 (411) 1,081,053 31,123 2,888,593 - (5,030,544) 431,824 8,303,262 Net assets 1,190,447 2,173,257 537,391 1,696,592 Capital expenditure Depreciation & amortisation 165,827 65,049 32,779 15,471 227,233 46,469 4,509 449 - - - 5,597,687 430,348 127,438 Geographical segment Singapore $’000 Far East & other ASEAN countries $’000 America $’000 Other countries $’000 Elimination $’000 Total $’000 External sales Segment assets Capital expenditure 4,524,852 8,228,446 332,545 862,040 2,526,478 48,294 1,724,144 1,084,261 44,964 489,904 393,627 4,545 - 7,600,940 (742,579) 11,490,233 430,348 - Keppel Corporation Limited Report to Shareholders 2007 Notes to the Financial Statements 197 NoTES To THE FINANCIAL STATE mENTS 36. segment analysis (continued) Notes: (a) Business segment The Group’s businesses are grouped into four divisions: Offshore & Marine, Property, Infrastructure and Investments. The Investments division consists mainly of the Group’s investments in SPC, k1 Ventures Ltd and MobileOne Ltd. These four divisions are the basis on which the Group reports its primary segment information. Pricing of inter- segment goods and services is at fair market value. Segment assets and liabilities are those used in the operation of each division. (b) Geographical segment The Group operates in about 34 countries. Secondary segment information is provided by geographical segment in accordance to the above table. 37. new accounting standards and recommended accounting practice Certain new accounting standards and FRS interpretations have been published that are mandatory for accounting periods beginning on or after 1 January 2008. The Group’s assessment of those standards and interpretations that are relevant to the Group is set out below: (a) Revised FRS 23 Borrowing Costs The revised standard removes the option to recognise immediately as an expense borrowing costs that are attributable to qualifying assets, except for those borrowing costs on qualifying assets that are measured at fair value or inventories that are manufactured or produced in large quantities on a repetitive basis. The Group will apply the revised FRS 23 from 1 January 2009. The adoption of the revised standard is not expected to have a significant impact on the financial statements of the Group. (b) FRS 108 Operating Segments FRS 108 supersedes FRS 14 Segment Reporting and requires the Group to report the financial performance of its operating segments based on the information used internally by management for evaluating segment performance and deciding on allocation of resources. Such information may be different from the information included in the financial statements, and the basis of its preparation and reconciliation to the amounts recognised in the financial statements shall be disclosed. The Group will apply FRS 108 from 1 January 2009 and provide comparative information that conforms to the requirements of FRS 108. The Group does not expect the new operating segments to be significantly different from business segments currently disclosed. (c) RAP 11 Pre-Completion Contracts for the Sale of Development Property RAP 11 was issued by the Institute of Certified Public Accountants of Singapore in October 2005. This Statement mentions that a property developer’s sales and purchase agreement is not a construction contract as defined in FRS 11 (Construction Contract) and the percentage of completion (“POC”) method of recognising revenue, which is allowed under FRS 11 for construction contracts, may not be applicable for property developers. The relevant standard for revenue recognition by property developers is FRS 18 (Revenue), which addresses revenue recognition generally for all types of entities. However, there is no clear conclusion in FRS 18 whether the POC method or the completion of construction (“COC”) method is more appropriate for property developers. The issue is being addressed by the International Accounting Standards Board. 198 Keppel Corporation Limited Report to Shareholders 2007 Notes to the Financial Statements The Group uses the POC method for recognising revenue from partly completed residential projects which are held for sale. Had the COC method been adopted, the impact on the financial statements of the Group will be as follows: Decrease in opening revenue reserve Decrease in revenue recognised for the year Decrease in profit for the year Decrease in carrying value of property held for sale Balance as at 1 January Balance as at 31 December Decrease in minority interests Balance as at 1 January Share of profit for the year 2007 $’000 2006 $’000 (82,054) (38,394) (717,910) (619,350) (157,519) (43,660) (195,546) (98,341) (97,134) (195,546) (81,818) (132,702) (35,552) (46,266) 38. comparative figures Certain reclassifications have been made to the prior year’s financial statements of the Group to enhance comparability with the current year’s financial statements. The items were reclassified as follows: Current asset Stocks & work-in-progress in excess of related billings Current liabilities Creditors Billings on work-in-progress in excess of related costs Group Previously reported 2006 $’000 Reclassified 2006 $’000 2,777,217 2,861,960 2,380,657 2,325,319 2,168,904 2,621,815 39. significant subsidiaries and associated companies Information relating to significant subsidiaries consolidated in these financial statements and significant associated companies whose results are equity accounted for is given in the following pages. Keppel Corporation Limited Report to Shareholders 2007 Notes to the Financial Statements 199 SIGNIFICANT SUBSIDIARIES AND ASS oCIATED ComPANIES Gross Interest 2007 % Effective Equity Interest 2007 % 2006 % Cost of Investment 2006 2007 $’000 $’000 Country of Incorporation /Operation Principal Activities oFFsHore & MArIne Offshore Subsidiaries Keppel Offshore and Marine Ltd 100 100 100 801,720 801,720 Singapore Investment holding Keppel FELS Ltd 100 100 100 # # Singapore Construction, fabrication and repair of offshore production facilities and drilling rigs, power barges, specialised vessels and other offshore production facilities AmFELS Offshore Ltd(5) 100 100 100 BrasFELS SA(1a) 100 100 100 Caspian Shipyard Company Ltd(2a) 75 45 53 Deepwater Technology Group Pte Ltd 100 100 100 FELS Offshore Pte Ltd 100 100 100 Fornost Ltd(1a) 100 100 100 FSTP Brasil Ltda(1a) 75 75 75 FSTP Pte Ltd 75 75 75 Hygrove Investments Ltd(5) 100 100 100 Keppel AmFELS Inc(4) 100 100 100 Keppel FELS Baltech Ltd(4) 100 100 100 Keppel FELS Brasil SA(1a) 100 100 100 Keppel FELS Offshore & Engineering Services Mumbai Pte Ltd(1a) 100 100 100 Keppel Norway A/S(1a) 100 100 100 # # # # # # # # # # # # # # # # BVI/Mexico Holding of long-term investments Brazil Engineering, construction and fabrication of platforms for the oil and gas sector, shipyard works and other general business activities # Azerbaijan Construction and repair of offshore drilling rigs # Singapore Research and experimental development on deepwater engineering # # Singapore Holding of long-term investments HK Holding of long-term investments and provision of procurement services # Brazil Procurement of equipment and materials for the construction of offshore production facilities # Singapore Construction, fabrication and repair of offshore production facilities and drilling rigs # # BVI/HK Investment holding USA Construction and repair of offshore drilling rigs and offshore production facilities # Bulgaria # Brazil Marine-related engineering and consultancy services Engineering, construction and fabrication of platforms for the oil and gas sector, shipyard works and other general business activities # India Provision of engineering services # Norway Construction and repair of offshore drilling rigs and offshore production facilities 200 Keppel Corporation Limited Report to Shareholders 2007 Significant Subsidiaries and Associated Companies Gross Interest 2007 % Effective Equity Interest 2007 % 2006 % Cost of Investment 2006 2007 $’000 $’000 Country of Incorporation /Operation Principal Activities Keppel SLP LLC(4) 60 60 60 Keppel Verolme BV(1a) 100 100 100 KV Enterprises BV(1a) 100 100 100 Marine & Offshore Protection & Preservation BV(1a) Offshore Technology Development Pte Ltd 100 100 100 100 100 100 Regency Steel Japan Ltd(1a) 51 51 51 Associated Companies Asian Lift Pte Ltd 50 50 50 Keppel Kazakhstan LLP(4) 50 50 50 Marine Subsidiaries Keppel Shipyard Ltd 100 100 100 Keppel Philippines Marine Inc(3) 83 83 81 Alpine Engineering Services Pte Ltd 100 100 100 Blastech Abrasives Pte Ltd 100 100 100 Keppel Cebu Shipyard Inc(3) 100 83 81 Keppel Nantong Shipyard Company Limited(4) 100 100 100 Keppel Singmarine Pte Ltd 100 100 100 Keppel Smit Towage Pte Ltd 51 51 51 KS Investments Pte Ltd 100 100 100 KSI Production Pte Ltd(5) 100 100 100 Maju Maritime Pte Ltd 51 51 51 Marine Technology Development Pte Ltd 100 100 100 # # # # # # # # # # # # # # # # # # # # # USA Fabrication of offshore platforms and structures # Netherlands Construction and repair of offshore drilling rigs and shiprepairs # # Netherlands Hiring and leasing of barges Netherlands Chamber blasting services and painting and coating works # Singapore # Japan Production of jacking systems and provision of jacking analysis Sourcing, fabricating and supply of specialised steel components # Singapore Provision of heavy-lift equipment and related services # Kazakhstan Construction and repair of offshore drilling units and structures and specialised vessels # Singapore Shiprepairing, shipbuilding and marine construction # # # # # # # # # # # Philippines Shipbuilding and repairing Singapore Marine contracting Singapore Marine contracting Philippines Shipbuilding and repairing China Shipbuilding and repairing Singapore Shipbuilding and repairing Singapore Provision of towage services Singapore Holding of long-term investments BVI/Norway Holding of long-term investments Singapore Provision of towage services Singapore Provision of technical consultancy for ship design and engineering works Keppel Corporation Limited Report to Shareholders 2007 Significant Subsidiaries and Associated Companies 201 SIGNIFICANT SUBSIDIARIES AND ASSoCIATED ComPANIES Gross Interest 2007 % Effective Equity Interest 2007 % 2006 % Cost of Investment 2006 2007 $’000 $’000 Country of Incorporation /Operation Principal Activities Associated Companies Arab Heavy Industries Public Joint Stock Company(2a) 33 33 33 # # UAE Shipbuilding and repairing Consort Land Inc(3) 33+ 27+ 27+ 54 54 Philippines Land holding company and power distributor Kejora Resources Sdn Bhd(4) 49 25 25 # # Malaysia Chartering tugs and other marine services Subic Shipyard & Engineering Inc(3) 46+ 38+ 38+ 3,020 3,020 Philippines Shipbuilding and repairing property Subsidiaries Keppel Land Ltd(2) 53 53 53 931,432 931,432 Singapore Holding, management and investment company K-REIT Asia(2) Evergro Properties Ltd(2) 73 53 71 38 53 38 Keppel Bay Pte Ltd 100+ 86+ 86+ Keppel Philippines Properties Inc(3) 74+ 50+ 50+ Alpha Investment Partners Ltd(2) 100 53 53 Avenue Park Development(2) 52 28 28 Bayfront Development Pte Ltd(2) 100 53 53 BCH Office Investment Pte Ltd(2) 100 53 53 Beijing Kingsley Property Development Co Ltd(2a) 100 53 53 Bintan Bay Resort Pte Ltd(2) 90 48 48 Boulevard Development Pte Ltd(2) 100 53 53 Bukit Timah Hill Development Pte Ltd(2) Changzhou Fushi Housing Development Pte Ltd(2a) Chengdu Hillwest Development Co Ltd(2a) 100 53 53 100 53 53 100 53 53 Devonshire Development Pte Ltd(2) 60 32 32 DL Properties Ltd(2) 65 34 34 Double Peak Holdings Ltd(5) 100 53 53 Duit Investments Ltd(2a) 100 53 53 Evansville Investment Pte Ltd(2) 100 53 53 Greenfield Development Pte Ltd(2) 100 53 53 International Centre(1a) 79 53 51 # # 626 493 # # # # # # # # # # # # # # # # # # # Singapore Real estate investment trust Singapore Property investment and development 626 Singapore Property development 493 Philippines Investment holding # # # # # # # # Singapore Fund management Singapore Property development Singapore Investment holding Singapore Investment holding China Property development Singapore Investment holding Singapore Investment holding Singapore Property development # China Property development # China Property development # # # # # # # Singapore Property development Singapore Property investment BVI/Singapore Investment holding HK Investment holding Singapore Property development Singapore Investment holding Vietnam Property investment 202 Keppel Corporation Limited Report to Shareholders 2007 Significant Subsidiaries and Associated Companies Gross Interest 2007 % Effective Equity Interest 2007 % 2006 % Cost of Investment 2006 2007 $’000 $’000 Country of Incorporation /Operation Principal Activities KeplandeHub Ltd(2) 100 53 53 Keppel China Township Development Pte Ltd (formerly Toshmatic Pte Ltd)(2) 100 53 53 Keppel Land (Hong Kong) Ltd(4) 100 53 53 Keppel Land (Saigon Centre) Ltd(2a) 100 53 53 Keppel Land (Tower D) Pte Ltd(2) 100 53 53 Keppel Land China Holdings Pte Ltd(2) Keppel Land Financial Services Pte Ltd(2) 100 53 53 100 53 53 Keppel Land International Ltd(2) 100 53 53 Keppel Land Properties Pte Ltd(2) 100 53 53 Keppel Land Realty Pte Ltd(2) 100 53 53 Keppel Land Watco I Co Ltd(2a) 68 36 36 Keppel Puravankara Development Pvt Ltd(4) 51 27 27 Keppel Thai Properties Public Co Ltd(2a) Keppel Township Development (Shenyang) Co Ltd(n)(2a) 45 24 24 100 53 - K-REIT Asia Investment Pte Ltd(2) 100 53 53 K-REIT Asia Management Ltd(2) 100 53 K-REIT Asia Property Management Ltd(2) 100 53 53 53 Mansfield Developments Pte Ltd(2) 100 53 53 Merryfield Investment Pte Ltd(2) 100 53 53 Ocean & Capital Properties Pte Ltd(2) 100 53 53 Ocean Properties Pte Ltd(2) 76 40 40 OIL (Asia) Pte Ltd(2) 100 53 53 Pasir Panjang Realty Pte Ltd(2) 100 53 53 Pembury Properties Ltd(5) 100 53 53 PT Kepland Investama(1a) 100 53 53 PT Keppel Land(2a) 100 53 53 PT Mitra Sindo Makmur(1a) 51 27 27 # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # Singapore Investment holding Singapore Investment holding HK HK Investment holding Investment holding Singapore Investment holding Singapore Investment holding # Singapore Financial services # # # # # Singapore Property services Singapore Investment holding Singapore Property development and investment Vietnam Property investment and development India Property development # Thailand Property development and investment - China Property development # # # # # # # # # # # # Singapore Investment holding Singapore Property fund management Singapore Property management services Singapore Investment holding Singapore Investment holding Singapore Property and investment holding Singapore Property investment Singapore Investment holding Singapore Investment holding BVI/Singapore Investment holding Indonesia Property investment and development Indonesia Property services and development and investment # Indonesia Property development and investment Keppel Corporation Limited Report to Shareholders 2007 Significant Subsidiaries and Associated Companies 203 SIGNIFICANT SUBSIDIARIES AND ASSoCIATED ComPANIES Gross Interest 2007 % Effective Equity Interest 2007 % 2006 % Cost of Investment 2006 2007 $’000 $’000 Country of Incorporation /Operation Principal Activities PT Mitra Sindo Sukses(1a) 51 27 27 PT Ria Bintan(1a) 100 24 24 PT Sentral Supel Perkasa(2a) 80 42 42 PT Sentral Tanjungan Perkasa(2a) 80 42 42 PT Straits-CM Village(1a) 100 21 21 Quang Ba Royal Park JV Co(4) 70 34 34 Saigon Centre Holdings Pte Ltd(2) 100 53 53 Saigon Centre Investment Ltd(5) 100 53 53 Saigon Riviera JV Co Ltd(2a) 90 48 48 Saigon Sports City(2a) 100 48 48 Shanghai Floraville Land Co Ltd(2a) 99 52 52 Shanghai Merryfield Land Co Ltd(2a) 99 52 52 Shanghai Minghong Property Co Ltd(2a) Shanghai Pasir Panjang Land Co Ltd(2a) 99 52 52 99 52 52 Sherwood Development Pte Ltd(2) 100 53 53 Spring City Resort Pte Ltd(2) 100 53 53 Straits Greenfield Ltd(2a) 100 53 53 Straits Properties Ltd(2) 100 53 53 Straits Property Investments Pte Ltd(2) 100 53 53 Straits-CM Village Hotel Pte Ltd(2) 85 21 21 Straits-KMP (HK) Ltd(2a) 51 27 27 Third Dragon Development Pte Ltd(2) Tianjin Merryfield Property Development Co Ltd(5) Vanese International Ltd(5) Waterville Investment Pte Ltd(2) Wiseland Investment Myanmar Ltd(2a) 100 53 53 100 53 53 100 100 67 53 67+ 53 100 53 53 # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # Indonesia Property development and investment Indonesia Golf course ownership and operation Indonesia Property investment and development Indonesia Property development Indonesia Hotel ownership and operations Vietnam Property investment Singapore Investment holding BVI/HK Investment holding Vietnam Vietnam China China China Property development Property development Property development Property development Property development # China Property development # # Singapore Property development Singapore Investment holding # Myanmar Hotel ownership and operations # # # # # Singapore Property development Singapore Investment holding Singapore Property investment HK Investment holding Singapore Investment holding and marketing agent # China Property development 17,639 BVI/HK Investment holding # Singapore Investment holding # Myanmar Hotel ownership and operations FELS Property Holdings Pte Ltd 100 100 100 70,214 70,214 Singapore Investment holding Brightway Property Pte Ltd 100 100 100 FELS SES International Pte Ltd 100+ 85+ 83+ Petro Tower Ltd(4) 76 64 63 # 7 # # 7 # Singapore Property investment Singapore Investment holding Vietnam Property investment 204 Keppel Corporation Limited Report to Shareholders 2007 Significant Subsidiaries and Associated Companies Gross Interest 2007 % Effective Equity Interest 2007 % 2006 % Cost of Investment 2006 2007 $’000 $’000 Country of Incorporation /Operation Principal Activities Alpha Real Estate Securities Fund 98 98 98 # # Singapore Investment holding Esqin Pte Ltd 100 100 100 11,001 11,001 Singapore Investment holding Harbourfront One Pte Ltd 70 65 65 # # Singapore Property development Keppel (USA) Inc(5) 100 100 100 9,702 21,813 USA Investment holding Keppel Houston Group LLC(5) 100 86 86 Keppel Kunming Resort Ltd(4) 100+ 91+ 100+ # 4 # 4 USA HK Property investment Property investment Keppel Point Pte Ltd 100+ 86+ 86+ 122,785 122,785 Singapore Property development and investment Keppel Real Estate Investment Pte Ltd Associated Companies 100 100 100 50,000 50,000 Singapore Investment holding Asia No. 1 Property Fund Ltd(1a) 10 5 5 Asia Real Estate Fund Management Ltd(2) 50 27 27 BFC Development Pte Ltd(2) 33 17 17 Bugis City Holdings Pte Ltd(2) 31 16 16 Central Boulevard Development Pte Ltd(n)(2) 33 17 - China World Investments Pte Ltd(2) 50 27 27 CityOne Township Development Pte Ltd(2) 50 27 27 EM Services Pte Ltd(4) 25 13 13 Harbourfront Three Pte Ltd(4) 39 33 33 Harbourfront Two Pte Ltd(4) 39 33 33 Kingsdale Development Pte Ltd(2) 50 27 27 One Raffles Quay Pte Ltd(2) 33 17 17 Parksville Development Pte Ltd(2) 50 27 27 PT Pantai Indah Tateli(2a) 50 27 27 PT Purimas Straits Resort(4) 25 13 13 PT Purosani Sri Persada(4) 20 11 11 Renown Property Holdings (M) Sdn Bhd(2a) 40 21 21 SAFE Enterprises Pte Ltd(4) 25 13 13 Suzhou Property Development Pte Ltd(4) Wuxi Cityone Development Co Ltd(5) 25 13 13 50 27 27 # # # # # # # # # # # # # # # # # # # # # # # # - # # # # # # # # # # # Guernsey Property investment Singapore Fund management Singapore Property development Singapore Property investment Singapore Property development Singapore Investment holding Singapore Investment holding Singapore Property management Singapore Property development Singapore Property development Singapore Investment holding Singapore Property development Singapore Property investment Indonesia Property development Indonesia Development of holiday resort Indonesia Property investment # Malaysia Property investment # # Singapore Investment holding Singapore Investment holding # China Property development Keppel Corporation Limited Report to Shareholders 2007 Significant Subsidiaries and Associated Companies 205 SIGNIFICANT SUBSIDIARIES AND ASSoCIATED ComPANIES Gross Interest 2007 % Effective Equity Interest 2007 % 2006 % Cost of Investment 2006 2007 $’000 $’000 Country of Incorporation /Operation Principal Activities InFrAstructure Power Generation Subsidiaries Keppel Energy Pte Ltd 100 100 100 280,914 280,914 Singapore Investment holding BV Power Ltd(5) Corporacion Electrica Nicaraguense SA(1a) 100 100 100 100 100 100 Dawley Developments Ltd(5) 100 100 100 Keppel Electric Pte Ltd 100 100 100 Keppel Gas Pte Ltd 100 100 100 Keppel Merlimau Cogen Pte Ltd 100 100 100 New Energy Industrial Ltd(5) 100 100 100 Nordeste Generation Energia Ltda(1a) 100 100 100 Okachi Investments Ltd(5) 100 100 100 Rodeo Power Pte Ltd 100 100 100 Termoguayas Generation SA(1a) 100 100 100 # # # # # # # # # # # # # # # # # # # # # # BVI/Philippines Holding of long-term investment Nicaragua Commercial power generation BVI/HK Holding of long-term investments Singapore Electricity, energy and power supply and investment holding and general wholesale trade Singapore Purchase and sale of gaseous fuels Singapore Holding of long-term investments, generation and supply of electricity BVI/Ecuador Holding of long-term investments Brazil Commercial power generation BVI/HK Holding of long-term investments Singapore Holding of long-term investments Ecuador Commercial power generation environmental engineering Subsidiaries Keppel Integrated Engineering Ltd 100 100 100 163,574 163,574 Singapore Investment holding Keppel Seghers Engineering Singapore Pte Ltd 100 100 100 FELS Cranes Pte Ltd 100 100 100 Keppel FMO Pte Ltd 100 100 100 Keppel Prince Engineering Pty Ltd(2a) 100 100 100 Keppel Sea Scan Pte Ltd 100 100 100 # # # # # # Singapore Fabrication of steel structures, mechanical and electrical works and engineering services specialising in treatment plants # Singapore Fabrication of heavy cranes and provision of marine-related equipment # Singapore Construction, project and facilities management and operational maintenance of industrial and commercial complexes # Australia Metal fabrication # Singapore Trading and installation of hardware, industrial, marine and building-related products, leasing and provision of services 206 Keppel Corporation Limited Report to Shareholders 2007 Significant Subsidiaries and Associated Companies Gross Interest 2007 % Effective Equity Interest 2007 % 2006 % Cost of Investment 2006 2007 $’000 $’000 Country of Incorporation /Operation Principal Activities Keppel Seghers Belgium NV(1a) 100 100 100 # # Belgium Provider of services and solutions to the environmental industry related to solid waste, waste-water and sludge management Keppel Seghers Holdings Pte Ltd 100 100 100 Keppel Seghers Hong Kong Ltd(1a) 100 100 100 # # # # # # Singapore Investment holding HK Engineering contracting and investment holding # Singapore Collection, purification and distribution of water # Singapore Collection and treatment of solid waste to generate green energy 100 100 100 100 100 100 Keppel Seghers Newater Development Co Pte Ltd Keppel Seghers Tuas Waste-to-Energy Plant Pte Ltd Associated Companies GE Keppel Energy Services Pte Ltd(2) Network engineering & Logistics Subsidiaries Keppel Telecommunications & Transportation Ltd(2) DataOne Asia Pte Ltd(2) ECHO Broadband Gmbh(2a) 50 50 50 # # Singapore Precision engineering, repair, services and agencies 80 80 81 397,647 397,647 Singapore Investment, management and holding company 100 100 80 80 81 81 Keppel Communications Pte Ltd(2) 100 80 81 Keppel Logistics (Foshan) Ltd(4) 70 56 57 Keppel Logistics Pte Ltd(2) 100 80 81 Keppel Telecoms Pte Ltd(2) 100 80 81 Transware Distribution Services Pte Ltd(2) 50 40 41 Trisilco Folec Sdn Bhd(2a) 55 44 45 Associated Companies Advanced Research Group Co Ltd(2a) 45 36 36 Asia Airfreight Terminal Company Ltd(4) 10 8 8 # # # # # # # # # # # # # Singapore Investment holding Germany Broadband network services Singapore Trading and provision of communications systems and accessories # China Shipping operations, warehousing and distribution # # Singapore Warehousing and distribution Singapore Telecommunications services and investment holding # Singapore Warehousing and distribution # Malaysia Trading and provision of communications systems and accessories # Thailand IT publication and business information # HK Operation of air cargo handling terminal Keppel Corporation Limited Report to Shareholders 2007 Significant Subsidiaries and Associated Companies 207 SIGNIFICANT SUBSIDIARIES AND ASSoCIATED ComPANIES Gross Interest 2007 % Effective Equity Interest 2007 % 2006 % Cost of Investment 2006 2007 $’000 $’000 Country of Incorporation /Operation Principal Activities Computer Generated Solutions Inc(2a) Premier Data Centres Ltd(n)(4) Radiance Communications Pte Ltd(2) 21 17 17 50 50 40 40 - 41 SVOA Public Company Ltd(2a) 31 25 25 Trisilco Radiance Communication Sdn Bhd(2a) 40 32 32 Wuhu Annto Logistics Company Ltd(4) 35 28 28 InVestMents Subsidiaries Keppel Philippines Holdings Inc(3) 53+ 53+ 52+ China Canton Investments Ltd 56 56 56 # # # # # # - # # USA IT consulting and outsourcing provider - # Ireland Provision of Internet Service Exchange Singapore Distribution and maintenance of communications equipment and systems # Thailand # Malaysia Distribution of IT products and telecommunications services Sales, installation and maintenance of telecommunications systems, equipment and accessories # China Transportation, warehousing and distribution - # Philippines Investment holding Singapore Investment holding k1 eBiz Holdings Pte Ltd 100 100 100 1,814 1,814 Singapore Investment holding Kep Holdings Ltd(5) 100+ 100+ 100+ 10,480 10,480 BVI/HK Investment company Kephinance Investment (Mauritius) Pte Ltd(4) 100 100 100 # # Mauritius Investment holding Kephinance Investment Pte Ltd 100 100 100 90,000 90,000 Singapore Investment holding Kepital Management Ltd(4) 100 100 100 # # HK Investment company Kepmount Shipping (Pte) Ltd 100 100 100 4,000 4,000 Singapore Investment holding Keppel FELS Invest (HK) Ltd(4) 100 100 100 Keppel Infrastructure Pte Ltd 100 100 100 Keppel Investment Ltd 100 100 100 # # # # # # HK Investment company Singapore Investment holding Singapore Investment company Keppel Oil & Gas Services Pte Ltd 100 100 100 116,609 116,609 Singapore Investment holding Kepventure Pte Ltd 100 100 100 16,160 16,160 Singapore Investment holding KI Investments (HK) Ltd(4) 100 100 100 # # HK Investment company KV Management Pte Ltd 100 100 100 250 250 Singapore Fund management Steamers Containerships Holdings Pte Ltd(2) 100 80 92+ # 49 Singapore Investment holding Travelmore Pte Ltd 100 100 100 265 265 Singapore Travel agency The Vietnam Investment Fund (Singapore) Ltd 51 51 40 # # Singapore Venture fund investment 208 Keppel Corporation Limited Report to Shareholders 2007 Significant Subsidiaries and Associated Companies Gross Interest 2007 % Effective Equity Interest 2007 % 2006 % Cost of Investment 2006 2007 $’000 $’000 Country of Incorporation /Operation Principal Activities Associated Companies Singapore Petroleum Company Ltd 45 45 45 # # # # Singapore Petroleum refining, marketing, distribution and trading of crude oil and petroleum products # # Singapore Investment holding Singapore Telecommunications services 36 20 36 16 38 14 k1 Ventures Ltd MobileOne Ltd(2) Total Subsidiaries Associated Companies 3,079,697 3,109,496 3,074 3,074 Notes: (i) (ii) (iii) (iv) (v) (vi) All the companies are audited by Deloitte & Touche, Singapore except for the following: (1a) (2) (2a) (3) (4) (5) Audited by overseas practice of Deloitte & Touche; Audited by Ernst & Young, Singapore; Audited by overseas practice of Ernst & Young; Audited by SyCip Gorres Velayo & Co, Philippines; Audited by other firms of auditors (not significant associated companies and foreign subsidiaries); and Not required to be audited by law in the country of incorporation and companies disposed, liquidated and struck off. In accordance to Rule 716 of The Singapore Exchange Securities Trading Limited – Listing Rules, the Audit Committee and Board of Directors of the Company confirmed that they are satisfied that the appointment of different auditors for its subsidiaries and significant associated companies would not compromise the standard and effectiveness of the audit of the Company. + The shareholdings of these companies are held jointly with other subsidiaries. # The shareholdings of these companies are held by subsidiaries of Keppel Corporation Limited. (n) These companies were incorporated during the financial year. The subsidiaries’ place of business is the same as its country of incorporation, unless otherwise specified. Abbreviations: British Virgin Islands (BVI) Cayman Islands (CI) Hong Kong (HK) United Arab Emirates (UAE) United States of America (USA) Keppel Corporation Limited Report to Shareholders 2007 Significant Subsidiaries and Associated Companies 209 STATEmENT BY DIRECToRS For the financial year ended 31 December 2007 We, LIM CHEE ONN and TEO SOON HOE being two Directors of Keppel Corporation Limited, do hereby state that in the opinion of the Directors, the financial statements of the Group and the balance sheet and statement of changes in equity of the Company as set out on pages 150 to 209 are drawn up so as to give a true and fair view of the state of affairs of the Group and of the Company as at 31 December 2007, and of the results, changes in equity and cashflows of the Group and changes in equity of the Company for the financial year then ended and at the date of this statement, there are reasonable grounds to believe that the Company will be able to pay its debts as and when they fall due. On behalf of the Board LIM cHee onn Executive Chairman Singapore, 11 March 2008 teo soon Hoe Group Finance Director 210 Keppel Corporation Limited Report to Shareholders 2007 Statement by Directors INDEPENDENT AUDIToRS’ REPoRT to the Members of Keppel corporation Limited For the financial year ended 31 December 2007 We have audited the accompanying financial statements of Keppel Corporation Limited (“Company”) and its subsidiaries (“Group”) which comprise the balance sheets of the Group and the Company as at 31 December 2007, the profit and loss account, statement of changes in equity and cashflow statement of the Group and the statement of changes in equity of the Company for the year then ended, and a summary of significant accounting policies and other explanatory notes, as set out on pages 150 to 209. Directors’ responsibility The Company’s directors are responsible for the preparation and fair presentation of these financial statements in accordance with the provisions of the Singapore Companies Act, Cap. 50 (the “Act”) and Singapore Financial Reporting Standards. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Auditors’ responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Singapore Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by directors, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. opinion In our opinion, (a) the consolidated financial statements of the Group and the balance sheet and statement of changes in equity of the Company are properly drawn up in accordance with the provisions of the Act and Singapore Financial Reporting Standards so as to give a true and fair view of the state of affairs of the Group and of the Company as at 31 December 2007 and of the results, changes in equity and cashflows of the Group and changes in equity of the Company for the year ended on that date; and (b) the accounting and other records required by the Act to be kept by the Company and by those subsidiaries incorporated in Singapore of which we are the auditors have been properly kept in accordance with the provisions of the Act. DeLoItte & toucHe Certified Public Accountants Singapore Chaly Mah Chee Kheong Partner Appointed on 28 April 2006 11 March 2008 Keppel Corporation Limited Report to Shareholders 2007 independent Auditors’ Report 211 INTERESTED PERSoN TRANSACTIoNS During the financial year, the following interested person transactions were entered into by the Group: Name of interested person Aggregate value of all interested person transactions during the financial year under review (excluding transactions less than $100,000 and transactions conducted under shareholders’ mandate pursuant to Rule 920) Aggregate value of all interested person transactions conducted under a shareholders’ mandate pursuant to Rule 920 of the SGX Listing Manual (excluding transactions less than $100,000) 2007 $’000 2006 $’000 2007 $’000 2006 $’000 Transaction for the Sale of Goods and Services PSA Corporation Group SembCorp Marine Group SembCorp Industries Group Singapore Power/PowerSeraya/Senoko Power/Tuas Power Group Singapore Airlines Group Singapore Telecommunications Group Gas Supply Pte Ltd KCL Directors and their associates Transaction for the Purchase of Goods and Services Gas Supply Pte Ltd Mapletree Investments Pte Ltd Singapore Power/PowerSeraya/Senoko Power/Tuas Power Group Transaction for the Acquisition of Companies Havelock Investment Pte Ltd - - - - - - - 17,447 - - - - Total interested Person Transactions 17,447 - - - - - - - - - - - 2,067 463 12,000 4,978 5,150 - 2,273 - 28,000 17,350 4,633 - 13,140 - - - 380,000 407 - 9,000 492 1,000 270 270 - - 450,953 30,000 Save for the interested person transactions disclosed above, there were no other material contracts entered into by the Company and its subsidiaries involving the interests of its chief executive officer, directors or controlling shareholders, which are either still subsisting at the end of the financial year or, if not then subsisting, entered into since the end of the previous financial year. 212 Keppel Corporation Limited Report to Shareholders 2007 interested Person Transactions DIRECToRS AND KEY E xECUTIVES Directors Lim Chee Onn, 63 executive Chairman Bachelor of Science (First Class Honours) in Naval Architecture, Glasgow University; Masters in Public Administration, Edward S. Mason Fellow, Kennedy School, Harvard University; Member of the Wharton Society of Fellows, University of Pennsylvania; Honorary Doctorate in Engineering, Glasgow University. Conferred the Distinguished Service Order by the President of the Republic of Singapore in 2007. Executive Chairman of Keppel Corporation Limited since January 2000 (Director since 1983; date of last re-election: 29 April 2005) and Chairman of the Executive Committee and member of the Board Safety Committee. He is also Chairman of Keppel Land Limited, MobileOne Ltd, and Singapore-Suzhou Township Development Pte Ltd and a Board Member of the Monetary Authority of Singapore, k1 Ventures Limited and Business China. Mr Lim is also the Honorary Chairman of the National Heritage Board, Deputy Chairman/Advisory Board, Harvard Singapore Foundation and Alternate Member of the Council of Presidential Advisors. Mr Lim started his career in the Civil Service. He was Deputy Secretary, Ministry of Communications until elected as Member of Parliament in July 1977. He served as Political Secretary, Ministry of Science and Technology from August 1978 to September 1980. Mr Lim was Secretary-General, National Trades Union Congress from May 1979 to June 1983 and concurrently Minister without Portfolio, Prime Minister’s Office from September 1980 to July 1983, and remained as Member of Parliament until December 1992. In addition, Mr Lim is Co-Chairman of the Philippines-Singapore Business Council and Deputy Chairman of the Seoul International Business Advisory Council. He is Economic Advisor to Jiangsu Provincial Government, PRC, and Consultant to the People’s Government of Yunnan Province, PRC. He is a Member of the Singapore-US Business Council and a Member of the INSEAD Singapore International Council. Mr Lim is also Member of the Board of Trustees, Asia Business Council, Member of the Board of Trustees of The Conference Board and Counsellor of The Conference Board’s Global Advisory Council on Economic Issues. Tony Chew Leong-Chee, 61 Lead independent Director Trained as an agronomist at Ko Plantations Berhad and Serdang Agricultural College in Malaysia from 1966 to 1970. Appointed to the Board in 2002 (date of last re-election: 29 April 2005). An independent and non-executive Director, he is the Company’s Lead Independent Director and member of the Company’s Audit Committee and Executive Committee. Mr Chew is the Executive Chairman of Asia Resource Corporation and Chairman of KFC Vietnam. He also serves on the boards of Macondray Corporation and Orangestar Investment Holdings Pte Ltd, amongst others. From 1966, he worked at Sri Gading Estates in Malaysia, Guthrie Trading in Singapore, and the Sampoerna Group of Indonesia. In 1975 he ventured out, becoming an entrepreneur, and built a group of companies in the region which became Asia Resource Corporation. He plays an active role in promoting regional business, having served on the Trade Development Board, Economic Review Sub-Committee for Entrepreneurship and Internationalisation, Regional Business Forum, and the GPC Resource Panel for Finance, Trade and Industry. He is presently council member of the Singapore Business Federation and ASEAN Business Advisory Council, Chairman of Network Indonesia and Chairman of the Governing Board of Duke-NUS Graduate Medical School Singapore. He is a Public Service Award recipient. Keppel Corporation Limited Report to Shareholders 2007 Directors and Key executives 213 DIRECToRS AND KEY ExECUTIVES DIRECToRS AND KEY ExECUTIVES Lim Hock San, 61 independent Director Bachelor of Accountancy, University of Singapore; Master of Science, MIT Sloan School of Management; Advanced Management Program, Harvard Business School; Fellow, Chartered Institute of Management Accountants (UK). Appointed to the Board in 1989 (date of last re-election: 27 April 2007), he is an independent and non-executive Director. Mr Lim is also the Chairman of the Company’s Audit Committee and member of the Executive Committee and Board Risk Committee. Mr Lim is the CEO of United Industrial Corporation Ltd and Singapore Land Ltd. He is also the Chairman of Gallant Ventures Ltd and the National Council Against Problem Gambling, and a board member of Ascendas Pte Ltd and Interra Resources Limited. Mr Lim previously served as the Director-General of Civil Aviation (1980-1992) and was past President of the Institute of Certified Public Accountants of Singapore. Sven Bang Ullring, 72 independent Director Master of Science, Swiss Federal Institute of Technology, Zurich. Appointed to the Board in 2000 (date of last re-election: 27 April 2007). An independent and non-executive Director and Chairman of the Nominating Committee and the Remuneration Committee and member of the Board Safety Committee. Mr Ullring is the Chairman of the Board of The Fridtjof Nansen Institute, Oslo, Norway. He was President and Chairman of the Executive board of Det Norske Veritas, Oslo from 1985-2000 and President and CEO of NORCONSULT, Oslo from 1981-1985. He worked for SKANSKA, Malmo, Sweden from 1962-1981 in Africa, Asia, Europe and the Americas; from 1972-1981 he was Director of the International Department. In addition, Mr Ullring is Chairman of the Maritime and Port Authority of Singapore’s Third Maritime and Research and Development Advisory Panel; Chairman of the Board of Transparency International (Norway), and a Director of Sustainable Forest Management, London and the Institute for Culture and Oriental Languages University of Oslo. Tsao Yuan Mrs Lee Soo Ann, 52 independent Director PhD in Economics, Harvard University; President Scholar with a First Class Honours degree in Economics and Statistics, University of Singapore. Appointed to the Board in 2002 (date of last re-election: 28 April 2006). An independent and non-executive Director and member of the Nominating Committee, the Remuneration Committee and the Board Safety Committee. Dr Lee Tsao Yuan is an Executive Director with SDC Consulting, a privately-owned Singapore-based human resources development training, consultancy and coaching company. An economist by training, Dr Lee has extensive experience in public policy both in Singapore and internationally. She was with the Institute of Policy Studies (IPS), a public policy think-tank for 10 years, as Deputy Director (1990-1997), and Director (1997-November 2000). Prior to her joining IPS, she taught at the Department of Economics and Statistics, National University of Singapore (1982-1989). She served as a Nominated Member of Parliament in Singapore for two terms (1994-1996 and 1997-1999). Dr Lee sits on the Boards of various companies and organisations, including Oversea-Chinese Banking Corporation Ltd. 214 Keppel Corporation Limited Report to Shareholders 2007 Directors and Key executives Directors and Key executives Oon Kum Loon, 57 independent Director Bachelor of Business Administration (Honours) from the University of Singapore. Appointed to the Board in 2004 (date of last re-election: 27 April 2007). An independent and non-executive Director of the Company and Chairperson of the Company’s Board Risk Committee and member of the Company’s Audit, Executive and Nominating Committees. Mrs Oon is a veteran banker with about 30 years of extensive experience, having held a number of management and executive positions with the DBS Group. She was the Chief Financial Officer (CFO) of the bank until September 2003. Prior to serving as CFO, she was the Managing Director & Head of Group Risk Management, responsible for the development and implementation of a group-wide integrated risk management framework. During her career with the bank, Mrs Oon was also involved with treasury and markets, corporate finance and credit management activities. Her other directorships include PSA International Pte Ltd; SP PowerGrid Ltd; CSMC Technologies Corporation; and Schmidt Electronics Group Ltd. She is also a member of the Board Risk Management Committee of Singapore Power Ltd. Tow Heng Tan, 52 Non-independent and Non-executive Director Fellow of the Association of Chartered Certified Accountants as well as the Chartered Institute of Management Accountants. Appointed to the Board in 2004 (date of last re-election: 27 April 2007). A non-executive Director and member of the Company’s Executive, Remuneration and Board Risk Committees. Mr Tow has an extensive business career spanning the management consultancy, investment banking and stockbroking industries. He is currently the Chief Investment Officer of Temasek Holdings (Pte) Ltd (Temasek Holdings). Prior to joining Temasek Holdings in September 2002, he was Senior Director of Business Development at DBS Vickers Securities (Singapore) Pte Ltd. From 1993 to 2001, Mr Tow was Managing Director of Lum Chang Securities Pte Ltd. Mr Tow also sits on the Board of ComfortDelGro Corporation Limited, among others. Yeo Wee Kiong, 52 independent Director LLB Honours University of London, MBA National University of Singapore, First Class Honours (Mechanical Engineering) University of Singapore. Appointed to the Board in 2005 (date of last re-election: 28 April 2006). An independent and non-executive Director of the Company, Chairman of the Company’s Board Safety Committee, and member of the Company’s Board Risk Committee. Mr Yeo Wee Kiong is a director in Drew & Napier LLC, a leading law corporation in Singapore practising in the areas of corporate law, corporate finance, mergers and acquisitions, listings on stock exchanges, venture capital, banking and securities. He started his career in 1980 as a senior industry officer with the Singapore Economic Development Board (EDB) where he participated in EDB’s international drive to promote high technology investments into Singapore. He was an investment banker with NM Rothschild & Sons Singapore between 1984 to 1989 in capital markets and corporate finance advisory services. He started his legal career with Drew & Napier in 1989, subsequently founding his own law firm. He was also previously a senior partner in Rajah & Tann, a leading law firm in Singapore. He rejoined Drew & Napier in 2007. Mr Yeo is an independent director of two listed companies, namely, Bonvests Holdings Limited and PCA Technology Ltd. He is also a non-executive director and audit chairman of Ascendas Pte Ltd, which is a government group in commercial property development and property trust management. Keppel Corporation Limited Report to Shareholders 2007 Directors and Key executives Directors and Key executives 215 DIRECToRS AND KEY ExECUTIVES Choo Chiau Beng, 60 Senior executive Director Bachelor of Science (First Class Honours), University of Newcastle upon Tyne (awarded the Colombo Plan Scholarship to study Naval Architecture); Master of Science in Naval Architecture, University of Newcastle upon Tyne; attended the Programme for Management Development in Harvard Business School in 1982 and is a Member of the Wharton Society of Fellows, University of Pennsylvania. Appointed to the Board in 1983 (date of last re-election: 28 April 2006). A Senior Executive Director and member of the Company’s Executive Committee. Mr Choo is the Chairman and Chief Executive Officer of Keppel Offshore & Marine Ltd and is also the Chairman of Singapore Petroleum Company Limited, Singapore Refining Company Pte Ltd and SMRT Corporation Ltd. Mr Choo sits on the Board of Directors of Keppel Land Limited, k1 Ventures Limited, and is a Board Member of Singapore Maritime Foundation and Maritime and Port Authority of Singapore. He is Chairman of the Nanyang Business School’s International Advisory Board. Mr Choo started his career with Keppel Shipyard as a Ship Repair Management Trainee in 1971 and was appointed Executive Director of Singapore Slipway in 1973. In 1975, when Keppel set up its shipyard in the Philippines, he was posted there to assume the position of Executive Vice President and CEO of the company for a period of four years. He joined Keppel FELS (formerly known as Far East Levingston Shipbuilding Ltd) in 1980 as Assistant General Manager and was appointed as Director to the Board of the company. He was promoted to Deputy Managing Director in November 1981 and to Managing Director in March 1983. In 1994, he was appointed Deputy Chairman and in 1997, Chairman of the company. He is also Chairman of Det Norske Veritas South East Asia Committee and Council Member of the American Bureau of Shipping and member of the American Bureau of Shipping’s Southeast Asia Regional Committee and Special Committee on Mobile Offshore Drilling Units. He is Singapore’s Non-Resident Ambassador to Brazil. Teo Soon Hoe, 58 Senior executive Director and Group Finance Director Bachelor of Business Administration, University of Singapore; Member of the Wharton Society of Fellows, University of Pennsylvania. Appointed to the Board in 1985 (date of last re-election: 29 April 2005). A Senior Executive Director and the Group Finance Director and member of the Company’s Executive Committee. Mr Teo is the Chairman of Keppel Telecommunications & Transportation Ltd and Keppel Philippines Holding Inc. In addition, he is a director of several other companies within the Keppel Group, including Keppel Land Limited, Keppel Offshore & Marine Ltd, k1 Ventures Limited and Singapore Petroleum Company Limited. He is also a director of MobileOne Ltd. Mr Teo began his career with the Keppel Group in 1975 when he joined Keppel Shipyard. He rose through the ranks and was seconded to various subsidiaries of the Keppel Group before assuming the position of Group Finance Director in 1985. 216 Keppel Corporation Limited Report to Shareholders 2007 Directors and Key executives Key executives In addition to the Executive Chairman (Mr Lim Chee Onn) and the two Senior Executive Directors (Mr Choo Chiau Beng and Mr Teo Soon Hoe), the following are the key executive officers (“Key Executives”) of the Company, its principal subsidiaries and Singapore Petroleum Company Limited: Tong Chong Heong, 61 Graduate of Management Development Programme, Harvard Business School; Stanford - NUS Executive Programme, Diploma in Management Studies, The University of Chicago Graduate School of Business. Mr Tong has been the Managing Director/Chief Operating Officer of Keppel Offshore & Marine Ltd since May 2002. He is also the Managing Director of Keppel FELS and Keppel Shipyard. He was the Executive Director of Keppel Corporation from 1989-1996. He served for 27 years and was appointed Commander of the Volunteer Special Constabulary (VSC) from 1995-2001 and was honoured with Singapore Public Service Medal at the 1999 National Day Award. He had served as Vice President/President of Association of Singapore Marine Industries (1993-1996), Member/Deputy Chairman of the Shipbuilding & Offshore Engineering Advisory Committee, Ngee Ann Polytechnic (1986-1995). He is a member of Society of Naval Architects and Marine Engineers (USA), member of Singapore Institute of Directors, member of American Bureau of Shipping and member of Nippon Kaiji Kyokai (Class NK) Singapore Committee and Fellow of the Society of Project Managers as well as Fellow of The Royal Institute of Naval Architects (RINA) UK. His directorships include Keppel Offshore & Marine Ltd; Keppel FELS Limited; Keppel Shipyard Ltd, Keppel Integrated Engineering Ltd and Chairman of Keppel AmFELS, Inc. He is the Honorary Consul (Designate) of Trinidad & Tobago in Singapore. Kevin Wong Kingcheung, 52 Bachelor degree in Civil Engineering with First Class Honours, Imperial College, London; Masters degree, Massachusetts Institute of Technology, USA. Mr Wong has been Group CEO/Managing Director, Keppel Land Limited since January 2000. Prior to this appointment, he was Executive Director since November 1993. He is Vice-Chairman and Director, Evergro Properties Limited, Chairman and Director of Alpha Investment Partners Ltd, and Deputy Chairman and Director of K-REIT Asia Management Pte Ltd. He is also a director of Prudential Assurance Company Singapore (Pte) Ltd. Prior to joining Keppel Land Limited, Mr Wong had diverse experience in the real estate industry in the UK, USA and Singapore. Lam Kwok Chong, 53 Bachelor of Business Administration, National University of Singapore. Mr Lam was appointed the Chief Financial Officer of Keppel T&T in July 2003 and was appointed the Managing Director and a Director of Keppel T&T in April 2004. He holds directorships in several Keppel T&T subsidiaries and associated companies. He began his career with the Keppel Group in 1980. Since then, he has held various senior management appointments within the Keppel Group, including appointments such as the Chief Financial Officer of Keppel Insurance Pte Ltd, Managing Director of Keppel Securities Pte Ltd and General Manager (Special Projects) of Keppel Corporation Limited. Keppel Corporation Limited Report to Shareholders 2007 Directors and Key executives 217 DIRECToRS AND KEY ExECUTIVES Ong Tiong Guan, 49 Bachelor of Engineering (First Class Honours), Monash University; and Doctor of Philosophy (Ph.D.) under Monash Graduate Scholarship, Monash University, Australia. Dr Ong was appointed Keppel Energy Pte Ltd’s Executive Director from November 1999. He became Managing Director of Keppel Energy Pte Ltd with effect from 1 May 2003. He is responsible for Keppel Corporation’s power generation business, which develops, owns and operates power generation projects in Asia and in the Americas. Dr Ong’s career spans across the energy industry from engineering and contracting to investment and ownership of energy assets. He started with Jurong Engineering as a Design Engineer in 1987 and went on to hold senior management positions in Foster Wheeler Eastern, the Sembawang Group, and CMS Energy Asia. Dr Ong was Chairman of SEPEC (Singapore Electricity Pool Executive Committee) for the FY 2002/2003. His directorships include Keppel Energy Pte Ltd, Keppel Electric Pte Ltd, Keppel Merlimau Cogen Pte Ltd, Keppel Gas Pte Ltd, Termoguayas Generation S.A. and Corporacion Electrica Nicaraguense, S.A.. Chua Chee Wui, 41 Bachelor of Engineering Science (2nd Upper Hons), Oxford University, on a Scholarship from the Singapore Government; completed Chartered Financial Analysts (CFA) Programme in 1999; attended the Insead Executive Programme. Mr Chua was appointed Deputy CEO of Keppel Integrated Engineering Ltd (KIE) in January 2004 and is presently CEO of KIE. KIE is the environmental and engineering division of Keppel Corporation Limited. He is also General Manager, Group Strategic Development in Keppel Corporation. Prior to joining Keppel Corporation in 2000, he held various positions in ExxonMobil Singapore and in the Ministry of Defence of Singapore. His directorships include KIE, Keppel Seghers Engineering Singapore Pte Ltd, Seghers Keppel Technology Group NV, Keppel Seghers NEWater Development Co Pte Ltd, Keppel Seghers Tuas Waste-To-Energy Plant Pte Ltd, and Keppel FMO Pte Ltd. Koh Ban Heng, 59 Bachelor degree in Applied Chemistry and post-graduate diploma in Business Administration, University of Singapore. Mr Koh is the Chief Executive Officer of Singapore Petroleum Company Limited (SPC). He joined SPC in February 1974 and held several key positions in the company rising to the position of CEO in August 2003. The breadth of his experience spans refining operations and planning, marketing and distribution, supply and trading, oil and gas exploration and production including the development and establishment of new businesses. Mr Koh has delivered exceptional results in the last four years. He was instrumental in the landmark refining and retail acquisitions in 2004. He has also led and paved the way for several key capital investments in E&P. These have provided the strategic drive that has led to SPC’s current success and will be the foundation for sustained growth Mr Koh holds directorships in several of SPC’s subsidiaries and associate companies. 218 Keppel Corporation Limited Report to Shareholders 2007 Directors and Key executives past principal Directorships In the Last Five years Directors Lim Chee Onn National Heritage Board; Singapore Airlines Ltd; Glory Central Holdings Ltd; Kepital Holdings Pte Ltd; Keppel Harbour Redevelopment Ltd; Keppel Power Systems Pte Ltd; Keppel Telecoms Pte Ltd; K1 eBiz Holdings Private Limited; NatSteel Ltd; Temasek Holdings (Pte) Ltd; Parksville Development Pte Ltd. Tony Chew Leong-Chee Del Monte Pacific Ltd; Singapore Trade Development Board; Keppel Capital Holdings Ltd; KTB Limited (formerly Keppel Tatlee Bank Ltd & Keppel Bank of S’pore Ltd); CapitalLand Commercial Ltd (formerly DBS Land Ltd); Highsonic Enterprises Pte Ltd; Macondray Packaging Corporation Pte Ltd; Pontirep Investments Pte Ltd; Operational Development Pte Ltd; CCL Myanmar Pte Ltd; Myanmarcorp Pte Ltd; Juno Pacific Pte Ltd; ARC Corporate Services Pte Ltd; RHB-Cathay Securities Pte Ltd; Dohler Asia Pte Ltd; Net Decisions Singapore Pte Ltd; Eurolife Limited; International Beverages Company; Viethai Plastic Company; Hangzhou Hua Feng Paper Mill Ltd; Myanmar Airways International Ltd; International Beverages Trading Co., Myanmar; Myanmar Development International Co. Ltd; Asia Net Media Ltd (BVI); Cycle & Carriage Golden Star Ltd; Del Monte Pacific Resources Ltd; Dewey Ltd; Macondray Holdings Corporation; Alliance Resource Corporation; Opdev Investments Ltd; Surfield Development Corporation; Yearsley, Inc.; Central American Resources Inc; IES Holdings. Lim Hock San Singapore Changi Airport Enterprise Pte Ltd; Changi Airports International Pte Ltd; Air Transport Training College Pte Ltd; Advanced Material Technologies Pte Ltd; Silkroute E-commerce Fund I Ltd; Pasir Ris Resort Pte Ltd; United Test and Assembly Center Ltd. Sven Bang Ullring NORSK HYDRO ASA, Oslo; STOREBRAND ASA, Oslo; SCHLUMBERGER, New York; Det Norske Veritas, Oslo. Tsao Yuan Mrs Lee Soo Ann Director of Pacific Internet Limited; Chairman of the International Trade Institute of Singapore (ITIS); Deputy Chairman of the protem exco of the eLearning Chapter of the Singapore IT Federation; Director of Keppel Capital Holdings Ltd and Keppel FELS Energy & Infrastructure Limited; Executive Deputy Chairman of Inchone.com Pte Ltd; Governor of Singapore International Foundation and the United World College of South East Asia. Oon Kum Loon Gas Supply Pte Ltd; Intraco Limited; General Securities Investments Limited; PT Bank DBS Indonesia. Tow Heng Tan IE Singapore; Shangri-la Asia Limited. Yeo Wee Kiong OM Holdings Ltd; China Sun Bio-Chem Technology Group Company Ltd; Ezyhealth Asia Pacific Ltd; City Axis Holdings Ltd (ISG Asia Limited); Global Testing Corporation Limited; ASJ Limited; Pacific Internet Limited; Territory Iron Ltd; AEM-Evertech Holdings Ltd; Compact Metal Industries Ltd. Choo Chiau Beng Caspian Shipyard Company Limited; EDBI Investments Pte Ltd; FELS Property Holdings Pte Ltd; FELS Realty (Texas) Inc; FELS (USA) Inc; K1 eBiz Holdings Private Limited; Kepital Holdings Pte Ltd; Kepmount Shipping Pte Ltd; Keppel Asia Limited; Keppel FELS (China) Ltd; Keppel FELS Invest (HK) Ltd; Keppel Infrastructure Pte Ltd; Keppel Marine Agencies Inc; Keppel Oil & Gas Services Pte Ltd; Keppel Offshore Investment Ltd; Keppel Power Systems Pte Ltd; Keppel Regional Infrastructure Pte Ltd; Keppel Telecoms Pte Ltd; Keppel-UAE Investment Pte Ltd; Keppel Vietnam Investment Pte Ltd; Kepventure Pte Ltd; Travelmore Pte Ltd; Waterfront Development Consultants Pte Ltd; WIIG Global Ventures Pte Ltd. Teo Soon Hoe Keppel Bank Philippines Inc; Centurion Bank Limited; Southern Bank Bhd; Keppel Shipyard Limited. Keppel Corporation Limited Report to Shareholders 2007 Directors and Key executives 219 DIRECToRS AND KEY ExECUTIVES Key executives Tong Chong Heong Nil. Kevin Wong Kingcheung HDB Corporation Pte Ltd; Singapore Hotel Association; subsidiaries and associates of Keppel Land Limited. Lam Kwok Chong Keppel Global Investors Pte Ltd; Keppel Insurance Pte Ltd; Keppel Bank Philippines, Inc.; Poverest Investments Limited; Netrust Pte Ltd; Nippon Keppel Communications Kabushiki Kaisha; Rodway Investments Ltd; Folec Holdings (M) Sdn Bhd; Steamers Telecommunications Pte Ltd; Computer Generated Solutions (Asia) Pte Ltd; Keppel Securities Philippines Inc.; Indotel Ltd; SEM Thong Nhuat Hotel Metropole; Societe de Development de Metropole (SDM) B.V.; Folec Communications (B) Sdn Bhd; Blue Cherries, Inc.; Business Online Public Co Ltd; DataOne Corporation Pte Ltd; Heritage (Vietnam) Investments Pte Ltd. Ong Tiong Guan Nil. Chua Chee Wui Nil. Koh Ban Heng Changi Airport Fuel Hydrant Installation Pte. Ltd.; FST Aviation Services Limited; SPC Shipping Company Limited; Singapore Petroleum (China) Private Limited; Singapore Petroleum (Thailand) Co. Ltd; Singapore Petroleum Trading Company Limited; SPC Cambodia Ltd. 220 Keppel Corporation Limited Report to Shareholders 2007 Directors and Key executives mAjoR PRoPERTIES Effective Group Interest Location Description and Approximate Land Area Tenure Usage Held By Completed properties K-REIT Asia 53% 30-storey office building 99 years leasehold Commercial office building with rentable area of 10,074 sqm (retained interest) Land area: 7,760 sqm 27-storey office building Freehold Commercial office building with rentable area of 32,624 sqm Land area: 1,367 sqm 13-storey office building Freehold Commercial office building with rentable area of 7,378 sqm 15-storey office building 99 years leasehold Commercial office building with rentable area of 22,990 sqm Prudential Tower Cecil Street & Church Street, Singapore Keppel Towers Hoe Chiang Rd, Singapore GE Tower Hoe Chiang Rd, Singapore Bugis Junction Tower Victoria Street, Singapore One Raffles Quay Pte Ltd 17% One Raffles Quay, Singapore Land area: 11,367 sqm Two office towers 99 years leasehold Commercial office building with rentable area of 124,078 sqm DL Properties Ltd 34% Ocean Properties Pte Ltd 40% Keppel Bay Pte Ltd 86% Harbourfront One Pte Ltd 65% Equity Plaza Cecil Street, Singapore Ocean Towers Collyer Quay, Singapore Caribbean at Keppel Bay, Singapore Keppel Bay Tower HarbourFront Avenue, Singapore Land area: 2,345 sqm 28-storey office building 99 years leasehold Commercial office building with rentable area of 23,147 sqm Land area: 3,552 sqm 27-storey office building 999 years leasehold Commercial office building with rentable area of 21,319 sqm Land area: 97,494 sqm 99 years leasehold A 969-unit waterfront condominium development Land area: 17,267 sqm 18-storey office building 99 years leasehold Commercial office building with rentable area of 36,016 sqm Harbourfront Two Pte Ltd 33% HarbourFront Land area: 15,072 sqm Tower One and Two 18-storey and 13-storey HarbourFront Place, office buildings Singapore 99 years leasehold Commercial office building with rentable area of 48,671 sqm PT Straits-CM Village 21% Club Med Ria Bintan Land area: 200,000 sqm Bintan, Indonesia 30 years lease with option for another 50 years A 302-room beachfront hotel PT Kepland Investama 53% Wisma BCA Jakarta, Indonesia Land area: 10,444 sqm 20 years lease with option for another 20 years A prime office development with rentable area of 38,093 sqm Keppel Corporation Limited Report to Shareholders 2007 Major Properties 221 mAjoR PRoPERTIES Held By Effective Group Interest Location Description and Approximate Land Area Tenure Usage Keppel Land Watco I Co Ltd 36% Saigon Centre (Phase 1 Tower) Ho Chi Minh City, Vietnam Land area: 2,730 sqm 25-storey office, retail cum serviced apartments 50 years lease Commercial building with rentable area of 10,443 sqm office, 3,663 sqm retail, 305 sqm post office and 89 units of serviced apartments Properties under development Ocean Properties Pte Ltd 40% BFC Development Pte Ltd 17% Central Boulevard Development Pte Ltd 17% Devonshire Development Pte Ltd (joint venture) 32% Keppel Land Realty Pte Ltd 53% Keppel Bay Pte Ltd 86% Ocean Financial Centre, Collyer Quay, Singapore Marina Bay Financial Centre/ Marina Bay Residences Marina Boulevard/Central Boulevard, (Phase 1) Singapore Marina Bay Financial Centre/ Marina Bay Residences Marina Boulevard/Central Boulevard, (Phase 2) Singapore The Suites at Central Devonshire Road, Singapore Park Infinia Wee Nam/ Keng Lee Road, Singapore Reflections at Keppel Bay, Singapore Keppel Bay Plot 3 and 6, Singapore Land area: 2,557 sqm 999 years leasehold Commercial building with rentable area of 78,968 sqm *(2011) Land area: 20,505 sqm 99 years leasehold An integrated development comprising office, retail and 428 condominium units *(2010) Land area: 15,010 sqm 99 years leasehold An integrated development comprising office, retail and 221 condominium units *(2012) Land area: 7,400 sqm Freehold A 157-unit condominium development *(2008) Land area: 21,733 sqm Freehold A 486-unit condominium development *(2008) Land area: 83,591 sqm 99 years leasehold Land area: 82,619 sqm 99 years leasehold A 1,129-unit waterfront condominium development *(2012) Waterfront condominium development Shanghai Pasir Panjang Land Co Ltd 52% Eight Park Avenue Shanghai, China Land area: 33,432 sqm 70 years lease A 946-unit residential apartment development (Plot B) *(2009/2010) 222 Keppel Corporation Limited Report to Shareholders 2007 Major Properties Held By Effective Group Interest Location Description and Approximate Land Area Tenure Usage Shanghai Hongda Property 53% Development Co Ltd 21% 16% Spring City Golf & Lake Resort Co (owned by Kingsdale Development Pte Ltd) CityOne Development (Wuxi) Co (owned by Pasir Panjang Realty Pte Ltd) Residential development Shanghai, China Spring City Golf & Lake Resort Kunming, China Central Park City Wuxi, China Land area: 264,090 sqm 70 years lease (residential) 40 years lease (commercial) A 3,082-unit residential development with integrated facilities *(2012) Land area: 2,157,361 sqm 70 years lease Land area: 352,534 sqm 70 years lease (residential) 40 years lease (commercial) 50 years lease (others) Integrated resort comprising golf courses, resort homes and resort facilities *(2017) A 4,700-unit residential township development with integrated facilities *(2009 Phase 1) PT Mitra Sindo Sukses/ PT Mitra Sindo Makmur 27% Jakarta Garden City Land area: 2,700,000 sqm 30 years lease with Jakarta, Indonesia option for another 20 years A 7,000-unit residential township *(2009/2010) industrial properties Keppel FELS Limited 100% Jurong, Pioneer, Cresent and Tuas South Yard, Singapore Land area: 704,509 sqm buildings, workshops, building berths and wharves 24 - 30 years leasehold Keppel Shipyard Limited 100% Benoi and Tuas Yard, Singapore Land area: 775,527 sqm buildings, workshops, drydocks and wharves 30 years leasehold Oil rigs, offshore and marine construction, repair, fabrication, assembly and storage Shiprepairing, shipbuilding and marine construction * Expected year of completion Keppel Corporation Limited Report to Shareholders 2007 Major Properties 223 GRoUP FIVE-YEAR PERFoRmANCE Selected Profit & Loss Account Data ($ million) Revenue Operating profit Profit before tax & exceptional items Attributable profit Before exceptional items After exceptional items Selected Balance Sheet Data ($ million) Fixed assets & properties Investments Stocks, debtors & cash Intangibles Total assets Less : Creditors Borrowings Other liabilities Net assets Share capital & reserves Minority interests Capital employed Per Share Earnings (cents) (Note 1): Before tax & exceptional items Attributable profit Before exceptional items After exceptional items Gross dividend (cents) Capital distribution (net) (cents) Total distribution (cents) Net assets ($) Net tangible assets ($) Financial Ratios Return on shareholders’ funds (%) (Note 2): Profit before exceptional items Before tax Attributable profit Dividend cover (times) Net gearing (times) employees Number Wages & salaries ($ million) 2003 2004 2005 2006 2007 5,947 503 557 394 397 3,800 1,682 4,604 147 10,233 2,001 3,788 481 3,963 2,893 1,070 3,963 3,963 409 645 465 464 3,482 1,839 5,059 125 10,505 2,402 3,699 148 4,256 3,090 1,166 4,256 5,688 467 826 564 564 3,907 2,664 5,874 145 12,590 3,750 3,731 174 4,935 3,646 1,289 4,935 7,601 804 1,139 751 751 4,187 3,113 6,466 135 13,901 5,188 2,957 158 5,598 4,205 1,393 5,598 29.3 35.2 43.9 61.5 25.5 25.7 9.5 9.0 18.5 1.87 1.77 16.2 14.0 3.4 0.77 29.9 29.9 10.0 10.0 20.0 1.98 1.90 18.3 15.5 3.7 0.64 36.1 36.1 11.5 11.5 23.0 2.33 2.23 20.0 16.4 3.9 0.47 47.7 47.7 14.0 14.0 28.0 2.67 2.58 24.7 19.1 4.2 0.24 10,431 1,051 1,556 1,026 1,131 4,831 4,024 6,874 68 15,797 6,139 2,234 389 7,035 5,205 1,830 7,035 81.4 64.9 71.5 64.0 - 64.0 3.28 3.24 27.4 21.8 1.0 0.09 20,505 708 22,186 695 23,625 803 29,185 931 31,914 1,132 Notes: 1. Earnings per share are calculated based on the Group profit by reference to the weighted average number of shares in issue during the year. 2. 3. Comparative figures have been adjusted for sub-division of shares in 2007. In calculating return on shareholders’ funds, average shareholders’ funds has been used. 224 Keppel Corporation Limited Report to Shareholders 2007 Group Five-Year Performance 2007 Group revenue of $10,431 million was $2,830 million or 37% higher than that of the previous year. Revenue from Offshore & Marine Division at $7,258 million was $1,503 million or 26% higher and accounted for 70% of Group revenue. Revenue from shipconversion and shiprepair was strong. Property Division achieved revenue of $1,835 million, $680 million or 59% higher. The higher revenue was due to sales of Reflections at Keppel Bay, Sixth Avenue Residences and Park Infinia @ Wee Nam in Singapore, Villa Riviera in Shanghai and Elita Promenade in Bangalore. Rental income from investment properties was higher as a result of the tight supply of prime office buildings in the Singapore Central Business District. Revenue from Infrastructure Division more than doubled to $1,277 million as a result of new income stream from the cogen power plant, NEWater plant, power barges and the contract for the solid waste management complex in Qatar. Group profit before tax was $1,556 million or 37% more than the previous year’s. Earnings from Offshore & Marine Division at $700 million were 12% above the previous year. Production activities continued to increase at the shipyards, however operating margins were lower because of lower margins from its Brazilian operations. Earnings from Property Division more than doubled to $471 million due to the higher revenue and operating margins from trading projects, and share of profit of Marina Bay Residences. In addition, cost provisions no longer required for Singapore trading projects were released in the year. Infrastructure Division returned firmly to profitability contributing $51 million or 3% of Group pre-tax profit. This was mainly derived from new projects and the initial contribution from the contract in Qatar. The turnaround was achieved despite higher costs incurred in completing some old contracts and the higher gas cost to operate the cogen plant. The share of results of associated companies from Investments was significantly higher due mainly to increased contribution from SPC, which also reported record profits. Group taxation expenses were higher in the year as a result of write-back of deferred tax amounting to $18 million from the reduction in the Singapore corporate tax rate from 20% to 18%. After taking into account the higher taxation charge and minority share of profit, the attributable profit before exceptional items was $1,026 million. 2006 Group revenue of $7,601 million was $1,913 million or 34% higher than that of the previous year. Revenue from Offshore & Marine of $5,755 million was $1,643 million or 40% higher and accounted for 76% of Group revenue. Twenty six newbuilds and conversions were completed and delivered in the year, on time or ahead of time and within budget. Revenue from ship and rig repair was also strong. Property achieved revenue of $1,155 million, $308 million or 36% higher. The increased revenue was underpinned by higher sales and prices of the Group’s new and existing trading projects both in Singapore and regionally. Rental income from investment properties was higher as a result of the tight supply of prime office buildings in the Singapore Central Business District. Keppel T&T reported lower revenue as no major new network engineering contract was secured. Revenue from electricity trading also declined as non-profitable fixed price contracts were not renewed. Group profit before tax exceeded $1 billion for the first time to $1,139 million, 38% higher than the previous year. Offshore & Marine, which had an exceptionally busy year contributed significantly to the Group earnings growth. The division’s profit before tax of $624 million was $273 million or 78% higher. Revenue and operating margins improved with higher prices and efficient project execution. Property posted earnings of $233 million, 5% above the previous year due to the higher revenue from trading projects and profit from sale of a piece of land in Tianjin and an equity interest in a property project. Infrastructure returned to profitability in the fourth quarter with the commercial operation of the power barges in Ecuador. However, the quarter’s profit was not sufficient to reverse the losses in the first nine months. Earnings from Investments were higher with gains from the sale of investments and much better contributions from k1 Ventures which benefited from the divestment of The Gas Company, LLC. These were more than sufficient to offset the lower contributions from SPC, which was affected by lower margins in the second half year. Group taxation expenses were higher in the year as a result of higher profits from overseas operations. After taking into account the higher taxation charge and minority share of profit, the attributable profit to shareholders was $751 million. Revenue ($ billion) 12 Pre-Tax Profit ($ million) 2000 PATMI ($ million) 1200 10 8 6 4 2 0 10.4 7.6 5.9 5.7 4.0 2003 2004 2005 2006 2007 1,556 1000 1,026 1500 1000 500 0 1,139 826 645 557 2003 2004 2005 2006 2007 800 600 400 200 0 751 564 465 394 2003 2004 2005 2006 2007 Keppel Corporation Limited Report to Shareholders 2007 Group Five-Year Performance 225 GRoUP FIVE-YEAR PERFoRmANCE 2005 Group revenue of $5,688 million for the year was $1,725 million or 44% higher than that of the previous year. Revenue from Offshore & Marine of $4,112 million was 69% higher and contributed 72% of Group revenue. The net orderbook carried over from the previous year and the record new orders secured in the year contributed to the increased revenue of Offshore & Marine. Revenue from Property of $848 million was $137 million or 19% higher than the previous year. The increased revenue was due to the strong performance of the Group’s trading projects both in Singapore and overseas. The increased revenue from Offshore & Marine and Property was partially offset by lower revenue from Infrastructure following the cessation of the power barges contract in Brazil at the end of the previous year. Group pre-tax profit of $826 million was 28% higher than the previous year with increased contributions from Offshore & Marine, Property and SPC. Offshore & Marine benefited from profit recognition of completed jobs arising from its large orderbook. Keppel Land’s earnings rose by 31% from the healthy sales of its residential developments. However, this was partially offset by lower earnings from Caribbean at Keppel Bay. Losses were incurred by the Infrastructure because of the redeployment cost of the power barges and losses in electricity trading. KIE returned to profitability after the restructuring efforts from the previous year. The continuing tight refining capacity and strong growth in demand for refined products led to significantly higher earnings at SPC. Taking into consideration taxation and minority share of profits, the resultant profit attributable to shareholders of $564 million was 21% higher than the previous year. Offshore & Marine remains the largest contributor to attributable earnings with 42%, followed by SPC with 33%, Property with 21% and the rest from Keppel T&T and Investments net of the losses of Infrastructure. 2004 Group revenue was below that of the previous year due mainly to the deconsolidation of SPC. If revenue of SPC were to be excluded from previous year, there would have been a 20% increase in Group’s revenue due to a hefty increase in Offshore & Marine’s revenue. Group pre-tax profit of $645 million and attributable profit of $465 million were 16% and 18% above those of 2003 respectively. The Group’s strong earnings growth was underpinned by the vastly improved performances of Offshore & Marine from a strong order book and SPC from increased refining margins and demand for its products. Property also achieved commendable earnings improvement in 2004 mainly from its residential development projects in China. Infrastructure’s performance was affected by the lower than expected revenue from its investment in environmental engineering unit, Seghers Keppel Technology (SKG), and by costs associated with the restructuring of SKG to focus on growth segments. 2003 Group revenue of $5.9 billion was 8% above that of 2002 due mainly to higher revenue from Property, Infrastructure and SPC, partially offset by lower revenue from Offshore & Marine. Attributable profit of $394 million exceeded those of 2002’s record earnings by 11%, despite the adverse impact from the Iraq war and SARS in the first half year. If the one-off deferred tax adjustment of $20 million in 2002 was excluded, earnings in 2003 would have increased by 18%. The Group’s commendable results came mainly from a full year’s earnings of the power barges, contribution from the residential development in China and gains on quoted securities. Earnings from Offshore & Marine decreased with the lower value of contracts secured in 2002. Shareholders’ Funds ($ billion) 6 Capital Employed ($ billion) 8 Market Capitalisation ($ billion) 25 5.2 4.2 3.6 2.9 3.1 2003 2004 2005 2006 2007 5 4 3 2 1 0 7 6 5 4 3 2 1 0 7.0 5.6 4.9 4.3 4.0 2003 2004 2005 2006 2007 20 15 10 5 0 20.6 13.9 8.6 6.7 4.7 2003 2004 2005 2006 2007 226 Keppel Corporation Limited Report to Shareholders 2007 Group Five-Year Performance GRoUP VALUE-ADDED STATEmENTS ($ million) Value added from: Revenue earned Less: purchases of materials and services Gross value added from operation in addition: Interest and investment income Share of associated companies’ profits Exceptional items Distribution of Group’s value added: To employees in wages, salaries and benefits To government in taxation To providers of capital on: Interest on borrowings Dividends to our partners in subsidiaries Dividends to our shareholders 2003 2004 2005 2006 2007 5,947 (4,511) 1,436 3,963 (2,679) 1,284 5,688 (4,287) 1,401 7,601 (5,738) 1,863 10,431 (8,123) 2,308 31 89 3 1,559 708 64 67 28 109 204 23 253 - 1,560 60 321 - 1,782 83 315 - 2,261 695 90 41 22 124 187 803 153 22 36 131 189 931 258 62 73 157 292 91 477 565 3,441 1,132 469 63 46 242 351 Total Distribution 976 972 1,145 1,481 1,952 Balance retained in the business: Depreciation & amortisation Minority share of profits in subsidiaries Retained profit for the year 223 71 289 583 180 68 340 588 132 73 432 637 127 60 593 780 126 474 889 1,489 1,559 1,560 1,782 2,261 3,441 Number of employees 20,505 22,186 23,625 29,185 31,914 Productivity data: Gross value added per employee ($’000) Gross value added per dollar employment cost ($) Gross value added per dollar sales ($) 70 2.03 0.24 58 1.85 0.32 59 1.74 0.25 64 2.00 0.25 72 2.04 0.22 ($ million) 3500 3000 2500 2000 1500 1000 500 0 Depreciation & Retained Profit Interest Expense & Dividends Taxation Wages, Salaries & Benefits 1,559 1,560 583 204 64 708 588 187 90 695 1,782 637 189 153 803 3,441 1,489 351 469 1,132 2,261 780 292 258 931 2003 2004 2005 2006 2007 Keppel Corporation Limited Report to Shareholders 2007 Group Value-Added Statements 227 SHARE PERFoRmANCE Turnover (million) Share Prices ($) 200 180 160 140 120 100 80 60 40 20 0 20 18 16 14 12 10 8 6 4 2 0 2003 2004 2005 2006 2007 Turnover High and Low Prices Share Price ($) (Note 1) Last transacted High Low Volume weighted average Per Share Earnings (Note 1) (cents) Gross dividend (Note 1) (cents) Capital distribution (Note 1) (net) (cents) Distribution yield (Note 2) (%) Net price earnings ratio (Note 2) Net assets backing ($) (Note 1) 2003 2004 2005 2006 2007 3.05 3.08 1.78 2.37 25.5 9.5 9.0 7.8 9.3 1.77 4.30 4.38 3.00 3.74 29.9 10.0 10.0 5.4 12.5 1.90 5.50 6.60 4.25 5.69 36.1 11.5 11.5 4.1 15.8 2.23 8.80 9.25 5.55 7.22 47.7 14.0 14.0 3.9 15.1 2.58 13.00 15.30 8.30 11.56 64.9 64.0 - 5.5 17.8 3.24 Notes: 1. Earnings per share are calculated based on the Group PATMI by reference to the weighted average number of shares in issue during the year. 2. Volume weighted average share price is used in calculating distribution yield and net price earnings ratio. 3. Comparative figures have been adjusted for sub-division of shares in 2007. 228 Keppel Corporation Limited Report to Shareholders 2007 Share Performance SHAREHoLDING STATISTICS As at 29 February 2008 Total no. of issued shares Issued and Fully Paid-up Capital : $800,791,373.19 Class of Shares : 1,588,106,180 : Ordinary Shares with equal voting rights Size of Shareholdings 1 - 999 1,000 - 10,000 10,001 - 1,000,000 1,000,001 and above Total Twenty Largest Shareholders DBS Nominees Pte Ltd Temasek Holdings (Pte) Ltd Citibank Nominees Singapore Pte Ltd HSBC (Singapore) Nominees Pte Ltd DBSN Services Pte Ltd United Overseas Bank Nominees Pte Ltd Raffles Nominees Pte Ltd DB Nominees (S) Pte Ltd Shanwood Development Pte Ltd Merrill Lynch (Singapore) Pte Ltd Morgan Stanley Asia (Singpore) Securities Pte Ltd Societe Generale S’pore Branch TM Asia Life Singapore Ltd - PAR Fund OCBC Nominees Singapore Pte Ltd Lim Chee Onn Oversea Chinese Bank Nominees Pte Ltd Teo Soon Hoe Amex Nominees (S) Pte Ltd Royal Bank of Canada (Asia) Ltd UOB Kay Hian Pte Ltd Number of Shareholders 463 14,189 1,950 28 % 2.78 85.32 11.73 0.17 Number of Shares 210,980 44,425,323 73,639,406 1,469,830,471 % 0.01 2.80 4.64 92.55 16,630 100.00 1,588,106,180 100.00 Number of Shares 382,728,694 337,643,902 198,606,949 173,065,734 168,487,531 105,402,933 41,763,851 8,276,153 6,400,000 5,783,685 4,243,063 4,215,059 3,789,000 3,425,832 3,334,166(i) 3,303,150 3,168,332(ii) 3,106,131 2,281,414 1,951,500 % 24.10 21.26 12.51 10.90 10.61 6.64 2.63 0.52 0.40 0.36 0.27 0.26 0.24 0.22 0.21 0.21 0.20 0.20 0.14 0.12 Total 1,460,977,079 92.00 Note: (i) (ii) Includes 293,250 shares held by OCBC Nominees Singapore Pte Ltd on his behalf. Includes 40,000 shares held by OCBC Nominees Singapore Pte Ltd on his behalf. substantial shareholder Direct Interest Deemed Interest Total Interest No. of shares % No. of shares % No. of shares % Temasek Holdings (Pte) Ltd 337,643,902 21.26 12,426,269(i) 0.78 350,070,171 22.04 Note (i):- By operation of Section 7 of the Companies Act, Temasek Holdings (Pte) Ltd is deemed to be interested in an aggregate of 12,426,269 Shares in which its subsidiaries and associated companies have an aggregate interest. public shareholders Approximately 77% of the issued shares of the Company is held by the public and therefore, pursuant to Rules 1207 and 723 of the Listing Manual of the Singapore Exchange Securities Trading Limited, it is confirmed that at least 10% of the ordinary shares of the Company is at all times held by the public. Keppel Corporation Limited Report to Shareholders 2007 Shareholding Statistics 229 NoTICE oF ANNUAL GENERAL mEETING AND CLoSURE oF BooKS eppel Corporation Keppel corporation Limited Co Reg No. 196800351N (Incorporated in the Republic of Singapore) NOTiCe iS HeReBY GiVeN that the 40th Annual General Meeting of the ordinary shareholders of the Company which will be held at Four Seasons Hotel, Four Seasons Ballroom (Level 2), 190 Orchard Boulevard, Singapore 248646 on Friday, 25 April 2008 at 2.30 p.m. to transact the following business: As ordinary business 1. To receive and adopt the Directors’ Report and Audited Accounts for the year ended 31 December 2007. Resolution 1 2. 3. 4. 5. To declare a final dividend of 10 cents per share tax exempt one-tier and a special dividend of 45 cents Resolution 2 per share tax exempt one-tier for the year ended 31 December 2007 (2006: final dividend of 8 cents per share less tax). To re-elect the following directors, each of whom will retire pursuant to Article 81B of the Company’s Articles of Association and who, being eligible, offer themselves for re-election pursuant to Article 81C (see Note 2): (i) Lim Chee Onn (ii) Tony Chew Leong-Chee (iii) Teo Soon Hoe Resolution 3 Resolution 4 Resolution 5 To re-elect Mr Sven Bang Ullring who, being over the age of 70 years, will cease to be a director at the Resolution 6 conclusion of this annual general meeting, and who, being eligible, offers himself for re-election pursuant to Section 153(6) of the Companies Act (Cap. 50) to hold office until the conclusion of the next annual general meeting of the Company (see Note 2). To approve the remuneration of the non-executive directors of the Company for the financial year ended 31 December 2007, comprising the following: Resolution 7 (a) the payment of directors’ fees of an aggregate amount of $600,625 in cash (2006: $610,000); and (b) (1) the award of an aggregate number of 15,500 existing ordinary shares in the capital of the Company (the “Remuneration Shares”) to Mr Tony Chew Leong-Chee, Mr Lim Hock San, Mr Sven Bang Ullring, Tsao Yuan Mrs Lee Soo Ann, Mr Leung Chun Ying, Mrs Oon Kum Loon, Mr Tow Heng Tan and Mr Yeo Wee Kiong (together, the “Non-Executive Directors”) as payment in part of their respective remuneration for the financial year ended 31 December 2007 as follows: (i) 2,000 Remuneration Shares to Mr Tony Chew Leong-Chee; (ii) 2,000 Remuneration Shares to Mr Lim Hock San; (iii) 2,000 Remuneration Shares to Mr Sven Bang Ullring; 230 Keppel Corporation Limited Report to Shareholders 2007 Notice of Annual General Meeting and Closure of Books (iv) 2,000 Remuneration Shares to Tsao Yuan Mrs Lee Soo Ann; (v) 1,500 Remuneration Shares to Mr Leung Chun Ying*; (vi) 2,000 Remuneration Shares to Mrs Oon Kum Loon; (vii) 2,000 Remuneration Shares to Mr Tow Heng Tan; and (viii) 2,000 Remuneration Shares to Mr Yeo Wee Kiong. (2) the directors of the Company be and are hereby authorised to instruct a third party agency to purchase from the market 15,500 existing shares at such price as the Directors may deem fit and deliver the Remuneration Shares to each Non-Executive Director in the manner as set out in (1) above; and (3) any director or the Secretary be authorised to do all things necessary or desirable to give effect to the above (see Note 3). 6. To re-appoint the Auditors and authorise the directors to fix their remuneration. Resolution 8 As special business 7. To consider and, if thought fit, approve with or without modification, the following resolution which will be Resolution 9 proposed as an Ordinary Resolution: That pursuant to Section 161 of the Companies Act, Cap. 50 of Singapore, and Article 48A of the Company’s Articles of Association, authority be and is hereby given to the directors of the Company to: (a) (i) issue shares in the capital of the Company (“Shares”) whether by way of right, bonus or otherwise, and including any capitalisation pursuant to Article 124 of the Company’s Articles of Association of any sum for the time being standing to the credit of any of the Company’s reserve accounts or any sum standing to the credit of the profit and loss account or otherwise available for distribution; and/or (ii) make or grant offers, agreements or options that might or would require Shares to be issued (including but not limited to the creation and issue of (as well as adjustments to) warrants, debentures or other instruments convertible into Shares) (collectively “Instruments”), at any time and upon such terms and conditions and for such purposes and to such persons as the directors may in their absolute discretion deem fit; and Keppel Corporation Limited Report to Shareholders 2007 Notice of Annual General Meeting and Closure of Books 231 (b) (notwithstanding that the authority so conferred by this Resolution may have ceased to be in force) issue Shares in pursuance of any Instrument made or granted by the directors while the authority was in force, provided that: (1) the aggregate number of Shares to be issued pursuant to this Resolution (including Shares to be issued in pursuance of Instruments made or granted pursuant thereto and any adjustments effected under any relevant Instrument), does not exceed 50% of the issued share capital of the Company (as calculated in accordance with sub-paragraph (2) below), of which the aggregate number of Shares to be issued other than on a pro rata basis to shareholders of the Company (including Shares to be issued in pursuance of Instruments made or granted pursuant to this Resolution and any adjustments effected under any relevant Instrument) does not exceed 15% of the issued Shares in the capital of the Company (as calculated in accordance with sub-paragraph (2) below); (2) (subject to such manner of calculation as may be prescribed by the Singapore Exchange Securities Trading Limited (“SGX-ST”)) for the purpose of determining the aggregate number of Shares that may be issued under sub-paragraph (1) above, the percentage of issued Shares shall be calculated based on the issued Shares in the capital of the Company as at the date of the passing of this Resolution after adjusting for: (i) new Shares arising from the conversion or exercise of convertible securities or employee share options or vesting of share awards outstanding or subsisting as at the date of the passing of this Resolution; and (ii) any subsequent consolidation or sub-division of Shares; (3) (4) in exercising the power to make or grant Instruments (including the making of any adjustments under the relevant Instrument), the Company shall comply with the provisions of the Listing Manual of the SGX-ST for the time being in force (unless such compliance has been waived by the SGX-ST) and the Articles of Association for the time being of the Company; and (unless revoked or varied by the Company in general meeting) the authority conferred by this Resolution shall continue in force until the conclusion of the next annual general meeting of the Company or the date by which the next annual general meeting is required by law to be held, whichever is the earlier (see Note 4). To transact such other business which can be transacted at the Annual General Meeting of the Company. 232 Keppel Corporation Limited Report to Shareholders 2007 Notice of Annual General Meeting and Closure of Books NOTiCe iS ALSO HeReBY GiVeN that the Transfer Books and the Register of Members of the Company will be closed on 3 May 2008, for the preparation of dividend warrants. Duly completed transfers received by the Company’s registrar, B.A.C.S. Private Limited, 63 Cantonment Road, Singapore 089758 up to the close of business at 5.00 p.m. on 2 May 2008 will be registered to determine shareholders’ entitlement to the proposed final and special dividends. The proposed final and special dividends if approved at this annual general meeting will be paid on 13 May 2008. BY ORDER OF THE BOARD caroline chang Company Secretary Singapore, 27 March 2008 Notes: 1. A Member is entitled to appoint one proxy or two proxies to attend and vote in his place. A proxy need not be a member of the Company. The instrument appointing a proxy must be deposited at the registered office of the Company at 1 HarbourFront Avenue, #18-01 Keppel Bay Tower, Singapore 098632, not less than 48 hours before the time appointed for holding the annual general meeting. 2. Detailed information about these directors can be found in the Board of Directors and Information on Directors and Key Executives sections of the Company’s Annual Report. Mr Lim Chee Onn will upon re-election continue to serve as Executive Chairman, Chairman of the Executive Committee, and member of the Board Safety Committee. Mr Tony Chew Leong-Chee will upon re-election continue to serve as member of the Audit Committee and Executive Committee. Mr Teo Soon Hoe will upon re-election continue to serve as member of the Executive Committee. Mr Sven Bang Ullring will upon re-election continue to serve as Chairman of the Nominating Committee, Chairman of the Remuneration Committee and member of the Board Safety Committee. These directors (other than Messrs Lim Chee Onn and Teo Soon Hoe) are considered by the Nominating Committee to be independent directors. 3. The proposed award of Remuneration Shares to the Non-Executive Directors forms part of the ordinary remuneration of the Non-Executive Directors for the financial year ended 31 December 2007, and is in addition to the proposed directors’ fees in cash referred to in Resolution 7. The Remuneration Shares to be awarded to the Non-Executive Directors will rank pari passu with the then existing issued Shares at the time of the award. The Non-Executive Directors (except Mr Leung Chun Ying) will each, subject to Shareholders’ approval, be awarded 2,000 Shares as part of their remuneration for the financial year ended 31 December 2007. Mr Leung Chun Ying will, subject to Shareholders’ approval, be awarded 1,500 Shares as part of his remuneration for his service on the Board from 1 January 2007 to 30 September 2007. The Non-Executive Directors will abstain from voting, and will procure their respective associates to abstain from voting, in respect of this Resolution 7. 4. Resolution 9 is to empower the directors from the date of the Annual General Meeting until the date of the next Annual General Meeting to issue further Shares and Instruments in the Company, up to a number not exceeding in total 50 per cent. of the issued Shares in the capital of the Company, with a sub-limit of 15 per cent. for issues other than on a pro rata basis to shareholders. The 15 per cent sub-limit for non-pro rata issue is lower than the 20 per cent sub-limit allowed under the Listing Manual of the SGX-ST and the Articles of Association of the Company. For the purpose of determining the aggregate number of Shares that may be issued, the percentage of issued shares shall be based on the number of issued shares in the capital of the Company at the time that Resolution 9 is passed, after adjusting for (a) new Shares arising from the conversion or exercise of any convertible securities or share options or vesting of share awards which are outstanding or subsisting at the time that Resolution 9 is passed, and (b) any subsequent consolidation or sub-division of Shares. * Mr Leung Chun Ying resigned from the Board with effect from 1 October 2007. Keppel Corporation Limited Report to Shareholders 2007 Notice of Annual General Meeting and Closure of Books 233 FINANCIAL CALENDAR Fy 2007 Financial year-end Announcement of 2007 1Q results Announcement of 2007 2Q results Announcement of 2007 3Q results Announcement of 2007 full year results Despatch of Summary Financial Report to Shareholders Despatch of Annual Report to Shareholders Annual General meeting 2007 Proposed final and special dividends Books closure date Payment date Fy 2008 Financial year-end Announcement of 2008 1Q results Announcement of 2008 2Q results Announcement of 2008 3Q results Announcement of 2008 full year results 31 December 2007 26 April 2007 26 july 2007 25 october 2007 31 january 2008 27 march 2008 10 April 2008 25 April 2008 5.00 p.m., 2 may 2008 13 may 2008 31 December 2008 April 2008 july 2008 october 2008 january 2009 234 Keppel Corporation Limited Report to Shareholders 2007 Financial Calendar CoRPoRATE INFoRmATIoN BoArD oF DIrectors Lim Chee onn (Chairman) Tony Chew Leong-Chee Lim Hock San Sven Bang Ullring Tsao Yuan mrs Lee Soo Ann oon Kum Loon (mrs) Tow Heng Tan Yeo Wee Kiong Choo Chiau Beng Teo Soon Hoe executIVe coMMIttee Lim Chee onn (Chairman) Tony Chew Leong-Chee Lim Hock San oon Kum Loon (mrs) Tow Heng Tan Choo Chiau Beng Teo Soon Hoe AuDIt coMMIttee Lim Hock San (Chairman) Tony Chew Leong-Chee oon Kum Loon (mrs) reMunerAtIon coMMIttee Sven Bang Ullring (Chairman) Tsao Yuan mrs Lee Soo Ann Tow Heng Tan noMInAtInG coMMIttee Sven Bang Ullring (Chairman) Tsao Yuan mrs Lee Soo Ann oon Kum Loon (mrs) BoArD rIsK coMMIttee oon Kum Loon (mrs) (Chairman) Lim Hock San Tow Heng Tan Yeo Wee Kiong BoArD sAFety coMMIttee Yeo Wee Kiong (Chairman) Lim Chee onn Sven Bang Ullring Tsao Yuan mrs Lee Soo Ann coMpAny secretAry Caroline Chang reGIstereD oFFIce 1 HarbourFront Avenue #18-01 Keppel Bay Tower Singapore 098632 Telephone: (65) 6270 6666 Telefax: (65) 6413 6391 Email: keppelgroup@kepcorp.com www.kepcorp.com sHAre reGIstrAr B.A.C.S. Private Limited 63 Cantonment Road Singapore 089758 AuDItors Deloitte & Touche Certified Public Accountants Singapore Audit Partner: Chaly mah Chee Kheong Year appointed: 2006 Keppel Corporation Limited Report to Shareholders 2007 Corporate information 235 NoTES Designed by greymatter williams and phoa (asia) Keppel Corporation Limited (Incorporated in the Republic of Singapore) 1 HarbourFront Avenue #18-01 Keppel Bay Tower Singapore 098632 Tel: (65) 6270 6666 Fax: (65) 6413 6391 Email: keppelgroup@kepcorp.com www.kepcorp.com Co Reg No: 196800351N This annual report is printed on recycled paper

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