Keppel Corp Ltd Annual Report 2009

Plain-text annual report

Report to Shareholders 2009 Fortifying Fundamentals Sustaining Growth To be the Provider of Choice for Solutions to the Offshore & Marine Industries, Sustainable Environment and Urban Living. We will develop and execute our business proﬁ tably, with Safety and Innovation, guided by our three key business thrusts of Sustaining Growth, Empowering Lives and Nurturing Communities. CONTENTS 1 Key Figures 2009 2 Group Financial Highlights 2009 3 Our Track Record from 2000 to 2009 4 Chairman’s Statement 10 Interview with the CEO 16 Key Messages 22 Group Strategic Directions 24 Keppel Around the World 26 Board of Directors 30 Keppel Group Boards of Directors 32 Keppel Technology Advisory Panel 34 Senior Management 36 Investor Relations 38 Awards and Accolades 40 Special Feature – Opportunities in the Environmental Business 48 Operating & Financial Review 49 – Group Structure 50 – Management Discussion and Analysis 52 – Offshore & Marine 64 – 72 – Property 80 – 82 – Financial Review and Outlook 92 Sustainability Report Sustaining Growth Infrastructure Investments 94 – Corporate Governance 114 – Risk Management 116 – Environmental Protection 120 – Product Excellence Empowering Lives 124 – People Development 132 – Safety and Health Nurturing Communities Industry Engagement 142 – 146 – Green Endeavours 148 – Community Relations Directors’ Report & Financial Statements 154 – Directors’ Report 158 – Balance Sheets 159 – Consolidated Proﬁ t and Loss Account 160 – Consolidated Statement of Comprehensive Income Independent Auditors’ Report 161 – Statement of Changes in Equity 163 – Consolidated Statement of Cash Flows 165 – Notes to the Financial Statements 211 – Signiﬁ cant Subsidiaries and Associated Companies 222 – Statement by Directors 223 – 224 225 Directors and Key Executives 235 Major Properties 238 Group Five-Year Performance 242 Group Value-Added Statements 243 Share Performance 244 Shareholding Statistics 245 Notice of Annual General Meeting and Interested Person Transactions Closure of Books 251 Corporate Information 252 Financial Calendar Key Figures 2009 $12.2b Revenue increased 4% from FY 2008’s $11.8 billion. $1,265m PATMI increased 15% from FY 2008’s $1,097 million. 23.9% ROE increased 7% from FY 2008’s 22.4%. $1,026m EVA increased 20% from FY 2008’s $855 million. 79.4¢ EPS increased 15% from FY 2008’s 69.0 cents per share. 61.0¢ Distribution per share increased 74% from FY 2008’s 35.0 cents per share. $1,094m Free cash ﬂ ow continued to be above $1 billion. 0.14x Net cash ratio improved from FY 2008’s 0.04x. PATMI Notwithstanding the unstable and difﬁ cult global economic conditions, our three key divisions delivered strong performances, bringing PATMI to a new high of $1,265 million. ROE Improving year on year, ROE has remained above 20% for the past three years, reaching a new record of 23.9% in 2009. Distribution Total distribution per share for 2009 comprises ﬁ nal dividend of 23 cents, special dividend in specie equivalent to approximately 23 cents and interim dividend of 15 cents already paid. This is about 77% of PATMI. Key Figures 2009 1 Group Financial Highlights 2009 Earnings Per Share (cents) 2009 2008 Return On Equity (%) 2009 2008 Distribution Per Share (cents) 2009 2008 79.4 69.0 23.9 22.4 61.0 35.0 For the year ($ million) Revenue Proﬁ t EBITDA Operating Before tax & exceptional items Attributable before exceptional items Attributable after exceptional items Operating cash ﬂ ow Free cash ﬂ ow Economic Value Added (EVA) Before exceptional items After exceptional items Per share Earnings (cents) Before tax & exceptional items Attributable before exceptional items Attributable after exceptional items Net assets ($) Net tangible assets ($) Economic Value Added ($ million) 2009 2008 1,026 855 At year-end ($ million) Shareholders’ funds Minority interests Capital employed Net cash Net cash ratio (times) 2009 2008 % Change 12,247 11,805 +4 1,679 1,505 1,856 1,265 1,625 670 1,094 1,026 1,379 98.9 79.4 102.0 3.75 3.70 5,985 2,728 8,713 1,177 0.14 1,377 1,238 1,597 1,097 1,098 2,047 1,876 855 692 84.2 69.0 69.0 2.89 2.84 +22 +22 +16 +15 +48 -67 -42 +20 +99 +17 +15 +48 +30 +30 4,596 2,153 6,749 275 0.04 +30 +27 +29 +328 +250 Return on shareholders’ funds (%) Proﬁ t before tax & exceptional items Attributable proﬁ t before exceptional items 29.8 23.9 27.3 22.4 +9 +7 Shareholders’ value Distribution (cents per share) Interim dividend Final dividend Special dividend in specie* Total distribution Share price ($) Total Shareholder Return (%) 15.0 23.0 23.0 61.0 8.23 100.8 14.0 21.0 – 35.0 4.33 (64.4) +7 +10 n.m. +74 +90 n.m. n.m. not meaningful * This special dividend in specie is conditional upon certain approvals being obtained as set out in paragraph 7 of the announcement dated 26 January 2010. 2009 2008 1Q 2Q 3Q 4Q Total 1Q 2Q 3Q 4Q Total Group quarterly results ($ million) Revenue EBITDA Operating proﬁ t Proﬁ t before tax & exceptional items Attributable proﬁ t before exceptional items Earnings per share (cents) 2,978 356 315 400 285 17.9 3,202 400 357 466 318 19.9 3,038 455 420 487 319 20.1 3,029 12,247 1,679 1,505 1,856 1,265 79.4 468 413 503 343 21.5 2,211 295 262 366 262 16.5 2,643 294 261 434 299 18.8 3,217 360 325 400 273 17.1 3,734 11,805 1,377 1,238 1,597 1,097 69.0 428 390 397 263 16.6 2 Keppel Corporation Limited Report to Shareholders 2009 Our Track Record from 2000 to 2009 From Strength to Strength Over the last decade, the Keppel Group has grown steadily, delivering and enhancing shareholder value through the strengthening of its core competencies and the expansion of its global footprint. Moving into the future, we continue to fortify our fundamentals to achieve sustainable growth. Revenue ($ million) 2009 2000 Attributable Profit Before Exceptional Items ($ million) 2009 2000 Earnings Per Share (cents) 2009 2000 Distribution Per Share (cents) 2009 2000 Return On Equity (%) 2009 2000 Shareholders’ Funds ($ million) 2009 2000 Net Cash/(Gearing) Ratio (times) 2009 2000 Our Track Record from 2000 to 2009 97% 12,247 6,218 1,265 237 434% 416% 79.4 15.4 61.0 6.5 838% 23.9 8.6 5,985 2,679 178% 123% 0.14 (1.00) 114% Growing Shareholder Returns Distribution per share grew 838% over the last decade, from 6.5 cents per share in 2000 to 61.0 cents per share in 2009, in tandem with the over 400% increase in attributable proﬁ ts. Net Cash Position The improvement of our gearing position from 1x to a net cash position of 0.14x is attributable to strong ﬁ nancial discipline over the years. 3 Chairman’s Statement Earnings per share rose to 79.4 cents from FY 2008’s 69.0 cents. EPS (cents) 80 60 40 20 0 64.9 69.0 79.4 2007 2008 2009 Dear Shareholders, Early last year we faced a rather gloomy and pessimistic future caused by the global ﬁ nancial crisis. The September 2008 collapse of major US ﬁ nancial institutions was still reverberating around the world. The world economy came under severe pressures and there were many predictions of deep recession, massive business failures and mass unemployment. Indeed there was widespread recession and markets fell worldwide. Governments around the world, including the Singapore Government, launched prompt and wide-ranging measures to arrest the loss of conﬁ dence and stimulate economies. These counter-recessionary measures including unprecedented massive ﬁ scal and monetary stimulus succeeded to pull the global economy back from the brink, averting a Great Depression-style meltdown. The global economy began to stabilise in the second half. The US, Japan and the Eurozone countries emerged from the doldrums in the third quarter of the year, although problems such as unemployment and high ﬁ scal debt continue to hinder a steady recovery. Oil demand picked up and prices recovered from the below US$40 a barrel level seen during the depths of the ﬁ nancial crisis and reached the US$70 a barrel level by mid-2009. Developing countries, especially those in Asia, led the global recovery. China and India, in particular, were able to sustain their growth throughout the crisis, proving to be important locomotives for growth and recovery. The general mood for 2010 is certainly much more upbeat and optimistic. While business conditions remain fragile amidst an uncertain transition from public sector-led support to private sector-driven demand, there is general expectation that the global recovery can be sustained. However, it will take time for markets to work out the excesses of recent years, so growth is likely to remain subdued for the next few years. Nevertheless, we can be cautiously conﬁ dent that the worst is over. Amidst these tough and uncertain operating conditions, I am particularly pleased to report that Keppel has turned in yet another outstanding set of results. Keppel’s 2009 performance had even surpassed the previous record results achieved in 2008. Excluding exceptional gains, proﬁ ts after tax and minority interests (PATMI) exceeded the $1 billion threshold for a third successive year, rising 15% to a new high of $1.27 billion. Earnings per Share rose in tandem to 79.4 cents from 69.0 cents in FY 2008. Return on Equity remained well above 20%. For the ﬁ rst time, our three Divisions – Offshore & Marine, Infrastructure and Property - all reported positive Economic Value Added (EVA), increasing the Company’s EVA by $171 million to a record $1.03 billion. To reward shareholders for your continued support and conﬁ dence in Keppel, the Board has recommended a full year total distribution of 61 cents per share, comprising an ordinary dividend of 38 cents (including 15 cents interim dividend) and a special dividend in specie of 23 cents. This is almost double the 35 cents per share payout for 2008. The dividend in specie of units in the proposed K-Green Trust will, subject to shareholder and regulatory approvals, allow Keppel shareholders to directly participate in our growth portfolio of environmentally friendly urban infrastructure assets for long-term, regular and predictable distributions. 4 Keppel Corporation Limited Report to Shareholders 2009 $1.27b PATMI rose 15% to a new high from FY 2008’s $1.1 billion. “Leveraging the Group’s resources, synergies and brand equity, Keppel will actively pursue opportunities to drive sustained, broad-based growth and enhance shareholder value across its businesses.” Dr Lee Boon Yang, Chairman Chairman’s Statement 5 Chairman’s Statement “Our ‘Near Market, Near Customer’ strategy has served us well. We will continue to build on this strategy.” Dr Lee Boon Yang with the Keppel management engaging the local community during the Brazil stopover of the Clipper Round the World Yacht Race. Fortifying Fundamentals Keppel’s sterling performance through the ﬁ nancial maelstrom is a testament to our robust business strategy, diversiﬁ ed businesses and operating fundamentals. Our ﬁ rm commitment to execution excellence backed by disciplined ﬁ nancial management, Group capabilities and cohesiveness have long been Keppel’s deﬁ ning traits. These deeply entrenched corporate values enabled the Group to rise to the occasion and to vigorously deal with the adverse business climate as we had done in previous global crises through the years. As a well-managed company with strong ﬁ nancials and execution capabilities, Keppel was very well-placed to ride out the economic storm. The excellent results of 2009 bear testimonial to our resilience. We are also poised to seize new opportunities which will spring up with the upturn. I believe Keppel will continue to provide shareholders with a sound investment prospect and healthy returns. Today, our broad portfolio of sustainable businesses harnesses the Group’s strengths in project management, technology innovation, market focus and collective networks. We will continue to sharpen our focus in the next phase of growth, further building on our strengths and capabilities to hone our competitive edge and exploit opportunities to create and realise value for shareholders. Keppel’s strategic vision is to build a leading position in businesses which will fulﬁ ll fundamental needs of communities worldwide seeking a better quality of life. We recognise that there will be increasing demand for sustainable energy, living and environmental solutions in a rapidly urbanising world. The Group’s three core Divisions will have key roles in crystallising our vision of becoming a provider of choice for solutions to make the world a better place. 6 Keppel Corporation Limited Report to Shareholders 2009 Offshore & Marine Despite the slowdown in order momentum in 2009, Keppel Offshore & Marine’s (Keppel O&M) relentless focus on execution and project management excellence has reaped rewards and strengthened its track record. Last year Keppel O&M delivered 34 projects, including a record 14 rigs, safely, on time and within budget. Keppel O&M’s suite of leading-edge proprietary designs backed by an extensive network of 20 yards and ofﬁ ces worldwide has yielded operating and cost efﬁ ciencies. At the same time, prudently managed project ﬁ nancials, stringently tracked progress payments and diversiﬁ ed customer base comprising established drilling contractors, as well as national oil companies with long-term exploration and production programmes, mitigated project risks and enabled Keppel to maintain its market leader position. Our ‘Near Market, Near Customer’ strategy has served us well. We will continue to build on this strategy. Keppel O&M will explore calibrated expansion in strategic markets. This will include strengthening our existing leading position in Brazil’s offshore and marine segment to further support the country’s aggressive plans to grow its oil and gas industry. We will also seek additional capacity in the Caspian region to maximise opportunities from potential exploitation of the Kashagan Field. Infrastructure The acceleration of urbanisation worldwide brings immense environmental challenges. Sustainable energy sources, clean water and waste management are high priorities for urban development. We anticipate the growing demand for environmentally friendly urban solutions will become a growth driver for our environmental engineering business. Keppel Integrated Engineering (KIE) will leverage its core competencies in water and waste-to-energy (WTE) technologies and the Group’s extensive network to become a world leader in environmental solutions, whether through organic growth or acquisitions. It is already a signiﬁ cant global player, with a creditable track record that includes two landmark projects – an integrated solid waste management facility and a wastewater treatment and reuse plant – in Doha, Qatar, a market leader position for imported WTE solutions in China and a key role in the EU’s largest waste and renewable energy privatisation project, in the Greater Manchester energy-from-waste plant. At home, KIE, with its two incineration plants, is already handling almost half the solid waste in Singapore. The recent acquisition of Singapore’s largest district cooling systems provider will expand KIE’s slate of eco-friendly and energy-efﬁ cient solutions. Together with Keppel O&M, KIE is also looking at possibilities in the offshore wind energy sector to tap into the global demand for clean wind power. The planned listing of the K-Green Trust, with the Senoko and Tuas WTE plants and the Ulu Pandan NEWater facility as underlying assets, will offer a new value- creating earnings platform for the Group. Property Against the background of rebounding sentiments in key Asian markets, Keppel Land’s strategic positioning in the niche market segments of large-scale townships and integrated lifestyle developments holds great potential. Demand from an expanding middle class in the region’s economies is rising while quality supply in choice locations across key and second-tier cities in regional markets is Chairman’s Statement 7 Chairman’s Statement Warm ties for a successful Tianjin Eco-City (from left) Mr Choo Chiau Beng, Chief Executive Ofﬁ cer of Keppel Corporation, Dr Lee Boon Yang, Chairman of Keppel Corporation, and Mr Zhang Gaoli, Party Secretary of the Communist Party of China Tianjin Municipal Committee. increasingly scarce. Keppel Land brought Evergro Properties into its fold, to capitalise on growth opportunities in China and amalgamate competencies and networks across key and second-tier Chinese cities. With a pipeline of more than 70,000 prime homes in the region, Keppel Land is poised to meet the homeownership aspirations of a rapidly urbanising Asia. We are able to synergise our competencies in environmental engineering and property development to develop large-scale integrated eco-friendly townships in the region, such as the landmark 30-sq km Sino-Singapore Tianjin Eco-City. Keppel is leading the Singapore Consortium for this joint venture project with a Chinese Consortium. The project is making good progress. A sustainable urban showcase for China, the Tianjin Eco-City has secured investments of around $6.7 billion in just 15 months, attracting leading developers from China, Taiwan, Japan and Malaysia to collaborate in a variety of integrated eco-driven residential, commercial, industrial, and cultural-leisure developments. Featuring a green central business district, eco-transport networks, intelligent urban lighting and other eco-friendly features, the Tianjin Eco-City will stand out as a harmonious and eco-friendly live-work-play environment. Keppel has broken ground on a 35.4-ha site within the Eco-City’s Start-Up Area to develop both quality homes and commercial space. Sustaining Growth Keppel continues to believe that strong corporate governance is essential to the sustainability of our businesses and performance. We remain ﬁ rmly committed to maintaining high standards in corporate governance as part of our accountability to all our stakeholders. Prudent capital and ﬁ nancial management coupled with proactive risk management have kept the Group on even keel even in the midst of turbulent times. Stringent project selection, close progress payment monitoring and carefully phased project launches are all part of our robust capital, human resource and risk management systems. Keppel places the highest value on a safe workplace for all our employees and workers. A safe work environment translates into superior operating performance. This is why safety has long been enshrined as one of Keppel’s core values. Keppel Corporation was also the ﬁ rst company in Singapore to establish a Safety Committee at Board level in 2006. The Group’s Accident Frequency Rate has continued to improve reaching a low of 0.43 reportable incidents per million man-hours worked, down from 0.49 for 2008. Keppel O&M is also pioneering the ﬁ rst integrated safety training complex in Singapore. We will continue to step up these efforts to implement best safety practices to ensure that our employees and workers will be able to return home safely to their families and loved ones at the end of each day of hard and productive work. Our people are our primary resource. Keppel will continue to nurture our employees. We will provide opportunities for employees to maximise their potential, develop their talents and capabilities to contribute to the Group’s competitiveness and business success. We will continue to upgrade the capabilities of our employees to become more productive. We continue to place great emphasis on grooming our people to ensure smooth and effective succession for key management positions. In 2009, we established the Keppel College to identify, develop and 8 Keppel Corporation Limited Report to Shareholders 2009 nurture young and high potential talents and to grow them into future generations of Keppel leaders and valuable additions to our human capital. Striving for Success Today we continue to face an external business environment that remains volatile. The Board will work closely with Management to manage risks and ensure the Group remains ﬂ exible and robust to overcome the multiple challenges in the different countries and regions where we operate. Leveraging the Group’s resources, synergies and brand equity, Keppel will actively pursue opportunities to drive sustained, broad-based growth and enhance shareholder value across its businesses. Acknowledgements I take this opportunity to acknowledge the following changes as part of the Board’s proactive self-renewal and governance process. Most signiﬁ cantly, it is my honour and privilege to assume the role of non-executive Chairman from Mr Lim Chee Onn, who facilitated the transition up to last June after handing over the Chief Executive baton to Mr Choo Chiau Beng in January 2009. We are indeed much indebted to Mr Lim for his 25 years of sterling service to the Group at both the Board and executive levels, helming Keppel’s transformation into a dynamic global enterprise with a solid reputation for excellence. We are grateful that Mr Lim had agreed to continue as our Senior Advisor so as to share with us his extensive and diverse business experience as well as business networks. We also record our appreciation to Dr Lee Tsao Yuan, who stepped down and did not seek re-election at the last Annual General Meeting, for her many years of sound advice and loyal service to the Board and its Nominating, Remuneration and Safety Committees. We also thank Mr Yeo Wee Kiong, who stepped down from the Board last August, for his wise counsel and dedicated service, particularly as Board Safety Committee Chairman guiding our safety initiatives. We wish Mr Lim Chee Onn, Dr Lee Tsao Yuan and Mr Yeo Wee Kiong all the best in their future endeavours. We are pleased to welcome to the Board two new members, Mr Tong Chong Heong, Chief Executive Ofﬁ cer of Keppel O&M, and Mr Alvin Yeo, Senior Counsel and distinguished legal practitioner. Mr Tong will, as Executive Director, support the Board with his 40 years of experience in steering Keppel O&M into a world leading offshore and marine group, while Mr Yeo’s experience in the corporate legal sector will contribute to the Board’s corporate governance. Last but not least, I wish to thank Directors, Management, employees, partners, customers, and all stakeholders for their unstinting support through this tumultuous period. The Group shall spare no effort and shall endeavour to chart new growth paths so as to achieve even greater success in the years ahead. Thank you. Yours sincerely, Lee Boon Yang Chairman 1 March 2010 Chairman’s Statement 9 Interview with the CEO Q: Describe 2009 for the Keppel Group. A: 2009 was a challenging yet fruitful year for Keppel. It was a record year for the Company despite the gloom across the globe, especially in the ﬁ rst half. At Keppel, we were not immune to the impact of the downturn caused by the tight credit situation. Fortunately, we could count on our experiences in past crises to guide us in what we needed to do. At the start of 2009 when I took over as Chief Executive Ofﬁ cer, my priority for the Group was to make the Group leaner and stronger with proﬁ table businesses. Over the past year, we worked towards this goal by systematically reviewing, consolidating and rationalising our businesses, processes and resources. The Group enhanced its efﬁ ciency, raised productivity and stepped up its training and development of its workforce. The sale of our stake in Singapore Petroleum Company and the rights issues at our property subsidiaries further strengthened our balance sheet, positioning the Group well for the necessary operational capital expenditure and possible acquisitions. We continued to leverage our core competencies to execute our projects well, delivering with excellence a record 14 rigs, as well as six major conversions/ upgrades/completions and 14 specialised vessels. We secured a major environmental engineering contract in the UK, and in Singapore, acquired the Senoko Waste-to-Energy (WTE) Plant and successfully completed the construction of the Tuas WTE Plant. On the property front, we sold a total of about 3,500 homes in Singapore and other parts of Asia. I’m happy that our efforts in the past year have paid off, and we ended 2009 on a high note with record proﬁ ts before exceptional gains for the Group at $1.265 billion. For the ﬁ rst time in Keppel’s history, all businesses achieved positive Economic Value Added, while Return on Equity was at 23.9%. To mark this achievement, we are rewarding shareholders with a proposed total distribution of 61 cents per share. Q: What will be Keppel’s focus for the next few years? A: Keppel has emerged stronger from this last crisis and with our ﬁ rm fundamentals, we are in a good position to ride the economic upturn and to capture more value for the Group’s sustainable growth. Keeping Keppel ﬁ ghting ﬁ t remains my top priority. We have outlined a collective vision for the Group – to be the Provider of Choice for Solutions to the Offshore & Marine Industries, Sustainable Environment and Urban Living. We aim to achieve this through developing and executing our businesses proﬁ tably, with safety and innovation, and will be guided by our three key business thrusts of Sustaining Growth, Empowering Lives and Nurturing Communities. In the near term, we will be focused on growing the Group further and we remain committed to build up our three key pillars. In the past year, we have started to strengthen the synergy among our businesses, and we will continue to do so. This enables the Group to better meet the growing demand arising from the need for a more sustainable environment and the increasing trend of urbanisation in Asia. I see opportunity particularly in marrying our competencies in environmental engineering and property to develop integrated townships in China, Vietnam, Indonesia and India. 10 Keppel Corporation Limited Report to Shareholders 2009 Mr Choo Chiau Beng, Chief Executive Ofﬁ cer Meanwhile, we will also continue to focus on what we do best. Our competitive advantages, like our execution excellence and technology edge, will be further strengthened. In 2009, we beneﬁ ted from the enhanced productivity and operational efﬁ ciencies, and this is an area we will continue to hone. In addition, I am intent on raising the next generation of Keppelites to lead and grow the Company further. During the year, Keppel College was set up to identify, develop and nurture young and high potential talents. Efforts are being stepped up to groom the next set of leaders to ensure that the Group continues to have smooth leadership transitions, another hallmark of Keppel. A: I would like to do both, sticking, of course, to our core competencies. We will continue to have a ﬁ rm foundation in our core talents, skill sets and technology for organic growth. Apart from this, we will also acquire assets, technology or skill sets which we currently may not have but are necessary to help us broaden and deepen our core competencies to capture future demand in our businesses. Acquisitions must ﬁ t into our strategy, providing us our desired returns of around 12% and more importantly, contributing to the sustained growth of Keppel. We are ready to seize opportunities to buy businesses that offer the right ﬁ t. The acquisition of Singapore’s largest district cooling systems provider, now named as Keppel DHCS Pte Ltd, helped to broaden the suite of solutions offered by our environmental engineering business, while the purchase of the Senoko WTE Plant from the Singapore Government served as seed asset to our “green” infrastructure trust. This trust will provide us and its investors with a steady recurring income stream. A: The slowdown in new orders in 2009 has allowed us to focus on delivering on our order backlog to our customers on time, within budget and with a good safety record. I am pleased that Keppel FELS was awarded $2 million for the early deliveries of 13 rigs in 2009. In a difﬁ cult market, I must say we did relatively well to secure $1.7 billion worth of new orders with $1.2 billion secured in the last quarter, extending our $5.6 billion net orderbook into 2013. 11 Q: Will you grow Keppel’s key businesses organically, or are you more focused on seeking M&A opportunities? Q: What is your outlook of the offshore and marine industry in the near term? Interview with the CEO Interview with the CEO Q: How about the longer term outlook? Q: 2009 was a record year for Keppel Offshore & Marine (Keppel O&M). How are you going to sustain Keppel O&M’s growth momentum? We expect 2010 to be better than 2009, due to the recovery in global Exploration and Production (E&P) spending brought on by the turnaround in global economic outlook. However, we are unlikely to see the level of orders of 2007 and 2008. So far, we have secured about $1.3 billion worth of new orders in the ﬁ rst two months of 2010. Enquiries are at a healthy level, and we are working to convert them into ﬁ rm orders. Looking ahead, the key thrust will be in deepwater production in Brazil, the Gulf of Mexico, West Africa and possibly Australia. These regions saw major oil and gas discoveries in 2009, adding to the deepwater reserves. Industry expert Douglas Westwood has forecasted that deepwater expenditure will reach US$137 billion over the next ﬁ ve years and deepwater subsea wells are set to account for over 60% of all subsea wells by 2015, compared to less than half in 2009. Deepwater oil production is therefore expected to rise steadily, from slightly over seven million barrels of oil per day (bopd) in 2009 to more than 10 million bopd in 2015. With our proven technology and capabilities, we are ready to clinch orders in this segment. The P-61 Tension Leg Wellhead Platform contract awarded by Petrobras and Chevron to FloaTEC, LLC, our joint venture with J. Ray McDermott, will contribute towards building up our track record in this area. A: Over the longer term, the industry fundamentals remain sound. According to the International Energy Agency, global energy demand is set to resume its long- term upward trend once the economic recovery gathers pace. Oil demand is expected to rise 24% from 85 million bopd in 2008 to 105 million bopd in 2030. While demand for renewable energy is expected to increase, fossil fuel remains the dominant source of energy worldwide in the foreseeable future, accounting for 77% of the overall demand increase in energy. This translates into the need for continued signiﬁ cant investment in E&P activities in the longer run. In addition, expected increases in capital spending in oil and gas infrastructure and technology will help boost production rates to meet the rising consumption from the industrial and transportation sectors. Douglas Westwood has predicted offshore production expenditure per year to reach US$360 billion by 2013, compared to an estimated US$260 billion spent in 2009. The deepwater market remains the highest growth prospect in the medium to long term. E&P activities are slowly but surely shifting towards deepwater to replace the fast depleting shallow water reserves. A: Moving forward, we will continue to leverage our established competencies in execution, project and cost management, our technology advantage, as well as our network of global yards to help sustain the growth momentum of our offshore and marine business. As a premier offshore and marine group, we offer our customers a complete range of products and solutions, ranging from jackups and semisubmersibles to Floating Production Storage and Ofﬂ oading vessel conversions, shiprepair and specialised shipbuilding. Our yard in Singapore is currently outﬁ tting two drillships, while our yard in Brazil has just won contracts to upgrade and repair three drillships. 12 Keppel Corporation Limited Report to Shareholders 2009 We believe what stands us apart is our keen sense of what works in the offshore and marine business. We know the business better than others, and we understand the cycles and the risks associated with the business. We have very close relationships with our customers, and we anticipate their needs even before they are made known to the public. Another important element of good project and cost management is the ability to forge close ties with the suppliers. At Keppel, we have a reliable pool of suppliers whom we can count on. To ensure we continue to meet the needs of our customers, we are seeking opportunities to advance our ‘Near Market Near Customer’ strategy, mainly in Brazil, the Caspian region and the Gulf of Mexico, so that we can selectively net the orders as and when they occur in the next few years. Apart from Brazil, the activity in the Caspian region continues to be high and we expect more investments in E&P activities. To help us meet future demand in this region and to complement our Caspian Shipyard, we have signed an agreement with the State Oil Company of Azerbaijan and the Azerbaijan Investment Committee to invest in a new shipbuilding and repair yard in Baku. In the Gulf of Mexico, there are capacity expansion opportunities in Mexico but it will take time to realise. We are in a good position there with our yard in Brownsville, Texas, near the border of Mexico. A: Petrobras has announced a massive ﬁ ve-year E&P spending plan of around US$174 billion, which includes ordering an additional 28 drilling rigs to be built in Brazil between 2013 and 2018. With our established yard, long-term relationships and sound track record of deliveries in Brazil, we are conﬁ dent of our ability to build some of these rigs for Petrobras. A number of our customers, the drilling contractors, are discussing with us on how to partner them in meeting the orders. We will seek orders which are meaningful to us. We know that apart from cost, customers like Petrobras value execution capability, experience and track record. This is where we have an edge. Currently, Brazil is facing a shortage of yard capacity. We are working hard to raise our productivity in Brazil and manage our costs there to stay competitive. We are expanding the capacity of our yard in Angra, and at the same time considering a possible acquisition of another yard in Brazil. A: On the whole, we are happy with the progress made by our Infrastructure Division. For 2009, the Division has once again doubled its proﬁ t after tax and minority interests from $63 million in 2008 to $126 million. This Division is now contributing a healthy 10% to the Group’s bottom line, and I am hoping that this will grow. All businesses in our Infrastructure Division are making concerted efforts to boost their earnings base by strengthening their existing businesses, seeking and moving into earnings-accretive adjacent businesses. 13 Q: How much of the upcoming orders from Petrobras can Keppel get? Q: How do you intend to continue to grow the earnings contribution from Infrastructure Division? Interview with the CEO Interview with the CEO Q: With the improved balance sheets at companies in your Property Division, where do you see opportunities to grow this Division further? In environmental engineering, we are leveraging renewed global efforts to combat climate change to secure more projects with our proven WTE and water treatment technologies. Over the years, we have built up a sizeable portfolio of assets and projects and these serve as a valuable track record for us to secure new jobs. With the recent acquisition of a new capability to provide district heating and cooling systems, Keppel Integrated Engineering (KIE) is working to expand its slate of products and solutions with the aim of becoming a world leader in environmental solutions. The offshore wind business is another area which poses potential for KIE, where our offshore and marine expertise and technology can be transferred selectively and innovatively to offshore wind farm installation and maintenance. We are delivering on our promise to expand our infrastructure growth platforms and to extract value from our assets. We have announced the proposed listing of the K-Green Trust by 2Q 2010, with our three Singapore assets – Senoko WTE Plant, Ulu Pandan NEWater Plant and the Keppel Seghers Tuas WTE Plant, as seed assets. When listed, the Trust will offer Keppel, its shareholders and other like-minded investors with long-term, regular and predictable distributions. The Trust is expected to provide growth in distributions through future investments in green infrastructure assets. Keppel Energy’s 500 MW clean gas-ﬁ red co-generation plant, which began operations in 2007, has produced good performance. To meet the growing demand for clean energy, we are planning to expand the capacity of this plant by an additional 900 MW. Through Keppel Telecommunications & Transportation, we are also capitalising on rising demand in logistics outsourcing and data centres. A: For 2009, our Property Division recorded a better-than-expected performance, thanks to the easing of liquidity and credit conditions in the second half of the year. Both the Singapore and regional residential markets rebounded, resulting in the sale of 3,500 homes, with the bulk being from our townships in China. Our downtown prime ofﬁ ce portfolio was also off to a good start this year. Nomura signed a 12-year lease for 102,000 square feet of space at our one-third-owned Marina Bay Financial Centre (MBFC) Tower Two. This brought the overall pre-commitment level at MBFC to 68%, with Phase One’s pre-commitment level reaching 79%. With a healthy gearing level and a good brand name, our Property Division is well-positioned to build on the existing portfolio while meeting growing demand for homes across an urbanising Asia. The immediate near-term goal will be to seek development and acquisition opportunities in Singapore, China, India, Vietnam and Indonesia, with continued focus on developing quality residential, ofﬁ ce and township projects. 14 Keppel Corporation Limited Report to Shareholders 2009 Q: How is the progress of the Tianjin Eco-city project? When will it start contributing to Keppel’s earnings? Q: How do you intend to maximise synergy in all your businesses? Q: What does it take for Keppel to realise the Group Vision which you have articulated in 2009? A: The 30-sq km Sino-Singapore Tianjin Eco-City project, where we are spearheading the Singapore Consortium, is progressing well. We expect contributions to ﬂ ow in by ﬁ rst half of 2011. In just two years, the Eco-City has raised more than 30 billion yuan (approximately $6.7 billion) worth of investment commitments from leading developers in China, Taiwan, Japan and Malaysia. Apart from eco-friendly residential developments, the Eco-City is featuring a ﬁ rst-of-its-kind eco-central business district, eco-transport networks, intelligent urban lighting and waste management systems, and an international school. We have also started construction of Keppel’s 35.4-ha site in the Eco-City. Phase 1, comprising 1,700 homes, will be launched in the second half of 2010. The Eco-City is well on its way to become a sustainable urban showcase for China, with its integrated eco-friendly residential, commercial, industrial and cultural-leisure developments. A: As the urbanisation trend and the growing demand for energy continue unabated, the world’s oceans and seas will be more extensively and intensively used. Together with a heightened sense of the threat of climate change, all of us are challenged to hand over to the next generation a more developed, yet greener and cleaner world with a lower carbon footprint. At Keppel, we see good potential in combining the strengths of all our businesses to meet this urgent need for a cleaner environment. To kickstart this effort, we enhanced resources at KIE with the expertise and experience from Keppel O&M last year. The two companies are also collaborating to seek commercially viable opportunities in offshore wind energy. Eco-friendly township development is another area of strength which we are tapping into. With proven competencies of Keppel Land in developing townships and green buildings, KIE in environmental solutions and Keppel Energy in providing clean energy, we believe we are well-placed to offer one-stop-eco-solutions in a world facing the increasing twin challenges of urbanisation and environmental protection. A: We will need lots of courage, commitment and a sustained Can Do! spirit from the current and next generation of Keppelites, bound together by our common core values of passion, integrity, customer focus, people-centredness, safety, agility and innovativeness, collective strength and accountability. We should also continue to know our business better than others and to take calculated risks to ensure that all our engines of growth are ﬁ ring away. With the strong support from our Chairman, Board and all Keppelites, I believe we are well on track to realise the Keppel Group Vision of being the Provider of Choice in all our selected businesses. Interview with the CEO 15 With a robust ﬁ nancial position and entrenched core competencies, we are on track to strengthen the breadth and depth of our businesses. n e h t g n e r t S $1.18b Our strong net cash position enables us to judiciously seize opportunities for value creation. 68% Return on Equity of our Offshore & Marine Division rose to a record level of 68% on the back of strong operating performance. 70,000 homes With a total of 70,000 homes in the pipeline, our Property Division stands to beneﬁ t from the rising demand for quality residential developments in Asia’s growth cities. $6.7b A showcase of Keppel’s synergistic strengths in township development and environmental solutions, the Sino-Singapore Tianjin Eco-City project attracted $6.7 billion worth of investments. $750m The K-Green Trust, with initial assets of $750 million, offers eco-conscious investors the opportunity to invest in a pipeline of ‘green’ infrastructure assets, including renewable energy and other energy efﬁ ciency initiatives. e s i g r e n y for incineration.S We are maximising the synergy among our businesses to meet the growing global demand for a cleaner urban living environment. 47.6% As the only private operator of waste-to-energy plants in Singapore, we treat almost half of Singapore’s waste +20% $24m Our Economic Value Added (EVA) grew 20% to cross the $1 billion mark for the ﬁ rst time, with all businesses generating positive EVA. The prudent and effective use of Group resources, together with the harnessing of collective strength, place us in a good position to optimise value creation for sustainable growth. e s i m i t p over the same period.O Strong human capital is essential for our sustainable growth into the future. In 2009, we invested $24 million in the training and development of our global workforce. Over the past nine years, our Total Shareholder Return grew at a Compounded Annual Growth Rate of 27%, signiﬁ cantly outperforming the Straits Times Index 27% Group Strategic Directions Keppel Corporation To be the Provider of Choice for Solutions to the Offshore & Marine Industries, Sustainable Environment and Urban Living $1,265m PATMI increased 15% from FY 2008’s $1,097 million. Offshore & Marine To be the choice provider and solutions partner in its selected segments of the offshore and marine industry $810m PATMI increased 15% from FY 2008’s $705 million. Revenue ($ million) 2009 2008 Revenue ($ million) 2009 2008 12,247 11,805 8,273 8,569 Strategic Directions Fortifying Core Competencies – Ensure continued focus on execution excellence to produce top quality products and solutions for customers. – Sharpen competitive edge by investing in R&D for long-term growth. – Maximise talent development and knowledge sharing to enhance productivity. Expanding Global Footprint – 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 enter new markets. Leveraging Growth Platforms – Maximise synergy and collective strength among businesses. – Seize value enhancing opportunities when they arise. Focus for 2010/2011 – Deliver value through excellent project management and execution. – Enhance R&D initiatives to strengthen position as market leader in selected segments. – Explore opportunities in new markets and adjacent businesses. – Maximise and realise operational efﬁ ciencies. – Sustain prudent cost management. – Focus on Health, Safety and the Environment. 22 Keppel Corporation Limited Report to Shareholders 2009 Infrastructure To grow further with its robust portfolio of environmental engineering, power generation, logistics and data centres businesses Property To provide urban living solutions through the twin core businesses of property development and property fund management Investments To deliver good value to shareholders while seeking growth opportunities presented by the global economic recovery $126m PATMI increased 100% from FY 2008’s $63 million. $210m PATMI increased 34% from FY 2008’s $157 million. $119m PATMI decreased 31% from FY 2008’s $172 million. Revenue ($ million) 2009 2008 Revenue ($ million) 2,427 2009 2,232 2008 Revenue ($ million) 1,508 2009 950 2008 39 54 Focus for 2010/2011 – Keppel Integrated Engineering (KIE) to continue building its environmental engineering business, with the aim of becoming a world leader in environmental solutions. – KIE to expand its slate of products and solutions, as well as moving into adjacent businesses such as renewable energy. – Keppel Energy to grow its power generation business by planting additional capacity in Singapore. – Keppel Telecommunications & Transportation to continue growing its logistics and data centre footprint. Focus for 2010/2011 – Selectively seek acquisitions with continued focus on developing quality residential, ofﬁ ce and township projects. – Capitalise on market recovery to launch more township projects in key and secondary cities in China. – Time launches of remaining units of Marina Bay Suites and Reﬂ ections at Keppel Bay with the opening of the integrated resorts. – K-REIT Asia and Alpha Investment Partners to explore potential acquisitions of quality assets in Singapore and overseas. – Unlock value from non-core assets at appropriate time. Focus for 2010/2011 – k1 Ventures will identify investment opportunities while continuing to focus on the management of existing investments with the aim of enhancing shareholder value. – MobileOne will continue to strengthen its position in the market and capitalise on new growth opportunities from the commercial launch of the Next Generation Nationwide Broadband Network. Group Strategic Directions 23 Keppel Around the World Offshore & Marine Azerbaijan Brazil Bulgaria China India Indonesia Japan Kazakhstan Norway Qatar Singapore The Netherlands The Philippines United Arab Emirates United States Vietnam Infrastructure Algeria Argentina Australia Belgium Brazil China and Hong Kong Ecuador France Germany Honduras Indonesia Ireland Malaysia Mexico Qatar Singapore Spain Sweden Thailand The Philippines United Kingdom United States Vietnam Property China India Indonesia Japan Korea Malaysia Saudi Arabia Singapore Thailand The Philippines Vietnam Investments China and Hong Kong Singapore United States We have a global presence spanning more than 30 countries with overseas customers as our earnings mainstay. EUROPE $3,837m CHINA AND HONG KONG $344m JAPAN AND KOREA $91m United States Mexico Honduras Ecuador Argentina Brazil Sweden Norway Ireland The Netherlands United Kingdom Belgium Germany France Bulgaria Kazakhstan Spain Azerbaijan Algeria Saudi Arabia Qatar United Arab Emirates Japan Korea The Philippines India China Hong Kong Vietnam Thailand Malaysia SINGAPORE Indonesia Australia TOTAL FY 2009 REVENUE $12,247m NORTH AMERICA $1,532m CENTRAL AMERICA $262m SOUTH AMERICA $1,377m MIDDLE EAST $893m INDIA $293m ASEAN $3,545m AUSTRALIA $73m 24 Keppel Corporation Limited Report to Shareholders 2009 Keppel Around the World 25 Board of Directors “The Group shall spare no effort and shall endeavour to chart new growth paths...” Lee Boon Yang, 62 Chairman and Independent Director Member, Nominating Committee Member, Remuneration Committee Member, Board Safety Committee 26 Lim Hock San, 63 Choo Chiau Beng, 62 Sven Bang Ullring, 74 Deputy Chairman and Independent Director Chief Executive Ofﬁ cer, United Industrial Corporation Chief Executive Ofﬁ cer, Singapore Land Chairman, Audit Committee Chairman, Remuneration Committee Member, Board Risk Committee Chief Executive Ofﬁ cer Member, Board Safety Committee Independent Director Chairman, Board of The Fridtjof Nansen Institute, Oslo, Norway Chairman, Board Safety Committee Member, Nominating Committee Member, Remuneration Committee Board of Directors 27 Board of Directors Tony Chew Leong-Chee, 63 Oon Kum Loon, 59 Tow Heng Tan, 54 Independent Director Executive Chairman, Asia Resource Corporation Chairman, Nominating Committee Member, Audit Committee Independent Director Chairman, Board Risk Committee Member, Audit Committee Member, Nominating Committee Member, Remuneration Committee Non-Independent and Non-Executive Director Chief Investment Ofﬁ cer, Temasek Holdings Member, Nominating Committee Member, Remuneration Committee Member, Board Risk Committee 28 Keppel Corporation Limited Report to Shareholders 2009 Alvin Yeo Khirn Hai, 48 Teo Soon Hoe, 60 Tong Chong Heong, 63 Independent Director Senior Partner, Wong Partnership LLC Member, Audit Committee Member, Board Risk Committee Senior Executive Director and Group Finance Director Executive Director Board of Directors 29 Keppel Telecommunications & Transportation Teo Soon Hoe Chairman Senior Executive Director and Group Finance Director, Keppel Corporation Dr Tan Tin Wee Associate Professor of Biochemistry, National University of Singapore Prof Bernard Tan Tiong Gie Professor of Physics, National University of Singapore Reggie Thein Independent Director Wee Sin Tho Vice President, Endowment and Institutional Development, National University of Singapore Tan Boon Huat Chief Executive Director, People’s Association Keppel Group Boards of Directors Keppel Offshore & Marine Keppel Integrated Engineering Tong Chong Heong Chairman Chief Executive Ofﬁ cer, Keppel Offshore & Marine Michael Chia Hock Chye Deputy Chairman and Chief Executive Ofﬁ cer Managing Director (Offshore), Keppel Offshore & Marine Wong Boon Kong Director Loh Ah Tuan Director Quek Boon Sing Director Dr Ong Tiong Guan Managing Director, Keppel Energy Choo Chiau Beng Chairman Chief Executive Ofﬁ cer, Keppel Corporation Tong Chong Heong Chief Executive Ofﬁ cer Charles Foo Chee Lee Managing Director (Special Projects) Centre Director, Keppel Offshore & Marine Technology Centre Sit Peng Sang Chief Financial Ofﬁ cer Bjarne Hansen Senior Partner, Wing Partners I/S, Denmark 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 Limited Prof Minoo Homi Patel Head of School & Professor of Engineering, School of Engineering, Cranﬁ eld University, UK Dr Malcolm Sharples President, Offshore Risk & Technology Consulting, US Teo Soon Hoe Senior Executive Director and Group Finance Director, Keppel Corporation Tan Ek Kia Chairman of City Gas Pte Ltd Board member of SMRT Corporation Ltd Po’ad Bin Shaik Abu Bakar Mattar Independent Director of Hong Leong Finance Limited 30 Keppel Corporation Limited Report to Shareholders 2009 Keppel Energy Keppel Land K-REIT Asia Management Prof Tsui Kai Chong Chairman Provost and Professor of Finance, SIM University Kevin Wong Kingcheung Deputy Chairman Group Chief Executive Ofﬁ cer, Keppel Land Ng Hsueh Ling Chief Executive Ofﬁ cer Tan Swee Yiow Chief Executive Ofﬁ cer (Singapore Commercial), Keppel Land International Lee Ai Ming (Mrs) Senior Partner, Rodyk & Davidson Dr Chin Wei-Li, Audrey Marie Chairman, Vietnam Investing Associates – Financials (S) Pte Ltd Choo Chiau Beng Chairman Chief Executive Ofﬁ cer, Keppel Corporation Dr Ong Tiong Guan Managing Director Teo Soon Hoe Senior Executive Director and Group Finance Director, Keppel Corporation Khoo Chin Hean Executive Director, Energy Studies Institute Koh Ban Heng Chief Executive Ofﬁ cer and Executive Director, Singapore Petroleum Company Limited (a member of PetroChina) Foo Jang See Senior Vice President, Singapore Petroleum Company Limited (a member of PetroChina) Nelson Yeo Chien Sheng Managing Director (Marine), Keppel Offshore & Marine Michael Chia Hock Chye Deputy Chairman and Chief Executive Ofﬁ cer, Keppel Integrated Engineering Managing Director (Offshore), Keppel Offshore & Marine Choo Chiau Beng Chairman Chief Executive Ofﬁ cer, Keppel Corporation Kevin Wong Kingcheung Group Chief Executive Ofﬁ cer Khor Poh Hwa Advisor in Township and Infrastructure Development to Keppel Corporation Lim Ho Kee Chairman, Singapore Post Prof Tsui Kai Chong Provost and Professor of Finance, SIM University Lee Ai Ming (Mrs) Senior Partner, Rodyk & Davidson Tan Yam Pin Former Managing Director, Fraser and Neave Group Niam Chiang Meng Permanent Secretary, Ministry of Community Development, Youth and Sports Heng Chiang Meng Former Managing Director, First Capital Corporation Executive Director, Far East Organisation Group Edward Lee Former Ambassador to Indonesia Koh-Lim Wen Gin Former URA Chief Planner and Deputy Chief Executive Ofﬁ cer Teo Soon Hoe Senior Executive Director and Group Finance Director, Keppel Corporation Keppel Group Boards of Directors 31 Keppel Technology Advisory Panel The Group promotes a culture of innovation with guidance from eminent business leaders, professionals and industry experts. (From left) First row: Dr Yeo Ning Hong, Professor Cham Tao Soon (Chairman, Keppel Technology Advisory Panel) and Professor Sir Eric Ash Second row: Professor Minoo Homi Patel, Professor James Leckie, Professor Tom Curtis and Dr Malcolm Sharples Absent from photo: Dr Brian Clark and Tan Gee Paw 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. Professor Sir Eric Ash BSc and PhD, Imperial College London; CBE FREng FRS. He is presently an Advisor to Tata Consulting Engineers Ltd in Mumbai. A past president of the Institution of Electrical Engineers (now Institution of Engineering and Technology), 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 Nanyang Technological University (Singapore). Dr Brian Clark Schlumberger Fellow; B.S. Ohio State University; PhD, Harvard University (1977). He holds 58 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 Clark is also a member of US National Academy of Engineering and The Academy of Medicine, Engineering and Science of Texas. 32 Keppel Corporation Limited Report to Shareholders 2009 Dr Yeo Ning Hong BSc (Chemistry), First Class Honours, MSc, University of Singapore; Master of Arts and PhD, University of Cambridge (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. He also sits on the Boards of Keppel Offshore & Marine, Cranﬁ eld Aerospace, Cranﬁ eld Engineering Innovations and Pipestream Engineering Inc. Dr Malcolm Sharples President, Offshore Risk & Technology Consulting Engineering Inc.; B. E. Sc Engineering Science, University of Western Ontario; PhD; 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, project safety Keppel Technology Advisory Panel cases and health & safety quality systems, ﬁ nancial due diligence on acquisitions, regulatory advice, business development assistance, and he has been involved as an expert witness in a number of legal proceedings. He is an active member of the Canadian Standards Association on offshore wind farms. He is a Director of Keppel Offshore & Marine. Professor James Leckie BS (Honours), San Jose State University; SM, PhD, Harvard University (1970); The C. L. Peck, Class of 1906 Professor of Environmental Engineering and Applied Earth Sciences, Stanford University; Director of the Stanford Centre for Sustainable Development & Global Competitiveness; Director, Stanford-China Executive Leadership Programme; 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. He holds ﬁ ve patents related to water treatment technology and over 300 publications. His areas of teaching and research are in environmental chemistry and human exposure analysis. 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 is the Chairman of Public Utilities Board, the national water agency of Singapore, since 1 April 2001. He is a member of the Presidential Council for Religious Harmony, as well as the Chairman of the Boards of First DCS Pte Ltd, OpenNet Pte Ltd and Exploit Technologies Pte Ltd. Mr Tan is also a Director of the Singapore Millennium Foundation Ltd, and Ascendas Pte Ltd. He is the Advisor for the Centre for Water Research, and Adjunct Research Professor of the Division of Environmental Science & Engineering, Faculty of Engineering, National University of Singapore (NUS). Mr Tan co-chairs the Environmental & Water Technologies International Advisory Panel, Ministry of the Environment & Water Resources. He is Chairman of the International Advisory Panel of the Institute of Water Policy, Lee Kuan Yew School of Public Policy, NUS, and chairs the Nominating Committee of the Lee Kuan Yew Water Prize, Singapore International Water Week. He is also a Member of the Advisory Board of the Centre for Liveable Cities, Chairman of the Governing Board for the Earth Observatory of Singapore, Nanyang Technological University, and Member of the Steering Group on Water & Climate Change for the Asia-Paciﬁ c Water Forum. 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. Before entering academia, he worked in construction and public health policy and has worked in the US, Brazil, Bangladesh and Jordan. His major areas of research include microbial ecology, engineered biological systems in general and wastewater treatment in particular. His research is supported by an Engineering Physical Science Research Council Platform Grant. 33 Senior Management Keppel Corporation Corporate Services Offshore & Marine Choo Chiau Beng Chief Executive Ofﬁ cer Teo Soon Hoe Senior Executive Director and Group Finance Director Tong Chong Heong Executive Director Chee Jin Kiong Director (Group Human Resources) Paul Tan Group Controller Wang Look Fung General Manager (Group Corporate Communications) Lynn Koh General Manager (Group Treasury) Lai Ching Chuan General Manager (Corporate Development / Planning) Magdeline Wong General Manager (Group Tax) Tina Chin General Manager (Group Risk Management) Caroline Chang General Manager (Group Legal) Tan Eng Hwa General Manager (Group Internal Audit) Cindy Lim General Manager (Group Human Resources) Tong Chong Heong Chief Executive 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 Centre Director Keppel Offshore & Marine Technology Centre Michael Chia Hock Chye Managing Director (Offshore) Keppel Offshore & Marine Nelson Yeo Chien Sheng Managing Director (Marine) Keppel Offshore & Marine Chee Jin Kiong Executive Director (Human Resources) Keppel Offshore & Marine Chow Yew Yuen President (The Americas) Keppel Offshore & Marine Wong Kok Seng Executive Director Keppel FELS Hoe Eng Hock Executive Director Keppel Singmarine 34 Keppel Corporation Limited Report to Shareholders 2009 Infrastructure Michael Chia Hock Chye Deputy Chairman and Chief Executive Ofﬁ cer Keppel Integrated Engineering BG (NS) Pang Hee Hon Chief Executive Ofﬁ cer Keppel Telecommunications & Transportation Ong Tiong Guan Managing Director Keppel Energy Ng Hsueh Ling Chief Executive Ofﬁ cer/Director K-REIT Asia Management (from 17 August 2009) Loh Chin Hua Managing Director Alpha Investment Partners Goh Toh Sim Chief Executive Ofﬁ cer Evergro Properties (till 31 December 2009) Chief Representative (China) Keppel Corporation (from 1 November 2009) Property Investments Steven Jay Green Chairman and Chief Executive Ofﬁ cer k1 Ventures Karen Kooi Chief Executive Ofﬁ cer MobileOne 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) Keppel Land International Group Company Secretary Keppel Land 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 (January 2009 to 16 August 2009) Augustine Tan Chief Executive Ofﬁ cer (Singapore Residential) Keppel Land International Unions Keppel FELS Employees Union Muhamad Shah Bin Md Sahid President Atyyah Hassan General Secretary Keppel Employees Union Mohd Yusop Bin Mansor President Mohd Yusof Bin Mohd General Secretary Shipbuilding & Marine Engineering Employees’ Union Wong Weng Onn President Lim Chin Siew Executive Secretary Singapore Industrial & Services Employees’ Union Tan Peng Huat President Lim Kuang Beng General Secretary Josephine Teo Executive Secretary Union of Power & Gas Employees Tay Seng Chye President S. Thiagarajan Executive Secretary Nachiappan RKS General Secretary Senior Management 35 Investor Relations The economic uncertainties in 2008 and 2009 presented challenges for businesses worldwide. In 2009, our dedicated Investor Relations team stepped up its communications with investors, analysts, fund managers and the media, to address the concerns of the investing community on the impact of the downturn on the Keppel Group. The team provided assurance with balanced insights into the Group’s strategic directions, performance, key developments and plans for sustainable growth amidst the economic slowdown. In both good times and bad, our Investor Relations efforts are guided by the principle of achieving best practices in corporate governance and disclosure. Clear, consistent and regular communication is a hallmark of Keppel’s relationships with analysts and investors worldwide. Proactive Outreach In 2009, despite the volatile economic environment, we continued to see a strong level of interest among institutional investors and analysts on the prospects of the Group. In all, we held 152 face-to-face investor meetings and conference calls in Singapore and overseas. Such meetings provided a useful platform for investors and analysts to engage our management and better understand our business dynamics and direction. This also contributed towards the strengthening of our relationships with our long-term shareholders. During the year, we also arranged meetings with management of key subsidiaries. Tours of the facilities aided in the better understanding of our businesses and operations. With our Offshore & Marine Division as the key contributor to Group earnings, institutional investors continued to show keen interest in our rigbuilding operations and facilities. Apart from our yards in Singapore, there is growing interest in our established and wholly-owned yard in Brazil, due to the aggressive Exploration & Production programme of Petrobras, Brazil’s national oil company. In December 2009, a group of nine fund managers and analysts had a meaningful and fruitful visit to Keppel FELS Brasil. Senior management there gave them insights into the yard’s capabilities in meeting Petrobras’ local content requirements for its rigbuilding programme. With a record 14 rig deliveries in 2009, investors and analysts were invited to all the key naming and delivery ceremonies in Singapore to understand what it takes to complete a rig or vessel on time, within budget and with no incidents, through mingling with our key management, customers and suppliers. Some of Keppel’s retail shareholders are equally interested in our business operations as the institutional investors. In response to a request made by a group of retail shareholders, we organised a tour of our rigbuilding yard in Singapore for them in September 2009. Apart from the Offshore & Marine business, we also organised visits to facilities in our Infrastructure Division. In October 2009, a group of research analysts was invited to visit one of the Group’s growth engines in the Infrastructure Division, Keppel Energy’s 500 MW clean gas-ﬁ red co-generation plant on Jurong Island in Singapore. The visit provided them with a ﬁ rst- hand understanding of the operational and business aspects of the plant. During the year, we complemented our outreach efforts with participation in selected investor conferences. For a third consecutive year, top executives from Keppel Offshore & Marine made a presentation and shared our strengths at the Annual Oil & Offshore Conference organised by Pareto Securities in Norway. At the inaugural DnB NOR 36 Bank investor conference in Singapore, Mr Teo Soon Hoe, our Senior Executive Director and Group Finance Director, spoke on Keppel’s strategy in achieving sustainable growth for the Group. Regular Communication To reach stakeholders in a timely and effective manner, we continued ‘live’ webcasts of our quarterly results presentations. These webcasts allow viewers from around the world to listen to senior management and post questions online for them to respond to in real time. We are also committed to keep our communication channels accessible and information timely so as to serve the interests of the investing community. Market sensitive news is promptly posted on our website, www.kepcorp. com, at the end or beginning of each market day, in addition to the Singapore Exchange website. Focus on Shareholder Value We are committed to deliver sustained value to our shareholders. In 2009, we continued to improve on our returns to shareholders. Our Return on Equity increased from 2008’s 22.4% to a new high of 23.9%. Our Total Shareholder Return (TSR) improved from a negative 64% in 2008 to 101% in 2009. This was 30% above the benchmark Straits Times Index’s (STI) TSR of 71%. Over the past nine years, Keppel’s Compounded Annual Growth Rate (CAGR) TSR of 27% was also signiﬁ cantly higher than STI’s CAGR TSR of 5%. In terms of share price performance, Keppel Corporation’s share price gained 95% over the year to close at $8.23 at the end of 2009, outperforming STI’s gain of about 64% during the same period. To reward shareholders for the record proﬁ ts achieved in 2009, we will be Keppel Corporation Limited Report to Shareholders 2009 1 Keppel’s senior management engages the investing community through diverse channels, including the Company’s results presentations and webcasts. 2, 3 Visits to our yards and the Keppel Merlimau Co-generation Plant provide fund managers, analysts and retail shareholders a better understanding of our operational capabilities. proposing a total distribution of 61 cents per share for the year, which is 75% higher than the 2008 total dividend of 35 cents per share. The proposed payout for 2009 will exceed $970 million which is about 77% of Group PATMI. Recognition Our proactive investor relations approach and commitment to corporate transparency was again recognised by the investing community in 2009. At the 10th Investors’ Choice Awards organised by the Securities Investors Association of Singapore, Keppel Corporation entered the Hall of Fame for the category of the Most Transparent Company. This was in recognition of the Company winning the coveted Golden Circle Award for being the best in transparency across all categories for three consecutive years. In January 2009, Keppel Corporation was ranked among the best in corporate governance in Asia by The Asset, a ﬁ nancial publication headquartered in Hong Kong. The Company was ranked Second in the Singapore country category in The Asset Corporate Governance Awards 2008. In Issue 2 of the Governance and Transparency Index, published in November 2009 by Singapore’s The Business Times and the Corporate Governance & Financial Reporting Centre of the National University of Singapore, Keppel Corporation was ranked third out of more than 700 Singapore-listed companies. 1 2, 3 Investor Relations 37 Awards and Accolades Award recipients at the Securitites Investors Association of Singapore 10th Investors’ Choice Awards: (from left) Mr Teo Soon Hoe, Senior Executive Director and Group Finance Director of Keppel Corporation, Mr Choo Chiau Beng, Chief Executive Ofﬁ cer of Keppel Corporation, and Mr Lim Kei Hin, Chief Financial Ofﬁ cer of Keppel Land. Corporate Governance and Transparency Securities Investors Association of Singapore 10th Investors’ Choice Awards The Asset Corporate Governance Awards Keppel Corporation – Excellence Award, Hall of Fame in the Most Transparent Company Award – Merit, Singapore Corporate Governance Award Keppel Land – Runner-Up, Most Transparent Company Award (Property) Governance and Transparency Index (Issue 2 November 2009) Keppel Corporation, Keppel Telecommunications & Transportation, Keppel Land and MobileOne were ranked third, sixth, 10th and 40th respectively out of more than 700 companies assessed. Other accolades that Keppel Corporation achieved include being named one of the top 10 winners of the Wall Street Journal Asia 200 Awards for the most admired companies in Singapore and Keppel Corporation – Second, Singapore Category Singapore Corporate Awards Keppel Land – Gold, Best Annual Report (Market capitalisation more than $1 billion) K-REIT Asia – Silver, Best Annual Report (REITs and Business Trusts) – Silver, Best Investor Relations (Market capitalisation between $300 million and $1 billion) 38 listed as one of UBS’s regional top 10 corporate governance picks. Business Excellence – Keppel Offshore & Marine (Keppel O&M) was bestowed the Offshore & Marine Engineering Award at the Singapore International Maritime Awards. – Keppel Gas received the Sales/ Turnover Growth Excellence Award at the 22nd Annual Singapore 1000 & SME 500 Awards. – Keppel FELS garnered the Intergraph 3D Design Award at the Intergraph Golden Valve Awards Competition for showcasing its proprietary semisubmersible drilling tender created with SmartMarine 3D design software. – For the third consecutive year, Keppel Logistics clinched the Retail & Fast Moving Consumer Goods Logistics Service Provider of the Year (Singapore) Award in Frost & Sullivan’s 2009 Asia Paciﬁ c Transportation & Logistics Awards – Voice of the Customer. It also secured the Domestic Logistics Keppel Corporation Limited Report to Shareholders 2009 Service Provider of the Year (Singapore) title. – Sixth Avenue Residences, Singapore – Gold – Keppel Shipyard added the ﬁ fth consecutive win of the Best Shiprepair Yard Award to its track record at the 11th Lloyd’s List Asia Awards 2009. – The KFELS B Class rig and KFELS SSDT TM 3600E won the Prestigious Engineering Achievement Award 2009 from Institution of Engineers Singapore for their environmentally friendly features. – Keppel’s KFELS SSDT TM 3600E design was conferred the ASEAN Outstanding Engineering Achievement Award for its eco-friendly features and sustainable operations. – Keppel Land was named the Best Ofﬁ ce Developer in Singapore at the Euromoney-Liquid Real Estate Awards 2009. – Keppel Land’s Sustainability Report 2008 was bestowed the Merit Award by the Association of Chartered Certiﬁ ed Accountants in the Singapore Awards for Sustainability Reporting 2008. At the CNBC Asia Paciﬁ c Property Awards, six of Keppel Land’s projects garnered awards comprising: – Reﬂ ections at Keppel Bay, Singapore – Best High-Rise Development, Residential – 8 Park Avenue, China – Best Development, Residential – The Arcadia, China – Best Property, Residential – Villa Riviera, Vietnam – Best Development, Residential – Saigon Centre, Vietnam – Best Mixed-Use Development, Commercial – Elita Promenade, India – Best Development, Residential The following Keppel Land projects were awarded Green Mark Awards by Singapore’s Building and Construction Authority: – Marina Bay Financial Centre Phase 2 (Commercial), Singapore – Gold PLUS – Marina Bay Suites, Singapore – Gold – One Rafﬂ es Quay, Singapore – Gold Awards and Accolades – The Promont, Singapore – Gold – Spring City (La Quinta), China – Gold – Residential development in Pudong, Shanghai (Plots 1 and 3), China – Gold – The Arcadia, China – Gold Sedona Hotel Yangon, Myanmar – Named Myanmar’s Leading Hotel for the second consecutive year at the World Travel Awards Sedona Suites HCMC, Vietnam – Voted the Best Business Serviced Apartment by The Guide Magazine for the sixth consecutive year – Riviera Cove, Vietnam – Gold Corporate Citizenry KOM Tower, a new ofﬁ ce block in Keppel O&M’s Singapore headquarters, also achieved a Green Mark Award. Keppel Land bagged Golden Dragon Awards for the following developments: – The Estella, Vietnam – Riviera Cove, Vietnam – Sedona Suites Ho Chi Minh City (HCMC), Vietnam – Sedona Suites Hanoi, Vietnam Keppel Land also garnered recognition for its projects as follows: Ocean Financial Centre, Singapore – Named Best Green Development (Future) at the Cityscape Asia Real Estate Awards – Achieved the Platinum level LEED-CS Precertiﬁ cation Jakarta Garden City, Indonesia – Won the Best Middle-Class Residential Development title at the International Real Estate Federation (FIABCI) Indonesia – BNI Prix d’Excellence Award Ceremony – Accorded the Well-Planned, Environmentally Friendly and Technologically Modern Township Award at the Indonesia Property and Bank Awards Marina at Keppel Bay, Singapore – Accorded the SIA-Hunter Douglas Award 2008 in the Completed Projects category – Inaugural winner for the PUSH – Keppel Corporation was conferred the Distinguished Patron of the Arts Award for its contributions towards the promotion and organisation of arts activities in Singapore. – In recognition of its support and contribution to national defence, Keppel Shipyard was conferred the Meritorious Defence Partner Award. – Keppel Shipyard received the May Day Model Partnership Award from the National Trades Union Congress for its active promotion of labour relations at the individual and national level. – For outstanding contributions to the Community Chest, Keppel FELS and Keppel Singmarine received the Social Help and Assistance Raised by Employees Platinum Awards while Keppel Shipyard received the Gold Award. – Keppel O&M was conferred the Community Chest Silver Award for donating $50,000 to the Heartstrings Walk in 2008. Safety – The Keppel Group garnered 18 safety accolades, the largest number for a single entity, at this year’s Annual Workplace Safety and Health (WSH) Awards held by the WSH Council and the Ministry of Manpower. – Keppel Singmarine clinched the Silver and Bronze Awards for two of its safety innovations at the 12th Workplace Safety and Health Innovations in the Marine Industry Convention. Award which honours institutes and associations for their contributions to Singapore as a brand of design excellence – Marina at Keppel Bay is the ﬁ rst marina to be an award recipient at the inaugural National Safety and Security Watch Group Award 2009. 39 Special Feature OPPORTUNITIES IN THE ENVIRONMENTAL BUSINESS Environmental Challenges The world is paying more attention to climate change largely due to the 2007 assessment report by the Intergovernmental Panel on Climate Change (IPCC), which warned of global warming effects threatening communities worldwide. Changes in sea levels and global average temperature, as well as an increasing frequency and intensity of extreme weather such as storms, ﬂ oods and droughts directly endanger humankind. Many have suggested that greenhouse gases (GHG) produced by human activities, such as the combustion of fossil fuels, have led to the observed increase in global average temperatures since the mid-20th century. Indeed, this opinion ﬁ nds support from the fact that carbon dioxide has increased by 35% and methane concentrations in the atmosphere have more than doubled.1 Many countries see the need and are accelerating their actions to mitigate the most damaging impacts of climate change. Coupled with the gravity of the problems caused by pollution, demand for green infrastructure is expected to grow in tandem with the world’s population growth and urbanisation. Today, more than half the world’s population live in urbanised areas. In Asia, we expect even more rapid urbanisation. By 2030, Asia is projected to have 54% of the world’s urban population. Over the next 20 years, China’s cities will be home to another 350 million. This is more than the entire population of the US today. Similarly, in India, a projected 40.76% of its population will live in urban centres by 20302. Large cities are at risk to climate hazards and face multi-fold environmental challenges. Without sustainable and practical solutions to these challenges, our quality of life and even survival will be seriously threatened. Meeting Challenges through Investment and Innovation Communities worldwide will have to invest signiﬁ cantly to meet the demands of the growing population and also manage the environmental 1 Waste and Climate Change: ISWA White Paper, International Solid Waste Association (ISWA), 2009. 2 “State of the World Population 2007”, United Nations Population Fund (UNFPA), 2007. DO YOU KNOW... Despite the global ﬁ nancial crisis, 34% of China’s stimulus package is directed towards green measures. 40 Keppel Corporation Limited Report to Shareholders 2009 Special Feature Opportunities in the Environmental Business 41 Special Feature Modern Waste-to-Energy Facilities and Air Pollution Control Typically, a Waste-to-Energy (WTE) plant uses the following methods to remove pollutants from its emissions: – A “Selective Non-Catalytic Reduction” or “SNCR” converts nitrogen oxides and water to harmless nitrogen by spraying ammonia or urea into the hot furnace. – A “scrubber” sprays a mixture of lime and water mixture into the hot exhaust gases. The lime neutralises acid gases. – A “carbon injection” system blows powdered carbon into the exhaust gas to absorb mercury. Carbon injection also reduces emissions of trace organics such as dioxins. – A “bag house” works like a giant vacuum cleaner with hundreds of fabric ﬁ lter bags that clean the air of soot, smoke and metals. Hence, modern WTE facilities that are well-managed and regulated do not pose a signiﬁ cant threat to public health. These facilities are required to monitor emissions to ensure that they comply, as a minimum, with the limits in the EU Waste Incineration Directive (2000/76/EC), which sets strict emission limits for pollutants. According to research published by the British government-backed Health Protection Agency, incineration of municipal solid waste accounts for less than 1% of UK emissions of dioxins. Therefore, the contribution of WTE emissions to direct respiratory exposure of dioxins is a negligible component of the average human intake.3 42 problems posed by economic development. Clean drinking water, sanitary sewerage, efﬁ cient waste disposal and access to electricity have a direct impact on standards of living. The UN Framework Convention on Climate Change (UNFCCC) views “[e]nvironmentally sound technologies (ESTs) for mitigation and adaptation as central to mitigate climate change and increase resilience to climate change impacts. ESTs are able to provide win- win solutions, allowing global economic growth and climate change mitigation to proceed hand in hand.”4 Despite the global ﬁ nancial crisis, countries could meet the twin goals of economic growth and environmental protection. Many economic stimulus packages employed incorporate large green elements. For instance, 34% of China’s stimulus package is directed towards green measures (about US$218 billion), for the US, 12% (about US$117 billion) and for Germany, 13%.5 Governments are searching for newer and better approaches to water-saving, wastewater treatment, water reuse, as well as solid waste reuse and recycling, to tackle the challenges that come with urbanisation, population growth and economic development. While this trend poses many challenges, they also offer opportunities to improve the lives of citizens and promote sustainable development. 3 The Impact on Health of Emissions to Air from Municipal Waste Incinerators, Health Protection Agency, 2009. 4 United Nations Framework Convention on Climate Change (UNFCCC), Fact sheet: Why technology is so important, 2009. 5 Keynote speech by Yvo de Boer, Executive Secretary, “Sustainable development in times of crises: Opposition or Opportunity,” Bonn Symposium, UNFCCC, 23 November 2009. 6 OECD Environmental Outlook to 2030, 2008. 7 Waste and Climate Change: ISWA White Paper, ISWA, 2009. ibid. 8 Keppel Corporation Limited Report to Shareholders 2009 Figure 1: GHG Emissions from Municipal Waste in the EU (2002–2007) 150 100 50 0 -50 -100 Direct – Recycling Direct – Incineration Direct – Landfilling Direct – Transport Indirect – Recycling Indirect – Incineration Indirect – Landfilling Net GHG emissions 2002 2003 2004 2005 2006 2007 Source: Waste and Climate Change: ISWA White Paper, International Solid Waste Association, 2009. Keppel’s Solutions for a Cleaner Future Keppel Integrated Engineering (KIE) is the environmental technology and engineering division of Keppel Corporation. The Keppel Seghers Group of companies (Keppel Seghers Group), which are owned by KIE, are leading providers of comprehensive environmental solutions ranging from consultancy, design and engineering, technology and construction to operation and maintenance of facilities. Its advanced technology solutions address a wide spectrum of environmental issues such as solid waste, wastewater, drinking and process water, and biosolids and sludge. Keppel Seghers Group has an established track record of participation in waste-to-energy (WTE) projects in Europe, the Americas and the Asia Paciﬁ c for more than 40 years. To date, Keppel Seghers has executed more than 350 water and wastewater projects and more than 100 WTE projects in more than 25 countries. Waste: Problems and Solutions Global population growth and urbanisation are producing increasing volumes of waste. The conventional method of dealing with solid waste is through landﬁ lls. However, the shrinking number of potential disposal sites in many countries is resulting in the replacement of landﬁ ll disposal with more advanced technology in waste management solutions. According to an OECD (Organisation for Economic Co-operation and Development) report, by 2030, with some 60% of Chinese population living in urban areas, waste generation is expected to be at least 485 tonnes, representing a 214% increase from 2004. Furthermore, by 2030, the non-OECD countries are expected to produce about 70% of the world’s municipal solid waste. OECD also projects that in 2020, about 45% of municipal waste within the OECD would be disposed of in landﬁ lls, with only 25% incinerated and 30% recycled or composted.6 Due to growing landﬁ ll costs, increasing demand for energy and concerns about climate changes, WTE is gaining acceptance in many countries as a proven, practical and cost-effective technology, which can also mitigate GHG emissions. Rising electricity rates and tax, and renewable energy incentives in many countries have also increased the value of power generated at WTE plants. Waste can be a signiﬁ cant source of renewable energy as they can help secure signiﬁ cant global GHG emission savings. Studies show there is an inverse correlation between net GHG emissions and volume of waste that is incinerated and recycled. Therefore, by diverting waste from landﬁ ll to recycling or incineration, we are able to achieve signiﬁ cant savings in GHG emissions (see Figure 1).7 WTE offers several advantages. Firstly, it is able to effectively reduce the volume of waste going to the landﬁ lls by more than 90%. Secondly, energy is produced during waste treatment, thereby reducing dependency on fossil fuels. Now, with the advancement in technology, emissions from WTE facilities are able to pass the most stringent standards (see page 42). Therefore, we are seeing an increasing acceptance of WTE in many countries. Globally, more than 130 million tonnes of waste are incinerated each year at over 600 WTE plants, producing over 7,600 MW of power.8 Special Feature Opportunities in the Environmental Business 43 Special Feature Special Feature Public-Private Partnerships A Public-Private Partnership (PPP) involves a contract between a public sector authority and a private party, in which the private party provides a public service or project. PPPs have been used to develop and deliver all manner of infrastructure, from schools, waste and water treatment to defence facilities. There are advantages to PPPs. It allows the costs of the investment to be spread over the lifetime of the asset and thus can allow infrastructure projects to be brought forward by years to address the urgent needs of the communities. Driven by commercial viability, PPPs also often have a solid track record of on-time, within budget delivery and can lower cost by reducing both construction costs and overall lifecycle costs. DO YOU KNOW... Globally, more than 130 million tonnes of waste are incinerated every year at over 600 WTE plants, meeting the electrical energy demand of the equivalent of 10 million European consumers. Keppel’s Leadership in Waste Technology Keppel Seghers is the only private operator of WTE plants in Singapore. Owning and operating two of four WTE plants in Singapore, Keppel Seghers can treat up to 47.6% of the total volume of waste9 in Singapore. It also commands 60% of market share for imported WTE technology in China. KIE acquired the Senoko WTE Plant from the Singapore Government in August 2009. This plant has the capacity to treat 2,400 tonnes per day of waste and will provide incineration services to the National Environment Agency for 15 years. KIE’s other WTE plant, Keppel Seghers Tuas WTE Plant, has the capacity to treat 800 tonnes a day of solid waste to generate more than 20 MW of green energy, contributing to Singapore’s electricity supply. Keppel Seghers Tuas is the ﬁ rst plant in Singapore that is built under the Public-Private Partnership (PPP). It is also the ﬁ rst to showcase WTE technology from a local company, incorporating in-house technology such as the air-cooled tumbling grates, boiler, rotary atomiser and ﬂ ue gas treatment system. Occupying only 1.6 ha, it is also one of the most space-efﬁ cient WTE plants in the world. Keppel is also executing Qatar’s ﬁ rst integrated waste management facility, the Domestic Solid Waste Management Centre (DSWMC). The DSWMC will handle and treat domestic solid waste for the whole of Qatar. As a Design-Build-Operate project, Keppel Seghers will subsequently operate DSWMC for 20 years. 44 Keppel Corporation Limited Report to Shareholders 2009 necessity for survival, it is intricately tied to all aspects of human activity. Agriculture accounts for 70% of freshwater withdrawals from rivers, lakes and aquifers – up to more than 90% in some developing countries.11 Water also has a direct impact on energy as it is needed for production of energy of all types. Industry and energy together account for 20% of water demand.12 In the EU, energy production accounts for 44% of water demand.13 A shortage of water will, therefore, have a direct impact on the supply of energy. Similarly, an increase in energy demand will also increase the strain on water resources. Taking into account the projection by the International Energy Agency that the world will need almost 60% more energy in 2030 than in 2020,14 the water shortage is expected to worsen. It is also clear that increasing population growth, rapid urbanisation and economic development with discharge of chemicals, have led to the worldwide decline of water quality, as well as water shortage. Coupled with climate change, which brings about longer periods of droughts for some areas, water is becoming a serious issue for many countries. 9 According to Singapore’s Ministry of Environment and Water Resources, 2.45 million tonnes of waste were sent for incineration in 2008. 10 OECD Environmental Outlook to 2030, OECD, 2008. 11 “Facts and Figures”, Water in a Changing World, World Water Assessment Programme, United Nations World Water Development Report 3, 2009. ibid. 12 13 Water resources across Europe — confronting water scarcity and drought, European Environment Agency, 2009. 14 “Facts and Figures”, Water in a Changing World, World Water Assessment Programme, United Nations World Water Development Report 3, 2009. ibid. 15 DO YOU KNOW... The 10 largest water users (in volume) are India, China, the US, Pakistan, Japan, Thailand, Indonesia, Bangladesh, Mexico and Russia.15 It is designed to treat up to 2,300 tonnes of mixed domestic solid waste and up to 5,000 tonnes of construction and demolition waste per day. The facility will also include waste sorting and recycling facilities, landﬁ ll, a composting plant and a 1,500 tonnes per day WTE plant. Keppel Seghers’ WTE technology will be used for several key projects, for instance, the $518 million Engineering, Procurement and Construction (EPC) project for an Energy-from-Waste Combined Heat and Power Plant. The project was awarded by Greater Manchester Waste Disposal Authority in April 2009. Keppel’s WTE technology will also be used for what would be China’s largest WTE plant in Shenzhen, Guangdong for Shenzhen Energy Environmental Engineering Company Ltd. When completed in 2011, the WTE plant will have an eventual capacity to treat 4,200 tonnes per day of municipal waste. Keppel Seghers also has an in-principle approval for the development of Vietnam’s ﬁ rst WTE plant in Ho Chi Minh City. Water: Problems and Solutions Only 2.5% of the total water on Earth is freshwater. A study showed that 85% of the world’s population resides in the drier half of the Earth. This would imply that more than 1 billion people are living in arid and semi-arid parts of the world and have access to little or no renewable water resources. By 2030, 47% of the world population will be living in areas of high water stress.10 The issue of access to water, therefore, is expected to be increasingly critical in the future. Not only is water a basic Special Feature Opportunities in the Environmental Business 45 Special Feature Special Feature Faced with the prospect of water scarcity, governments worldwide are starting to look at ways of managing their water resources more carefully and efﬁ ciently. Other than precipitation, desalination is one of the ways communities can get water. However, conventional desalination is energy-intensive. Fortunately, technology advancement has made water reuse a feasible option. Through microﬁ ltration and reverse osmosis, wastewater can be treated such that it is clean enough for non-potable use and even direct potable use. Therefore, water reuse is often regarded as a more sustainable and viable alternative to desalination. Although the demand for water is clear and technology has made it economically feasible for water to be reused, there is still a gap in investments. For governments around the world, funding is an issue. PPPs are emerging as one of the most important models governments use to close the gap for the ﬁ nancing of such infrastructure projects. PPPs offer immense opportunities for companies with good track record to participate in key infrastructure projects. According to the World Bank, there has been an increasing number of water projects offering PPP participation globally. But notably, we also see an ongoing shift towards water treatment plants16 (see Figure 2). This suggests that the demand for water treatment is accelerated by an increasing need for wastewater treatment, as well as increasing acceptance of water reuse. has undergone a stringent puriﬁ cation and treatment process which ensures its quality and purity. It is ultra-clean because it goes through a multi-barrier water reclamation process that comprises three stages: microﬁ ltration, reverse osmosis and ultraviolet disinfection. Occupying just 2.6 ha, the plant was built on a fast-track schedule of 20 months and is entirely developed, designed, constructed and operated by Keppel Seghers. In Qatar, Keppel Seghers is developing the largest wastewater treatment and reuse and sludge treatment facility, the Doha North Sewage Treatment Works. The facility will treat up to 439,000 m3/day and the water will be used for irrigation. Keppel Seghers will design, build and subsequently operate the facility for 10 years. The facility will be the ﬁ rst wastewater treatment facility to use advanced membrane and ultraviolet treatment technologies to reclaim high-quality water for non-potable purposes, feature comprehensive odour control system to minimise impact on surrounding environment, and treat sludge from all sewage treatment works in Qatar. Opportunities for Change According to OECD, by combining speciﬁ c policy actions, some of the key environmental challenges can be addressed at a cost of just over 1% of world GDP in 2030 or about 0.03 percentage point lower than average annual GDP growth to 2030.17 It is also clear that we now have the technology to mitigate the impact of climate change. Keppel’s Track Record Keppel Seghers designed, built and is operating one of Singapore’s largest NEWater plants, the Keppel Seghers Ulu Pandan NEWater Plant, which produces 148,000 m3/day of NEWater. NEWater is treated used water that While communities worldwide are still grappling with the various viewpoints and perspectives on how best to answer the environmental challenges, they all see eye-to-eye on the urgency. Fortunately, as technology continually innovates, we will have newer and more 46 efﬁ cient technical solutions to combat these challenges. Beyond technology, governments and communities worldwide are also ﬁ nding other ways to tackle the problem of climate change. According to a 2007 UNFCCC report, “the fact that total investment in new physical assets is projected to triple between 2000 and 2030 provides a window of opportunity to direct the ﬁ nancial and investment ﬂ ows into new facilities that are more climate friendly and resilient.”18 Businesses, governments, authorities and communities are recognising one another’s relevance and roles in addressing these issues, whether it is policies, funding gaps, technology, or R&D. What is clear is that more international co-operation and transparency are needed, and for any solution to work, it has to be sustainable. 16 World Bank and Public-Private Infrastructure Advisory Facility (PPIAF), PPI Project Database. 17 OECD Environmental Outlook to 2030, 2008. Investment and Financial Flows to address 18 Climate Change, UNFCCC, 2007. Keppel Corporation Limited Report to Shareholders 2009 The Future is Green KIE will be sponsoring the listing of Units of a business trust, known as K-Green Trust (KGT), on the Main Board of the Singapore Exchange Securities Trading Limited (SGX-ST) by way of an introduction. The investment objective of KGT is to invest globally in “green” infrastructure assets in Singapore, Asia, Europe and the Middle East. The Senoko WTE Plant has been transferred into KGT as seed asset. KIE will further transfer two assets – the Keppel Seghers Tuas WTE Plant and the Ulu Pandan NEWater Plant – into KGT prior to the listing. Aiming to provide Unitholders with long-term, regular and predictable distributions, KGT will offer eco-conscious investors the opportunity to invest in and beneﬁ t from “green” infrastructure assets, such as waste management plants, water and wastewater treatment plants, and renewable energy or energy- efﬁ cient infrastructure assets. Trading of the Units is expected to commence in the second quarter of 2010, subject to regulatory and shareholder approvals. Figure 2: Water projects with private participation in developing countries by type of business, 1990–2008 90 80 70 60 50 40 30 20 10 0 Sewage collection and treatment Water utility with sewerage Potable water treatment plant Water utility without sewerage Sewage treatment plant Potable water and sewage treatment plant 0 9 9 1 1 9 9 1 2 9 9 1 3 9 9 1 4 9 9 1 5 9 9 1 6 9 9 1 7 9 9 1 8 9 9 1 9 9 9 1 0 0 0 2 1 0 0 2 2 0 0 2 3 0 0 2 4 0 0 2 5 0 0 2 6 0 0 2 7 0 0 2 8 0 0 2 Source: World Bank and PPIAF, PPI Project Database. Special Feature Opportunities in the Environmental Business 47 CONTENTS 49 Group Structure 50 Management Discussion and Analysis 52 Offshore & Marine 64 Infrastructure 72 Property 80 Investments 82 Financial Review and Outlook Operating & Financial Review The Keppel Group is in the Offshore & Marine, Infrastructure and Property businesses to deliver sustainable earnings growth. With total assets of $17.3 billion as at end-2009, the Group serves a global customer base through its business units strategically located in more than 30 countries. 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 include providing a range of products and services to a broad spectrum of customers in many geographic locations, no one factor, in management’s opinion, determines the Group’s ﬁ nancial condition or the proﬁ tability of our operations. In this section on the operating and ﬁ nancial review, we seek to provide a strategic, market and business review of the Keppel Group’s operations and ﬁ nancial performance. In describing the key activities of our businesses and their impact on Keppel Group’s performance, we have also discussed the challenges in our operating environment, and how we balance the short-term pressures and longer-term strategies. This discussion and analysis is based on the Keppel Group’s consolidated ﬁ nancial statements as at 31 December 2009. 48 Keppel Corporation Limited Report to Shareholders 2009 Group Structure Keppel Corporation Limited Offshore & Marine – Offshore rig design, construction, repair and upgrading – Ship conversions and repair – Specialised shipbuilding Infrastructure – Environmental engineering – Power generation – Logistics and data centres Property – Property development – Property fund management – Property trusts Investments – Investments – Telco Keppel Offshore & Marine Limited 100% Environmental Engineering Keppel Bay Pte Ltd 100% k1 Ventures Limited 36% 70% 30% Keppel FELS Limited 100% Keppel Shipyard Limited 100% Keppel Integrated Engineering Ltd Keppel Seghers Engineering Singapore Pte Ltd 100% Keppel Land Limited 52% MobileOne Ltd3 20% 31% 45% 100% K-REIT Asia 76% 1 To be listed in 2Q 2010 2 Owned by Singapore Consortium, which is 90%-owned by the Keppel Group – Keppel Corporation (45%), Keppel Land (35%) and Keppel Integrated Engineering (20%) 3 Owned by Keppel Telecommunications & Transportation Ltd, an 80%-owned subsidiary of the Company Keppel Land International Limited China/ Southeast Asia/ India and Middle East 100% K-REIT Asia Management Limited 100% Alpha Investment Partners Ltd 100% Keppel Singmarine Pte Ltd 100% Keppel FMO Pte Ltd 100% Keppel Nantong Shipyard 100% Company Limited China Keppel DHCS Pte Ltd 100% Offshore Technology Development Pte Ltd 100% K-Green Trust1 100% Deepwater Technology Group Pte Ltd 100% Keppel Seghers Belgium NV Belgium 100% Marine Technology Development Pte Ltd Keppel AmFELS Inc United States 100% Power Generation 100% Keppel Energy Pte Ltd 100% Keppel Verolme BV The Netherlands 100% Keppel Merlimau Cogen Pte Ltd 100% Keppel FELS Brasil SA Brazil Keppel Norway AS Norway Keppel Philippines Marine Inc The Philippines Caspian Shipyard Company Limited Azerbaijan Arab Heavy Industries PJSC UAE Keppel Kazakhstan LLP Kazakhstan 100% Keppel Electric Pte Ltd 100% 100% Keppel Gas Pte Ltd 100% 96% Logistics and Data Centres 45% Keppel Telecommunications & Transportation Ltd 80% 33% Keppel Logistics Pte Ltd 100% 50% Keppel Logistics (Foshan) Pte Ltd China 70% Group Corporate Services Sino-Singapore Tianjin Eco-City Investment and Development Co., Ltd2 China 50% Control & Accounts Corporate Communications Corporate Development/ Planning Human Resources 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 Operating & Financial Review Group Structure 49 Operating & Financial Review Management Discussion and Analysis Key Performance Indicators Revenue Proﬁ t after Tax & Minority Interests (PATMI) Exceptional items Attributable proﬁ t after exceptional items Operating cash ﬂ ow Free cash ﬂ ow Economic Value Added (EVA) Earnings per Share (EPS) Return on Equity (ROE) Total distribution per share 2009 $ million 12,247 1,265 360 1,625 670 1,094 1,026 79.4 cts 23.9 % 61.0 cts 09v08 % +/(-) +4 +15 n.m. +48 -67 -42 +20 +15 +7 +74 2008 $ million 11,805 1,097 1 1,098 2,047 1,876 855 69.0 cts 22.4% 35.0 cts 08v07 % +/(-) +13 +7 n.m. -3 +21 +63 +10 +6 +3 -45 2007 $ million 10,431 1,026 105 1,131 1,697 1,151 779 64.9 cts 21.8% 64.0 cts Group Overview The Group performed well in 2009 despite the contraction and volatility in the global and domestic economy. PATMI increased by 15% to reach a new high of $1,265 million. The compounded annual growth rate for PATMI from 2004 to 2009 was 22%. Attributable proﬁ t after exceptional items was $1,625 million. EPS of 79.4 cents were 10.4 cents above 2008 and 14.5 cents above 2007. EPS growth kept pace with PATMI growth. ROE increased from 22.4% to 23.9%. EVA before exceptional items rose $171 million to $1,026 million, the highest ever attained by the Group. Net cash from operating activities was a healthy $670 million, despite negative working capital changes resulting from the rundown of our offshore and marine orderbook. During the year, the Group spent $1.2 billion on acquisitions and operational capital expenditure. This comprised mainly the acquisition of Senoko Waste-to-Energy Plant and further development of our investment buildings. After taking into account dividend income and divestment proceeds of approximately $1.6 billion, net cash from investing activities was about $400 million. The resultant free cash ﬂ ow was a robust $1,094 million. With the strong performance, the Board recommended that shareholders be rewarded with a total distribution of 61 cents per share for 2009. This comprised a proposed ﬁ nal dividend of 23 cents per share, a proposed special dividend in specie of K-Green Trust units equivalent to approximately 23 cents per share and the interim dividend of 15 cents per share paid in August 2009. The total payout for 2009 exceeds $970 million which is about 77% of Group PATMI. Segment Operations Group revenue of $12,247 million was $442 million or 4% higher than that of the previous year. Revenue from Offshore & Marine Division of $8,273 million was $296 million or 3% lower, and this accounted for 68% of Group revenue. The decline in revenue was due to lower value of the new contracts secured. Revenue from Infrastructure Division increased $195 million or 9% to reach $2,427 million, which accounted for 20% of Group revenue. Higher revenue from Engineering, Procurement and Construction (EPC) contracts undertaken by Keppel Integrated Engineering was partly offset by lower revenue earned from the electricity and gas businesses of Keppel Energy. Revenue from Property Division of $1,508 million was $558 million or 59% higher and accounted for 12% of Group revenue. This was mainly attributable to higher sales recognition from the residential properties of Keppel Land and Keppel Bay. Group PATMI of $1,265 million was $168 million or 15% higher than that of the previous year. Proﬁ t from Offshore & Marine Division of $810 million was 15% higher because of improved operating margins. The Division remains the largest contributor to Group PATMI with 64% share. Proﬁ t from Infrastructure Division was $126 million, which was double the earnings of last year, due to contribution from EPC contracts in Qatar and better performance by Keppel Energy. Proﬁ t from Property Division was $210 million or 34% higher due to increased revenue recognition from the sale of residential properties and share of proﬁ t of associated companies developing Marina Bay Residences in Singapore and The Botanica in Chengdu, China. PATMI from Investments was $119 million, a decrease of $53 million from the previous year. This was mainly due to lower contribution from our stake in Singapore Petroleum Company, which was disposed of in June 2009. 50 Keppel Corporation Limited Report to Shareholders 2009 Keppel achieved record results in 2009 despite the contraction and volatility in the global and domestic economy. Revenue ($ million) 8,600 6,450 4,300 2,150 0 2009 $12,247 million 8,273 2008 $11,805 million 2007 $10,431 million 8,569 7,258 2,427 2,232 1,277 1,508 950 1,835 39 54 61 Offshore & Marine Infrastructure Property Investments PATMI ($ million) 810 540 270 0 2009 $1,265 million 2008 $1,097 million 2007 $1,026 million 810 705 522 126 63 27 210 157 209 119 172 268 Offshore & Marine Infrastructure Property Investments Operating & Financial Review Management Discussion and Analysis 51 Operating & Financial Review Offshore & Marine Keppel Offshore & Marine aims to be the choice provider and solutions partner in its selected segments of the offshore and marine industry. PATMI ($ million) 2009 2008 2007 Earnings Highlights Revenue EBITDA Operating proﬁ t Proﬁ t before tax PATMI Manpower (number) Manpower cost ROE 810 705 522 2007 $ million 7,258 648 570 700 522 24,448 802 46% 2009 $ million 8,273 1,129 1,004 1,081 810 24,275 983 68% 2008 $ million 8,569 932 837 943 705 27,437 956 61% $1,081m Proﬁ t before tax increased 15% from FY 2008’s $943 million. $810m PATMI increased 15% from FY 2008’s $705 million. Major Developments in 2009 Focus for 2010/2011 – Record delivery of 14 newbuild rigs. – Deliver value through excellent project management and execution. – Secured $1.7 billion of contracts with deliveries into 2013. – Building Vietnam’s ﬁ rst semisubmersible drilling tender. – Enhance R&D initiatives to strengthen position as market leader in selected segments. – Explore opportunities in new – Awarded Letter of Intent for FloaTEC, markets and adjacent businesses. LLC to build P-61 Tension Leg Wellhead Platform for Petrobras and Chevron. – Maximise and realise operational efﬁ ciencies. – Constructing Singapore’s ﬁ rst – Sustain prudent cost management. dedicated safety training complex. – Achieved good operating proﬁ t margins due to productivity improvements. – Focus on Health, Safety and the Environment. 52 Keppel Corporation Limited Report to Shareholders 2009 The Offshore & Marine Division achieved higher operating margins in 2009 due to higher productivity. Earnings Review Offshore & Marine Division secured $1.7 billion of new orders in 2009. The net orderbook at the end of the year was $5.6 billion, with deliveries extending through to 2013. Proﬁ t before tax increased from $700 million in 2007 to $943 million in 2008, and further increased by 15% to reach $1,081 million in 2009. Operating margins for the year improved to 12.1% due to better productivity. PATMI of $810 million was $105 million or 15% higher than that of 2008, and $288 million more than in 2007. The Division remains the largest contributor, at 64%, to the Group’s overall earnings. Market Review 2009 continued to be a volatile year for the offshore and marine industry, with some signs of recovery towards the end of the year. In the ﬁ rst quarter, crude oil prices dropped to US$35 per barrel, continuing its steep decline from over US$100 per barrel since late 2008. However, as global markets staged a rebound in the second quarter, the demand for oil bottomed out and began to grow again. Over the remaining months of 2009, oil prices more than doubled to end the year at nearly US$80 per barrel. Market sentiment was particularly negative in the ﬁ rst half of 2009 when oil prices hit a low, affecting the industry on all fronts, especially for shiprepairs and newbuild support vessels. The jackup market took a hit early in the year with worldwide rig count and utilisation rates taking a tumble. Contractors began cold-stacking their rigs as newbuild jackups entered the market in 2009. Operating & Financial Review Offshore & Marine 53 Operating & Financial Review Offshore & Marine Signiﬁ cant Events January Mr Tong Chong Heong, formerly Managing Director and Chief Operating Ofﬁ cer of Keppel O&M, succeeded Mr Choo Chiau Beng as Chief Executive Ofﬁ cer of Keppel O&M. Keppel FELS delivered the ﬁ rst jackup rig of 2009, Maersk Resolve, to Maersk Drilling (Maersk), while Keppel AmFELS completed a series of ﬁ ve jackups with its delivery of Offshore Intrepid to Scorpion Offshore. Igniting bright beginnings for Greatdrill Chetna are Lady Sponsor Mrs Archana Mitta and Keppel Corporation Chief Executive Ofﬁ cer and Keppel O&M’s Chairman, Mr Choo Chiau Beng, at the rig’s naming ceremony. February Delivery of jackup Deep Driller 8 to Aban Singapore Pte Ltd (Aban) marked the completion of a series of ﬁ ve rigs. Built to its proprietary DSSTM 51 semi design, Keppel FELS also completed Development Driller III for Transocean. March The 20-day early delivery of jackup Greatdrill Chetna earned Keppel FELS $1 million bonus from Mercator Offshore Limited. Keppel O&M was awarded projects worth $300 million to build a derrick lay barge, modify a FPSO vessel and complete a deep drilling semi. 54 Towards the latter part of the year, expansionary ﬁ scal and monetary policies began to revive the global economy and investor conﬁ dence returned to the ﬁ nancial markets, providing much needed capital to the industry. In line with higher and more stable oil prices, utilisation and day rates stabilised. These developments helped to kick-start many previously stalled projects for ﬁ eld developers and drilling contractors, resulting in increased exploration and production (E&P) spending and a number of contract awards in the second half of the year. Operating Review Keppel Offshore & Marine (Keppel O&M) saw another record year in 2009 with the delivery of a total of 14 rigs, six major conversions/upgrades, one semisubmerible (semi) completion and 14 specialised vessels safely, on time and within budget. The company secured a number of major contracts with deliveries through to 2013, including three drillship upgrades for Noble Corporation, a newbuild semisubmersible drilling tender (SSDT) for PetroVietnam Drilling (PV Drilling), and a Letter of Intent for a newbuild Tension Leg Wellhead Platform (TLWP) for Petrobras and Chevron. Offshore Despite the uncertain market conditions, Keppel FELS improved on its 2008 performance and achieved a new record of 13 deliveries in 2009. The company was awarded a total of $2 million for early deliveries of most of these newbuilds, which included eight jackup rigs, four semi drilling rigs and one SSDT. Six of the jackup rigs were built according to Keppel FELS’s ﬂ agship design speciﬁ cations, the KFELS Super B Class and the KFELS B Class. The company also delivered three proprietary DSS Series semis and completed the second of seven Keppel Corporation Limited Report to Shareholders 2009 Keppel FELS Brasil will leverage its strong local presence, experience and track record to strengthen its leadership position in the Brazilian offshore market. ENSCO 8500 series ultra deepwater semis, built exclusively for Ensco International (Ensco). When the ENSCO 8500 series is completed, Keppel-built rigs will make up 30% of Ensco’s drilling ﬂ eet. The last rig delivered for the year was the sixth of seven KFELS SSDTs to be constructed for Seadrill Limited (Seadrill), built to the award-winning KFELS SSDT TM 3600E design. During the year, Keppel FELS continued its yard expansion to entrench its leadership position and to gear up for a possible market rebound. A new 300-metre (m) pier extension at Pioneer Yard was completed in October 2009, enabling Keppel FELS to take on a larger number of projects, such as larger rigs and drillships. Several contracts were secured by Keppel FELS in 2009, including a KFELS SSDT TM 3600E for PV Drilling, the ﬁ rst SSDT for Vietnam. Other upgrading and repair projects secured during the year include semis from Transocean and Korea National Oil Corporation. Overseas, the yards were also busy. Keppel AmFELS successfully delivered a newbuild jackup rig. Repair and modiﬁ cation works on one jackup and one semi were also completed. 2010 will be a busy period for the yard with major ongoing work on ﬁ ve newbuild jackups scheduled to be delivered from 2010 to 2012. Keppel FELS Brasil completed seven repair, conversion and upgrading projects in 2009. Its orderbook was boosted in 2009 with the successful bids for several high-value contracts stretching into 2013, including the upgrade and repair of three drillships from Noble Corporation. The yard was also awarded a Letter of Intent for the construction of the P-61 TLWP for Petrobras and Chevron. These are in Operating & Financial Review Offshore & Marine 55 Operating & Financial Review Offshore & Marine Signiﬁ cant Events May Keppel FELS achieved an early delivery of jackup COSLSTRIKE to China Oilﬁ eld Services Limited. Singapore’s Senior Minister of State for National Development, Ms Grace Fu, at the naming of ENSCO 8501, accompanied by Mr Choo Chiau Beng, Chief Executive Ofﬁ cer of Keppel Corporation and Chairman of Keppel O&M, and Mr Tong Chong Heong (extreme left), Chief Executive Ofﬁ cer of Keppel O&M. June Keppel Shipyard unveiled plans to build a training complex dedicated to equip its workforce with safety knowledge and competencies, the ﬁ rst of its kind in Singapore. Keppel FELS delivered the second 8500 Series® semi, ENSCO 8501, to Ensco, incident free. Keppel O&M secured contracts worth $30 million for the upgrade and repair of three semis in Keppel Verolme and Keppel FELS Brasil. All three vessels were delivered to their owners by end-2009. (opposite) The successful delivery of Deep Driller 8 completed the series of ﬁ ve KFELS Super B Class jackup rigs built by Keppel FELS for Aban. 56 addition to the ongoing work on Petrobras’ BGL-1 pipelay barge, the P-56 semi ﬂ oating production unit and Single Buoy Moorings’ (SBM) P-57 Floating Production Storage and Ofﬂ oading (FPSO) vessel. To cope with the increased workload, Keppel FELS Brasil is in the midst of expanding and upgrading its BrasFELS yard. In the Netherlands, Keppel Verolme enjoyed higher efﬁ ciency and productivity after a series of process improvements and streamlining exercises. The yard carried out eight major projects including newbuilds, upgrades and repair works. Keppel Verolme also secured a contract from Saipem S.p.A involving the repair and modiﬁ cation of a semi pipelay vessel. Over in the Caspian region, Keppel Kazakhstan achieved record revenue in 2009, with deliveries of 14 pipe rack modules and an Ice Breaking Emergency Evacuation Vessel pontoon. It will continue to work on its ancillary steelwork procurement and fabrication contract with Agip KCO in 2010, as part of the experimental phase of the Kashagan ﬁ eld development programme. Marine Despite the slowdown in demand for shiprepair and conversion projects in 2009, Keppel Shipyard matched its record turnover in 2008. Conversions of FPSOs, Floating Storage and Ofﬂ oading (FSO) vessels and Floating Storage and Re-Gasiﬁ cation Units (FSRU) again contributed to the good performance, accounting for almost 70% of total revenue while shiprepair contributed about 24%. During the year, Keppel Shipyard completed 361 vessel repairs and seven conversion/upgrade projects, bringing its track record for conversions to 86. Three FPSO/FSO conversion projects were delivered in 2009. In addition, Keppel Shipyard completed the world’s ﬁ rst Floating Drilling Production Storage and Ofﬂ oading Keppel Corporation Limited Report to Shareholders 2009 Operating & Financial Review Offshore & Marine 57 Operating & Financial Review Offshore & Marine Signiﬁ cant Events July Keppel Singmarine delivered Kogalym, an Ice-Class rescue vessel, and LANGEPAS, an OSV to LUKOIL- Kaliningradmorneft (LUKOIL). It also handed over an OSV, Sea Commanche, to GulfMark Offshore, Inc. Conversion of FPSO Armada Perdana was completed for repeat customer Bumi Armada Berhad at Keppel Shipyard. Keppel FELS completed an outstanding collection of four jackup rigs for Maersk with the delivery of Maersk Reacher. LANGEPAS is the sixth vessel Keppel Singmarine has delivered to LUKOIL since 2003. August Keppel Shipyard was on course to complete the conversion of FSO vessel, Ratu Songkhla, for M3nergy JDA Sdn Bhd. Keppel O&M yards secured contracts worth $ 85 million from repeat customers GOLAR LNG, Four Vanguard Serviços E Navegaçao Lda, Keppel Smit Towage, Seadrill and Diamond Offshore. Keppel FELS delivered the second of three DSSTM 21 deepwater semis, Maersk Discoverer, to Maersk. Keppel Singmarine completed Ice-Class FSO YURI KORCHAGIN on time and with no incidents, for LUKOIL in the Caspian region. 58 vessel. Major upgrade works completed include modiﬁ cation and upgrading as well as refurbishment and life extension for two FPSOs, and the jumboisation of a trailing suction hopper dredger. At the end of 2009, the yard had eight ongoing conversion projects and a further ﬁ ve major projects involving a derrick lay barge newbuilding, a lay barge completion, turret fabrication and integration of new drillships. Seven new major contracts were secured in 2009 by Keppel Shipyard from both repeat and new customers in 2009, further enhancing its position as a global leader in shiprepair and conversions. For the ﬁ fth consecutive year, the company was conferred the Shiprepair Yard of the Year Award by Lloyd’s List Maritime Asia Awards. In the Philippines, Keppel Batangas Shipyard saw a 20% increase in shiprepair activities in 2009. It delivered a newbuild fuel oil tanker-barge and also completed block fabrication works for two semi units. Keppel Cebu Shipyard went through a rationalisation exercise, where all shiprepair work was transferred to Keppel Batangas. Subic Shipyard completed its yard expansion during the year, allowing the yard to accommodate the new generation of super large container vessels, VLCCs, containerships, bulk carriers, and increase operational efﬁ ciency in servicing double-banked Panamax and Capesize vessels. In all, Subic Shipyard repaired 47 vessels in 2009. Arab Heavy Industries PJSC, our joint venture yard in Ajman, UAE, repaired a total of 266 ships in 2009, achieving strong results through high productivity and cost-cutting measures. Specialised Shipbuilding Keppel Singmarine continued to perform well in 2009. It delivered a total Keppel Corporation Limited Report to Shareholders 2009 Global Offshore Expenditure by Region 2004–2013 Capex & Opex ($ billion) 400 350 300 250 200 150 100 50 0 Africa Asia Australasia Eastern Europe & FSU Latin America Middle East North America Western Europe Source: Energyﬁ les/Douglas-Westwood 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 of four vessels, including the ﬁ rst ever newbuild FSO project undertaken by Keppel O&M. The Ice-Class FSO was deployed in the Russian Federation sector of the Caspian Sea. A new design by Keppel Singmarine’s technology arm, Marine Technology Development, the FSO was ﬁ rst built in two halves in Singapore, before being towed to Caspian Shipyard Company in Azerbaijan for completion. At the end of 2009, Keppel Singmarine’s orderbook includes four platform supply vessels, two heavylift pipelay vessels, three anchor handlers and ﬁ ve tugboats for a global clientele. Keppel Nantong Shipyard in China delivered 10 vessels in 2009 and is expected to deliver another ﬁ ve in 2010. It is also increasing its newbuilding capacity to include offshore fabrication capabilities in the near future. Industry Outlook The International Energy Agency has projected oil and gas demand to continue its upward trend over the next few years as industries begin their recovery from the economic crisis. Oil consumption is projected to rise from 84.9 million barrels per day (bpd) in 2009 to 105 million bpd in 2030, and expected increases in capital spending in oil and gas infrastructure and technology will help boost production rates. Douglas Westwood has predicted offshore production expenditure per year to reach US$360 billion by 2013, compared to an estimated US$260 billion in 2009. The US Energy Information Administration (EIA) expects Brazil to lead the growth in supply in the short to medium term. In April 2009, Petrobras announced a US$174.4 billion capital expenditure plan for 2009 through 2013. This was followed by a tender issue for 28 rigs in September 2009. Keppel O&M, with the largest and best equipped yard in the region, as well as a strong relationship and track record with Petrobras, is well-positioned to meet Brazil’s high local content requirement and to support Petrobras’ aggressive growth. Offshore Deepwater Prospects The deepwater market continues to have the best growth prospect in the medium to long term. E&P activities are gradually shifting towards deepwater to replace the fast depleting shallow water reserves. Major oil and gas discoveries in the Gulf of Mexico, Australia, West Africa and Brazil were added to the deepwater reserves in 2009. Douglas Westwood has forecasted deepwater expenditure to reach US$137 billion over the next ﬁ ve years and deepwater oil production is also expected to rise from just over seven million bpd in 2009 to more than 10 million bpd in 2015. The deepwater market is an important area of development for Keppel O&M. Our proprietary deepwater solutions are designed to address the changing Operating & Financial Review Offshore & Marine 59 Operating & Financial Review Offshore & Marine The naming of twin jackups, PV Drilling II and PV Drilling III, was a ﬁ rst in rig history and marked another milestone in the deepening relationship between Singapore and Vietnam. needs of the industry and have been gaining worldwide market acceptance. Our DSSTM semis, jointly designed and owned with Marine Structure Consultants, which we have delivered to our customers, are operating well. To meet future demands for deeper water E&P activities, we have introduced the Extendable Draft Semisubmersible, an ultra deepwater dry tree drilling and production design for harsh environmental conditions. Keppel’s Deepwater Technology Group has also developed one of the world’s ﬁ rst compact drillships in collaboration with SBMGustoMSC. With topsides fully-integrated within its hull, the DrillDeep DS12000’s slender design makes it more cost-effective and energy-efﬁ cient than its larger rivals in the market. FloaTEC, LLC, Keppel O&M’s joint venture with J. Ray McDermott, has also entered the deepwater market. It secured a Letter of Intent from Petrobras and Chevron to design, build and operate the P-61 TLWP for Brazil’s Papa Terra ﬁ eld. FloaTEC, LLC also clinched a contract from Chevron for the front-end engineering and design of the hull, mooring and risers for the proposed Big Foot development in the Gulf of Mexico. Drilling Rigs, Production Units, Specialised Ships Although the jackup environment will be challenging in the medium term, with utilisation and day rates facing pressure from newbuilds scheduled to be delivered in 2010, overall demand for jackups is estimated to remain at current levels with the Middle East, Southeast Asia and the North Sea markets expected to hold ﬁ rm. Keppel FELS will continue to set the industry benchmark with its powerful KFELS B Class rigs. According to ODS-Petrodata, over 40% of the rigs delivered in the past 10 years were built to Keppel FELS designs. Prospects for the drilling ﬂ oater market looks positive over the next few years. Despite the economic downturn, deepwater ﬂ oaters are forecasted to command increasing rates through to 2011 on long-term ﬁ xed contracts. We remain optimistic on the drilling ﬂ oater market and will be looking to expand our technology offerings to meet the increasing demands of the industry. The Floating Production Systems (FPS) market is set to continue its recovery into 2010. After a quiet ﬁ rst half in 2009, the FPS market was boosted by news of a number of FPSO contract awards in the second half and this trend is expected to continue with oil prices stabilising. According to Douglas Westwood estimates, FPSOs are expected to dominate the sector, accounting for about 80% of the US$50 billion FPS market from 2009 to 2013. Keppel O&M will continue to develop its key competencies in FPSO conversions and topside modules to capture this market. 60 Keppel Corporation Limited Report to Shareholders 2009 With increasing emphasis towards operations in harsh environments, specialised vessels such as icebreakers, pipelay vessels and construction vessels are better positioned to withstand ﬂ uctuating market conditions and provide greater resilience to the declining day rates. According to EIA projections, global natural gas consumption is set to grow 1.6% per year to 153 trillion cubic feet in 2030. E&P activities for natural gas are slated to grow signiﬁ cantly in the Middle East, Latin America, Africa and the Asia Paciﬁ c. With many large re-gasiﬁ cation plants and import terminals scheduled to come online in 2010, offshore LNG supply looks set to increase considerably and ﬂ oating LNG vessels are expected to play a greater role in providing a cleaner energy source. According to Douglas Westwood, US$74 billion will be invested in ﬂ oating LNG solutions from 2009 to 2014. With its strong track record of FSRU conversions, Keppel O&M will continue to develop and provide a wide range of solutions for the natural gas industry. New Growth Area The European Wind Energy Association predicts that 40 gigawatts of offshore wind energy in the European Union will be installed by 2020 with an annual growth rate of 28%. Keppel O&M, together with Keppel Integrated Engineering, has introduced a new generation wind turbine installation vessel to meet this growing demand. This purpose-built vessel will be able to handle the largest wind turbines of up to 6 megawatts and operate at water depths of up to 65 m. It will also provide a far larger installation weather window than conventional vessels due to its unique handling mechanism. We will continue to look at possibilities for our offshore technology and expertise to be applied innovatively to the offshore wind energy industry. Operating & Financial Review Offshore & Marine Signiﬁ cant Events September On track for early deliveries, Keppel FELS and PV Drilling named identical twin rigs PV Drilling II and PV Drilling III together, a ﬁ rst in rig history. October A Letter of Intent for the P-61 TLWP was awarded to FloaTEC, LLC, a joint venture between Keppel O&M and J. Ray McDermott, Inc. Keppel Shipyard was on track to deliver the ﬁ rst FPSO for the Gulf of Mexico, BW Pioneer, to BW Pioneer Ltd. Keppel FELS delivered Greatdrill Chitra and Gold Star, ahead of schedule, within budget and with no incidents, to Greatship Global Energy Services Pte Ltd and Queiroz Galvão Óleo e Gás respectively. BW Pioneer will be the ﬁ rst FPSO to be deployed in the Gulf of Mexico and turret moored at the deepest waters ever for an FPSO. 61 Operating & Financial Review Offshore & Marine Signiﬁ cant Events November Keppel O&M secured contracts to upgrade and repair two Noble Corporation drillships for US$304 million in Brazil. In addition, two contracts worth about $165 million – pre-conversion of FPSO P-58, and repair and modiﬁ cation of a semi pipelay vessel – were awarded by Petrobras and Saipem S.p.A to Keppel Shipyard and Keppel Verolme respectively. The upgrading of Noble Corporation’s drillships will create a baseload of work stretching into 2013 for the BrasFELS yard. December Keppel FELS won a contract to build Vietnam’s ﬁ rst SSDT for about US$200 million. Contracts worth $160 million were awarded to Keppel O&M for a FPSO conversion, a derrick lay barge completion and life extension of a semi. Marking the last delivery of the year, Keppel FELS handed over West Vencedor, the sixth of seven KFELS semi drilling tenders, to Seadrill. Adding on to the earlier Noble drillship jobs, Keppel FELS Brasil won the third contract to upgrade and repair a drillship for US$152 million. Meeting the Challenges The economic downturn has resulted in delays and cancellations of projects in the industry. Speculative orders prevalent just a few years ago have all but disappeared. As a result, there has been a consolidation of drilling and FPSO contractors, leading to a more concentrated market with leaner and stronger players. While the market may not see a return to the high volume of newbuild rig orders seen in the ﬁ ve years before 2009, there continues to be a healthy level of enquiries for our products and solutions. Keppel O&M has continued to invest to improve and expand its production facilities to meet customer needs. Furthermore, to meet the local content requirements of a growing group of customers who are national oil companies, Keppel O&M is actively pursuing meaningful acquisitions that will undergird our ‘Near Market, Near Customer’ strategy. To support the shiprepair and upgrading market, our new yard facility jointly developed with Qatar Gas Transport Company, is scheduled to be ready in the third quarter of 2010 and will be the largest shiprepair yard in Qatar, home to one of the world’s largest natural gas reserves. Despite the economic uncertainty, Keppel O&M continues to focus heavily on Research and Development to provide innovative solutions that can be brought to market quickly. Our proprietary designs are reﬁ ned constantly with inputs from ﬁ eld operators, allowing us to develop products that are commercially viable and relevant to the market’s needs. 62 Keppel Corporation Limited Report to Shareholders 2009 1 Keppel FELS is constructing a highly efﬁ cient ﬂ eet of seven ultra deepwater semis for Ensco. 2 Keppel Shipyard’s expertise in Liqueﬁ ed Natural Gas (LNG) carriers repair has enabled it to capture a major market share of LNG carriers in Singapore. 1 2 Operating & Financial Review Offshore & Marine 63 Operating & Financial Review Infrastructure The Infrastructure Division is poised to grow further with its robust portfolio of environmental engineering, power generation, logistics and data centres businesses. PATMI ($ million) 2009 2008 2007 Earnings Highlights Revenue EBITDA Operating proﬁ t Proﬁ t before tax PATMI Manpower (number) Manpower cost 126 63 27 2007 $ million 1,277 45 11 51 27 4,392 180 2009 $ million 2,427 161 127 150 126 4,574 213 2008 $ million 2,232 82 50 70 63 5,064 219 $150m Proﬁ t before tax increased 114% from FY 2008’s $70 million. $126m PATMI was doubled that of FY 2008’s $63 million. Major Developments in 2009 Focus for 2010/2011 – KIE completed the acquisition – KIE to continue building its environmental engineering business, with the aim of becoming a world leader in environmental solutions. – KIE to expand its slate of products and solutions, as well as moving into adjacent businesses such as renewable energy. – Keppel Energy to grow its power generation business by planting additional capacity in Singapore. – Keppel T&T to continue growing its logistics and data centre footprint. of the Senoko WTE Plant from the Singapore Government. – Keppel Seghers Tuas WTE Plant began commercial operations. – KIE secured four new contracts to maintain its market leader position in imported WTE solutions in China. – Keppel Seghers clinched an EPC contract worth around $518 million for an Energy-from-Waste Plant serving Greater Manchester in UK. – KIE acquired First DCS Pte Ltd, the largest district cooling systems provider in Singapore. – Keppel T&T expanded warehousing and data centre capacity. 64 Keppel Corporation Limited Report to Shareholders 2009 Earnings Review Infrastructure Division’s revenue in 2009 increased by $195 million, due largely to the Doha North Sewage Treatment Works project in Qatar. This was partly offset by lower revenue from the Keppel Merlimau Co-generation Plant. In all, 2009 saw good progress made by the Division, which continued its steady growth and more than doubled its pre-tax proﬁ t from $70 million to $150 million. This was due to higher contribution from environmental engineering projects and better performance by Keppel Energy. PATMI of $126 million was double the level achieved in 2008. The Division accounted for 10% of the Group’s PATMI. Environmental Engineering Market Review Demand for effective solutions to treat solid waste and wastewater continues to grow in the Middle East and North Africa. The Gulf Co-operation Council countries rank among the highest in the world in waste generated. Rapid increases in population and economic activities in this region have also led to a surge in the volume of sewage water produced. Despite the prevalence of wastewater reuse in agriculture, wastewater treatment plants in most countries in this region are not operated and maintained adequately. According to World Bank estimates, tens of billions of dollars will be invested in the waste management and environmental sectors in the Middle East over the next 10 years. 1 KIE is building the Middle East’s ﬁ rst integrated solid waste management centre in Qatar. 2 Keppel Energy has improved on the reliability and availability of the Keppel Merlimau Co-generation Plant since operations in 1H 2007. 3 The Keppel Seghers Ulu Pandan NEWater Plant continues to contribute to the Infrastructure Division’s earnings stream since commencing operations in 2007. 1 2, 3 Operating & Financial Review Infrastructure 65 Operating & Financial Review Infrastructure Keppel Integrated Engineering’s (KIE) environmental technology arm, Keppel Seghers, will continue to expand its foothold in this emerging market. The market for waste-to-energy (WTE) solutions remains strong in Europe. The European Union (EU) Landﬁ ll Directive, which requires a reduction in municipal solid waste being disposed of to landﬁ lls and the treatment of municipal solid waste to reduce biological content prior to landﬁ lling, will drive demand for WTE and municipal solid waste pre- treatment solutions. KIE is actively pursuing waste management Private Finance Initiatives (PFI) in the UK. Europe, in particular the UK, represents the most mature of the renewable energy market, with strong national and EU policies driving the growth of renewable energy. The EU’s Renewables Directive stipulates a binding target of 20% of ﬁ nal energy consumption to be from renewable sources by 2020. In particular, the UK government wants renewable energy to supply 10% of the country’s electricity requirement by 2010, and has put in place polices to further promote the use and development of renewable energy. In Latin America, Peru and Mexico have become notably more open to foreign investment in the sanitation sector, with a healthy list of concessions to foreign participants to support the incumbent state-run service providers. In recent years, the Brazilian government has also started to take steps to improve on the weak regulatory legislation hindering private sector participation in the country’s sanitation sector. In China, the latest ﬁ gures from megacities such as Beijing and Shanghai show the urgency of the country’s waste problem. Beijing’s municipal administration commission warned that at the current rate of waste production, the city’s 13 landﬁ lls will be full in “four to ﬁ ve years”. The Chinese government is expected to allocate even more funding towards environmental protection in its next ﬁ ve-year development plan from 2011 to 2015. More low carbon eco-cities are emerging in China, giving KIE the opportunity to replicate the experience it is gaining from its involvement in the Sino-Singapore Tianjin Eco-City project. Environmental Engineering Keppel Integrated Engineering aims to be a world leader in environmental solutions for water/wastewater and solid waste treatment, and make a signiﬁ cant contribution to a cleaner future. (opposite) Featuring Keppel Seghers’ design and technology, the Greater Manchester EFW CHP Plant will be one of the largest waste management facilities in the UK when completed in 2012. Project Ulu Pandan NEWater Plant Senoko Waste-to-Energy Plant Capacity 148,000 m3/day 2,400 tonnes of solid waste a day Keppel Seghers Tuas Waste-to-Energy Plant Domestic Solid Waste Management Centre Doha North Sewage Treatment Works Greater Manchester Energy-from-Waste Combined Heat and Power Plant Amotfors Energi Combined Heat and Power Waste-to-Energy Plant Technology packages to Waste-to-Energy plants in Shandong, Chengdu, Yangzhou and Tianjin 800 tonnes of solid waste a day to generate more than 20 MW of green energy 2,300 tonnes of mixed solid waste and 5,000 tonnes of construction and demolition waste a day, and a 1,500 tonnes a day waste-to- energy incineration plant 439,000 m3/day 420,000 tonnes of solid waste per year, generating about 270,000 MW of electricity and 500,000 tonnes of steam per year 70,000 tonnes of solid waste per year 2,000 tonnes, 1,800 tonnes, 1,000 tonnes and 1,500 tonnes of solid waste per day respectively Operational Date 2007 Acquired in 2009 2009 Tenure 2007–2027 2009–2024 2009–2034 1H 2010 2009–2029 1H 2011 2012 2010–2020 – 1H 2010 2010–2011 – – 66 Keppel Corporation Limited Report to Shareholders 2009 Operating & Financial Review Infrastructure 67 Operating & Financial Review Infrastructure There is also a trend in Southeast Asian cities such as Bangkok, Ho Chi Minh City, Hanoi, Jakarta, Bandung and Surabaya, towards incineration solutions to solve their waste issues. Australia’s increasingly dry climate and population pressure has threatened the existing water supplies. As its water and wastewater treatment market is at the maturity phase, opportunities generally exist through upgrades, improvements and retroﬁ ts of existing plants, with more advanced technologies and competitively priced products. Keppel Seghers is monitoring this market closely. Singapore Government in August 2009, Keppel Seghers Tuas WTE Plant also commenced its 25-year operations and maintenance contract with Singapore’s National Environment Agency in November. With these two plants, KIE is now the sole private operator of WTE plants treating general waste in Singapore. In the Middle East, KIE is making steady progress in its construction of the Middle East’s ﬁ rst integrated solid waste management centre in Qatar. When completed, the facility will be able to treat 2,300 tonnes of waste per day. Operating Review KIE is strengthening its home ground presence in Singapore, as well as growing its sources of recurring income streams. In addition to the acquisition of the Senoko WTE Plant from the Also making satisfactory progress is the construction of the Doha North Sewage Treatment Works, a greenﬁ eld wastewater treatment and water reuse facility. With peak design capacity to treat wastewater of up to 439,000 m3/day, this will be the largest wastewater treatment and reuse facility in Qatar, more than triple the capacity of the next largest wastewater treatment plant. In China, KIE secured ﬁ ve WTE projects in 2009 and 2010, reinforcing its position in that country as the market leader for imported WTE solutions with 60% of the market share. In Europe, Keppel Seghers secured an Engineering, Procurement and Construction (EPC) contract worth around $518 million, to build an Energy-from-Waste Combined Heat and Power (EFW CHP) Plant to serve the Greater Manchester region. This will be one of the largest waste and renewable energy projects in the UK. Keppel Seghers also established its UK representative ofﬁ ce in London to pursue UK PFI projects. Mr He Lifeng (left), Deputy Party Secretary of the Communist Party of China Tianjin Municipal Committee, touring Keppel DHCS’s facilities with the Chief Executive Ofﬁ cer Mr Joseph Ng. 68 Keppel Corporation Limited Report to Shareholders 2009 In November 2009, KIE acquired First DCS Pte Ltd from SLI Holdings Pte Ltd, a wholly-owned subsidiary of JTC Corporation. The renamed Keppel DHCS is the largest district cooling systems provider in Singapore. Apart from providing an additional recurring income stream, Keppel DHCS will allow KIE to explore more opportunities arising from the drive for more environmentally friendly and energy- efﬁ cient solutions in Singapore and the region. Keppel DHCS has also signed a Memorandum of Understanding with Sino-Singapore Tianjin Eco-City Investment and Development Co., Ltd to jointly study the feasibility of introducing district heating and cooling systems to support the energy requirements of the Eco-Business Park in the Sino-Singapore Tianjin Eco-City. The MEMSTILL® project, a novel desalination process utilising low-grade heat, completed its third pilot testing in the Netherlands and a demonstration plant will be constructed in Singapore in 2010. At the same time, a new design to signiﬁ cantly improve the price performance of the process was tested in a pilot plant in Belgium, as well as in Spain. Business Outlook With the world confronting complex climate change issues, countries need to look into creating sustainable environments and developing a “Green Concept”. This would translate into more stringent discharge requirements and greater emphasis on recycling and reusing. The general trend of the environmental industry is also moving towards providing total environmental solutions based on the Design, Build, Own, Operate or Build, Own, Operate, Transfer model. In addition, there is increasing global awareness of environmental issues and a growing movement towards a “zero waste” approach. The future of landﬁ lls is now in question, with their long-term Operating & Financial Review Infrastructure Signiﬁ cant Events March Keppel Seghers was awarded a $30 million technology contract for a WTE plant in Shandong, China. April An EPC contract worth about $518 million to build an Energy-from-Waste plant in Greater Manchester, UK, was clinched by Keppel Seghers. July Keppel Seghers won a techology contract of $22.3 million to a WTE plant in Tianjin, China. August Mr Tong Chong Heong, CEO of Keppel O&M, assumed the role of Chairman of KIE, while Mr Michael Chia, MD (Offshore) of Keppel O&M, was appointed Deputy Chairman. KIE acquired the Senoko WTE Plant, establishing itself as the only private operator of incineration plants in Singapore. The Senoko WTE Plant can treat 2,400 tonnes of waste per day. November The Keppel Seghers Tuas WTE Plant commenced commercial operations. Keppel T&T and Al Rajhi Holding Group formed the world’s ﬁ rst Shariah-compliant data centre fund. December KIE acquired Singapore’s largest district cooling systems service provider First DCS for $ 88 million. KIE appointed Mr Michael Chia as CEO with effect from 13 January 2010. Keppel T&T appointed BG (NS) Pang Hee Hon as CEO with effect from 4 January 2010. 69 Operating & Financial Review Infrastructure Power Generation Keppel Energy aims to be a power company with innovative fuel solutions in Singapore and beyond. Logistics and Data Centres Keppel Telecommunications & Transportation (Keppel T&T) aims to leverage core competencies to enhance existing businesses. 70 potential threat to the environment. Governments are now looking to reduce or avoid landﬁ lling, as well as transforming open dumps into sustainable landﬁ lls, and more cities are turning to harnessing energy from waste as a single solution for the dual objectives of rubbish disposal and electricity generation. A report published by the World Bank’s International Financial Corporation showed that the demand for water withdrawals from nature is expected to grow from 4,500 km3 in 2009 to 6,900 km3 in 2030. However, many water basins are already in deﬁ cit, and some are drying up. By 2030, this water deﬁ cit would have grown to 2,700 km3 and this gap will have to be bridged by improvements in water productivity, increased supply, conservation and development of non-traditional water supplies such as water reuse. Water reuse is considered more environmentally friendly than desalination due to lower energy consumption and global water reuse capacity is expected to triple from 2008 to 2016. This trend will allow KIE to pursue more opportunities to provide its water treatment solutions based on water reuse technology, to countries and regions around the world. The wastewater treatment and water reuse market is also moving towards membrane-based solutions. Keppel Environmental Technology Centre has two ongoing research initiatives in membrane distillation (MEMSTILL®) and membrane bioreactor technologies. The gradual thawing of the credit markets will help to revive projects that were put on hold due to lack of liquidity. KIE aims to pursue the opportunities to continue building a robust global track record in WTE and water treatment solutions. Power Generation Market Review Singapore’s electricity demand in 2009 had been volatile. Average electricity demand shrunk by 2.4% in the ﬁ rst half of 2009 due to the global economic slowdown. Electricity demand picked up substantially in the second half of 2009 with a growth of 3.1%. For the full year 2009, average electricity demand grew approximately 0.3%. Operating Review 2009 has been a challenging yet rewarding year for Keppel Energy. The company continues to harness and deliver value from its integrated power and gas businesses in Singapore whilst ensuring risks are well-managed during the economic downturn. The Keppel Merlimau Co-generation Plant has improved on its reliability and availability. Keppel Gas achieved an important milestone as it started its supply of gas to ExxonMobil Asia Paciﬁ c Pte Ltd in the last quarter of the year. As part of its Safety Excellence commitment, Keppel Energy achieved more than one million man-hours without any lost-time incident as of 31 December 2009. There were also no lost-time incidents in the year. Keppel Energy successfully divested its power plant in Nicaragua in 2009, while the power barges operations in Ecuador contributed positively in 2009. The company will continue to enhance the performance of its assets and look for options to unlock value. Business Outlook Keppel Energy’s power and gas businesses in Singapore are expected to continue to deliver sustainable earnings in 2010. With a secured generation licence of 1,400 MW, Keppel Energy has started to develop the expansion of its existing 500 MW Keppel Merlimau Co-generation Plant. This strategic Keppel Corporation Limited Report to Shareholders 2009 planting will allow Keppel Energy to grow its market share in the Singapore power market and further enhance its integrated platform in the power and gas businesses. Logistics Market Review In Singapore, the logistics market was slow in tandem with the economy. Consequently, general occupancy and warehousing rates softened. Activities picked up in the second half of the year as economic sentiments turned positive. In China, overall cargo throughput was hit by reduced exports to developed countries. The situation improved in the last quarter of 2009 when the economy returned to double-digit growth. Operating Review Despite the tough economic environment in 2009, occupancy rates at the Singapore warehouses of both Keppel Logistics and its subsidiary, Transware Distribution Services, remained high at above 90%. During the year, Keppel Logistics renewed several key contracts in Singapore including those with Kraft, Carrefour and MobileOne. For the third consecutive year, Keppel Logistics was awarded the Best Retail & Fast Moving Consumer Goods Logistics Service Provider (Singapore) by Frost & Sullivan, the Domestic Logistics Service Provider of the Year (Singapore) title. It also successfully obtained the certiﬁ cation for Good Distribution Practices for Medical Devices as well as the ISO 13485 Quality Standard, which will allow the company to handle and store higher value biomedical products. In Malaysia, the logistics division continued to perform well, ending the year with high occupancy rates Operating & Financial Review Infrastructure at both its warehouses in Shah Alam and Klang. In China, Keppel Logistics Foshan (KLF) continued to operate at maximum capacity, with its Lanshi Port maintaining high throughputs against a challenging environment. KLF also expanded its warehouse capacity during the year, through the construction of a new distribution centre in Nanhai. The distribution centre will be fully operational in late 2010. Keppel Logistics’ associate companies – Wuhu Annto Logistics Company (Annto) and Indo-Trans Keppel Logistics Vietnam (ITKL Vietnam) – continued their growth momentum in 2009. Annto extended its logistics network in the second- and third-tier cities of China and expanded into the cold-chain logistics business. In the meantime, ITKL Vietnam, 40% owned by Keppel T&T, expanded its warehousing presence in Hanoi and Ho Chi Minh City with the construction of two new warehouses. Business Outlook Logistics activities are expected to pick up in 2010. Keppel T&T is optimistic about the industry’s growth potential in Asia, especially in developing countries such as Vietnam. The company will continue to extend its footprint in these locations while looking out for opportunities to expand its capacity. Data Centres Market Review The data centre market remained relatively buoyant despite the global ﬁ nancial crisis. Demand for data centre space continued to grow, underpinned by strong fundamentals such as rapid global digitalisation and tightening regulations on data storage. There is an increasing move by companies to outsource their data centre operations. Demand is also growing due to tighter ﬁ nancial data regulations. On the supply side, the crisis has led to a slowdown in the construction of new data centres. As such, the global demand for data centres has continued to surge ahead of supply. Operating Review Based in Dublin, Ireland, the 50%-owned associate, Citadel 100 Datacenters Limited (Citadel100), serves blue-chip customers. Its occupancy remained ﬁ rm at 100%. During the year, Citadel100 signed a new power contract with Airtricity to supply “green” electricity to the data centre. With this, Citadel100 will reduce its annual carbon emissions by almost 30,000 tonnes – the equivalent of taking 5,500 cars off the road. To further tap the growing data centre market, Keppel T&T reconﬁ gured one of its existing buildings in Singapore into a Tier III++ data centre. Keppel Datahub began operations since January 2010 and has secured several blue-chip clients. During the year, Keppel T&T signed a joint venture agreement with AEP Investment Management, a member of Saudi Arabia-based Al Rajhi Holding Group, to form Securus Partners Pte Ltd, which will provide fund and asset management services for the world’s ﬁ rst Shariah-compliant data centre fund to be established. Business Outlook The data centre market continues to be backed by strong demand fundamentals. As demand for quality data centre continues to outstrip supply, co-location and utilisation are expected to increase. Against this backdrop, Keppel T&T continues to evaluate possibilities to expand its data centre footprint globally. 71 Operating & Financial Review Property Keppel Land is committed to provide urban living solutions through the twin core businesses of property development and property fund management. PATMI ($ million) 2009 2008 2007 Earnings Highlights Revenue EBITDA Operating proﬁ t Proﬁ t before tax PATMI Manpower (number) Manpower cost 210 157 209 2007 $ million 1,835 453 440 471 209 2,918 90 2009 $ million 1,508 385 371 476 210 2,791 100 2008 $ million 950 337 326 365 157 2,955 89 $476m Proﬁ t before tax increased 30% from FY 2008’s $365 million. $210m PATMI increased 34% from FY 2008’s $157 million. Major Developments in 2009 Focus for 2010/2011 – Sold more than 3,500 homes across Asia. – Keppel Land raised about $708 million from a rights issue. – Phases 1 and 2 of Marina Bay Financial Centre achieved pre-completion commitments of 79% and 55% respectively. – Acquired waterfront township site in Shenyang. – Selectively seek acquisitions with continued focus on developing quality residential, ofﬁ ce and township projects. – Capitalise on market recovery to launch more township projects in key and secondary cities in China. – Time launches of remaining units of Marina Bay Suites and Reﬂ ections at Keppel Bay with the opening of the integrated resorts. – Commenced work on Phase 1 of the Keppel development in the Sino-Singapore Tianjin Eco-City. – K-REIT Asia and Alpha to explore potential acquisitions of quality assets in Singapore and overseas. – Successfully delisted Evergro – Unlock value from non-core assets Properties. at appropriate time. – K-REIT Asia’s rights issue raised about $620 million. 72 Keppel Corporation Limited Report to Shareholders 2009 With its ﬁ rst phase targeted for completion by 2010, landmark development Marina Bay Financial Centre will beneﬁ t from its proximity to the upcoming integrated resort. Earnings Review Revenue of $1,508 million was $558 million above that of the previous year due to higher sales of homes in Singapore, China, Vietnam, Indonesia and India. Progressive revenue recognition from Reﬂ ections at Keppel Bay and other projects in Singapore and overseas were also higher. Pre-tax proﬁ t increased by 30% to $476 million due to higher revenue recognition from the sale of residential properties and share of proﬁ t of associated companies developing Marina Bay Residences in Singapore and The Botanica in Chengdu, China. With PATMI of $210 million, the Division contributed 17% to the Group’s overall earnings. Market Review The worst of the recession which threatened a global ﬁ nancial meltdown in 2008 appears to have passed, largely due to the concerted efforts of governments around the world. Asia’s resilient economies have turned the corner and property markets have rebounded. Singapore emerged from recession in the third quarter of 2009, following two consecutive quarters of strong growth. Overall, the economy contracted by 2.1% in 2009, signiﬁ cantly lower than earlier forecasted. Residential prices surged in the second half of 2009, ending the year with an overall increase of 1.8%. Total take-up for the year was 14,688 units, second to the record of 14,811 units in 2007. The monthly sales volume slowed down after the government scrapped the interest absorption scheme and interest-only housing loans in September. Looking Operating & Financial Review Property 73 Operating & Financial Review Property ahead, the near-term demand for quality homes remains positive as Singapore rolls out its plans to restructure the economy to one which creates more jobs and quality growth from higher productivity. and ensuring a steady supply of affordable housing. Despite this, strong growth fundamentals continue to underpin demand in China and the economy is expected to achieve double-digit growth in 2010. at Wee Nam were fully sold during the year, while strong sales were achieved at Madison Residences, The Promont, and at both waterfront developments, Reﬂ ections and Caribbean at Keppel Bay. Similarly, the ofﬁ ce market was dampened by sliding rents and decreased demand at the start of the year. The rate of rental decline started to ease in the third quarter of 2009 on the back of improved economic sentiments. According to CB Richard Ellis (CBRE), Grade A and prime ofﬁ ce rents averaged $8.10 psf and $6.75 psf respectively in the fourth quarter of 2009, reﬂ ecting an 8% and 10% quarter-on-quarter decline. The drop was lower than the previous quarter’s contraction of 13.3% for Grade A rents and 12.8% decline for prime ofﬁ ce rents. Take-up of ofﬁ ce space turned positive in the last two quarters of 2009. Although the full-year take-up for 2009 remained negative, CBRE expects the take-up to be positive at about 1 million sf and 2 million sf in 2010 and 2011 respectively. The recovery in Asia has been more pronounced compared to the Western economies. The roll-out of huge stimulus packages totalling about US$1 trillion contributed greatly to restoring conﬁ dence in key Asian economies. With improved market sentiments, consumer spending has increased and residential demand has picked up across the region. China has beneﬁ ted from a record stimulus package. With a robust GDP growth of 8.7% in 2009, China experienced a property boom, with residential prices surging in pace with sustained economic growth. Prices across 70 major cities rose at their fastest pace in 16 months in November 2009, leading the government to impose cautionary measures such as restricting sales tax exemptions, raising the reserve requirements on its banks, Vietnam’s economy grew by 5.3% in 2009 and is expected to grow further by 6.5% in 2010. Government spending has propped up business activities and consumer spending. In addition, the liberalisation of conditions for Viet Kieus to own residences in Vietnam may further increase demand for quality homes. Together with a growing middle- class and increasing afﬂ uence, this bodes well for sustained residential demand in the longer term. Indonesia’s economy grew at 4.6% in 2009 and the country has enjoyed broad-based growth as low interest rates boosted consumer spending. Lower mortgage rates have played a key role in the increased sales of residential estates in 2009 and the central bank is likely to keep key interest rates low to boost economic recovery. In India, property prices have bottomed out and the residential market is recovering well. The second half of 2009 saw price increases in many cities, particularly for the premium and lower-end segments. The Indian economy is expected to expand by about 7.2% in FY 2009. Operating Review Singapore Supported by the strong rebound in the residential market and improved sentiments, Keppel Land sold a total of 384 homes in Singapore in 2009. Capitalising on the strong market demand, Keppel Land held a private preview of Marina Bay Suites in November 2009 and achieved a positive take-up of 89 of the 90 units launched. The Tresor and Park Inﬁ nia The commercial segment continued to show signs of bottoming out. Marina Bay Financial Centre (MBFC), a new Grade A commercial development jointly developed with Cheung Kong (Holdings) and Hongkong Land, has secured strong pre-commitments of about 79% and 55% for Phases 1 and 2 respectively, ahead of their scheduled completions in 2010 and 2012. The redevelopment of the former Ocean Building into the ecologically- conscious Ocean Financial Centre (OFC) is expected to be completed in mid-2011. The 43-storey ofﬁ ce building has secured commitments of about 140,000 sf or about 16% of the development. During the year, Keppel Land carried out a nine-for-10 rights issue and raised gross proceeds of about $708 million to position itself for opportunities to acquire attractive assets in Singapore and overseas. Overseas Keppel Land’s overseas residential launches continued to do well, with over 3,100 homes sold in 2009, of which about 2,600 homes were sold in China, mostly from its residential townships in Chengdu and Wuxi. Capitalising on the demand for township and waterfront homes in China, Keppel Land acquired a second township site along the Hun River in Reﬂ ections at Keppel Bay will offer its residents a world-class waterfront lifestyle coupled with environmentally friendly features when completed in 2013. 74 Keppel Corporation Limited Report to Shareholders 2009 Operating & Financial Review Property 75 Operating & Financial Review Property 1 Dr Lee Boon Yang (second from left) and Mr Choo Chiau Beng (extreme left), Chairman and CEO of Keppel Corporation respectively, reafﬁ rm the Group’s commitment to grow with Vietnam during a visit to Singapore by H.E. Nguyen Minh Triet (second from right), the President of Vietnam. 2 K-REIT Asia owns 73% of Prudential Tower, one of the few ofﬁ ce developments in Singapore to win a FIABCI Award. Shenyang. This development is expected to yield a total of 6,000 waterfront apartments. Residential sales in Indonesia and India continued to make favourable progress, with higher sales achieved in 2009. Keppel is the leading partner in the Singapore consortium for the Sino- Singapore Tianjin Eco-City (Tianjin Eco-City), a landmark co-operation project between Singapore and China to create a model for sustainable urban living. The Tianjin Eco-City project is making good progress (see page 79). Keppel Land also strengthened its growth platform in China with the delisting of Evergro Properties from the Singapore Exchange in 2009. Combining the operational expertise, industry knowledge and extensive networks allows Keppel Land to maximise the potential of its existing portfolio to be the choice developer of homes in China. Fund Management Keppel Land’s fund management business has performed well in 2009 and is well-positioned to pursue further growth opportunities. In November 2009, K-REIT Asia completed a one-for-one rights issue and raised about $620 million in gross proceeds. The rights issue provided K-REIT Asia with additional debt headroom to fund acquisitions and asset enhancement initiatives. Part of the proceeds was utilised to acquire six additional strata ﬂ oors of Prudential Tower. This has increased K-REIT Asia’s interest in Prudential Tower to a controlling 73.4% stake, thereby enabling more efﬁ cient management of the 1 2 76 Keppel Corporation Limited Report to Shareholders 2009 asset’s income. This yield-accretive acquisition has enlarged K-REIT Asia’s portfolio by 5.5% in terms of net lettable area. Keppel Land’s private equity fund management vehicle, Alpha Investment Partners (Alpha) has also capitalised on the competitive environment with strategic investments. In 2009, Alpha invested in four deals across Tokyo, Seoul and Hong Kong. As at end-December 2009, the assets under management under K-REIT Asia and Alpha will be about $9.8 billion, when all the funds under Alpha are fully leveraged and invested. Business Outlook Singapore Singapore’s economy is expected to pick up in 2010 with the government forecasting a positive economic growth of 3% to 5% for 2010. Residential sales and the ofﬁ ce market in Singapore have gradually recovered, encouraged by signs of economic recovery. Capitalising on the positive sentiments and sustainable demand for quality homes, Keppel Land will be releasing the remaining units of Marina Bay Suites and Reﬂ ections at Keppel Bay in 2010, as they are well-positioned to beneﬁ t from the opening of the two integrated resorts. The commercial segment continues to show signs of bottoming out as the rate of rental decline for Grade A and prime ofﬁ ces continued to ease further. As business outlook turns positive, ﬁ nancial institutions which have previously halted their expansion plans are beginning to look for ofﬁ ce space to grow. Leasing activity is expected to pick up further in 2010, in line with market recovery. The government’s focus on creating a legal arbitration hub is likely to beneﬁ t the ofﬁ ce sector in the mid- to long-term when legal advisory services gains momentum in Singapore. Operating & Financial Review Property Signiﬁ cant Events May A Director of Keppel Land since 1985, Mr Choo Chiau Beng became Chairman of the company. June Keppel Land raised gross proceeds of $708 million through a nine-for-10 renounceable rights issue. July Keppel Corporation and Keppel Land took up interests of 45% and 55% respectively in a 35.4-ha site located in the 4-sq km Start-Up Area (SUA) of the Tianjin Eco-City. Keppel Land strengthened its presence in China with the acquisition of a second waterfront township in Shenyang. August Ms Ng Hsueh Ling joined K-REIT Asia as CEO and Director. November K-REIT Asia completed the acquisition of six strata ﬂ oors at Prudential Tower, increasing its stake from 44% to 73%. It also issued about 666 million new units in a one-for-one rights issue to raise $620 million. December Delisting of Evergro Properties was completed. Keppel Land acquired a 30.3-ha site for RMB884 million ($180 million) in Shenyang for a township comprising about 6,000 waterfront apartments. Keppel commenced work on its 35.4-ha site in the SUA of the Tianjin Eco-City. 77 Operating & Financial Review Property The ecologically-conscious Ocean Financial Centre will be a Singapore landmark when completed in mid-2011. Keppel Land will continue to step up its leasing activity at MBFC and OFC to improve overall commitments ahead of their completion. The company will remain a dominant landlord in Singapore’s business and ﬁ nancial districts. Backed by a healthy balance sheet after its rights issue, Keppel Land is well-positioned to capitalise on opportunities for acquisitions in Singapore and overseas. Similarly, its fund management vehicles have substantial room for acquisition. Following its rights issue, K-REIT Asia has an additional debt headroom of $440 million to $650 million should it gear up to between 30% and 40%. Alpha’s two funds focusing on Japan and Asia’s macro trends are in a strong ﬁ nancial position for further acquisitions in Asia, with just 46% and 22% invested as at end-December 2009. Overseas With most Asian economies posting positive growth, demand for quality housing across Asia continued to remain favourable on the back of strong economic growth and rising homeownership aspirations. The demographic fundamentals of the countries where Keppel Land operates remain strong. Leveraging the recovery in Asia, Keppel Land plans to launch more than 5,000 homes overseas in 2010, mostly in China. In line with its strategy to tap on rising demand for quality housing in Asia’s growth cities, Keppel Land will continue to pursue selective acquisitions in Asia with continued focus on developing quality residential and township developments. 78 Keppel Corporation Limited Report to Shareholders 2009 Creating a Model for Sustainable Urban Living The Sino-Singapore Tianjin Eco-City made signiﬁ cant progress in 2009, attracting leading regional developers and top global technology companies into the landmark co-operation project between Singapore and China. Keppel is committed to create a harmonious and eco-driven live-work-play environment, integrating homes and commercial developments. Sino-Singapore Tianjin Eco-City Investment and Development, Co., Ltd. (SSTEC) has attracted many partners to participate in the Sino-Singapore Tianjin Eco-City (Tianjin Eco-City) this year, securing investments of more than $6.7 billion as at end-December 2009. The master developer for the Tianjin Eco-City, SSTEC is a 50/50 joint venture between the Singapore Consortium led by the Keppel Group and Chinese partners. Overall development in the Tianjin Eco-City is progressing well. SSTEC has secured partnerships with leading regional developers – Taiwan’s Farglory Group, Japan’s Mitsui Fudosan Co., Ltd., China’s Shimao Group and Malaysia’s Sunway City Berhad – to develop integrated residential, commercial and cultural- leisure developments. Construction of the ﬁ rst development in the Keppel Group’s 35.4-ha site in the Start-Up Area of Tianjin Eco-City has started and is expected to yield a total of more than 5,000 homes. In commercial developments, SSTEC co-founded a greenﬁ eld international school with the world’s largest K-12 (kindergarten to grade 12) education company, GEMS Education. In addition, it also signed a Memorandum of Understanding (MOU) with Samsung C&T Corporation to explore creating the ﬁ rst-of-its-kind eco central business district. SSTEC also signed an MOU with STSE Engineering Services Pte Ltd to explore collaboration to provide pneumatic waste collection private connection systems. Through partnership with leading Singapore transport organisations, SSTEC is laying the foundation for an effective green transport system in the Eco-City. In addition, the 30-ha Eco-Business Park (EBP) and 130-ha Eco-Industrial Park (EIP) also broke ground in June and December respectively. Collectively, the EBP and EIP are expected to create more than 25,000 jobs opportunities and create a 24/7 vibrant and self-sustaining business community. Located in the Tianjin Binhai New Area, the 30-sq km Tianjin Eco-City is envisioned to create a harmonious and sustainable community that meets the needs of an urbanising China and will be a modern township where 350,000 residents can live, work and play. Operating & Financial Review Property 79 Operating & Financial Review Investments Our investments are committed to deliver good value to shareholders while seeking growth opportunities presented by the global economic recovery. PATMI ($ million) 2009 2008 2007 Earnings Highlights Revenue EBITDA Operating proﬁ t Proﬁ t before tax PATMI Manpower (Number) Manpower (Cost) 119 172 268 2007 $ million 61 30 30 334 268 156 60 2009 $ million 39 4 3 149 119 135 76 2008 $ million 54 26 25 219 172 165 65 Major Developments in 2009 Focus for 2010/2011 – Sale of 45.5% stake in SPC to PetroChina for $1.47 billion. – Knowledge Universe Education, a k1 Ventures investee company, acquired Busy Bees in the UK. – M1 enhanced its service offerings to the corporate and residential segments, as well as upgraded its 3G and HSPA networks for better connectivity nationwide. – k1 Ventures will identify investment opportunities while continuing to focus on the management of existing investments with the aim of enhancing shareholder value. – M1 will continue to strengthen its position in the mobile market and capitalise on new growth opportunities arising from the commercial launch of the NGNBN. $149m Proﬁ t before tax decreased 32% from FY 2008’s $219m. $119m PATMI decreased 31% from FY 2008’s $172m. 80 Keppel Corporation Limited Report to Shareholders 2009 1 M1 partners operators globally to provide its customers coverage and roaming services in over 230 countries and territories. 2 In June 2009, KUH acquired Busy Bees, the largest provider of early childhood education in the UK. Earnings Review Pre-tax proﬁ ts from Investments of $149 million was $70 million below that of 2008 due to the divestment of our stake in Singapore Petroleum Company (SPC) in June 2009. PATMI of $119 million was $53 million or 31% lower compared to the previous year. Investments currently contribute 9% to the Group’s PATMI, a decrease from 16% in 2008. k1 Ventures k1 Ventures is invested in companies across key diverse sectors of transportation leasing, education, oil and gas exploration, and automotive retail to maximise shareholder returns. Its major investments are in Helm Holding Corporation (Helm), the largest independent locomotive and railcar leasing company in North America, and Knowledge Universe Holdings (KUH), a leading global education service provider. For the ﬁ nancial year ended 30 June 2009, the company recorded total revenue of $99.1 million and operating proﬁ t of $4.5 million from continuing operations compared to $350.2 million and $166.7 million respectively in the prior year. This decrease in revenue and operating proﬁ t was mainly attributable to the prior year’s sales of approximately 2.38 million shares of McMoRan Exploration Company and Helm’s sale of its investment in Dakota, Minnesota & Eastern Railroad Corp, in Operating & Financial Review Investments 1, 2 addition to a decrease in operating results at Helm. For 2009, the company distributed 0.75 cent per share to shareholders and has distributed a cumulative 21.81 cents per share to shareholders since 2005. KUH, through its operating subsidiaries, acquired Busy Bees, the largest provider of early childhood education in the UK in June 2009. This followed the expansion of the company’s international platform into the Singapore market in 2008, making it the largest preschool education services provider in Singapore. China Grand Auto, the company’s investment in automotive retail, has performed well. The US decline in economic output and growth has resulted in a reduction of freight shipped by rail, which has negatively impacted k1 Ventures’ investment in Helm. The company continues to proactively manage its investments with the goal to maximise shareholder value, and will continue its patient and discipline approach to the investment of capital. MobileOne (M1) M1 is a leading integrated communications provider in Singapore, providing a full range of voice and data communications services. M1 is 20%- owned by Keppel Telecommunications & Transportation (Keppel T&T). M1 remains a signiﬁ cant contributor to Keppel T&T’s earnings and cash ﬂ ow. For FY2009, M1 contributed pre-tax proﬁ ts of $35.5 million to Keppel T&T, making up 54% of Keppel T&T’s pre- tax proﬁ ts. M1 also contributed total dividends of $24 million to Keppel T&T. The Next Generation Nationwide Broadband Network (NGNBN), which is scheduled to be launched in the second quarter of 2010, will enable M1 to offer a more comprehensive suite of communications services to customers. As part of the strategy to transform the company into a dynamic multi-play operator, M1 embarked on several key initiatives to capture new opportunities during the year. In 2009, M1 acquired a corporate Internet Service Provider to offer integrated solutions to enterprises and expanded its ﬁ xed broadband offerings through the introduction of ADSL service plans. Looking ahead, M1 will continue to enhance its mobile and ﬁ xed service offerings for both the retail and corporate segments in Singapore. 81 Operating & Financial Review Financial Review and Outlook $12,247m +4% Singapore 23% Overseas 77% $11,805m +13% Singapore 26% Overseas 74% $10,431m +37% Singapore 25% Overseas 75% Revenue by Market 2009 (%) Singapore ASEAN Rest of Asia-Pacific Middle East / India Europe North America South America Central America Total Revenue by Market 2008 (%) Singapore ASEAN Rest of Asia-Pacific Middle East / India Europe North America South America Central America Total Revenue by Market 2007 (%) Singapore ASEAN Rest of Asia-Pacific Middle East / India Europe North America South America Central America Total 23 6 4 10 31 13 11 2 100 26 5 4 8 30 15 11 1 100 25 2 7 6 29 25 5 1 100 82 Keppel Corporation Limited Report to Shareholders 2009 1 Keppel’s 35.4-hectare development in the Sino-Singapore Tianjin Eco-City is located strategically along the Eco-Valley, the Eco-City’s ecological spine linking major transport nodes, residential areas and commercial centres. Phase 1 of the development is expected to yield about 1,760 homes and commercial space of about 40,000 sm. 2 Keppel Shipyard’s competencies in FPSO conversions and topside modules will help it capture a growing share of the improving ﬂ oating production systems market in 2010. 2 1 Operating & Financial Review Financial Review and Outlook 83 Operating & Financial Review Financial Review and Outlook Prospects The global recession appears to be over, but some still believe that the recovery is volatile and tepid. The Group has weathered the storm well and reported record earnings for FY2009. With a net cash balance of $1.2 billion and a healthy balance sheet, we are well-positioned to seize opportunities as the economy recovers and capture value in our key businesses so as to deliver sustainable returns to shareholders. Our Offshore & Marine Division secured $1.7 billion of new orders for the year sustaining the net orderbook at about $5.6 billion at the end of the year. With the pick-up of orders in the last quarter of 2009, the outlook for new orders in 2010 is better. There have been increased enquiries from both drilling contractors and oil companies. The fundamentals of the industry remain sound, with projected higher energy consumption in the longer term. Exploration and production spending by oil companies is also expected to increase in 2010 after falling in 2009. The Division will continue to broaden its technology base to develop products to meet the needs of its customers. In the Infrastructure Division, the Group has built up a sizeable pool of environmental infrastructure projects. It intends to list the K-Green Trust (KGT), with the initial assets comprising Senoko Waste-to-Energy (WTE) Plant, Keppel Seghers Tuas WTE Plant and Keppel Seghers Ulu Pandan NEWater Plant. The Group expects to distribute approximately 51% of KGT units to shareholders of the Company. The two Qatar projects and Greater Manchester Energy-from-Waste project are making progress. The acquisition of a company providing district heating and cooling systems will provide an additional recurring income stream and new opportunities for the Division. The Keppel Merlimau Co-generation Plant is expected to continue generating good returns for the Group. Shareholder Returns Capital distribution 10.0 cents per share Capital distribution 11.5 cents per share Capital distribution 14.0 cents per share Special dividend 45.0 cents per share Plus Plus Plus Plus Dividend in specie ~23.0 cents per share Plus % 25 20 15 10 5 0 cents 40 32 24 16 8 0 ROE Full-year dividend 15.5 10.0 16.4 11.5 19.1 14.0 21.8 19.0 22.4 35.0 2004 2005 2006 2007 2008 23.9 38.0 2009 84 During the year, the Property Division sold 384 homes in Singapore, 2,600 homes in China and 500 homes in Vietnam, Indonesia and India. The Division will ride the economic recovery and time its launches of existing and new projects. In Singapore, the Group expects to launch more units of Marina Bay Suites and Keppel Bay projects, which are both strategically located close to the upcoming integrated resorts. In China, we expect to launch our project in the Start-Up Area of the Sino-Singapore Tianjin Eco-City and projects in Shanghai. We also intend to launch Riviera Point and the remaining units of Riviera Cove in Ho Chi Minh City. The pace of ofﬁ ce rental decline in Singapore has continued to ease as business conﬁ dence returns. The Group’s signiﬁ cant portfolio of new ofﬁ ce buildings in the new downtown is expected to beneﬁ t from the recovery. Shareholder Returns Return on Equity increased from 22.4% in 2008 to 23.9% in 2009, reﬂ ecting our effort to pursue higher returns for our shareholders. The Company will be paying a total distribution of 61 cents per share. This comprises a proposed ﬁ nal dividend of 23 cents per share, a proposed special dividend in specie of K-Green Trust units equivalent to approximately 23 cents per share and the interim dividend of 15 cents per share paid in August 2009. Total payout for 2009 represents 77% of Group PATMI. This is equivalent to a gross yield of 7.4% on the Company’s last transacted share price as at 31 December 2009. The distribution to shareholders is paid on account of increased proﬁ tability and strong operational cash ﬂ ow. We are committed to reward shareholders with generous payouts as we achieve healthy year-on-year improvement in earnings growth. Keppel Corporation Limited Report to Shareholders 2009 EVA* ($ million) 1,200 800 400 0 -400 * Excluding exceptional items (274) (111) 36 197 416 779 2002 2003 2004 2005 2006 2007 855 1,026 2008 2009 Economic Value Added (EVA) In 2009, EVA excluding exceptional items rose by $171 million to $1,026 million. This was attributable to higher operating proﬁ t, partially offset by higher capital charge. Capital charge rose by $20 million as a result of higher Average EVA Capital, partly offset by lower Weighted Average Cost of Capital (WACC). Average EVA Capital increased by $1.01 billion from $8.85 billion to $9.86 billion. WACC decreased from 6.75% to 6.26% mainly due to decrease in risk-free rate and lower pre-tax cost of debt. EVA excluding exceptional items of $1,026 million in 2009 is the highest ever attained by the Group. The Group’s effective deployment and Economic Value Added (EVA) Proﬁ t after tax & exceptional items Adjustment for: Interest expense Interest expense on non-capitalised leases Tax effect on interest expense adjustments1 Provisions, deferred tax, amortisation & other adjustments Net Operating Proﬁ t after Tax (NOPAT) Average EVA Capital Employed2 Weighted Average Cost of Capital3 Capital Charge 2009 $ million 1,837 89 21 (15) 64 1,996 9,861 6.26% (617) 09v08 +/(-) +688 -16 +1 +3 +31 +707 +1,013 -0.49% -20 2008 $ million 1,149 105 20 (18) 33 1,289 8,848 6.75% (597) 08v07 +/(-) +87 -29 - +1 +1 +60 -102 -0.24% +28 2007 $ million 1,062 134 20 (19) 32 1,229 8,950 6.99% (625) Economic Value Added 1,379 +687 692 +88 604 Comprising: EVA excluding exceptional items EVA of exceptional items 1,026 353 1,379 +171 +516 +687 855 (163) 692 +76 +12 +88 779 (175) 604 1 The reported current tax is adjusted for statutory tax impact on interest expenses. 2 Average EVA Capital Employed is derived from the quarterly averages of net assets plus interest-bearing liabilities, provision and present value of operating leases. 3 Weighted Average Cost of Capital is calculated in accordance with the Keppel Group EVA Policy as follows: a Cost of Equity using Capital Asset Pricing Model with market risk premium set at 6% (2008: 6%); b Risk-free rate of 2.1949% (2008: 2.7797%) based on yield-to-maturity of Singapore Government 10-year Bonds; c Unlevered beta at 0.72 (2008: 0.72); and d Pre-tax Cost of Debt at 3.13% (2008: 3.43%) using ﬁ ve-year Singapore Dollar Swap Offer Rate plus 100 basis points (2008: 40 basis points). Operating & Financial Review Financial Review and Outlook 85 Operating & Financial Review Financial Review and Outlook Total Assets Owned ($ million) Total Liabilities Owed and Capital Invested ($ million) 17,500 14,000 10,500 7,000 3,500 0 17,500 14,000 10,500 7,000 3,500 0 Fixed assets Properties Investments Stocks & work-in-progress Debtors & others 1,772 2,960 4,024 2,890 2,550 Bank balances, deposits & cash 1,601 1,947 3,030 3,633 3,318 2,574 2,245 2,157 3,051 3,332 3,178 2,653 2,936 Shareholders’ funds Minority interests Creditors Term loans & bank overdrafts Other liabilities Total Total 15,797 16,747 2007 2008 17,307 2009 5,205 1,830 6,139 2,234 389 4,596 2,153 7,647 1,970 381 15,797 16,747 2007 2008 5,985 2,728 6,423 1,759 412 17,307 2009 management of resources to enhance shareholder value is reﬂ ected in the positive and growing EVA that we have been achieving since 2004. Financial Position Group total assets of $17.31 billion at 31 December 2009 were $560 million or 3.3% higher than the previous year- end. Fixed assets increased as a result of capital expenditure and acquisition of Keppel DHCS Pte Ltd. Higher long-term receivables was due to the acquisition of Senoko Waste-to-Energy Plant and expenditure on the Tuas Waste-to-Energy plant. These were partly offset by the decrease in associated companies as a result of the divestment of our stake in Singapore Petroleum Company (SPC) and lower receivables in the Offshore & Marine Division. Group shareholders’ funds increased from $4.60 billion at 31 December 2008 to $5.99 billion at 31 December 2009. The increase was mainly attributable to retained proﬁ ts for the year and higher fair value and hedging reserves, partially offset by payment of ﬁ nal dividend of 21 cents per share for the ﬁ nancial year 2008 and interim dividend of 15 cents per share for current ﬁ nancial year 2009. Minority interests were higher because of share of proﬁ ts and subscription to the rights issue of Keppel Land and K-REIT Asia. Group total liabilities of $8.59 billion at 31 December 2009 were $1.40 billion or 14% lower than the previous year- end. Reduction in billings on work-in- progress in excess of related costs was mainly due to project cost incurred and project completion for Offshore & Marine jobs. Amount due to associated companies was lower because of repayment of advances. Group net cash of $1,177 million at 31 December 2009 was an increase of $902 million from $275 million at 31 December 2008. This was mainly attributable to the proceeds from the disposal of our stake in SPC, the rights issues of Keppel Land and K-REIT Asia, and operational cash inﬂ ow. Total Shareholder Return (TSR) In 2009, our Total Shareholder Return (TSR) was at 101%, a signiﬁ cant improvement from the negative 64% in 2008. Our 2009 TSR was 30% above the benchmark Straits Times Index’s (STI) TSR of 71%. Over the past nine years, our Compounded Annual Growth Rate (CAGR) TSR of 27% was also signiﬁ cantly higher than STI’s CAGR TSR of 5%. 86 Keppel Corporation Limited Report to Shareholders 2009 Total Shareholder Return (TSR) (%) 110 50 -10 -70 Tower, equity injection into the Sino-Singapore Tianjin Eco-City project, further investments in Marina Bay Financial Centre and Ocean Financial Centre, and other operational capital expenditure. Proceeds from disposal, mainly from the sale of SPC, amounted to $1,645 million. Free cash ﬂ ow was $1,094 million as compared to $1,876 million in the previous year. Keppel (18.2) 2.0 37.6 75.2 48.7 32.5 65.3 51.7 STI (20.0) (13.4) (14.5) 38.3 21.6 19.3 32.4 21.0 2000 2001 2002 2003 2004 2005 2006 2007 (64.4) 100.8 (47.1) 70.8 2008 2009 Total distribution to shareholders of the Company and minority shareholders of subsidiaries for the year amounted to $661 million. We are 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. Cash Flow Net cash from operating activities was $670 million compared to $2,047 million in the previous year. This was mainly due to increased working capital and reduced advances from associated companies, partly offset by higher operating proﬁ t. Net cash from investing activities was $424 million. The Group spent $1,221 million on acquisitions and operational capex. This comprised principally acquisition of Senoko WTE Plant, Keppel DHCS Pte Ltd and additional ﬂ oors of Prudential Financial Risk Management The Group operates internationally 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 Cash Flow Operating proﬁ t Depreciation, amortisation & other non-cash items Cash ﬂ ow provided by operations before changes in working capital Working capital changes Interest receipt and payment & tax paid Net cash from operating activities Investments & capital expenditure Divestments & dividend income Net cash from investing activities Free cash ﬂ ow 2009 $ million 1,505 204 1,709 (911) (128) 670 (1,221) 1,645 424 1,094 09v08 +/(-) +267 +46 +313 -1,763 +73 -1,377 -658 +1,253 +595 -782 2008 $ million 1,238 158 1,396 852 (201) 2,047 (563) 392 (171) 1,876 08v07 +/(-) +187 +19 +206 +214 -70 +350 +278 +97 +375 +725 2007 $ million 1,051 139 1,190 638 (131) 1,697 (841) 295 (546) 1,151 Dividend paid to shareholders of the Company & subsidiaries (661) +540 (1,201) -690 (511) Operating & Financial Review Financial Review and Outlook 87 Operating & Financial Review Financial Review and Outlook to take into account changes in the operating environment. This committee is chaired by the Group Finance Director and comprises Chief Financial 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: – The Group has receivables and payables denominated in foreign currencies viz US dollars, European and other Asian currencies. Foreign 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; a benchmark fuel price index, High Sulphur Fuel Oil 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. 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 2009, 48% (2008: 10% and 2007: 22%) of Group borrowings were repayable within one year with the balance largely repayable between two and ﬁ ve years. – 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 Unsecured borrowings constituted 64% (2008: 69% and 2007: 70%) of total borrowings with the balance secured by properties and assets. Secured borrowings are mainly for ﬁ nance of Debt Maturity ($ million) < 1 year 1-2 years 2-3 years 3-4 years 4-5 years > 5 years 88 839 289 226 315 15 73 investment properties and project ﬁ nance loans for property development projects. The net book value of properties and assets pledged/ mortgaged to ﬁ nancial institutions amounted to $2.41 billion (2008: $2.81 billion and 2007: $1.83 billion). Fixed rate borrowings constituted 39% (2008: 29% and 2007: 21%) of total borrowings with the balance at ﬂ oating rates. The Group has interest rate swap agreements with notional amount totalling $367 million whereby it receives variable rates equal to SOR and pays ﬁ xed rates of between 2.55% and 4.42% on the notional amount. The Group also has interest rate cap agreements to hedge the interest rate risk exposure arising from its US dollar and Singapore dollar variable rate term loans. As at the end of the ﬁ nancial year, the Group has outstanding interest rate cap agreements of $49 million. Details of these derivative instruments are disclosed in the notes to the ﬁ nancial statements. Singapore dollar borrowings represented 96% (2008: 94% and 2007: 76%) of total borrowings. The balances were in other Asian currencies. Foreign currency 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 cash ﬂ 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, cash ﬂ ow generation, EVA creation and risk management. New investments will be structured Keppel Corporation Limited Report to Shareholders 2009 with an appropriate mix of equity and debt after careful evaluation and management of risks. Capital Structure Capital employed at the end of 2009 was $8.71 billion, an increase of $1.96 billion over 2008 and $1.68 billion over 2007. The Group is in a net cash position of $1.18 billion at the end of 2009 compared to net cash of $275 million in 2008 and net borrowings of $634 million in 2007. With strong cash ﬂ ow, the Group’s net gearing was negative 0.14 times at the end of 2009. Interest coverage improved from 13.96 times in 2007 to 28.44 times in 2009. This was achieved on increasing EBIT and lower cost of funds. Cash ﬂ ow coverage increased from 15.63 times in 2007 to 22.32 times in 2008 and decreased to 11.00 times Net Cash / (Gearing) Net Gearing = Borrowings – Cash Capital Employed $ million 10,000 8,000 6,000 4,000 2,000 0 No. of times 2.5 2.0 1.5 1.0 0.5 0 Net Cash / (Debt) (634) Capital Employed 7,035 Net Cash / (Gearing) (0.09) 2007 275 6,749 0.04 2008 1,177 8,713 0.14 2009 Interest Coverage Cash Flow Coverage Interest Coverage = EBIT Interest Cost Cash Flow Coverage = Operating Cash Flow + Interest Cost Interest Cost $ million 2,000 1,600 1,200 800 400 0 No. of times 40 $ million 2,500 No. of times 25 32 2,000 24 1,500 16 1,000 8 0 500 0 20 15 10 5 0 EBIT Total Interest Cost Interest Cover 1,619 116 13.96 2007 1,676 96 17.46 2008 1,905 67 28.44 2009 Operating Cash Flow + Interest 1,813 2,143 Total Interest Cost 116 96 Cash Flow Coverage 15.63 22.32 2007 2008 737 67 11.00 2009 Operating & Financial Review Financial Review and Outlook 89 Operating & Financial Review Financial Review and Outlook in 2009. Despite lower interest expense, cash ﬂ ow coverage has reduced because of decrease in operating cash ﬂ ow. At the Annual General Meeting in 2009, shareholders gave their approval for mandates to issue and buy back shares. The Company did not exercise these mandates. Financial Resources As part of its liquidity management, the Group has built up adequate cash reserves and short-term marketable securities as well as sufﬁ cient undrawn banking facilities and capital market programme. Funding of working capital requirements, capital expenditure and investment needs is made through a mix of short-term money market borrowings and medium/long-term loans. Due to the dynamic nature of its businesses, the Group maintains ﬂ exibility in funding by ensuring that ample working capital lines are available at any one time. Cash ﬂ ow, debt maturity proﬁ le and overall liquidity position is actively reviewed on an ongoing basis. The Group has further strengthened its ﬁ nancial capacity during the year. As at end of 2009, total funds available and unutilised facilities amounted to $5.58 billion. Critical Accounting Policies The Group’s signiﬁ cant accounting policies are discussed in more detail in the notes to the ﬁ nancial statements. Financial Capacity $ million Remarks Cash at Corporate Treasury Credit facilities extended to the Group Total 1,526 4,056 5,582 52% of total cash of $2.94 billion Credit facilities of $5.42 billion, of which $1.36 billion was utilised Impairment of Loans and Receivables The Group assesses at each balance sheet date whether there is any objective evidence that a loan and receivable is impaired. The Group considers factors such as the probability of insolvency or signiﬁ cant ﬁ nancial difﬁ culties of the debtor and default or signiﬁ cant delay in payments. When there is objective evidence of impairment, the amount and timing of future cash ﬂ ows are estimated based on historical loss experience for assets with similar credit risk characteristics. 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 cash ﬂ ow. calculate the present value of the future cash ﬂ ows. 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 engineers. Revenue arising from additional claims and variation orders, whether billed or unbilled, is recognised when negotiations have reached an advanced stage such that it is probable that the customer will accept the claims or approve the variation orders, and the amount that it is probable will be accepted by the customer can be measured reliably. 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 Keppel Corporation Limited Report to Shareholders 2009 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 Non-Financial Assets Determining whether the carrying value of a non-ﬁ nancial asset is impaired requires an estimation of the value in use of the cash-generating units. This requires the Group to estimate the future cash ﬂ ows expected from the cash-generating units and an appropriate discount rate in order to 90 Keppel intends to list the K-Green Trust with three initial assets from the Infrastructure Division. 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. Claims, Litigations and Reviews The Group entered into various contracts with third parties in its ordinary course of business and is exposed to the risk of claims, litigations or reviews from the contractual parties and/or government agencies. These can arise for various reasons, including changes in the scope of work, delay and disputes, defective speciﬁ cations or routine checks etc. The scope, enforceability and validity of any claim, litigation or review may be highly uncertain. In making its judgement as to whether it is probable that any such claims, litigations or reviews will result in liabilities and whether any such liabilities can be measured reliably, management relies on past experience and the opinion of legal and technical expertise. Operating & Financial Review Financial Review and Outlook 91 SUSTAINABILITY REPORT We aim to achieve sustainable business growth by contributing to the well-being of the environment, society and community. NurturingCommunities SustainingGrowth EmpoweringLives CONTENTS 94 Corporate Governance 114 Risk Management 116 Environmental Protection 120 Product Excellence 124 People Development 132 Safety and Health 142 Industry Engagement 146 Green Endeavours 148 Community Relations Despite a volatile year in 2009, Keppel stayed focused on its fundamental mission. We renewed our pledge to be the choice solutions provider in our businesses guided by our three strategic thrusts of Sustaining Growth, Empowering Lives, and Nurturing Communities. As the Group expands its reach to all corners of the world, we aim to ensure that we have a positive impact on the communities where we operate. For years, we have put in place initiatives and programmes which dovetail with our drive to be a global corporate citizen. This report describes our activities in 2009 directed at this effort. Looking ahead, we hope to do more, and so we have started building a Group-wide corporate social responsibility framework. This will help us improve co-ordination of our existing efforts, better strategise and implement even more effective programmes across the Group to beneﬁ t our stakeholders and reinforce the long-term sustainability of our businesses. 92 Keppel Corporation Limited Report to Shareholders 2009 Sustainable Development Principles Contributing to sustainable development is an integral part of our business strategy. It helps us to be a more competitive and proﬁ table company with growing shareholder value. 1 Keppelites from across the Group share the passion and positive Can Do! attitude to overcome challenges with an open and ﬂ exible mindset. 2 Product and technology development and innovation are important for Keppel to sustain its competitive edge and meet customer needs. 3 Students from the Centre for Adults, a learning institute under APSN, beneﬁ t from increased proﬁ tability as gardeners trained at hydroponics farms sponsored by Keppel. 1 2, 3 Sustainability Report 93 SustainingGrowth Corporate Governance PROMOTING GOOD CORPORATE GOVERNANCE Strong corporate governance enables us to achieve our goal of growing sustainable businesses with greater conﬁ dence and efﬁ cacy. 94 Keppel Corporation Limited Report to Shareholders 2009 Code of Corporate Governance 2005 Speciﬁ c Principles and Guidelines for Disclosure Relevant guideline or principle Guideline 1.3 Delegation of authority, by the board to any board committee, to make decisions on certain board matters 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 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 Guideline 4.6 Key information regarding directors, which directors are executive, non-executive or considered by the nominating committee to be independent 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 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 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 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 Page reference in this report Pages 96 and 97 Page 96 Page 97 Page 98 Not Applicable Page 100 Page 100 Pages 225 to 228 and 233 Pages 100, 101, 112 and 113 Pages 102 to 105 Page 102 Pages 104 and 105 Page 105 Pages 156, 175 to 177 Pages 105 to 109 Pages 108 to 109 Sustainability Report Sustaining Growth – Corporate Governance 95 SustainingGrowth Corporate Governance 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”). The following describes the Company’s corporate governance practices with speciﬁ c reference to the 2005 Code. 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 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 directors, all directors have discharged this duty consistently well. 1 The Code of Corporate Governance 2005 issued by the Ministry of Finance on 14 July 2005. To assist the board in the discharge of its oversight function, various board committees, namely the Audit Committee, Board Risk Committee, Nominating Committee, Remuneration Committee, and Executive Committee, have been constituted with clear written terms of reference. All the board 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 2009, as well as the attendance of each board member at these meetings, are disclosed below: Lee Boon Yang2 Lim Chee Onn3 Lim Hock San Choo Chiau Beng Sven Bang Ullring Tony Chew Leong-Chee Oon Kum Loon Tow Heng Tan Alvin Yeo Khirn Hai4 Tsao Yuan Mrs Lee Soo Ann5 Yeo Wee Kiong6 Teo Soon Hoe Tong Chong Heong7 No. of Meetings Held Board Meetings 5 of 5 6 of 8 14 14 15 15 14 11 5 of 5 9 of 10 11 of 13 15 2 of 2 15 Audit – – 6 – – 6 6 – 1 of 1 – – – – 6 Executive1 1 – 1 1 – 1 1 1 – – – 1 – 1 Board Committee Meetings Nominating Remuneration 5 of 5 – 5 of 5 – 11 – 10 9 – 4 of 5 – – – 11 4 of 4 – – – 8 4 of 4 8 3 of 3 – 3 of 4 – – – 8 Safety 2 of 2 – – 2 3 – – – 1 of 1 1 of 1 1 of 2 – – 3 Non-executive Directors’ meeting (without presence of management) 1 of 1 2 of 3 4 – 4 4 4 3 1 of 1 3 of 3 3 of 3 – – 4 Risk – – 6 – – – 6 5 1 of 1 – 4 of 5 – – 6 1 With effect from 1 January 2010, the Executive Committee was dissolved. 2 Dr Lee Boon Yang was appointed as non-executive director with effect from 1 May 2009 to 30 June 2009, assumed the role of non-executive Chairman with effect from 1 July 2009, Chairman of the Executive Committee with effect from 1 July 2009, member of the Remuneration Committee, Nominating Committee and Board Safety Committee with effect from 1 July 2009. 3 Lim Chee Onn resigned as non-executive Chairman and Chairman of the Executive Committee with effect from 30 June 2009. 4 Alvin Yeo was appointed as non-executive director with effect from 1 June 2009, member of the Audit Committee with effect from 1 October 2009, member of the Board Risk Committee with effect from 23 July 2009 and member of the Board Safety Committee with effect from 1 July 2009. He resigned as member of the Board Safety Committee with effect from 30 September 2009. 5 Tsao Yuan Mrs Lee Soo Ann resigned as non-executive director, member of the Remuneration Committee, Nominating Committee and Board Safety Committee with effect from 24 April 2009. 6 Yeo Wee Kiong resigned as non-executive director, member of the Board Risk Committee and Board Safety Committee with effect from 1 August 2009. 7 Tong Chong Heong was appointed as executive director with effect from 1 August 2009. 96 Keppel Corporation Limited Report to Shareholders 2009 The Board consists of executive and independent directors who share their wealth of experience and expertise with the Group. 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 million1 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. Further, any investment of $100 million2 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 1 With effect from 1 January 2010, this ﬁ nancial threshold has been lowered to $30 million with the dissolution of the Executive Committee. 2 See footnote 1 above. Sustainability Report Sustaining Growth – Corporate Governance 97 SustainingGrowth Corporate Governance that affect or may enhance their performance as board or board committee members. By way of an example, some directors attended the courses organised by the Singapore Institute of Directors to reinforce Audit, Remuneration and Nominating Committee members’ understanding of their respective roles and responsibilities and how they can better discharge them. 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 directors believe that, in view of the many complex businesses that the Company is involved in, the 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 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 identiﬁ ed in the 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. 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. There is nonetheless an ongoing exercise by the Nominating Committee and the board to source for suitable potential board members who are able to further strengthen the board and board committees. The 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 is organised every two years for in-depth discussions on strategic issues and direction of the Group, 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 so as to facilitate the board’s review of the Group’s succession planning and leadership development programme. In this connection, a board strategy meeting was held in Bintan over two days on 17 and 18 July 2009. The Company has also made available on the Company’s premises an ofﬁ ce for the use by the non-executive directors at any time to facilitate direct access to management. The board’s non-executive directors meet regularly without the presence of management to discuss matters such as board processes, corporate governance initiatives, matters which they wish to cover during the board off-site strategy meeting, succession planning and leadership development, and remuneration matters. Chairman and Chief Executive Ofﬁ cer 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 relinquished his role as Chief Executive Ofﬁ cer and served as Chairman of the Company for the period 1 January 2009 to 30 June 98 Keppel Corporation Limited Report to Shareholders 2009 Keppel’s board members visit the Group’s various facilities to gain insights and updates on the operational performance and capabilities. 2009. Mr Choo Chiau Beng assumed the role of Chief Executive Ofﬁ cer of the Company with effect from 1 January 2009. During this period, Mr Lim had continued with his efforts to expand and strengthen Keppel’s geographical footprint in China, Vietnam, India and the Middle East. The board had considered it important that, besides ensuring the effective operation of the board, Mr Lim should be available to continue to perform these services so that the Company could continue to beneﬁ t from his business network and relationships for a period of time and so as to ensure a smooth transition in executive leadership. Dr Lee Boon Yang was appointed non-executive director from 1 May 2009 to 30 June 2009 and thereafter served as non- executive and independent Chairman with effect from 1 July 2009. The 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 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, and between the executive directors and non-executive directors. The Chairman also ensures effective communication with shareholders. The 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 Sustainability Report Sustaining Growth – Corporate Governance 99 SustainingGrowth Corporate Governance 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 non-executive directors, 4 out of 5 of whom (including the Chairman) are independent; namely: • Mr Tony Chew Leong-Chee Independent Chairman • Dr Lee Boon Yang Independent Member • Mr Sven Ullring Independent Member • Mrs Oon Kum Loon Independent Member • Mr Tow Heng Tan Non-Executive and Non-Independent Member The terms of reference of the Nominating Committee are disclosed in the Appendix hereto. Process for appointment of new directors The Nominating Committee has put in place 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, determines the role and the desirable competencies for a particular appointment. b. External help (for example, Singapore Institute of Directors, search consultants, open advertisement) may be used to source for potential candidates if need be. Directors and management may also make recommendations. c. NC meets with the 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 NC based on the following objective criteria: 1. Integrity 2. Independent mindedness 3. Diversity – Possess core competencies that meet the needs of the Company 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 NC 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. 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 100 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 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 98 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. Nominee Director Policy At the recommendation of the NC, the board approved the adoption of the KCL Nominee Director Policy in January 2009. For the purposes of the policy, a “Nominee Director” is a person who, at the request of KCL, acts as director (whether executive or non-executive) on the board of another company or entity (“Investee Company”) to oversee and monitor the activities of the relevant Investee Company so as to safeguard KCL’s investment in the company. Keppel Corporation Limited Report to Shareholders 2009 The purpose of the policy is to highlight certain obligations of a person while acting in his capacity as a Nominee Director. The policy also sets out the internal process for the appointment and resignation of a Nominee Director. The policy would be reviewed and amended as required to take into account current best practices and changes in the law and stock exchange requirements. Key information regarding directors The following key information regarding directors are set out in the following pages of this Annual Report: Pages 225 to 228 and 233: 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 NC to be independent; and Pages 155: 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. Sustainability Report Sustaining Growth – Corporate Governance Mrs Fang Ai Lian, former Chairman, Ernst & Young and currently Chairman, Great Eastern Holdings Ltd, was appointed for this role. Company’s senior management and the Company Secretary to facilitate direct access to senior management and the Company Secretary. The evaluation processes and performance criteria are disclosed in the Appendix to this report. 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 NC 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 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 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 timely and good information ﬂ ow to the board and board committees, and between senior management and the non-executive directors, and facilitating orientation 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 & 101 SustainingGrowth Corporate Governance 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 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 (RC) comprises entirely non-executive directors, 4 out of 5 of whom (including the Chairman) are independent; namely: • Mr Lim Hock San The RC has access to expert advice in the ﬁ eld of executive compensation outside the Company where required. Independent Chairman • Dr Lee Boon Yang Independent Member • Mr Sven Ullring Independent Member • Mrs Oon Kum Loon Independent Member • Mr Tow Heng Tan Non-Executive and Annual Remuneration Report Policy in respect of non-executive directors’ remuneration The directors’ fees payable to non-executive directors is paid in cash and/or a ﬁ xed number of KCL shares as follows: Non-Independent Member i. Cash Component: Each non- The RC 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 RC 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 RC 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 Chief Executive Ofﬁ cer. The RC also reviews the remuneration of senior management and administers the KCL Share Option Scheme. executive director is paid a basic fee and if applicable (as explained below), attendance fee. In addition, non-executive directors who perform additional services in board committees are paid an additional fee for such services. 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. Basic Fee: The RC conducted a review of the directors’ fee structure in 2009, and the board, after due deliberation, approved (subject to shareholders’ approval at each annual general meeting) the RC’s proposed revised directors’ fee structure as follows: Chairman Deputy Chairman Director Audit and Executive Committees Board Risk, Remuneration, Nominating and Board Safety Committees Chairman Member Chairman Member Basic Fee $125,000 per annum $70,000 per annum $50,000 per annum $40,000 per annum $20,000 per annum $25,000 per annum $15,000 per annum Keppel Corporation Limited Report to Shareholders 2009 102 Making safety an integral part of business operations, the Board Safety Committee assists in enhancing safety awareness and culture within the Keppel Group. Attendance Fee: Further, the board approved (subject to shareholders’ approval at each annual general meeting) the recommendation of the RC that in the event that in a ﬁ nancial year, a non-executive director attends more than 6 board meetings and/or (as the case may be) more than 4 meetings of a board committee of which he is a member, he shall be paid an attendance fee as set out below from the 7th board meeting onwards and/or (as the case may be) the 5th meeting of the board committee onwards which he attended in that ﬁ nancial year: In-Country Out-Country $5,000 Board Meeting $3,000 $3,000 Committee Meeting $1,500 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, 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 directors’ fees payable to non-executive directors is subject to shareholders’ approval at the Company’s annual general meetings. Sustainability Report Sustaining Growth – Corporate Governance 103 SustainingGrowth Corporate Governance 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; that is, 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 in pages 156, 175 to 177. Level and mix of remuneration of Directors and Key Executives (who are not also Directors) for the year ended 31 December 2009 The level and mix of each of the directors’ remuneration in bands of $250,000 are set out below: Remuneration Band & Name of Director Abv $11,500,000 to $11,750,000 Choo Chiau Beng* Abv $7,750,000 to $11,500,000 Nil Abv $7,500,000 to $7,750,000 Teo Soon Hoe Abv $7,000,000 to $7,500,000 Nil Abv $6,750,000 to $7,000,000 Tong Chong Heong* $500,000 to $6,750,000 Nil $250,000 to $500,000 Lim Chee Onn Below $250,000 Lee Boon Yang Lim Hock San Sven Ullring Tony Chew Leong-Chee Oon Kum Loon Tow Heng Tan Alvin Yeo Khirn Hai Tsao Yuan Mrs Lee Soo Ann Yeo Wee Kiong Base/ Fixed Salary Performance-Related Bonuses Earned (including EVA and non-EVA Bonuses) Deferred & at risk1 Paid 9%4 43% 37% – – – 10% 42% 36% – – – 12%5 41% 36% – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – Directors’ Fees Directors’ Allowance Beneﬁ ts- in-Kind Options Granted2 Remuneration Shares3 – – – – – – 89%6 55% 87% 82% 84% 87% 83% 73% 83% 82% – – – – – – – 5% 1% 5% 1% 2% 1% 3% – – n.m.7 11%8 – – n.m. 12%9 – – n.m. 11% – – – – – – – – – – – – – – – – – – – – – – – – – – – – 11% 40%10 12% 13% 15% 11% 16% 24% 17% 18% Notes: 1. A portion of the executive’s annual performance incentive is tied to EVA performance. With effect from FY2009, instead of one-half payout from the current year’s EVA bonus, the current year’s EVA bonus is added to the accrued EVA bank balance of the preceding year and thereafter one-third (1/3) is paid out provided the total EVA balance is positive. The other two-third (2/3) of the total EVA balance is credited to the executive’s EVA Bank(a) for payment in future years, subject to the continued EVA performance of the Company. (a) EVA Bank: The EVA bank concept is used to defer incentive compensation over a time horizon to ensure that the executive continues to generate sustainable shareholder value over the longer term. The EVA bank account is designated on a personal basis and represents the executive’s contribution to the EVA 104 Keppel Corporation Limited Report to Shareholders 2009 performance of the Company. Monies credited into the EVA bank are at risk in that the amount in the bank can decrease should EVA performance be adversely affected in the future years. (*) In accordance with the Company’s EVA bank policy, an Executive Director is allowed to draw down his EVA bank balance over 3 tranches when he reaches the statutory retirement age. Each of the 3 tranches is payable consecutively on the respective annual bonus payment dates following the date he reached the statutory retirement age, subject to the continued EVA performance of the Company. If the Executive Director continues in service after the statutory retirement age, a separate EVA bank account is set up for him and the policy as outlined in paragraph (1) above will apply. If he subsequently ceased service with the Company, he would be allowed to draw down his EVA bank balance over 3 tranches. Each of the 3 tranches is payable consecutively on the respective annual bonus payment dates following the date of his cessation of service, subject to the continued EVA performance of the Company. In line with this policy, Mr Choo Chiau Beng who reached the statutory retirement age in December 2009 was paid the ﬁ rst tranche from his EVA bank balance as at 31 December 2009 on the annual bonus payment date in February 2010. The balance 2 tranches will be payable on the respective annual bonus payment dates thereafter, subject to the continued EVA performance of the Company. Further, with effect from 22 April 2009, this policy (which was previously applicable to Executive Directors) was extended to all senior management ofﬁ cers. As Mr Tong Chong Heong reached the statutory retirement age of 62 in January 2009 prior to this change, his total EVA bank balance as at 31 January 2009 has been fully paid out to him. 2. Based on the fair value of Options granted in August 2009 and February 2010 using Black Scholes valuation model. 3. Estimated value based on KCL shares’ closing price of $8.23 on the last trading day of FY2009. 4. Includes the sum of $194,100, being payments made pursuant to Mr Choo Chiau Beng’s contract of employment. The Company entered into a new contract of service with Mr Choo Chiau Beng for a term of 3 years with effect from 1 January 2010. 5. Includes the sum of $153,000, being payments made pursuant to Mr Tong Chong Heong’s contract of employment. The Company entered into a new contract of service with Mr Tong Chong Heong for a term of 3 years with effect from 1 February 2009. 6. Includes the special remuneration of $250,000 (see Resolution 10 of the Company’s Notice of Annual General Meeting). 7. n.m. – not material 8. In addition to the abovementioned Options granted, Mr Choo Chiau Beng also received 14,500 Singapore Petroleum Company Restricted Shares. 9. In addition to the abovementioned Options granted, Mr Teo Soon Hoe also received 5,000 Singapore Petroleum Company Restricted Shares. 10. Includes the award of additional 4,500 Remuneration Shares (See Resolution 11 of the Company’s Notice of Annual General Meeting). The level and mix of each of the key executives (who are not also directors) in bands of $250,000 are set out below: Remuneration Band & Name of Key Executive Abv $2,250,000 to $2,500,000 Wong Kingcheung, Kevin Abv $2,000,000 to $2,250,000 Yeo Chien Sheng, Nelson Chia Hock Chye, Michael Abv $1,750,000 to $2,000,000 Nil Abv $1,500,000 to $1,750,000 Loh Chin Hua Abv $1,250,000 to $1,500,000 Ong Tiong Guan 11. Received Keppel Land Limited Share Options. Base/ Fixed Salary Performance-Related Bonuses Earned (including EVA and non-EVA Bonuses) Beneﬁ ts- in-Kind Options Granted2 Paid Deferred & at risk1 33% 42% 16% n.m. 9%11 17% 18% 30% 29% 26% 26% – – 40% 60% – – n.m. n.m. – n.m. 27% 27% – – 21% 20% 21% n.m. 38% Remuneration of employees who are immediate family members of a director or the Chief Executive Ofﬁ cer No employee of the Company and its subsidiaries was an immediate family member of a director or the Chief Executive Ofﬁ cer and whose remuneration exceeded $150,000 during the ﬁ nancial year ended 31 December 2009. “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 156, 175 to 177 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 Sustainability Report Sustaining Growth – Corporate Governance 105 SustainingGrowth Corporate Governance 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. The board has embraced openness and transparency in the conduct 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. • Mr Alvin Yeo Independent 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. Mr Alvin Yeo has in-depth knowledge of the responsibilities of the Audit Committee and practical experience and knowledge of the issues and considerations affecting the Committee from serving on the audit committee of other listed companies. The Audit Committee’s primary 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 pages 110 and 111 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 (including access to external consultants) 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. Audit Committee The Audit Committee comprises the following non-executive directors, all of whom are independent: • Mr Lim Hock San Independent Chairman • Mr Tony Chew Leong-Chee Independent Member • Mrs Oon Kum Loon Independent Member The Audit Committee met with the external auditors 3 times and with the internal auditors 6 times during the year, and at least one of these meetings was conducted without the presence of management. During the year, the Audit Committee performed independent review of the ﬁ nancial statements of the Company 106 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 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 Keppel Corporation Limited Report to Shareholders 2009 1 Board members sharing their views during the Company’s strategic review sessions. 2 The annual general meeting provides shareholders with an update of the Company’s ﬁ nancial performance and milestones, as well as a platform for them to interact with board members and senior management. 1 2 Sustainability Report Sustaining Growth – Corporate Governance 107 SustainingGrowth Corporate Governance 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”) 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” and the “Risk Management” sections on pages 87 to 91 and 114 to 115 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 and internal control processes are adequate to meet the needs of the Company in its current business environment. Board Risk Committee The Board Risk Committee assists 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 111 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. Mrs Oon is a member of the Company’s Audit Committee. Mr Lim Hock San, who is 108 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 Alvin Yeo who is a Senior Partner in Wong Partnership LLP, a leading law corporation in Singapore. Mr Yeo sits on the boards of several companies (listed and non-listed) and has in-depth knowledge and experience in the area of risk management. 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 Chief Executive Ofﬁ cer 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 Keppel Corporation Limited Report to Shareholders 2009 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 Internal Audit’s reports are submitted to the Audit Committee for deliberation with copies of these reports extended to the Chairman, Chief Executive Ofﬁ cer and the relevant senior management ofﬁ cers. In addition, Group Internal Audit’s summary of ﬁ ndings and recommendations are discussed at the Audit Committee meetings. 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 Company’s Group Corporate Communications Department (with assistance from the Group Finance and Group Legal Departments, when required) regularly communicates with shareholders and receives and attends to their queries and concerns. 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 Sustainability Report Sustaining Growth – Corporate Governance information are inadvertently disclosed, they are immediately released to the public via SGXnet and the press. 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. The Chairmen of each board committee are required to be present to address questions at the Annual General Meeting. External auditors are also present at such meetings 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. Securities Transactions Insider Trading Policy The Company has a formal Insider Trading Policy and Disclosure of Dealings in Securities 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. In compliance with Rule 1207(18) of the Listing Manual on best practices on dealing in securities, 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. 109 SustainingGrowth Corporate Governance Appendix Nature of Current Directors’ Appointments and Membership on Board Committees Committee Membership Director Lee Boon Yang Lim Hock San Choo Chiau Beng Sven Bang Ullring Tony Chew Leong-Chee Oon Kum Loon Tow Heng Tan Alvin Yeo Khirn Hai Teo Soon Hoe Tong Chong Heong Board Membership Chairman Deputy Chairman Chief Executive Ofﬁ cer Independent Independent Independent Non-Independent & Non-Executive Independent Executive Director & Group Finance Director Executive Director Nominating Member Audit – Chairman – – Remuneration Member – Chairman – – Member Member Member Chairman – Member Member Member – – Member – – Safety Risk Member – – Member – Member – Chairman – – – Member Chairman – Member Member – Member – – – – – – – – – 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 $30 million 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 $30 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 $30million 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 110 Keppel Corporation Limited Report to Shareholders 2009 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 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. function is adequately resourced and has appropriate standing within the company, at least annually. 10. Review arrangements by which D. Nominating Committee 1. Recommend to the board the appointment/re-appointment of directors. 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. 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 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 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. To review and, if deemed ﬁ t, approve recommendations for nomination of candidates as nominee director (whether as chairman or member) to the board of directors of investee companies which are: i. listed on the Singapore Exchange Sustainability Report Sustaining Growth – Corporate Governance 111 SustainingGrowth Corporate Governance or any other stock exchange (that is, as at the date hereof, Keppel Land Limited, Keppel Telecommunications & Transportation Ltd, K-REIT Asia Management Limited, Keppel Philippines Holdings Inc, Keppel Philippines Marine Inc, Keppel Philippines Properties Inc, Keppel Thai Properties Public Co Ltd, Singapore Petroleum Company Limited, k1 Ventures Limited, Evergro Properties Ltd and MobileOne Limited); ii. managers or trustee-managers of any collective investment schemes, business trusts, or any other trusts which are listed on the Singapore Exchange or any other stock exchange (that is, as the date hereof, K-REIT Asia Management Limited and Keppel Infrastructure Fund Management Pte. Ltd.); and iii. parent companies of the Company’s core businesses (that is, as at the date hereof, Keppel Offshore & Marine Ltd, Keppel Integrated Engineering Ltd, and Keppel Energy Pte Ltd), (hereinafter referred to as “Nominee Director Nominations”). 9. To review all Nominee Director 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. 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. 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. 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. Nominations annually. 2. Review and examine the Keppel 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. 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 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 112 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. 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. Board Assessment 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”) and the Board Chairman on the report. Thereafter, the IC presents the report for discussion at a meeting of the non-executive directors (“NEDs”), chaired by the Board Chairman. 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 Keppel Corporation Limited Report to Shareholders 2009 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 NC Chairman and Board Chairman on the report. Thereafter, the IC presents the report for discussion at a NED meeting, chaired by the Board Chairman. 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. 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 NC Chairman and Board Chairman on the report. Thereafter, the IC presents the report for discussion at a meeting of the NEDs, chaired by the Board Chairman. 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 director (both non-executive and executive) and sent directly to the IC within ﬁ ve working Sustainability Report Sustaining Growth – Corporate Governance days. Based on the returns, the IC prepares a consolidated report and briefs the NC Chairman and Board Chairman on the report. Thereafter, the IC presents the report for discussion at a meeting of the NEDs, chaired by the Board Chairman. The IC will thereafter present the report to the board together with the recommendations of the NEDs. 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 include 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 guided discussions effectively so that there was timely resolution of issues, whether he ensured that meetings were conducted in a manner that facilitated open communication and meaningful participation, and whether he ensured that board committees were formed where appropriate, with clear terms of reference, to assist the board in the discharge of its duties and responsibilities. 113 SustainingGrowth Risk Management MANAGING RISKS FOR OPERATIONAL RESILIENCE Concerted risk management efforts ensure the Group remains well-placed to protect the interests of and add value to shareholders. 114 Keppel Corporation Limited Report to Shareholders 2009 A robust risk management framework underpins the Group’s overall business performance and day-to-day operations. Sound risk management policies, practices and guidelines provide a robust platform to prudently and effectively steer our business operations in today’s challenging macro-economic environment. Managing Risks Proactively The Board, assisted by the Board Risk Committee (BRC), is fully committed to a robust risk management system to safeguard and enhance stakeholders’ interests. To support the Group in executing its business strategies to sustain growth, BRC reviews and guides the Group in the formulation of its risk policies, risk limits and effective risk management system. Its terms of reference are disclosed on page 111 of this Report. Strong commitment by top management in driving Group-wide risk management systems and processes over the years has equipped the Group well to face the challenging business environment and to capitalise on opportunities that arise. The global ﬁ nancial crisis has reinforced the importance of risk management, in particular, the management of liquidity risks and counterparty credit risks. Strong emphasis has been placed on formalising various risk mitigation strategies to improve ﬁ nancial discipline in cash management and in preparing the Group to seize investment opportunities. Impact assessment and review of the Group’s exposure to changing market situations, as well as stress testing analysis were carried out to enable informed decision- making and timely mitigation actions. In addition, the continuous scanning and close monitoring of political, economic and regulatory issues also enable management to have a better insight on impending developments in the span of countries where the Group operates. Sustainability Report Sustaining Growth – Risk Management Fortifying Fundamental Practices While there are signs of a global economic recovery, managing risks in the respective businesses and countries of operations remains challenging. The Enterprise Risk Management framework provides a holistic and systematic approach in risk management to better prepare the Group to respond to the dynamic business environment and leverage business opportunities. The Group’s risk-related policies and limits are subjected to periodic reviews to ensure that they continue to support business objectives, address business risks adequately and effectively, and take into consideration the prevailing economic climate and risk appetite of the Group. Standardised risk management methodology is adopted across all business units to streamline processes. Guidelines and templates are tools used to provide guidance in the identiﬁ cation, assessment, mitigation and monitoring of risks. Operational risk management is embedded in the day-to-day business operations across all functions, allowing early risk detection for effective management and control. Risk management also forms an integral part of the Group’s strategic and budget review exercise, policy formulation and revision, project and investment evaluation, and performance evaluation process. With its strong ﬁ nancial position, the Group has greater room to explore investment opportunities. Management is vigilant in evaluating any investment opportunities, and decisions are made after taking into consideration the risks and returns. All investments and divestments are subject to due diligence processes and are approved by an investment and major projects committee comprising key senior management, and subsequently by the Board based on established thresholds. Prudent risk management practices, including effective management of market risks (currency risks, interest rate risks and price risks), credit and liquidity risks, lay the Group’s ﬁ nancial management foundation. Further details can be found on pages 90 and 91 in this Report. Strengthening Risk Management Culture The Group has intensiﬁ ed its efforts to strengthen its risk-centric culture. Continuous education and regular communications through various forums and in-house publications on risk management-related topics are essential in inculcating risk awareness among employees. In-house workshops are programmed to train key project personnel and management staff to strengthen risk assessment discipline. Embedding risk management processes in the daily operations across functions also helps to reinforce a risk-centric culture in the Group. Enhancing Operational Readiness Business Continuity Management (BCM) increases the resilience of the Group to potential business disruptions and minimises the impact of a crisis on business operations, people and assets. Emphasis is placed on establishing robust business continuity plans to ensure that the Group can respond seamlessly to external events while minimising operational disruptions. During the year, the BCM focus was on building the Group’s resilience against pandemic ﬂ u adversities. Various simulation exercises were conducted at selected business units and locations to enhance operational preparedness. The Group continues to scan for possible threats and establish plans to enhance operational preparedness. These plans are tested and reﬁ ned regularly to ensure that premeditated responses are workable and effective. 115 SustainingGrowth Environmental Protection DEVELOPING A SUSTAINABLE ENVIRONMENT Running our operations responsibly and with focus on the environment makes good business sense for the Group. 116 Keppel Corporation Limited Report to Shareholders 2009 With the need for concerted global efforts to tackle the environmental challenges brought on by rapid economic growth and urbanisation, we are doing our part to contribute to the preservation and protection of the environment as part of our business operations. Mitigating environmental issues forms the fundamental backbone of many of our businesses. Our environmental engineering business is a leading player in the provision of waste-to- energy and water treatment plants. Our property business has expertise in developing integrated townships incorporating green elements. A key contributor to our energy business is a natural gas-ﬁ red co-generation plant, providing an efﬁ cient and clean energy source which helps to reduce emissions. We are also looking for opportunities in renewable energy such as offshore wind. At the operational level, our businesses are continually seeking ways to use less energy, reduce wastage and emissions, and to recycle more. Harmonising with the Living Environment Guided by the philosophy that properties should be developed to harmonise and improve the environment, as well as enhance the quality of life of the people who use them, Keppel Land takes a proactive environmental management approach and has an Environment Management Committee to develop and implement strategies and programmes relating to the environment. The company aims to minimise its environmental impact through energy-efﬁ cient measures, water conservation, recycling programmes and preserving biodiversity. As part of its commitment to establish and maintain high standards of environmental protection and Sustainability Report Sustaining Growth – Environmental Protection continually innovate to improve its environmental performance, Keppel Land invests up to 4% of the construction cost of a development on green design and features. The company believes that the long-term beneﬁ ts far outweigh the higher cost in the development of green buildings. Commercial developments such as Ocean Financial Centre (OFC) and Marina Bay Financial Centre (MBFC) are distinguished by efﬁ cient intelligent features geared towards housing the world’s leading corporations, while incorporating environmentally friendly initiatives such as green havens. OFC will feature a roof photovoltaic system, an energy-efﬁ cient hybrid-chilled water system and an integrated paper recycling facility. MBFC will have an energy-efﬁ cient curtain-wall glass cladding system for an overall building envelope design that delivers low-energy thermal transfer value and a high-energy efﬁ ciency index. Keppel Land has set as a benchmark for all its projects in Singapore and overseas the goal of achieving at least the Green Mark Gold standard by the Building and Construction Authority of Singapore (BCA) or its equivalent overseas, such as the Leadership in Energy and Environmental Design of the US and the Building Research Establishment Environmental Assessment Method of the UK. To date, the company has garnered a total of 18 BCA Green Mark awards. KEY ECO PRINCIPLES Ecollaboration Work with stakeholders, policy-makers and decision-makers to build a ‘greener’ future Economy Balance commercial viability and environmental sustainability Ecommitment Promote environmental awareness and support green initiatives Ecommunity Create sustainable developments for future generations 117 SustainingGrowth Environmental Protection In addition, Keppel Land applies a set of stringent criteria on the selection of contractors and suppliers it works with, to ensure that they share the company’s commitment to high quality, environmental, health and safety standards. It is also building up a core of in-house green building specialists. To date, Keppel Land has successfully trained close to 35 Project Managers as Green Mark Managers. Of these, three are also Green Mark Professionals and another, a Singapore Certiﬁ ed Energy Manager. From China to Indonesia, Keppel Land’s golf courses achieved certiﬁ cation by Audubon International, an environmental organisation shaping wildlife protection, and providing education and conservation assistance in responsible management of land, water and wildlife. Tianjin Pearl Beach International Country Club was the ﬁ rst in the world to be certiﬁ ed a Classic Sanctuary by Audubon International. In terms of environmental performance, in 2009, the total energy consumption at Keppel Land’s corporate ofﬁ ce and six investment buildings reduced by almost 4% to 23.5 million kWh from 24.4 million kWh in 2008. This was due mainly to the implementation of key initiatives such as energy audits and the eco-ofﬁ ce programme to conserve energy and improve energy efﬁ ciency. As a result of the reduced energy usage, the company’s total carbon emissions, which are indirect emissions, fell by 10.8% in 2009 compared to 2008. Eco-Friendly Rigs Keppel Offshore & Marine (Keppel O&M) is known for its market-proven rig designs which are technologically advanced and environmentally friendly. The KFELS Semisubmersible Drilling Tender (SSDT) and the KFELS B Class jackup were acknowledged by the Institution of Engineers Singapore Prestigious Engineering Achievement Awards 2009 for their contributions to sustainable operations. Apart from its outstanding performance, the KFELS SSDTTM is a zero discharge vessel. As part of a stringent drilling waste management Keppel Land’s Total Energy Consumption (million kWh) 25 20 15 10 5 0 Corporate Office Investment Buildings Total 118 0.5 24.2 24.7 0.5 24.4 24.9 0.5 23.9 24.4 2006 2007 2008 0.5 23.0 23.5 2009 system, drilling cuttings which contain hydrocarbon contents are separated by the solid control equipment and stored in containers on the KFELS SSDT TM’s large deck. This system eliminates the dumping of solid waste into the ocean and reduces the need for frequent supply boat trips to ofﬂ oad the waste. The KFELS B Class jackup is designed for maximum uptime with reduced emissions. The main generators at the heart of the rig meet the stringent Engine International Air Pollution Prevention requirements, while the air-conditioning units also employ non-ozone depleting refrigerants. Quiet and energy-efﬁ cient AC drives are used for all drilling motors and mooring winches. In addition, the three legs of the jackup rig are designed in a way which is less bulky and obstructive underwater. This causes minimal disruption to the eco-system and allows marine life to co-exist with exploration and drilling activities. Energy-Reducing Initiatives Keppel Logistics continually seeks to streamline its warehousing operations spanning about 1.5 million square feet in Singapore to improve resource- efﬁ ciency. In 2008, it audited the energy consumption of its operations centres and then embarked on energy- saving initiatives aimed at reducing the usage of electricity, water, paper, packing materials and fuel. In less than six months, energy consumption at its top ﬁ ve centres reduced by 12%. Harnessing the year-round sunlight available in Singapore, Keppel O&M Technology Centre (KOMtech) has installed two photovoltaic power plants on the rooftop of its building in Singapore to convert solar energy into electricity. Each plant has an average lifespan of about 25 years and can generate energy savings of 30,000 kWh annually. With the two plants, the Centre can potentially save as much as 1.5 million kWh, thereby avoiding Keppel Corporation Limited Report to Shareholders 2009 With the installation of PV power plants on its rooftop, KOMtech is able to generate energy savings and minimise carbon dioxide emissions for over two decades. carbon dioxide emissions of 1,300 tonnes. This green feature also helps the Centre reduce its energy costs in the longer run. Keppel Shipyard has embarked on several energy-saving initiatives in daily operations since December 2007. In workshops around the yards, ﬁ breglass sheets were installed on rooftops to let the natural sunlight in to help reduce the use of lighting. Conventional lightbulbs in ofﬁ ces and tower gangways were also replaced with energy-saving lightbulbs. During daily operations, travelling motors in level lufﬁ ng cranes were replaced with inverter drivers. As the world observed Earth Hour on 28 March 2009, companies in the Keppel Group also participated in this World Wildlife Fund initiative by turning off non-essential lights for an hour from 8.30pm to 9.30pm. Lights were turned off at Keppel O&M’s yards and workers’ dormitories, the Keppel Seghers Ulu Pandan NEWater Plant, Keppel Land’s seven ofﬁ ce buildings and Marina at Keppel Bay in Singapore. Keppel Land’s overseas developments such as Saigon Centre in Vietnam, The Seasons in Beijing as well as properties under Sedona Hotels International also participated in this initiative. Water Saving and Recycling Efforts For Keppel Integrated Engineering (KIE), its environmental engineering solutions are meant not just for customers, but are also applied in its civil work processes in the construction of waste-to-energy or water treatment plants. In Qatar, Keppel Seghers is developing the largest wastewater treatment and reuse and sludge treatment facility, the Doha North Sewage Treatment Works. The facility will treat up to 439,000 m3/ day and the water will be used for irrigation. This will be the ﬁ rst wastewater treatment facility in Qatar to use advanced membrane and ultraviolet treatment technologies to reclaim high- quality water for non-potable purposes, feature a comprehensive odour control system and treat sludge from all sewage treatment works in Qatar. In the construction of this facility, Keppel Seghers deployed its Potabloc system to treat recycled water. Potabloc is a mobile water production unit that produces high-quality water from unconventional sources including seawater or brackish water, through separation techniques such as ultra-ﬁ ltration and reverse osmosis. Ashgal, the Public Works Authority of Qatar, hailed this as an example of green construction practice and is looking into implementing the system in other infrastructure and construction projects in Doha. At Keppel Shipyard, NEWater is used for hull washing and toilet ﬂ ushings. NEWater is treated used water that has undergone stringent puriﬁ cation and treatment process. This initiative has effectively reduced the consumption of potable water at the yards, thereby reducing the strain on the already scarce water resources in Singapore. Recycling of paper is another green initiative actively pursued by companies in the Keppel Group. Keppel Land has put in place a paper-recycling programme for tenants of its ofﬁ ce buildings in Singapore, while Keppel Shipyard inculcated a culture of recycling among its employees, resulting in a signiﬁ cant increase in the amount of paper recycled since the effort started in 2006. Sustainability Report Sustaining Growth – Environmental Protection 119 SustainingGrowth Product Excellence DRIVING PRODUCT AND TECHNOLOGY EXCELLENCE Product and technology excellence and innovation are key in strengthening our core competencies and developing new growth drivers. 120 Keppel Corporation Limited Report to Shareholders 2009 Offshore and Marine Technology Development Launched at end-2007, Keppel Offshore & Marine Technology Centre (KOMtech) underscores Keppel Offshore & Marine’s (Keppel O&M) commitment to long- term R&D. Housed under one roof since November 2008, KOMtech consists of six groups, namely, the Offshore Structures Group, Marine Group, Technology Foresight Group, Shipyard Process Improvement Group, FPSO/Process Group and the Drilling Equipment Group. With its emphasis on technologies with strategic and commercial impact, KOMtech augments the work of Keppel O&M’s three existing technology units – Offshore Technology Development, Deepwater Technology Group and Marine Technology Development – which focus on design and engineering. With an initial $150 million funding for its ﬁ rst ﬁ ve years providing reasonable ﬁ nancial visibility, KOMtech researchers can focus on longer-term innovation and projects. To date, KOMtech has ﬁ led 14 patents. Keppel O&M also actively participates in industry forums and events, keeping abreast of latest technology trends and innovations while playing an active role in the development of solutions for the offshore and marine industry. Driving Environmental Technology Solutions Increasing urbanisation and climate change presents environmental challenges. Demand for sustainable water and energy will be the primary driver for our environmental business, as we leverage our competencies in water treatment and thermal waste technology to carve a niche for innovative yet cost-efﬁ cient environmental solutions. Product and technology development and innovation are vital in sustaining Keppel’s competitive edge across its markets, constantly enabling us to offer advanced as well as cost-efﬁ cient solutions that address present and future customer needs. Keppel Technology Advisory Panel Established in 2004, the Keppel Technology Advisory Panel (KTAP) is envisioned to be a key platform for sustaining the Group’s technology leadership. In addition to providing strategic leadership for our Research and Development (R&D) efforts, KTAP also mentors and challenges the robustness of initiatives in research, development, testing and commercialisation of new products and services in our various businesses. With Board and senior management participation, KTAP convenes twice a year and has met 11 times since its inception. Chaired by Professor Cham Tao Soon, President Emeritus of Nanyang Technological University (NTU) and Chancellor of UniSIM, KTAP comprises eight other academic and industry experts from both the local and international arena. At its meeting in Singapore in December 2009, KTAP deliberated a broad spectrum of topics ranging from offshore wind energy, mini-LNG solution for offshore associated gas, future trends of waste management, forward osmosis for desalination, to the setting up of an R&D centre for environmental, water and sustainable development in the Sino-Singapore Tianjin Eco-City. Looking ahead, KTAP will continue to play a catalytic role in fostering a vibrant R&D culture within the Group, as a strategic, forward-looking platform to identify areas to sustain our competitive edge. Sustainability Report Sustaining Growth – Product Excellence Spurring Innovation in Environmental Technology Our environmental engineering business focuses its innovation strategy on competency building and technology commercialisation in our efforts to align leadership in water and wastewater treatment and solid waste management technologies with the needs of the global market. Keppel Environmental Technology Centre (KETC) is the Group’s centre of excellence spearheading innovation in the environmental sphere. Established in 2007, KETC augments existing R&D initiatives and strategic alliances with leading academic and industry partners, harnessing both internal and external resources and collaborations to complement its technology development activities. KETC continued to undertake active R&D to propel technological innovation for Keppel Seghers in 2009 despite the slowdown in the global economy. In line with the new economic reality, our focus was directed on a number of high impact studies while maintaining vigilance on evolving technologies around the world. Throughout the year, signiﬁ cant progress was achieved in various pilot and testbedding initiatives in our key areas of focus: – The MEMSTILL® project, a novel desalination process utilising low- grade heat, completed its third pilot testing in the Netherlands. Tech Pioneering Funding was secured for a demonstration plant to be constructed in Singapore in 2010. A new design to signiﬁ cantly improve the cost effectiveness of the process was also tested in Belgium and Spain. – The REDOXAN® pilot study, to seek a more effective way to treat and recycle sludge, was largely completed and promising results of 121 SustainingGrowth Product Excellence sludge destruction and biogas production were obtained. – Collaborated with Toray Industries to design, construct and operate a Membrane Bioreactor (MBR) pilot plant in the Ulu Pandan Water Reclamation Plant. – Continued to modify and upgrade the interstage turbochargers for the Reverse Osmosis (RO) system in the Ulu Pandan NEWater Plant to reduce power consumption. – Tested and approved new anti-scalants for wastewater RO treatment in the Ulu Pandan NEWater Plant. – Co-ordinated research efforts with KOMtech and collaborated on a number of new project proposals, including offshore RO, shipyard waste treatment and shipboard MBR. – Collaborated with NTU to submit research proposals to the National Research Foundation (NRF) and the National Environmental Agency for both solid waste and water treatment research projects. KIE’s project with NTU, entitled Sustainable Urban Waste Management for 2020, was one of ﬁ ve projects selected by NRF for funding. The proposal aims to achieve an increase in biogas yield and ﬂ exibility of municipal sludge digester by co-digesting with other waste, improved sludge quality, and a reduction in solid mass and sludge disposal costs. 1 2 1 Dutch Economic Minister H.E. Mrs Maria Vander Hoeven leading a delegation to meet Keppel management at the Keppel Seghers Ulu Pandan NEWater Plant and discuss water technologies and solutions. 2 With the reverse osmosis process, treated water can easily be further puriﬁ ed for industrial processes and potable use. 122 Keppel Corporation Limited Report to Shareholders 2009 RIG DESIGN ANOTHER MOTION WINNER Gaining recognition after several years of research and continual enhancements, Keppel FELS won two prestigious awards in 2009 – the ASEAN Outstanding Engineering Achievement Award 2009 and the Institution of Engineers Singapore’s Engineering Achievement Award – for its semisubmersible drilling tender (SSDT) design, KFELS SSDT TM. The KFELS SSDT TM design revolutionised drilling tender operations, because it became the world’s ﬁ rst drilling tender to operate against a ﬂ oating platform in deep waters up to 2,000 metres. In the past, conventional drilling tenders could only be deployed next to ﬁ xed platforms in shallow waters. deep sea. The turbulence caused by strong waves and the ﬂ oating units would surely lead to collisions. The KFELS SSDT’sTM ability to synchronise random motion between the ocean waves and the ﬂ oating platform to which it is attached, makes this design truly award-winning. The Deepwater Technology Group (DTG) used model testing, as well as various simulation methods such as computer ﬂ uid dynamics and diffraction analysis to come up with the best methods of preventing collisions. Throughout the entire R&D process, customer input was actively sought, resulting in an extraordinary solution, which literally allows two ﬂ oating bodies to move as one. Prior to the introduction of this design, it was virtually impossible for two ﬂ oating units to operate side by side in This SSDT was successfully deployed in 2003, in more than 1,000 metres of water in the West Seno ﬁ eld, offshore Indonesia. It was later installed alongside a deepwater Spar platform in the Kikeh ﬁ eld, offshore Malaysia. The use of Keppel FELS’s trendsetting drilling tender has gained momentum across international markets in recent years. It has proven its suitability to operate in challenging offshore environments, including the deepwater ‘Golden Triangle’ of Brazil, West Africa and the Gulf of Mexico. The development process on this winning rig design has not ceased. DTG continues to explore ways to improve the KFELS SSDT’sTM ability to handle hurricane seasons in the Gulf of Mexico, as well as increasing the rig’s deck load to 5,000 tonnes from the current 3,600. The KFELS SSDT TM design has established a proven track record for strong operational performance over the past 15 years. Sustainability Report Sustaining Growth – Product Excellence 123 EmpoweringLives People Development BUILDING A FORMIDABLE & COMPETENT TEAM Growing a pool of innovative individuals, diverse talents, passionate team players and responsible citizens is core in our mission to build enduring and value-creating businesses. 124 Keppel Corporation Limited Report to Shareholders 2009 With people as a core asset, Keppel continues to actively grow the capabilities and capacities of its worldwide manpower and talent pool. Manpower by Segment (number) Offshore & Marine Infrastructure Property Investments Total Manpower by Country (number) Singapore China / HK Asia USA Brazil Others Total Executives / Non-Executives (number) Executives Non-executives Total 24,275 4,574 2,791 135 31,775 16,932 1,507 4,631 881 6,173 1,651 31,775 6,789 24,986 31,775 To lead the Group into future phases of growth, Keppel adopts a holistic approach towards hiring, developing and motivating our employees, and aligning our workforce with a common set of core values to inﬂ uence behavior and shape the corporate culture of our operations across the globe. At the same time, Keppel seeks to identify areas for continuous improvement. To garner employee feedback, a Group-wide organisational climate survey was conducted, building on an annual exercise by Keppel Offshore & Marine (Keppel O&M) since 2005. A near 90% response was achieved out of 3,000 representative sample of employees, in which Keppel scored well in the categories of Safety & Environment, Attitude, Motivation and Morale, and Employee Engagement. The Company will continue to review and reﬁ ne current policies and programmes to reinforce its position as an employer of choice. Sustainability Report Empowering Lives – People Development 125 EmpoweringLives People Development Attracting Talent Keppel attracts talent through scholarships, internships, exchange programmes and recruitment exercises. In 2009, we continued our efforts to attract the best and brightest to the Group. The Keppel Group Scholarship is an important constituent of our human capital development strategy. Our scholars inject new ideas, drive and an entrepreneurial spirit. Each scholar inherits not only Keppel’s history and values but also the exciting opportunity to shape its future. In 2009, four dynamic youths were offered the Keppel Group Scholarship and the chance to pursue the dream of a quality education and a challenging career. Keppel offers internships for tertiary students keen to glean valuable work experience before considering and starting a career with the Group. In 2009, a total of 188 internships were offered to students from various local and foreign institutions. To share best practices and showcase the Group as an employer of choice, Keppel hosted more than 25 visits with over 620 visitors in 2009 from top class universities including INSEAD, University of California Berkeley, Wharton Business School, Shanghai Jiao Tong University and Fudan University, and major organisations and companies such as the World Bank, S-Oil Corporation, the International Labour Organisation and the Korean Standards Association. Talent Management – Keppel College An organisation needs to constantly grow and cultivate its pool of talent to build sustainable businesses. In Keppel, we ensure that strong performers with high potential to excel are given the opportunities to prove themselves and be developed in leadership positions. 126 Keppel O&M had established the Keppel O&M College in 2007 to drive talent development initiatives and groom talent. Mentoring Scheme has 600 appointed mentors. Workshops were organised as part of the continual effort to hone the mentoring skills of these role models. In August 2009, with a critical mass of alumni, Keppel O&M College was elevated to a Group-wide initiative and renamed Keppel College to augment the Group’s commitment to leadership development and support the Group’s business strategy by cultivating a pool of talented key executives. It aims to facilitate succession planning and groom future leaders to steer the Keppel Group in years to come. Keppel College also seeks to imbue our future leaders with the Group’s core values, mission and vision, and equip them with networking skills necessary in forming business partnerships. Keppel College centralises the Group’s programmes for leadership and executive development. Programmes targeting three levels of talent – Young Leaders, Middle Management and Senior Management – are customised in collaboration with top tertiary institutions and training providers. The motto of the Keppel College is to Educate, Empower and Energise our talents so that they can Learn, Lead and Leap-frog to the next level of success. Senior management and key process owners are involved in the development of Keppel College programmes and prospectus, as well as to provide inputs on existing and future competency gaps and steward Keppel College excellence. Mentoring has always been part of Keppel’s culture and is instrumental in the retention and perpetuation of knowledge and values throughout the Group. Selected employees are assigned to help our new hires and talents assimilate into the Company’s environment and culture, as well as share their knowledge. To date, our Organised under the auspices of Keppel College, the second run of Keppel Group’s ﬂ agship Global General Management Programme (GGMP) was held in Singapore in June 2009 for 25 talents from across the Group. The ﬁ rst fun was conducted in September 2007, the GGMP is one of three executive development programmes that Keppel has developed with Nanyang Business School, to hone strategic thinking and management skills. The other two programmes are the Global Young Leaders Programme (GYLP) and the Global Advanced Management Programme (GAMP). Keppel College also organised the GAMP in February 2008 and the GYLP in October 2008. The next run of GAMP and GYLP will be organised in March and October 2010 respectively. Twenty-seven local and overseas staff from Keppel O&M and Keppel Integrated Engineering (KIE) attended the third run of the Project Management Programme in August 2009. Introduced in 2007, it aims to strengthen skills in negotiations, drafting of commercial contracts, claim management, dispute avoidance, technical writing and presentation. Having successfully organised the ‘Improving People Quotient for Leaders’ workshop in September 2008, Keppel College organised a second run in October 2009. Conducted in-house, the workshop was attended by 26 middle management staff and supervisors with line responsibility in the selection, appraisal, motivation and grooming of employees. Since 2007, Keppel College has partnered Outward Bound Singapore to customise and organise eight runs of the three-day residential experiential Keppel Corporation Limited Report to Shareholders 2009 1 2 To achieve talent management in a systematic and structured way, a framework has been put in place that focuses on the topmost tier of high potential and high performing talents to ensure that they are developed and have opportunities to be tested in leadership positions. 1 Activities during the Outward Bound Singapore programme required participants to exercise teamwork and leadership qualities to accomplish tasks. 2 Showcasing the Group as an employer of choice, Keppel hosts visits from top class universities and major organisations from around the globe. leadership programme on Pulau Ubin. Two runs were organised in 2009 and attended by 44 talents across the Group. A total of 154 talents have completed the programme since its inception. talks from the Grow Beyond Series by Mr Charles Wong from Charles & Keith and the Singapore Women’s Everest Team, who shared their boundless enthusiasm for life and achievements. Equipping and strengthening the competencies of our human resources community formed the theme of the Keppel Group Human Resource (HR) Symposium. Keppel College organised the second run of the Symposium in November 2009 with the aim of sharing good practices across the various business units and providing a networking opportunity among Keppel HR practitioners. Keppel’s senior management drives the development of talents across the Group and has a keen interest in the well-being and growth of employees. Communication platforms such as TalenTime, pre-Board dinners and the Executive Chat! Series, allow Board members and senior management to engage employees and share their experiences. Keppel also supports the Clipper Round the World Yacht Race, one of the world’s most celebrated amateur sailing races. To encourage Keppelites to grow beyond their ordinary boundaries and test their personal limits, the Company sponsored four employees as Keppel Ambassadors to each take on one leg of the Race. Building Bench Strengths for Key Positions Succession planning is an integral part of Keppel’s HR process. A formal system has been put in place to identify, assess and empower high potential employees to ensure that they are ready to assume key positions. In 2009, Group HR introduced common Group-wide Key Performance Indicators for tracking the progress of Succession Planning and Talent Management. Keppel College regularly organises sharing and motivational talks to engage our talents and promote knowledge sharing. Five such sessions were organised in 2009 including two Both the Board and senior management periodically review their list of potential successors, and assess them against a list of leadership competencies and Keppel Group Core Values. We also Sustainability Report Empowering Lives – People Development 127 EmpoweringLives People Development Systematic Approach to Talent Management Talent Management Framework Succession Management Framework System Review and Improvement Talent Development Talent Deployment Succession Needs Analysis Succession Planning System Review and Improvement Talent Performance Management Successor Performance Management actively plan career and development to build management bench strengths through regular face-to-face interaction, executive coaching, international assignments, executive development programmes and leading roles in major projects. Learning & Development In 2009, we invested a total of $23.7 million in the training and development of our 31,000 employees globally. Of this, $17.5 million went towards upgrading the skills of Singapore-based employees, who comprise 53% of our total workforce. Locally, there was a total of 35,900 training places for technical skills upgrading and programmes on innovation, safety, customer-focused and sustainability. Since 2004, Keppel has sponsored 231 employees from all levels, as part of our Employee Development Scheme (EDS). In 2009, 27 outstanding employees were sponsored under the EDS to pursue further education. Across the Group, customised learning and development plans are set out for employees to develop and reﬁ ne skills and competencies essential to good performance. Employees are guided by offerings of training programmes for core and functional skills development at different stages of their careers. was given to defray the costs of hiring and training workers, including on-the-job training. Keppel O&M Management Trainee Scheme achieved accreditation by the IMarEST by meeting the Initial Professional Development (IPD) requirements for registration as an Incorporated Engineer (IEng – for Diploma and Bachelor degree holders) and Chartered Engineer (CEng – for Master degree holders). Adopting Government Initiatives The Skills Programme for Upgrading and Resilence (SPUR) is an enhanced funding scheme by the Singapore Government to help companies and workers during the recent economic downturn and to build strong capabilities for the recovery. To introduce the scheme to the business units across the Group, Group HR launched several in-house Keppel-SPUR courses. A total of seven courses were organised with a total of 131 participants. The Workforce Development Agency launched SPUR-JOBS in May 2009 to encourage companies to recruit and retrain local workers. Funding Promoting Work-Life Balance Riding on its commitment to a culture in which all employees strike a balance between work and play, a string of activities were lined up to promote work-life harmony amongst employees. Since its inception in 1975, Keppel Recreation Club (KRC) has been integral to Keppel’s emphasis on a healthy lifestyle for its employees. Its yearly events foster camaraderie among fellow Keppelites, promote family get- togetherness and are also extended to reach out to the community. Keppel Group supported the nationwide annual Eat With Your Family Day organised by the Centre for Fathering. Early release was granted to employees on 29 May 2009 to encourage employees to spend quality family time and have a meal with their loved ones. In an effort to strengthen family ties, Keppel Telecommunications & Transportation and Keppel O&M organised the Little Keppelites at Work (Kids Safety First) programme, for young children to learn about 128 Keppel Corporation Limited Report to Shareholders 2009 HOUSING FOR WORKERS HOME AWAY FROM HOME 1, 2 1, 2 By housing more than 8,000 workers in its three lodges, Keppel Offshore & Marine continues to place emphasis on the welfare of its foreign employees. With over 8,000 foreign workers under its employ in Singapore, Keppel O&M places emphasis on the welfare of these workers and ensures that they are well assimilated into the multi- national workforce. Being away from home, it’s important for the workers to have a proper place to rest after a long day at work. For this reason, Keppel O&M has developed well-equipped dormitories for these workers. Today, the workers are housed in three lodges – Acacia Lodge in Bukit Batok, Juniper Lodge in Mandai and Lantana Lodge in Tuas. The Juniper Lodge and Lantana Lodge were completed in 2009. Residents at the Lodges are provided many amenities within the compounds, such as convenience stores, banking and IT facilities, while the bigger Lodges also include a gymnasium and a canteen. Various recreational activities are organised regularly for the residents to promote team bonding. This is important in helping the workers to be acclimatised to community living which can contribute to positive mindsets at work. Mr Steven Lee, General Manager of Keppel Housing, which developed the Lodges, said, “We are one of the ﬁ rst companies in Singapore to provide dormitories for foreign workers. It is our vision to be a caring host-employer to our foreign employees. We believe workers who live well, work well.” Sustainability Report Empowering Lives – People Development 129 EmpoweringLives People Development Led by senior management, Keppelites ﬂ exed and stretched at Keppel FELS ACTIVE Day 2009. workplace safety and gain a better understanding of their parents’ work and work environment. Creating a Healthy Workforce In line with the emphasis on a healthy workforce and employee well-being, Keppel stepped up its efforts in promoting health awareness and an active lifestyle. Numerous sports and outdoor team- bonding activities are organised to offer Keppelites the chance to de-stress after working hours. Promoting friendly competition and sporting activities, employees are encouraged to participate in various events including the annual Keppel Games. 19 December 2009 marked Keppel FELS’s annual A.C.T.I.V.E. (All Companies Together in Various Exercises) Day, which aims to promote better physical and mental wellness, higher morale and greater team spirit. All employees participated in the 40 minutes of kickboxing and boot camp exercises. Talks are organised by the business units to increase greater awareness and understanding of a wide range of health issues that are close to employees’ hearts. Fresh fruits are distributed to employees regularly and bazaars are held at ofﬁ ce premises to provide employees with better access to healthy food products. Keppel FELS embarked on the Good Food Programme from May to July 2009 and a nutritionist was engaged to educate canteen operators on healthier cooking methods and to serve food following guidelines from the Health Promotion Board. Long Service Awards A total of 521 Keppelites from across the Group received their Long Service Awards in 2009, of which 193 have served more than 35 year with the Group. Industrial Relations The Keppel FELS Employees’ Agreement was renewed for three years with improvements to employees’ hospitalisation beneﬁ ts, starting from 1 July 2009. Keppel Logistics renewed its Collective Agreement (CA) for three years effective 1 January 2010 with Singapore Industrial & Services Employees Union. To instil joint ownership on health management, medical co-payment will be introduced. Keppel Merlimau Cogen also concluded its ﬁ rst CA negotiation with the Union of Power & Gas Employees (UPAGE). Keppel Employees’ Union (KEU) held its 41st Annual Delegates Conference on 18 August 2009. The event was attended by employees from Keppel Shipyard, Keppel Singmarine and KIE. Keppel O&M played host to union delegates from Brazil and NTUC, followed by yard tours. Two of Keppel O&M’s Brazilian union delegates, President Mr Paulo Ignacio Furtuozo and Vice President Mr Aguilar Ribeiro Da Silva, were on a ﬁ ve-day visit to Singapore from 3 December 2009. Led by Madam Halimah Yacob, Secretary General of NTUC, 10 Industrial Relations Ofﬁ cials visited Keppel FELS yard on 9 December 2009. Under the Keppel FELS Co-operative Bursary & Education Grant, Keppel O&M awarded 77 Bursary Awards and 27 Education Grants in 2009. It also contributed towards Keppel FELS Union Bursary Awards for 123 children and 26 employees on part-time studies, and another 10 Bursary Awards under the KEU Bursary Awards. Along the same vein, Keppel Credit Union presented 33 Book Awards to 173 children of members. 130 Keppel Corporation Limited Report to Shareholders 2009 CORE VALUES STRENGTHENING OUR CORE With 36,000 employees in more than 30 countries around the world, the Keppel Group leverages its international network, resources and talents to grow its key businesses. A major challenge is aligning our global operations to produce the same high quality and standards of timely, within budget and incident-free deliveries, associated with the Keppel brand. To achieve consistent excellence, we have to communicate and motivate our people to embrace a common set of core values to form the foundation on which we perform work and conduct ourselves. Aligning and Communicating Our Core Values A signiﬁ cant milestone in 2009 was the articulation of the Group Core Values. As we move into a new decade, this was timely, providing a common goal and language for all as we strive to achieve strong results. To home in on the message, the Keppel Group Core Values, graphically represented by a series of icons, were unveiled at the launch event on 6 October 2009. Centred on the theme of “hands”, a video presentation was screened to convey that Keppelites are putting all hands to the plough, working in unity and teamwork. Hands are internationally recognised as symbols of harmony, productivity, Passion “Can Do” Attitude and Excellence Integrity Ethics, Honesty and Responsibility Customer Focus Value-added Solutions, On-time and Within Budget People-Centredness Value and Nurture People Safety Uphold High Safety Standards Agility & Innovativeness Adapt to Change and Innovate for Growth Collective Strength Global Mindset and Achieve Shared Goals Accountability Optimise Resources and Being Responsible to Stakeholders unity and strength. As icons, they can be accurately interpreted, understood and internalised by Keppelites worldwide. Core values communications are incorporated into orientations, workshops and team-building exercises. To further internalise these core values, company HR policies and processes were reviewed, including the incorporation of alignment measurement into the Performance Management System. These initiatives have led to a greater understanding and alignment of the core values in our global workforce, heightening their sense of ownership and belonging in the Group and building esprit de corps. More importantly, the alignment of our core values amongst employees is a key component in the Group’s succession planning, forming the basis of our evaluation and selection of candidates for performance management, reward and recognition as well as further leadership development. Sustainability Report Empowering Lives – People Development 131 EmpoweringLives Safety and Health MAKING SAFETY OUR BUSINESS Our goal is to ensure that everyone goes home safely each day. 2009 was another fruitful year in our safety journey. 132 Keppel Corporation Limited Report to Shareholders 2009 “I adopt “Stop. Look. Think. Act.” safety initiatives in every aspect of my daily work in the plant as I want to be at my son’s university graduation ceremony when he grows up.” U Win Aung, Technical Ofﬁ cer, Keppel Seghers Tuas Waste-to-Energy Plant At Keppel, we aim to create a zero- incident workplace for everyone and to ensure the well-being of our employees. This is achieved through a strong and cohesive safety and health culture, where employees, customers and subcontractors work together to share their knowledge and look out for one another’s safety. At the heart of our safety effort is the adoption of safety as a way of life. The proliferation of this safety culture is a key focus of senior management across the Keppel Group. Leading by example, the Board Safety Committee made a number of site visits to the different business units to better understand the operating environment and recommend safety measures. Safety as Our Core Value In 2009, we fortiﬁ ed our safety infrastructure and enhanced our safety initiatives to empower our workforce in promoting safety. ‘Safety’ was ofﬁ cially adopted as one of eight core values of the Keppel Group articulated by our top management and forms part of each business unit’s Key Performance Indicator. Keppel’s Board Safety Committee was the ﬁ rst by a listed company in Singapore to be established at the board level in 2006. Across the Group, ﬁ ve key safety principles were introduced in 2007 to align our safety initiatives across the different business units. 1, 2 1 Beyond equipping individuals with knowledge, Keppel wants to drive home the importance of accountability to one another and empower employees with the skills to create a secure work environment for everyone. 2 Reaching towards new safety heights are participants at the inaugural Elita Garden Vista safety event in Bangalore, India. Sustainability Report Empowering Lives – Safety and Health 133 EmpoweringLives Safety and Health Cumulative Accident Frequency Rate – Keppel Group (Singapore) (per million man-hours) 3.0 2.0 1.0 0.0 2006 2007 2008 2009 0.38 0.51 0.29 0.29 2.78 0.31 0.40 2.60 0.38 0.38 2.27 0.35 0.42 2.09 0.32 0.54 2.00 0.35 0.53 1.83 0.35 0.53 1.80 0.39 0.48 1.65 0.40 0.45 1.57 0.40 0.43 1.47 0.41 0.41 0.36 0.38 0.33 0.40 0.36 0.36 0.31 0.30 0.30 0.30 0.29 0.28 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Cumulative Accident Frequency Rate – Keppel Group (Overseas) (per million man-hours) 4.0 3.0 2.0 1.0 0.0 2006 2007 2008 2009 0.79 0.14 3.60 0.49 3.14 0.94 0.59 2.79 0.83 0.72 2.39 0.84 0.74 2.23 0.82 0.78 2.23 0.76 0.68 2.05 0.74 0.68 1.88 0.72 0.68 1.71 0.70 0.67 1.60 0.67 0.60 1.51 0.64 0.63 0.43 0.40 0.46 0.40 0.57 0.54 0.65 0.61 0.68 0.70 0.67 0.72 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 134 Keppel Corporation Limited Report to Shareholders 2009 “We often forget our responsibilities to our families and loved ones, especially when we are too engrossed in our daily work. So, we have integrated a photo of our loved ones with our identiﬁ cation/ security badge and added the slogan “This is Why I Work Safe” on it to constantly remind ourselves at work that they will be waiting for us to go home safely.” Ranjit Singh, Technical Manager, Keppel Merlimau Cogen Keppel’s Board Safety Committee holds its meetings at the various business units to better understand the facilities, operations, as well as share safety practices. Sustainability Report Empowering Lives – Safety and Health An Inter-Business Unit Safety Committee helmed by management representatives convenes regularly to plan, implement and review safety initiatives, share experiences and lessons learnt, as well as address critical safety issues. The Group invested a total of $40.5 million in 2009 to improve safety infrastructure and promote safety culture through training and development. This is an increase over the Group’s expenditure of $38.9 million in 2008. The results of our efforts have been encouraging. We improved our safety statistics, achieving an Accident Frequency Rate (AFR) of 0.43 reportable cases for every million man-hours worked in 2009, compared to 0.49 in the year before. Our Accident Severity Rate (ASR) was reduced to 92 man-days lost per million man-hours worked from 143 man-days lost in 2008. Both AFR and ASR are well below the national average of 2008. Collective and Co-ordinated Efforts Integrating the directions and initiatives systematically at Group level ensures that all safety efforts are maximised in achieving our goal. Importantly, the Group’s safety initiatives are developed to complement the nature of work at our business units. Apart from a co-ordinated Group-wide effort, we ensure that we adopt and are aligned with international and industry best practices. Towards this end, we work closely with the Ministry of Manpower (MOM), its Workplace Safety and Health (WSH) Council and other industry bodies in Singapore. One of WSH Council’s initiatives is the bizSAFE programme, which was developed to assist smaller companies build up their WSH capabilities. In 2009, our group of companies pledged their commitment as bizSAFE partners to help our contractors achieve bizSAFE Level 3 standards by 2012. Even as we improve our safety record, the Group suffered three fatalities in 2009. We deeply regret the loss of these lives. In 2008, we had nine fatalities. The lessons from these fatalities were shared across the business units. The bizSAFE partners in the Group comprising Keppel FELS, Keppel Shipyard, Keppel Singmarine, Keppel Land, Keppel Seghers Engineering, Keppel Sea Scan, Keppel FMO and Keppel Merlimau Cogen, encourage 135 EmpoweringLives Safety and Health Cumulative Accident Severity Rate – Keppel Group (Singapore) (per million man-hours) 600 400 200 0 2006 2007 2008 2009 554.74 420.69 326.74 270.07 235.17 204.22 258.43 238.40 211.60 192.80 6.48 4.78 4.87 6.08 117.46 98.67 84.87 78.47 189.07 170.53 155.38 142.59 11.64 7.25 168.79 126.96 103.16 89.49 79.13 129.59 114.55 103.81 95.19 125.21 450.00 238.27 159.78 123.32 106.46 84.04 73.49 65.98 112.66 101.01 92.14 84.99 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Cumulative Accident Severity Rate – Keppel Group (Overseas) (per million man-hours) 600 400 200 0.0 2006 2007 2008 2009 587.24 448.14 349.53 512.97 435.12 543.97 470.92 417.49 370.65 337.49 42.87 161.85 35.69 248.96 206.08 178.27 157.01 259.83 321.39 294.63 271.07 255.33 31.54 29.74 31.90 36.00 200.40 178.28 144.44 144.13 220.43 202.86 184.14 175.21 11.97 23.25 21.57 30.05 30.63 31.06 158.69 144.37 132.66 121.05 110.36 106.16 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 136 Keppel Corporation Limited Report to Shareholders 2009 “To promote safety as part of our daily lives, we had the Little Keppelites at Work day. Our children were invited to come to the warehouse to witness how their parents perform their tasks safely at work. It not only helped to engage the family, it also brought home the safety message.” Mohamad Hanaﬁ Khan, Senior Warehouse Supervisor, Keppel Logistics To test the preparedness for emergency situations at Keppel’s yards, mock exercises are carried out in collaboration with the Singapore Civil Defence Force and the Singapore Police Force. Sustainability Report Empowering Lives – Safety and Health contractors’ participation in safety initiatives as well as provide stewardship and support to them in meeting the safety standards set by the WSH Council. To facilitate the contractors in their bizSAFE achievement, Keppel FELS, supported by a bizSAFE-accredited safety consultant, conducted workshops for their subcontractors. At Keppel Singmarine, a course was organised for their resident contractors to strive for bizSAFE Level 4. Beyond its own company employees, Keppel Offshore & Marine (Keppel O&M) is also dedicated to the national and industry efforts in promoting workplace safety. The company contributed $100,000 towards the National Workplace Safety & Health campaign in 2009, where 11 workers and supervisors from Keppel O&M received certiﬁ cates for successfully completing the Professionals Conversion Programme for WSH Ofﬁ cers. The company also signed the ‘Pledge for Zero’ charter on 25 November 2009 at the Marine Industries CEO Summit, which called for appropriate governance structures, resource allocation, communication and safety strategies to be put in place. In the marine industry, Keppel Shipyard was the ﬁ rst company to host members from the Association of Singapore Marine Industries (ASMI) in a self- regulatory programme, known as the Marine Industry Safety Engagement Team (MIndSET). MIndSET aims to improve the safety performance of the industry by sharing safety practices and recommend areas for improvement through inter-shipyard visits. Working closely with its customers, Keppel Shipyard’s Safety Steering Committee includes ExxonMobil, Single Buoy Moorings, Shell, Prosafe Production, BW Offshore, Woodside, Statoil, Maersk, BP and Frontier Drilling. The committee regularly reviews and deliberates on safety initiatives in the yard. A Safety Champion team made up of representatives from customers with projects at Keppel Shipyard was also set up to implement the directives from the Safety Steering Committee. Fortifying a Safety Culture Beyond the rigorous safety processes and systems, Keppel is focused on fostering positive behavioural changes and a sense of ownership for safety among our multi-national and multi- cultural workforce. 137 EmpoweringLives Safety and Health “Through the ‘Together We Care’ initiative, we drive home the importance of looking out for one another. I cannot emphasise enough that by looking out for each other and sharing safety knowledge, we will help to enhance overall safety welfare.” Mr Choo Chiau Beng, CEO of Keppel Corporation In an effort to drive home the message of safety as a collective responsibility, a Group-wide campaign with the key message “Safety Starts with Me, Together We Care” was launched on 2 June 2009. This campaign, a continuation of the “Safety Starts with Me” campaign introduced in 2008, emphasises the importance of accountability in safety to one another and empowers our workforce to remove at-risk behaviour and conditions through active observation and intervention. As part of the campaign, the Group held its third annual safety convention on 5 November 2009, which brought together employees, clients, contractors as well as MOM ofﬁ cials to share on safety. Organised by the Inter-Business Units Safety Committee, the convention also recognised innovations by teams across the Group that signiﬁ cantly helped to improve safety. Nineteen teams from various business units emerged winners for their safety innovations. Keppel Integrated Engineering (KIE) was awarded the Chairman Challenge Trophy for its safety performance, innovation and initiatives in the past year. Reaching Out to All With a workforce of more than 30,000 worldwide, the Keppel Group understands the importance of communicating and reaching out effectively to all stakeholders to achieve sustainable results. During the year, various safety campaigns were organised to educate and inculcate safety best practices among employees across the Group. of their ﬁ ngers and hands to better understand the risks. Under the Safety Leadership Programme, Keppel FELS trained an additional 250 supervisors in 2009. It also launched a new incentive scheme to reward the best leader in each project for their proactive and outstanding contributions to safety. Keppel Shipyard continued to focus on its Safety Excellence 2010 initiative, ﬁ rst started in 2008. Through this initiative, some 5,000 direct and contract supervisors have undergone its Safety Leadership Training, while another 19,000 direct employees and contractors have attended the Safety Promoter Training. As part of Keppel Shipyard’s action plan to enhance safety leadership, programmes such as weekly ‘Safety Moments’ and ‘Safety Timeouts’ were introduced. During ‘Safety Moments’, project and section managers discuss issues and ways to mitigate high impact risk activities on their projects. ‘Safety Timeouts’ are weekly brieﬁ ngs to workers on speciﬁ c topics such as working at heights and in conﬁ ned spaces. Since 2006, Keppel Shipyard’s Workforce Safety Council, comprising workers and contractors, have proven very effective in reducing incidents, through encouraging active involvement from workers. As a result, workers are more willing to submit workplace hazard reports to help identify and eliminate potential risks, as well as recognise exemplary workers in safety. At Keppel FELS, its annual Health, Safety and Environment (HSE) Excellence promotion campaign in April 2009 was targeted at reducing ﬁ nger and hand injury. During the campaign, workers participated in interactive exhibits involving the use To provide a more conducive learning environment, Keppel Shipyard developed an integrated safety training centre for its 14,000 strong workforce and subcontractors. The centre, which has been completed, employs the latest equipment, simulations and 138 Keppel Corporation Limited Report to Shareholders 2009 “I’m very happy to be included in Keppel’s safety training programme even though I’m a subcontractor. As I have to work in the same environment, it’s good that I also know how to keep my co-workers and myself safe.” Subramanian Sivakumar, Job Leader, Alpine Services Engineering Services methodologies in training its workforce and raising their safety competencies. Over at Keppel Singmarine, the company is focusing their training efforts on high risk areas. It conducted a “Safety while working at heights” engagement campaign for its entire workforce in January 2010, and introduced a system to monitor workers who carry out jobs in conﬁ ned spaces. At Keppel Land, signiﬁ cant efforts were put into strengthening the safety culture among its contractors. Apart from a number of safety campaigns held across its project sites in Singapore and overseas, surprise visits were made by its safety teams to work sites to ensure safety compliance from its contractors. To remind its workers and contractors to plan their tasks to minimise risks, Keppel Land introduced the ‘Take 3’ safety campaign with the slogan “Stop, Think and Plan”. Taking just a few minutes to think through the risks of a task, work order or job assignment can make a big difference between a safe and successful outcome and an accident. Keppel Land also held a number of Hazard Identiﬁ cation and Risk Assessment training sessions to 139 Inculcating the safety mindset at the ground level involves personal responsibility, teamwork and camaraderie. Sustainability Report Empowering Lives – Safety and Health EmpoweringLives Safety and Health Marina at Keppel Bay staff and tenants underwent a one-day training Community Emergency Preparedness Programme conducted by the Singapore Civil Defence Force. educate employees on managing safety and health risks at the workplace. In a similar vein, KIE launched its “Stop. Look. Think. Act.” safety campaign designed to imbue in workers the habit of considering safety before every task. At Keppel Energy, safety activities at their Keppel Merlimau Co-generation Plant (KMC) included training of the Emergency Response Team and having joint exercises with the Singapore Civil Defence Force. Fire drills and chemical leak response drills were conducted to test the company’s emergency plans and preparedness. KIE’s safety efforts were reinforced at their ﬁ rst Environment, Health and Safety (EHS) seminar conducted on 26 February 2009 where they shared their safety performance and lessons learnt from 2008. This was followed by a second EHS seminar on 31 July 2009 and an EHS convention on 22 January 2010 which reiterated their “Stop. Look. Think. Act.” initiative. An internet portal to facilitate safety sharing was also introduced. On 27 January 2010, Keppel Energy held their second Annual HSE Day at KMC to celebrate the achievement of more than one million man-hours worked without lost-time incidents (LTI) since October 2008, and also to launch their safety campaign – “This Is Why I Work Safe”. Family photos were attached on the reverse side of their identiﬁ cation/security cards, to remind employees that their loved ones are waiting for them to return home safely. 140 Keppel Corporation Limited Report to Shareholders 2009 “We continue to be proactive in strengthening and raising safety standards wherever we operate. To effectively instil safety consciousness, we believe in inculcating a safety mindset in all employees and stakeholders, including our consultants, suppliers and contractors.” Adris Isnin, Senior Project Manager, Keppel Land To celebrate the one millionth and four millionth man-hours achieved without LTI on a conversion project, BW Pioneer, Keppel Shipyard, and the contractors donated some $9,000 to charity. In Bangalore, India, Keppel Land’s Elita Promenade residential development celebrated National Safety Day and the achievement of eight million man-hours without LTI on 4 March 2009. Exemplary workers were recognised with safety awards. Striving for Safety Excellence Leveraging the Group’s resources and diverse operational expertise, Keppel has what it takes to achieve safety excellence. Since aligning safety at the Group level, there has been a signiﬁ cant increase in the level of awareness, acceptance and concrete results. To sustain this momentum across the Group, communication efforts are being stepped up so that Keppelites are kept abreast of initiatives, best practices and lessons learnt. Looking ahead, Mr Abu Bakar, Secretary to Keppel Corporation’s Board Safety Committee and Chairman of Inter-Business Units Safety Committee, said, “Much effort has been put to integrate and align safety across the business units. We need to continue on this path and ﬁ nd ways to maintain and further reinforce our efforts. Through continuous engagement with the multi-national and multi-cultural workforce and partnership with various stakeholders, safety can become a way of life at our workplaces.” To instil greater safety awareness of their environment, Keppel Logistics in Singapore incorporated behavioural- based safety training in their Quality and Service Excellence training. It also introduced a quarterly safety focus which encouraged employees to turn off unused electrical appliances. In Malaysia, the company’s safety handbook was translated into Tamil and training was conducted in Tamil for their contract workers from India. Our Efforts Recognised Our collective efforts were recognised at the 2009 MOM WSH Awards, where we garnered a record of 18 safety awards. In a special category for exemplary safety behaviour, supervisors Paul Raj from Keppel Shipyard and Aminul Islam from Keppel Singmarine were highlighted as role models. Keppel O&M was bestowed 14 safety awards, while Keppel Singmarine won the Silver Award for Workplace Safety & Health Performance for the third year in a row. Keppel FMO, a subsidiary of KIE, won the Outstanding Achievement & Innovation Award for a creative employee-driven project to improve the safety and efﬁ ciency of replacing the tyres of passenger loading bridges at Changi Airport. At the 12th Convention for WSH Innovations in the marine industry organised by ASMI, Keppel Singmarine received the Silver and Bronze awards for their innovations, the Safe Ship Launcher and Safe Structure Fabricator respectively. In China, after conducting numerous site visits and HSE audits, the Nantong Administration of Work Safety (NAWS) awarded Keppel Nantong the Safety Excellence Award for achieving the highest HSE standards set by NAWS. Sustainability Report Empowering Lives – Safety and Health 141 NurturingCommunities Industry Engagement BUILDING BRAND EQUITY THROUGH LEADERSHIP Keppel builds its strong brand equity through supporting initiatives that promote development of our industries and showcase our strengths and Singapore to the world. 142 Keppel Corporation Limited Report to Shareholders 2009 Encouraging Sustainable Water Solutions Through the support of the Singapore International Water Week (SIWW), Keppel demonstrates its commitment to seek sustainable solutions to mitigate the shortage of water faced by the growing global population. The SIWW is a joint initiative by Singapore’s Ministry of the Environment and Water Resources, and PUB, Singapore’s national water agency. As a leading conglomerate with deep roots in Singapore, Keppel plays an active role in promoting the country and contributing to various national strategies and initiatives. Through our involvement in various knowledge building platforms and international conventions, we also help to engage our chosen industries and catalyse the exchange of ideas as well as potential collaborations. Supporting Public Policy Research and Discourse Keppel Corporation continued its longstanding sponsorship of the Singapore Perspectives series in 2009. Held in January, this ﬂ agship conference of Singapore’s Institute of Policy Studies aims to engage Singaporeans in a lively debate on public policy challenges facing the country. Keppel Corporation is a founding sponsor of the Singapore International Water Week (SIWW), a Singapore government initiative to create a premier global platform for water solutions that brings policymakers, industry leaders, experts and practitioners to address challenges, showcase technologies, discover opportunities and celebrate achievements. At the SIWW 2009 held from 22 to 26 June, Keppel Integrated Engineering (KIE) showcased its track record for water capabilities in Singapore and Qatar. Reinforcing the importance of building strong links and partnerships across borders, Keppel Corporation was a lead sponsor of Global Entrepolis @ Singapore (GES). Running for the sixth year, the event took place from 11 to 12 November 2009. GES brings together businesses from different sectors and regions on a single platform, sparking off a vibrant exchange of ideas. Keppel Offshore & Marine (Keppel O&M) made a strong presence at the Singapore Maritime Week as an anchor conference exhibitor in Sea Asia 2009, which seeks to project Asian perspectives in world shipping. As a founding supporter of this exhibition since 2007, Keppel O&M hosted the networking reception and presided over a roundtable session. To support the growing ties between Asia and Latin America, Keppel O&M was a Platinum Sponsor of the sixth Latin Asia Business Forum held in Singapore. Promoting Industry Development Through the Keppel Professorship at the National University of Singapore (NUS), Keppel O&M has been aiding the initiation of research projects, as well as product and technology development in its industry for the past eight years. A public lecture is also conducted annually by an eminent academic appointed to the Chair of the Keppel Professorship. As a founding member of the Centre for Offshore, Research and Engineering (CORE) in NUS, Keppel O&M continues to facilitate joint participation in R&D by the industry, institutions and government agencies. To provide a constructive platform for industry networking and the sharing of insights, Keppel O&M supported the annual Chua Chor Teck Memorial Lecture organised by the Society of Naval Architects & Marine Engineers Singapore. In 2009, Professor Choo Yoo Sang, Director (Research) of CORE, NUS, spoke on ‘Offshore Engineering Research and Education’ at the 23rd Lecture. To encourage more youths to join the offshore and marine industry, Keppel O&M partnered Singapore’s Institute of Technical Education (ITE) to set up the ITE-Keppel O&M Technology Centre, which was ofﬁ cially opened in 2009. Keppel O&M will offer 10 Sustainability Report Nurturing Communities – Industry Engagement 143 NurturingCommunities Industry Engagement HRH Willem-Alexander, The Prince of Orange from the Netherlands (left), getting an insight into Keppel Seghers’ capabilities from Roland Carrette, Head of Proposal from Keppel Seghers (Belgium) at SIWW 2009. scholarships annually over the next ﬁ ve years, as well as provide the equipment and technical support to create an authentic hands-on learning environment at this Centre. KIE was one of the founding sponsors of the inaugural World Bank-Singapore Infrastructure Finance Summit held from 11 to 12 November 2009. The event brought together policy-makers, thought leaders, experts from the public and private sectors in an exchange of views on infrastructure ﬁ nancing and challenges. Keppel Land continues to support initiatives that promote a sustainable built environment and eco-best practices. It is a founding member and sponsor of the new Singapore Green Building Council, established to increase the collaboration between private and public sectors to direct the building and construction industries towards environmental sustainability. Keppel Land also sponsored the inaugural International Green Building Conference (IGBC), the anchor event of the Singapore Green Building Week organised by the Building and Construction Authority of Singapore from 28 to 30 October 2009. IGBC 2009 focused on green building technologies and designs. Showcasing Singapore Keppel Corporation helmed the Singapore representation at the ASEAN Council of Petroleum (ASCOPE) meetings in Thailand in November 2009 and shared Singapore’s perspectives on sustainable development issues in energy and solutions to environmental challenges. Established in 1977, ASCOPE is held once every four years to facilitate robust exchanges on major issues facing the petroleum industry in ASEAN. Keppel O&M sponsored the third International Conference on Technology & Operation of Offshore Support Vessels, a platform for ship designers, builders and operators to discuss clean energy and marine environmental solutions. Showcasing Singapore’s capabilities on the international arena, we returned to the Offshore Technology Conference (OTC) in Houston for the 23rd year. In spite of the H1N1 outbreak, the premier oil and gas show drew some 68,000 visitors with 2,500 exhibitors from 38 countries. 144 Keppel Corporation Limited Report to Shareholders 2009 SUSTAINABLE CITY KEPPEL SPONSORS LEE KUAN YEW WORLD CITY PRIZE $1.75m Keppel Corporation is sponsoring the gold medallion and cash prize of $300,000 for ﬁ ve cycles of the prestigious biennial award. vibrant, liveable and sustainable urban communities worldwide. Most recently, Keppel’s leadership in the Sino-Singapore Tianjin Eco-City, which aims to be a model of sustainable development in China, continues to demonstrate its commitment to excellence globally moving into the future. It is in this spirit that Keppel supports the goals and aspirations of the Prize. The Lee Kuan Yew World City Prize Laureate will be presented with an award certiﬁ cate, a gold medallion, and a cash prize of $300,000 sponsored by Keppel Corporation. Members of the Prize Council and Nominating Committee are prominent local and international thought leaders, practitioners, academics and relevant experts from the private and public sectors. The inaugural Lee Kuan Yew World City Prize will be awarded in June 2010 at the Lee Kuan Yew Awards Ceremony and Banquet, to be held during the World Cities Summit 2010 in Singapore. Launched during SIWW in 2009, the Lee Kuan Yew World City Prize focuses on four pillars instrumental to the success of every city – liveability, vibrancy, sustainability and quality of life. Co-organised by Singapore’s Urban Redevelopment Authority and the Centre for Liveable Cities, the biennial international award seeks to recognise the achievements of outstanding individuals and organisations who have contributed urban initiatives, policies or projects which epitomise foresight, good governance or innovation in overcoming the challenges faced by cities. With many cities facing the challenges of rapid urban growth, lack of housing and infrastructure, and increasing trafﬁ c congestion, the Lee Kuan Yew World City Prize is envisaged to serve as a catalyst to facilitate the sharing of best practices in urban solutions worldwide and spur further innovation in sustainable urban development in pursuit of city excellence. Through its operations in Singapore and abroad, and particularly, with its businesses in environmental engineering and developing quality homes, Keppel has participated in the creation of Sustainability Report Nurturing Communities – Industry Engagement 145 NurturingCommunities Green Endeavours EMBRACING AN ECO-CULTURE The greening of our behaviour at home, work and play is crucial to the sustainability of our environment and the optimal use of limited resources. 146 Keppel Corporation Limited Report to Shareholders 2009 Volunteers from Keppel Batangas Shipyard and their sub-contractors joined hands with the local community to clear up litter and debris along Batangas Bay. Keppel is committed to pursue green endeavours to encourage our employees and the public to embrace a green lifestyle. Green Dates Keppel Land initiated a paper-recycling programme in its ofﬁ ce buildings in Singapore in conjunction with Earth Day in April 2009. Ofﬁ ces were given cardboard cartons for weekly collection. The eco-roadshows also provided insights on the 3Rs of reusing, reducing and recycling. On World Environment Day on 5 June 2009, Keppel Land sponsored the global premiere of the documentary ﬁ lm HOME, directed by renowned French photographer and environmentalist Yann Arthus-Bertrand. The company also organised events to drive eco- awareness, including the Earthopoly Challenge – a green twist to the classic board game Monopoly, using carbon credits, clean air and recycling to increase property values. Environmental Education and Outreach Keppel Group is the Gold Sponsor for Asia Dive Expo 2009, an annual event educating the public on the marine environment. Included as part of the Expo was a showcase of Keppel’s efforts with the National University of Singapore, National Parks Board and National Environment Agency in restoring corals along the coast line of Pulau Semakau. Keppel’s volunteer divers involved in the initial phase of the coral nursery project were on hand to help increase awareness of the importance of coral reefs to marine creatures. Keppel Volunteers also brought students from Tanglin School and the Centre for Adults to the Expo. Keppel Group sponsored Amazônia in Singapore, a special exhibition organised by the Embassy of Brazil on 21 November 2009, that showcased the uniqueness and diversity of species in the Amazon. The interactive exhibition showed how sustainable alternatives existed in the region to harmonise development and conservation. Keppel Volunteers also led a group of APSN students to visit the exhibition, which proved to be a good learning session on nature’s miracles. Keppel Land organised a nature walk along Singapore’s Southern Ridges for its staff and their families to give employees an opportunity to learn about Singapore’s rich ecological system. Keppel FELS Brasil’s BrasFELS yard started a Zero Waste campaign to encourage employees to conserve water, power, materials and gases used in welding. BrasFELS is also carrying out an extensive environmental dredging project with local authorities to help clear up pollution at Angra’s main beach. Efforts are in place to sustain and calibrate the growth of the marine life at Marina at Keppel Bay. Scores of sea creatures from the popular clown ﬁ sh to clams have made Keppel Bay their home (see opposite page). The coral community is thriving due to the clean waters at Marina at Keppel Bay, the ﬁ rst and only marina in Asia to be awarded the ‘Clean Marina’ status by the Marina Industries Association of Australia in 2008. This certiﬁ cation means that the marina has proper procedures in place that ensure its readiness in tackling marine hazards which could potentially impact the environment. Sustainability Report Nurturing Communities – Green Endeavours 147 NurturingCommunities Community Relations MAKING A DIFFERENCE WHEREVER WE ARE Wherever we operate, we are committed to seeking ways to contribute meaningfully to the well-being and welfare of the communities. 148 Keppel Corporation Limited Report to Shareholders 2009 $600,000 Raised by the Keppel Group towards disaster recovery aid efforts for Indonesia, Vietnam and the Philippines in 2009. As a global citizen, Keppel believes that as communities thrive, we thrive. This is why we nurture the communities where our businesses are and support them to move towards a sustainable future. Corporate Volunteerism Keppel encourages its employees to become responsible citizens with a genuine concern for the well-being of others. As such, staff volunteerism is a key feature of our community relations programme. Since 2000, Keppel Volunteers has been spearheading regular activities that make meaningful contribution to local communities, social institutions and non-proﬁ t organisations. On a monthly basis, Keppel Volunteers runs activities in collaboration with our adopted charity, the Association for Persons with Special Needs (APSN). The activities in 2009 include a trek across Singapore’s Southern Ridges, visits to the Singapore Science Centre, the Marina Barrage, the Asia Dive Expo, the Amazônia in Singapore Keppel Volunteers and APSN students together in heartfelt celebration at the 2009 National Day Parade preview. Sustainability Report Nurturing Communities – Community Relations 149 NurturingCommunities Community Relations exhibition and other venues of educational beneﬁ t. Our employees have also been actively supporting the blood donation drive organised by the Keppel Scholars Alumni Association. The response exceeded expectations with a total of 415 packets of blood collected, a 53% increase from the 272 packets of blood collected in 2008. Raising Funds for Good Causes In September 2009, three countries where Keppel Group has an active presence – Indonesia, Vietnam and the Philippines – were struck by natural disasters. To help alleviate suffering and rebuild lives, Keppel Group raised about $600,000 towards disaster recovery aid efforts for the three countries, channelled through the Singapore Red Cross Society. The sum was collected through fund-raising initiatives among Keppelites, customers and business associates, as well as through two charity golf tournaments held in Ho Chi Minh City, Vietnam and Bintan Island, Indonesia. In the Philippines, Keppel Philippines Marine also pitched in to help typhoon victims, donating PhP200,000 worth of relief goods. Its volunteers organised the despatch of rice, noodles and biscuits to support centres. The Keppel Filipino Community in Singapore also raised PhP90,500 for sustainable development projects to improve the lives of disaster-afﬂ icted communities. Across Indonesia, staff and tenants at Ria Bintan, Barclays House, BG Junction and homeowners at Jakarta Garden City donated generously both in cash and kind. Since 2007, Keppel Group has been the Platinum Sponsor for the National Environmental Agency (NEA)- Mediacorp Semakau Run. Held on 8 August 2009, the charity run raised $359,000 for six environmental and social charities. Keppel Shipyard celebrated the achievement of one million man-hours without lost-time incident on one of its projects by making a donation to the Children’s Cancer Foundation. More than 2,000 staff members participated in the donation drive which collected more than $4,000. Keppel FELS Brasil raised US$10,000 for the Montreal Rio Project and the Lamb Project in Rio de Janeiro, Brazil through a charity party attended by staff and their families, as well as customers. The Montreal Rio Project focuses on engaging less-privileged youths through sports and equipping them with lifeskills while the Lamb Project is targeted at youths, with the aim of helping them develop skills, discipline and self respect. Keppel O&M raised funds for charities such as the Singapore Children’s Society and the Society for the Physically Disabled, and donated more than 1,000 Can Do! tee-shirts to the Metta Welfare Association. Supporting Education Reaching out to youths by enhancing education standards, Keppel FELS Brasil donated R$40,000 to a literacy programme that trains teachers in Angra dos Reis. The in-house technical school at the BrasFELS yard has been providing free specialised skills training and certiﬁ cation to the Angra community. Through its apprenticeship scheme, the yard has trained and provided employment opportunities in trades such as piping and welding to hundreds of youths in Angra. Since 2006, Keppel Philippines Marine and Subic Shipyard and Engineering have sponsored the college education of outstanding youths who lack the ﬁ nancial means to continue their marine related courses. Two such scholarships were awarded in 2009. 150 Keppel Credit Union (KCU) presented 33 book awards ranging from $200 to $1,000 to the children of its members in 2009. The annual presentation of book awards is an initiative to provide assistance to members and encourage academic excellence. KCU is a credit union for all employees in the Keppel Group, encouraging thrift and ﬁ nancial prudence, sharing ﬁ nancial resources and mutual assistance in times of need, and instilling the sense of being part of the Keppel family. Promoting Sports and Healthy Living The Clipper Round the World Yacht Race is one of the world’s most celebrated amateur sailing races. For the 2009–2010 race, Keppel was the primary sponsor for the Singapore yacht, Uniquely Singapore, and host port sponsor for the Singapore stopover in the race, together with Singapore Tourism Board. A charity walkathon organised by the Keppel Scholars Alumni Association and Keppel Volunteers raised $40,500 for APSN. The walkathon was the ﬁ nale event for the annual Keppel Games, which was held from July to October 2009. This year’s theme of ‘Can Do the Distance’ is a call to Keppelites to continue to embody Keppel’s Can Do! spirit. Keppel O&M is the title sponsor of the SAFRA Keppel O&M Quadthlon. The 2009 event was held on 11 October, and combined a 500-m open sea swim, a 20-km bicycle, a 6-km run and a 12-km inline skate. Special Olympics Singapore grants full funding to intellectually disabled athletes for their sporting pursuits offered through various special schools. Keppel’s adopted charity, APSN, participates in the Games, which is held once every four years. Keppel O&M supported the 2009 Games with a sponsorship of $20,000. Keppel Corporation Limited Report to Shareholders 2009 10 Keppel has been in close partnership with its adopted charity, APSN, for over 10 years. 1, 2 3 1 APSN students learn the importance of environmental conservation at the Singapore Science Centre with Keppel Volunteers. 2 Keppel Verolme’s staff ride electric bicycles to work every day to reduce their carbon footprint and trafﬁ c jams in Rotterdam. 3 Keppel celebrates the adventure-seeking mindset epitomised by the Clipper Round the World Race, and provides opportunities for it to ﬂ ourish through our sponsorship of the Race since 2005. Sustainability Report Nurturing Communities – Community Relations 151 NurturingCommunities Community Relations In line with its belief that the universal language of music promotes international goodwill and friendship, Keppel showcased the Singapore Symphony Orchestra to a Beijing audience in May 2009. Nurturing the Arts Amidst the gloom of the economic downturn in 2009, the Keppel Nights scheme was a welcome relief, giving senior citizens, students and heartlanders the opportunity to enjoy cultural performances at discounted rates. Singapore’s ﬁ rst sustained subsidised ticket purchasing scheme, Keppel Nights was launched in August 2008 to mark the 40th anniversary of Keppel Corporation. 6,045 tickets have been sold under this popular scheme as at end-July 2009. Keppel Corporation continued to support Singapore cultural showcases overseas through its sponsorship of the participation of Singapore Symphony Orchestra in the inaugural May Festival organised by the National Centre for the Performing Arts in Beijing, China. Adding to the festive cheer in Singapore, Keppel Group sponsored Jeremy Monteiro’s A Swinging Jazzy Christmas concert for the third year running during the Christmas holidays. To support the growth of the arts in its local community, Keppel AmFELS pledged US$50,000 to the construction of the Arts Centre at the University of Texas at Brownsville and the Texas Southmost College. The company’s annual golf charity tournament raised US$30,000 of the sum. Keppel AmFELS also supported Charro Day, which celebrates the cultures of the border towns of Brownsville, Texas, and Matamoros, Mexico, by sponsoring the poster designed by a local artist in Brownsville. 152 Keppel Corporation Limited Report to Shareholders 2009 Directors’ Report & Financial Statements Contents 154 Directors’ Report 158 Balance sheets 159 Consolidated Profit and Loss Account 160 Consolidated statement of Comprehensive Income 161 statements of Changes in equity 163 Consolidated statement of Cash Flows 165 notes to the Financial statements 211 significant subsidiaries and Independent Auditors’ Report Interested Person transactions Associated Companies 222 statement by Directors 223 224 225 Directors and Key executives 235 Major Properties 238 Group Five-Year Performance 242 Group Value-Added statements 243 share Performance 244 shareholding statistics 245 notice of Annual General Meeting and Closure of Books 251 Corporate Information 252 Financial Calendar 153 Directors’ Report For the financial year ended 31 December 2009 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 2009. 1. Directors The Directors of the Company in office at the date of this report are: Lee Boon Yang (Chairman) (appointed as Director on 1 May 2009 and as Chairman on 1 July 2009) Lim Hock San (Deputy Chairman) Choo Chiau Beng (Chief Executive Officer) Sven Bang Ullring Tony Chew Leong-Chee Oon Kum Loon (Mrs) Tow Heng Tan Alvin Yeo Khirn Hai (appointed on 1 June 2009) Teo Soon Hoe Tong Chong Heong (appointed on 1 August 2009) 2. Audit Committee The Audit Committee of the Board of Directors comprises four independent Directors. Members of the Committee are: Lim Hock San (Chairman) Tony Chew Leong-Chee Oon Kum Loon (Mrs) Alvin Yeo Khirn Hai 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 LLP 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. 154 Keppel Corporation Limited Report to Shareholders 2009 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 Hock San Choo Chiau Beng Choo Chiau Beng (deemed interest) Sven Bang Ullring Tony Chew Leong-Chee Oon Kum Loon (Mrs) Oon Kum Loon (Mrs) (deemed interest) Tow Heng Tan Tow Heng Tan (deemed interest) Alvin Yeo Khirn Hai (deemed interest) Teo Soon Hoe Tong Chong Heong (Share options) Choo Chiau Beng Teo Soon Hoe Tong Chong Heong Keppel Land Limited (Ordinary shares) Choo Chiau Beng Tony Chew Leong-Chee (deemed interest) Tow Heng Tan (deemed interest) Keppel telecommunications & transportation Ltd (Ordinary shares) Teo Soon Hoe K-ReIt Asia (Units) Lim Hock San Choo Chiau Beng Choo Chiau Beng (deemed interest) Tow Heng Tan (deemed interest) Alvin Yeo Khirn Hai (deemed interest) Keppel structured notes Pte Limited (S$ Commodity Linked Guaranteed Note Series 1 due 2011) Teo Soon Hoe Keppel Philippines Holdings, Inc (“B” shares of one Peso each) Choo Chiau Beng Teo Soon Hoe Directors’ Report 1.1.2009 or date of appointment, if later 4,000 1,631,666 200,000 80,000 4,000 44,000 40,000 4,626 26,172 20,000 3,628,332 1,499,582 Holdings At 31.12.2009 21.1.2010 6,000 1,631,666 200,000 82,000 6,000 46,000 40,000 6,626 26,172 20,000 3,628,332 1,499,582 6,000 2,091,666 200,000 82,000 6,000 46,000 40,000 6,626 26,172 20,000 4,088,332 1,499,582 1,610,000 2,300,000 1,340,000 2,150,000 2,760,000 1,540,000 1,690,000 2,300,000 1,540,000 - - 50 100,000 1,286,100 95 100,000 1,286,100 95 28,000 28,000 28,000 - 780,000 - 10 - 894,000 - 2,635,000 10 250,000 894,000 - 2,635,000 10 250,000 $100,000 $100,000 $100,000 2,000 2,000 2,000 2,000 2,000 2,000 155 Directors’ Report 5. 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 as disclosed in the notes to the financial statements and salaries, bonuses and other benefits in their capacity as directors of the Company which are disclosed in the Corporate Governance Report. 6. 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 17,414,500 Ordinary Shares (“Shares”) were granted during the financial year. There were 1,362,500 Shares issued by virtue of exercise of options and options to take up 1,949,000 Shares were cancelled during the financial year. At the end of the financial year, there were 59,594,000 Shares under option as follows: Date of grant 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 14.02.08 14.08.08 05.02.09 06.08.09 Balance at 1.1.2009 or later date of grant 20,000 10,000 10,000 590,000 780,000 1,291,000 2,563,000 3,589,000 5,968,000 6,629,000 7,616,000 7,701,000 8,724,000 9,079,000 8,335,500 62,905,500 number of share options Exercised (20,000) (10,000) (10,000) (20,000) (20,000) (184,000) (335,000) (394,000) (341,500) - - - - (28,000) - (1,362,500) Cancelled - - - - - - (20,000) (69,000) (219,000) (225,000) (336,000) (350,000) (351,000) (355,000) (24,000) (1,949,000) Balance at 31.12.2009 - - - 570,000 760,000 1,107,000 2,208,000 3,126,000 5,407,500 6,404,000 7,280,000 7,351,000 8,373,000 8,696,000 8,311,500 59,594,000 Exercise price Date of expiry $1.30 $1.32 $2.24 $3.01 $3.24 $4.42 $6.24 $6.39 $7.66 $9.13 $12.95 $9.96 $10.26 $4.04 $8.21 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 13.02.18 13.08.18 04.02.19 05.08.19 The information on Directors of the Company participating in the Scheme is as follows: Aggregate options granted and adjusted since commencement of the Scheme to the end of financial year 5,120,000 5,500,000 3,574,200 Options granted during the financial year 540,000 460,000 380,000 Aggregate options exercised since commencement of the Scheme to the end of financial year 2,396,250 2,166,250 1,624,200 Aggregate options lapsed since commencement of the Scheme to the end of financial year 573,750 573,750 410,000 Aggregate options outstanding as at the end of financial year 2,150,000 2,760,000 1,540,000 Name of Director Choo Chiau Beng Teo Soon Hoe Tong Chong Heong 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. 156 Keppel Corporation Limited Report to Shareholders 2009 7. Share options of subsidiaries The particulars of share options of subsidiaries of the Company are as follows: (a) Keppel Land Limited (“Keppel Land”) At the end of the financial year, there were 59,729,288 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 $5.58 per share and 5,965,848 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. (b) Keppel Telecommunications & Transportation Ltd (“Keppel T&T”) At the end of the financial year, there were 2,806,000 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 LLP, have expressed their willingness to accept re-appointment. On behalf of the Board Choo Chiau Beng Chief Executive Officer Singapore, 1 March 2010 Teo Soon Hoe Group Finance Director Directors’ Report 157 Balance Sheets As at 31 December 2009 share capital Reserves share capital & reserves Minority interests Capital employed Represented by: Fixed assets Investment properties subsidiaries Associated companies 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 4 5 6 7 8 9 10 11 Group 2009 $’000 2008 $’000 Company 2009 $’000 2008 $’000 832,908 5,152,439 5,985,347 2,727,226 824,571 3,771,605 4,596,176 2,152,331 832,908 3,924,918 4,757,826 - - 824,571 2,320,268 3,144,839 8,712,573 6,748,507 4,757,826 3,144,839 2,157,172 3,051,247 - 2,723,169 152,046 547,665 90,118 8,721,417 1,946,662 3,029,675 - 3,201,031 101,024 197,662 78,487 8,554,541 5,430 - - 3,393,466 3,074 - - 584 - - 3,402,554 5,890 2,867,303 3,074 301,018 3,177,285 12 3,178,182 3,318,820 - - 13 13 14 15 16 17 12 18 13 13 19 27 20 - 287,922 1,727,099 456,515 2,935,787 8,585,505 - 326,583 1,970,831 330,817 2,244,851 8,191,902 1,642,528 6,056 103,575 - - 33,507 1,785,666 4,051,972 1,683,392 68,856 3,939,583 2,882,124 58,609 - 168,186 839,117 450,951 1,668 7,264,142 - 422,205 197,868 344,020 27,762 7,872,171 132,302 - - - - 265,546 - - - - 27,169 - - 425,017 260,718 300 59,908 664,441 985,367 219,688 472,848 19,669 712,205 1,321,363 319,731 1,360,649 273,162 19 21 918,410 411,797 1,330,207 1,744,553 381,212 2,125,765 - 5,377 5,377 300,000 5,608 305,608 net assets 8,712,573 6,748,507 4,757,826 3,144,839 See accompanying notes to the financial statements. 158 Keppel Corporation Limited Report to Shareholders 2009 Consolidated Profit and Loss Account For the financial year ended 31 December 2009 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 in specie proposed Total distribution Note 2009 $’000 2008 $’000 22 23 24 25 25 25 8 26 27 26 28 29 12,247,121 (8,808,751) (1,372,405) (174,313) (386,861) 1,504,791 5,101 73,676 (49,675) 321,683 1,855,576 322,130 2,177,706 (347,875) 11,805,426 (8,828,492) (1,329,042) (139,078) (270,340) 1,238,474 12,087 71,002 (78,671) 353,957 1,596,849 12,592 1,609,441 (288,030) 1,829,831 1,321,411 1,264,611 360,506 1,625,117 204,714 1,829,831 1,096,653 1,318 1,097,971 223,440 1,321,411 79.4 cts 79.2 cts 102.0 cts 101.8 cts 15.0 cts 23.0 cts 23.0 cts - 61.0 cts 69.0 cts 68.7 cts 69.0 cts 68.8 cts 14.0 cts 21.0 cts 35.0 cts See accompanying notes to the financial statements. Consolidated Profit and Loss Account 159 Consolidated Statement of Comprehensive Income For the financial year ended 31 December 2009 Profit for the year Available-for-sale assets - Fair value changes arising during the year - Realised & transferred to profit and loss account Cash flow hedges - Fair value changes arising during the year, net of tax - Realised & transferred to profit and loss account Foreign exchange translation - Exchange difference arising during the year - Realised & transferred to profit and loss account Share of other comprehensive income of associated companies other comprehensive income for the year, net of tax total comprehensive income for the year Attributable to: Shareholders of the Company Minority interests Note 2009 $’000 2008 $’000 1,829,831 1,321,411 139,760 66,405 (334,693) (60,843) 21 207,336 247 (322,528) 1,827 (144,436) 23,505 64,767 (4,687) (20,832) 271,985 21,061 (635,096) 2,101,816 686,315 1,943,492 158,324 2,101,816 433,518 252,797 686,315 See accompanying notes to the financial statements. 160 Keppel Corporation Limited Report to Shareholders 2009 Statements of Changes in Equity For the financial year ended 31 December 2009 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 $’000 824,571 127,345 3,643,141 1,119 4,596,176 2,152,331 6,748,507 402,819 - 22,672 1,625,117 (573,562) - (84,444) 1,943,492 (573,562) 22,672 - - 158,324 - 1,142 2,101,816 (573,562) 23,814 (1,572) 1,575 (3) - - - - - (793) - - - - - - - - 8,337 (11,116) 141 - - - - - - (87,136) (87,136) 510,224 510,224 (11,116) (652) 8,337 (3,065) (4,594) - (14,181) (5,246) 8,337 - - - - - - Group 2009 As at 1 January Total comprehensive income for the year Dividend paid Share-based payment Transfer of statutory, capital and other reserves to revenue reserves Dividend paid to minority shareholders Cash subscribed by minority shareholders Acquisition of additional interest in subsidiaries Other adjustments Shares issued As at 31 December 832,908 540,289 4,695,478 (83,328) 5,985,347 2,727,226 8,712,573 2008 As at 1 January Total comprehensive income for the year Dividend paid Share-based payment Transfer of statutory, capital and other reserves to revenue reserves Dividend paid to minority shareholders Cash subscribed by minority shareholders Acquisition of subsidiaries Acquisition of additional interest in subsidiaries Other adjustments Shares issued 790,407 827,571 3,644,164 (57,409) 5,204,733 1,830,459 7,035,192 - - - - - - - - - 34,164 (722,219) 1,097,971 (1,097,743) - - 20,361 57,766 - - 433,518 (1,097,743) 20,361 252,797 - 1,590 686,315 (1,097,743) 21,951 1,632 (2,394) 762 - - - - - - - - - - 1,143 - - - - - - - - - - - - - (103,416) (103,416) 199,559 350 199,559 350 - 1,143 34,164 (29,008) - - (29,008) 1,143 34,164 As at 31 December 824,571 127,345 3,643,141 1,119 4,596,176 2,152,331 6,748,507 See accompanying notes to the financial statements. statements of Changes in equity 161 Statements of Changes in Equity Company 2009 As at 1 January Profit / Total comprehensive income for the year Dividend paid Share-based payment Shares issued Share Capital $’000 Capital Reserves $’000 Revenue Reserves $’000 Total $’000 824,571 - - - 8,337 70,042 - - 21,513 - 2,250,226 2,156,699 (573,562) - - 3,144,839 2,156,699 (573,562) 21,513 8,337 As at 31 December 832,908 91,555 3,833,363 4,757,826 2008 As at 1 January Profit / Total comprehensive income for the year Dividend paid Share-based payment Shares issued 790,407 - - - 34,164 47,456 - - 22,586 - 2,510,512 837,457 (1,097,743) - - 3,348,375 837,457 (1,097,743) 22,586 34,164 As at 31 December 824,571 70,042 2,250,226 3,144,839 See accompanying notes to the financial statements. 162 Keppel Corporation Limited Report to Shareholders 2009 Consolidated Statement of Cash Flows For the financial year ended 31 December 2009 operating activities Operating profit Adjustments: Depreciation and amortisation Share-based payment expenses Loss/(profit) on sale of fixed assets and investment properties Others Operational cash flow 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 of refunds received net cash from operating activities Investing activities Acquisition of subsidiary and business Acquisition of additional shares in subsidiaries Acquisition and further investment in associated companies Acquisition of fixed assets and investment properties Proceeds from disposal of associated companies Proceeds from disposal of fixed assets and investment properties Dividend received from investments and associated companies net cash from/(used in) investing activities Financing activities Proceeds from share issues Proceeds from minority shareholders of subsidiaries Proceeds from term loans 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 increase in cash and cash equivalents Cash and cash equivalents as at 1 January Note 2009 $’000 2008 $’000 1,504,791 1,238,474 A 174,313 23,682 5,781 - 1,708,567 (1,066,070) 183,639 235,389 41,610 (225,378) (79,593) 798,164 70,315 (52,183) (146,148) 670,148 (529,434) (3,814) (212,395) (475,797) 1,465,767 - 48,936 130,282 423,545 139,078 26,527 (8,268) (93) 1,395,718 (73,960) (376,344) 635,517 39,395 557,385 70,121 2,247,832 69,219 (85,687) (184,550) 2,046,814 (1,400) (23,604) (127,463) (410,609) 18,667 373,246 (171,163) 8,337 510,224 196,658 (431,184) (573,562) (87,136) (376,663) 34,164 199,559 170,228 (458,437) (1,097,743) (103,416) (1,255,645) 717,030 2,217,089 620,006 1,597,083 Cash and cash equivalents as at 31 December B 2,934,119 2,217,089 See accompanying notes to the financial statements. Consolidated statement of Cash Flows 163 Consolidated Statement of Cash Flows Notes to Consolidated Statement of Cash Flows A. Acquisition of subsidiary and Business During the financial year, the fair values of net assets of subsidiary and business acquired were as follows: 2009 $’000 2008 $’000 Fixed assets Stocks & work-in-progress Debtors Bank balances and cash Creditors Loans Deferred tax Minority interests Goodwill on consolidation (Note 11) Purchase consideration Less: Purchase consideration payable Less: Bank balances and cash acquired 143,507 - 161 463,546 12,842 (13,752) (70,935) (9,765) - 525,604 24,615 550,219 (7,943) (12,842) 1,750 - - - - - (350) 1,400 - 1,400 - - Cash flow on acquisition net of cash acquired 529,434 1,400 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 statement of cash flows comprise the following balance sheet amounts: Bank balances, deposits and cash (Note 16) Bank overdrafts (Note 20) 2,935,787 (1,668) 2,244,851 (27,762) 2,934,119 2,217,089 See accompanying notes to the financial statements. 164 Keppel Corporation Limited Report to Shareholders 2009 Notes to the Financial Statements For the financial year ended 31 December 2009 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; - environmental engineering, power generation and network & logistics; - property development & investment and property fund management; 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 2009 and the balance sheet and statement of changes in equity of the Company at 31 December 2009 were authorised for issue in accordance with a resolution of the Board of Directors on 1 March 2010. 2. Significant acounting 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 2009. 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 following are the new or amended FRS and INT FRS that are relevant to the Group: FRS 1 (Revised) Amendments to FRS 23 Amendments to FRS 107 FRS 108 Improvements to FRSs Presentation of Financial Statements Borrowing Costs Improving Disclosures about Financial Instruments Operating Segments Amendments to FRS 40 The adoption of the above FRS did not result in any substantial change to the Group’s accounting policies nor any significant impact on these financial statements except as disclosed below: FRS 1 (Revised) – Presentation of Financial Statements FRS 1 (Revised) introduced terminology changes (including revised titles for the financial statements) and changes in the format and content of the financial statements. Amendments to FRS 107 – Financial Instruments: Disclosures – Improving Disclosures about Financial Instruments The amendments to FRS 107 expand the disclosures required in respect of fair value measurements and liquidity risk. The Group has elected not to provide comparative information for these expanded disclosures in the current year in accordance with the transitional reliefs for these amendments. notes to the Financial statements 165 Notes to the Financial Statements 2. Significant acounting policies (continued) (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. 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 80 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. (e) 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. 166 Keppel Corporation Limited Report to Shareholders 2009 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 the profit and loss account. (f) 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 the 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 associated company 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. (g) 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. 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. (h) 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. For available-for-sale investments, gains and losses arising from changes in fair value are recognised directly in other comprehensive income, until the investment is disposed of or is determined to be impaired, at which time the cumulative gain or loss previously recognised in other comprehensive income is reclassified to the profit and loss account. The fair value of investments that are traded in active markets is based on quoted market prices at the balance sheet date. The quoted market price is the current bid prices. The fair value of investments that are not traded in an active market 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 cash flow analysis. notes to the Financial statements 167 Notes to the Financial Statements 2. Significant acounting policies (continued) (i) 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 cash flow hedges, the effective portion of the gains or losses on the hedging instrument is recognised directly in other comprehensive income, while the ineffective portion is recognised in the profit and loss account. Amounts taken to other comprehensive income are reclassified 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 High Sulphur Fuel Oil (“HSFO”) forward contracts is determined using forward HSFO prices provided by the Group’s key counterparty. The fair value of interest rate caps and interest rate swaps are based on valuations provided by the Group’s bankers. (j) 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 values as reduced by appropriate allowances for estimated irrecoverable amounts. (k) 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. Completed properties held for sale are stated at the lower of cost and net realisable value. Cost includes cost of land and construction, related overhead expenditure and interest incurred during the period of construction. Properties held for sale are stated at the lower of cost and net realisable value. Cost includes cost of land and construction, related overheads expenditure, and financing charges incurred during the period of development. Net realisable value represents the estimated selling price less costs to be incurred in selling the property. Upon receipt of temporary occupation permits, they are transferred to completed properties held for sale. Each property under development is accounted for as a separate project. Where a project comprises more than one component or phase with a separate temporary occupation permit, each component or phase is treated as a separate project, and interest and other net costs are apportioned accordingly. 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. 168 Keppel Corporation Limited Report to Shareholders 2009 (l) Impairment of Assets Financial Assets The Group assesses at each balance sheet date whether there is objective evidence that a financial asset or a group of financial assets is impaired and recognised an allowance for impairment when such evidence exists. Loans and receivables Significant financial difficulties of the debtor and default or significant delay in payments are objective evidence that the financial assets are impaired. The carrying amount of these assets is reduced through the use of an allowance account and the loss is recognised in the profit and loss account. When the asset becomes uncollectible, the carrying amount is written off against the allowance account. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be objectively measured, the previously recognised impairment loss is reversed to the extent that the carrying amount does not exceed the amortised cost had no impairment been recognised in the prior periods. The amount of reversal is recognised in the profit and loss account. Investments 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. Goodwill Goodwill is tested for impairment annually and whenever there is an indication that the goodwill may be impaired. Goodwill included in the carrying amount of an associated company is tested for impairment as part of the investment. 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. 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 Non-Financial Assets Tangible and intangible assets are tested for impairment whenever there is any objective evidence or indication that these assets may be impaired. For the purpose of impairment testing, the recoverable amount (i.e. the higher of the fair value less cost to sell and the value-in-use) is determined on an individual asset basis unless the asset does not generate cash flows 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 difference between the carrying amount and recoverable amount is recognised as impairment loss 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. notes to the Financial statements 169 Notes to the Financial Statements 2. Significant acounting policies (continued) (m) Financial Liabilities and Equity Instruments Financial liabilities include trade, intercompany and other payables, bank loans and overdrafts. Trade, intercompany and other payables are stated at their fair values. 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. An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities. Equity instruments are recorded at the proceeds received, net of direct issue costs. (n) 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. (o) 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 values 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. 170 Keppel Corporation Limited Report to Shareholders 2009 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 fair values. Rental income (net of any incentive given to lessee) is recognised on a straight-line basis over the lease term. (p) 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. - (q) Revenue Recognition Revenue from rigbuildings, shipbuildings and repairs, and long term engineering contracts 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. 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. Revenue 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. Rental income from operating leases on investment properties are recognised on a straight-line basis over the lease term. 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. Interest income is recognised on a time proportion basis using the effective interest method. notes to the Financial statements 171 Notes to the Financial Statements 2. Significant acounting policies (continued) (r) 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. (s) 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. (t) 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. 172 Keppel Corporation Limited Report to Shareholders 2009 (u) 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 also recognised in other comprehensive income. 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 recognised in other comprehensive income and accumulated in a separate component of equity. 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. (v) Critical Accounting Estimates and Judgements (i) 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. (ii) 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 loans and receivables The Group assesses at each balance sheet date whether there is any objective evidence that a loan and receivable is impaired. The Group considers factors such as the probability of insolvency or significant financial difficulties of the debtor and default or significant delay in payments. When there is objective evidence of impairment, the amount and timing of future cash flows are estimated based on historical loss experience for assets with similar credit risk characteristics. The carrying amounts of trade, intercompany and other receivables are disclosed in the balance sheet. 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 cash flow. The fair values of available-for-sale investments are disclosed in the balance sheet. notes to the Financial statements 173 Notes to the Financial Statements 2. Significant acounting policies (continued) Impairment of non-financial assets Determining whether the carrying value of a non-financial asset is impaired requires an estimation of the value in use of the cash-generating units. This requires the Group to estimate the future cash flows expected from the cash- generating units and an appropriate discount rate in order to calculate the present value of the future cash flows. The carrying amounts of fixed assets, investment properties and intangibles are disclosed in the balance sheet. 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(q). 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 engineers. Revenue from construction contracts is disclosed in Note 22. Revenue arising from additional claims and variation orders, whether billed or unbilled, is recognised when negotiations have reached an advanced stage such that it is probable that the customer will accept the claims or approve the variation orders, and the amount that it is probable will be accepted by the customer can be measured reliably. 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 amounts of taxation and deferred taxation are disclosed in the balance sheet. Claims, litigations and reviews The Group entered into various contracts with third parties in its ordinary course of business and is exposed to the risk of claims, litigations or review from the contractual parties and/or government agencies. These can arise for various reasons, including change in scope of work, delay and disputes, defective specifications or routine checks etc. The scope, enforceability and validity of any claim, litigation or review may be highly uncertain. In making its judgement as to whether it is probable that any such claim, litigation or review will result in a liability and whether any such liability can be measured reliably, management relies on past experience and the opinion of legal and technical expertise. 174 Keppel Corporation Limited Report to Shareholders 2009 3. Share capital ordinary shares (“shares”) Issued and paid up: Balance 1 January 1,593,134,180 Shares (2008: 1,585,086,180 Shares) Issued during the financial year 1,362,500 Shares (2008: 8,048,000 Shares) Balance 31 December 1,594,496,680 Shares (2008: 1,593,134,180 Shares) Group and Company 2009 $’000 2008 $’000 824,571 790,407 8,337 34,164 832,908 824,571 Fully paid ordinary shares, which have no par value, carry one vote per share and carry a right to dividends declared by the Company. During the financial year, the Company issued 1,362,500 Shares for cash upon exercise of options under the KCL Share Option Scheme. This comprised 20,000 Shares at $1.30 per Share, 10,000 Shares at $1.32 per Share, 10,000 Shares at $2.24 per Share, 20,000 Shares at $3.01 per Share, 20,000 Shares at $3.24 per Share, 184,000 Shares at $4.42 per Share, 335,000 Shares at $6.24 per Share, 394,000 Shares at $6.39 per Share, 341,500 Shares at $7.66 per Share and 28,000 Shares at $4.04 per Share. 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: Lim Hock San (Chairman) Lee Boon Yang Sven Bang Ullring Oon Kum Loon (Mrs) 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. 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. notes to the Financial statements 175 Notes to the Financial Statements 3. Share capital (continued) 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. Movements in the number of share options and their weighted average exercise prices are as follows: Balance at 1 January Granted Exercised Cancelled Balance at 31 December 2009 2008 number of options 45,491,000 17,414,500 (1,362,500) (1,949,000) 59,594,000 Weighted average exercise price $9.23 $6.04 $6.12 $8.91 $8.38 Number of options 37,768,000 16,715,000 (8,048,000) (944,000) 45,491,000 Weighted average exercise price $7.80 $10.12 $4.24 $9.93 $9.23 Exercisable at 31 December 28,056,500 $8.79 14,829,000 $6.39 The weighted average share price at the date of exercise for options exercised during the financial year was $8.04 (2008: $10.78). The options outstanding at the end of the financial year had a weighted average exercise price of $8.38 (2008: $9.23) and a weighted average remaining contractual life of 7.9 years (2008: 8.3 years). On 5 February 2009 and 6 August 2009, the Company granted 9,079,000 options and 8,335,500 options respectively under the KCL Share Option Scheme. The estimated fair values of the options granted on those dates are $0.64 per share (14 February 2008: $1.38 per share) and $1.98 per share (14 August 2008: $1.54 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 2009 2008 5.2.2009 $4.04 $4.04 41.43% 4.0 years 0.96% 8.66% 6.8.2009 $8.21 $8.21 42.82% 4.0 years 0.97% 4.38% 14.2.2008 $9.96 $9.96 27.59% 3.5 years 1.23% 4.39% 14.8.2008 $10.26 $10.26 29.33% 3.5 years 1.81% 4.78% 176 Keppel Corporation Limited Report to Shareholders 2009 The expected volatility is determined by calculating the historical volatility of the Company’s share price over the previous 4.0 years (2008: 3.5 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 Share option reserve Fair value reserve Hedging reserve Bonus issue by subsidiaries Others Revenue Reserves Foreign Exchange Translation Account Group Company 2009 $’000 2008 $’000 100,777 231,920 141,999 40,000 25,593 540,289 80,240 36,673 (65,580) 40,000 36,012 127,345 2009 $’000 91,555 - - - - 91,555 2008 $’000 70,042 - - - - 70,042 4,695,478 3,643,141 3,833,363 2,250,226 (83,328) 1,119 - - 5,152,439 3,771,605 3,924,918 2,320,268 Movements in the Group’s and the Company’s reserves are set out in the Consolidated Statement of Comprehensive Income and Statement of Changes in Equity respectively. notes to the Financial statements 177 Notes to the Financial Statements 5. Fixed assets Freehold Land & Buildings $’000 Leasehold Land & Vessels & Buildings Floating Docks $’000 $’000 Plant, Machinery & Equipment $’000 Capital Work-in- Progress $’000 Total $’000 Group 2009 Cost At 1 January Additions Disposals Subsidiary acquired Subsidiary disposed Reclassification - Stocks - Other assets - Other fixed assets categories Exchange differences 52,628 248 (255) - (213) 1,262,154 10,999 (644) 15,213 - 223,638 14,381 (10,684) - - 1,731,321 48,486 (21,978) 132,300 (87,902) 207,813 218,457 (19,025) 30,683 - 3,477,554 292,571 (52,586) 178,196 (88,115) - - - 1,019 - - (827) 286 - - (827) 1,305 2,118 (189) 72,695 (27,653) 4,105 1,609 75,443 (22,050) (154,361) (5,335) - (53,618) At 31 December 54,337 1,333,783 233,049 1,855,079 278,232 3,754,480 Accumulated Depreciation & Impairment Losses At 1 January Depreciation charge Impairment loss (Note 26) Disposals Subsidiary acquired Subsidiary disposed Reclassification - Stocks - Other assets - Other fixed assets categories Exchange differences 19,418 2,539 - (165) - (213) 490,420 41,675 655 (155) 4,853 - 101,514 28,931 - (2,443) - - 919,540 100,701 - (17,932) 29,836 (87,902) - - - 287 - - 130 157 (2,460) (267) (197) (14,809) (2,411) 98 5,068 (19,560) At 31 December 18,852 522,729 125,689 930,038 - - - - - - - - - - - 1,530,892 173,846 655 (20,695) 34,689 (88,115) 130 444 - (34,538) 1,597,308 net Book Value 35,485 811,054 107,360 925,041 278,232 2,157,172 178 Keppel Corporation Limited Report to Shareholders 2009 Freehold Land & Buildings $’000 Leasehold Land & Vessels & Buildings Floating Docks $’000 $’000 Plant, Machinery & Equipment $’000 Capital Work-in- Progress $’000 Total $’000 Group 2008 Cost At 1 January Additions Disposals Reclassification - Stocks - Investment properties - Other fixed assets categories Exchange differences 54,228 4,190 (2,425) 1,158,464 5,460 (2,595) 209,730 8,952 (19,242) 1,598,671 71,025 (19,291) 103,230 229,463 - 3,124,323 319,090 (43,553) 729 - (2,291) (1,803) 33,621 (867) 64,605 3,466 - - 98 (5,955) 54,992 - 27,766 (3,568) 88,801 (2,028) (178,881) (991) 89,440 (6,822) - (4,924) At 31 December 52,628 1,262,154 223,638 1,731,321 207,813 3,477,554 Accumulated Depreciation & Impairment Losses At 1 January Depreciation charge Impairment loss (Note 26) Disposals Reclassification - Other fixed assets categories Exchange differences 21,781 2,507 - (1,433) 453,732 36,135 - (1,038) 100,564 14,918 - (11,654) 850,015 85,139 1,036 (19,054) (3,014) (423) (51) 1,642 (1,028) (1,286) 4,093 (1,689) At 31 December 19,418 490,420 101,514 919,540 - - - - - - - 1,426,092 138,699 1,036 (33,179) - (1,756) 1,530,892 net Book Value 33,210 771,734 122,124 811,781 207,813 1,946,662 During the financial year, the Group recognised impairment losses of $655,000 (2008: $1,036,000) which relates to write- down of non-performing assets in the Infrastructure division. These non-performing assets were fully written down. Certain plant, machinery and equipment with carrying amount of $14,322,000 (2008: $19,542,000) are mortgaged to banks for loan facilities (Note 19). notes to the Financial statements 179 Notes to the Financial Statements 5. Fixed assets (continued) Company 2009 Cost At 1 January Additions Disposals At 31 December Accumulated Depreciation At 1 January Depreciation charge Disposals At 31 December net Book Value 2008 Cost At 1 January Additions Disposals At 31 December Accumulated Depreciation At 1 January Depreciation charge Disposals At 31 December net Book Value Freehold Land & Buildings $’000 Leasehold Land & Buildings $’000 Plant, Machinery & Equipment $’000 Total $’000 6,542 27 - 6,569 1,711 41 - 1,752 4,817 6,542 - - 6,542 1,671 40 - 1,711 4,831 484 - (484) 6,952 417 (323) 13,978 444 (807) - 7,046 13,615 82 5 (87) - - 484 - - 484 72 10 - 82 6,295 385 (247) 8,088 431 (334) 6,433 8,185 613 5,430 6,346 682 (76) 13,372 682 (76) 6,952 13,978 5,961 407 (73) 7,704 457 (73) 6,295 8,088 402 657 5,890 180 Keppel Corporation Limited Report to Shareholders 2009 6. Investment properties At 1 January Acquisition of property Development expenditure Fair value (loss)/gain (Note 26) Disposals Write-off Reclassification - Fixed assets - Stocks Exchange differences At 31 December Group 2009 $’000 3,029,675 107,690 - 75,536 (131,920) (19,458) - (255) - (21) (10,000) 2008 $’000 2,960,347 80,508 4,471 (380) 6,822 (11,435) (10,658) 3,051,247 3,029,675 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 2009: - Colliers International Consultancy & Valuation (Singapore) Pte Ltd for properties in Singapore; - CB Richard Ellis (Vietnam) Co. Ltd and Allied Appraisal Consultants Pte Ltd for properties in Vietnam; and - PT. Willson Properti Advisindo and PT. Piesta Penilai for properties in Indonesia. Interest capitalised during the financial year amounted to $1,992,000 (2008: $1,219,000). Certain investment properties with carrying amount of $2,125,600,000 (2008: $2,230,226,000) are mortgaged to banks for loan facilities (Note 19). 7. Subsidiaries Quoted shares, at cost Market value: $3,243,780,000 (2008: $997,210,000) 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 to profit and loss account At 31 December Company 2009 $’000 2008 $’000 1,728,360 1,933,706 3,662,066 (265,000) 3,397,066 (3,600) 1,329,571 1,806,332 3,135,903 (265,000) 2,870,903 (3,600) 3,393,466 2,867,303 265,000 - 199,135 65,865 265,000 265,000 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 37. notes to the Financial statements 181 Notes to the Financial Statements 8. Associated companies Quoted shares, at cost Market value: $474,190,000 (2008: $916,407,000) Unquoted shares, at cost Provision for impairment Share of reserves Advances to associated companies Group 2009 $’000 2008 $’000 Company 2009 $’000 2008 $’000 208,176 795,997 1,004,173 (94,207) 909,966 527,549 1,437,515 1,285,654 590,708 722,218 1,312,926 (33,993) 1,278,933 759,328 2,038,261 1,162,770 - - 3,074 3,074 - - 3,074 - - 3,074 - - 3,074 3,074 3,074 3,074 2,723,169 3,201,031 3,074 3,074 Movements in the provision for impairment of associated companies are as follows: At 1 January (Write back)/charge to profit and loss account Impairment loss (Note 26) Amount written off/disposed Exchange differences At 31 December 33,993 (56) 61,000 - (730) 28,131 115 6,209 (713) 251 94,207 33,993 - - - - - - - - - - - - Advances to associated companies are unsecured and are not repayable within the next 12 months. Interest is charged at rates ranging from 1.47% to 4.47% (2008: 1.93% to 3.41%) per annum. During the financial year, the Group recognised an impairment loss of $61,000,000 (2008: $Nil) on investment in an associated company. The carrying amount of the associated company was reduced to its recoverable amount, which was based on the estimated future cash flow from operations discounted to present value at 11%. The share of attributable profit of associated companies is as follows: Share of profit before tax and exceptional items Share of exceptional items (Note 26) Share of profit before taxation Share of taxation (Note 27) Share of attributable profit Group 2009 $’000 2008 $’000 321,683 100,684 422,367 (57,226) 353,957 7,684 361,641 (71,066) 365,141 290,575 The summarised financial information of associated companies, not adjusted for the Group’s proportionate share, is as follows: Total assets Total liabilities Revenue Attributable profit before exceptional items Attributable profit after exceptional items 12,657,767 7,478,745 3,777,218 673,342 912,386 15,516,823 9,172,077 14,518,960 835,792 850,997 Information relating to significant associated companies whose results are included in the financial statements is given in Note 37. 182 Keppel Corporation Limited Report to Shareholders 2009 9. Investments Available-for-sale investments: Quoted equity shares Unquoted equity shares Unquoted property funds 10. Long term receivables Receivables from service concession arrangements Staff loans Long term trade receivables Loan to a subsidiary Others Less: Amounts due within one year and included in debtors (Note 14) Provision for doubtful debts Group 2009 $’000 2008 $’000 49,992 40,351 61,703 16,040 28,524 56,460 152,046 101,024 Group Company 2009 $’000 564,387 2,941 21,049 - 18,979 607,356 2008 $’000 194,088 3,829 382 - 16,397 214,696 (55,957) 551,399 (3,734) (13,104) 201,592 (3,930) 2009 $’000 - - 793 - - - - - 793 (209) 584 - - 2008 $’000 1,331 300,000 301,331 (313) 301,018 547,665 197,662 584 301,018 Movements in the provision for doubtful debts are as follows: At 1 January Amount written off Exchange differences At 31 December 3,930 52 (248) 4,358 (18) (410) 3,734 3,930 - - - - - - - - Receivables arising from service concession arrangements arose from the following: (a) a 20-year contract to build and operate a water treatment plant. The plant started commercial operations in 2007; (b) a 25-year contract to build and operate a waste-to-energy plant. The plant started commercial operations in November 2009; and (c) a 15-year contract to design, upgrade, own and operate an incineration plant. The plant was acquired from the Singapore Government in August 2009. The above arrangements are classified as service concession arrangements under INT FRS 112. Under the terms of the arrangements, the Group will receive an aggregate minimum amount of $54,959,000 (2008: $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 profit arising from these arrangements for the provision of construction services amounted to $39,876,000 and $4,969,000 (2008: $63,223,000 and $2,394,000) respectively. Certain assets of the waste-to-energy plant with carrying amount of $163,337,000 (2008: $113,000,000) are mortgaged to banks for loan facilities (Note 19). Included in staff loans are interest free advances to certain Directors amounting to $210,000 (2008: $409,000) and to directors of related corporations amounting to $436,000 (2008: $536,000) under an approved car loan scheme. notes to the Financial statements 183 Notes to the Financial Statements 10. Long term receivables (continued) Long term receivables are unsecured, largely repayable after five years and bears effective interest ranging from 3.22% to 5.00% (2008: 1.09% to 4.58%) per annum. During the financial year, the Group recognised an impairment loss of $107,522,000 (2008: $Nil) on certain long term receivable. The carrying amount of the long term receivable was reduced to its recoverable amount, which was based on the estimated future cash flow from operations discounted to present value at 5%. The fair value of long term receivables for the Group is $547,272,000 (2008: $197,600,000). The carrying amount of long term receivables for the Company approximates its fair value. These fair values are computed on the discounted cash flow method using a discount rate based upon the market-related rate for a similar instrument as at the balance sheet date. 11. Intangibles Group 2009 At 1 January Additions Amortisation Impairment loss (Note 26) Reclassification Exchange differences At 31 December Cost Accumulated amortisation 2008 At 1 January Additions Amortisation Exchange differences At 31 December Cost Accumulated amortisation Goodwill $’000 Development Expenditure $’000 73,253 24,615 - (11,568) 704 - 5,234 151 (467) - (1,655) (149) Total $’000 78,487 24,766 (467) (11,568) (951) (149) 87,004 3,114 90,118 87,004 - 12,981 (9,867) 99,985 (9,867) 87,004 3,114 90,118 62,389 10,864 - - 5,434 165 (379) 14 67,823 11,029 (379) 14 73,253 5,234 78,487 73,253 - 8,750 (3,516) 82,003 (3,516) 73,253 5,234 78,487 For the purpose of impairment testing, goodwill is allocated to cash-generating units. Goodwill allocated to Offshore & Marine division amounted to $5,211,000 (2008: $16,075,000). The recoverable amount is determined based on value-in-use calculation using cash flow projections derived from the most recent financial budgets approved by management for the next five years using discount rates ranging from 7.30% to 16.10% (2008: 7.32% to 20.00%). 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. 184 Keppel Corporation Limited Report to Shareholders 2009 Goodwill allocated to Infrastructure division amounted to $81,793,000 (2008: $57,178,000). This includes provisional goodwill of $24,615,000 arising from the acquisition of Keppel DHCS Pte Ltd (previously First DCS Pte Ltd) during the financial year. Goodwill has been determined on a provisional basis as the purchase price allocation exercise is not finalised as at the date the financial statements was authorised for issue. For the balance of goodwill amounting to $57,178,000, the recoverable amount is based on current bid prices of the cash-generating unit. During the financial year, goodwill allocated to Offshore & Marine division of $11,568,000 was impaired as the recoverable amount based on value-in-use calculation was lower than the carrying amount. 12. 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 Charge to profit and loss account Amount utilised Exchange differences 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 notes to the Financial statements Group 2009 $’000 648,925 248,109 2,281,148 2008 $’000 400,760 414,032 2,504,028 3,178,182 3,318,820 (1,683,392) (2,882,124) 7,027,504 (2,809) 7,024,695 (6,375,770) 5,696,608 (1,534) 5,695,074 (5,294,314) 648,925 400,760 1,534 1,963 - (611) (77) 37,284 (35,880) 130 2,809 1,534 11,753,627 (13,437,019) 12,474,358 (15,356,482) (1,683,392) (2,882,124) 235,984 12,125 385,295 28,737 248,109 414,032 185 Notes to the Financial Statements 12. Stocks and work-in-progress (continued) (d) Properties Held For Sale Properties under development Land cost Development cost incurred to date Related overhead expenditure Progress billing and recognised profit Completed properties held for sale Provision for properties held for sale Movements in the provision for properties held for sale are as follows: At 1 January Write-back to profit and loss account Amount utilised Exchange differences At 31 December Group 2009 $’000 2008 $’000 1,537,652 1,066,114 576,876 (1,047,505) 2,133,137 196,212 2,329,349 (48,201) 1,816,011 1,053,750 562,097 (1,141,802) 2,290,056 286,159 2,576,215 (72,187) 2,281,148 2,504,028 72,187 (13,237) (10,739) (10) 115,915 (24,616) (19,127) 15 48,201 72,187 Interest capitalised during the financial year amounted to $17,319,000 (2008: $17,113,000) at rates ranging from 0.91% to 4.14% (2008: 1.64% to 3.50%) per annum for Singapore properties and 3.10% to 21.00% (2008: 1.23% to 21.00%) per annum for overseas properties. Certain properties held for sale with carrying amount of $101,879,000 (2008: $447,368,000) are mortgaged to banks for loan facilities (Note 19). 186 Keppel Corporation Limited Report to Shareholders 2009 13. 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 Group 2009 $’000 2008 $’000 Company 2009 $’000 2008 $’000 - - - - - - - - - - - - - - - - - - - - - - 6,155 1,642,973 1,649,128 (6,600) 5,366 261,952 267,318 (6,600) 1,642,528 260,718 163,307 102,239 404,461 68,387 265,546 472,848 6,600 - 5,700 900 6,600 6,600 Advances to and from subsidiaries are unsecured and are repayable on demand. Interest is charged at rates ranging from 0.10% to 6.00% (2008: 0.10% to 3.90%) per annum on interest-bearing advances. Associated Companies 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 86,330 207,728 294,058 (6,136) 85,363 242,333 327,696 (1,113) 6,056 - - 6,056 - - 300 300 287,922 326,583 6,056 300 13,388 154,798 17,186 405,019 168,186 422,205 1,113 5,023 946 167 6,136 1,113 - - - - - - - - - - - - Advances to and from associated companies are unsecured and are repayable on demand. Interest is charged at rates ranging from 0.13% to 5.31% (2008: 0.40% to 9.56%) per annum on interest-bearing advances. notes to the Financial statements 187 Notes to the Financial Statements 14. Debtors Trade debtors Provision for doubtful debts Long term receivables due within one year (Note 10) Sundry debtors Prepaid project cost & prepayments Derivative financial instruments (Note 34) Tax recoverable Goods & Services Tax receivable Interest receivable Deposits paid Recoverable accounts Accrued receivables Advances to subcontractors Advances to corporations in which the Group has investment interests Advances to minority shareholders of subsidiaries Provision for doubtful debts Group 2009 $’000 2008 $’000 1,105,613 (36,552) 1,069,061 1,326,761 (30,074) 1,296,687 55,957 87,293 31,118 117,906 19,258 91,184 21,289 43,756 43,509 9,412 107,129 48,551 9,496 685,858 (27,820) 658,038 13,104 114,503 54,368 71,616 9,494 88,727 17,928 16,975 50,498 6,477 173,346 52,334 33,131 702,501 (28,357) 674,144 Company 2009 $’000 2008 $’000 - - - - - - 209 269 166 102,502 - - - - 48 381 - - - - - - - - - - 103,575 - - 103,575 313 249 210 58,675 66 395 59,908 59,908 Total 1,727,099 1,970,831 103,575 59,908 Movements in the provision for debtors are as follows: At 1 January Charge to profit and loss account Impairment loss written back (Note 26) Amount written off Reclassification Exchange differences 58,431 11,996 - (5,546) 67 (576) 52,136 12,590 (1,921) (4,197) (6) (171) At 31 December 64,372 58,431 - - - - - - - - - - - - - - 188 Keppel Corporation Limited Report to Shareholders 2009 15. Short term investments Available-for-sale investments: Quoted equity shares Quoted unit trust Quoted bonds Unquoted equity shares Unquoted 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 16. Bank balances, deposits and cash Group 2009 $’000 322,108 - - 27,680 46,393 396,181 59,415 919 60,334 2008 $’000 229,484 1,641 6,480 25,772 27,676 291,053 32,781 6,983 39,764 456,515 330,817 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 Project Account Rules 1985 Group Company 2009 $’000 2008 $’000 447,051 2,379,201 417,603 1,746,261 2009 $’000 3,051 30,456 2008 $’000 3,155 661,286 54,898 34,364 54,637 46,623 - - - - 2,935,787 2,244,851 33,507 664,441 Fixed deposits with banks of the Group mature on varying periods, substantially between 1 day to 3 months (2008: 1 day to 3 months). This comprised Singapore dollar fixed deposits of $956,427,000 (2008: $672,885,000) at interest rates ranging from 0.10% to 1.10% (2008: 0.11% to 2.14%) per annum, and foreign currency fixed deposits of $1,422,774,000 (2008: $1,073,376,000) at interest rates ranging from 0.10% to 18.00% (2008: 0.10% to 18.00%) per annum. Fixed deposits with banks of the Company mature on varying periods, substantially between 4 days to 3 months (2008: 2 days to 3 months). This comprised foreign currency fixed deposits of $30,456,000 at interest rates ranging from 0.04% to 3.45% (2008: 0.10% to 5.88%) per annum. As at 31 December 2008, fixed deposits with banks of the Company comprised Singapore dollar fixed deposits of $509,603,000 at interest rates ranging from 0.37% to 0.50% per annum, and foreign currency fixed deposits of $151,683,000 at interest rates ranging from 0.10% to 5.88% per annum. notes to the Financial statements 189 Notes to the Financial Statements 17. Creditors Trade creditors Customers’ advances and deposits Derivative financial instruments (Note 34) Sundry creditors Accrued operating expenses Advances from minority shareholders Interest payables Other payables Group Company 2009 $’000 875,892 60,515 57,864 623,888 2,112,151 221,384 9,653 90,625 2008 $’000 952,313 61,497 266,516 517,803 1,778,607 271,330 12,161 79,356 2009 $’000 53 57 37,171 11,829 83,192 - - - - - 2008 $’000 52 56 158,020 5,960 55,294 306 4,051,972 3,939,583 132,302 219,688 Advances from minority shareholders of certain subsidiaries are unsecured and are repayable on demand. Interest is charged at rates ranging from 1.25% to 4.64% (2008: 2.00% to 18.59%) per annum on interest-bearing loans. 18. Provisions Group 2009 At 1 January Charge to profit and loss account Amount utilised Exchange differences Warranties $’000 Claims $’000 Total $’000 58,301 5,397 (3,215) 470 308 7,601 - (6) 58,609 12,998 (3,215) 464 At 31 December 60,953 7,903 68,856 2008 At 1 January Charge/(write-back) to profit and loss account Amount utilised Exchange differences 35,267 25,830 (351) (2,445) 2,633 (2,190) (113) (22) 37,900 23,640 (464) (2,467) At 31 December 58,301 308 58,609 190 Keppel Corporation Limited Report to Shareholders 2009 19. Term loans 2009 2008 Due within one year $’000 Due after one year $’000 Due within one year $’000 Group 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 and other loans - secured - unsecured (a) (b) (c) (d) (e) (f) (g) - 248,000 - - - 174,761 416,356 - 70,000 275,925 41,920 190,085 268,045 72,435 - 108,500 - - - 37,525 51,843 Due after one year $’000 300,000 150,000 269,579 41,920 190,085 385,130 407,839 839,117 918,410 197,868 1,744,553 Company Keppel Corporation Medium Term Notes (a) - - - 300,000 (a) 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 were unsecured and were issued in tranches which will mature five years from the date of issue. Interest is based on money market rates ranging from 0.89% to 1.34% (2008: 1.09% to 3.04%) per annum. The notes were fully redeemed in the year. (b) 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 $318,000,000. The notes are unsecured and are issued in series or tranches, and comprised (i) fixed rate notes due 2010 to 2012 of $168,000,000 and (ii) variable rate notes due 2010 of $150,000,000. Interest payable is based on money markets rates ranging from 1.14% to 4.25% (2008: 1.10% to 3.40%) per annum. (c) 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 $5.58 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 Interest expense Interest paid Liability component at 31 December Group 2009 $’000 269,579 13,846 (7,500) 2008 $’000 263,488 13,591 (7,500) 275,925 269,579 Interest expense on the convertible bonds is calculated based on the effective interest method by applying the interest rate of 4.78% (2008: 4.78%) per annum for an equivalent non-convertible bond to the liability component of the convertible bonds. notes to the Financial statements 191 Notes to the Financial Statements 19. Term loans (continued) (d) 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 bear interest 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 1.21% to 1.50% (2008: 1.50% to 2.77%) per annum. (e) 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 Ltd. 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% (2008: 3.91% to 4.06%) per annum. (f) The secured bank loans consist of: - A $100,300,000 bank loan drawn down by a subsidiary. 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 3.62% (2008: 3.42% to 3.62%) per annum. - A term loan of $158,600,000 drawn down by a subsidiary. The term loan is repayable in 2010 and is secured on the investment property of the subsidiary. Interest is based on money market rates ranging from 1.60% to 2.17% (2008: 2.03% to 3.71%) per annum. - A term loan of $141,912,000 drawn down by a subsidiary. The term loan is repayable in 2012 and is secured on the investment property of the subsidiary. Interest is based on money market rates ranging from 0.85% to 2.49% (2008: 1.97% to 2.48%) per annum. - Other secured bank loans comprised $41,994,000 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 foreign currency loans is based on money market rates ranging from 6.25% to 14.50% (2008: 5.40% to 9.95%) per annum. (g) The unsecured bank and other loans of the Group totalling $488,791,000 comprised $453,685,000 of loans denominated in Singapore dollar and $35,106,000 of foreign currency loans. They are repayable between one and twenty years. Interest on loans denominated in Singapore dollar is based on money market rates ranging from 0.93% to 3.46% (2008: 1.46% to 3.40%) per annum. Interest on foreign currency loans is based on money market rates ranging from 9.88% to 21.00% (2008: 2.03% to 21.00%) per annum. The net book value of property and assets mortgaged to the banks amounted to $2,405,138,000 (2008: $2,810,136,000). These are securities given to the banks for loans and overdraft facilities. The fair values of term loans for the Group and Company are $1,777,695,000 (2008: $1,968,578,000) and $nil (2008: $300,000,000) respectively. These fair values are computed on the discounted cash flow method using a discount rate based upon the borrowing rate which the Directors expect would be available as at the balance sheet date. 192 Keppel Corporation Limited Report to Shareholders 2009 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 20. Bank overdrafts Secured Unsecured Group 2009 $’000 2008 $’000 Company 2009 $’000 2008 $’000 289,111 556,253 73,046 1,020,959 666,562 57,032 918,410 1,744,553 - - - - - - 300,000 300,000 Group 2009 $’000 1,668 - 2008 $’000 180 27,582 1,668 27,762 Interest on the bank overdrafts is payable at the banks’ prevailing prime rates of 5.19% (2008: 1.76% to 19.29%) per annum. The secured bank overdrafts are secured by certain land and building of a subsidiary. 21. Deferred taxation Deferred tax liabilities: Accelerated tax depreciation Investment properties valuation Offshore income & others Deferred tax assets: Other provisions Unutilised tax benefits Group Company 2009 $’000 2008 $’000 167,141 175,860 88,117 431,118 159,029 212,017 78,951 449,997 (13,498) (5,823) (19,321) (40,323) (28,462) (68,785) 2009 $’000 - - - - 5,377 5,377 - - - - - - 2008 $’000 5,608 5,608 Net deferred tax liabilities 411,797 381,212 5,377 5,608 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 $722,190,000 (2008: $546,613,000) 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. notes to the Financial statements 193 Notes to the Financial Statements 21. Deferred taxation (continued) Movements in deferred tax liabilities and assets are as follows: Charged/ Charged/ (credited) to other comprehensive income $’000 (credited) to profit or loss $’000 At 1 January $’000 Subsidiary acquired Reclassification $’000 $’000 Exchange At differences 31 December $’000 $’000 159,029 (1,843) 212,017 (35,616) - - 9,765 - - - 190 167,141 (541) 175,860 78,951 449,997 14,497 (22,962) 14,309 14,309 - 9,765 (20,679) (20,679) 1,039 688 88,117 431,118 (40,323) (28,462) (68,785) (1,884) 22,889 21,005 - - - - - - 31,515 - 31,515 (2,806) (250) (3,056) (13,498) (5,823) (19,321) 381,212 (1,957) 14,309 9,765 10,836 (2,368) 411,797 116,215 42,001 210,607 1,426 - - 113,124 439,946 (18,042) 25,385 (14,216) (14,216) (31,232) (19,745) (50,977) (10,742) (8,831) (19,573) - - - 388,969 5,812 (14,216) 5,608 (231) 13,486 (7,878) - - - - - - - - - - - - 1,407 (594) 159,029 (31) 15 212,017 (1,436) (60) (479) (1,058) 78,951 449,997 (1,040) 14 (1,026) 2,691 100 2,791 (40,323) (28,462) (68,785) (1,086) 1,733 381,212 - - - - 5,377 5,608 Keppel Corporation Limited Report to Shareholders 2009 Group 2009 Deferred tax Liabilities Accelerated tax depreciation Investment properties valuation Offshore income & others Total Deferred tax Assets Other provisions Unutilised tax benefits Total net Deferred tax Liabilities 2008 Deferred tax Liabilities Accelerated tax depreciation Investment properties valuation Offshore income & others Total Deferred tax Assets Other provisions Unutilised tax benefits Total net Deferred tax Liabilities Company 2009 Deferred tax Liabilities Offshore income 2008 Deferred tax Liabilities Offshore income 194 22. 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 23. Staff costs Wages and salaries Employer’s contribution to Central Provident Fund Share options granted to Directors and employees Other staff benefits 24. 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 (including executive directors’ remuneration) - short-term employee benefits - post-employment benefits - share options granted Depreciation of fixed assets Write-off of investment properties Amortisation of intangibles Loss/(profit) on sale of fixed assets and investment properties Profit on sale of investments Fair value loss/(gain) on - investments - forward foreign exchange contracts - forward HSFO contracts notes to the Financial statements Group 2009 $’000 8,990,796 1,337,742 181,871 1,715,563 6,555 14,594 2008 $’000 8,946,107 731,160 165,078 1,932,229 6,569 24,283 12,247,121 11,805,426 Group 2009 $’000 1,093,522 96,026 23,682 159,175 2008 $’000 1,060,421 104,068 26,527 138,026 1,372,405 1,329,042 Group 2009 $’000 1,270 3,824 1,426 309 2008 $’000 1,171 3,984 580 139 642 80 31,326 420 3,119 173,846 255 467 5,781 (24,967) 64,320 8,112 (3,053) 34,959 69 4,993 138,699 380 379 (8,268) (45,263) 45,995 71,321 3,012 195 Notes to the Financial Statements 24. Operating profit (continued) Provision/(write-back) 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 Cost of stocks & properties held for sale recognised as expense Stocks written down/(recovered) Rental expense - operating leases Direct operating expenses - investment properties that generated rental income (Gain)/loss on differences in foreign exchange Non-audit fees paid to - auditors of the Company - other auditors of subsidiaries Group 2009 $’000 5,397 7,601 1,963 - (13,237) 11,382 60 614 (159) 13 858,217 72,975 2008 $’000 25,830 (2,190) (24,616) 14,668 3,650 (5,728) 163 155 514,132 (2,554) 60,647 52,088 59,843 (5,166) 51,757 101,554 118 608 74 314 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. 25. Investment income, interest income and interest expenses Investment income from: 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 gain/(loss) on interest rate caps and swaps 196 Group 2009 $’000 1,694 3,407 2008 $’000 2,074 10,013 5,101 12,087 73,676 71,002 (51,838) 2,163 (64,931) (13,740) (49,675) (78,671) Keppel Corporation Limited Report to Shareholders 2009 26. Exceptional items Gain on disposal of subsidiaries, associated companies and investments * Gain on acquisition of additional interest in subsidiaries Impairment (loss)/write-back: - Fixed assets (Note 5) - Associated companies (Note 8) - Long term receivables (Note 10) - Intangibles (Note 11) - Debtors (Note 14) - Other assets Other assets written off: - Costs associated with long term receivables - Foreign exchange translation deficit - Other receivables Fair value (loss)/gain on investment properties (Note 6) Share of associated companies (Note 8) Cost associated with restructuring of operations and others Taxation (Note 27) Minority interests Group 2009 $’000 639,464 6,895 (655) (61,000) (107,522) - (11,568) - - (21,870) (29,626) - (15,475) - (10,310) - (131,920) 100,684 (34,967) 322,130 24,060 346,190 14,316 2008 $’000 2,568 15,417 (1,036) (6,209) 1,921 2,448 4,471 7,684 (14,672) 12,592 (2,810) 9,782 (8,464) Attributable exceptional items 360,506 1,318 * In 2009, this represents substantially the gain on disposal of an associated company. 27. Taxation (a) Income tax expense Tax expense comprised: Current tax Adjustment for prior year’s tax Share of taxation of associated companies (Note 8) Others Deferred tax movement: Movements in temporary differences (Note 21) Group 2009 $’000 2008 $’000 289,420 (2,621) 57,226 5,807 218,191 (15,268) 71,066 8,229 (1,957) 5,812 347,875 288,030 notes to the Financial statements 197 Notes to the Financial Statements 27. 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 17% (2008: 18%) 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 26) (b) Movement in current income tax liabilities At 1 January Exchange differences Tax expense Adjustment for prior year’s tax Income taxes paid Reclassification Others At 31 December 28. 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 2009 $’000 2008 $’000 1,855,576 1,596,849 315,448 (41,316) 109,862 (6,816) (10,272) - 7,650 (2,621) (24,060) 287,433 (65,267) 68,545 (2,139) 11,916 (15,268) 2,810 347,875 288,030 Group Company 2009 $’000 344,020 5,268 289,420 (2,621) (172,200) 4,371 (17,307) 2008 $’000 351,864 5,528 218,191 (15,268) (229,306) (410) 13,421 2009 $’000 19,669 - - 13,000 (935) (5,334) - - 769 - 2008 $’000 15,305 8,573 (1,482) (2,727) 450,951 344,020 27,169 19,669 Group 2009 $’000 2008 $’000 Basic Diluted Basic Diluted 1,264,611 1,264,611 1,096,653 1,096,653 - 1,264,611 360,506 - 1,264,611 360,506 - 1,096,653 1,318 (109) 1,096,544 1,318 - - - 9 Adjusted net profit after exceptional items 1,625,117 1,625,117 1,097,971 1,097,871 198 Keppel Corporation Limited Report to Shareholders 2009 Weighted average number of ordinary shares Adjustment for dilutive potential ordinary shares Weighted average number of ordinary shares used to compute earnings per share Earnings per ordinary share Before exceptional items After exceptional items 29. Dividends Group 2009 number of shares ’000 2008 Number of Shares ’000 Basic Diluted Basic Diluted 1,593,398 - 1,593,398 3,474 1,590,353 - 1,590,353 5,614 1,593,398 1,596,872 1,590,353 1,595,967 79.4 cts 102.0 cts 79.2 cts 101.8 cts 69.0 cts 69.0 cts 68.7 cts 68.8 cts The Directors are pleased to recommend a final dividend of 23 cents per share tax exempt one-tier (2008: final dividend of 21 cents per share tax exempt one-tier) in respect of the financial year ended 31 December 2009 for approval by shareholders at the next Annual General Meeting to be convened. Together with the interim dividend of 15 cents per share tax exempt one-tier (2008: 14 cents per share tax exempt one- tier), total cash dividend paid and proposed in respect of the financial year ended 31 December 2009 will be 38 cents per share tax exempt one-tier (2008: 35 cents per share tax exempt one-tier). The Directors are also proposing a special dividend in specie of K-Green Trust units of approximately 23 cents per share tax exempt one-tier. The proposed distribution is conditional upon certain approvals being obtained as described in the announcement dated 26 January 2010. Together with the cash dividend, total distribution paid and proposed in respect of the financial year ended 31 December 2009 will be 61 cents per share (2008: 35 cents per share). During the financial year, the following dividends were paid: A final dividend of 21 cents per share tax exempt one-tier on the issued and fully paid ordinary shares in respect of the previous financial year An interim dividend of 15 cents per share tax exempt one-tier on the issued and fully paid ordinary shares in respect of the current financial year 30. Acquisition of subsidiary and business The following were acquired during the financial year: Subsidiary/business Date of acquisition Gross interest before acquisition Interest acquired Gross interest after acquisition $’000 334,558 239,004 573,562 Net assets acquired $’000 454,000 Consideration $’000 454,000 Senoko Incineration Plant 31.8.2009 Keppel DHCS Pte Ltd (previously First DCS Pte Ltd) 3.12.2009 - - 100% 100% 100% 100% 71,604 96,219 Details of net assets acquired are disclosed in the Consolidated Statement of Cash Flows. Had the above been acquired at the beginning of the year, the effect would not have been material to the consolidated financial statements and therefore is not disclosed. notes to the Financial statements 199 Notes to the Financial Statements 31. Commitments (a) Capital commitments Capital expenditure not provided for in the financial statements: In respect of contracts placed: - for purchase and construction of investment 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 investment properties - for purchase of other fixed assets - for purchase/subscription of shares in other companies Less: Minority shareholders’ shares Group 2009 $’000 2008 $’000 322,986 91,214 857,985 331,079 62,948 673,238 3,625 - 140,305 92,276 1,508,391 (548,047) 98,431 10,579 1,176,275 (524,472) 960,344 651,803 There was no significant 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 Company 2009 $’000 2008 $’000 55,100 198,259 707,541 50,651 149,898 633,376 960,900 833,925 2009 $’000 252 192 - - 444 2008 $’000 188 88 276 (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: Years after year-end: Within one year From two to five years After five years Group 2009 $’000 2008 $’000 Company 2009 $’000 2008 $’000 152,049 148,775 65,825 149,043 166,220 48,729 366,649 363,992 - - - - - - - - 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. 200 Keppel Corporation Limited Report to Shareholders 2009 32. 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 2009 $’000 2008 $’000 Company 2009 $’000 2008 $’000 24,656 27,001 686,376 741,413 - 300 57,521 60,533 54,055 47,912 - - - - - - 136,232 135,746 686,376 741,413 The financial effects of 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. 33. 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 34. Financial risk management Group 2009 $’000 6,540 - 2008 $’000 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. 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 cash flows 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 cash flow 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. notes to the Financial statements 201 Notes to the Financial Statements 34. Financial risk management (continued) As at the end of the financial year, the Group has outstanding forward foreign exchange contracts with notional amounts totalling $4,080,268,000 (2008: $4,261,980,000). The net positive fair value of forward foreign exchange contracts is $66,455,000 (2008: net negative fair value of $95,027,000) comprising assets of $106,000,000 (2008: $64,728,000) and liabilities of $39,545,000 (2008: $159,755,000). These amounts are recognised as derivative financial instruments in debtors (Note 14) and creditors (Note 17). As at the end of the financial year, the Company has outstanding forward foreign exchange contracts with notional amounts totalling $4,009,822,000 (2008: $4,146,968,000). The net positive fair value of forward foreign exchange contracts is $65,331,000 (2008: net negative fair value of $99,345,000) comprising assets of $102,502,000 (2008: $58,675,000) and liabilities of $37,171,000 (2008: $158,020,000). These amounts are recognised as derivative financial instruments in debtors (Note 14) and creditors (Note 17). 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: 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 UsD $’000 106,702 31,434 80,877 46,695 - - 501 - 2009 euro $’000 837 - 30,269 7,031 - others $’000 USD $’000 2008 Euro $’000 Others $’000 46,451 154,103 118,161 140,815 20,472 141,310 3,945 - 190,327 65,169 124,330 197,045 85,817 14,464 44,848 21,303 18,601 - 108,433 13,685 - 7,622 181 25,097 - 95,896 17 25,320 611 33,403 - 118 621 - 267 Sensitivity analysis for currency risk If the relevant foreign currency change against SGD by 5% (2008: 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 before tax equity 2009 $’000 2008 $’000 2009 $’000 2008 $’000 7,045 (7,045) 1,205 (1,205) 25 (25) 382 (382) 10,739 (10,739) 8,753 (8,753) 4,739 (4,739) 1,264 (1,264) 1,571 (1,571) 1,018 (1,018) - - - - - - - - - - - - 202 Keppel Corporation Limited Report to Shareholders 2009 (ii) Interest rate risk The Group is exposed to interest rate risk for changes in interest rates primarily for debt obligations, placements in the money market and investments in bonds. The Group policy is to maintain a mix of fixed and variable rate debt instruments with varying maturities. Where necessary, the Group uses derivative financial instruments to hedge interest rate risks. The Group purchases interest rate caps to hedge the interest rate risk exposure arising from its US$ and S$ variable rate term loans (Note 19). As at the end of the financial year, the Group has the following outstanding interest rate cap agreements. Year 2009 2008 Notional amount $48,579,000 Maturity 2011 Interest rate caps 3% $52,708,000 2009 - 2011 1.8% - 3% The positive fair values of interest rate caps for the Group are $78,000 (2008: $265,000). This amount is recognised as derivative financial instruments in debtors (Note 14). The Group enters into interest rate swap agreements to hedge the interest rate risk exposure arising from its S$ variable rate term loans (Note 19). As at the end of the financial year, the Group has interest rate swap agreements with notional amount totalling $366,765,000 (2008: $348,011,000) whereby it receives variable rates equal to SIBOR (2008: SIBOR) and pays fixed rates of between 2.55% and 4.42% (2008: 3.19% and 3.50%) on the notional amount. The net negative fair value of interest rate swaps for the Group is $15,564,000 (2008: $26,161,000) comprising assets of $2,340,000 (2008: $3,495,000) and liabilities of $17,904,000 (2008: $29,656,000). These amounts are recognised as derivative financial instruments in debtors (Note 14) and creditors (Note 17). Sensitivity analysis for interest rate risk If interest rates increase/decrease by 0.5% (2008: 0.5%) with all other variables held constant, the Group’s and Company’s profit before tax would have been lower/higher by $3,545,000 (2008: $5,084,000) and $nil (2008: $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 $73,529,000 (2008: $181,080,000). The net positive fair value of HSFO forward contracts for the Group is $9,073,000 (2008: net negative fair value of $73,977,000) comprising assets of $9,488,000 (2008: $3,128,000) and liabilities of $415,000 (2008: $77,105,000). These amounts are recognised as derivative financial instruments in debtors (Note 14) and creditors (Note 17). 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% (2008: 5%) with all other variables held constant, the Group’s hedging reserve in equity would have been higher/lower by $4,130,000 (2008: $3,677,000) as a result of fair value changes on cash flow hedges. If prices for quoted investments increase/decrease by 5% (2008: 5%) with all other variables held constant, the Group’s profit before tax would have been higher/lower by $3,017,000 (2008: $1,988,000) 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 $20,925,000 (2008: $14,066,000) as a result of higher/lower fair value gains on available-for-sale investments. notes to the Financial statements 203 Notes to the Financial Statements 34. Financial risk management (continued) 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. (ii) Financial assets that are past due but not impaired/partially impaired The age analysis of trade debtors past due but not impaired/partially impaired is as follows: Past due 0 to 3 months but not impaired Past due 3 to 6 months but not impaired Past due over 6 months and partially impaired Group 2009 $’000 254,892 149,638 122,779 2008 $’000 365,317 108,138 76,367 527,309 549,822 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 14. Liquidity Risk Prudent liquidity risk management requires the Group to maintain sufficient cash and marketable securities, internally generated cash flows, 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 19. 204 Keppel Corporation Limited Report to Shareholders 2009 The following table details the liquidity analysis for derivative financial instruments of the Group and the Company based on contractual undiscounted cash inflows/(outflows). Group 2009 Gross-settled forward foreign exchange contracts - Receipts - Payments Net-settled HSFO forward contracts - Receipts - Payments 2008 Gross-settled forward foreign exchange contracts - Receipts - Payments Net-settled HSFO forward contracts - Receipts - Payments Company 2009 Gross-settled forward foreign exchange contracts - Receipts - Payments 2008 Gross-settled forward foreign exchange contracts - Receipts - Payments Within one year $’000 Within one to two years $’000 Within two to five years $’000 3,789,510 (3,730,427) 367,391 (359,079) 3,439 (3,206) 9,292 (415) 160 - 37 - 2,848,157 (2,899,778) 1,180,269 (1,224,123) 109,091 (116,213) 3,128 (73,463) - (3,642) - - 3,737,912 (3,679,578) 353,197 (344,527) 1,448 (1,469) 2,782,373 (2,836,179) 1,146,506 (1,192,551) 94,169 (101,915) 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. The Group’s current strategy remains unchanged from 2008. Management monitors capital based on the Group net cash/(gearing). The Group net cash/(gearing) is calculated as net cash/(borrowings) divided by total capital. Net cash/(borrowings) are calculated as bank balances, deposits & cash (Note 16) less total term loans (Note 19) plus bank overdrafts (Note 20). Total capital refers to capital employed under equity. Net cash Total capital Net cash ratio notes to the Financial statements Group 2009 $’000 2008 $’000 1,176,592 274,668 8,712,573 6,748,507 0.14x 0.04x 205 Notes to the Financial Statements 34. Financial risk management (continued) Fair Value of Financial Instruments The Group classify fair value measurement using a fair value hierarchy that reflects the significance of the inputs used in making the measurement. The fair value hierarchy has the following levels: • Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities • Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (is as prices) or indirectly (i.e. derived from prices) • Level 3 - Inputs for the asset or liability that are not based on observable market data (unobservable inputs) The following table presents the assets and liabilities measured at fair value at 31 December 2009. Group 2009 Assets Derivative financial instruments Investments - Available-for-sale investments Short term investments - Available-for-sale investments - Investments held for trading Liabilities Derivative financial instruments Company 2009 Assets Derivative financial instruments Liabilities Derivative financial instruments Level 1 $’000 Level 2 $’000 Level 3 $’000 Total $’000 - 117,906 - 117,906 49,992 5,396 96,658 152,046 322,108 60,334 46,393 - 27,680 - 396,181 60,334 432,434 169,695 124,338 726,467 - 57,864 - 57,864 - - 102,502 37,171 - - 102,502 37,171 The following table presents the reconciliation of financial instruments measured at fair value based on significant unobservable inputs (Level 3). At 1 January Purchases Sales Fair value gain recognised in equity Reclassification Exchange differences At 31 December 2009 $’000 105,588 23,730 (596) (2,938) 1,343 (2,789) 124,338 206 Keppel Corporation Limited Report to Shareholders 2009 35. Segment analysis Offshore & Marine $’000 Infrastructure $’000 Property $’000 Investments $’000 Elimination $’000 Total $’000 2009 Revenue External sales Inter-segment sales Total segment results Operating profit Investment income Interest income Interest expenses Share of results of associated companies 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 Segment liabilities Net assets Investment in associated companies Additions to non-current assets Depreciation and amortisation Geographical information 8,273,390 - 8,273,390 2,426,513 170,229 2,596,742 1,508,247 2,591 1,510,838 38,971 57,921 96,892 - 12,247,121 (230,741) - (230,741) 12,247,121 1,003,907 1,866 33,195 (3,691) 126,474 - 7,833 (12,688) 371,181 3,133 44,581 (84,947) (1,088) 102 126,416 (82,381) 4,317 - (138,349) 134,032 1,504,791 5,101 73,676 (49,675) 45,546 28,526 142,028 105,583 1,080,823 (22,565) 1,058,258 (234,065) 824,193 150,145 (169,330) (19,185) (16,439) (35,624) 475,976 (30,546) 445,430 (74,655) 370,775 148,632 544,571 693,203 (22,716) 670,487 810,033 (22,550) 787,483 36,710 824,193 125,692 (167,396) (41,704) 6,080 (35,624) 209,445 4,270 213,715 157,060 370,775 119,441 546,182 665,623 4,864 670,487 - - - - - - - - - - - 321,683 1,855,576 322,130 2,177,706 (347,875) 1,829,831 1,264,611 360,506 1,625,117 204,714 1,829,831 5,807,974 4,250,761 1,557,213 2,887,191 2,017,490 869,701 9,983,553 5,503,550 4,480,003 4,907,752 3,102,096 1,805,656 (6,279,548) 17,306,922 8,594,349 (6,279,548) 8,712,573 - 108,940 239,822 125,274 182,213 69,108 34,800 2,199,896 404,500 13,718 232,120 467 521 - - - 2,723,169 713,897 174,313 External sales Non-current assets Far East & other ASEAN countries $’000 Singapore $’000 America $’000 8,489,626 6,708,057 1,494,261 1,068,854 1,713,466 170,310 Other countries $’000 549,768 74,485 Elimination $’000 Total $’000 - 12,247,121 8,021,706 - notes to the Financial statements 207 Notes to the Financial Statements 35. Segment analysis (continued) Offshore & Marine $’000 Infrastructure $’000 Property $’000 Investments $’000 Elimination $’000 Total $’000 2008 Revenue External sales Inter-segment sales Total segment results Operating profit Investment income Interest income Interest expenses Share of results of associated companies 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 Segment liabilities Net assets Investment in associated companies Additions to non-current assets Depreciation and amortisation Geographical information 8,569,185 - 8,569,185 2,232,549 202,219 2,434,768 949,589 2,543 952,132 54,103 61,683 115,786 11,805,426 - (266,445) - (266,445) 11,805,426 837,155 2,074 78,574 (18,780) 49,895 267 10,007 (24,469) 325,655 9,353 50,915 (91,420) (6,396) 393 111,063 (91,394) 32,165 - (179,557) 147,392 1,238,474 12,087 71,002 (78,671) 43,613 34,032 70,852 205,460 942,636 (6,209) 936,427 (197,206) 739,221 704,687 (6,209) 698,478 40,743 739,221 69,732 1,404 71,136 1,250 72,386 63,078 2,109 65,187 7,199 72,386 365,355 27,372 392,727 (52,089) 340,638 219,126 (9,975) 209,151 (39,985) 169,166 156,528 15,393 171,921 168,717 340,638 172,360 (9,975) 162,385 6,781 169,166 - - - - - - - - - - - 353,957 1,596,849 12,592 1,609,441 (288,030) 1,321,411 1,096,653 1,318 1,097,971 223,440 1,321,411 6,574,288 5,443,711 1,130,577 2,141,940 1,712,820 429,120 8,988,885 5,548,850 3,440,035 5,856,584 4,107,809 1,748,775 (6,815,254) 16,746,443 9,997,936 (6,815,254) 6,748,507 - 96,097 299,414 95,102 180,203 51,368 32,369 1,833,132 192,537 11,061 1,091,599 5,782 546 - - - 3,201,031 549,101 139,078 External sales Non-current assets Far East & other ASEAN countries $’000 Singapore $’000 America $’000 8,180,820 7,023,614 1,087,630 978,414 1,688,961 168,962 Other countries $’000 848,015 84,865 Elimination $’000 Total $’000 - - 11,805,426 8,255,855 208 Keppel Corporation Limited Report to Shareholders 2009 Note: (a) The Group is organised into business units based on their products and services, and has four reportable operating segments: Offshore & Marine, Infrastructure, Property and Investments. The Investments division consists mainly of the Group’s investments in k1 Ventures Ltd and MobileOne Ltd. In June 2009, the Group sold its entire stake in SPC which was previously included in the Investments division. (b) Pricing of inter-segment goods and services is at fair market value. 36. New accounting standards and recommended accounting practice (a) At the date of authorisation of the financial statements, the following FRS, INT FRS and amendments to FRS that are relevant to the Group and the Company were issued but not yet effective: Amendments to FRS 39 INT FRS 117 INT FRS 118 FRS 27 (Revised) FRS 103 (Revised) Financial Instruments: Recognition and Measurement – Eligible Hedged Items Distributions of Non-Cash Assets to Owners Transfer of Assets to Customers Consolidated and Separate Financial Statements Business Combination The Directors anticipate that the adoption of the above FRS, INT FRS and amendments to FRS in future periods is not expected to have a material impact on the financial statements of the Group and of the Company in the period of their initial adoption. (b) RAP 11 Pre-Completion Contracts for the Sale of Development Property The International Accounting Standards Board issued International Financial Reporting Interpretations Committee (“IFRIC”) Interpretation 15 in July 2008 which becomes effective for financial years beginning on or after 1 January 2009. When adopted, the interpretation is to be applied retrospectively. It clarifies when and how revenue and related expenses from the sale of a real estate unit should be recognised if an agreement between a developer and a buyer is reached before construction of the real estate is completed. Furthermore, the interpretation provides guidance on how to determine whether an agreement is within the scope of IAS 11 (Construction Contracts) or IAS 18 (Revenue). RAP 11 is still applicable in Singapore as IFRIC Interpretation 15 has not been adopted by the Accounting Standards Council. RAP 11 was issued by the Institute of Certified Public Accountants of Singapore in October 2005. In the RAP, it is mentioned that a property developer’s sale and purchase agreement is not a construction contract as defined in FRS 11 (Construction Contracts) 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. notes to the Financial statements 209 Notes to the Financial Statements 36. New accounting standards and recommended accounting practice (continued) 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)/increase in revenue recognised for the year (Decrease)/increase in profit for the year Increase/(decrease) in carrying value of property held for sale Balance as at 1 January Balance as at 31 December Increase/(decrease) in minority interests Balance as at 1 January Share of profit for the year 37. Significant subsidiaries and associated companies 2009 $’000 2008 $’000 (186,558) (239,573) (82,514) 569,010 (78,599) 53,015 28,686 390,350 (98,341) 28,686 (195,582) 24,368 (205,194) 9,612 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. 210 Keppel Corporation Limited Report to Shareholders 2009 Significant Subsidiaries and Associated Companies Gross Effective Equity Interest 2009 % Interest 2009 % 2008 % Cost of Investment 2009 $’000 2008 $’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(4) 100 100 100 AzerFELS Pte Ltd Benniway Pte Ltd BrasFELS SA(1a) 60 88 60 88 60 88 100 100 100 Caspian Shipyard Company Ltd(1a) 75 45 45 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 Keppel AmFELS Inc(3) 100 100 100 Keppel FELS Baltech Ltd(3) 100 100 100 Keppel FELS Brasil SA(1a) 100 100 100 Keppel FELS Offshore & Engineering Services Mumbai Pte Ltd(3) 100 100 100 # # # # # # # # # # # # # # # # # # BVI/Mexico Holding of long-term investments Singapore Holding of long-term investments Singapore 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 Project management, engineering and procurement # USA Construction and repair of offshore drilling rigs and offshore production facilities # # Bulgaria Marine and offshore engineering services Brazil Engineering, construction and fabrication of platforms for the oil and gas industry # India Marine and offshore engineering services significant subsidiaries and Associated Companies 211 Significant Subsidiaries and Associated Companies Gross Effective Equity Interest 2009 % Interest 2009 % 2008 % Cost of Investment 2009 $’000 2008 $’000 Country of Incorporation /Operation Principal Activities Keppel Norway A/S(1a) 100 100 100 Keppel Offshore & Marine Technology Centre Pte Ltd 100 100 100 Keppel Verolme BV(1a) 100 100 100 KV Enterprises BV(1a) 100 100 100 Marine & Offshore Protection & Preservation BV(1a) 100 100 100 Offshore Technology Development Pte Ltd 100 100 100 Prismatic Services Ltd(4) 100 100 100 Regency Steel Japan Ltd(1a) 51 51 51 Willalpha Ltd(4) 100 100 100 Associated Companies Asian Lift Pte Ltd 50 50 50 Keppel Kazakhstan LLP(3) 50 50 50 Marine subsidiaries Keppel Shipyard Ltd 100 100 100 Keppel Philippines Marine Inc(1a) 96 96 96 Alpine Engineering Services Pte Ltd 100 100 100 Blastech Abrasives Pte Ltd 100 100 100 Keppel Nantong Shipyard Company Limited(3) 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(4) 100 100 100 Maju Maritime Pte Ltd 51 51 51 # # # # # # # # # # # # # # # # # # # # # # Norway Construction and repair of offshore drilling rigs and offshore production facilities # Singapore Research & development # 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 Production of jacking systems # # BVI/Brazil Project procurement Japan Sourcing, fabricating and supply of specialised steel components # BVI/Vietnam Holding of long-term investments # 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 conversions # # # # # # # # # Philippines Shipbuilding and repairing Singapore Marine contracting Singapore Marine contracting China Shipbuilding Singapore Shipbuilding Singapore Provision of towage services Singapore Holding of long-term investments BVI/Norway Holding of long-term investments Singapore Provision of towage services 212 Keppel Corporation Limited Report to Shareholders 2009 Gross Effective Equity Interest 2009 % Interest 2009 % 2008 % Cost of Investment 2009 $’000 2008 $’000 Country of Incorporation /Operation Principal Activities Marine Technology Development Pte Ltd 100 100 100 # # Singapore Provision of technical consultancy for ship design and engineering works Associated Companies Arab Heavy Industries Public Joint Stock Company(3) 33 33 33 # # UAE Shipbuilding and repairing Consort Land Inc(1a) 33+ 32+ 32+ 54 54 Philippines Land holding company and power distributor Kejora Resources Sdn Bhd(3) 49 25 25 Nakilat-Keppel Offshore & Marine Ltd(1a) 20 20 20 # # # Malaysia Chartering tugs and other marine services # Qatar Shiprepairing Subic Shipyard & Engineering Inc(1a) 46+ 44+ 44+ 3,020 3,020 Philippines Shipbuilding and repairing INFRASTRUCTURE Power Generation subsidiaries Keppel Energy Pte Ltd 100 100 100 330,914 330,914 Singapore Investment holding Corporacion Electrica Nicaraguense SA(1a) - - 100 Dawley Developments Ltd(4) 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(4) 100 100 100 Okachi Investments Ltd(4) 100 100 100 Termoguayas Generation SA(1a) 100 100 100 - # # # # # # # # Nicaragua Disposed # # # # # # # BVI/HK Holding of long-term investments Singapore Electricity, energy and power supply, 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 BVI/HK Holding of long-term investments Ecuador Commercial power generation significant subsidiaries and Associated Companies 213 Significant Subsidiaries and Associated Companies Gross Effective Equity Interest 2009 % Interest 2009 % 2008 % Cost of Investment 2009 $’000 2008 $’000 Country of Incorporation /Operation Principal Activities environmental engineering subsidiaries Keppel Integrated Engineering Ltd 100 100 100 272,554 171,574 Singapore Investment holding Keppel Seghers Engineering Singapore Pte Ltd 100 100 100 # # Singapore Fabrication of steel structures, mechanical and electrical works and engineering services specialising in treatment plants K-Green Trust(n) 100 100 - Brixworth Group Ltd(4) 100 100 100 FELS Cranes Pte Ltd 100 100 100 Keppel DHCS Pte Ltd 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 Investment holding BVI/Qatar Trading in industrial goods Singapore Fabrication of heavy cranes and provision of marine-related equipment Singapore Development of district cooling system Singapore Construction, project and facilities management and operational maintenance of industrial and commercial complexes # Australia Metal fabrication # Singapore Keppel Seghers Belgium NV(1a) 100 100 100 # # Belgium Trading and installation of hardware, industrial, marine and building-related products, leasing and provision of services 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 Keppel Seghers NeWater Development Co Pte Ltd Keppel Seghers Tuas Waste-to-Energy Plant Pte Ltd 100 100 100 100 100 100 Senoko Waste-to-Energy Pte Ltd(n) 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 - Singapore Investment holding 214 Keppel Corporation Limited Report to Shareholders 2009 Gross Effective Equity Interest 2009 % Interest 2009 % 2008 % Cost of Investment 2009 $’000 2008 $’000 Country of Incorporation /Operation Principal Activities Associated Companies GE Keppel Energy Services Pte Ltd(2) 50 50 50 Tianjin Eco-City Energy Investment & Construction Co Ltd(3) 20 20 20 Tianjin Eco-City Environmental Protection Co Ltd(3) 20 20 20 # # # # Singapore Precision engineering, repair, services and agencies # China # China Investment and implementation of energy and utilities related infrastructure Investment, construction and operation of infrastructure for environmental protection 80 80 80 397,647 397,647 Singapore Investment, management and holding company network & Logistics subsidiaries Keppel Telecommunications & Transportation Ltd(2) DataOne Asia Pte Ltd(2) ECHO Broadband Gmbh(2a) Keppel Communications Pte Ltd(2) 100 100 100 80 80 80 80 80 80 Keppel Logistics (Foshan) Ltd(3) 70 56 56 Keppel Logistics Pte Ltd(2) Keppel Telecoms Pte Ltd(2) 100 100 80 80 80 80 Transware Distribution Services Pte Ltd(2) 50 40 40 Associated Companies Advanced Research Group Co Ltd(2a) 45 36 36 Asia Airfreight Terminal Company Ltd(3) 10 8 8 Citadel 100 Datacenters Ltd(3) 50 40 40 Computer Generated Solutions Inc(3) Radiance Communications Pte Ltd(2) 21 50 17 40 17 40 # # # # # # # # # # # # # 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 # Thailand IT publication and business information # HK Operation of air cargo handling terminal # Ireland Provision of data centre facilities and co-location services # # USA IT consulting and outsourcing provider Singapore Distribution and maintenance of communications equipment and systems significant subsidiaries and Associated Companies 215 Significant Subsidiaries and Associated Companies Gross Effective Equity Interest 2009 % Interest 2009 % 2008 % Cost of Investment 2009 $’000 2008 $’000 Country of Incorporation /Operation Principal Activities SVOA Public Company Ltd(2a) 32 26 26 Trisilco Folec Sdn Bhd(2a) 30 24 44 Trisilco Radiance Communications Sdn Bhd(2a) 40 32 32 Wuhu Annto Logistics Company Ltd(3) 35 28 28 # # # # # Thailand # Malaysia # Malaysia Distribution of IT products and telecommunications services Trading and provision of communications systems and accessories Sales, installation and maintenance of telecommunications systems, equipment and accessories # China Transportation, warehousing and distribution PRoPeRtY subsidiaries Keppel Land Ltd(2) 52 52 53 1,330,220 931,432 Singapore Holding, management and investment company K-REIT Asia(2) 76 54 55 Keppel Bay Pte Ltd 100+ 86+ 86+ Keppel Philippines Properties Inc(2a) 79+ 55+ 55+ # 626 493 # Singapore Real estate investment trust 626 Singapore Property development 493 Philippines Investment holding Alpha Investment Partners Ltd(2) 100 Avenue Park Development(2) Bayfront Development Pte Ltd(2) Beijing Kingsley Property Development Co Ltd(3) Bintan Bay Resort Pte Ltd(2) Boulevard Development Pte Ltd(2) Changzhou Fushi Housing Development Pte Ltd(3) Chengdu Hillwest Development Co Ltd(3) Da Di Investment Pte Ltd(2) Devonshire Development Pte Ltd(2) DL Properties Ltd(2) Double Peak Holdings Ltd(4) Doversdale Development Pte Ltd(2) Estella JV Co Ltd(1a) Evergro Properties Ltd(2) 52 27 52 52 47 52 52 53 28 53 53 48 53 45 52 100 100 90 100 100 100 52 53 100 60 65 100 100 55 100 52 31 34 52 52 29 52 53 32 34 53 53 29 45 # # # # # # # # # # # # # # # # # # # # # # Singapore Fund management Singapore Property development Singapore Investment holding China Property development Singapore Investment holding Singapore Investment holding China Property development # China Property development # # # # # # # Singapore Investment holding Singapore Property development Singapore Property investment BVI/Singapore Investment holding Singapore Investment holding Vietnam Property development Singapore Property investment and development 216 Keppel Corporation Limited Report to Shareholders 2009 Gross Effective Equity Interest 2009 % Interest 2009 % 2008 % Cost of Investment 2009 $’000 2008 $’000 Country of Incorporation /Operation Principal Activities International Centre(1a) Jiangyin Evergro Properties Co Ltd(3) KeplandeHub Ltd(2) Keppel Al Numu Development Ltd(2a) Keppel China Township Development Pte Ltd(2) Keppel Hong Da (Tianjin Eco-City) Property Development Co Ltd(n)(3) Keppel Land (Saigon Centre) Ltd(3) Keppel Land (Tower D) Pte Ltd(2) Keppel Land Financial Services Pte Ltd(2) Keppel Land International Ltd(2) Keppel Land Properties Pte Ltd(2) Keppel Land Realty Pte Ltd(2) Keppel Land Watco I Co Ltd(3) Keppel Puravankara Development Pvt Ltd(3) Keppel Thai Properties Public Co Ltd(2a) Keppel Township Development (Shenyang) Co Ltd(3) K-REIT Asia Investment Pte Ltd(2) K-REIT Asia Management Ltd(2) K-REIT Asia Property Management Ltd(2) Le Vision Pte Ltd(2) Ocean & Capital Properties Pte Ltd(2) Ocean Properties Pte Ltd(2) OIL (Asia) Pte Ltd(2) Pembury Properties Ltd(4) PT Kepland Investama(1a) PT Mitra Sindo Makmur(1a) PT Mitra Sindo Sukses(1a) 79 83 100 51 52 43 52 27 53 40 53 27 100 52 53 100 74 - 100 100 100 100 100 100 68 51 52 52 52 52 52 52 35 27 53 53 53 53 53 53 36 27 45 23 24 100 52 53 100 100 100 100 100 76 100 100 100 51 51 52 52 52 52 52 40 52 52 52 27 27 53 53 53 53 53 40 53 53 53 27 27 # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # Vietnam Property investment China Property development Singapore Investment holding Singapore/ Saudi Arabia Property development # Singapore Investment holding - China Property development # # # # # # # # HK Investment holding Singapore Property development and investment 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 Property and investment holding Singapore Property investment Singapore Investment holding BVI/Singapore Investment holding Indonesia Property investment and development Indonesia Property development and investment Indonesia Property development and investment significant subsidiaries and Associated Companies 217 Significant Subsidiaries and Associated Companies Gross Effective Equity Interest 2009 % Interest 2009 % 2008 % Cost of Investment 2009 $’000 2008 $’000 Country of Incorporation /Operation Principal Activities PT Ria Bintan(1a) PT Sentral Supel Perkasa(2a) PT Sentral Tanjungan Perkasa(2a) PT Straits-CM Village(1a) Quang Ba Royal Park JV Co(3) Riviera Core JV LLC(2a) Riviera Point LLC(2) Saigon Centre Holdings Pte Ltd(2) Saigon Centre Investment Ltd(4) Saigon Riviera JV Co Ltd(2a) Saigon Sports City(2a) Shanghai Floraville Land Co Ltd(3) Shanghai Hongda Property Development Co Ltd(3) Shanghai Merryfield Land Co Ltd(3) Shanghai Minghong Property Co Ltd(3) Shanghai Pasir Panjang Land Co Ltd(3) Sherwood Development Pte Ltd(2) Spring City Resort Pte Ltd(2) Straits Greenfield Ltd(3) Straits Properties Ltd(2) Straits Property Investments Pte Ltd(2) 100 80 80 100 70 60 75 100 100 90 100 99 100 99 99 24 42 42 20 34 31 39 52 52 47 47 51 52 51 51 24 42 42 21 34 32 40 53 53 48 48 52 53 52 52 99 51 52 100 100 100 100 100 52 52 52 52 52 52 52 52 52 53 53 53 53 53 53 45 45 53 Tat Chuan Development (Pte) Ltd(2) 100 Third Dragon Development Pte Ltd(2) 100 Tianjin Fushi Property Devt Co Ltd(3) 100 Tianjin Merryfield Property Development Co Ltd(3) 100 Wiseland Investment Myanmar Ltd(3) 100 52 53 # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # Indonesia Golf course ownership and operation Indonesia Property investment and development Indonesia Property development Indonesia Hotel ownership and operations Vietnam Property investment Vietnam Property development Vietnam Property investment Singapore Investment holding BVI/HK Investment holding Vietnam Property development Vietnam Property development China China China China 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 and investment Singapore Investment holding Singapore Property development Singapore Investment holding and marketing agent China China Property development Property development # 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+ 85+ Petro Tower Ltd(3) 76 64 64 # 7 # # 7 # Singapore Property investment Singapore Investment holding Vietnam Property investment 218 Keppel Corporation Limited Report to Shareholders 2009 Gross Effective Equity Interest 2009 % Interest 2009 % 2008 % Cost of Investment 2009 $’000 2008 $’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 Group Eco-City Investments Pte Ltd 100+ 83+ 100 14,510 20 Singapore Investment holding Keppel (USA) Inc(4) 100 100 100 7,117 9,702 USA Investment holding Keppel Houston Group LLC(4) 100 86 86 Keppel Kunming Resort Ltd(3) 100 100 100 # 4 # 4 USA HK Property investment Property investment Keppel Point Pte Ltd 100+ 86+ 86+ 122,785 122,785 Singapore Property development and investment 100 100 100 50,000 50,000 Singapore Investment holding Keppel Real Estate Investment Pte Ltd Singapore Tianjin Eco-City Investment Holdings Pte Ltd 100 83 100 Substantial Enterprises Ltd(4) 100 83 100 Associated Companies Asia No. 1 Property Fund Ltd(1a) Asia Real Estate Fund Management Ltd(2) BFC Development Pte Ltd(2) Bugis City Holdings Pte Ltd(2) Central Boulevard Development Pte Ltd(2) CityOne Development (Wuxi) Co Ltd(3) CityOne Township Development Pte Ltd(2) Dong Nai Waterfront City LLC(2a) EM Services Pte Ltd(3) Harbourfront Three Pte Ltd(3) Harbourfront Two Pte Ltd(3) Keppel Magus Development Pvt Ltd(3) 10 50 33 31 33 5 26 17 16 17 5 27 17 16 17 50 26 27 50 26 27 50 25 39 39 38 26 13 33 33 20 27 13 33 33 20 Kingsdale Development Pte Ltd(2) 50 26 27 # # # # # # # # # # # # # # # # Singapore Investment holding # BVI/China Investment holding # Guernsey Property investment # Singapore Fund management # # # Singapore Property development Singapore Under liquidation Singapore Property development # China Property development # Singapore Investment holding # # # # # Vietnam Property development Singapore Property management Singapore Property development Singapore Property development India Property development # Singapore Investment holding significant subsidiaries and Associated Companies 219 Significant Subsidiaries and Associated Companies Gross Effective Equity Interest 2009 % Interest 2009 % 2008 % Cost of Investment 2009 $’000 2008 $’000 Country of Incorporation /Operation Principal Activities 33 50 50 25 25 20 40 25 50 17 26 26 13 13 10 21 13 42 17 27 27 13 13 11 21 13 - One Raffles Quay Pte Ltd(2) Parksville Development Pte Ltd(2) PT Pantai Indah Tateli(2a) PT Pulomas Gemala Misori(3) PT Purimas Straits Resort(3) PT Purosani Sri Persada(3) Renown Property Holdings (M) Sdn Bhd(2a) SAFE Enterprises Pte Ltd(3) Sino-Singapore Tianjin Eco-City Investment and Development Co., Ltd(n)(1a) INVESTMENTS subsidiaries Keppel Philippines Holdings Inc(2a) 54+ 54+ 54+ China Canton Investments Ltd 75 75 75 # # # # # # # # # - # # # # # # # Singapore Property development Singapore Property investment Indonesia Property development Indonesia Property development Indonesia Development of holiday resort Indonesia Property investment # Malaysia Property investment # - - # Singapore Investment holding China Property development Philippines Investment holding Singapore Investment holding Kep Holdings Ltd(4) 100+ 100+ 100+ 10,480 10,480 BVI/HK Investment company Kephinance Investment (Mauritius) Pte Ltd(3) 100 100 100 # # Mauritius Investment holding Kephinance Investment Pte Ltd 100 100 100 90,000 90,000 Singapore Investment holding Kepital Management Ltd(3) 100 100 100 # # HK Investment company Kepmount Shipping (Pte) Ltd 100 100 100 4,000 4,000 Singapore Investment holding Keppel Investment Ltd 100 100 100 # # 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 30,650 16,160 Singapore Investment holding KI Investments (HK) Ltd(3) 100 100 100 KV Management Pte Ltd 100 100 100 Travelmore Pte Ltd 100 100 100 The Vietnam Investment Fund (Singapore) Ltd 56 56 56 # 250 265 # # HK Investment company 250 Singapore Fund management 265 Singapore Travel agency # Singapore Venture capital fund 220 Keppel Corporation Limited Report to Shareholders 2009 Gross Effective Equity Interest 2009 % Interest 2009 % 2008 % Cost of Investment 2009 $’000 2008 $’000 Country of Incorporation /Operation Principal Activities - 36 20 - 36 16 45 36 16 - # # # # # Singapore Disposed Singapore Investment holding Singapore Telecommunications services 3,662,066 3,135,903 3,074 3,074 Associated Companies Singapore Petroleum Company Ltd k1 Ventures Ltd MobileOne Ltd(2) Total subsidiaries Associated Companies Notes: (i) All the companies are audited by Deloitte & Touche LLP, Singapore except for the following: (1a) Audited by overseas practice of Deloitte & Touche LLP; (2) Audited by Ernst & Young LLP, Singapore; (2a) Audited by overseas practice of Ernst & Young LLP; (3) Audited by other firms of auditors (not significant associated companies and foreign subsidiaries); and (4) 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. (ii) + The shareholdings of these companies are held jointly with other subsidiaries. (iii) # The shareholdings of these companies are held by subsidiaries of Keppel Corporation Limited. (iv) (v) The subsidiaries’ place of business is the same as its country of incorporation, unless otherwise specified. (vi) Abbreviations: (n) These companies were incorporated during the financial year. British Virgin Islands (BVI) Hong Kong (HK) United Arab Emirates (UAE) United States of America (USA) (vii) The Company has 211 significant subsidiaries and associated companies as at 31 December 2009. Subsidiaries and associated companies are considered as significant (a) in accordance to Rule 718 of The Singapore Exchange Securities Trading Limited – Listing Rules, or (b) by reference to the significance of their economic activities. significant subsidiaries and Associated Companies 221 Statement by Directors For the financial year ended 31 December 2009 We, CHOO CHIAU BENG 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 158 to 221 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 2009, and of the results, changes in equity and cash flows 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 Choo Chiau Beng Chief Executive Officer Singapore, 1 March 2010 Teo Soon Hoe Group Finance Director 222 Keppel Corporation Limited Report to Shareholders 2009 Independent Auditors’ Report to the Members of Keppel Corporation Limited For the financial year ended 31 December 2009 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 2009, the profit and loss account, statement of comprehensive income, statement of changes in equity and statement of cash flows 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 158 to 221. Management’s Responsibility for the Financial Statements Management is 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: devising and maintaining a system of internal accounting controls sufficient to provide a reasonable assurance that assets are safeguarded against loss from unauthorised use or disposition; and transactions are properly authorised and that they are recorded as necessary to permit the preparation of true and fair profit and loss account and balance sheet and to maintain accountability of assets; 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 management, 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 2009 and of the results, changes in equity and cash flows 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 LLP Public Accountants and Certified Public Accountants Singapore Chaly Mah Chee Kheong Partner Appointed on 28 April 2006 1 March 2010 Independent Auditors’ Report 223 Interested Person Transactions During the financial year, the following interested person transactions were entered into by the Group: Name of interested person transaction for the sale of Goods and services Gas Supply Pte Ltd PSA Corporation Group Mount Faber Leisure Group SembCorp Industries Group SembCorp Marine Group Singapore Airlines Group Singapore Power/PowerSeraya Group transaction for the Purchase of Goods and services CapitaLand Group Gas Supply Pte Ltd Mapletree Investments Pte Ltd SembCorp Industries Group total Interested Person transactions 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) 2009 $’000 2008 $’000 2009 $’000 2008 $’000 - - - - - - - - - - - - - - - - - - - - - - - - 25,420 - 142 482 2,179 - - - 28,500 570 2,500 - 61,550 4,379 145 110 1,073 15,900 25,462 4,532 90,000 2,478 59,793 205,629 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. 224 Keppel Corporation Limited Report to Shareholders 2009 Directors and Key Executives Lee Boon Yang, 62 Chairman and Independent Director B.V.Sc Hon (2A), University of Queensland, 1971. Chairman of Keppel Corporation Limited with effect from 1 July 2009 (Appointed Chairman Designate and independent non-executive Director on 1 May 2009). An independent and non-executive Director, he is a member of the Remuneration, Nominating and Board Safety Committees. After graduation, he worked as a veterinarian and R&D Officer in the government’s Primary Production Department from 1972 to 1981. In 1981, he joined the regional office of the US Feed Grains Council as Assistant Regional Director. A year later, he joined the Primary Industries Enterprise Pte Ltd as Senior Manager (Projects). In 1984, he stood as a candidate in the Singapore General Elections. Since then he held the Jalan Besar parliamentary seat for six consecutive terms. In 1985, he was appointed Parliamentary Secretary to the Minister for the Environment and the Minister for Communications and Information. Subsequently he served as Parliamentary Secretary to the Minister for Finance and the Minister for Home Affairs. In 1986, he was appointed Minister of State for Trade and Industry and Home Affairs. A year later he relinquished his portfolio as Minister of State for Trade and Industry and took on the appointment of Minister of State for National Development. In 1988, he was appointed Senior Minister of State for National Development and Home Affairs. He was also appointed the Government Whip. In November 1990, he was appointed Senior Minister of State for Defence. He was appointed Minister in the Prime Minister’s Office in July 1991, concurrently holding the post of Second Minister for Defence. In January 1992, he relinquished his post as Minister in the Prime Minister’s Office and took on the appointments of Minister for Labour and Second Minister for Defence. In 1994, he was appointed Minister for Defence and Minister for Labour (The Labour Ministry was later reorganised into the Ministry of Manpower in 1998). He relinquished his Defence portfolio in August 1995. In May 2003, he relinquished the Manpower portfolio to serve as Minister for Information, Communications and the Arts. He retired from political office on 31 Mar 2009. He continues to serve as MP for Jalan Besar GRC. Lim Hock San, 63 Deputy Chairman and 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). Deputy Chairman with effect from 1 July 2009 (Director since 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 Audit Committee, Chairman of the Remuneration Committee and a member of the 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, the National Council Against Problem Gambling and Ascendas Pte Ltd. 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. Directors and Key executives 225 Directors and Key Executives Choo Chiau Beng, 62 Chief Executive Officer 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 as Chief Executive Officer on 1 January 2009 (Director since 1983; date of last re-election: 24 April 2009). Member of the Board Safety Committee. Mr Choo is the Chairman of Keppel Offshore & Marine Ltd, Keppel Land Limited and Keppel Energy Pte Ltd. He is also a director of k1 Ventures Limited. 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 a Board Member of Energy Studies Institute, a Board and Council Member of American Bureau of Shipping and the Chairman of Det Norske Veritas South East Asia Committee. He is a member of the American Bureau of Shipping’s Southeast Asia Regional Committee, Special Committee on Mobile Offshore Drilling Units, Nanyang Business School Advisory Board and Singapore University of Technology and Design’s Board of Trustee. Mr Choo was conferred the Public Service Star Award (BBM) in August 2004, The Meritorious Service Award in 2008 and The NTUC Medal of Commendation (Gold) Award in May 2007. He is Singapore’s Non-Resident Ambassador to Brazil. Sven Bang Ullring, 74 Independent Director Master of Science, Swiss Federal Institute of Technology (ETH), Zurich. Appointed to the Board in 2000 (date of last re-election: 24 April 2009). An independent and non-executive Director, he is the Chairman of the Board Safety Committee and a member of the Nominating and Remuneration Committees. Mr Ullring 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. Mr Ullring is the Chairman of the Board of The Fridtjof Nansen Institute, Oslo, Norway, Chairman of the Maritime and Port Authority of Singapore’s Third Maritime and Research and Development Advisory Panel and Chairman of the Board of Transparency International (Norway). 226 Keppel Corporation Limited Report to Shareholders 2009 Tony Chew Leong-Chee, 63 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: 25 April 2008). An independent and non-executive Director, he was the Company’s Lead Independent Director until the appointment of Dr Lee Boon Yang as the Company’s independent and non-executive Chairman on 1 July 2009. Mr Chew is the Chairman of the Nominating Committee and a member of the Audit Committee. He is Executive Chairman of Asia Resource Corporation and Chairman of KFC Vietnam. He also serves on the boards of Macondray Corporation, Orangestar Investment Holdings Pte Ltd, SBF Holdings Pte Ltd and SBF-PICO Events 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 Chairman of Singapore Business Federation as well as Governing Board of Duke- NUS Graduate Medical School Singapore. He is also Governing Board member of the Economic Research Institute for ASEAN and East Asia, the Chinese Development Assistance Council Board of Trustees, and Advisor to the Singapore Institute of International Affairs. He is a Public Service Award recipient. Oon Kum Loon, 59 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, she is the Chairperson of the Board Risk Committee and a member of the Audit, Nominating and Remuneration 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 SP PowerGrid Ltd and China Resources Microelectronics Limited. She is also a member of the Board Risk Management Committee of Singapore Power Ltd. Tow Heng Tan, 54 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 a member of the Nominating, 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 (Private) 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. Directors and Key executives 227 Directors and Key Executives Alvin Yeo, 48 Independent Director LLB Honours, King’s College London, University of London. Appointed to the Board on 1 June 2009, Mr Alvin Yeo is an independent and non-executive Director. He is a member of the Audit and Board Risk Committees. Mr Alvin Yeo is the Senior Partner of WongPartnership LLP. He was admitted to the English Bar in 1987 and to the Singapore Bar in 1988. In January 2000, Mr Yeo became the youngest lawyer to be appointed Senior Counsel. Mr Yeo is a member of the Monetary Authority of Singapore advisory panel to advise the Minister on appeals under various financial services legislation, the Singapore International Arbitration Centre’s Council of Advisors, and a Fellow of the Singapore Institute of Arbitrators. He is a Member of Parliament and the Chairman of the Government Parliamentary Committee for Home Affairs and Law. Mr Yeo is a director and Chairman of the Remuneration Committees of United Industrial Corporation Limited and Singapore Land Limited. He is also a director of Tuas Power Ltd and Tuas Power Generation Pte Ltd. He was a former member of the Senate of the Academy of Law, the Council of the Law Society, and the board of the Civil Service College. Teo Soon Hoe, 60 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: 25 April 2008). A Senior Executive Director and the Group Finance Director. Mr Teo is the Chairman of Keppel Telecommunications & Transportation Ltd, MobileOne 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 and k1 Ventures Limited. 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. Tong Chong Heong, 63 Executive Director Graduate of Management Development Programme, Harvard Business School; Stanford - NUS Executive Programme, Diploma in Management Studies, The University of Chicago Graduate School of Business. Appointed to the Board on 1 August 2009. He is an Executive Director. Mr Tong has been appointed Chief Executive Officer of Keppel Offshore & Marine (KOM) on 1 January 2009. Prior to that, he was the Managing Director/Chief Operating Officer of KOM since May 2002. He is also the Managing Director of Keppel FELS and Keppel Shipyard. He is also Chairman of Keppel Integrated Engineering Limited with effect from 3 August 2009. Mr Tong 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, Fellow of The Royal Institute of Naval Architects (RINA) UK as well as Fellow of Institute of Marine Engineering, Science & Technology. His directorships include Keppel Offshore & Marine Ltd, Keppel FELS Limited, Keppel Shipyard Ltd and Keppel Integrated Engineering Ltd. 228 Keppel Corporation Limited Report to Shareholders 2009 Key Executives In addition to the Chief Executive Officer (Mr Choo Chiau Beng), the Senior Executive Director (Mr Teo Soon Hoe) and the Executive Director (Mr Tong Chong Heong), the following are the key executive officers (“Key Executives”) of the Company and its principal subsidiaries: Kevin Wong Kingcheung, 54 Bachelor degree in Civil Engineering with First Class Honours, Imperial College, London; Masters degree, Massachusetts Institute of Technology, USA. Mr Wong has been Group Chief Executive Officer/Managing Director, Keppel Land Limited since January 2000. Prior to this appointment, he was Executive Director since November 1993. He is Deputy Chairman and Director of K-REIT Asia Management Limited. He is a Board Member of the Building and Construction Authority (BCA), and Deputy Chairman of BCA Academy Advisory Panel. He is also a director of Prudential Assurance Company Singapore (Pte) Limited. Prior to joining Keppel Land Limited, Mr Wong had diverse experience in the real estate industry in the UK, USA and Singapore. Ong Tiong Guan, 51 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.. Michael Chia Hock Chye, 57 Colombo Plan scholar. Bachelor in Science Naval Architecture and Shipbuilding (First Class Honours), University of Newcastle- Upon-Tyne; Masters in Business Administration, National University of Singapore; Graduate Certificate in International Arbitration, National University of Singapore. Mr Chia is the Managing Director (Offshore) of Keppel Offshore and Marine. Prior to this, he was the Executive Director of Keppel FELS Ltd since 2002 with overall responsibility of the business management of the company. Mr Chia is also the Deputy Chairman and Chief Executive Officer of Keppel Integrated Engineering Limited. He has more than 25 years of management experience in corporate development, engineering, operations and commercial. He was elected as the President of the Association of Singapore Marines Industries from 2005 - 2009, a non profit association formed in 1968 to promote the interests of the marine industry in Singapore. Mr Chia is the Chairman of the Singapore Maritime Foundation, member of the Ngee Ann Polytechnic Council, Society of Naval Architects and Marine Engineers Singapore, and American Bureau of Shipping – USA and Society of Petroleum Engineers. He is a Fellow with the Singapore Institute of Arbitrators. Directors and Key executives 229 Directors and Key Executives His directorships include FELS Cranes Pte Ltd, Asian Lift Pte Ltd, Keppel FELS Brasil SA (Brazil), Keppel Amfels Inc (USA), Keppel FELS Ltd, TradeoneAsia Pte Ltd, Deepwater Technology Group Pte Ltd, Willalpha Ltd, Prismatic Services Ltd, Regency Steel Japan Ltd (Japan), Bintan Offshore Fabricators Pte Ltd, Durward International (BVI), Keppel FELS Engineering Shenzhen Co Ltd, Offshore Technology Development Pte Ltd, Floatec LLC Offshore Innovative Solutions LLC, Keppel Shipyard Ltd, Keppel Offshore & Marine USA (Holdings) LLC., Keppel Offshore & Marine USA Inc, Keppel Integrated Engineering Ltd, GE Keppel Energy Services Pte Ltd, Keppel Prince Engineering Pty Ltd, Keppel Ventus Pte Ltd, Floatec Singapore Pte Ltd, Keppel DHCS Pte Ltd, Keppel Seghers Belgium N.V., Keppel Seghers Holding B.V., Fels Tekform (Singapore) Pte Ltd, Kepfels Engineering Pte Ltd, Keppel Environment China Investments Pte Ltd, Keppel Environment Technology Centre Pte Ltd, Keppel FMO Pte Ltd, Keppel Infrastructure Fund Management Pte Ltd, Keppel Sea Scan Pte Ltd, Keppel Seghers Engineering Singapore Pte Ltd, Keppel Seghers Holdings Pte Ltd, Keppel Seghers Newater Development Co Pte Ltd, Senoko Waste- To-Energy Pte Ltd, Asia Environmental Development Ltd, Keppel Seghers UK Ltd, Keppel Seghers Iberica S.A. Unipersonal, Auto Blast Steel Structures Co Ltd, Claridge House Ltd, Keppel Infrastructure (China) Ltd, Keppel Infrastructure Environment Development Inc, Keppel Seghers Engineering Ltd, Keppel Seghers Hong Kong Ltd, Keppel Seghers Investment Ltd, Wealth Come (Asia) Ltd, Keppel Seghers Netherlands B.V., Seghers Keppel Technology for Services & Machinery, Ruisbroek N.V., Seghers Keppel Technology for Services & Machinery, Zele N.V. and Keppel Energy Pte Ltd. Yeo Chien Sheng Nelson, 53 Bachelor of Science in Mechanical Engineering (First class honors), University of Birmingham; Master of Engineering in Energy Technology, Asian Institute of Technology, Thailand; Program for Management Development, Graduate School of Business Administration, Harvard University. Mr Yeo is the Managing Director (Marine) of Keppel Offshore & Marine Ltd and the Managing Director of Keppel Shipyard Limited. He is the Chairman of Keppel Philippines Marine Inc., Subic Shipyard and Engineering, Inc., Keppel Batangas Shipyard, Inc., Keppel Smit Towage Pte Ltd and Maju Maritime Pte Ltd. He is also a director of Keppel FELS Ltd, Arab Heavy Industries P.J.S.C., KS Investments Pte Ltd, KSI Production Pte Ltd, Keppel Marine Agencies International, L.L.C., DPS Bristol (Holdings) Ltd., Keppel Energy Pte Ltd and PV Keez Pte Ltd. Mr Yeo serves as a member of the Workplace Safety and Health (Marine Industries) Committee, Ministry of Manpower; AIDS Business Alliance, Ministry of Health; and is also a member of the American Bureau of Shipping; South East Asia Advisory/ Technical Committee in Lloyd’s Register and the Singapore Technical Committee in Nippon Kaiji Kyokai. He has 28 years of working experience in the shipyard industry. Wong Kok Seng, 59 BSc (Hons) Naval Architecture, University of Newcastle Upon Tyne; Graduate of Management Development Program, Harvard Business School Mr Wong is the Executive Director of Keppel FELS Limited (KFels). Prior to this appointment, he was the Executive Director (Operations). His career in Keppel Fels began in 1977 and has held appointments as Structural Engineer, Project Engineer, Project Manager, Quality Assurance Manager, Planning and Estimating Manager, and Assistant General Manager (Commercial). Mr Wong also held appointments in Keppel Group as Project Director, Keppel Land, Executive Director, Keppel Singmarine and Senior General Manager (Group Procurement), Keppel Offshore and Marine. 230 Keppel Corporation Limited Report to Shareholders 2009 Hoe Eng Hock, 59 Bachelor of Science in Marine Engineering (First Class Honors, University of Newcastle-on-Tyne (Colombo Plan Scholarship); Program for Management Development, Graduate School of Business Management, Harvard University; Finance for Senior Executives, Asian Institute of Management, Manila, Philippines. Mr Hoe Eng Hock started his professional career with Keppel Group upon his graduation. After serving various business units under Keppel Group both at Singapore and the Philippines, Mr Hoe has taken up the position of Executive Director of Keppel Singmarine Pte Ltd in the year 2005. Mr Hoe is a fellow member of IMarest and the Institute of Chartered Engineers, UK. He is also a member of The American Bureau of Shipping, South East Asia Advisory/Technical Committee of Lloyd’s Register and Bureau Veritas. In addition, he is a Member of Singapore Accreditation Council as well as council member and Vice President of ASMI (Association of Singapore Marine Industries) Chow Yew Yuen, 54 Bachelor of Science degree in Mechanical Engineering with First Class Honours, University of Newcastle Upon Tyne. Mr Chow was appointed President of The Americas for Keppel Offshore and Marine in 2008. He has the responsibility of business management, covering the United States, Mexico and Brazil. Mr Chow is also the Chairman of KeppelAmfels Inc, Deputy Chairman of KeppelFels Brazil SA and President of Keppel Offshore and Marine USA Inc. He has been with the company for 29 years and was based in the United States for the last 17 years. His experience is quite diverse, covering areas of technical, production, operations, commercial and management across different geographical and cultural boundaries. Mr Chow also serves as director on the boards of Floatel International Ltd., BrasFels SA (Brazil), Deepwater Marine Technology LLC, Floatec LLC, Keppel FELS Ltd., FSTP Pte. Ltd., AmFels Offshore Ltd., Joy Pride Investments (BVI), Kep Holdings Ltd., Kepital Management Ltd., Keppel FELS Invest (HK) Ltd., Keppel Marine Agencies, International LLC, KI Investments (HK) Ltd. Mr Chow is also a member of The American Bureau of Shipping. Ang Wee Gee, 48 Bachelor of Science (summa cum laude), University of Denver, USA; Master of Business Administration, Imperial College, University of London Mr Ang joined Keppel Land Group in 1991 and was appointed the Executive Director of Keppel Land International Limited and Chief Executive Officer, International on 1 January 2008. Prior to these appointments, he was the Director of Regional Investments, in charge of the group’s overseas businesses. He has previously held positions in business & project development for Singapore and overseas markets, corporate planning & development in the group’s hospitality arm, and was the group’s Country Head for Vietnam and had also concurrently headed Sedona Hotels International. Mr Ang is currently the Chairman of Keppel Philippines Properties Inc and Keppel Thai Properties Public Co Ltd, property companies listed on the Philippine Stock Exchange and The Stock Exchange of Thailand respectively. He is a director of Sedona Hotels International Pte Ltd, the hotel management arm of Keppel Land Limited, and a number of other subsidiaries and associated companies in the Keppel Land Group. Directors and Key executives 231 Directors and Key Executives Loh Chin Hua, 49 Bachelor Degree in Property Administration (Colombo Plan Scholarship), Auckland University; Presidential Key Executive MBA Program, Pepperdine University; Chartered Financial Analyst (CFA); Registered Valuer, New Zealand Institute of Valuers. Mr Loh is the Managing Director of Alpha Investment Partners Limited (“Alpha”), the real estate fund management arm of the Keppel Land Group. He joined Alpha in September 2002, and has 24 years of experience in real estate investing and fund management. He has served as an Executive Chairman in Asia Real Estate Fund Management Ltd. He has over 20 years of experience in real estate investing and funds management, spanning the U.S., Europe and Asia. Prior to joining Alpha, Mr Loh was Managing Director at Prudential Investment Management Inc. (“Prudential”), and led its Asian real estate fund management business. During his eight years at Prudential, Mr Loh was responsible for overseeing all investment and asset management activities for the real estate funds managed out of Asia. Mr Loh started his career in real estate investment with the Government of Singapore Investment Corporation (GIC). During the 10 years with GIC, he has held appointments in the San Francisco office and was head of the European real estate group in London before returning to head the Asian real estate group. Mr Loh serves as an independent director on the board of Pteris Global Limited (previously known as InterRoller Engineering Limited). Pang Hee Hon, 49 Bachelor of Science and Bachelor of Commerce, University of Birmingham; Masters in Public Administration, Harvard University. BG (NS) Pang Hee Hon is the Chief Executive Officer of Keppel Telecommunications & Transportation Ltd, appointed with effect from 4 January 2010. Previously the Deputy President (Operations) of ST Electronics (Info-Software Systems), BG (NS) Pang oversaw business operations and international marketing. He was the Chairman of the eGov Chapter in the Singapore IT Federation, which provides feedback on eGov policies and promotes internationalisation of local ICT companies. BG (NS) Pang was also Head of Joint Logistics Department, MINDEF, where he directed the implementation of enterprise wide IT solutions for supply chain management, electronic procurement and finance. He also held other principal command and staff appointments within the Singapore Armed Forces, including Assistant Chief of the General Staff (Logistics) G-4 Army, Assistant Chief of the General Staff (Plans) G-5 Army, Commander, Division Artillery Headquarters and Deputy Assistant Chief of the General Staff (Ops Planning) G-3 Army. 232 Keppel Corporation Limited Report to Shareholders 2009 Past Principal Directorships In The Last Five Years Directors Lee Boon Yang Nil. Lim Hock San Civil Aviation Authority of Singapore; Singapore Changi Airport Enterprise Pte Ltd; Changi Airports International Pte. Ltd; Air Transport Training College Pte Ltd; Advanced Material Technologies Pte Ltd; United Test and Assembly Center Ltd; Interra Resources Limited; Ascendas Property Fund Trustee Private Limited. Choo Chiau Beng EDB Investments Pte Ltd; Keppel Norway AS; Maritime and Port Authority of Singapore; Singapore Maritime Foundation Limited; Singapore Petroleum Company Limited; Singapore Refining Company; SMRT Corporation Limited; SMRT Buses Ltd; SMRT Light Rail Pte Ltd; SMRT Road Holdings Ltd; SMRT Trains Ltd. Sven Bang Ullring Chairman of the Supervisory Boards of NORSK HYDRO ASA, Oslo and STOREBRAND ASA, Oslo. Tony Chew Leong-Chee Del Monte Pacific Ltd; Pontirep Investments Pte Ltd; Operational Development Pte Ltd; Juno Pacific Pte Ltd; ARC Corporate Services Pte Ltd; Eurolife Limited; Del Monte Pacific Resources Ltd; Dewey Ltd. Oon Kum Loon (Mrs) Schmidt Electronics Group Ltd; Gas Supply Pte Ltd; PSA International Pte Ltd. Tow Heng Tan IE Singapore; Shangri-la Asia Limited. Alvin Yeo Civil Service College; Asian Civilsations Museum; SMOE Pte Ltd. Teo Soon Hoe Keppel Bank Philippines Inc; Centurion Bank Limited; Southern Bank Bhd; Keppel Shipyard Limited; Singapore Petroleum Company Limited; Travelmore Pte Ltd. Tong Chong Heong Nil. Directors and Key executives 233 Directors and Key Executives Key Executives Kevin Wong Kingcheung Various subsidiaries and associated companies of Keppel Land Limited; Evergro Properties Limited; HDB Corporation Private Limited; Singapore Hotel Association; Singapore International Chamber of Commerce Ong Tiong Guan Nil Michael Chia Hock Chye Nil Yeo Chien Sheng Nelson Keppel Singmarine Pte Ltd.; Alpine Engineering Services Pte Ltd.; Blastech Abrasives Pte Ltd., Keppel Tuas Pte Ltd.; Keppel Marine Agencies Inc. Wong Kok Seng Keppel Shipyard Ltd, Keppel Nantong Shipyard Company Limited, Keppel Philippines Marine Inc. Hoe Eng Hock Keppel Singmarine Pte Ltd; Keppel Nantong Shipyard Co., Ltd; Keppel Smit Towage Pte Ltd; Maju Maritime Pte Ltd; Marine Technology Development Pte Ltd; Prime Steelkit Pte Ltd; Keppel Cebu Shipyard Inc; Keppel Singmarine Philippines, Inc Chow Yew Yuen Nil Ang Wee Gee Various subsidiaries and associated companies of Keppel Land Limited Loh Chin Hua Nil Pang Hee Hon PM-B Pte Ltd; INFA Systems Limited; ST Electronics (e-Services) Pte Ltd 234 Keppel Corporation Limited Report to Shareholders 2009 Major Properties Held By Completed properties Effective Group Interest Location Description and Approximate Land Area Tenure Usage Ocean Properties Pte Ltd 40% DL Properties Ltd 34% K-REIT Asia 54% Ocean Towers Collyer Quay, Singapore Equity Plaza Cecil Street, Singapore 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 Land area: 3,552 sqm 27-storey office building 999 years leasehold Commercial office building with rentable area of 21,129 sqm Land area: 2,345 sqm 28-storey office building 99 years leasehold Commercial office building with rentable area of 23,255 sqm 30-storey office building 99 years leasehold Commercial office building with rentable area of 16,320 sqm (73.4% of the strata area) Land area: 7,760 sqm 27-storey office building Freehold Commercial office building with rentable area of 32,585 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 22,991 sqm 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 124,058 sqm HarbourFront One Pte Ltd 65% HarbourFront Two Pte Ltd 33% Keppel Bay Pte Ltd 86% Keppel Bay Tower Land area: 17,267 sqm HarbourFront 18-storey office building Avenue, Singapore HarbourFront Land area: 10,923 sqm Tower One and Two 18-storey and 13-storey HarbourFront Place, office buildings Singapore Caribbean at Keppel Bay Singapore 141 out of 168 units of corporate residences have been sold 99 years leasehold Commercial office building with rentable area of 36,035 sqm 99 years leasehold Commercial office building with rentable area of 48,795 sqm 99 years leasehold A 969-unit luxurious waterfront condominium development Tianjin Merryfield Property Development Co Ltd 52% The Arcadia Tianjin, China 168 villas 70 years leasehold A 168-unit villa development complete with private clubhouse facilities Major Properties 235 Major Properties Held By Effective Group Interest Location Description and Approximate Land Area Tenure Usage PT Straits-CM Village 20% Club Med Ria Bintan Land area: 200,000 sqm 30 years lease with A 302-room beachfront hotel Bintan, Indonesia option for another 50 years PT Kepland Investama 52% Keppel Land Watco I Co Ltd 35% Properties under development Ocean Properties Pte Ltd 40% BFC Development Pte Ltd 17% Central Boulevard Development Pte Ltd 17% Keppel Bay Pte Ltd 86% Barclays House Jakarta, Indonesia Saigon Centre (Phase 1 Tower) Ho Chi Minh City, Vietnam Ocean Financial Centre Collyer Quay, Singapore Marina Bay Financial Centre (Phase 1)/Marina Bay Residences Marina Boulevard/ Central Boulevard, Singapore Marina Bay Financial Centre (Phase 2)/Marina Bay Suites Marina Boulevard/ Central Boulevard, Singapore Reflections at Keppel Bay Singapore Keppel Bay Plot 3 and 6, Singapore Land area: 10,444 sqm 20 years lease with A prime office development option for another 20 years with rentable area of 38,093 sqm 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 Land area: 2,557 sqm 999 years leasehold Commercial office building with Land area: 20,505 sqm 99 years leasehold Land area: 15,010 sqm 99 years leasehold rentable area of 78,587 sqm *(2011) An integrated development comprising office, retail and 428 condominium units *(2010) An integrated development comprising office, retail and 221 condominium units *(2012) Land area: 83,591 sqm 99 years leasehold A 1,129-unit waterfront condominium development *(2013) Land area: 82,619 sqm 99 years leasehold Waterfront condominium development Shanghai Pasir Panjang Land Co Ltd 51% Eight Park Avenue Land area: 33,432 sqm Shanghai, China 70 years lease A 946-unit residential apartment development (Plot B) *(2012/2013) 236 Keppel Corporation Limited Report to Shareholders 2009 Held By Effective Group Interest Location Description and Approximate Land Area Tenure Usage Shanghai Hongda Property 52% Development Co Ltd 21% Spring City Golf & Lake Resort Co (owned by Kingsdale Development Pte Ltd) CityOne Development (Wuxi) Co 26% Residential development Shanghai, China Spring City Golf & Lake Resort Kunming, China Central Park City Wuxi, China Keppel Township Development (Shenyang) Co Ltd 52% Residential development Shenyang, China PT Mitra Sindo Sukses/ PT Mitra Sindo Makmur 27% Estella JV Co Ltd 29% Jakarta Garden City Jakarta, Indonesia The Estella Ho Chi Minh City, Vietnam Land area: 264,090 sqm 70 years lease (residential) 40 years lease (commercial) Land area: 2,157,361 sqm 70 years lease Land area: 352,534 sqm 70 years lease (residential) 40 years lease (commercial) Land area: 348,312 sqm 50 years lease (residential) 40 years lease (commercial) A 2,667-unit residential development with integrated facilities *(2015) Integrated resort comprising golf courses, resort homes and resort facilities *(2010/2017) A 5,000-unit residential township development with integrated facilities *(2012 Phase 2) A 4,700-unit residential township with integrated facilities in Shenbei New District in Shenyang *(2013 Phase 1) Land area: 2,700,000 sqm 30 years lease with A 7,000-unit residential option for another 20 years township *(2011 Phase 1 &2013 Phase 2) Land area: 47,906 sqm 50 years lease Land area: 3,667,127 sqm 50 years lease Dong Nai Waterfront City Dong Nai Province, Vietnam Dong Nai Waterfront City LLC (owned by Portsville Pte Ltd) 26% Industrial properties Keppel FELS Limited 100% Jurong, Pioneer Cresent and Tuas South Yard, Singapore Land area: 737,525 sqm 24 - 30 years buildings, workshops, building berths and wharves leasehold Oil rigs, offshore and marine construction, repair, fabrication, assembly and storage Keppel Shipyard Limited 100% Benoi and Pioneer Yard, Singapore Land area: 775,527 sqm 30 years leasehold buildings, workshops, drydocks and wharves Shiprepairing, shipbuilding and marine construction * Expected year of completion Major Properties 237 A 1,393-unit high-rise residential development with supporting commercial space in An Phu Ward in prime District 2 *(2012 Phase 1) A 10,434-unit residential township *(2013 Phase 1) 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 before exceptional items Attributable after exceptional items Total distribution (cents) Net assets ($) Net tangible assets ($) Financial Ratios Return on shareholders’ funds (%) (Note 2): Profit before tax and exceptional items Attributable profit before exceptional items Dividend cover (times) Net cash / (gearing) (times) employees Number Wages & salaries ($ million) 2005 2006 2007 2008 2009 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 43.9 36.1 36.1 23.0 2.33 2.23 20.0 16.4 3.9 (0.47) 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 61.5 47.7 47.7 28.0 2.67 2.58 24.7 19.1 4.2 (0.24) 10,431 1,051 1,556 1,026 1,131 4,732 4,024 6,973 68 15,797 6,139 2,234 389 7,035 5,205 1,830 7,035 81.4 64.9 71.5 64.0 3.28 3.24 27.4 21.8 1.0 (0.09) 11,805 1,238 1,597 1,097 1,098 4,977 3,633 8,059 78 16,747 7,647 1,970 381 6,749 4,596 2,153 6,749 84.2 69.0 69.0 35.0 2.89 2.84 27.3 22.4 2.0 0.04 12,247 1,505 1,856 1,265 1,625 5,208 3,332 8,677 90 17,307 6,423 1,759 412 8,713 5,985 2,728 8,713 98.9 79.4 102.0 61.0 3.75 3.70 29.8 23.9 1.3 0.14 23,625 803 29,185 931 31,914 1,132 35,621 1,329 31,775 1,372 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. 238 Keppel Corporation Limited Report to Shareholders 2009 2009 Group revenue rose by $442 million or 4% to $12,247 million, the highest achieved by the Group in a year. Higher revenue from Infrastructure and Property Divisions were more than sufficient to offset the fall in revenue from Offshore & Marine Division. Revenue from Offshore & Marine Division of $8,273 million decreased by $296 million or 3% because of lower value of new contracts secured. During the year, the Division completed and delivered 14 rigs, 14 specialised vessels and six major conversions/upgrades. Revenue from Infrastructure Division increased by 9% or $195 million. Higher revenue from Engineering, Procurement and Construction (EPC) contracts undertaken by Keppel Integrated Engineering was partially offset by lower revenue from Keppel Energy because of lower energy prices. Revenue from Property Division of $1,508 million was 59% above that of the previous year. This was mainly due to higher sale of residential homes in Singapore, China, Vietnam, Indonesia and India. Progressive revenue recognition from Reflections at Keppel Bay and other projects in Singapore and overseas were also higher. Rental income from investment properties also increased due to higher rental rates. At the pre-tax profit level, Group earnings of $1,856 million were 16% higher than FY 2008. Earnings from Offshore & Marine Division of $1,081 million were 15% above the previous year. Higher operating margins achieved in the year contributed to the increased profit. Infrastructure Division continued its steady build-up and more than doubled its earnings from $70 million to $150 million. Profit from both Keppel Energy and Keppel Integrated Engineering were higher. Property Division posted profit of $476 million, 30% higher. Earnings have increased because of higher revenue recognition from the sale of residential properties and share of profit of associated companies developing Marina Bay Residences in Singapore and The Botanica in Chengdu, China. Profit from Investments was lower following the disposal of SPC in June 2009. 2008 Group revenue of $11,805 million was $1,374 million or 13% higher than that of the previous year. Revenue from Offshore & Marine Division of $8,569 million was $1,311 million or 18% higher and accounted for 72% of Group revenue. The Division completed and delivered 3 semisubmersibles and 13 jackups on schedule for its customers. Revenue from shiprepairs, conversions and shipbuilding were also higher. Revenue from Infrastructure Division increased by 75% to $2,232 million. Revenue generated from the cogen power plant in Singapore and environmental engineering contracts contributed to the significant increase in revenue. Revenue from Property Division of $950 million was $885 million or 48% lower. The decrease was due to lower sales of residential properties in the current year. Rental income from investment properties increased due to higher rental rates and occupancy. Group pre-tax profit of $1,597 million was 3% more than the previous year. Higher contribution from Offshore & Marine and Infrastructure were partially offset by lower profits from Property and Investments. Earnings from Offshore & Marine Division of $943 million were 35% above the previous year. Infrastructure Division continued to make encouraging progress, contributing $70 million to Group pre-tax profit. Property Division posted profit of $365 million, $106 million or 23% lower than the previous year. The decrease was due to the lower sales and share of profit from associated companies. Profit from Investments was lower because of lower profit from SPC. The income tax expenses of the Group included a write-back of $15 million for tax provision in respect of prior years. After minority share of profit, the attributable profit before exceptional items was $1,097 million. Revenue ($ billion) Pre-Tax Profit ($ million) PATMI ($ million) 15.0 7.5 0 2,000 1,000 0 1,500 750 0 5.7 7.6 10.4 11.8 12.2 826 1,139 1,556 1,597 1,856 564 751 1,026 1,097 1,265 2005 2006 2007 2008 2009 2005 2006 2007 2008 2009 2005 2006 2007 2008 2009 Group Five-Year Performance 239 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. 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. 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. 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. 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. 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. 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. 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. Property achieved revenue of $1,155 million, $308 million or 36% higher. The increased revenue was underpinned by higher sales and prices of the Group’s new and existing trading projects both in Singapore and regionally. Rental income from investment properties was higher as a result of the tight supply of prime office buildings in the Singapore Central Business District. Shareholders’ Funds ($ billion) Capital Employed ($ billion) Market Capitalisation ($ billion) 6.0 3.0 0 10.0 5.0 0 25.0 12.5 0 3.6 4.2 5.2 4.6 6.0 4.9 5.6 7.0 6.7 8.7 8.6 13.9 20.6 6.9 13.1 2005 2006 2007 2008 2009 2005 2006 2007 2008 2009 2005 2006 2007 2008 2009 240 Keppel Corporation Limited Report to Shareholders 2009 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. 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. 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. 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. 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. 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. 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. 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 $564 million was 21% higher than the previous year. Offshore & Marine remains the largest contributor to attributable earnings with 42%, followed by SPC with 33%, Property with 21% and the rest from Keppel T&T and Investments net of the losses of Infrastructure. Group Five-Year Performance 241 Group Value-Added Statements ($ 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 2005 2006 2007 2008 2009 5,688 (4,287) 1,401 7,601 (5,738) 1,863 10,431 (8,123) 2,308 11,805 (9,099) 2,706 12,247 (9,196) 3,051 60 321 - 1,782 803 153 22 36 131 189 83 315 - 2,261 931 258 62 73 157 292 91 477 565 3,441 1,132 469 63 46 242 351 83 354 13 3,156 1,329 288 79 103 1,098 1,280 79 322 322 3,774 1,372 348 50 87 574 711 total Distribution 1,145 1,481 1,952 2,897 2,431 Balance retained in the business: Depreciation & amortisation Minority share of profits in subsidiaries Retained profit for the year 132 73 432 637 127 60 593 780 126 474 889 1,489 139 120 - 259 174 118 1,051 1,343 1,782 2,261 3,441 3,156 3,774 Number of employees 23,625 29,185 31,914 35,621 31,775 Productivity data: Gross value added per employee ($’000) Gross value added per dollar employment cost ($) Gross value added per dollar sales ($) 59 1.74 0.25 64 2.00 0.25 72 2.04 0.22 76 2.04 0.23 ($ million) 3000 2000 1000 Depreciation & Retained Profit Interest Expenses & Dividends Taxation Wages, Salaries & Benefits 0 3,441 1,489 351 469 1,132 2,261 780 292 258 931 1,782 637 189 153 803 96 2.22 0.25 3,774 1,343 711 348 3,156 259 1,280 288 1,329 1,372 242 Keppel Corporation Limited Report to Shareholders 2009 2005 2006 2007 2008 2009 Share Performance Turnover (million) Share Prices ($) 400 300 200 180 160 140 120 100 80 60 40 20 0 40 30 20 18 16 14 12 10 8 6 4 2 0 2005 Turnover 2006 2007 2008 2009 High and Low Prices 2005 2006 2007 2008 2009 Share Price ($) Last transacted (Note 3) High Low Volume weighted average (Note 2) Per Share Earnings (cents) (Note 1) Total distribution (cents) Distribution yield (%) (Note 2) Net price earnings ratio (Note 2) At Year End Share price ($) Distribution yield (%) (Note 3) Net price earnings ratio (Note 3) Net price to book ratio (Note 3) Net assets backing ($) 5.50 6.60 4.25 5.69 36.1 23.0 4.1 15.8 5.50 4.2 15.3 2.5 2.23 8.80 9.25 5.55 7.22 47.7 28.0 3.9 15.1 8.80 3.2 18.4 3.4 2.58 13.00 15.30 8.30 11.56 64.9 64.0 5.5 17.8 13.00 4.9 20.0 4.0 3.24 4.33 12.84 3.35 8.59 69.0 35.0 4.1 12.5 4.33 8.1 6.3 1.5 2.84 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. Last transacted share price is used in calculating distribution yield, net price earnings ratio and net price to book ratio. 4. Comparative figures have been adjusted for sub-division of shares in 2007. share Performance 8.23 8.70 3.97 6.40 79.4 61.0 9.5 8.1 8.23 7.4 10.4 2.2 3.70 243 Shareholding Statistics As at 26 February 2010 Total number of issued Shares Issued and Fully Paid-up Capital : $840,644,543.19 Class of Shares : 1,596,019,680 Shares : Ordinary Shares with equal voting rights size of shareholdings 1 - 999 1,000 - 10,000 10,001 - 1,000,000 1,000,001 & Above Total twenty Largest shareholders Citibank Nominees Singapore Pte Ltd Temasek Holdings (Pte) Ltd DBS Nominees Pte Ltd DBSN Services Pte Ltd HSBC (Singapore) Nominees Pte Ltd United Overseas Bank Nominees Pte Ltd Raffles Nominees Pte Ltd DB Nominees (S) Pte Ltd BNP Paribas Securities Services S’pore Pte Ltd Shanwood Development Pte Ltd Merrill Lynch (Singapore) Pte Ltd Morgan Stanley Asia (Singapore) Pte Ltd OCBC Nominees Singapore Pte Ltd Teo Soon Hoe Lim Chee Onn Royal Bank of Canada (Asia) Ltd Phillip Securities Pte Ltd UOB Kay Hian Pte Ltd TM Asia Life Singapore Ltd - PAR Fund OCBC Securities Private Ltd Total number of shareholders 479 28,987 3,270 32 % 1.46 88.46 9.98 0.10 number of shares 214,305 86,880,783 111,996,529 1,396,928,063 % 0.01 5.44 7.02 87.53 32,768 100.00 1,596,019,680 100.00 number of shares 388,657,336 337,643,902 215,295,454 140,031,186 139,659,763 51,094,385 44,923,421 8,195,671 7,391,954 6,400,000 5,362,804 4,656,368 4,630,451 4,088,332(i) 3,660,916 3,459,184 3,210,602 3,038,500 3,000,000 2,853,658 1,377,253,887 % 24.35 21.16 13.49 8.77 8.75 3.20 2.81 0.51 0.46 0.40 0.34 0.29 0.29 0.26 0.23 0.22 0.20 0.19 0.19 0.18 86.29 Note: i) 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 21.16 7,443,021(i) 0.47 345,086,923 21.62 Note(i): By operation of Section 7 of the Companies Act, Temasek Holdings (Pte) Ltd is deemed to be interested in an aggregate of 7,443,021 shares in which its subsidiaries and associated companies have an aggregate interest. Public shareholders Based on the information available to the Company as at 26 February 2010, 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. treasury shares As at 26 February 2010, there are no treasury shares held. 244 Keppel Corporation Limited Report to Shareholders 2009 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 42nd Annual General Meeting of the Company will be held at Four Seasons Hotel, Four Seasons Ballroom (Level 2), 190 Orchard Boulevard, Singapore 248646 on Friday, 23 April 2010 at 4.00 p.m. to transact the following business: Ordinary Business 1. 2. 3. To receive and adopt the Directors’ Report and Audited Financial Statements for the year ended 31 December 2009. To declare a final tax-exempt (one-tier) dividend of 23 cents per share for the year ended 31 December 2009 (2008: final dividend of 21 cents per share tax exempt one-tier). 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) Mr Lim Hock San (ii) Mrs Oon Kum Loon 4. To re-elect the following directors, each of whom, being appointed by the board of directors after the last annual general meeting, will retire in accordance with Article 81A(1) of the Company’s Articles of Association and who, being eligible, offer themselves for re-election (see Note 2): (i) Dr Lee Boon Yang (ii) Mr Alvin Yeo Khirn Hai (iii) Mr Tong Chong Heong 5. To re-elect Mr Sven Bang Ullring who, being over the age of 70 years, will cease to be a director at the 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). Resolution 1 Resolution 2 Resolution 3 Resolution 4 Resolution 5 Resolution 6 Resolution 7 Resolution 8 6. To approve the ordinary remuneration of the non-executive directors of the Company for the financial year ended 31 December 2009, comprising the following: Resolution 9 (1) the payment of directors’ fees of an aggregate amount of $1,144,095 in cash (2008: $570,000) (see Note 3.1); and (2) (a) the award of an aggregate number of 30,000 existing ordinary shares in the capital of the Company (the “Remuneration Shares”) to Dr Lee Boon Yang, Mr Lim Chee Onn, Mr Lim Hock San, Mr Sven Bang Ullring, Mr Tony Chew Leong-Chee, Mrs Oon Kum Loon, Mr Tow Heng Tan, Mr Alvin Yeo Khirn Hai, Tsao Yuan Mrs Lee Soo Ann and Mr Yeo Wee Kiong, as payment in part of their respective remuneration for the financial year ended 31 December 2009 as follows: (i) (ii) 5,500 Remuneration Shares to Dr Lee Boon Yang1; 5,000 Remuneration Shares to Mr Lim Chee Onn2; 1 Dr Lee Boon Yang was appointed non-executive director from 1 May 2009 to 30 June 2009, and assumed the role of non-executive Chairman with effect from 1 July 2009. 2 Mr Lim Chee Onn served as non-executive Chairman from 1 January 2009 to 30 June 2009. notice of Annual General Meeting and Closure of Books 245 Notice of Annual General Meeting and Closure of Books (iii) 3,000 Remuneration Shares to Mr Lim Hock San; (iv) 3,000 Remuneration Shares to Mr Sven Bang Ullring; (v) 3,000 Remuneration Shares to Mr Tony Chew Leong-Chee; (vi) 3,000 Remuneration Shares to Mrs Oon Kum Loon; (vii) 3,000 Remuneration Shares to Mr Tow Heng Tan; (viii) 1,750 Remuneration Shares to Mr Alvin Yeo Khirn Hai3; (ix) 1,000 Remuneration Shares to Tsao Yuan Mrs Lee Soo Ann4; and (x) 1,750 Remuneration Shares to Mr Yeo Wee Kiong5; (b) the directors of the Company and/or any of them be and are hereby authorised to instruct a third party agency to purchase from the market 30,000 existing shares at such price as the directors of the Company may deem fit and deliver the Remuneration Shares to each non-executive director in the manner as set out in (2)(a) above; and (c) any director of the Company or the Company Secretary be authorised to do all things necessary or desirable to give effect to the above (see Note 3.2). 7. 8. To approve payment of the sum of $250,000 as special remuneration to Mr Lim Chee Onn, for the period 1 January 2009 to 30 June 2009 (see Note 4). Resolution 10 To approve the award of an additional 4,500 Remuneration Shares to Dr Lee Boon Yang as payment in part of his director’s remuneration for the financial year ended 31 December 2009 (see Note 5). Resolution 11 9. To re-appoint the Auditors and authorise the directors of the Company to fix their remuneration. Resolution 12 Special Business To consider and, if thought fit, approve the following Ordinary Resolutions, with or without any modifications: 10. That pursuant to Section 161 of the Companies Act, Cap. 50 of Singapore (the “Companies Act”) Resolution 13 and Article 48A of the Company’s Articles of Association, authority be and is hereby given to the directors of the Company to: (1) (a) issue shares in the capital of the Company (“Shares”), whether by way of rights, 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 (b) 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 (2) (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 of the Company while the authority was in force; 3 Mr Alvin Yeo Khirn Hai was appointed as non-executive director with effect from 1 June 2009. 4 5 Mr Yeo Wee Kiong resigned from the Board with effect from 1 August 2009. Tsao Yuan Mrs Lee Soo Ann resigned from the Board with effect from 24 April 2009. 246 Keppel Corporation Limited Report to Shareholders 2009 provided that: (i) 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 to this Resolution and any adjustment effected under any relevant Instrument): (a) (b) (until 31 December 2010 or such later date as may be determined by Singapore Exchange Securities Trading Limited (“SGX-ST”)) by way of renounceable rights issues on a pro rata basis to shareholders of the Company (“Renounceable Rights Issues”) shall not exceed 100 per cent. of the total number of issued Shares (excluding treasury Shares) (as calculated in accordance with sub-paragraph (iii) below); and otherwise than by way of Renounceable Rights Issues (“Other Share Issues”) shall not exceed 50 per cent. of the total number of issued Shares (excluding treasury Shares) (as calculated in accordance with sub-paragraph (iii) below), of which the aggregate number of Shares to be issued other than on a pro rata basis to shareholders of the Company shall not exceed 5 per cent. of the total number of issued Shares (excluding treasury Shares) (as calculated in accordance with sub-paragraph (iii) below); the Shares to be issued under the Renounceable Rights Issues and Other Share Issues shall not, in aggregate, exceed 100 per cent. of the total number of issued Shares (excluding treasury Shares) (as calculated in accordance with sub-paragraph (iii) below); (subject to such manner of calculation as may be prescribed by the SGX-ST) for the purpose of determining the aggregate number of Shares that may be issued under sub-paragraphs (i)(a) and (i)(b) above, the percentage of issued Shares shall be calculated based on the total number of issued Shares (excluding treasury Shares) at the time this Resolution is passed, after adjusting for: (a) new Shares arising from the conversion or exercise of convertible securities or share options or vesting of share awards which are outstanding or subsisting as at the time this Resolution is passed; and (b) any subsequent bonus issue, consolidation or sub-division of Shares; in exercising the authority conferred by this Resolution, the Company shall comply with the provisions of the Companies Act, 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 6). (ii) (iii) (iv) (v) 11. That: Resolution 14 (1) for the purposes of the Companies Act, the exercise by the directors of the Company of all the powers of the Company to purchase or otherwise acquire Shares not exceeding in aggregate the Maximum Limit (as hereafter defined), at such price(s) as may be determined by the directors of the Company from time to time up to the Maximum Price (as hereafter defined), whether by way of: (a) market purchase(s) (each a “Market Purchase”) on the SGX-ST; and/or notice of Annual General Meeting and Closure of Books 247 Notice of Annual General Meeting and Closure of Books (b) off-market purchase(s) (each an “Off-Market Purchase”) in accordance with any equal access scheme(s) as may be determined or formulated by the directors of the Company as they consider fit, which scheme(s) shall satisfy all the conditions prescribed by the Companies Act; and otherwise in accordance with all other laws and regulations, including but not limited to, the provisions of the Companies Act and listing rules of the SGX-ST as may for the time being be applicable, be and is hereby authorised and approved generally and unconditionally (the “Share Purchase Mandate”); (2) unless varied or revoked by the members of the Company in a general meeting, the authority conferred on the directors of the Company pursuant to the Share Purchase Mandate may be exercised by the directors at any time and from time to time during the period commencing from the date of the passing of this Resolution and expiring on the earlier of: (a) the date on which the next annual general meeting of the Company is held or is required by law to be held; or (b) the date on which the purchases or acquisitions of Shares by the Company pursuant to the Share Purchase Mandate are carried out to the full extent mandated; (3) in this Resolution: “Maximum Limit” means that number of issued Shares representing ten 10 per cent. of the total number of issued Shares as at the date of the last annual general meeting or at the date of the passing of this Resolution whichever is higher unless the Company has effected a reduction of the share capital of the Company in accordance with the applicable provisions of the Companies Act, at any time during the Relevant Period, in which event the total number of issued Shares shall be taken to be the total number of issued Shares as altered (excluding any treasury Shares that may be held by the Company from time to time); “Relevant Period” means the period commencing from the date on which the last annual general meeting was held and expiring on the date the next annual general meeting is held or is required by law to be held, whichever is the earlier, after the date of this Resolution; and “Maximum Price”, in relation to a Share to be purchased or acquired, means the purchase price (excluding brokerage, stamp duties, commission, applicable goods and services tax and other related expenses) which is: (a) in the case of a Market Purchase, 105 per cent. of the Average Closing Price; and (b) in the case of an Off-Market Purchase pursuant to an equal access scheme, 120 per cent. of the Average Closing Price, where: “Average Closing Price” means the average of the closing market prices of a Share over the last five (5) Market Days (a “Market Day” being a day on which the SGX-ST is open for trading in securities), on which transactions in the Shares were recorded, in the case of Market Purchases, before the day on which the purchase or acquisition of Shares was made and deemed to be adjusted for any corporate action that occurs after the relevant five (5) Market Days, or in the case of Off-Market Purchases, before the date on which the Company makes an announcement of the offer; and 248 Keppel Corporation Limited Report to Shareholders 2009 (4) the directors of the Company and/or any of them be and are hereby authorised to complete and do all such acts and things (including without limitation, executing such documents as may be required) as they and/or he may consider necessary, expedient, incidental or in the interests of the Company to give effect to the transactions contemplated and/or authorised by this Resolution (see Note 7). 12. That: Resolution 15 (1) (2) (3) (4) approval be and is hereby given, for the purposes of Chapter 9 of the Listing Manual of the SGX-ST, for the Company, its subsidiaries and target associated companies (as defined in Appendix 2 to this Notice of Annual General Meeting (“Appendix 2”)), or any of them, to enter into any of the transactions falling within the types of Interested Person Transactions described in Appendix 2, with any person who falls within the classes of Interested Persons described in Appendix 2, provided that such transactions are made on normal commercial terms and in accordance with the review procedures for Interested Person Transactions as set out in Appendix 2 (the “IPT Mandate”); the IPT Mandate shall, unless revoked or varied by the Company in general meeting, continue in force until the date that the next annual general meeting is held or is required by law to be held, whichever is the earlier; the Audit Committee of the Company be and is hereby authorised to take such action as it deems proper in respect of such procedures and/or to modify or implement such procedures as may be necessary to take into consideration any amendment to Chapter 9 of the Listing Manual of the SGX-ST which may be prescribed by the SGX-ST from time to time; and the directors of the Company and/or any of them be and are hereby authorised to complete and do all such acts and things (including, without limitation, executing such documents as may be required) as they and/or he may consider necessary, expedient, incidental or in the interests of the Company to give effect to the IPT Mandate and/or this Resolution (see Note 8). To transact such other business which can be transacted at the annual general meeting of the Company. notICe Is ALso HeReBY GIVen tHAt: (a) (b) the Transfer Books and the Register of Members of the Company will be closed on 30 April 2010, 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 29 April 2010 will be registered to determine shareholders’ entitlement to the proposed final dividend. The proposed final dividend if approved at this annual general meeting will be paid on 11 May 2010; and the electronic copy of the Company’s Annual Report 2009 will be published on the Company’s website on 8 April 2010. The Company’s website address is http://www.kepcorp.com, and the electronic copy of the Annual Report 2009 can be viewed or downloaded from the “Annual Reports” section, which can be accessed from the main menu item “Investor Relations”. To view the electronic copy of the Annual Report 2009, you will need the Adobe Reader installed on your computer, which can be downloaded free of charge at http://get.adobe.com/reader. BY ORDER OF THE BOARD Caroline Chang Company Secretary Singapore, 25 March 2010 notice of Annual General Meeting and Closure of Books 249 Notice of Annual General Meeting and Closure of Books 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 “Directors and Key Executives” sections of the Company’s Annual Report. Mr Lim Hock San will upon re-election continue to serve as Deputy Chairman, Chairman of the Audit Committee, Chairman of the Remuneration Committee and member of the Board Risk Committee. Mrs Oon Kum Loon will upon re-election continue to serve as Chairman of the Board Risk Committee and member of the Audit, Remuneration and Nominating Committees. Dr Lee Boon Yang will upon re-election continue to serve as Chairman, and member of the Remuneration, Nominating and Board Safety Committees. Mr Alvin Yeo Khirn Hai will upon re-election continue to serve as member of the Audit and Board Risk Committees. These directors are considered by the Nominating Committee to be independent directors. 3.1 The increase in the aggregate amount of directors’ fees payable for the financial year 2009 is due mainly to the revised directors’ fee structure following a review by the Remuneration Committee taking into account industry practice and the number of meetings held in the financial year ended 2009, and the Board having a non-executive Chairman with effect from 1 January 2009. The revised directors’ fee structure is set out in the Company’s Corporate Governance Report, on page 94 of the Company’s Annual Report 2009. 3. 2 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 2009, and is in addition to the proposed directors’ fees in cash mentioned in this Resolution 9. 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. Subject to Shareholders’ approval, Dr Lee Boon Yang will be awarded 5,500 Shares (on a pro rata basis) as part of his ordinary remuneration for serving as a non-executive director from 1 May 2009 to 30 June 2009 and as non-executive Chairman from 1 July 2009 to 31 December 2009. Mr Lim Chee Onn will, subject to Shareholders’ approval, be awarded 5,000 Shares (on a pro rata basis) as part of his ordinary remuneration for serving as non-executive Chairman from 1 January 2009 to 30 June 2009. The non-executive directors who have served for the full financial year will each be awarded 3,000 Shares as part of their remuneration. Mr Alvin Yeo Khirn Hai will, subject to Shareholders’ approval, be awarded 1,750 Shares as part of his remuneration for serving as non-executive director from 1 June 2009 to 31 December 2009. Tsao Yuan Mrs Lee Soo Ann will, subject to Shareholders’ approval, be awarded 1,000 Shares as part of her remuneration for serving as non-executive director from 1 January 2009 to 24 April 2009. Mr Yeo Wee Kiong will, subject to Shareholders’ approval, be awarded 1,750 Shares as part of his remuneration for serving as non-executive director from 1 January 2009 to 1 August 2009. The Chairman, non-executive directors, Mr Lim Chee Onn, Tsao Yuan Mrs Lee Soo Ann and Mr Yeo Wee Kiong will abstain from voting, and will procure their respective associates to abstain from voting, in respect of this Resolution 9. 4. 5. The Company had on 22 December 2008 announced that Mr Lim Chee Onn would relinquish his role as Chief Executive Officer, but would continue to serve as non-executive Chairman of the Company with effect from 1 January 2009 and that, in this role, he would oversee the Group’s thrust in sustainable development initiatives and continue to contribute his efforts to expand and strengthen Keppel’s geographical footprint in China, Vietnam, India and the Middle East (the “Services”). The Board had considered it important that, besides ensuring the effective operation of the Board, Mr Lim should be available to continue to perform the Services and the Company should continue to benefit from his business network and relationships for a period of time, so as to ensure a smooth transition in executive leadership and minimise the risk of business disruption which may arise from his ceasing to be Executive Chairman of the Company. The Services go beyond the typical duties of a non-executive chairman. The Board is therefore seeking the approval of Shareholders to pay Mr Lim a sum of $250,000 as special remuneration for his aforementioned efforts and contribution during the period 1 January 2009 to 30 June 2009. The payment of this special remuneration will be in addition to the payment, subject to Shareholders’ approval, of the ordinary remuneration payable to Mr Lim as a non- executive director of the Company for the financial year ended 31 December 2009 pursuant to the above Resolution 9. The Board is seeking shareholders’ approval to award to Dr Lee Boon Yang the full-year’s grant of Remuneration Shares for non-executive Chairman based on the Company’s directors’ fees structure (that is, another 4,500 Remuneration Shares in addition to the 5,500 Remuneration Shares pursuant to Resolution 9 above ), notwithstanding that he held office as non-executive director from 1 May 2009 to 30 June 2009 and non-executive Chairman from 1 July 2009 to 31 December 2009, in the financial year ended 31 December 2009 (which, subject to Shareholders’ approval, on a pro rata basis would entitle him only to 500 Remuneration Shares and 5,000 Remuneration Shares respectively). The additional grant is in recognition of the substantial amount of time and effort put in by Dr Lee since assuming the role of non-executive Chairman. 6. Resolution 13 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 (i) 100 per cent. of the total number of Shares for Renounceable Rights Issues and (ii) 50 per cent. of the total number of Shares for Other Share Issues (with a sub-limit of 5 per cent. of the total number of Shares (excluding treasury Shares) in respect of Shares to be issued other than on a pro rata basis to shareholders), provided that the total number of Shares which may be issued pursuant to (i) and (ii) shall not exceed 100 per cent. of the issued Shares (excluding treasury Shares). The 5 per cent. sub-limit for non pro rata issues 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 total number of Shares (excluding treasury Shares) that may be issued, the percentage of issued Shares shall be based on the total number of issued Shares (excluding treasury Shares) at the time that Resolution 13 is passed, after adjusting for 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 13 is passed, and any subsequent bonus issue, consolidation or sub-division of Shares. 7. Resolution 14 relates to the renewal of the Share Purchase Mandate which was originally approved by Shareholders on 18 February 2000 and was last renewed at the annual general meeting of the Company on 24 April 2009. Please refer to Appendix 1 of this Notice of Annual General Meeting for details. 8. Resolution 15 relates to the renewal of a mandate given by Shareholders on 22 May 2003 allowing the Company, its subsidiaries and target associated companies to enter into transactions with interested persons as defined in Chapter 9 of the Listing Manual of the SGX-ST. Please refer to Appendix 2 of this Notice of Annual General Meeting for details. 250 Keppel Corporation Limited Report to Shareholders 2009 Corporate Information Board of Directors Nominating Committee Registered Office Lee Boon Yang (Chairman) Tony Chew Leong-Chee (Chairman) Lim Hock San (Deputy Chairman) Lee Boon Yang Choo Chiau Beng (Chief Executive Officer) Sven Bang Ullring Sven Bang Ullring Oon Kum Loon (Mrs) Tony Chew Leong-Chee Tow Heng Tan 1 HarbourFront Avenue #18-01 Keppel Bay Tower Singapore 098632 Telephone: (65) 6270 6666 Telefax: (65) 6413 6391 Email: keppelgroup@kepcorp.com Website: www.kepcorp.com Share Registrar B.A.C.S. Private Limited 63 Cantonment Road Singapore 089758 Auditors Deloitte & Touche LLP Public Accountants and Certified Public Accountants Singapore Audit Partner: Chaly Mah Chee Kheong Year appointed: 2006 Oon Kum Loon (Mrs) Tow Heng Tan Alvin Yeo Khirn Hai Teo Soon Hoe Tong Chong Heong Audit Committee Lim Hock San (Chairman) Tony Chew Leong-Chee Oon Kum Loon (Mrs) Alvin Yeo Khirn Hai Remuneration Committee Lim Hock San (Chairman) Lee Boon Yang Sven Bang Ullring Oon Kum Loon (Mrs) Tow Heng Tan Board Risk Committee Oon Kum Loon (Mrs) (Chairman) Lim Hock San Tow Heng Tan Alvin Yeo Khirn Hai Board Safety Committee Sven Bang Ullring (Chairman) Lee Boon Yang Choo Chiau Beng Company Secretary Caroline Chang Corporate Information 251 Financial Calendar FY 2009 Financial year-end Announcement of 2009 1Q results Announcement of 2009 2Q results Announcement of 2009 3Q results Announcement of 2009 full year results Despatch of Summary Financial Report to Shareholders Despatch of Annual Report to Shareholders Annual General Meeting and Extraordinary General Meeting Proposed final dividend Books closure date Payment date Proposed special dividend in specie Books closure date and payment date FY 2010 Financial year-end Announcement of 2010 1Q results Announcement of 2010 2Q results Announcement of 2010 3Q results Announcement of 2010 full year results 31 December 2009 23 April 2009 23 July 2009 22 October 2009 26 January 2010 25 March 2010 8 April 2010 23 April 2010 5.00 p.m., 29 April 2010 11 May 2010 To be determined 31 December 2010 April 2010 July 2010 October 2010 January 2011 252 Keppel Corporation Limited Report to Shareholders 2009 This annual report is printed on Meridien Brilliance, Eco-Frontier and Excel Satin. These papers are environmentally-friendly and are produced with a minimum content of 51% recycled paper. Edited and Compiled by Group Corporate Communications, Keppel Corporation 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

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