Keppel Corp Ltd Annual Report 2010

Plain-text annual report

R E P O R T T O S H A R E H O L D E R S 2 0 1 0 Building Strengths Deﬁ ning Distinction Powering Excellence Harnessing Synergy Maximising Value 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 profitably, with Safety and Innovation, guided by our three key business thrusts of Sustaining Growth, Empowering Lives and Nurturing Communities. Contents 1 Key Figures 2010 2 Group Financial Highlights 2010 3 Our Growth Record from 2001 to 2010 4 Chairman’s Statement Interview with the CEO 10 16 Key Messages 22 Group Strategic Directions 24 Keppel Around the World 26 Board of Directors 32 Keppel Group Boards of Directors 34 Keppel Technology Advisory Panel 36 Senior Management 38 Investor Relations 40 Awards and Accolades 42 Special Feature – Creating Value Through Innovation 50 Operating & Financial Review 51 – Group Structure 52 – Management Discussion and Analysis 54 – Offshore & Marine 66 – 74 – Property 82 – 84 – Financial Review and Outlook 94 Sustainability Report Highlights Infrastructure Investments Sustaining Growth 96 – Corporate Governance 116 – Risk Management 120 – Environmental Protection 124 – Product Excellence Empowering Lives 128 – People Matters 132 – Safety and Health Nurturing Communities 136 – Community and Society Directors’ Report & Financial Statements Independent Auditors’ Report 142 – Directors’ Report 148 – Statement by Directors 149 – 150 – Balance Sheets 151 – Consolidated Proﬁ t and Loss Account 152 – Consolidated Statement of Comprehensive Income 153 – Statement of Changes in Equity 156 – Consolidated Statement of Cash Flows 158 – Notes to the Financial Statements 208 – Signiﬁ cant Subsidiaries and Associated Companies Interested Person Transactions 219 220 Directors and Key Executives 233 Major Properties 237 Group Five-Year Performance 241 Group Value-Added Statements 242 Share Performance 243 Shareholding Statistics 244 Notice of Annual General Meeting and Closure of Books 251 Corporate Information 252 Financial Calendar Key Figures 2010 Revenue $9.8b Decreased 20% from FY 2009’s $12.2 billion. Net Proﬁ t $1,419m Increased 12% from FY 2009’s $1,265 million. Return On Equity 22.3% Decreased by 1.6% from FY 2009’s 23.9%. Economic Value Added Earnings Per Share Cash Dividend Per Share $1,035m Increased $9 million from FY 2009’s $1,026 million. 88.7¢ Increased 12% from FY 2009’s 79.4 cents per share. 42.0¢ Increased 11% from FY 2009’s 38.0 cents per share. Free Cash Flow -$193m Decreased from FY 2009’s free cash flow of $1,097 million. Net Cash Ratio 0.02x Decreased from FY 2009’s net cash of 0.14x. Net Proﬁ t g Focusing on sustaining growth amidst an uncertain economic environment, we achieved a record net profit of $1.4 billion, 12% higher than in 2009. EVA g Committed to enhancing shareholder value, EVA rose to $1,035 million, the highest ever attained by the Group. Distribution g Total cash dividend of 42 cents per share and the proposed bonus issue of one bonus share for every 10 shares serve to reward shareholders. Key Figures 2010 1 Group Financial Highlights 2010 Earnings Per Share (cents) 2010 2009 88.7 79.4 Return On Equity (%) 2010 2009 22.3 23.9 Cash Dividend Per Share (cents) 2010 2009 42.0 38.0 Economic Value Added ($ million) 2010 2009 1,035 1,026 Group quarterly results ($ million) Revenue EBITDA Operating proﬁ t Proﬁ t before tax & exceptional items Net proﬁ t before exceptional items Earnings per share (cents) For the year ($ million) Revenue Proﬁ t EBITDA Operating Before tax & exceptional items Net proﬁ t 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 After tax & before exceptional items After tax & exceptional items Net assets ($) Net tangible assets ($) At year-end ($ million) Shareholders’ funds Non-controlling interests Capital employed Net cash Net cash ratio (times) 2010 2009 % Change 9,783 12,247 -20% 1,945 1,756 2,026 1,419 1,623 450 (193) 1,035 768 110.8 88.7 101.5 4.20 4.13 6,740 2,984 9,724 178 0.02 1,679 +16% 1,505 +17% 1,856 +9% 1,265 +12% 1,625 -0.1% -33% n.m. 670 1,097 1,026 1,379 +1% -44% 98.9 +12% 79.4 +12% 102.0 -0.5% 3.75 +12% 3.70 +12% 5,985 +13% 2,728 +9% 8,713 +12% -85% 1,177 -86% 0.14 Return on shareholders’ funds (%) Proﬁ t before tax & exceptional items Net proﬁ t before exceptional items 27.9 22.3 29.8 23.9 -6% -7% Shareholders’ value Distribution (cents per share) Interim dividend Final dividend Special dividend in specie Total distribution Share price ($) Total Shareholder Return (%) n.m. not meaningful 16.0 26.0 – 42.0 11.32 47.0 15.0 +7% 23.0 +13% n.m. 23.0 61.0 -31% 8.23 +38% -53% 100.8 2010 2009 1Q 2Q 3Q 4Q Total 1Q 2Q 3Q 4Q Total 2,473 2,416 2,450 2,444 9,783 2,978 3,202 3,038 3,029 12,247 468 1,679 413 1,505 503 1,856 343 1,265 79.4 21.5 535 1,945 477 1,756 582 2,026 403 1,419 88.7 25.2 472 427 482 347 21.6 356 315 400 285 17.9 400 357 466 318 19.9 455 420 487 319 20.1 487 445 497 347 21.7 451 407 465 322 20.2 2 Keppel Corporation Limited Report to Shareholders 2010 Our Growth Record from 2001 to 2010 Decade of Growth Keppel’s unwavering drive for excellence has delivered a decade of healthy growth in net profit, with the Group’s 10-year compound annual growth rate (CAGR) at over 20%. As we move into the next decade, we remain committed to building on our strengths and defining our distinction to create more value for our stakeholders. Revenue ($ million) 2010 2001 9,783 ó66% 5,882 Net Profit Before Exceptional Items ($ million) 2010 2001 267 1,419 ó431% Earnings Per Share (cents) 2010 2001 17.4 Cash Distribution Per Share (cents) 88.7 ó410% 2010 20011 42.0 33.0 ó27% Return On Equity (%) 2010 2001 10.1 Net Cash/(Gearing) Ratio (times) 22.3 ó121% 2010 2001 0.02 (1.12) ó102% Shareholders’ Funds ($ million) 2010 2001 2,587 Our Growth Record from 2001 to 2010 6,740 ó161% Growing Returns g Return on equity rose by 121% over the last decade, from 10.1% to 22.3%, while net profit and earnings per share increased by over 400%. Robust Financial Strength g From a net gearing of 1.12x in 2001 to a net cash of 0.02x in 2010, reflecting our prudent and disciplined financial management over the years. 1 Include 1.5 cents equivalent of special dividend and 25 cents equivalent of capital distribution. 3 Chairman’s Statement Net Proﬁ t $1,419m Increased 12% from FY 2009’s $1,265 million. Earnings Per Share (cents) 69.0 79.4 88.7 2008 2009 2010 100 75 50 25 0 4 “Our robust business strategy, diversified businesses and core competencies put us in a strong position to seize opportunities and capture value wherever there is economic growth and pickup in demand. We will continue to strengthen our capabilities and build up our resources to further improve execution excellence.” DEAR SHAREHOLDERS, We emerged from the uncertainties and volatility of 2009 with expectation of recovery albeit subdued growth for 2010. As it turned out, Asia rebounded rapidly with property and commodity markets in particular showing strong growth. On the other hand, the developed economies in Europe and the US were weighed down by entrenched problems such as high unemployment and public debt. On balance, the year closed on a mixed but more optimistic note. Amidst the uneven global recovery, I am particularly delighted to report that Keppel has turned in yet another stellar set of results in 2010, surpassing our previous record results achieved in 2009. This year’s results came as a pleasant surprise, given the tentative recovery at the start of 2010 as well as the unexpected events in our industries and markets in the course of the year such as the massive oil spill in the Gulf of Mexico and the property market cooling measures introduced by the governments in Singapore and China. Excluding exceptional gains, net proﬁ t exceeded the $1 billion threshold for a fourth successive year, rising 12% to a new high of $1,419 million. Earnings in the last quarter of 2010 alone reached $400 million, setting yet another record for the Group. Earnings per share rose in tandem to 88.7 cents from 79.4 cents in FY 2009. Return on equity remained above 20% for the fourth successive year. The Company’s Economic Value Added (EVA) increased by $9 million to a record $1,035 million, exceeding $1 billion for the second year running. As shareholders, you will beneﬁ t from the good performance. The Board has recommended a full year total cash distribution of 42 cents per share, and a bonus issue of one share for every 10 existing shares. We look forward to your continued support and conﬁ dence in Keppel. The external environment for 2011 will be more complex. Although recovery in the advanced economies seems to be gaining momentum, the outlook remains challenging and somewhat clouded over the next few years. The US economy is recovering in ﬁ ts and starts on the back of returning business investments and strengthening manufacturing activity. Keppel Corporation Limited Report to Shareholders 2010 Chairman’s Statement 5 Chairman’s Statement However, the planned withdrawal of ﬁ scal stimulus will dampen growth and high unemployment continues to be a bugbear. In Europe, many countries are struggling with high unemployment and painful budget cuts. The Eurozone remains dogged by a serious sovereign debt crisis after the bailouts of Greece, Ireland and Portugal failed to restore conﬁ dence. Oil prices have gone above US$100 a barrel last year and are expected to remain so in 2011, especially with the current political uncertainties in the Middle East and North Africa region. High oil prices could further dampen global economic recovery. An added worry is the appearance of food price inﬂ ation in many countries around the world. Developing countries are expected to remain resilient this year and contribute up to two-thirds of global economic growth. China achieved 10.3% growth in 2010, with growth in 2011 forecasted to be around 9.8% while India’s economy is expected to grow nearly 9% for FY2010. After a contraction in 2009, Singapore’s dramatic growth of 14.5% last year was outstanding but we must expect growth to be moderated to a more sustainable range of 4% to 6% in 2011. Inﬂ ation and asset bubbles are key concerns and the Singapore Government like others are already taking steps to manage and minimise the impacts from these uptrends. Keppel will fortify and build on its diverse capabilities and manifold strengths to navigate through this complex environment. KEPPEL’S STRENGTHS The exceptional performance of 2010 is a testament to the Group’s sound strategies and commitment to execution excellence. Our robust business strategy, diversiﬁ ed businesses and core competencies put us in a strong position to seize opportunities and capture value wherever there is economic growth and pickup in demand. We will continue to strengthen our capabilities and build up our resources to further improve execution excellence. We remain deeply committed to ﬁ nancial prudence as well as maximising synergy across the Group’s capabilities and businesses. I am conﬁ dent that Keppel will continue to provide shareholders with a sound investment prospect and healthy returns. Today, our three key businesses leverage the Group’s collective strengths in project management, technology innovation, market focus and global network. We will continue to work ceaselessly to sharpen our focus and further build on our strengths and capabilities to hone our competitive edge and exploit opportunities to extract maximum value for shareholders. Offshore & Marine Keppel Offshore & Marine (Keppel O&M) has built up a solid reputation for its relentless focus on execution, project management excellence and maximising operational and cost efﬁ ciencies. Keppel O&M successfully delivered 35 projects including 12 rigs safely, on time and within budget. For the offshore and marine industry as a whole, 2010 was a year of weak recovery which closed with a strong rebound. The last quarter saw a resurgence of interest in high-speciﬁ cation jackup rigs resulting in Keppel O&M securing a good number of contracts for its proprietary KFELS B Class design. Backed by an extensive network of 20 yards and ofﬁ ces worldwide, Keppel O&M continues to innovate and grow its offerings to meet the needs of the market. In 2010, Keppel FELS partnered Seafox, a leading ﬂ eet owner and operator, to commercialise a new wind turbine installation vessel design for deeper waters. Our joint venture with J Ray McDermott also secured a US$1 billion contract from Brazil for its tension leg wellhead platform. Keppel O&M also continued to strengthen its effective ‘Near Market, Near Customer’ strategy through calibrated expansion in strategic markets. We acquired a new yard in Santa Catarina to meet the strong local demand in Brazil for offshore support vessels. This yard will also complement our BrasFELS yard, which is one of the most established offshore yards in South America, to support Brazil’s plans to grow its offshore oil and gas industry. Building on our partnership with Azerbaijan’s national oil company, SOCAR, we took a stake in the Baku Shipyard which will help to meet the growing needs of the oil industry in the Caspian Sea. Keppel’s shareholding in Subic Shipyard in the Philippines was raised to better capture opportunities from the increase in general shiprepair and upgrading work. Our joint venture yard, the Nakilat–Keppel Offshore & Marine shipyard in Qatar, was inaugurated in November, and aims to be the preferred partner for solutions in the Middle East. Infrastructure The growing pace of urbanisation worldwide means that sustainable energy sources, clean water and waste management will become growth areas. The rising concern over climate change will lead to more legislation and regulations around the world for greater environmental protection and sustainable urbanisation. We anticipate growing demand for sustainable urban solutions to be a driver for our environmental engineering business. Keppel Integrated Engineering (KIE) will leverage its core competencies in treating waste and water as well as the Group’s extensive network to deliver quality environmental solutions. KIE has already established a creditable track record. The Keppel Seghers Tuas Waste-to-Energy (WTE) plant, which is one of the most compact WTE plants in the world, was ofﬁ cially opened in late June. With its two incineration plants, 6 Keppel Corporation Limited Report to Shareholders 2010 KIE is the only private operator of WTE plants in Singapore and handles almost half the incinerable solid waste here. It is playing a key role in the privatisation of the EU’s largest waste and renewable energy project, in a Greater Manchester energy-from-waste plant. KIE also enjoys a strong market position for imported WTE solutions in China, and is providing technology for the country’s largest WTE plant located in Shenzhen as well as the cleanest WTE plant located in Tianjin. While there have been some project delays and cost overruns in our integrated solid waste management facility and a wastewater treatment and reuse plant in Qatar, we have also gleaned valuable lessons from this experience of executing large-scale projects in a challenging environment such as the Middle East. KIE will work hard to improve its project management and execution even as it moves to the operations and maintenance phase of these contracts. The successful listing of the K-Green Trust in late June, with the Senoko and Tuas WTE plants and the Ulu Pandan NEWater facility as underlying assets, offers a new earnings platform for the Group. The Trust has since announced better than forecasted results and is actively seeking to acquire assets with recurring value to grow its portfolio. To meet the growing demand for logistics in the region, Keppel Telecommunications & Transportation (Keppel T&T) has continued to expand its logistics capacity in Singapore, China and Vietnam. Working with its Middle East partner, Keppel T&T also achieved initial closing of the world’s ﬁ rst Shariah-compliant data centre fund to tap into the growing demand for data centres worldwide. For Keppel Energy, its $900 million expansion of its 500 MW co-generation power plant on Jurong Island by another 800 MW is targeted for completion in 2013. This will help us to grow our revenue from Singapore’s electricity market. Chairman’s Statement On safety excellence: “Safety has long been enshrined as one of Keppel’s core values. A safe workplace yields superior operating performance. This is why the Company’s Board Safety Committee, which was established in 2006, plays an active role in aligning, reviewing and developing safety policies and initiatives across the Group’s different business units.” On the progress of the Tianjin Eco-City: “The Tianjin Eco-City project has made good progress since its groundbreaking in 2008, having secured around RMB55 billion of investment commitments to-date. This includes leading regional developers who will build a variety of eco-homes, commercial and cultural-leisure developments, as well as eco-technology companies offering urban solutions.” 7 Chairman’s Statement Property With Asia’s strong growth, urbanisation trends and its rising middle class, regional property markets have stayed reasonably healthy. Keppel Land’s strategic positioning in the market segments of large-scale townships and integrated lifestyle developments holds great potential for sustained earnings. In 2010, it achieved good sales in both waterfront luxury homes as well as township developments in Singapore and overseas markets. In particular, record sales of over 4,600 units overseas was achieved, mainly from township projects in China. China is now a key focus of Keppel Land’s regional strategy. Hence, Keppel Land China was established to consolidate and sharpen our focus on execution and delivery in this complex and fast-growing market to maximise value creation. Since then, land parcels have been acquired in the second-tier cities of Chengdu and Nantong and we will continue to scan the market for attractive land acquisitions in cities with good growth potential. Asia’s sustained growth has also boosted demand for quality ofﬁ ce buildings, and both Keppel Land and K-REIT Asia have managed to capture value from this rising demand. Strong pre-commitment totalling about 1 million sf of Grade A ofﬁ ce space was secured at Marina Bay Financial Centre (MBFC) and Ocean Financial Centre this year. The asset swap between Keppel Land and K-REIT Asia involving MBFC Phase 1, and Keppel Towers and GE Tower is a strategic move to unlock value for both companies, to ensure that assets are optimally utilised. In its ﬁ rst foray out of Singapore, K-REIT Asia acquired two quality ofﬁ ce assets in Australia, laying the foundation to grow into a leading pan-Asian commercial REIT. The Group synergises its competencies in environmental engineering and property development to develop large-scale integrated eco-friendly townships, and we have established a Sustainable Development unit in June 2010 to coordinate and drive the Group’s efforts in offering holistic sustainable urban living solutions. Keppel also leads the Singapore Consortium to develop the landmark 30-sq km Sino-Singapore Tianjin Eco-City in a joint venture with a Chinese Consortium. The Tianjin Eco-City project has made good progress since its groundbreaking in 2008, having secured around RMB55 billion of investment commitments to-date. This includes leading regional developers who will build a variety of eco-homes, commercial and cultural-leisure developments, as well as eco- technology companies offering urban solutions. Keppel’s eco-homes in the Eco-City have been well received by the local market, registering strong sales for the launched units. KIE’s district heating and cooling systems subsidiary is also in a joint venture to offer its services to the Eco-City, while KIE and Keppel T&T are planning to leverage the Eco-City’s position as an eco-research and logistics hub to grow their presence in northern China. DISTINCTIVE VALUES The Board and Management believe that strong corporate governance is the keystone to the sustainability of our businesses and performance. Maintaining high standards in corporate governance is part and parcel of our accountability to our stakeholders. Today, we face a complex global business environment. The Board will continue to work closely with Management to manage risks and ensure the Group remains ﬂ exible and robust to overcome the diverse challenges across the different regions where we operate. The Gulf of Mexico oil spill has highlighted even more strongly the need for companies to strengthen their risk management and 8 Keppel Corporation Limited Report to Shareholders 2010 crisis management capabilities and processes. Within the Group, we have initiated a fresh round of reviews in all our business operations with the aim of ensuring stringent and sound measures in these areas. Safety has long been enshrined as one of Keppel’s core values. A safe workplace yields superior operating performance. This is why the Company’s Board Safety Committee, which was established in 2006, plays an active role in aligning, reviewing and developing safety policies and initiatives across the Group’s different business units. In 2010, Keppel O&M also launched the ﬁ rst integrated safety training complex in Singapore. We will continue our efforts to implement best safety practices so that our employees and workers will be able to return home safely to their families and loved ones after a day’s work. Our people are our core asset. Keppel continues to provide opportunities for employees to maximise their potential, develop their talents and capabilities to contribute to the Group’s success. Capabilities and skills of our workers and employees are regularly upgraded to enhance productivity. We continue to maximise the Group’s innate synergy by better deploying our talents across the different business units. In managing and developing talent, younger leaders are entrusted with additional responsibilities, giving them the exposure and opportunity to drive the Group’s next phase of growth, and ensure smooth and effective succession for key management positions. To reinforce sustainable practices and processes in our businesses, we have established a more systematic and rigorous corporate social responsibility framework Group-wide to monitor, plan and coordinate activities undertaken by our various business units. This framework will galvanise our ongoing efforts to continuously improve our environmental, social and governance standards and allow us to benchmark against global best practices to build a strong foundation for sustainable growth. As part of the Group’s commitment to giving back to the communities where we operate, we are also looking to strengthen the holistic management of the Group’s contributions to worthwhile causes. ACKNOWLEDGEMENTS I take this opportunity to acknowledge the following changes as part of the Board’s proactive process to deepen its range of expertise. We are pleased to welcome to the Board two new members, Mr Tan Ek Kia and Mr Danny Teoh, who were appointed Independent Directors with effect from 1 October 2010. Mr Tan is an industry veteran in the oil, gas and petrochemicals sector while Mr Teoh has more than 30 years of experience in the areas of auditing and ﬁ nancial advisory. Together, they will support the drive for sustained, broad-based growth and to enhance shareholder value across the Group. Finally, I wish to thank Directors, Management, employees, partners, customers, and all stakeholders for their continued support over the past year. The Group shall spare no effort to chart new growth paths so as to ensure that we continue to grow and prosper in the years ahead. Thank you. Yours sincerely, Lee Boon Yang Chairman 4 March 2011 Chairman’s Statement 9 Interview with the CEO Q1. What are your priorities for the next couple of years? A: I want to position Keppel for the volatile world ahead, to ride the upturns and be robust in any turbulence. At the same time, I am preparing the next team to take over the helm when the current leadership team phases out. I would like to see a stronger Team Keppel, working towards our common vision and mission, guided by our core values. The Keppel Group delivered a commendable net proﬁ t CAGR of 20% over the last ten years. With yet another set of record earnings in 2010, we are facing the challenge to surpass this performance. Having said this, I see good growth prospects in Keppel’s businesses. I ﬁ rmly believe that the key to continued success is our strong commitment and focus to stay the course in executing our strategy. What sets us apart is our execution excellence, innovation and customer focus, ﬁ nancial prudence and collective strength. To stay ahead of the game, we will continue to leverage these qualities in the Group, as we capture opportunities to expand and strengthen our position in our businesses. “We will refine the strategies in our business units, building on their strengths and extending their value propositions. At the same time, we will further grow cross business unit synergies and capabilities.” Mr Choo Chiau Beng Chief Executive Ofﬁ cer Keppel Corporation 10 Keppel Corporation Limited Report to Shareholders 2010 Q2. How are you planning to further grow Keppel? Q3. Do you think the current upturn in the Offshore & Marine sector can be sustained? A: For a start, we will continue to grow our three businesses of Offshore & Marine, Infrastructure and Property, near our markets and close to customers. The global megatrends of rising standards of living and urbanisation, increased environmental concerns and growing demand for energy undoubtedly present opportunities for Keppel. We will reﬁ ne the strategies in our business units, building on their strengths and extending their value propositions. At the same time, we will further grow cross business unit synergies and capabilities. We have identiﬁ ed the sustainable development and urbanisation business, which combines and showcases our expertise in Infrastructure and Property, as our next growth area. In this respect, we have formed a team to focus and coordinate efforts across the Group to seize commercially attractive opportunities in the region. To grow our businesses, we need good and dedicated people motivated to work as a team. We need continuity in leadership and management. As such, we spend a lot of resources on talent management and succession planning. Last year, we launched the Keppel Young Leaders, a programme to nurture talents across the Group. This also serves as a platform to cultivate a global mindset and encourage a spirit of innovation and enterprise. Through this initiative, we hope to develop and identify a continuous pipeline of future leaders for the Group. A: In the ﬁ rst two months of 2011, we clinched $3.7 billion worth of new orders with deliveries extending to 2014, more than what we secured for the whole of last year. The positive view of our customers on the outlook for rigs in the next few years is well supported by prospects in global spending in exploration and production (E&P). While the ongoing unrest in the Middle East and North Africa region may potentially slow the pace of recovery, we are still optimistic of the sound long-term fundamentals of the industry. Overall, E&P budgets are expected to increase by 15-20% on average in 2011, with oil planning prices in the region of US$70 per barrel. Chevron has announced that it is raising its E&P budget for 2011 by 20% to US$23 billion, while Total is increasing its 2011 upstream budget by 8% to US$16 billion. In Asia, CNOOC’s 2011 E&P budget will increase to US$8.8 billion, 13% above that for 2010. The International Energy Agency, or IEA, in its 2010 World Energy Outlook released in November, revised upwards the estimated growth in global energy demand for the period from 2008 to 2035, to 36%. This is equivalent to 1.2% increase per year on average. Fossil fuels accounts for over 50% of the increase, with oil remaining the dominant fuel source. By 2035, demand for oil will reach 99 million barrels per day, which is 15 million barrels per day more compared with 2009, driven mainly by population and economic growth in the developing countries such as China and India. Besides oil, global natural gas demand is also set to resume its long-term upward trend, with demand increasing 44% between 2008 to 2030, equivalent to an increase of 1.4% per year. The steep climb in demand for gas is due to its more favourable environmental and practical attributes. On the supply side, over a third of the global increase in gas output is coming from unconventional sources – shale gas, coalbed methane and tight gas – in the US, and increasingly, from other regions such as Europe and Asia. Interview with the CEO 11 Interview with the CEO Q4. What are the prospects in the jackup and semisubmersible space over the near and longer term? A: Based on the number of orders placed in the ﬁ rst quarter of this year, the jackup market is experiencing a healthy recovery, particularly in the demand for high-end jackups (>350–400 ft water depth). All the 14 newbuild jackup orders which we have secured since the last quarter of 2010 are for high- speciﬁ cation jackups. Such a demand trend was outlined by industry analyst ODS-Petrodata, which expected worldwide demand for jackups to increase by 48 rigs or 15% in 2011. The largest increase is seen in Central America/Mexico, North Sea, the Middle East and North America. On the other hand, supply in 2011 is expected to increase by 19 units, of which six have already secured contracts. Industry estimates also point to the fact that 69% of the global jackup ﬂ eet is older than 25 years old. In the area of high-end jackups, our customer Rowan estimated that there is near-term demand for about 18 to 20 high-end rigs for multiple-well projects in the UK and Norwegian sectors of the North Sea. In all, Rowan expects close to 200% increase in demand for high-end jackups, with utilisation reaching 85%, signiﬁ cantly higher than the industry-wide utilisation of 68%. Dayrates are also signiﬁ cantly higher. While the jackup market is active, the outlook for the deepwater segment is also looking up. According to Pareto Research, dayrates and activity level have started to pick up, while the latest Douglas-Westwood estimates show that deepwater expenditure is expanding at a CAGR of 8%, reaching US$35 billion in 2014. Total global capital expenditure for the 2010–2014 period is expected to reach US$167 billion. We are therefore optimistic that orders for semisubmersibles will return in the near term. A: We are keenly aware of the rising competition, which in a way keeps us on our toes and motivates us to continue to improve. Rest assured that we are putting in our maximum efforts to increase our productivity, strengthen our competitive edge and enhance our leadership position in the industry. Being near our markets and customers has been a signiﬁ cant value-add to our customers. After expanding further into Brazil, Caspian region and the Philippines last year, we continue to actively explore opportunities to grow our global yard network. Africa and Mexico are regions with abundant offshore oil resources and hence we are looking closely to tap opportunities there. Meanwhile, we spare no efforts in leveraging our strengths in research and development and our deep understanding of the market needs, to provide customers with the products they require. We are able to continuously enhance our proven designs to suit the needs of speciﬁ c customers for their target markets. For example, our KFELS Super A Class jackup is based on an enhanced design of our successful and proven KFELS MOD V-A Class design. This design is well-suited for operating conditions in the UK, Danish and Dutch sectors of the North Sea. The KFELS Super B Class Bigfoot design, which was customised to suit Transocean’s needs, is based on the proven KFELS B Class jackup design which has also been well-received by the industry. Q5. What is Keppel doing to stay ahead of the competition in its Offshore & Marine business? 12 Keppel Corporation Limited Report to Shareholders 2010 Q6. How do you plan to raise productivity further at Keppel Offshore & Marine? A: To formalise efforts and implement strategies to achieve continual productivity improvements, we have established a Productivity Improvement Taskforce within Keppel O&M. The focus is to increase labour productivity and encourage proactive sharing of knowledge and best practices in a range of key areas, including production processes, automation, mechanisation, R&D, skills upgrading and training, procurement, warehousing, information technology, supply chain management and pipe shop automation, among others. The ultimate objective is to cut down on the time and costs to build rigs and vessels, while delivering on our promise of quality and safety. We know that we are often compared to the Korean yards. They enjoy good productivity as their yards are highly automated and their workforce is very homogenous. Our workforce in Singapore, on the other hand, is not as homogenous but we are ﬂ exible and adaptable. Such qualities are suited to rig construction which is project-centric by nature. A key strength of the project-centric approach is the ability to provide high levels of customisation for speciﬁ c products. We have so far done well in integrating the best of both project and manufacturing approaches of efﬁ cient production with good quality control into our processes, and are continuing to improve on them. Q7. What are other growth areas which Keppel Offshore & Marine is pursuing? A: We see positive prospects in the production and ﬂ oating accommodation semisubmersible markets, and are actively seeking opportunities to grow our presence in these two areas. According to Douglas-Westwood, the world will need more than 100 Floating Production Systems (FPS) to be installed between 2010 and 2014. This is equivalent to a value of US$45 billion. FPSOs account for close to 80% of this total FPS capex forecast, followed by tension leg platforms, semisubmersibles and Spars. Brazil is dominating the FPS market with Petrobras looking to double its ﬂ eet to 84 by 2020. To strengthen our capabilities in the FPS market, we have taken a 28% stake in Singapore-listed Dyna-Mac, a topside module fabricator. This investment allows us to have better control over the process of designing and fabricating oil and gas production modules. We are also stepping up efforts, through FloaTEC, LLC, our joint venture with J Ray McDermott, to secure orders to provide deepwater production rigs to the market. Separately, we have also taken a 31.7% stake in Floatel International, to reﬂ ect our conﬁ dence in the growth potential of high-quality ﬂ oating accommodation semisubmersibles for both Brazil and the North Sea. The construction of our ﬁ rst KFELS Multi-Purpose Self-Elevating Platform (KFELS MPSEP), in collaboration with the Seafox Group, is progressing well. We are glad that there is a lot of interest to charter this unit for multiple-year contracts. We see the need for more capable offshore wind turbine installation vessels, apart from those currently available, which are a bit undersized. We are conﬁ dent that there is a market for such vessels and ours will offer a premier solution for the industry. We continue to work on gaining entry into the turnkey drillship market with our compact drillship design, the DrillDeep DS12000. This compact drillship is designed to be more energy-efﬁ cient and easier to maintain than the larger rivals in the market. Interview with the CEO 13 Interview with the CEO Q8. What growth opportunities do you see for the Infrastructure Division? Q9. Keppel’s Property business had a good year in 2010. What is your outlook of the property market in 2011 and beyond? A: According to industry estimates, the global market for thermal and biological waste-to-energy technologies will grow to $13.6 billion in 2016. The Asia-Paciﬁ c is predicted to contribute the largest portion of the growth. Riding on this uptrend, Keppel Integrated Engineering (KIE) is actively pursuing contracts in its focus markets of Europe, China and the Middle East. We are drawing useful lessons from the ongoing challenges we are facing in Qatar, and are working to strengthen our execution capabilities in that market. K-Green Trust, which was listed last year, is focused on delivering sustainable returns while actively pursuing opportunities to acquire green infrastructure assets. The 800MW capacity expansion of Keppel Merlimau Cogen Plant, which is powered by natural gas, is expected to meet Singapore’s electricity demand growth. According to industry forecast, electricity demand in Singapore is expected to increase at an annual rate of between 2.5% and 3% from now till 2018. In addition, with the need for more clean energy in the world, particularly in Asia, Keppel Energy is leveraging its experience and expertise to seek commercially attractive growth opportunities in the region. In the area of logistics and data centres, Asia’s continued growth is expected to drive demand for such services. Keppel T&T is actively expanding its logistics footprint in Asia, with focus on providing integrated logistics services in China and Southeast Asia. At the same time, it is also looking to grow its data centre business in Asia and Europe through capacity expansion at existing facilities and building a portfolio of high-quality data centre assets through its Securus Fund. A: With Asia’s overall growth momentum stabilising, we believe 2011 and beyond will continue to hold healthy prospects for both the residential and ofﬁ ce markets in the region. In Singapore, GDP growth in 2011 is expected to moderate to 4–6%, which is not expected to impact on the recovering conﬁ dence in Singapore as the region’s ﬁ nancial hub. Leasing activities in the ofﬁ ce market is therefore expected to continue to strengthen, driven by new expansion in the ﬁ nancial services and other supporting sectors. Property consultants are predicting an increase of about 15% in Grade A ofﬁ ce rentals in Singapore in 2011, following a rise of 20% in 2010. In the residential sector, demand and prices are normalising in Singapore and China following the cooling measures introduced by the governments last year. With prices heading towards more affordable levels, coupled with aspirations for homes in line with rising afﬂ uence and urbanisation, genuine home buyers are likely to be more prepared to make purchases. 14 Keppel Corporation Limited Report to Shareholders 2010 Q10. What are Keppel’s plans to further grow the Property business? A: With the healthy outlook, we are poised to capture opportunities to further grow our Property business. Over the next year or so, Keppel Land will continue to monitor the markets and time launches of residential units in Singapore and in key markets in Asia. In China and Vietnam, development of land acquired last year will add to an already healthy pipeline of quality residential and waterfront homes in cities like Chengdu, Zhongshan, Nantong and Ho Chi Minh City. The formation of Keppel Land China is expected to provide a sharper focus and more concerted effort in offering our value proposition and broadening our property presence in China. In recent years, prudent ﬁ nancial management has helped Keppel Land build up a good cash position. Riding on this, Keppel Land will continue to actively seek acquisition opportunities in Singapore and the region. Apart from land acquisitions for residential and township developments, Keppel Land will also seek to further strengthen its commercial and mixed-use development portfolio in Singapore and the region. The asset swap between Keppel Land and K-REIT Asia last year involving Marina Bay Financial Centre, Keppel Towers and GE Tower was a win-win deal for the two companies, and demonstrate the value which can be extracted from Group synergy. Looking ahead, we can expect further value to be captured from similar opportunities within the Group. Interview with the CEO 15 Powering Excellence 35 Rigs and Vessels In 2010, Offshore & Marine Division continued its delivery excellence with the completion of 12 rigs, 5 FPSO/FSRU conversions, 18 specialised vessels and several rig upgrades and repairs. 35,000 ft Capable of operating at 400 ft water depth and drilling at 35,000 ft, the new KFELS Super A Class jackup, our latest offering to Ensco, will meet the industry’s need for newer and higher performance assets with improved safety and better efﬁ ciency. 5,250 Homes In 2010, Keppel Land sold a record 4,600 homes overseas, bringing 2010 total sales to 5,250 homes, which contributed to Keppel Land’s record net proﬁ t of over $1 billion. Harnessing Synergy Unlocking Value with Asset Swap Asset swap between Keppel Land and K-REIT Asia involving the one-third stake in Phase 1 of Marina Bay Financial Centre, and Keppel Towers and GE Tower in Singapore, unlocked signiﬁ cant value for the two companies and demonstrated the power of synergy within the Group. RMB 55b Having secured over RMB 55b in investments, the Sino-Singapore Tianjin Eco-City is progressing well as a showcase for integrated sustainable urban solutions. 150,000 sf Consolidated data centre assets of Keppel T&T and Keppel Land to enhance position and meet demand in fast growing sector. Maximising Value CAGR 20.4% Over the last decade, riding on a strong commitment to develop our core competencies, our net proﬁ t grew from $267 million to $1,419 million, which is a compound annual growth rate of 20.4%. 800MW Expansion When completed in 2013, the Keppel Merlimau Cogen Plant expansion will more than double its capacity to 1,300MW, and is expected to generate good returns for the Group. Technology Innovation Our focus on R&D, coupled with our deep understanding of industry needs and commitment towards value creation, enable us to provide cost-effective and high quality solutions to our customers. Group Strategic Directions Keppel Corporation To be the Provider of Choice for Solutions to the Offshore & Marine Industries, Sustainable Environment and Urban Living Offshore & Marine To be the choice provider and solutions partner in its selected segments of the offshore and marine industry Infrastructure To seek expansion opportunities in the 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 sustain value to shareholders while seeking growth opportunities Strategic Directions Fortifying Core Competencies g Ensure continued focus on execution excellence to produce top quality products and solutions for customers. g Sharpen competitive edge by investing in Research and Development (R&D) for long-term growth. g Maximise talent development and knowledge sharing to enhance productivity. Expanding Global Footprint g Build on the Group’s strong global network for new business opportunities. g Leverage the Keppel brand equity to enhance its presence in existing markets and enter new markets. Leveraging Growth Platforms g Maximise synergy and collective strength among businesses. g Seize value enhancing opportunities when they arise. Net Proﬁ t $1,419m Increased 12% from FY 2009’s $1,265 million. Revenue ($ million) 2010 2009 22 Focus for 2011/2012 g Deliver value through excellent project management and execution. g Enhance R&D initiatives to strengthen position as market leader in selected segments. g Explore opportunities in new markets and adjacent businesses. g Maximise and realise operational efficiencies. g Sustain prudent cost management. g Focus on Health, Safety and the Environment. Net Proﬁ t $987m Increased 22% from FY 2009’s $810 million. Revenue ($ million) Focus for 2011/2012 g Actively seek acquisitions in Singapore and overseas with continued focus on developing quality residential, township, commercial and mixed-use projects. g Monitor markets and time launches for new projects and phases. g Recycle capital to take on new large-scale projects. Focus for 2011/2012 g k1 Ventures to identify investment opportunities while continuing to focus on the management of existing investments with the aim of enhancing shareholder value. g M1 to continue to strengthen its position in the mobile market and capitalise on growth opportunities in Singapore, riding on the new national fibre network. Focus for 2011/2012 g Keppel Integrated Engineering (KIE) to further strengthen its presence in key geographical markets and business segments. g KIE to focus on timely completion of ongoing EPC projects in Qatar and UK. g Keppel Energy to grow its power generation business by planting additional capacity in Singapore and seizing opportunities in the region. g Keppel Telecommunications & Transportation to expand logistics footprint in Asia, and to increase data centre business. Net Proﬁ t $57m Decreased 55% from FY 2009’s $126 million. Net Proﬁ t Net Proﬁ t $326m Increased 55% from FY 2009’s $210 million. $49m Decreased 59% from FY 2009’s $119 million. Revenue ($ million) 2010 2009 2,510 2,427 Revenue ($ million) 2010 2009 Revenue ($ million) 1,685 2010 11 1,508 2009 39 Keppel Corporation Limited Report to Shareholders 2010 Group Strategic Directions 23 9,783 2010 5,577 12,247 2009 8,273 Keppel Around the World Offshore & Marine Australia 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 Germany Indonesia Ireland Malaysia Mexico Qatar Singapore Spain Sweden Thailand The Philippines United Kingdom United States Vietnam Property Australia China India Indonesia Japan South Korea Malaysia Saudi Arabia Singapore Thailand The Philippines Vietnam Investments China Singapore United States We leverage our global reach to diversify earnings streams and reap benefits in our near market near customer strategy. $1,998m Europe $510m China and Hong Kong $52m Japan and South Korea United States Mexico Ecuador Argentina Brazil Sweden Norway Ireland The Netherlands United Kingdom Belgium Germany Bulgaria Kazakhstan Spain Azerbaijan Algeria Saudi Arabia Qatar United Arab Emirates South Korea Japan China India Hong Kong Vietnam Thailand Malaysia SINGAPORE Indonesia The Philippines Australia Total FY 2010 Revenue $9,783m North America $1,892m South America $1,045m Middle East $302m India ASEAN Australia $43m $3,841m $100m 24 Keppel Corporation Limited Report to Shareholders 2010 Keppel Around the World 25 Board of Directors Lee Boon Yang, 63 Chairman and Independent Director Member, Nominating Committee Member, Remuneration Committee Member, Board Safety Committee Lim Hock San, 64 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 26 Keppel Corporation Limited Report to Shareholders 2010 Choo Chiau Beng, 63 Chief Executive Officer Member, Board Safety Committee Sven Bang Ullring, 75 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, 64 Independent Director Executive Chairman, Asia Resource Corporation Chairman, Nominating Committee Member, Audit Committee Oon Kum Loon, 60 Independent Director Chairperson, Board Risk Committee Member, Audit Committee Member, Remuneration Committee 28 Keppel Corporation Limited Report to Shareholders 2010 Tow Heng Tan, 55 Non-Independent and Non-Executive Director Chief Investment Ofﬁ cer, Temasek Holdings Member, Nominating Committee Member, Remuneration Committee Member, Board Risk Committee Alvin Yeo Khirn Hai, 49 Independent Director Senior Partner, WongPartnership LLC Member, Audit Committee Member, Board Risk Committee Board of Directors 29 Board of Directors Tan Ek Kia, 63 Independent Director Member, Nominating Committee Member, Board Safety Committee Danny Teoh, 56 Independent Director Member, Audit Committee Member, Remuneration Commitee 30 Keppel Corporation Limited Report to Shareholders 2010 Teo Soon Hoe, 61 Senior Executive Director and Group Finance Director Tong Chong Heong, 64 Executive Director Board of Directors 31 Keppel Group Boards of Directors KEPPEL OFFSHORE & MARINE KEPPEL INTEGRATED ENGINEERING Tong Chong Heong Chairman Executive Director, Keppel Corporation; Chief Executive Ofﬁ cer, Keppel Offshore & Marine Michael Chia Hock Chye Deputy Chairman Director (Group Strategy & Development) of Keppel Corporation; Managing Director (Offshore), Keppel Offshore & Marine BG (NS) Tay Lim Heng Chief Executive Ofﬁ cer Loh Ah Tuan Director Quek Boon Sing Director Teo Soon Hoe Senior Executive Director and Group Finance Director, Keppel Corporation Michael Chia Hock Chye Director (Group Strategy & Development) of Keppel Corporation; Deputy Chairman, Keppel Integrated Engineering; Managing Director (Offshore), Keppel Offshore & Marine KEPPEL TELECOMMUNICATIONS & TRANSPORTATION Teo Soon Hoe Chairman Senior Executive Director and Group Finance Director, Keppel Corporation Dr Ong Tiong Guan Managing Director, Keppel Energy Dr Tan Tin Wee Associate Professor of Biochemistry, National University of Singapore KEPPEL INFRASTRUCTURE FUND MANAGEMENT (AS TRUSTEE- MANAGER OF K-GREEN TRUST) Prof Bernard Tan Tiong Gie Professor of Physics, National University of Singapore Reggie Thein Independent Director Khor Poh Hwa Chairman Advisor in Township and Infrastructure Development to Keppel Corporation Wee Sin Tho Vice President, Endowment and Institutional Development, National University of Singapore Tan Boon Huat Independent Director Karmjit Singh Independent Director Alan Ow Soon Sian Tax Consultant (Non-Legal Practitioner), KhattarWong Paul Ma Kah Woh Independent Director Quek Soo Hoon Operating Partner, iGlobe Partners (II) Pte. Ltd. Thio Shen Yi Joint Managing Director, TSMP Law Corporation Choo Chiau Beng Chairman Chief Executive Ofﬁ cer, Keppel Corporation Tong Chong Heong Chief Executive Ofﬁ cer Sit Peng Sang Executive Director Bjarne Hansen Senior Partner, Wing Partners I/S, Denmark Prof Neo Boon Siong Professor and former Dean of Nanyang Business School, Nanyang Technological University, Singapore Stephen Pan Yue Kuo Chairman, World-Wide Shipping Agency Limited Prof Minoo Homi Patel Professor of Mechanical Engineering and Director of Development, School of Engineering, Cranﬁ eld University, UK Dr Malcolm Sharples President, Offshore Risk & Technology Consulting Inc, US Teo Soon Hoe Senior Executive Director and Group Finance Director, Keppel Corporation Tan Ek Kia Chairman of City Gas Pte Ltd Po’ad Bin Shaik Abu Bakar Mattar Independent Director of Hong Leong Finance Limited and Tiger Airways Holdings Limited Lim Chin Leong Former Chairman of Asia, Schlumberger Loh Chin Hua Managing Director, Alpha Investment Partners Limited 32 Keppel Corporation Limited Report to Shareholders 2010 K-REIT ASIA MANAGEMENT (AS MANAGER OF K-REIT ASIA) 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 Dr Chin Wei-Li Audrey Marie Chairman, Vietnam Investing Associates – Financials (S) Pte Ltd Lee Ai Ming (Mrs) Senior Partner, Rodyk & Davidson Tan Chin Hwee Portfolio Manager, Apollo Asia Opportunity Master Fund Tan Swee Yiow Alternate Director to Kevin Wong Kingcheung; President (Singapore Commercial), Keppel Land International KEPPEL ENERGY KEPPEL LAND 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 Chief Executive Ofﬁ cer, OpenNet Pte Ltd Koh Ban Heng CEO & Executive Director of Singapore Petroleum Company Limited (member of PetroChina) Foo Jang See Senior Vice President, Reﬁ ning, Crude Supply Trading and Operations, Singapore Petroleum Company Limited (member of PetroChina) Nelson Yeo Chien Sheng Managing Director (Marine), 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 in 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 Heng Chiang Meng Former Managing Director, First Capital Corporation; Executive Director, Far East Organisation Group Michael Chia Hock Chye Director (Group Strategy & Development) of Keppel Corporation; Deputy Chairman, Keppel Integrated Engineering; Managing Director (Offshore), Keppel Offshore & Marine Edward Lee Former Ambassador to Indonesia Koh-Lim Wen Gin Former URA Chief Planner and Deputy Chief Executive Ofﬁ cer Tina Chin Tin Chie General Manager, Group Risk Management, Keppel Corporation Oon Kum Loon Non-executive, Non-independent Director Teo Soon Hoe Senior Executive Director and Group Finance Director, Keppel Corporation Keppel Group Boards of Directors 33 Keppel Technology Advisory Panel The Group promotes a culture of innovation with guidance from a panel of eminent business leaders, professionals and industry experts. (From left) First row: Dr Brian Clark, CEO Choo Chiau Beng, Professor Cham Tao Soon (Chairman, Keppel Technology Advisory Panel), Professor Sir Eric Ash, Dr Yeo Ning Hong Second row: Tan Gee Paw, Dr Malcolm Sharples, Professor Minoo Homi Patel, Professor James Leckie and Professor Tom Curtis Absent from photo: Professor Jim Swithenbank 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 academic 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. doctorates, including one from Nanyang Technological University (Singapore). Dr Brian Clark Schlumberger Fellow; B.S. Ohio State University; PhD, Harvard University (1977). He holds 67 patents related to the exploration and development of oil and gas, primarily in wire line 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 the National Academy of Engineering and The Academy of Medicine, Engineering and Science of Texas. He is presently an Advisor to Tata Consulting Engineers Ltd in Mumbai. A past president of the Institution of Electrical Engineers, 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 Dr Yeo Ning Hong (KTAP Term expired on 31 December 2010) 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 34 Keppel Corporation Limited Report to Shareholders 2010 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, and a recipient of the Royal Academy of Engineering Global Research Fellowship, 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. Professor Jim Swithenbank (KTAP Term starts from 1 January 2011) BSc, PhD, FREng, FInstE, FIChemE, Energy and Environmental Engineering Group He is the current Chairman of The Shefﬁ eld University Waste Incineration Centre (SUWIC), a fellow of the Royal Academy of Engineering and a member of numerous International Combustion Committees. He was the past president of the Institute of Energy (1986–87) and has served on many UK government/DTI/EPSRC Committees. He is a proliﬁ c researcher with over 300 refereed papers to his credit and also an internationally pre-eminent scholar for research on combustion, energy from waste and pollution control and holder of more than 30 patents. He was also the technical architect of the Shefﬁ eld waste-to-energy CHP scheme and the co-inventor of the Malvern instrument and of the original FLUENT CFD package. 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 Director of Development for 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 (Keppel O&M), Cranﬁ eld Aerospace Ltd and BMT Group Ltd. Dr Malcolm Sharples President, Offshore Risk & Technology Consulting Engineering Inc.; BE. (Engineering Science),University of Western Ontario; PhD University of Cambridge; Athlone Fellow; Fellow of the Society of Naval Architects and Marine Engineers; Registered Professional Engineer. He provides consulting service on offshore-related projects including project technical risk, project safety cases and health & safety quality systems, ﬁ nancial due diligence on acquisitions, regulatory advice, business development assistance. 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 O&M. 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. Mr Tan is the Chairman of Public Utilities Board, the national water agency of Singapore. He is a member of the Presidential Council for Religious Harmony, Chairman of 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. Mr Tan co-chairs the Environmental & Water Technologies International Advisory Panel, Ministry of the Environment & Water Resources. He is also the Chairman of the International Advisory Panel of the Institute of Water Policy, Lee Kuan Yew School of Public Policy, and National University of Singapore. Mr Tan chairs the Nominating Committee of the Lee Kuan Yew Water Prize, Singapore International Water Week. He is a Member of the Centre for Liveable Cities Advisory Board, Ministry of National Development; Chairman of the Governing Board for the Earth Observatory of Singapore, Nanyang Technological University; Member of the Steering Group on Water & Climate Change for the Asia-Paciﬁ c Water Forum; and Member of the Climate Change Network, Prime Minister’s Ofﬁ ce. Keppel Technology Advisory Panel 35 Senior Management KEPPEL CORPORATION CORPORATE SERVICES OFFSHORE & MARINE Choo Chiau Beng Chief Executive Officer Teo Soon Hoe Senior Executive Director and Group Finance Director Tong Chong Heong Executive Director Chee Jin Kiong Director (Group Human Resources) Tong Chong Heong Chief Executive Officer Keppel Offshore & Marine Michael Chia Hock Chye Director (Group Strategy & Development) Sit Peng Sang Executive Director Keppel Offshore & Marine Paul Tan Group Controller Wang Look Fung General Manager (Group Corporate Communications) Michael Chia Hock Chye Managing Director (Offshore) Keppel Offshore & Marine Nelson Yeo Chien Sheng Managing Director (Marine) Keppel Offshore & Marine 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) Goh Toh Sim Chief Representative (China) Chee Jin Kiong Executive Director (Human Resources) Keppel Offshore & Marine Chow Yew Yuen President, The Americas Keppel Offshore & Marine Wong Kok Seng Managing Director Keppel FELS Hoe Eng Hock Executive Director Keppel Singmarine Wong Ngiam Jih Chief Financial Officer Keppel Offshore & Marine Charles Foo Chee Lee Director / Advisor Keppel Offshore & Marine Technology Centre (KOMtech) Dr Foo Kok Seng Executive Director Offshore Technology Development (OTD) Centre Director Keppel Offshore & Marine Technology Centre (KOMtech) Aziz Amirali Merchant Executive Director Keppel FELS Chor How Jat Executive Director Keppel Shipyard 36 Keppel Corporation Limited Report to Shareholders 2010 INFRASTRUCTURE PROPERTY UNIONS BG (NS) Tay Lim Heng Chief Executive Officer Keppel Integrated Engineering Head of Sustainable Development Keppel Group BG (Ret) Pang Hee Hon Chief Executive Officer Keppel Telecommunications & Transportation Dr Ong Tiong Guan Managing Director Keppel Energy Thomas Pang Thieng Hwi Chief Executive Officer Keppel Infrastructure Fund Management (Trustee-Manager of K-Green Trust) Kevin Wong Group Chief Executive Officer Keppel Land Keppel FELS Employees Union Ho Mun Choong, Vincent President Ang Wee Gee Executive Director Keppel Land International Executive Vice Chairman Keppel Land China Choo Chin Teck Director (Corporate Services) and Group Company Secretary Keppel Land International Lim Kei Hin Chief Financial Officer Keppel Land International Tan Swee Yiow President (Singapore Commercial) and Head, Regional Investments (Indonesia, Malaysia, Myanmar) Keppel Land International Augustine Tan President (Singapore Residential) and Head, Regional Investments (India, Middle East) Keppel Land International Ng Hsueh Ling Chief Executive Officer/Director K-REIT Asia Management Loh Chin Hua Managing Director Alpha Investment Partners 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 Heng 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 37 Investor Relations 1 2 1_Analysts engaged in robust discussion with Keppel Senior Management. 2_Visits to our yards provide analysts and investors a ground feel of our operational excellence. With the global ﬁ nancial crisis gradually easing, 2010 started out on a promising note. However, this positive mood was soon dampened by the eruption of the Eurozone debt crisis. The oil spill incident in the Gulf of Mexico also impacted the sentiments in the global Offshore & Marine sector, and in our key markets in Singapore and China, cooling measures were introduced to curb speculation and stabilise the property markets. Overall, 2010 was a year of challenges for the Group. Throughout the year, Keppel’s dedicated Investor Relations team worked steadily to address the concerns of the investing community, while stepping up communications with investors, analysts, fund managers and the media. The team provided balanced insights into the Group’s performance, key developments and growth strategies. PROACTIVE OUTREACH In 2010, we held over 160 one-on-one investor meetings and conference calls with Singapore and overseas institutional investors. Our top management also went on non-deal roadshows to the US and Hong Kong, and met over 20 institutional fund managers. Such meetings provide a useful platform for investors and analysts to engage our management and better understand our business dynamics and direction. This also contributes towards the strengthening of relationships with our long-term shareholders. During the year, we also arranged meetings with the management of key subsidiaries. Tours of the facilities aided in the better understanding of our businesses and operations. 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. As a global leader in the Offshore & Marine industry, Keppel’s key attraction to investors is our rigbuilding operations and facilities. In 2010, we conducted over 10 yard tours cum management dialogues for institutional investors, including three groups of international investors who were in Singapore to 38 Keppel Corporation Limited Report to Shareholders 2010 participate in key investor conferences, and one group who visited our yard in Brazil. With a good number of rigs being delivered in 2010, investors and analysts were invited to 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 management, customers and suppliers. We also organised visits to facilities in our Infrastructure Division, to enable investors and analysts to have a better understanding of the operations there. For example, analysts were given a tour of the newly completed Keppel Seghers Tuas Waste-to-Energy Plant in Singapore in conjunction with its opening ceremony in June 2010. In addition, we complemented our outreach efforts with participation in selected investor conferences. For a fourth consecutive year, top executives from Keppel Offshore & Marine presented at the Annual Oil & Offshore Conference organised by Pareto Securities in Norway, which was also a strategic platform for management to strengthen and renew ties with industry players and customers. REGULAR COMMUNICATION To reach stakeholders in a timely and effective manner, we continued ‘live’ webcasts of our quarterly results and presentations. These webcasts allow viewers from around the world to listen to our top 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. Recognising the importance of providing easy-to-access and up-to-date information round the clock to our stakeholders, we revamped our corporate website with better organised business information and an enhanced investor centre, containing key ﬁ nancial highlights, orderbook information and an outline of the Group’s most current landmark projects. RECOGNITION Our proactive investor relations approach and commitment to corporate transparency was again recognised by the business and investing community in 2010. Signiﬁ cant accolades were garnered at the 5th Singapore Corporate Awards in May 2010. Keppel Corporation emerged the Gold winners in the Best Managed Board and Best Annual Report Awards in the category of companies with market capitalisation of $1 billion and above. At the 11th Investors’ Choice Awards organised by the Securities Investors Association of Singapore, Keppel Corporation placed Second in the Singapore Corporate Governance Award. Focus on Shareholder Value We are committed to deliver value to our shareholders. In 2010, we continued to sustain our returns to shareholders. At 22.3%, our Return on Equity (ROE) exceeded 20% for the fourth consecutive year. Our Total Shareholder Return (TSR) in 2010 was a creditable 47%, which was well above the benchmark Straits Times Index’s (STI) TSR of 13%. Over the past decade, Keppel’s net profit grew from $267 million in 2001 to our record earnings of $1,419 million for 2010. This is a Compound Annual Growth Rate (CAGR) of about 20%. In terms of TSR, Keppel’s CAGR of 32% was also significantly higher than STI’s CAGR TSR of 9%. In terms of share price performance, Keppel Corporation’s share price gained 41.3% over the year to close at $11.32 at the end of 2010 (based on adjusted beginning share price of $8.01), outperforming STI’s gain of about 10.1% during the same period. To reward shareholders for the record performance achieved in 2010, we are proposing a total cash dividend of 42 cents per share for the year, which is 11% higher than the 2009 total cash dividend of 38 cents per share. In addition, we are proposing a bonus issue to shareholders on the basis of one bonus share for every 10 existing ordinary shares in the capital of the Company. The proposed payout for 2010 will be around $670 million, which is about 50% of Group net profit. Investor Relations 39 Awards and Accolades CORPORATE GOVERNANCE AND TRANSPARENCY BUSINESS EXCELLENCE Singapore Corporate Awards Keppel Corporation g Gold, Best Managed Board (Market cap of $1 billion and above) g Best CEO, Mr Choo Chiau Beng (Market cap of $1 billion and above) g Gold, Best Annual Report (Market cap of $1 billion and above) K-REIT Asia g Gold, Best Annual Report (REITs and Business Trusts) Keppel Telecommunications & Transportation g Gold, Best Annual Report (Market Cap of $300 million to less than $1 billion) Governance and Transparency Index Keppel Corporation, Keppel Telecommunications & Transportation and Keppel Land were ranked 4th, 9th and 13th respectively among 700 companies that were assessed. Securities Investors Association of Singapore 11th Investors’ Choice Awards Keppel Corporation g Second, Singapore Corporate Governance Award Keppel Land g Runner-up, Most Transparent Company (Property) g Keppel Corporation was one of the top five brands in Singapore at the Brand Finance Asia Pacific Forum. g Keppel Corporation was ranked 20th position out of top 42 conglomerates in the Forbes Global 2000 Ranking for 2010, up from 21st position in 2009. g Keppel FELS edged four other finalists to win the Offshore Yard Award at the Seatrade Asia Awards. g At the Lloyd’s List Awards, Keppel Shipyard was lauded the Best Shipyard of the Year. g Semisubmersible drilling tender, West Palaut, built to the KFELS SSDT TM design won the Shell Platform Rig of the Year Award for the third time. The rig was conferred this award in 2004 and 2006. g At the 24th Annual Singapore 1000 & Singapore SME 1000 and Singapore International 100 Awards, Keppel Corporation was named the winner of the Singapore International 100: Overseas Sales/Turnover Excellence in Markets (The Americas) while Keppel FELS took home a similar award for the European market. g Keppel FELS received the May Day 2010 CBF (Cheaper, Better, Faster) Model Partnership Award from the National Trades Union Congress. g Keppel Nantong Shipyard was ranked sixth among Nantong’s Top 10 Export Enterprises by the Nantong Municipal People’s Government. g Keppel Logistics clinched for the second consecutive year, the Domestic Logistic Service Provider of the Year (Singapore) at the 2010 Frost and Sullivan ASEAN Transportation & Logistics Awards. g Keppel Corporation was named as one of the Top Ten Most Desired Companies to work for in a survey conducted by Boardroom Research, commissioned by PeopleSearch. g At the Singapore Human Resources (HR) Awards, Keppel Land received awards in the Corporate Social Responsibility (Leading), Performance Management (Special Mention) and E-HR Management (Special Mention) categories. g Two top welders from Regency Steel Japan won the second and third position at the 51th Fukuoka Prefecture Welding Skill Contest in Japan. g At the Euromoney Real Estate Awards 2010, Keppel Land garnered awards comprising: – Best Developer in Vietnam – Best Office Developer in Singapore g Keppel Land was one of the two Singapore companies to be included in the Dow Jones Sustainability Asia Pacific Index. g Keppel Land also garnered recognition for its projects as follows: Marina at Keppel Bay – Marina at Keppel Bay won the coveted award of Best Asian Marina at the 6th Asian Boating Awards. – Awarded the 5 Gold Anchors rating from the Marina Industries Association of Australia (MIAA) for top excellence in services and facilities. Jakarta Garden City – Runner-up in the Residential (Low Rise) category at the International Real Estate Federation (FIABCI) Prix d’Excellence Awards. – Best Middle Class Residential Development at the FIABCI Indonesia – BNI Prix d’Excellence 2010 Awards. Sedona Suites – Sedona Suites in Hanoi and Ho Chi Minh City was lauded for “Excellent Performance” in the Guide Awards 2009-2010. Sedona Hotel Yangon – At the World Travel Awards, Sedona Hotel Yangon has reaffirmed its position as Myanmar’s Leading Hotel. 40 Keppel Corporation Limited Report to Shareholders 2010 GREEN AWARDS CORPORATE CITIZENRY SAFETY g The Keppel Group garnered 12 awards at the Workplace Safety and Health Awards 2010. g For all-round safety performance, Keppel Singmarine received the WSH Performance Silver Award for the fourth year in a row while Keppel Seghers NEWater Development bagged its first. g Keppel FELS won the Achievement in Safety Award at the Lloyd’s List Awards. g Keppel Nantong Shipyard received a Safety Excellence Award from the Nantong Administration of Work Safety. g Keppel’s properties at Keppel Bay as part of the HarbourFront Cluster have been conferred one of 10 Safe and Secure Watch Group Awards. g Keppel Corporation received the Distinguished Patron of the Arts Award from the Singapore National Arts Council. g Keppel Land was recognised as the Most Admired ASEAN Enterprise under the corporate social responsibility category at the ASEAN Business Awards 2010. g Keppel Shipyard was conferred the Minister for Defence Award while Keppel Logistics received the Meritorious Defence Partner Award at the annual Total Defence Partner Award. g Keppel Singmarine won the Pinnacle Award and SHARE Platinum Award for its unwavering support and commitment to Community Chest. Keppel FELS also won the SHARE Platinum Award while Keppel Logistics and Keppel Shipyard received the SHARE Gold Awards. Keppel Corporation was bestowed the Corporate Gold Award for its long involvement in charitable causes. g Keppel Towers, GE Tower, Equity Plaza, Prudential Tower and Keppel Bay Tower in Singapore, The Arcadia and La Quinta in China were conferred the Green Mark Gold by the Singapore’s Building and Construction Authority. g Keppel Land’s golf courses in China and Indonesia, Spring City Golf & Lake Resort and Ria Bintan Golf Club were designated Classic Sanctuaries by Audubon International for their efforts in enhancing wildlife habitats and protecting natural resources. g KREIT Asia’s 275 George Street building in Australia attained the prestigious 5 Star Green Star – Office As Built v2 rating by the Green Building Council of Australia. g In the Singapore Environmental Achievement Awards, Keppel Land won the Merit Award in the Services category for its excellence in corporate environmental leadership. g Hotel Sedona clinched the runner- up place in the ASEAN Best Practice Competition for Energy Management in Building and Industry (Small and Medium category). g Hotel Sedona was lauded for Best in Green and Environmental Practices by the Government of North Sulawesi. g Ocean Financial Centre was conferred the Solar Pioneer Award, an award co-organised by the Singapore Business Federation, Sustainable Energy Association of Singapore, the Economic Development Board and the Energy Market Authority. Keppel Group emerged a big winner at the 2010 Singapore Corporate Awards, which recognised Keppel’s excellence in corporate governance and transparency. Awards and Accolades 41 Special Feature Creating Value Through Innovation To sustain our growth, Keppel is committed to develop our businesses with the twin focus of technology innovation and value creation. g Systematic technology development framework spearheaded by Keppel Technology Advisory Panel, supported by Keppel Offshore & Marine Technology Centre and Keppel Environmental Technology Centre g A range of innovative products designed and developed to meet the needs of our customers g Harnessing our technology advantage to provide sustainable urbanisation solutions g Boosting productivity and efficiency through effective cost management and project management skills Keppel Offshore & Marine Technology Centre collaborates with research institutes and industry partners to anticipate and develop new technologies and solutions that will meet the future needs of the global offshore and marine industry. 42 Keppel Corporation Limited Report to Shareholders 2010 Keppel has a range of proprietary rig solutions. Special Feature Creating Value Through Innovation 43 Special Feature Keppel Group’s Sustainable Growth Drivers Technology Innovation Focus Product R&D Green Solutions + SUSTAINABLE GROWTH = Value and Customer Focus High Productivity and Efficiency NURTURING A CULTURE OF INNOVATION At Keppel, a key engine of our sustainable growth and value creation is our focus on and commitment towards technology innovation. For years, we have sought to align our research and development (R&D) activities to complement our business activities, with the aim of developing solutions that are commercially viable and adaptable to the needs of the industries which we are in. Our culture of innovation, developed and nurtured through our over four decades of existence, has also improved the overall productivity and efﬁ ciencies of our workforce. Together with our value-based mindset inculcated across the Group following a restructuring exercise in 2001, we have achieved good growth for the last ten years, culminating in a record net proﬁ t of $1,419 million in 2010. Our twin focus on innovation and value has empowered and fortiﬁ ed the Group well to weather the recent years of economic uncertainty, and readied us to ride on the upturn to capture more growth opportunities. Underlying our R&D efforts across our businesses is the deep-seated desire to value-add to our customers, by developing quality and cost-effective solutions to meet their needs. SYSTEMATIC TECHNOLOGY DEVELOPMENT Within Keppel, we have put in place a number of key drivers to sustain and enhance our technology innovation capabilities. At the apex of this is the Keppel Technology Advisory Panel (KTAP), supported by two centres of excellence launched in 2007 to implement the strategic vision of the Panel and to coordinate R&D efforts within the businesses. They are the Keppel Offshore & Marine Technology Centre (KOMtech) and Keppel Environmental Technology Centre (KETC). Keppel Technology Advisory Panel Established in 2004, the KTAP is envisioned to be a key platform for sustaining the Group’s technology leadership. In addition to providing strategic leadership for our 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 participation from the Board and senior management, KTAP convenes one or two times a year. 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 (please see details of KTAP members on page 34 of this Report). KTAP has proven over the years to be an effective catalyst in identifying areas to sustain our competitive edge and in fostering a vibrant R&D culture within the Group. Developing Offshore & Marine Technology Launched in 2007, KOMtech underscores Keppel Offshore & Marine’s (Keppel O&M) commitment to long-term R&D. The mission of KOMtech is to develop competencies, promote innovation, stimulate and carry out application research and product/process development, and engage in technology foresight to create strategic advantages for Keppel O&M. KOMtech complements and augments the work of the three technology units within Keppel O&M – Offshore Technology Development which specialises in jackup and their critical systems; Deepwater Technology Group which specialises in semisubmersibles and other deepwater structures; and Marine Technology Development which has expertise in specialised ship design. At the moment, KOMtech employs about 45 research engineers, of which 18 are PhD holders and another 15 are Master degree holders. 44 Keppel Corporation Limited Report to Shareholders 2010 Our commericial developments such as Ocean Financial Centre incorporates environmentally- friendly initiatives such as green havens. Leveraging existing and proprietary technologies, KOMtech is also in collaboration with universities, research institutes and industry partners worldwide in its work to anticipate and develop new technologies and solutions that will meet the future needs of the global offshore & marine industry. Driving Environmental Technology Solutions Established in 2007, KETC underscores Keppel Integrated Engineering’s (KIE) commitment to long-term innovation in environmental solutions. KETC initiates, manages, and conducts R&D within KIE, and also collaborates with leading academic and research institutions worldwide. Research partners include research institutes of Singapore’s A*STAR, universities and polytechnics, UK’s Cranﬁ eld University and Netherlands Organisation for Applied Scientiﬁ c Research. KETC works closely with Keppel Seghers Belgium on cutting-edge technologies in wastewater treatment and waste-to-energy systems that translate into innovative yet value- enhancing solutions. A case in point is the Spacer and Turbo-Charger projects that have resulted in signiﬁ cant cost savings for the Keppel Seghers Ulu Pandan NEWater Plant in Singapore. In 2010, KETC was successful in a National Research Foundation call for Competitive Research Funding for a Co-Digestion project with one of our research partners. The same year, KETC achieved two US provisional patents (PCTs) on anaerobic wastewater treatment technology. The patented improved digestor is envisaged to be highly efﬁ cient in producing green biogas, while achieving cost savings. It might also address the need for higher strength wastewater derived from both municipal and industrial sectors. DEVELOPING PRODUCTS FOR CUSTOMERS At Keppel, we ensure that whatever we create must help our customers achieve their commercial and business goals. When we launch a new product or pursue a new market segment, we balance the risks with the rewards carefully. Special Feature Creating Value Through Innovation 45 Special Feature This is well demonstrated in the development of our own proprietary jacking and ﬁ xation systems for the offshore industry in the 1990s, which today are key components used in all Keppel-designed jackup rigs. The key motivation then in developing our own systems was to have better control over the supply and costs, so that we can deliver good quality products on time and within budget to our customers. Following this, we continued to seek ways to improve on our rigs with strong inputs from our customers to create value for them. We combine the best of our rig building experience with design and engineering expertise to develop and offer robust solutions. We also work hand-in-hand with trendsetting industry partners and various universities such as the National University of Singapore, Nanyang Technological University, University of Western Australia, Oxford University, among others, to sharpen our edge in technology. This enables us to further enhance and reﬁ ne our products, as well as grow our knowledge base. Proprietary Jackup Rig Designs 1997 was a signiﬁ cant year for Keppel FELS as it entered the world of rig design, acquiring rights to the Freide & Goldman MOD V and MOD VI jackup rigs. The two jackup models were further improved upon by our Offshore Technology Development unit and evolved to become Keppel’s proprietary KFELS B Class and KFELS G Class rig designs. These designs were further improved upon which gave rise to a comprehensive range of winning jackup models in our technology portfolio. When the offshore industry revived in 2002, after a long dry spell, we were ready with our own set of viable and cost-effective rig and ship solutions to meet the burgeoning demand, spurred by decades of under investment worldwide in this sector. Our new solutions, such as the KFELS B Class jackup rig design launched in 2000, were quickly soaked up by the market. To-date, Keppel FELS has delivered a total of 33 KFELS B Class jackup rigs to customers operating in different parts of the world. For its environmentally-friendly features, the KFELS B Class design was also bestowed the Prestigious Engineering Achievement Award from Institution of Engineers Singapore in 2009. We further enhanced the KFELS B Class for high pressure, high temperature drilling of up to 35,000 feet, and came up with the KFELS Super B Class jackup rigs. through solid ice over 1.7 m thick and operate in temperatures as low as -45˚C. Their main functions are to perform ice channeling for tankers within the terminal area, and assist in tanker manoeuvring, mooring and loading. Importantly, the two icebreakers were built to “clean design” and “zero discharge” standards to better protect the fragile Arctic environment. In 2009, Keppel Singmarine also constructed the ﬁ rst ice-class Floating Storage Ofﬂ oading (FSO) vessel to be completed and deployed in the Caspian region for LUKOIL. Other high-speciﬁ cation, high performance jackup rigs in the KFELS design stable are: – KFELS Super A Class: A viable and cost-effective solution for harsh environments and cold climate areas. It features advanced automated drilling systems with 2.5 million pounds of static hook load, a spacious deck and comprehensive amenities for the comfort of a 150-person crew. – KFELS N Class: This high- speciﬁ cation jackup is designed and equipped for demanding drilling requirements in harsh weather environments, such as the North Sea. Robust Vessels for Ice Environments We have also been able to apply our technology and engineering expertise to create solutions for ice environments offshore. In 2008, Keppel Singmarine successfully engineered and constructed a pair of Arctic icebreakers for our Russian customer LUKOIL in the tropics of Singapore. These are the ﬁ rst icebreakers to be built in Asia. Built in compliance with the Russian Maritime Register of Shipping’s standards, these vessels can cut At present, we are trying to push the boundaries even further by looking into ice-worthy jackup rigs that can facilitate oil and gas exploration and production in expanded weather window. MEETING THE “GREEN” DEMAND With the global megatrends of rapid urbanisation and awareness of climate change, there is growing demand for sustainable environmental solutions. With the fast expanding population in the world, the need to efﬁ ciently treat large amounts of waste and wastewater becomes more urgent by the day. In addition, to mitigate the impact of global warming, the use of renewable energy is expected to triple between 2008 to 2035, with the bulk of the increase primarily from wind and hydropower. Keppel is well-positioned to meet such a demand trend with our range of technologically advanced and proven solutions, from waste-to-energy plants, green buildings to offshore wind turbine installation vessels, and foundations and cable laying vessels. Advanced Waste and Water Treatment Technologies KETC, the R&D arm of KIE, focuses on innovating water, wastewater treatment and solid waste treatment technologies 46 Keppel Corporation Limited Report to Shareholders 2010 Innovative Drillship Design 1 2 To meet the growing demand for robust solutions in the ultra-deep waters of Brazil, Gulf of Mexico and West Africa, Keppel O&M’s Deepwater Technology Group, together with leading designer SBMGustoMSC, jointly developed one of the ﬁ rst compact drillship designs in the world. Called DrillDeep DS12000, it is a cost-effective rival to its larger peers. It is more energy-efﬁ cient and easier to maintain. Spanning 198 m in length, its construction requires just 16,000 tonnes of steel compared to the standard 28,000 tonnes. of DrillDeep DS12000 are fully integrated within the ship’s hull. This frees up a generous deck space. It is capable of drilling down to 40,000 ft below the rotary table and operating at a water depth of 12,000 ft. It is also able to attain transit speeds as high as 14 knots. Another innovative drillship design which is jointly developed by KOMtech, Keppel FELS and Stena Drilling is the slim drillship. This design is engineered to economically and effectively perform subsea well maintenance, intervention and light drilling operations. pressure riser, the slim drillship is capable of drilling and well intervention work in a maximum well depth of 22,500 ft below rotary table in water depths no deeper than 7,500 ft. The slim high pressure riser allows intervention tools access into wells containing hydrocarbons, thereby eliminating the need to ﬁ ll the well with drilling mud. This riser also enables the drillship to bore through sections of old wells which have been depleted, something traditional drillships cannot achieve for fear of damaging the well. Unlike typical drillship, whose risers and key equipment are located on the main deck, the topsides At 145 m long, the slim drillship is smaller in size compared to a standard drillship. Utilising a high 1_DrillDeep DS12000 2_Slim drillship design Special Feature Creating Value Through Innovation 47 Special Feature Keppel Environmental Technology Centre is currently researching into the treatment of biosolids waste with energy recovery and treatment of high strength industrial wastewater, among others. for commercial applications. Currently, KETC is working on a number of projects, including the treatment of biosolids waste with energy recovery and seawater desalination. KETC is exploring a new and more effective way to treat and recycle sludge, a by-product of municipal wastewater treatment processes. Known as the REDOXAN® process, it is essentially a two-stage fermentation process whereby the residual biomass, after the second stage of aerobic digestion, is separated and submitted to either a mechanical treatment, chemical treatment or both, before being recycled to the ﬁ rst stage of anaerobic digestion. Through the REDOXAN® process, almost complete digestion of the sludge and maximum biogas production can be achieved, therefore treating sludge more effectively and producing green energy at the same time. Preliminary results have been encouraging and a cost-beneﬁ t analysis is currently being conducted. On wastewater treatment, KIE has identiﬁ ed an emerging clean and sustainable wastewater technology. KETC is developing this jointly with KIE’s Industrial Solutions team and has won a research grant. This system can treat varying grades (strengths) of wastewater and therefore has wide applications especially for upgrading or retroﬁ tting of existing plants. It is also applicable to new industrial wastewater treatment plants, is easy and economical to retroﬁ t, construct and operate due to its compact nature and concise process design. Besides lower energy consumption, this technology contributes to signiﬁ cant nitrogen removal, negligible sludge discharge, and the ability to generate biofuel. For water treatment, KETC secured a TechPioneer funding for seawater desalination. The team is presently working on a demonstration plant targeted to be ready by end of this year. Tapping the Offshore Wind Potential With our established track record in the offshore drilling industry, we see growth potential and value in applying our technological know-how in the area of renewable energy. In July 2010, we entered into a partnership with Seafox 48 Keppel Corporation Limited Report to Shareholders 2010 Group, a leading offshore ﬂ eet owner and operator, to commercialise a new vessel concept based on our jackup technology for the offshore wind energy sector. The KFELS Multi-Purpose Self Elevating Platform, or KFELS MPSEP, is a cutting-edge wind turbine installation vessel that can withstand harsh offshore conditions all year round in the North Sea. Its maximum operating water depth of 65 m, is by far one of deepest in the industry, and some 45% deeper than the capability of existing vessels. Made to withstand extreme storm conditions, the vessel provides a potentially longer operational window for its operators. One Rafﬂ es Quay, an ofﬁ ce development in the Marina Bay area in Singapore under the portfolio of K-REIT Asia, hosts a district cooling plant which provides chilled water for efﬁ cient air-conditioning for itself as well as adjoining developments. Away from Singapore, Keppel Group is the leader of the Singapore consortium of a landmark bilateral project between China and Singapore, known as the Sino-Singapore Tianjin Eco-City. This 30-sq km Eco-City is envisioned to create a socially harmonious, environmentally- friendly and resource efﬁ cient community that meets the needs of an urbanising China. Apart from the offshore wind energy sector, the KFELS MPSEP also meets all the stringent operating regulations of the offshore oil and gas industry and can support a wide range of related activities such as accommodation, well intervention, maintenance, construction and decommissioning. We are one of the ﬁ rst foreign property developers to commence construction and sales of eco-homes within the Eco-City. Our eco-homes are in compliance with the Eco-City’s Green Building Evaluation Standards (GBES). The standards requirements include: – Achieving at least 70% reduction Green Developments To create live-work-play environments of enduring value for the communities in our key markets, we are committed to incorporate environmentally-friendly and innovative energy saving features in our property developments to ensure minimal impact on the environment. Our commercial developments in Singapore such as the Ocean Financial Centre (OFC) and Marina Bay Financial Centre (MBFC) are equipped with environmentally-friendly features. OFC will feature a roof photovoltaic system, an energy-efﬁ cient hybrid- chilled water system and an integrated paper recycling facility. Power-saving LEDs will also be used to light up the building facade. MBFC will incorporate curtain-wall glass cladding system which reduces the solar heat load and as a result, less energy is required for cooling. in building energy consumption compared to buildings designed to local Design Standard 1980–81; – Meeting 5% of total building energy demand from renewable energy sources; – All apartment units and 40% of public spaces to receive at least two hours of sunlight during winter; – Green ratio of more than 30%; – Reduction of construction materials wastage through optimal design; and – Sourcing materials from within a 500-km radius. BOOSTING PRODUCTIVITY WITH INNOVATION As part of our continuous process to create value for the Group as well as our stakeholders, we are constantly seeking ways to manage our costs through improving the productivity of our workforce and enhancing our operational efﬁ ciencies. This has been a key formula in sustaining Keppel’s growth through the years, and will continue to be a hallmark of Keppel’s business strategy. A highly efﬁ cient operational framework has helped Keppel O&M to sustain its position as the world’s leading offshore rig designer and builder. By constantly enhancing our processes through innovation, we have been able to deliver more rigs by maximising resources and reducing wastage. The drive for enhanced productivity in Keppel is both a top-down and a bottom-up approach. For instance, a productivity improvement taskforce was established within Keppel O&M last year to formalise efforts and implement strategies to achieve continuous productivity improvements over the longer term. Keppel O&M employees also participate actively in the productivity enhancement movement by submitting resource- optimising ideas at the annual Innovation Quality Circle (iQC) Conventions. Every year, cost savings of up to several million dollars are generated from employees’ innovations. At the logistics division of Keppel Telecommunications & Transportation, the aim is to provide transportation solutions to enable timely and efﬁ cient deliveries of customers’ goods. The company recently invested in a new Transport Management System that enables it to better process information across its customers’ supply chains. This ensures that information on delivery status is seamlessly translated into timely operational execution. The improved planning capability of the new system also enhances the overall efﬁ ciency and performance of the operations. Special Feature Creating Value Through Innovation 49 Operating & Financial Review The Keppel Group is in the Offshore & Marine, Infrastructure and Property businesses to deliver sustainable earnings growth. With total assets of $20.98 billion as at end-2010, the Group serves a global customer base through its business units strategically located in over 30 countries. Some of the key factors influencing our businesses are global and regional economic conditions, oil and gas exploration and production activities, real estate markets, threats, currency fluctuations, capital flows, interest rates, taxation and regulatory legislation. As the Group’s operations involve 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 financial condition or the profitability of our operations. In this section on the operating and financial review, we seek to provide a strategic, market and business review of the Keppel Group’s operations and financial performance. We have described 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 financial statements as at 31 December 2010. Contents 51 Group Structure 52 Management Discussion and Analysis 54 Offshore & Marine 66 Infrastructure 74 Property 82 Investments 84 Financial Review and Outlook 50 Keppel Corporation Limited Report to Shareholders 2010 Group Structure Keppel Corporation Limited Offshore & Marine Infrastructure Property – Offshore rig design, construction, repair and upgrading – Ship conversions and repair – Specialised shipbuilding – Environmental engineering – Power generation – Logistics and data centres – 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 Land Limited 52% MobileOne Ltd2 20% Keppel FELS Limited 100% Keppel Integrated Engineering Ltd 100% Keppel Shipyard Limited 100% Keppel Seghers Engineering Singapore Pte Ltd Keppel Singmarine Pte Ltd 100% Keppel FMO Pte Ltd 100% Keppel DHCS Pte Ltd 100% 100% K-REIT Asia 76% 46% 30% Keppel Land International Limited Southeast Asia, India and Middle East 100% Keppel Land China China 100% Keppel Nantong Shipyard 100% Company Limited China Offshore Technology Development Pte Ltd 100% Keppel Seghers Belgium NV Belgium 100% K-REIT Asia Management Limited 100% 1 Owned by Singapore Consortium, which is 90%-owned by the Keppel Group – Keppel Corporation (45%), Keppel Land (35%) and Keppel Integrated Engineering (20%) 2 Owned by Keppel Telecommunications & Transportation Ltd, an 80%-owned subsidiary of the Company Deepwater Technology Group Pte Ltd 100% K-Green Trust 49% Alpha Investment Partners Ltd 100% Marine Technology Development Pte Ltd 100% Power Generation Keppel AmFELS LLC United States 100% Keppel Energy Pte Ltd Keppel Verolme BV The Netherlands 100% Keppel Merlimau Cogen Pte Ltd 100% 100% Keppel FELS Brasil SA Brazil 100% Keppel Electric Pte Ltd 100% Keppel Singmarine Brasil Ltda Brazil Keppel Norway AS Norway Keppel Philippines Marine Inc The Philippines Subic Shipyard & Engineering Inc The Philippines Keppel Kazakhstan LLP Kazakhstan Caspian Shipyard Company Limited Azerbaijan Arab Heavy Industries PJSC UAE Nakilat-Keppel Offshore & Marine Ltd Qatar Group Corporate Services 100% Keppel Gas Pte Ltd 100% 100% Logistics and Data Centres 96% Keppel Telecommunications & Transportation Ltd 80% 87% Keppel Logistics Pte Ltd 100% Keppel Data Centres Holding Pte Ltd 100% Keppel Logistics (Foshan) Pte Ltd China 70% 50% 45% 33% 20% Sino-Singapore Tianjin Eco-City Investment and Development Co., Ltd1 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 pages 208 to 218 of this Report. Group Structure 51 Operating & Financial Review Management Discussion and Analysis Key Performance Indicators Revenue Net proﬁ t before exceptional items (Net Proﬁ t) 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 2010 $ million 9,783 1,419 204 1,623 450 (193) 1,035 88.7 cts 22.3% 42.0 cts 10v09 % +/(-) -20 +12 -43 -0.1 -33 n.m. +1 +12 -7 -31 2009 $ million 12,247 1,265 360 1,625 670 1,097 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 1,899 855 69.0 cts 22.4% 35.0 cts GROUP OVERVIEW For the year, net proﬁ t of the Group increased by 12% to reach a record of $1,419 million. The compound annual growth rate (CAGR) for net proﬁ t from 2005 to 2010 was 20%. Attributable proﬁ t after exceptional items was $1,623 million. Earnings per share (EPS) of 88.7 cents were 9.3 cents above 2009 and 19.7 cents above 2008. EPS growth kept pace with net proﬁ t growth. Return on equity (ROE) was 22.3%. Economic Value Added (EVA) before exceptional items rose $9 million to $1,035 million, the highest ever attained by the Group. Net cash from operating activities was $450 million compared to $670 million in the previous year due to increased working capital and higher income taxes paid, partly offset by higher operating proﬁ t. The Group spent $1,266 million on acquisitions and operational capital expenditure. This comprised principally acquisition of two commercial buildings in Australia, equity injection into the Sino-Singapore Tianjin Eco-City project, further investment in Marina Bay Financial Centre and redevelopment cost of Ocean Financial Centre. After taking into account dividend income and divestment proceeds, net cash used in investing activities was about $643 million. The resultant free cash outﬂ ow was $193 million. by lower revenue from Keppel Land as several residential projects were completed last year. Group net proﬁ t of $1,419 million was $154 million or 12% higher than that of the previous year. Proﬁ t from Offshore & Marine Division of $987 million was 22% higher because of improved operating margins. The division remains the largest contributor to Group net proﬁ t with 70% share. Proﬁ t from Infrastructure Division of $57 million was 55% lower due to losses from EPC contracts in Qatar, partially offset by better performance by Keppel Energy. Proﬁ t from Property Division of $326 million was $116 million or 55% higher than that of previous year due to contribution from several residential projects in Singapore, China and Vietnam, and share of proﬁ t of associated company developing Marina Bay Suites in Singapore. Proﬁ t from Investments was lower due to the disposal of Singapore Petroleum Company in June 2009. With the strong performance, shareholders will be rewarded with a total distribution of 42 cents per share for 2010. This comprised a proposed ﬁ nal dividend of 26 cents per share and the interim dividend of 16 cents per share paid in August 2010. The total payout for 2010 exceeds $673 million. SEGMENT OPERATIONS Group revenue of $9,783 million was $2,464 million or 20% lower than that of the previous year. Revenue from Offshore & Marine Division of $5,577 million was $2,696 million or 33% lower and accounted for 57% of Group revenue. The decrease in revenue was due to lower volume of work. Revenue from Infrastructure Division of $2,510 million was $83 million or 3% higher and accounted for 26% of Group revenue. The higher revenue earned from the electricity and gas businesses of Keppel Energy, was partly offset by the lower revenue from EPC contracts in Qatar. Revenue from Property Division of $1,685 million was $177 million or 12% higher due to sale of apartments at Keppel Bay and progressive revenue recognition from Reﬂ ections at Keppel Bay, partly offset 52 Keppel Corporation Limited Report to Shareholders 2010 Revenue ($ million) 2010 $9,783 million 2009 $12,247 million 2008 $11,805 million 5,577 8,273 8,569 2,510 2,427 2,232 1,685 1,508 950 11 39 54 10,000 8,000 6,000 4,000 2,000 0 Net Profit ($ million) Offshore & Marine Infrastructure Property Investments 2010 $1,419 million 2009 $1,265 million 2008 $1,097 million 987 810 705 57 126 63 326 210 157 49 119 172 1,000 800 600 400 200 0 Offshore & Marine Infrastructure Property Investments Operating & Financial Review Management Discussion and Analysis 53 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. Alpha Star, the second DSSTM 38 rig delivered early and within budget to Brazilian operator, Queiroz Galvão Óleo e Gás, is in the league of the world’s most advanced drilling semisubmersibles. EARNINGS REVIEW In 2010, the Offshore & Marine Division secured new orders worth a total of $3.2 billion, and a net orderbook of $4.6 billion as at year-end, with deliveries extending to 2013. Revenue of $5,577 million was $2,696 million or 33% lower than 2009 due to lower volume of work. On the other hand, pre-tax earnings increased by 15% to $1,242 million, owing to improved margins driven by cost efﬁ ciencies and higher productivity. Operating proﬁ t margin for 2010 reached a high of 20.1%. Net proﬁ t of $987 million was $177 million or 22% higher than in 2009. The Division remains the largest proﬁ t contributor to the Group, accounting for 70% of net proﬁ t. MARKET REVIEW Global economic recovery in 2010 brought some degree of stabilisation to the offshore and marine industry, relative to the volatility of previous years. The pace of recovery of the industry was backed by the strong oil trade and bullish oil prices. Continuing the uptrend seen in late 2009, oil prices remained in the trading range of US$70 to US$90 per barrel for the most part of 2010. Against the backdrop of recovery in the ﬁ rst half of 2010, the industry faced a setback with the blowout of the Macondo well in the US Gulf of Mexico (GoM), which led to a subsequent ban on deepwater drilling in the GoM. In the aftermath of the worst offshore oil spill in US history, the industry faced uncertainty as the incident and its implications looked set to leave an indelible mark on the regulatory face of the offshore industry. By the year’s closing however, the industry proved remarkably resilient. The early lifting of the drilling moratorium had a positive effect on utilisation and dayrates for deepwater rigs. Drilling activities in the GoM look set to pick up gradually as the permitting process continues. The tougher safety regulations imposed on offshore rigs brought about a demand for newer, high speciﬁ cation rigs which Keppel Offshore & Marine (Keppel O&M) is well poised to provide. Earnings Highlights Net Profit ($ million) Revenue EBITDA Operating Proﬁ t Proﬁ t before tax Net Proﬁ t Manpower (number) Manpower cost ROE 2010 $ million 5,577 1,252 1,119 1,242 987 23,832 975 63% 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% 2010 2009 2008 987 810 705 Proﬁ t before Tax Major Developments in 2010 Focus for 2011/2012 $1,242m Increased 15% from FY 2009’s $1,081 million. Net Proﬁ t $987m Increased 22% from FY 2009’s $810 million. 54 g Continued delivery excellence with 12 rigs, five FPSO/FSRU conversions, 18 specialised vessels, and several rig upgrades and repairs. g Acquired new shipbuilding yard in Santa Catarina, Brazil. g Took a stake in the new Baku Shipyard in Azerbaijan. g Inaugurated Nakilat–Keppel Offshore & Marine shipyard in Qatar. g Partnering Seafox to build first KFELS MPSEP for offshore wind market. g Increased stake in Subic Shipyard and Engineering Inc in the Philippines. g Deliver value through excellent project management and execution. g Enhance R&D initiatives to strengthen position as market leader in selected segments. g Explore opportunities in new markets and adjacent businesses. g Maximise and realise operational efficiencies. g Sustain prudent cost management. g Focus on Health, Safety and the Environment. Keppel Corporation Limited Report to Shareholders 2010 Operating & Financial Review Offshore & Marine 55 Operating & Financial Review Offshore & Marine Keppel FELS delivered Floatel Superior and Floatel Reliance, accommodation rigs offering the highest standards of health and safety features for the well-being of the crew. OPERATING REVIEW 2010 was another landmark year of deliveries for Keppel O&M, with a total delivery of 12 rigs, 5 FPSO/FSRU conversions, 18 specialised vessels and several upgrades and repairs. Keppel O&M also secured signiﬁ cant new contracts worth a total of $3.2 billion with deliveries into 2013, closing its net orderbook at $4.6 billion for 2010. Keppel FELS also executed several major upgrading/repair jobs in 2010, with the early completion of work on four rigs. Scarabeo 9, a Frigstad D90 semi owned by Saipem S.p.A. (Saipem), was towed to the yard to complete installation and commissioning works. Keppel FELS also secured the contract for the upgrade, repair and refurbishment of the ENSCO 7500 semi. Offshore 2010 was a proliﬁ c year for Keppel FELS, which saw a total of eight deliveries, consisting of three jackups and ﬁ ve semisubmersible (semi) rigs. Included in the three jackups delivered, was the ﬁ rst North Sea-compliant, dual-capability, high-speciﬁ cation and harsh environment KFELS N Class rigs built for Rowan Companies, Inc. (Rowan). This rig is the ﬁ rst of its kind to go into service. The other two jackups were of the proprietary KFELS B Class design. Two ﬂ oating accommodation semis were delivered early to a new Keppel FELS client, Floatel International. Keppel FELS also delivered early the third and fourth of seven newbuild units in the ENSCO 8500 series. A DSSTM 21 drilling semi was also delivered ahead of schedule to Maersk Drilling (Maersk). Interest in wind turbine installation vessels spiked with the development of several wind farms in Western Europe. Keppel FELS marked its entry into this market with its proprietary design for a multi-purpose self-elevating platform (MPSEP) that was chosen by Seafox Group as the basis for a new- generation wind turbine and foundation installation vessel. Several key newbuild contracts were secured by Keppel FELS in 2010, including four KFELS B Class newbuild rig orders as well as a contract early in the year to build Saudi Aramco’s ﬁ rst purpose-built jackup, constructed to KFELS Super B Class design. The overseas yards also had a productive year in 2010. Keppel AmFELS delivered 56 Keppel Corporation Limited Report to Shareholders 2010 four newbuild projects. One jackup was delivered to repeat customer Perforadora Central S.A. de C.V. The yard also completed three out of the four EXL rigs for Rowan of which the early delivery of one rig earned the company a bonus. The construction of the fourth rig for Rowan is progressing well, within schedule and budget. Keppel FELS Brasil achieved several deliveries in 2010. The P-57 Floating Production Storage and Ofﬂ oading (FPSO) vessel was delivered to SBM Offshore N.V. (SBM Offshore) in October 2010, early, within budget and safely. The company also completed repair, upgrading and maintenance work on several other vessels for repeat customers Pride International, Inc., Diamond Offshore Drilling, Inc., Transocean Ltd., and Queiróz Galvão Óleo e Gás (QGOG). Ongoing projects in the yard include the upgrading of a drillship for Noble Corporation, the upgrade and repair of a BGL-1 pipelay barge and the engineering, procurement and construction (EPC) work on P-56 semi Floating Production Unit, both for Petrobras Netherlands BV (Petrobras). The company also started work on a US$1 billion contract to build and operate the P-61 tension leg wellhead platform for the Papa-Terra Field. The contract was signed between FloaTEC Singapore and Petrobras Netherlands. FloaTEC Singapore is a joint venture company between J Ray McDermott and Keppel FELS. Keppel FELS Brasil implemented several major projects in 2010 to improve the yard’s productivity and cost effectiveness. For its efforts, the company earned several safety and early delivery awards. The yard achieved 1 million man-hours worked without LTI (lost-time incidents) on P-57, earning a US$20,000 bonus from SBM Offshore, and received a US$1.5 million bonus from QGOG. The BGL-1 and P-56 vessels also enjoyed stellar safety records, with the yard respectively achieving 2 million and 1 million man-hours worked without LTI. Significant Events January g Keppel FELS secured a contract to build Aramco Overseas Company B.V.’s first purpose-built jackup, a customised KFELS Super B Class jackup. February g FloaTEC Singapore signed a contract worth about US$1 billion to build and operate the P-61 tension leg wellhead platform for the Papa-Terra Joint Venture in the Campos Basin, Brazil. March g Keppel FELS delivered Floatel Superior, a semisubmersible accommodation rig to Floatel International (Floatel). g Keppel O&M broke ground on a new 52-ha shipbuilding and shiprepair yard in Baku, Azerbaijan, jointly developed with the State Oil Company of Azerbaijan Republic (SOCAR) and Azerbaijan Investment Company. g Keppel Verolme and consortium partner AREVA Energietechnik GmbH secured a €62 million contract from Wetfeet Offshore Windenergy GmbH to build a Mobile Offshore Application Barge. April g Keppel O&M fortified its market leadership in Brazil with the acquisition of a 7.6-ha shipbuilding yard at Navegantes, Santa Catarina. The new yard would focus on the construction of offshore support vessels. President of SOCAR, Mr Rovnag Abdullayev (second from left) introduced the capabilities of the new Baku Shipyard to Azerbaijani President, HE Ilham Aliyev (extreme left); Chairman of Keppel Corporation, Dr Lee Boon Yang (third from left) and Singapore’s Minister for Foreign Affairs, Mr George Yeo. Operating & Financial Review Offshore & Marine 57 Operating & Financial Review Offshore & Marine Keppel Verolme performed repair and maintenance work on several vessels in 2010. The company also signed a letter of intent with Maersk for the fabrication and installation of a set of spud cans for a jackup. It also secured a contract to build a transformer platform for an offshore wind farm. In the Caspian region, Keppel Kazakhstan had another busy year with the continuation of the Agip KCO contract to fabricate pipe racks, pontoons and ancillary steelwork for the experimental phase of the Kashagan ﬁ eld development. It delivered 52 pipe-rack modules, various offshore steel structures and three pontoons in 2010. The company also secured a contract from Agip KCO to build two additional units of pontoons, with delivery scheduled for September 2011. For Caspian Shipyard, the year was relatively quiet, with the completion of the pipe-rack project for Agip KCO and the integration of a derrick lay barge for Bumi Armada Berhad (Bumi Armada). A repair job was secured from Saipem, and this was completed in May 2010. During the year, the shipyard effectively managed its costs by trimming its workforce and reducing overhead costs. Marine Keppel Shipyard continued to perform well in yet another challenging year for the shiprepair industry. The company repaired a total of 302 vessels in 2010. Repeat customers and companies with ﬂ eet agreements with Keppel Shipyard accounted for more than 60% of repair revenue. In conversions and newbuilds, the yard completed ﬁ ve FPSO/FSRU conversion/upgrading Opposite_Towering at 568 ft or about 56 storeys high, the North Sea-compliant, dual capability high speciﬁ cation KFELS N Class rig was delivered to Rowan safely, on time and within budget. 58 Significant Events June g Keppel opened the Keppel Safety Training Centre, a first- of-its-kind immersive safety training hub, offering a complete range of safety training and certification courses. July g Keppel Shipyard and Keppel FELS Brasil secured two Brazilian projects totaling $170 million from repeat customers SBM and QGOG, for the conversion of a FPSO vessel and the repair of a semi. g Keppel FELS’s multi-purpose self-elevating platform design was chosen by Seafox Group as the basis for a new-generation wind turbine installation vessel. August g Keppel increased its stake in Subic Shipyard and Engineering Inc, a repair, conversion and newbuilding yard in the Philippines. g Keppel Shipyard secured a contract for the modification of the FPSO vessel OSX-1, worth approximately $50 million. Dr Lee Boon Yang (fourth from left), Chairman of Keppel Corporation, showing Minister Gan Kim Yong the safety innovation, ‘Universal Mobile Stool’, which won an industry award for signiﬁ cantly improving the ergonomics of the workplace. Keppel Corporation Limited Report to Shareholders 2010 Operating & Financial Review Offshore & Marine 59 Operating & Financial Review Offshore & Marine GLOBAL 1200 comes with a state-of-the-art pipelay system and has the capability of operating in waters as deep as 3,000 m. projects, one turret fabrication, one livestock carrier conversion and one derrick lay barge newbuilding project. At the year’s closing, work-in-progress included seven FPSO projects and ﬁ ve other major projects involving drillship outﬁ tting, turret fabrication and livestock carrier conversion. Keppel Shipyard was awarded several contracts in 2010. These included an FPSO conversion for Bumi Armada; the conversion of two Very Large Crude Carriers (VLCC) into FPSO facilities and the modiﬁ cation and upgrading of an FPSO for Single Buoy Moorings Inc (SBM); the modiﬁ cation of FPSO OSX-1 for OSX Brasil S/A and the conversion of a livestock carrier for Reestborg Compania Naviera S.A. Marine, Inc (KPMI), with its shipyards facing the prospect of a sluggish shiprepair and offshore fabrication market. Its two operating shipyards, Keppel Batangas Shipyard and Subic Shipyard, however, managed to ride the downturn by capturing opportunities in marine conversion and modiﬁ cation projects while stepping up efforts to seek more work in the shiprepair market. Fortunately, the domestic shiprepair market in the Philippines improved gradually as the year progressed, with KPMI repairing a total of 169 domestic and foreign vessels. The high demand for coal from Indonesia also led to a number of conversion projects being secured by Subic Shipyard. Keppel Shipyard continues in the forefront of business and operational excellence, winning the Shipyard of the Year Award at the 12th Lloyd’s List Maritime Asia Awards for the sixth consecutive year, as well as safety and early completion bonuses from owners for various repair and conversion projects. In the Philippines, 2010 was a challenging year for Keppel Philippines Keppel Batangas Shipyard repaired a total of 110 vessels in 2010, comprising 80 domestic and 30 foreign vessels. In light of a slowdown in the volume of work for rig fabrication, the shipyard shifted its efforts to other types of fabrication such as the construction of coal barge Ratu Giok, expected to be completed in early 2011. For the coming year, Keppel Batangas will continue to step up its marketing 60 Keppel Corporation Limited Report to Shareholders 2010 efforts to foreign clientele, not just for repair but also for other types of high value fabrication works in order to diversify its source of revenue. Subic Shipyard saw the servicing of 57 foreign and two domestic vessels in 2010. The yard will continue to differentiate itself by focusing on the marine conversion and modiﬁ cation work niche market for 2011. 2011 presents positive prospects for the Philippine shipyards, which have been upgrading their facilities and equipment so as to increase their market share. KPMI’s acquisition of a majority stake in Subic Shipyard will enable it to better integrate the operations and marketing of its two yards. Arab Heavy Industries PJSC, our joint venture yard in Ajman, UAE, repaired 212 ships during the year, 20% fewer than in 2009. It also carried out two major conversion jobs. Our joint venture yard at the Port of Ras Laffan in Qatar, Nakilat–Keppel Offshore & Marine Ltd (N-KOM), was inaugurated by the Emir of Qatar on 23 November 2010. On the same day, N-KOM also signed service agreements with eight major ﬂ eet owners. Work on the construction of a load-out barge, involving 7,000 tonnes of steel, for the new yard is currently in progress. Specialised Shipbuilding Keppel Singmarine delivered 11 vessels in 2010, including three multi-purpose platform supply and support vessels (MPSVs), a derrick pipelay vessel, an anchor handling tug supply vessel, ﬁ ve harbour tugs and an anchor handling tug. The MPSVs were delivered at planned intervals within the year, safely and on budget, winning the yard safety bonuses, while the ﬁ rst of the two pipelay vessels built for Global Industries was delivered on time and with an unblemished safety record. Significant Events September g Keppel Singmarine delivered the fourth MPSV to Greatship. g Naming ceremony was held by Keppel Singmarine for a derrick pipelay vessel, GLOBAL 1200, the first of two new generation derrick pipelay vessels to Global Industries. g Keppel O&M appointed Mr Lim Chin Leong to its Board. October g Keppel O&M delivered FPSO P-57 to SBM Offshore for Petrobras. The naming of P-57, Brazil’s largest converted FPSO in terms of production capacity, was witnessed by President H.E. Luiz Inácio Lula da Silva. g Keppel FELS delivered the first of three North Sea- compliant, dual-capability high-specification jack-up, Rowan Viking, to Rowan as well as the second semisubmersible accommodation rig, Floatel Reliance, to Floatel 63 days early and without any lost-time incidents, meriting a bonus of US$1.1 million. (From right) Mr Choo Chiau Beng, CEO of Keppel Corporation, Brazilian President H.E. Luiz Inácio Lula da Silva, Mr Tong Chong Heong, CEO of Keppel Offshore & Marine, and Mr Sérgio Cabral, Governor of Rio de Janeiro, celebrating the successful completion of FPSO P-57 at the BrasFELS yard. Operating & Financial Review Offshore & Marine 61 Operating & Financial Review Offshore & Marine Significant Events November g Nakilat–Keppel O&M (N-KOM), Qatar’s premier offshore and marine facility jointly developed by Keppel O&M and Qatar Gas Transport Company Ltd, was inaugurated by the Emir of Qatar, His Highness Sheikh Hamad bin Khalifa Al Thani, and Singapore’s Minister for Trade and Industry, Mr Lim Hng Kiang. g Keppel FELS secured an order for a KFELS B Class jackup rig worth US$180 million from Standard Drilling with options to build another two similar jackups, which if exercised, will bring the total contract value to US$550 million. December g Keppel FELS signed a contract to build two KFELS B Class jackup rigs worth US$360 million with Asia Offshore Drilling Limited (AOD). AOD has been given options to build another two similar jackups which if exercised will bring the total contract value to above US$720 million. g Jasper Investments Limited awarded Keppel FELS a contract for a KFELS B Class jackup rig worth about US$180 million, with an option for another similar unit. g Keppel Shipyard and Keppel Singmarine clinched contracts totalling $240 million to upgrade an FPSO, convert a livestock carrier and build a diving support vessel. g Keppel O&M announced a slew of new management appointments with effect from 1 January 2011. Singapore’s Minister for Trade and Industry, Mr Lim Hng Kiang and The Emir of Qatar, His Highness Sheikh Hamad bin Khalifa Al Thani inaugurating the shipyard together with Dr Lee Boon Yang, Chairman of Keppel Corporation and Mr Choo Chiau Beng, CEO of Keppel Corporation. At the end of 2010, Keppel Singmarine’s orderbook consisted of a derrick pipelay vessel, a rock dumping vessel, two tug boats, a coal trans-shipment barge and a diving support vessel. In China, Keppel Nantong Shipyard delivered six vessels in 2010. At year-end, its orderbook consisted of six tugs, a ﬂ oating crane barge, two mooring boats and a ﬂ oating dock. Keppel Singmarine Brasil, the newly acquired yard in Santa Catarina, Brazil, will focus on the construction of offshore support vessels (OSV). At full capacity, it is able to complete an average of eight vessels a year. The yard is currently undergoing a modernisation programme. A joint venture between Keppel O&M, State Oil Company of Azerbaijan Republic (SOCAR) and Azerbaijan Investment Company, the new Baku Shipyard LLC in Azerbaijan will be developed over two to three years into a shipbuilding and shiprepair facility. Physical yard development work is planned to commence in mid-2011. INDUSTRY OUTLOOK With the positive market sentiment and a strong revival in upstream capital spending at the close of 2010, conﬁ dence has returned to many regions and sectors of the upstream industry. Wood Mackenzie estimates that global upstream capital spending in 2010 touched US$380 billion, US$19 billion higher than in 2009. The Barclays Capital Survey forecasts that global exploration and production (E&P) spending will rise 11% in 2011. This revival is set to continue over the next three years and improved credit and ﬁ nancing conditions could fuel the upside further. Underlying the near-term increase in expenditure is the increasingly bullish short-term outlook for the world economy. Many countries are returning to the economic growth paths that 62 Keppel Corporation Limited Report to Shareholders 2010 were anticipated before the global recession. Over the past 12 months, the International Monetary Fund (IMF) has revised upwards its forecast several times for 2010 and is now projecting that the global economy will grow by 4.4% in 2011. The fundamentals of the industry remain sound over the long term. Energy demand and oil prices are expected to remain robust, with demand driven by population and economic growth, particularly from non-OECD countries. The International Energy Agency (IEA) anticipates global energy demand to increase by 36% between 2008 and 2035, with oil remaining the leading fuel in the energy mix, and natural gas demand experiencing the fastest growth among the three fossil fuels. The projected increase in demand, with only a modest increase in oil production, augurs well for the oil service and drilling industry. Offshore Deepwater Prospects The drilling moratorium imposed in the GoM had brought exploration and development work in one of the world’s largest deepwater markets to a standstill. The ban on deepwater drilling was lifted in the months leading to the close of 2010 and drilling companies had greater clarity of the stricter regulations arising from the incident. With better placed expectations of compliance requirements and resumption of activity and cash ﬂ ow, drilling companies have begun to push their projects forward and plan for future increases in their deepwater drilling programmes and rig ﬂ eets. Oil service companies are increasingly shifting their E&P spending and activities towards deepwater projects which offer greater potential returns. Deepwater expenditure is projected by Douglas-Westwood to expand at a compound annual growth rate (CAGR) of 8%, reaching around US$35 billion in 2014, with total global capital expenditure of US$167 billion estimated for the 2010–2014 period. Deepwater CAPEX Expenditure (US$ billion) 40 35 30 25 20 15 10 5 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Africa Asia Australasia Latin America North America Western Europe Others Source: Douglas-Westwood Long-term prospects for the deepwater segment remain sound. Petrobras’ massive newbuilding programme for Brazil’s pre-salt reserves will be a key driver for the offshore deepwater market in the medium term. Long-term prospects will also be backed by the emergence of more ultra-deepwater drilling programmes in the latest offshore oil and gas frontiers such as GoM’s Lower Tertiary trend and the offshore natural gas reserves and LNG-centric developments off the coast of northwest Western Australia, discoveries in regions like West Africa, the Mediterranean and Southeast Asia as well as the potential from unconventional shale gas plays. Drilling Rigs, Production Units and Specialised Ships The jackup segment is seeing the initial recovery stage of a rig-building cycle driven by replacement demand. The Macondo incident has spurred oil companies to demand newer and higher-speciﬁ cation rigs, as seen in the increasing bifurcation in the utilisation rates and dayrates of premium and commodity jackups. Operating & Financial Review Offshore & Marine 63 Operating & Financial Review Offshore & Marine environments and regulatory frameworks are driving demand for OSV innovations to improve operational efﬁ ciency and safety. New Growth Area A key area of development in the renewable energy sector, the offshore wind industry offers a promising new market for solutions and designs for offshore wind farms. The European Wind Energy Association is forecasting that 400 GW of wind power will be operating in the European Union in 2030, including 150 GW (37.5%) of offshore wind power. Keppel O&M is building up its capabilities and track record to meet this growing demand. 1 ODS-Petrodata estimates that high- speciﬁ cation jackups, which form only 6% of the global ﬂ eet, enjoy close to 100% utilisation, with dayrates typically more than US$120,000. In contrast, lower-speciﬁ cation rigs enjoy 70% utilisation and dayrates ranging from US$30,000 to US$90,000, while rigs built in the mid-1980s to the late 1990s are being cold-stacked as they fail to secure charters. Drilling contractors are therefore ordering more high- speciﬁ cation jackups. Oil companies are also increasing their jackup count in regions of higher demand such as the Middle East, West Africa, the Mediterranean and Southeast Asia. With most of the existing ﬂ eet considered as low-speciﬁ cation, jackup replacement demand is forecast to be sustained throughout the decade. The deepwater market should also see increasing demand for upgrades and replacements. With the enhanced US safety requirements, drilling contractors will be looking to yards with established quality and safety standards. Production vessels are poised to form the next phase of orders after rig replacement. Pareto Securities predicts that demand for Floating Production Systems (FPS) will continue to accelerate over the next ﬁ ve years as exploration yields more deepwater ﬁ elds. Douglas-Westwood forecasts that more than 100 FPSs will be installed worldwide over the 2010–2014 period, representing a total value of approximately US$45 billion. The FPSO market is expected to remain strong as FPSOs continue to be the preferred solution for production in deepwater ﬁ elds. FPSOs account for close to 80% of the total forecast FPS capital expenditure, followed by TLPs, semis and spars. Strength in the sector will be driven by Latin America, which will form almost a third of global FPS forecasted capital expenditure due to developments in offshore Brazil and its pre-salt regions. Brazil will dominate the market for FPS installations with Petrobras looking to double its ﬂ eet to 84 by 2020. The OSV market will also see growing order activity, especially in higher-end vessels, on the back of higher oil prices, attractive charter rates and cabotage rules in regions of high demand. Changing requirements, operational 64 Keppel Corporation Limited Report to Shareholders 2010 2 3 1_Tailoring the FPSO to meet the requirements of the Peregrino ﬁ eld, Keppel Shipyard completed the conversion of Maersk Peregrino for long time customer Maersk FPSOs. 2_Keppel-built rigs, Development Driller III (foreground) and Q4000 (red hull) successfully intercepted the Macondo well in the Gulf of Mexico oil spill. 3_Drillships like Bully I are able to operate in water depths of up to 12,000 ft with a drilling depth of 40,000 ft. Operating & Financial Review Offshore & Marine 65 Operating & Financial Review Infrastructure We are seeking expansion opportunities in our environmental engineering, power generation, logistics and data centres businesses. The Senoko Waste-to-Energy Plant was one of the three assets injected into K-Green Trust, which aims to invest globally in “green” infrastructure assets. EARNINGS REVIEW Infrastructure Division’s revenue increased by $83 million to $2,510 million, due largely to higher revenue from Keppel Energy as a result of higher electricity retail prices and higher gas sales. Proﬁ t before tax decreased by $57 million in 2010 owing to losses from the Engineering, Procurement and Construction (EPC) contracts in Qatar. With a net proﬁ t of $57 million, the Division accounts for 4% of the Group’s earnings. ENVIRONMENTAL ENGINEERING Market Review The demand for efﬁ cient solutions to treat solid waste and wastewater continue to grow across key markets. A Pike Research report suggests that the potential for Waste-to-Energy (WTE) capacity build-up is increasing hand-in-hand with waste growth and landﬁ ll diversion. In 2010, the world is estimated to have generated around 1.7 billion tonnes of municipal solid waste, of which 1 billion tonnes were directed to landﬁ lls and just 0.2 billion tonnes sent to thermal WTE plants. This trend is bound to change with increased attention from nations concerned with climatic changes and its dire consequences. According to estimates, the global market for thermal and biological WTE technologies will reach $3.7 billion in 2010 and grow to $13.6 billion in 2016. The Asia-Paciﬁ c is forecasted to contribute the largest portion of the growth, which is set to take off in 2012. Developments in the UK Government’s waste management policy, driven by the EU Landﬁ ll Directive with ambitious targets for landﬁ ll diversion by 2020, create further opportunities for Keppel Seghers in the UK. The EU Landﬁ ll Directive targets to reduce the amount of biodegradable waste sent to landﬁ lls in 2020 to about a third of that in 1995. Steeply increasing landﬁ ll tax has been implemented to incentivise the diversion of waste from landﬁ ll to more advanced and sustainable waste management solutions, such as Energy-from-Waste (EfW) technology. With these pressing environmental and legislative targets, EfW technology is emerging as the UK’s preferred solution for waste treatment and energy generation. Earnings Highlights Net Profit ($ million) Revenue EBITDA Operating Proﬁ t Proﬁ t before tax Net Proﬁ t Manpower (number) Manpower cost 2010 $ million 2,510 120 75 93 57 4,366 236 2009 $ million 2,427 161 127 150 126 4,574 213 2008 $ million 2,232 82 50 70 63 5,064 219 2010 57 2009 126 2008 63 Proﬁ t before Tax Major Developments in 2010 Focus for 2011/2012 $93m Decreased 38% from FY 2009’s $150 million. Net Proﬁ t $57m Decreased 55% from FY 2009’s $126 million. 66 g KIE officially opened Keppel Seghers Tuas WTE Plant. g KIE to further strengthen presence in key markets and business segments. g K-Green Trust was listed on Singapore Exchange. g KIE broke ground for Greater Manchester Project, and secured contract for Project’s second phase. g The Domestic Solid Waste Management Centre in Qatar to be fully operational. g KIE to ensure timely completion of on-going EPC projects in Qatar and UK. g Keppel DHCS in JV to offer district heating and cooling in Tianjin Eco-City. g Keppel T&T to continue to expand its logistics footprint in Asia. g Keppel T&T established world’s first Shariah-compliant data centre fund. g Keppel Energy commenced capacity expansion on Keppel Merlimau Cogen plant. g Keppel T&T to grow data centre business via capacity expansion and acquisition of high-quality assets. g Keppel Energy to pursue selective opportunities in Singapore and beyond. Keppel Corporation Limited Report to Shareholders 2010 Operating & Financial Review Infrastructure 67 Operating & Financial Review Infrastructure Environmental Engineering Keppel Integrated Engineering aims to be a global leader in environmental solutions for water/wastewater and solid waste treatment. The R1 energy recovery formula is another key development in the WTE industry across Europe, which may gain popularity in Asia. Using this formula, incineration facilities processing municipal solid waste are given ‘energy recovery-R1 status’ if their energy efﬁ ciency meets certain technical requirements. In an assessment of the energy efﬁ ciency of 231 WTE plants in 16 European countries, the Confederation of European WTE Plants has classiﬁ ed 169 plants as ‘energy recovery-R1 status’. Under the Waste Framework Directive, efﬁ cient WTE plants can be categorised as energy recovery operations rather than for waste disposal. This may result in greater acceptance of WTE plants in Europe. Elsewhere in Asia, WTE solutions is gaining acceptance despite the absence of landﬁ ll bans and levies in many Asian countries currently. While focusing on our key areas, Keppel Seghers will continue to monitor these markets for suitable business opportunities. In China, where rapid urbanisation has brought increased pollution, the Opposite_Construction at Keppel Seghers’ energy-from-waste facility in Runcorn, Greater Manchester in the UK, has been progressing well with the construction of the chimney’s windshield completed in 17 days. demand for WTE facilities continues to increase. There are currently about 80 WTE facilities in operation, and a further 10 to 15 are under construction. Industry experts predict that in the next ﬁ ve years, hundreds more new plants are likely to be built. Additionally, more stringent emission limits are expected to be enforced in China, making it an attractive market for efﬁ cient WTE facilities. In the Middle East, drivers for the demand for WTE solutions include population growth, urbanisation and economic expansion. Saudi Arabia, UAE, and Kuwait rank among the world’s top 10 in terms of per capita waste generation. On water treatment, Global Water Intelligence suggests that scarcity and urbanisation are two global megatrends changing the status of water in society today. Scarcity is the main driver of growth in solutions for drinking water while urbanisation is the key driver of growth for wastewater solutions. Industry experts predict that the fastest growth regions will be in Asia and the Middle East. China has been listed by the UN as one of 13 countries experiencing serious water scarcity, and the water market Project Ulu Pandan NEWater Plant Senoko Waste-to-Energy Plant Keppel Seghers Tuas Waste-to-Energy Plant Qatar Domestic Solid Waste Management Centre Doha North Sewage Treatment Works Greater Manchester Energy-from- Waste Combined Heat and Power Plant (Runcorn I and II) Amotfors Energi Combined Heat and Power Waste-to-Energy Plant Technology packages to Waste-to-Energy plants in Shenzhen and Tianjin Capacity 148,000 m3/day 2,100 tonnes of solid waste a day 800 tonnes of solid waste a day to generate more than 20 MW of green energy 2,300 tonnes of mixed solid waste and a 1,500 tonnes a day waste-to-energy incineration plant 439,000 m3/day 750,000 tonnes of waste per year, generating 70MW of electricity and 51MW of heat per year 70,000 tonnes of solid waste per year 3,000 tonnes and 1,000 tonnes of solid waste per day respectively Tenure 2007–2027 2009–2024 2009–2034 2009–2029 2010–2020 Under Construction – – 68 Keppel Corporation Limited Report to Shareholders 2010 Operating & Financial Review Infrastructure 69 Operating & Financial Review Infrastructure Significant Events January g Keppel Seghers secured two contracts to supply waste-to- energy (WTE) solutions in China totalling US$53 million. February g Keppel Seghers secured a €6.5 million contract to provide technology and services to a WTE plant in Tianjin, China. May g Keppel T&T tripled its logistics footprint in Vietnam through three new distribution centres and a JV with Tanimex Group to provide exclusive logistics park management. g Keppel DHCS signed a JV agreement with Tianjin Eco-City Energy Investment and Construction Co Ltd to provide district heating and cooling systems in the Eco-City. June g Pte Ltd, a Shariah-compliant data centre fund. Initial closing of Keppel T&T’s Securus Data Property Fund g KIE officially opened Singapore’s first WTE plant to be built under the National Environment Agency’s Public-Private Partnership initiative. g K-Green Trust was listed on the Main Board of the Singapore Exchange. October g Keppel Seghers secured an EPC contract worth about $341 million for the second phase of an Energy-from-Waste project in the UK. g Keppel Energy commenced the 800MW expansion of its natural gas-fired Keppel Merlimau Cogen (KMC) plant. December g BG (NS) Tay Lim Heng was appointed as KIE’s CEO with effect from 1 January 2011. In January 2011, construction of the Qatar Domestic Solid Waste Centre project was completed and the incineration plant started burning solid waste. there is set to be one of the fastest growing in the Asia-Paciﬁ c. According to China’s Ministry of Housing and Urban-Rural Development, US$146 billion is needed to fulﬁ ll the central government’s goal of equipping at least 90% of counties or above with wastewater treatment facilities and essential pipe works by 2012. To relieve the future demands on China’s water resources, massive investments will be needed to develop new water resources whether through reclamation, desalination or other advanced technologies. It is estimated that the Middle East and North Africa region will have more than US$20 billion worth of wastewater projects in the pipeline, and the trend is for governments to seek Public-Private Partnership (PPP) models for such projects. Currently, the most active markets are Saudi Arabia and North Africa. UAE and Kuwait are also potential markets. Operating Review In Singapore, KIE ofﬁ cially opened the Keppel Seghers Tuas (KST) WTE Plant, Singapore’s newest WTE plant and the ﬁ rst to be built under the National Environment Agency (NEA)’s PPP initiative. The KST WTE Plant is the ﬁ rst incineration plant in Singapore to showcase WTE technology from a local company, and also one of the most compact WTE plants in the world. KIE will operate and maintain the plant for 25 years. KIE is the sponsor of K-Green Trust (KGT), which was listed in Singapore in June 2010. KGT aims to invest in “green” infrastructure assets in Singapore and globally, with a focus on Asia, Europe and the Middle East, to provide long-term, regular and predictable distributions to unitholders. KGT has achieved better than forecasted performance for its ﬁ rst year since listing. 70 Keppel Corporation Limited Report to Shareholders 2010 KIE is providing waste-to-energy technology and services to repeat customer Tianjin TEDA Environment Protection Co. Ltd in Guanzhuang, Tianjin. In Europe, KIE’s wholly-owned subsidiary, Keppel Seghers, secured an EPC contract worth $341 million for the second phase of an EfW project in the Greater Manchester region in the UK. The second phase of this EfW project will be integrated with the project’s ﬁ rst phase which is also executed by Keppel Seghers. Scheduled to be completed by 2015, the project’s second phase will use Keppel Seghers’ proprietary technology. The design and construction for both phases are progressing well and on target to achieve their milestones. In November 2010, Keppel Seghers do Brasil and Keppel Seghers Latinoamérica signed an agreement to provide design, engineering, as well as assistance for the construction and start up of the Wastewater Treatment Plant for the City of Porto Alegre, located in South Brazil. The plant will have a capacity of 233,280 m3/day and Keppel Seghers will use its proprietary technology UNITANK with nutrient reduction, based on activated sludge. The plant is scheduled to start operations in September 2012. In China, Keppel Seghers secured a $12.5 million contract to provide technology and services to a WTE plant in Guanzhuang, Tianjin, as well as a contract for the expansion of an existing WTE plant in Shenzhen, Guangdong. When completed in 2011, the Shenzhen Baoan WTE site will be the largest in China with an eventual capacity to treat 4,200 tonnes of municipal waste per day. In May 2010, Keppel DHCS, another KIE subsidiary, established a joint venture with Tianjin Eco-City Energy Investment and Construction Co., Ltd (TECEIC) to provide district heating and cooling systems (DHCS) in the Sino-Singapore Tianjin Eco-City (Tianjin Eco-City). 80% held by Keppel DHCS, the Tianjin Eco-City Keppel New Energy Development Co., Ltd. (TEC-Keppel) joint venture has a total investment amount of RMB300 million, and will focus on the investment, development, design, construction, operation, maintenance and consultancy for DHCS, Tri-generation and other utility services in the Tianjin Eco-City. As the Keppel Group possesses a strong track record and core competencies in areas such as environmental engineering solutions, property and township development, Operating & Financial Review Infrastructure 71 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 aims to provide good quality integrated logistics solutions and data centre services. 72 and logistics and data centres, a Sustainable Development (SD) unit was formed in June 2010 to coordinate the Group’s efforts to provide sustainable urban living solutions in countries like China, Vietnam and Indonesia. Business Outlook With global megatrends such as rapid urbanisation and climate change, there is a growing need for governments to look into sustainable environmental solutions. KIE, through its various subsidiaries, will continue building its environmental engineering capability in providing environmental solutions to both municipal and industrial clients. Keppel Seghers will continue to strengthen its technology leadership through research and development and leverage its extensive engineering expertise and global network to deliver value to stakeholders. It will also continue to focus on the development of turnkey contracts, sell technology packages and provide total environmental solutions based on the Design, Build, Own, Operate (DBOO) model, Build, Own, Operate, and Transfer model, or Build, Operate and Transfer (BOT) model and PPP. POWER GENERATION Market Review Singapore’s electricity demand recovered strongly in 2010 in tandem with the global economy recovery. For the full year of 2010, the average electricity demand recorded a growth of 8.8% as compared to the previous year. Operating Review 2010 has been a fulﬁ lling and rewarding year for Keppel Energy. Keppel Energy continues to deliver promising results from its integrated power and gas businesses in Singapore. The Keppel Merlimau Cogen power plant carried out its ﬁ rst major maintenance in 2010 and has further improved on its reliability and availability. Keppel Gas secured additional industrial gas customers in 2010 and started its gas supply to them. The company also entered into a Gas Sale Agreement with BG Singapore Gas Marketing to purchase Liqueﬁ ed Natural Gas (LNG) for delivery starting 2013. A major milestone was achieved in 2010 with the commencement of the capacity expansion of the Keppel Merlimau Cogen power plant. The additional 800MW of natural gas-ﬁ red plants on Jurong Island, expected to be completed by 2013, will boost the existing generation capacity to 1,300MW from the current capacity of 500MW. Keppel Energy continued to sustain its good safety record in 2010, with no reportable safety incidents or lost-time incidents at its Singapore operations. Initiatives are being taken to further strengthen the company’s safety management system with the commencement of the design and construction activities for the capacity expansion of Keppel Merlimau Cogen power plant. Business Outlook Our power and gas businesses in Singapore are expected to continue to deliver sustainable earnings in 2011. With the Singapore economy expected to record modest but good growth in 2011, Keppel Energy is well-positioned to beneﬁ t from the corresponding growth in electricity demand. Additionally, the strategic planting of the additional 800MW at Keppel Merlimau Cogen power plant using the most advanced and efﬁ cient commercially available technology will enable Keppel Energy to remain highly competitive in the market. We expect our market share to grow in the Keppel Corporation Limited Report to Shareholders 2010 100% occupancy within its ﬁ rst year of operations. An expansion to add capacity had commenced, and this phase had already seen signiﬁ cant customer commitment. Keppel Datahub had also secured provisional TIA 942 and SS 507 certiﬁ cations, and expects to be formally awarded these certiﬁ cations in 2011. Citadel 100 Datacenters Limited (Citadel 100), the 50%-owned associate based in Dublin, Ireland, continues to enjoy 100% occupancy. Securus Data Property Fund, the world’s ﬁ rst Shariah-compliant data centre fund, was established in June 2010. The initial closing of the Fund achieved US$100 million, and the Fund targets to acquire a portfolio of high quality data centre assets in the Asia-Paciﬁ c, Europe and Middle East. Keppel T&T (through its wholly owned subsidiary Keppel Data Centre Investment Management Pte Ltd) and AEP Capital Pte Ltd are joint investment managers of the Fund. Business Outlook The data centre market will continue to stay buoyant in 2011 as demand for data centre space continues to grow at a faster rate than its supply. Against this favourable landscape, and coupled with its expertise as a premium data centre co-location service provider in Asia and Europe, Keppel T&T aims to expand the capacity at its existing facilities whilst continuing to explore opportunities to grow its data centre footprint. Singapore power market, and we will continue to enhance our integrated platform in the gas and utilities businesses beyond 2011. With a solid power and gas platform, Keppel Energy is ready to pursue selective opportunities in Singapore and beyond. LOGISTICS Market Review In Singapore, the inﬂ ux of new warehousing space in early 2010 resulted in lower warehouse occupancy across the market. This situation gradually abated during the year as continued economic growth brought about higher warehousing demand. In China, the sustained economic growth with higher exports translated into increased cargo volumes. Operating Review The warehouses of Keppel Logistics and its subsidiary, Transware Distribution Services, in Singapore continued to operate at near full occupancy. Several long-term contracts were renewed with existing customers such as Brother, M1, Nestle and Trane. In addition, Keppel Logistics won contracts in new market segments, to extend its service offerings into spare parts logistics and biomedical logistics. Redevelopment of the warehouse facility at 44 Benoi Road in Singapore has commenced, and will double the facility’s capacity to 20,000 sqm when completed in end 2011. Operations in Malaysia grew with the establishment of a new distribution and trucking department. Keppel Logistics also expanded its footprint in Vietnam with the opening and development of four new distribution centres, which tripled warehousing capacity. In China, despite stiffer competition, Keppel Logistics Foshan (KLF) continued to do well. Supported by China’s strong economic growth, Lanshi port in Foshan set another new record high in container throughput, with an 18% increase from 2009. The new Nanhai Distribution Centre will be operational in early 2011, adding 35,000 sqm of warehousing space in the Pearl River Delta. KLF was recognised as one the Top 1000 key enterprises in Guangdong Province, which granted the company priority by the local government in processing of all business applications up to 2012. Business Outlook The growing intra-Asia trade, which is aided by strengthening domestic consumption in Asia, coupled with an increasing trend of logistics outsourcing, will drive strong demand for third party logistics in Asia. Keppel Telecommunications & Transportation (Keppel T&T), the parent company of Keppel Logistics, will explore opportunities to leverage these trends to scale up and expand its logistics footprint in existing markets, and grow its customer base in new logistics verticals. DATA CENTRES Market Review The data centre market has experienced strong demand and increasing utilisation globally. The growth in data centre supply still lagged behind the growth in demand. The introduction of the New Generation National Broadband Network (NGNBN) will enhance the availability of faster and cheaper data in Singapore. This in turn will result in increased demand for data service providers and a greater need for data centre spaces. Operating Review Keppel Datahub, which was reconﬁ gured by Keppel T&T from an existing industrial building into a Tier III+ data centre, began operations in January 2010. The facility achieved Operating & Financial Review Infrastructure 73 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. The unique architecture of Reﬂ ections at Keppel Bay is set to be a waterfront landmark in Singapore. EARNINGS REVIEW Revenue of $1,685 million was $177 million or 12% above the previous year, due mainly to the sale of homes at Keppel Bay and progressive revenue recognition from Reﬂ ections at Keppel Bay. Rental income from investment properties improved because of the acquisitions of investment buildings in Australia in 2010 and the additional ﬂ oors of Prudential Tower in Singapore in November 2009. Pre-tax proﬁ t of $625 million was an increase of 31% over 2009. This was due to higher contribution from several residential projects in Singapore, China and Vietnam, and share of proﬁ t of the associated company developing Marina Bay Suites in Singapore. With net proﬁ t at $326 million, the Division contributed 23% to Group’s overall earnings. MARKET REVIEW Concerted measures by various governments averted a global ﬁ nancial disaster and restored overall conﬁ dence. Asian countries were generally less affected and managed to post positive economic growth for the year. Improved economic conditions have revived the property markets in key Asian cities. The Singapore economy expanded at a record growth rate of 14.5% in 2010. The strong economy shored up market conﬁ dence. New home sales totalled a record of about 16,300 units in 2010, compared to 2009’s take-up of 14,688 units. Residential home prices rose 17.6% in 2010, compared with 1.8% in 2009. For 2011, prospective home buyers are expected to hold back their purchasing decision in the near term after the government introduced the fourth round of anti-speculation measures in January to cool the buoyant property market. While the sales volume may be moderated, home prices are likely to remain largely stable. Positive economic growth outlook in Singapore and the rest of Asia, the relatively low-interest rate environment and ample liquidity are expected to support the housing market. As business conﬁ dence improved on the back of the strong economic rebound, the pent-up demand for prime ofﬁ ce space saw heightened leasing Earnings Highlights Net Profit ($ million) Revenue EBITDA Operating Proﬁ t Proﬁ t before tax Net Proﬁ t Manpower (number) Manpower cost 2010 $ million 1,685 563 553 625 326 3,015 91 2009 $ million 1,508 385 371 476 210 2,791 100 2008 $ million 950 337 326 365 157 2,955 89 326 2010 2009 210 2008 157 Proﬁ t before Tax Major Developments in 2010 Focus for 2011/2012 g Actively seek acquisitions in Singapore and overseas. with a continued focus on developing quality residential, township, commercial and mixed-use projects. g Monitor markets and time launches for new projects and phases. g Recycle capital to take on new large-scale projects. g Sold over 5,250 homes across Asia, mainly in China. g Set up Keppel Land China to sharpen focus for expansion and growth. g Added more than 9,700 homes to a pipeline of 75,000 homes with acquisitions in China and Vietnam. g Keppel Land’s asset swap with K-REIT Asia unlocked value. g One million sf pre-commitment at MBFC and OFC. g K-REIT Asia makes first foray overseas into Australia. $625m Increased 31% from FY 2009’s $476 million. Net Proﬁ t $326m Increased 55% from FY 2009’s $210 million. 74 Keppel Corporation Limited Report to Shareholders 2010 Operating & Financial Review Property 75 Operating & Financial Review Property Significant Events January g Keppel Land acquired its third township site, a waterfront site in the popular District 2 of Ho Chi Minh City (HCMC), Vietnam. g Keppel Land signed a joint venture agreement to develop an 11-ha waterfront residential site for 175 villas fronting the Saigon River in HCMC. g Mrs Koh-Lim Wen Gin, formerly Urban Redevelopment Authority of Singapore’s Chief Planner and Deputy CEO, was appointed to Keppel Land’s Board of Directors. g K-REIT Asia made its maiden commercial investment outside Singapore with the acquisition of a 50% stake in 275 George Street, a prime commercial building in Brisbane, Australia. March g The iconic Reflections at Keppel Bay topped-out its first tower. April g Topping-out of Marina Bay Financial Centre (MBFC)’s second commercial tower. The township at South Rach Chiec, Vietnam offers high-rise apartments along a riverfront. activity. Prime ofﬁ ce rents increased 12.2% quarter-on-quarter averaging $8.30 psf per month as at end-2010. Grade A ofﬁ ce rental averaged $9.90 psf per month, reﬂ ecting an increase of 10% quarter-on-quarter or 22.2% year- on-year. Grade A ofﬁ ce occupancy rate was 97.3% in 4Q10, up from 93.8% in 4Q09, as corporate occupiers engaged increasingly in ﬂ ight-to-quality. The ofﬁ ce market is closely co-related to GDP growth. With Singapore’s economy projected to expand at a healthy rate of 4–6% in 2011, leasing activity is expected to remain buoyant this year. Given the positive business sentiment, demand for ofﬁ ce space is poised to rise along with corporate expansion with the accompanying headcount growth. Asia’s other economies are also expected to continue growing in 2011, fuelled by domestic demand with rising afﬂ uence and supportive government policies. China’s property market continued on its upward momentum in 2010. Despite the government’s progressive measures to cool demand, real estate prices rose for a 19th straight month in December 2010 while home prices across 70 major Chinese cities rose 6.4% year-on-year. Moving into 2011, two fundamental factors – the growing middle class and urbanisation – will continue to underpin housing demand in China. Vietnam showed signs of recovery in 2010, registering a healthy expansion rate of 6.8% in 2010. GDP growth is projected at 6.9% in 2011. Demand for villas has been strong over the past few years, and is expected to continue. Indonesia’s economy grew at 6.1% in 2010. Low interest rates, coupled with a growing and increasingly afﬂ uent middle-class segment, helped to lift the property market during the year. 76 Keppel Corporation Limited Report to Shareholders 2010 Keppel Land’s prime Grade A ofﬁ ce buildings like the Marina Bay Financial Centre and the Ocean Financial Centre are in two of the most desired business addresses in Singapore. India is projected to have grown at 9.1% in FY 2010 [Note: India’s ﬁ scal year ends on 31 March 2011]. Residential prices are recovering in various cities. Home ownership aspirations are well supported by low mortgage and high savings rates. Coupled with a shortage of housing especially in the urban areas, this is expected to continue to drive demand in India. The Indian economy is expected to continue expanding at a rate of 9% in 2011. OPERATING REVIEW Singapore With buying sentiment buoyed by the strong economic recovery, Keppel Land sold about 650 homes in Singapore in 2010, mainly from Reﬂ ections at Keppel Bay and The Lakefront Residences. The commercial segment has strengthened with the improved business outlook. Strong pre- commitment totalling about 1 million sf of Grade A ofﬁ ce space was secured at Marina Bay Financial Centre (MBFC) and Ocean Financial Centre (OFC) in 2010, lifting the pre-commitment rate for MBFC Phase 2 and OFC to 66% and about 80% respectively. In addition to anchor tenant, DBS Bank, which had pre-committed approximately 55% in MBFC Phase 2’s Tower 3, other tenants such as WongPartnership LLP, Ashurst LLP and McGraw-Hill have recently signed up as tenants. Australia and New Zealand Banking Group and BNP Paribas joined Drew & Napier LLC and DMG & Partners Securities Pte Ltd., long-time tenants from the former Ocean Building and Ocean Towers, to commit as tenants of OFC. During the year, Keppel Land also raised its stake in OFC to 87.51% after acquiring an additional 11.85% stake. In the fourth quarter of 2010, Keppel Land sold its one-third interest in MBFC Phase 1 to K-REIT Asia for $1,426.8 million and acquired Keppel Towers and GE Tower from K-REIT Asia for $573 million. The transaction allowed for the potential redevelopment of the site into premium high-rise city homes and increased Keppel Land’s Singapore residential pipeline by about 50%. The divestment yielded net cash proceeds of $826 million, strengthening Keppel Land’s ﬁ nancial position for acquisition opportunities in Singapore and overseas. Operating & Financial Review Property 77 Operating & Financial Review Property Keppel Land is strengthening its presence in China with developments such as the Zhongshan waterfront residential cum marina development in Guangdong, China. Overseas Keppel Land achieved record sales of over 4,600 units overseas, mainly from its township projects in China, namely The Botanica in Chengdu and Central Park City in Wuxi. The Springdale in Shanghai and Seasons Park in the Sino-Singapore Tianjin Eco-City registered encouraging sales following their launches in the second half of 2010. Villa developments, The Arcadia in Tianjin and Villa Riveria in Shanghai, are now 100% sold. With China as a signiﬁ cant growth market, a separate entity Keppel Land China was established to sharpen focus on expanding Keppel Land’s presence in this fast-growing market. Keppel Land China further expanded its footprint in China with strategic land acquisitions in Chengdu and the purchase of its maiden residential site in Nantong in 2010. Tapping on rising home ownership aspirations in Vietnam, Keppel Land acquired four sites during the year, which increased its residential pipeline to about 22,000 units. In Indonesia and India, sale of the Group’s residential projects continued to make good progress as these economies continued on their path of growth. Fund Management Keppel Land’s fund management vehicles extended their reach in the region through selective asset acquisitions. K-REIT Asia made its ﬁ rst overseas foray by acquiring two prime ofﬁ ce developments in Sydney and Brisbane, Australia, in 2010. With the completion of the asset swap deal with Keppel Land, 90% of K-REIT Asia’s portfolio in Singapore is now strategically located within the prime Rafﬂ es Place and Marina Bay ﬁ nancial and business districts. With an enlarged portfolio size of $3.5 billion as at end-2010, up from $2.1 billion in 2009, K-REIT Asia has gained increased visibility as one of the top ﬁ ve S-REITS in asset size. Alpha Asia Macro Trends Fund, a closed-end fund managed by Keppel Land’s private equity fund management arm Alpha Investment Partners (Alpha), has also capitalised on opportunities to invest in several commercial and residential property assets in Singapore, including a stake 78 Keppel Corporation Limited Report to Shareholders 2010 in Katong Mall and units in high-end residences at City Vista in the Newton area, The Cascadia in Bukit Timah and Draycott 8 near Scotts Road, as well as a Grade A ofﬁ ce building in South Korea during the year. As at end-December 2010, Keppel Land’s total assets under management (when fully-invested and fully-leveraged) from K-REIT Asia and Alpha have grown to about $11.2 billion, a 14% rise from 2009. BUSINESS OUTLOOK Singapore Singapore’s economic growth is expected to slow down to 4–6% in 2011. Calibrated cooling measures introduced by the government to weed out speculative buying may moderate overall sales volume, but home prices should remain stable. Keppel Land will be releasing a new phase of The Lakefront Residences, as well as the remaining units of Marina Bay Suites and Reﬂ ections at Keppel Bay, which will beneﬁ t from their proximity to the integrated resorts at Marina Bay and Sentosa. In view of the positive sentiments in Singapore and the region, the ofﬁ ce market is primed to remain ﬁ rm with leasing activities driven mainly by new expansion among the ﬁ nancial and professional services sectors. Keppel Land aims to build on its position as the leading developer of Grade A ofﬁ ce space in Singapore’s Rafﬂ es Place and Marina Bay business and ﬁ nancial districts. Overseas Growth prospects in Asia are set to remain bright in 2011, backed by healthy economic and demographic fundamentals. Home ownership aspirations in markets where Keppel Land operates are expected to remain strong. Operating & Financial Review Property Significant Events May g Keppel Land was awarded a prime 1.6-ha site next to the Lakeside MRT station for the development of The Lakefront Residences. Launched in November, the development attracted strong interest. July g Topping-out of Ocean Financial Centre. g New lifestyle mall at Katong partly owned by Alpha attracted positive tenancy ahead of completion in 2011. g K-REIT Asia acquired 100% of the office tower at 77 King Street in Sydney, Australia. August g Mrs Oon Kum Loon, an Independent Director of Keppel Corporation, was appointed as a Non-Independent and Non-Executive Director of Keppel Land. September g Keppel Land to redevelop Barclays House complex in Jakarta’s Central Business District. g K-REIT Asia appointed Mr Tan Chin Hwee, a Portfolio Manager of the Apollo Asia Opportunity Master Fund, as an Independent Non-Executive Director. g Keppel Land completed acquisition of an 86-ha site in Zhongshan, Guangdong Province. g Keppel Land strengthened its focus on China with the establishment of Keppel Land China. The Lakefront Residences drew strong interest from homebuyers. 79 Operating & Financial Review Property Significant Events October g Alpha’s Macro Trends Fund invested in Seoul Square, a prime Grade A office in Seoul, South Korea. g Keppel Land secured two prime sites in Chengdu, Sichuan Province, for residential development. g Keppel Land secured two prime sites in HCMC for villa developments. November g More than 90% of the 220 eco-homes released were sold in the soft launch of Keppel’s Seasons Park residential development in the Sino-Singapore Tianjin Eco-City. December g Keppel Land and K-REIT Asia successfully completed the asset swap deal of Keppel Land’s one-third interest in Phase 1 of MBFC and K-REIT Asia’s Keppel Towers and GE Tower (KTGE). KTGE will be redeveloped into premium residences for city living. g Keppel Land China expanded its portfolio with maiden site acquisition in Nantong, Jiangsu province. Keppel Land plans to launch more homes overseas in 2011. In China, Keppel Land will be releasing the remaining units at 8 Park Avenue in Shanghai and township homes at The Seasons in Shenyang. In Vietnam, Riviera Point and a waterfront township development at South Rach Chiec, both located in Ho Chi Minh City, will be launched. Fund Management With the improved market conditions, Keppel Land’s fund management vehicles are well-positioned to expand their respective portfolios. K-REIT Asia will pursue acquisition opportunities to grow into a leading pan-Asian commercial REIT. Alpha will continue to establish and grow its existing businesses in Asia while actively scanning for opportunities to buy into fund management platforms in Europe and the US. Keppel Land will keep a lookout for capital recycling opportunities in large-scale mixed development sites. With a strong cash position of $1.59 billion and low debt-equity ratio of 0.2x as at end-2010, Keppel Land will actively seek value-creating acquisition opportunities in Singapore and overseas, with a continued focus on developing quality residential, commercial and mixed-use projects. Mr Wong Kan Seng, Singapore’s Deputy Prime Minister and then Minister for Home Affairs (second from left) and Tianjin Deputy Party Secretary He Lifeng (extreme right), accompanied by Dr Lee Boon Yang (extreme left), Chairman of Keppel Corporation were briefed by Mr Goh Toh Sim, Keppel Corporation’s Chief Representative in China, on the masterplan of Keppel’s development in the Tianjin Eco-City. 80 Keppel Corporation Limited Report to Shareholders 2010 Providing Solutions For Sustainable Future 2010 saw the Sino-Singapore Tianjin Eco-City progress on several fronts, with the launch of the first eco-homes and inking of agreements with several technology companies. Sino-Singapore Tianjin Eco-City Investment and Development, Co., Ltd. (SSTEC) sustained its efforts to attract partners to the Sino-Singapore Tianjin Eco-City (Tianjin Eco-City) project, securing about RMB2.5 billion ($484 million) worth of industrial investment commitments in the Eco-Business Park (EBP) and Eco-Industrial Park (EIP). About half of the industrial investments come from Singaporean companies, including ST Environmental Services and Technologies, Pan Asian Water and PV World. Keppel Telecommunications & Transportation is planning to develop and operate a green integrated logistics distribution centre in the EIP. Keppel DHCS has also established a joint venture to provide district heating and cooling systems in the Eco-City. Multi-national companies such as Hitachi, Philips and ST Engineering have taken up anchor tenancies in the EBP. Keppel Integrated Engineering will be the ﬁ rst anchor tenant in the EBP’s Tianjin Eco-City Sustainable Development Innovation Centre, which aims to bring international education institutions, government agencies and leading companies under one roof. SSTEC also formed a number of key strategic partnerships in 2010. A Memorandum of Understanding (MOU) was signed with Vancouver City and leading Canadian cleantech corporations to develop the ﬁ rst net zero-energy Canadian research and development centre in Asia. SSTEC also established an alliance with 11 Chinese and international corporations to drive the adoption of green transport solutions. With all the land plots in the 4-sq km Start-Up Area (SUA) taken up for development, the SUA is expected to be completed by 2013, housing approximately 85,000 residents. In 2010, more than 5,000 homes in Tianjin Eco-City were launched by different developers, drawing strong interest and brisk sales. These included developments from Keppel Land (pictured above), Japan’s Mitsui Fudosan Residential and China’s Shimao Group. In addition, SSTEC attracted two new developers, Korea’s Samsung C&T Corporation and the Philippines’ Ayala Land. SSTEC also signed an MOU with China Healthcare Limited to collaborate on an elderly apartment project. To ensure that the quality of buildings is maintained in line with the Eco-City’s Green Building Evaluation Standards, SSTEC established a subsidiary to provide eco-maintenance and property management services. 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 a Chinese Consortium led by Tianjin TEDA Investment Holding Co., Ltd. Operating & Financial Review Property 81 Operating & Financial Review Investments to a decrease in rail equipment leasing revenue and a ﬁ xed asset impairment charge of $36.7 million, offset in part by lower operating expenses. de-leverage the business. We are hopeful that the US economic expansion will continue to provide positive trends, which will beneﬁ t Helm. EARNINGS REVIEW Pre-tax earnings from Investments Division of $66 million was $83 million lower compared with 2009, as the previous year included contribution from Singapore Petroleum Company which was disposed in June 2009. Net proﬁ t of $49 million was $70 million below that of the previous year. Investments currently contribute 3% to the Group’s earnings. For 2010, k1 distributed 0.5 cent per share to shareholders and has distributed a cumulative 22.31 cents per share or a total of $460 million to shareholders since 2005. K1 VENTURES k1 Ventures (k1) is a diversiﬁ ed investment company that has holdings in various targeted sectors of transportation leasing, education, oil and gas exploration, and automotive retail. Its major investments are in Helm Holding Corporation (Helm), the largest independent rail equipment leasing company in North America, and Knowledge Universe Holdings (KUH), a leading global education service provider. For the ﬁ nancial year ended 30 June 2010, k1 recorded revenue of $70.9 million and an operating loss of $48.2 million compared to $99.1 million and an operating proﬁ t of $4.5 million in the prior year. The declines were principally due KUH, through its operating subsidiaries, acquired a majority stake in the Canadian International School in Singapore and completed the acquisition of The Children’s House in Malaysia in 2010. China Grand Auto, k1’s investment in automotive retail, continues to perform well and expand its platform with strategic acquisitions. The slow economic recovery in the US has led to weakness in rail trafﬁ c volumes, which has impacted the demand for rail assets. Helm’s focus on expense management as well as opportunistically executing equipment sales has positively impacted cash ﬂ ow which has been used to further M1 M1 is a leading integrated communications provider in Singapore. The company contributes signiﬁ cantly to Keppel Telecommunications & Transportation’s (Keppel T&T) earnings and cashﬂ ow. For FY 2010, M1 contributed $37.9 million pre-tax proﬁ ts, which made up 51% of Keppel T&T’s pretax proﬁ ts. The company also contributed total dividends of $24.1 million to Keppel T&T. In 2010, M1 introduced a number of initiatives which boosted its non-voice services revenue. It was the ﬁ rst in Singapore to provide ultra high-speed broadband services on the new national ﬁ bre network. Its residential broadband customers were also offered a free ﬁ xed voice service. In addition, M1 launched its own application store to provide a wide selection of the latest applications for its customers. Earnings Highlights Revenue EBITDA Operating Proﬁ t Proﬁ t before Tax Net Proﬁ t Manpower (Number) Manpower (Cost) 2010 $ million 11 10 9 66 49 147 65 2009 $ million 39 4 3 149 119 135 76 2008 $ million 54 26 25 219 172 165 65 Net Profit ($ million) 2010 49 2009 2008 119 172 Proﬁ t before Tax Major Developments in 2010 Focus for 2011/2012 g Knowledge Universe Education, a k1 Ventures’ investee company, invested in the Canadian International School in Singapore and The Children’s House in Malaysia. g k1 Ventures to identify investment opportunities while continuing to focus on the management of existing investments with the aim of enhancing shareholder value. g M1 became the first company in Singapore to provide ultra high-speed broadband services on the new national fibre network, and launched its own application store. g M1 to continue to strengthen its position in the mobile market and capitalise on growth opportunities in Singapore riding on the new national fibre network. $66m Decreased 56% from FY 2009’s $149 million. Net Proﬁ t $49m Decreased 59% from FY 2009’s $119 million. 82 Keppel Corporation Limited Report to Shareholders 2010 Operating & Financial Review Investments 83 Operating & Financial Review Financial Review and Outlook Revenue by Market 2010 (%) Singapore ASEAN Rest of Asia-Pacific Middle East / India Europe North America South America Total 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 33 7 7 3 20 19 11 100 23 6 4 10 31 13 11 2 100 26 5 4 8 30 15 11 1 100 $9,783m Singapore 33% Overseas 67% $12,247m Singapore 23% Overseas 77% $11,805m Singapore 26% Overseas 74% 84 Keppel Corporation Limited Report to Shareholders 2010 PROSPECTS The Offshore & Marine Division secured $3.2 billion worth of new orders for the year. The net orderbook at the end of the year stood at $4.6 billion with deliveries into 2013. The incident in the Gulf of Mexico has raised safety and environmental concerns in offshore drilling. With increasing focus on safety afforded by newer rigs and a global rig ﬂ eet that is relatively old, rigbuilders are expected to beneﬁ t from the renewal of existing rigs. The sharp divergence in utilisation and dayrates between new and old jackups has already led to the ordering of new jackups in the last quarter of the year. The Division’s focus on innovation, quality, on-time delivery and safety will place it in a good position to win more orders and to widen and deepen its market leadership. In the Infrastructure Division, the Group has commenced the expansion of the Keppel Merlimau Cogen power plant which will increase generation capacity from the current 500MW to 1,300MW by 2013. Notwithstanding the cost overruns and delays in our Qatar projects, the Group believes that the global drive towards sustainable development will provide opportunities for our environmental engineering business. The Group has just announced the consolidation of our data centre assets, which we expect to derive greater economies of scale and offer more cost-effective solutions to our customers. Riding on the robust economic performance and favourable demographics, the Property Division sold more than 650 homes in Singapore for the year. With the latest round of cooling measures, buying sentiment is expected to turn cautious. We will time our launch of remaining units in our projects at Keppel Bay and Lakeside Drive when market stabilises. The recent asset swap between Keppel Land and K-REIT Asia has increased the Group’s quality residential pipeline with the potential redevelopment of the Keppel Towers and GE Tower site to meet the demand for Shareholder Returns ROE 16.4 Full-year dividend 11.5 19.1 14.0 21.8 19.0 22.4 35.0 Capital distribution 11.5 cts/ share Capital distribution 14.0 cts/ share Special dividend 45.0 cts/ share Plus Plus Plus 22.3 42.0 23.9 38.0 Dividend in specie ~23.0 cts/ share Plus cents 48 36 24 12 0 % 24 18 12 6 0 2005 2006 2007 2008 2009 2010 city living. The Division also posted record sales of about 4,600 homes overseas in 2010. Capitalising on aspirations for homes due to rising afﬂ uence and urbanisation in the region, the Group boosted its China portfolio and expanded its presence in Vietnam with several land acquisitions during the year. With healthy leasing activities on the back of buoyant economic growth, prime ofﬁ ce rents in Singapore registered good increase in 2010. The Group achieved creditable ofﬁ ce space take-up for our Marina Bay Financial Centre and Ocean Financial Centre projects. With another year of record earnings in 2010, the Group is mindful of the challenges in 2011. The Group will continue to sharpen our competitive edge by leveraging on collective strengths and synergies among the Divisions so as to create value for our stakeholders. SHAREHOLDER RETURNS Return on equity (ROE) exceeded 20% for the fourth consecutive year, reﬂ ecting our efforts to pursue higher returns for our shareholders. The Company will be paying a total dividend of 42 cents per share. This comprises a ﬁ nal dividend of 26 cents per share and the interim dividend of 16 cents per share paid in August 2010. Total payout for 2010 represents 47% of Group net proﬁ t. This is equivalent to a gross yield of 3.7% on the Company’s last transacted share price as at 31 December 2010. 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. To reward our shareholders for their continuing support, as well as to increase the accessibility of an investment in the Company to more investors, thereby encouraging trading liquidity and greater participation by investors and broadening our shareholder base, the Company will be issuing one bonus share for every 10 existing ordinary shares held by shareholders. Operating & Financial Review Financial Review and Outlook 85 Operating & Financial Review Financial Review and Outlook Continued EVA Growth ($ million) 197 416 779 855 1,026 1,035 1,200 1,000 800 600 400 200 0 2005 2006 2007 2008 2009 2010 Economic Value Added (EVA) ECONOMIC VALUE ADDED (EVA) In 2010, EVA excluding exceptional items rose by $9 million to $1,035 million. This was attributable to higher operating proﬁ t (excluding exceptional items), partially offset by higher capital charge. Capital charge rose by $130 million as a result of higher Average EVA Capital and higher Weighted Average Cost of Capital (WACC). Average EVA Capital increased by $1.34 billion from $9.86 billion to $11.20 billion. WACC increased from 6.26% to 6.67% mainly due to increase in risk-free rate and beta. EVA excluding exceptional items of $1,035 million in 2010 is the highest ever attained by the Group. The Group’s effective deployment and management of resources to enhance shareholders’ value is reﬂ ected in the Proﬁ t after tax & exceptional items Adjustment for: Interest expense Interest expense on non-capitalised leases Tax effect on interest expense adjustments (Note 1) Provisions, deferred tax, amortisation & other adjustments Net Operating Proﬁ t After Tax (NOPAT) Average EVA Capital Employed (Note 2) Weighted Average Cost of Capital (Note 3) Capital Charge 2010 $ million 1,343 107 21 (22) 66 1,515 10v09 +/(-) -494 +18 - -7 +2 -481 11,201 6.67% (747) +1,340 +0.41% -130 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) Economic Value Added 768 -611 1,379 +687 692 Comprising: EVA excluding exceptional items EVA of exceptional items 1,035 (267) 768 +9 -620 -611 1,026 353 1,379 +171 +516 +687 855 (163) 692 Notes: 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% (2009: 6%); (b) Risk-free rate of 2.5526% (2009: 2.1949%) based on yield-to-maturity of Singapore Government 10-year Bonds; (c) Unlevered beta at 0.74 (2009: 0.72); and (d) Pre-tax Cost of Debt at 3.03% (2009: 3.13%) using 5-year Singapore Dollar Swap Offer Rate plus 70 basis points (2009: 100 basis points). 86 Keppel Corporation Limited Report to Shareholders 2010 1,947 3,030 3,633 3,318 2,574 2,245 2,157 3,051 3,332 3,178 2,653 2,936 2,243 3,208 4,443 4,441 2,400 4,246 16,747 17,307 20,981 2008 2009 2010 4,596 2,153 7,647 1,970 381 5,985 2,728 6,423 1,759 412 6,740 2,984 6,730 4,068 459 16,747 17,307 20,981 Total Assets Owned ($ million) Fixed assets Properties Investments Stocks & work-in-progress Debtors & others Bank balances, deposits & cash Total 25,000 20,000 15,000 10,000 5,000 0 Total Liabilities Owed and Capital Invested ($ million) Shareholders' funds Non-controlling interests Creditors Term loans & bank overdrafts Other liabilities Total 25,000 20,000 15,000 10,000 5,000 0 positive and growing EVA that we have been achieving since 2004. FINANCIAL POSITION Group total assets of $20.98 billion at 31 December 2010 were $3.67 billion or 21.2% higher than the previous year-end. Associated companies increased because K-Green Trust became an associated company following the distribution in specie of 51% of K-Green Trust units to Keppel Corporation’s shareholders in June 2010. Increase in investment properties was due to the acquisition of two commercial buildings in Australia and the redevelopment cost of Ocean Financial Centre. Decrease in long term receivables was due to the sale of Senoko WTE Plant, Keppel Seghers Tuas WTE Plant and Keppel Seghers Ulu Pandan NEWater Plant to K-Green Trust. Higher stocks and work-in-progress were due to expenditure on trading properties and acquisitions of land for development. Group shareholders’ funds increased from $5.99 billion at 31 December 2009 to $6.74 billion at 31 December 2010. The increase was mainly attributable to retained proﬁ ts for the year and fair value gain on available-for-sale assets, partially offset by payment of ﬁ nal dividend of 23 cents per share and special dividend in specie of K-Green Trust units of approximately 23 cents per share in respect of ﬁ nancial year 2009, and the interim dividend of 16 cents per share for ﬁ nancial year 2010. Group total liabilities of $11.26 billion at 31 December 2010 were $2.66 billion or 31.0% higher than the previous year-end. Higher level of term loans was due to increased bank borrowings and funds raised in the capital markets during the year for working capital requirements, operational capital expenditure and acquisitions. 2008 2009 2010 Group net cash of $178 million at 31 December 2010 was a decrease Operating & Financial Review Financial Review and Outlook 87 Operating & Financial Review Financial Review and Outlook of $999 million from $1,177 million at 31 December 2009. This was mainly due to operational cash outﬂ ow, capital expenditure and dividend payment. TOTAL SHAREHOLDER RETURN Keppel is committed to deliver value to shareholders through earnings growth. We will continue to identify, develop and build growth platforms for our businesses, sharpen our strategic focus, streamline our businesses, launch new products, strengthen customer relationships and penetrate new markets. Our Total Shareholder Return (TSR) for 2010 was 47%. This was 34% above the benchmark Straits Times Index’s (STI) TSR of 13%. Over the past nine Total Shareholder Return (TSR) (%) Keppel 2.0 37.6 75.2 48.7 32.5 65.3 51.7 (64.4) 100.8 47.0 STI (13.4) (14.5) 38.3 21.6 19.3 32.4 21.0 (47.1) 70.8 13.4 150 100 50 0 -50 -100 Cash Flow 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 years, our Compound Annual Growth Rate (CAGR) TSR of 32% was also signiﬁ cantly higher than STI’s CAGR TSR of 9%. CASH FLOW Net cash from operating activities was $450 million compared to $670 million in the previous year. This was mainly due to increased working capital and higher income taxes paid, partly offset by higher operating proﬁ t. Net cash used in investing activities was $643 million. The Group spent $1,266 million on acquisitions and operational capital expenditure. This comprised principally the acquisition of two commercial buildings in Australia, equity injection into the Tianjin Eco-City and Dong Nai projects, further investment in Marina Bay Financial Centre, redevelopment cost of Ocean Financial Centre and other operational capital expenditure. Divestment and dividend income totalled $623 million. Free cash ﬂ ow was a negative $193 million as compared to a positive $1,097 million in the previous year. Total distribution to shareholders of the Company and minority shareholders of 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 used in investing activities Free cash ﬂ ow 2010 $ million 1,756 233 1,989 (1,301) (238) 450 (1,266) 623 (643) (193) 10v09 +/(-) +251 +29 +280 -390 -110 -220 -48 -1,022 -1,070 -1,290 2009 $ million 1,505 204 1,709 (911) (128) 670 (1,218) 1,645 427 1,097 09v08 +/(-) +267 +46 +313 -1,763 +73 -1,377 -678 +1,253 +575 -802 2008 $ million 1,238 158 1,396 852 (201) 2,047 (540) 392 (148) 1,899 Dividend paid to shareholders of the Company & subsidiaries (757) -96 (661) +540 (1,201) 88 Keppel Corporation Limited Report to Shareholders 2010 An integrated development centrally located on prime waterfront space, the Marina Bay Financial Centre has been committed to international banking and ﬁ nancial institutions and various multi-national companies. subsidiaries for the year amounted to $757 million. 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 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 the Singapore dollar, which is the Group’s measurement currency. The Group utilises forward foreign currency contracts to hedge its exposure to speciﬁ c currency risks relating to receivables and payables. The bulk of these forward foreign currency contracts are entered into to hedge any excess US dollars arising from Offshore & Marine contracts based on the expected timing of receipts. The Group does not engage in foreign currency trading; – The Group hedges against price ﬂ uctuations arising on purchase of natural gas. Exposure is managed via fuel oil forward contracts, whereby the price of natural gas is indexed to a benchmark fuel price index, High Sulphur Fuel Oil 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 Operating & Financial Review Financial Review and Outlook 89 Operating & Financial Review Financial Review and Outlook hedge interest rate risks. This may include interest rate swaps and interest rate caps; Details of these derivative instruments are disclosed in the notes to the ﬁ nancial statements in this Report. overseas investments and receivables, which were denominated in foreign currencies. – 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 2010, 10% (2009: 48% and 2008: 10%) of Group borrowings were repayable within one year with the balance largely repayable between two and ﬁ ve years. Unsecured borrowings constituted 69% (2009: 64% and 2008: 69%) of total borrowings with the balance secured by properties and assets. Secured borrowings are mainly for ﬁ nance of 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 $2.55 billion (2009: $2.41 billion and 2008: $2.81 billion). Fixed rate borrowings constituted 52% (2009: 39% and 2008: 29%) of total borrowings with the balance at ﬂ oating rates. The Group has interest rate swap agreements with notional amount totalling $929 million, whereby it receives variable rates equal to SOR and pays ﬁ xed rates of between 1.43% and 3.62% 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 2010, the Group has outstanding interest rate cap agreements of $46 million. Singapore dollar borrowings represented 93% (2009: 96% and 2008: 94%) of total borrowings. The balances were in US dollars, Brazilian Reals and other Asian currencies. Foreign currency borrowings were drawn to hedge against the Group’s CAPITAL STRUCTURE & FINANCIAL RESOURCES The Group maintains a strong balance sheet and an efﬁ cient capital structure to maximise returns for shareholders. The strong operational cash ﬂ ow of the Group and divestment proceeds Debt Maturity ($ million) < 1 year 1-2 years 2-3 years 3-4 years 4-5 years > 5 years Net Cash/(Gearing) Net Cash/(Gearing) Ratio = Borrowings – Cash Capital Employed Net Cash Capital Employed Net Cash Ratio 275 6,749 0.04 1,177 8,713 0.14 178 9,724 0.02 $ million 10,000 8,000 6,000 4,000 2,000 0 2008 2009 2010 392 527 638 456 1,455 600 No. of times 2.0 1.6 1.2 0.8 0.4 0 90 Keppel Corporation Limited Report to Shareholders 2010 Interest Coverage Interest Coverage = EBIT Interest Cost EBIT Total Interest Cost Interest Cover 1,676 96 17.46 1,905 67 28.44 2,091 81 25.81 $ million 2,500 2,000 1,500 1,000 500 0 2008 2009 2010 Cash Flow Coverage Cash Flow Coverage = Operating Cash Flow + Interest Cost Interest Cost Operating Cash Flow + Interest 2,143 Total Interest Cost Cash Flow Coverage 96 22.32 737 67 11.00 531 81 6.56 $ million 2,500 2,000 1,500 1,000 500 0 2008 2009 2010 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 with an appropriate mix of equity and debt after careful evaluation and management of risks. No. of times 40 32 24 16 8 0 Capital Structure Capital employed at the end of 2010 was $9.72 billion, an increase of $1.01 billion over 2009 and $2.97 billion over 2008. The Group was in a net cash position of $178 million at the end of 2010 compared to net cash of $1.18 billion in 2009 and net cash of $275 million in 2008. The Group’s net cash ratio was 0.02 times at the end of 2010. Interest coverage increased from 17.46 times in 2008 to 28.44 times in 2009 and decreased to 25.81 times in 2010. Despite higher EBIT in 2010, interest coverage has reduced because of higher borrowings and interest expense. Cash ﬂ ow coverage decreased from 22.32 times in 2008 to 11.00 times in 2009 and to 6.56 times in 2010. This was mainly due to lower operating cash ﬂ ow. At the Annual General Meeting in 2010, shareholders gave their approval for the mandate to buy back shares. The Company did not exercise this mandate. 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. No. of times 40 32 24 16 8 0 Operating & Financial Review Financial Review and Outlook 91 Operating & Financial Review Financial Review and Outlook 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 are actively reviewed on an ongoing basis. The Group has further strengthened its ﬁ nancial capacity during the year. As at end of 2010, total funds available and unutilised facilities amounted to $7.62 billion. CRITICAL ACCOUNTING POLICIES The Group’s signiﬁ cant accounting policies are discussed in more detail in the notes to the ﬁ nancial statements in this Report. 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 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 Financial Capacity Cash at Corporate Treasury Credit facilities extended to the Group Total $ million 2,731 4,892 7,623 Remarks 64% of total cash of $4.25 billion Credit facilities of $6.87 billion, of which $1.98 billion was utilised to which the fair value of an investment is less than its cost, the ﬁ nancial health 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. 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 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 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 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 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 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. 92 Keppel Corporation Limited Report to Shareholders 2010 1 2 1_As the most comprehensive offshore and marine facility in Latin America, BrasFELS is in a strong position to help meet Brazil’s requirements for greater local content, and to give value to Petrobras and drillers operating in Brazil and the region. 2_Keppel Logistics is well- positioned to beneﬁ t from the increase in demand for logistics and warehousing services. Operating & Financial Review Financial Review and Outlook 93 Sustainability Report Highlights We aim to achieve sustainable business growth by contributing to the well-being of the environment, society and community. Sustaining Growth (pages 96-127) Empowering Lives (pages 128-135) Nurturing Communities (pages 136-140) Our commitment to business excellence is driven by our unwavering focus on strong corporate governance and prudent risk management. Resource efficiency is not only our responsibility, it also makes good business sense. Innovation and delivering quality products and services are key in sharpening our competitive edge. People are the cornerstone of our businesses. As an employer of choice, we are committed to grow and nurture our talent pool through continuous training and development to help our people reach their full potential. We want to instill a culture of safety so that everyone who comes to work goes home safe. As a global corporate citizen, we believe that as communities thrive, we thrive. We give back to communities wherever we operate through our multi- faceted approach towards Corporate Social Responsibility. We also believe that cultivating a green mindset among our employees will spur them to adopt a sustainable lifestyle. As leaders in our businesses, we support industry programmes and initiatives, and encourage open dialogue for further growth. For more details, please refer to Keppel Corporation’s Sustainability Report 2010, which will be available in June 2011 and also via our website at www.kepcorp.com. 94 Keppel Corporation Limited Report to Shareholders 2010 Sustainability Report Highlights 95 Sustaining Growth Corporate Governance Our Board of Directors bring their deep insights and diverse expertise to the strategic governance of the Group, acting in the best interest of our shareholders at all times. We are committed to strong corporate governance which is essential in enhancing shareholder value and achieving sustainable growth for the Group. 96 Keppel Corporation Limited Report to Shareholders 2010 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 Sustaining Growth Corporate Governance Page reference in this report Pages 98 and 99 Page 98 Page 99 Pages 99 and 100 Not Applicable Page 101 Pages 101 and 102 Pages 220 to 224 and 231 Pages 102, 103, 114 and 115 Pages 104 to 107 Page 104 Pages 106 and 107 Page 107 Pages 145, 146, and 169 to 172 Pages 107 to 112 Pages 110 to 112 97 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 Role: 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. – Independent Judgment: 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 for FY 2010, 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. Board Committees: To assist the board in the discharge of its oversight function, various board committees, namely the Audit, Board Risk, Nominating, Remuneration, and Board Safety Committees, 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. The terms of reference of the respective board committees are disclosed in the Appendix to this report. Meetings: 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. Further, the non-executive directors meet without the presence of management on a need basis. The number of board, board committee, and non-executive director, meetings held in FY 2010, as well as the attendance of each board member at these meetings, are disclosed below: Lee Boon Yang Lim Hock San Choo Chiau Beng Sven Bang Ullring Tony Chew Leong-Chee Oon Kum Loon1 Tow Heng Tan Alvin Yeo Khirn Hai Tan Ek Kia2 Danny Teoh3 Teo Soon Hoe Tong Chong Heong No. of Meetings Held Board Meetings 8 8 8 8 8 8 7 7 3 of 3 3 of 3 8 8 8 Board Committee Meetings Audit – 5 – – 5 5 – 4 – – – – 5 Nominating Remuneration 11 11 – 10 – 10 11 – – – – – 11 4 – – 4 4 4 4 – – – – – 4 Safety 3 – 3 3 – – – – – – – – 3 Non-executive directors’ Meeting (without presence of management) 1 1 – 1 1 1 1 1 – – – – 1 Risk – 4 – – – 4 4 4 – – – – 4 1 Mrs Oon Kum Loon relinquished her membership on the Nominating Committee with effect from 1 December 2010. 2 Mr Tan Ek Kia was appointed as non-executive director with effect from 1 October 2010 and member of the Board Safety Committee and Nominating Committee with effect from 1 December 2010. 3 Mr Danny Teoh was appointed as non-executive director with effect from 1 October 2010 and member of the Audit Committee and Remuneration Committee with effect from 1 December 2010. 98 Keppel Corporation Limited Report to Shareholders 2010 Internal Limits of Authority: 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 $30 million by any Group company, and all commitments to term loans and lines of credit from banks and ﬁ nancial institutions by the Company, require the approval of the board. 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. Director Orientation: 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. Training: The directors are provided with continuing education in areas such as directors’ duties and responsibilities, corporate governance, changes in ﬁ nancial reporting standards, insider trading, changes in the Companies Act and industry-related matters, so as to update and refresh them on matters that affect or may enhance their performance as board or board committee members. In FY 2010, some KCL directors attended the two-day “Inaugural International Symposium on Catastrophe Risk Management” organised by Nanyang Technological University, a four-day conference on “Making Corporate Boards More Effective” organised by the Harvard Business School, and a seminar on “Director’s Responsibilities in respect of Prospectus, Annual Report & Circulars” organised by the Singapore Sustaining Growth Corporate Governance Institute of Directors & Wong Partnership, among others. BOARD COMPOSITION AND GUIDANCE Principle 2: Strong and independent element on the Board Board Composition: To discharge its oversight responsibilities, 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. Board Independence: 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. In this connection, the Nominating Committee takes into account, among other things, whether a director has business relationships with the Company or any of its subsidiaries, and if so, whether such relationships could interfere, or be reasonably perceived to interfere, with the exercise of the director’s independent business judgment with a view to the best interests of the Company. In this connection, the Nominating Committee noted that Mr Alvin Yeo would be deemed non-independent by virtue of his position as Senior Partner of WongPartnership LLP which is one of the law ﬁ rms providing legal services to Keppel Group companies. However, the Nominating Committee considers that the integrity and independence of Mr Alvin Yeo are beyond doubt in 99 Corporate Governance view of his credentials and conduct on the board. Further, 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. Board Size: 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 approximately 12 members. The board currently has majority independent directors with a total of 12 directors, of whom eight are independent. No individual or small group of individuals dominate the board’s decision making. The nature of the directors’ appointments on the board and details of their membership on board committees are set out on page 114 herein. Board Competency: 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. In FY 2010, the board’s core competencies were further strengthened with the appointment of Mr Tan Ek Kia and Mr Danny Teoh. Mr Tan brings to the board his deep and extensive knowledge and experience in the Energy and Utilities business and China, and best practices in such areas as human resources, health, safety and environment (HSE), and corporate social responsibility (CSR) from his long working career in Shell. Mr Tan has been appointed as a member of the Nominating Committee and Board Safety Committee. Mr Danny Teoh, former Managing Partner of KPMG Singapore, has deep knowledge and experience in audit, ﬁ nance and risk. He has been appointed as a member of the Audit Committee and Remuneration Committee. Board Information: 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 business 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 organized every two years for in-depth discussion 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. The next board strategy meeting is scheduled to be held in March 2011. 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. Non-executive Directors’ Meetings: The board’s non-executive directors meet on a need basis without the presence of management to discuss matters such as board processes, corporate governance initiatives, matters which they wish to discuss during the board off-site strategy meeting, succession planning and leadership development, and performance management and remuneration matters. CHAIRMAN AND CHIEF EXECUTIVE OFFICER Principle 3: Chairman and Chief Executive Ofﬁ cer should in principle be separate persons to ensure appropriate balance of power, increased accountability and greater capacity of the board for independent decision making Dr Lee Boon Yang is the non-executive and independent Chairman, and Mr Choo Chiau Beng is the Chief Executive Ofﬁ cer, of the Company. 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 in a timely manner to the board for the board to make good decisions. He also encourages constructive relations 100 Keppel Corporation Limited Report to Shareholders 2010 between the board and management, and between the executive directors and non-executive directors. non-executive directors, four out of ﬁ ve of whom (including the Chairman) are independent; namely: The Board interacts with the Group’s Senior Management regularly, sharing their views and perspectives. The Chairman also ensures effective communication with shareholders. – Mr Tony Chew Independent Chairman 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 (NC) to, among other things, make recommendations to the board on all board appointments and oversee the Company’s succession and leadership development plans. The NC comprises entirely – Dr Lee Boon Yang Independent Member – Mr Sven Ullring Independent Member – Mrs Oon Kum Loon1 Independent Member – Mr Tow Heng Tan Non-Executive and Non-Independent Member – Mr Tan Ek Kia Independent Member The terms of reference of the NC are set out on pages 112 and 113 herein. Process for appointment of new directors The NC 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 NC leads the process and 1 Mrs Oon Kum Loon stepped down as a member of the Nominating Committee, and Mr Tan Ek Kia was appointed in her place, on 1 December 2010. Sustaining Growth Corporate Governance 101 Corporate Governance 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: Integrity (1) (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. 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 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 pages 99 and 100 herein 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 was satisﬁ ed that in FY 2010, all the directors were able to and had 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. 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 220 to 224 and 231: 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 102 Keppel Corporation Limited Report to Shareholders 2010 considered by the Nominating Committee to be independent; and Pages 143 to 144: 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. Independent Co-ordinator: To ensure that the assessments are done promptly and fairly, the board has appointed an independent third party (the “Independent Co-ordinator”) to assist in collating and analysing the returns of the board members. Mrs Fang Ai Lian, former Chairman, Ernst & Young and currently Chairman, Great Eastern Holdings Ltd, was appointed for this role. Formal Process and Performance Criteria: The evaluation processes and performance criteria are disclosed in the Appendix to this report. Objectives and Beneﬁ ts: The board assessment exercise provides an opportunity to obtain constructive feedback from each director on whether the board’s procedures and processes allows 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 helps the directors to focus on their key responsibilities. The individual director assessment exercise allows for peer review with a view to raising the quality of board members. It also Sustaining Growth Corporate Governance assists 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 the 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 Company’s senior management and the Company Secretary to facilitate direct access to senior management and the Company Secretary. The Company fully recognises that the ﬂ ow of relevant information on an accurate and timely basis is critical for the board to be effective in the discharge of its duties. Management is therefore expected to provide the board with accurate information in a timely manner concerning the Company’s progress or shortcomings in meeting its strategic business objectives or ﬁ nancial targets and other information relevant to the strategic issues facing the Company. Management also provides the board members with management accounts on a monthly basis. Such reports keep the board informed, on a balanced and understandable basis, of the Group’s performance, ﬁ nancial position and prospects and consist of the consolidated proﬁ t and loss accounts, analysis of sales, operating proﬁ t, pre-tax and attributable proﬁ t by major divisions compared against the budgets, together with explanation given for signiﬁ cant variances for the month and year-to-date. The Company Secretary administers, attends and prepares minutes of board proceedings. She assists the Chairman to ensure that board procedures (including but not limited to assisting the Chairman to ensure 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 & 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. 103 Corporate Governance 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, ﬁ ve out of six1 of whom (including the Chairman) are independent, namely: – Mr Lim Hock San 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 – Mr Danny Teoh Independent Member 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, grant of shares and share 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, the KCL Restricted Share Plan (the “KCL RSP”) and the KCL Performance Share Plan (the “KCL PSP”). The RC has access to expert advice in the ﬁ eld of executive compensation outside the Company where required. 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: (i) Cash Component: Each non-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. 1 Mr Danny Teoh was appointed as member of the Remuneration Committee on 1 December 2010. 104 Keppel Corporation Limited Report to Shareholders 2010 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 Chairman Member Chairman Member 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. 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. In designing the compensation structure, the RC seeks to ensure that the level and mix of remuneration is competitive and relevant. The total remuneration mix comprises three key components, that is, Chairman Deputy Chairman Director Audit Committee Board Risk, Remuneration, Nominating and Board Safety Committees Basic Fee: The directors’ fee structure (subject to shareholders’ approval at each annual general meeting) is shown as above. Attendance Fee: Further, subject to shareholders’ approval at each annual general meeting, in the event that in a ﬁ nancial year, a non-executive director attends more than six board meetings and/or (as the case may be) more than four meetings of a board committee of which he is a member, he will 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: Board Meeting Committee Meeting In-Country Out-Country $5,000 $3,000 $3,000 $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 Sustaining Growth Corporate Governance annual ﬁ xed cash, annual performance incentive and the KCL share plans. The annual ﬁ xed cash component comprises the annual basic salary plus any other ﬁ xed allowances which the Company benchmarks with the relevant industry market median. 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 performance. The KCL share plans are in the form of two new share plans approved by shareholders, the KCL RSP and the KCL PSP (collectively, the “KCL Share Plans”). The EVA performance incentive plan and the KCL Share Plans are both long-term incentive plans. Long-Term Incentive Plans EVA Incentive Plan Each year, the current year’s EVA bonus earned 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 for payment in future years, subject to the continued EVA performance of the Company. 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 105 Corporate Governance on a personal basis and represents the executive’s contribution to the EVA 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. KCL Share Plans At the extraordinary general meeting of the Company held on 23 April 2010, the Company’s shareholders approved the adoption of the KCL Share Plans, with effect from the date of termination of the KCL Share Option Scheme. The KCL Share Option Scheme was terminated on 30 June 2010. Options granted and outstanding prior to the termination will continue to be valid and subject to the terms and conditions of the KCL Share Option Scheme. The KCL Share Plans are put in place to increase the Group’s ﬂ exibility and effectiveness in its continuing efforts to reward, retain and motivate employees to achieve superior performance and to motivate them to continue to strive for the Group’s long-term shareholder value. The KCL Share Plans also aim to strengthen the Group’s competitiveness in attracting and retaining talented key senior management and employees. The KCL RSP is intended to apply to a broader base of employees while the KCL PSP is intended to apply to a select group of key senior management. Generally, it is envisaged that the range of performance targets to be set under the KCL RSP and the KCL PSP will be different, with the latter emphasising stretched or strategic targets aimed at sustaining longer-term growth. Details of the KCL Share Plans are set out on pages 146, 171 and 172. The Executive Directors participate in both the KCL RSP and the KCL PSP. Level and mix of remuneration of Directors and Key Executives (who are not also Directors) for the year ended 31 December 2010 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 $8,000,000 to $8,250,000 Choo Chiau Beng Abv $5,500,000 to $8,000,000 Nil Abv $5,250,000 to $5,500,000 Teo Soon Hoe Base/ Fixed Salary Performance-Related Bonuses Earned (including EVA and non-EVA Bonuses) Paid Deferred & at risk 14% 44% 42% – – – 16% 43% 41% Tong Chong Heong 15% 44% 41% $250,000 to $5,250,000 Nil Below $250,000 Lee Boon Yang Lim Hock San Sven Bang Ullring Tony Chew Leong-Chee Oon Kum Loon Tow Heng Tan Alvin Yeo Khirn Hai Tan Ek Kia Danny Teoh – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – Directors’ Fees Directors’ Allowance Beneﬁ ts- in-Kind Contingent awards of shares1 Remuneration Shares2 – – – – – 60% 83% 73% 75% 81% 76% 72% 64% 64% – – – – – 3% – 6% – – – – – – n.m.3 0 to 300,000 PSP 0 or 150,000 RSP – – n.m. 0 to 200,000 PSP 0 or 100,000 RSP n.m. 0 to 180,000 PSP 0 or 90,000 RSP – – – – – – – – – – – – – – – – – – – – – – – – – 37% 17% 21% 25% 19% 24% 28% 36% 36% Notes: 1. Shares awarded under the KCL PSP and KCL RSP are subject to pre-determined performance targets set over a three-year and a one-year performance period respectively. For the KCL PSP, the additional award can be up to 50% of the maximum range depending on the achievement of the pre-determined targets at the end of the three-year performance period. 2. Estimated value based on KCL shares’ closing price of $11.32 on the last trading day of FY2010. 3. n.m. – not material 106 Keppel Corporation Limited Report to Shareholders 2010 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 $3,000,000 to $3,250,000 Wong Kingcheung, Kevin Abv $2,000,000 to $3,000,000 Nil Abv $1,750,000 to $2,000,000 Loh Chin Hua Abv $1,500,000 to $1,750,000 Ang Wee Gee Yeo Chien Sheng, Nelson Abv $1,250,000 to $1,500,000 Chia Hock Chye, Michael Abv $1,000,000 to $1,250,000 Chow Yew Yuen Ong Tiong Guan Wong Kok Seng Abv $750,000 to $1,000,000 Hoe Eng Hock Abv $500,000 to $750,000 Nil Abv $250,000 to $500,000 Pang Hee Hon Tay Lim Heng6 Base/ Fixed Salary Performance-Related Bonuses Earned (including EVA and non-EVA Bonuses) Paid Deferred & at risk Beneﬁ ts- in-Kind Contingent awards of shares1 26% 37% 37% n.m. 0 to 200,000 PSP4 0 or 70,000 RSP4 – – 33% 67% – – – – n.m. 0 to 120,000 PSP4 30% 38% 32% 24% 37% 39% n.m. 0 to 120,000 PSP4 0 or 40,000 RSP4 0 or 75,000 RSP n.m. 25% 37% 38% n.m. 0 or 75,000 RSP 33% 36% 31% 31% 37% 32% 28% 37% 35% n.m. n.m. n.m. 0 or 50,000 RSP 0 or 50,000 RSP 0 or 50,000 RSP 40% 36% 24% n.m. 0 or 50,000 RSP – – – – – 67% 19% 14% 35% 35% 30% n.m. 0 to 100,000 PSP5 0 or 70,000 RSP5 0 or 30,000 RSP n.m. 4. On Keppel Land Limited share based compensation scheme. 5. On Keppel Telecommunications & Transportation Ltd share based compensation scheme. 6. Joined the Company on 15 June 2010. 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 2010. “Immediate family member” means the spouse, child, adopted child, step- child, brother, sister and parent. Details of the KCL Share Option Scheme and KCL Share Plans The KCL Share Option Scheme and the KCL Share Plans, which have been approved by shareholders of the Company, are administered by the RC. Please refer to pages 145, 146 and 169 to 172 of this Annual Report for details on the KCL Share Option Scheme and the KCL Share Plans. ACCOUNTABILITY AND AUDIT Principle 10: The Board should present a balanced and understandable assessment of the Company’s performance, position and prospects Principle 11: Establishment of Audit Committee with written terms of reference The board is responsible for providing a balanced and understandable assessment of the Company’s and Group’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 Sustaining Growth Corporate Governance 107 Corporate Governance 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 members of the board with management accounts which present a balanced and understandable assessment of the Company’s and Group’s performance, position and prospects on a monthly basis. Such reports keep the board members informed of the Company’s and Group’s performance, position and prospects and consist of the consolidated proﬁ t and loss accounts, analysis of sales, operating proﬁ t, pre-tax and attributable proﬁ t by major divisions compared against the respective budgets, together with explanations for signiﬁ cant variances for the month and year-to-date. Audit Committee The Audit Committee comprises the following non-executive directors, all of whom are independent: – Mr Lim Hock San Independent Chairman – Mr Tony Chew Leong-Chee Independent Member – Mrs Oon Kum Loon Independent Member – Mr Alvin Yeo Independent Member – Mr Danny Teoh1 Independent Member Mr Lim Hock San, Mrs Oon Kum Loon and Mr Danny Teoh 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 page 112 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. The Audit Committee met with the external auditors four times and with the internal auditors six 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 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 1 Mr Danny Teoh was appointed as member of the Audit Committee on 1 December 2010. signiﬁ cant changes made that would have a material 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 also reviewed the training costs and programmes attended by the internal audit to ensure that the staff continued to update their technical knowledge and auditing skills. The Committee has reviewed the “Keppel: Whistle-Blower Protection Policy” (the “Policy”) which provides for the mechanisms by which employees and other persons may, in conﬁ dence, raise concerns about possible improprieties in ﬁ nancial reporting or other matters, and was satisﬁ ed that arrangements are in place for the independent investigation 108 Keppel Corporation Limited Report to Shareholders 2010 1 2 1_Dr Lee Boon Yang, Chairman of Keppel Corporation, visits the Group’s various operations and facilities regularly to obtain updates. 2_Mr Sven Ullring, Chairman of the Board Safety Committee, undertook safety walkabouts to better understand the operations as well as share safety practices. Sustaining Growth Corporate Governance 109 Corporate Governance 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” section on pages 84 to 93 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 system and was satisﬁ ed that the Company’s internal control processes are adequate. 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 are disclosed on page 112 herein. The Board Risk Committee is made up of three 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 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 WongPartnership 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 110 Keppel Corporation Limited Report to Shareholders 2010 Internal Auditors Incorporated, USA (“IIA”), Group Internal Audit is guided by the International Standards for the Professional Practice of Internal Auditing set by the IIA. These standards consist of attribute and performance 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. To ensure timely and adequate closure of audit ﬁ ndings, the status of implementation of the actions agreed by management is tracked and discussed with the Committee. 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. Sustaining Growth Corporate Governance Material information are disclosed in a comprehensive, accurate and timely manner via SGXnet and the press. To ensure a level playing ﬁ eld and provide conﬁ dence to shareholders, unpublished price- sensitive information are not selectively disclosed, and on the rare occasion when such information are inadvertently disclosed, they are immediately released to the public via SGXnet and the press. 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. 111 Corporate Governance APPENDIX BOARD COMMITTEES – TERMS OF REFERENCE A. Audit Committee (1) Examine the effectiveness of the Group’s internal control system, including ﬁ nancial, operational and compliance controls, to ensure that a sound system of internal controls is maintained. (2) Review audit plans and reports of the external auditors and internal auditors, and consider the effectiveness of actions or policies taken by management on the recommendations and observations. (3) Review ﬁ nancial statements and formal announcements relating to ﬁ nancial performance, and review signiﬁ cant ﬁ nancial reporting issues and judgments contained in them, to ensure integrity of such statements and announcements. (4) Review the independence and objectivity of the external auditors annually. (5) Review the nature and extent of non-audit services performed by the auditors. (6) Meet with external auditors and internal auditors, without the presence of management, at least annually. (7) Make recommendations to the board on the appointment, re-appointment and removal of the external auditor, and approve the remuneration and terms of engagement of the external auditor. (8) Review the effectiveness of the Company’s internal audit function. (9) Ensure that the internal audit function is adequately resourced and has appropriate standing within the Company, at least annually. (10) Review arrangements by which employees of the Company may, in conﬁ dence, raise concerns about possible improprieties in matters of ﬁ nancial reporting or other matters, to ensure that arrangements are in place for the independent investigation of such matters and for appropriate follow up action. (11) Review interested person transactions. (12) Investigate any matters within the Audit Committee’s purview, whenever it deems necessary. (13) Report to the board on material matters, ﬁ ndings and recommendations. (14) Perform such other functions as the board may determine. (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. B. Board Risk Committee (1) Review and guide the Group in formulating its risk policies. (2) Discuss risk mitigation strategies with management. (3) Examine the effectiveness of the Group’s risk management system to ensure that a robust risk management system is maintained. (4) Review and guide in establishing a process to effectively identify, evaluate and manage signiﬁ cant risks. (5) Review risk limits where applicable. (6) Review the Group’s risk proﬁ le periodically. (7) Provide a forum for discussion on risk issues. (8) Report to the board on material matters, ﬁ ndings and recommendations. (9) Perform such other functions as the board may determine. (10) Sub-delegate any of its powers within its terms of reference as listed above from time to time as this Committee may deem ﬁ t. C. Nominating Committee (1) Recommend to the board the appointment/re-appointment of directors. (2) Annual review of skills required by the board, and the size of the board. 112 Keppel Corporation Limited Report to Shareholders 2010 (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. D. 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 (5) Decide how the board’s compensation (if any) of directors. 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 (3) Consider whether directors should be eligible for beneﬁ ts under long-term incentive schemes (including weighing the use of share schemes against the other types of long-term incentive scheme) (4) Review the terms, conditions and remuneration of the senior management. development plans. (5) Administer the Company’s employee (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 or any other stock exchange; (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; and (iii) parent companies of the Company’s core businesses which are unlisted (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) 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. share option scheme (the “KCL Share Option Scheme”), and the Company’s Restricted Share Plan and Performance Share Plan (collectively, the “KCL Share Plans”), in accordance with the rules of the KCL Share Option Scheme and the KCL Share Plans. (6) Grant awards under the KCL Share Plans 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. E. Board Safety Committee (1) Review and examine the effectiveness of the Group companies’ safety management system, including training and monitoring systems, to ensure that a robust safety management system is maintained. Sustaining Growth Corporate Governance 113 Corporate Governance Nature of Current Directors’ Appointments and Membership on Board Committees Committee Membership Board Membership Director Chairman Lee Boon Yang Deputy Chairman Lim Hock San Chief Executive Ofﬁ cer Choo Chiau Beng Sven Bang Ullring Independent Tony Chew Leong-Chee Independent Independent Oon Kum Loon Non-Independent & Tow Heng Tan Non-Executive Independent Independent Independent Executive Director & Group Finance Director Executive Director Alvin Yeo Khirn Hai Tan Ek Kia Danny Teoh Teo Soon Hoe Tong Chong Heong Nominating Member Audit – Chairman – – Remuneration Member – Chairman – – Member Member Member Chairman – - Member Member – Risk Safety – Member Member – Member – – Chairman – – – Member Chairman – Member Member Member – Member – – Member – – – – Member – Member – – – – Member – – – – – – – (2) Review and examine the 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 Group. (5) Ensure that the safety functions in Group companies are adequately resourced (in terms of number, qualiﬁ cation, and budget) and has appropriate standing within the organisation. (6) Consider management’s proposals on safety-related matters. (7) Carry out such investigations into safety-related matters as the Committee deems ﬁ t. (8) Report to the board on material matters, ﬁ ndings and recommendations. (9) Perform such other functions as the board may determine. (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 IC 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 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. 114 Keppel Corporation Limited Report to Shareholders 2010 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. 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 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 ﬁ ve 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 Sustaining Growth Corporate Governance 115 Sustaining Growth Risk Management Keppel’s Business Continuity Management focuses on building the Group’s resilience against events such as pandemic flu. Bolstering risk management practices to support value creation and continuing excellence in an uncertain business environment. 116 Keppel Corporation Limited Report to Shareholders 2010 The recovery from the global ﬁ nancial crisis in 2010 has been disproportionate, with numerous European countries facing severe problems simultaneously while the recovery of emerging countries is facing a slowdown with governments introducing measures to control inﬂ ation. The uncertainty over a sustained recovery in the US, lingering Eurozone debt concerns, rising commodity prices and interest rates in Asia, have continued to reinforce the importance of risk management. Keppel’s Enterprise Risk Management (ERM) framework provides a holistic and systematic approach in risk management to better prepare the Group to respond to uncertainties and leverage new business opportunities to maintain a competitive edge in doing our businesses. A robust risk management framework underpins the Group’s overall business performance and operations. The ERM framework designed by our management provides a systematic approach in managing risks and to minimise surprises and losses that may occur arising from unexpected events. However, under an evolving landscape of uncertainties and vulnerabilities, risks can never be entirely eliminated. ROBUST ENTERPRISE RISK MANAGEMENT The Keppel Board of Directors (Board) has overall responsibility for risk oversight. The Board, assisted by the Board Risk Committee (BRC), is fully committed to a robust risk management system that safeguards and enhances stakeholders’ interest. The terms of reference of the BRC are disclosed on page 112 of this Report. Management’s strong commitment in driving Group-wide risk management system and processes over the years has equipped the Group well to face the dynamic business environment and to capitalise on opportunities. Sound risk management policies, practices and guidelines provide a robust platform to prudently and effectively steer our business operations in today’s challenging and uncertain macro- economic environment. CULTURE OF RISK MANAGEMENT Risk management is an integral part of strategic, operational and ﬁ nancial decision-making processes at all levels of the Group. Management identiﬁ es, evaluates, mitigates risks and discusses key risk issues with the Board periodically. A systematic and structured approach is adopted across all business units in the Group. The Group’s key risks and appropriate mitigating measures taken are grouped under the following categories:- Strategic Strategic risk relates to the Company’s business plans and strategies, including the risks associated with the countries and industries in which we operate, changing laws and regulations, acquisition and capital project investment, changing customer demand pattern, competitive threats, technology and product innovation. To support the Group in executing its business strategies in sustaining growth, BRC guides the Group in the formulation and review of its risk policies, risk limits and effective risk management system. The Group’s risk-related policies and limits are subject to periodic reviews to ensure that they continue to support business objectives, address business risks adequately and effectively, and take into consideration the prevailing business climate and risk appetite of the Group. Risk management is an integral part of the Group’s strategic and budget review exercise, policy formulation and revision, project and investment evaluation, and management performance evaluation process. Impact assessment and review of the Group’s exposure to changing Sustaining Growth Risk Management 117 ENHANCING OPERATIONAL READINESS Business Continuity Management (BCM) increases the Group’s resilience to potential business disruptions and minimise 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. The unusually severe storms, ﬂ oods and harsh winter conditions in many parts of the world experienced in 2010 have awakened many to the impact of climate change. With operations around the world, the Group continues to scan for possible threats and establish plans to enhance operational preparedness. During the year, the BCM focus was on building the Group’s resilience against events such as pandemic ﬂ u, IT downtime and power outage. Various simulation exercises were conducted at business units and locations to enhance operational preparedness. These plans are tested and reﬁ ned regularly to ensure that planned responses are effective. Risk Management 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, regulatory issues and changing customers’ demand patterns have enabled Management to have better insight on impeding developments in the span of countries where the Group operates. The Group’s investment decision process is guided by investment parameters instituted on a Group- wide basis. All investments are subject to due diligence processes and are independently evaluated by the Board and management to ensure that they are in line with the Group’s strategic business focus, meet relevant hurdle rates of return, and take into consideration risk factors. Operational Operational risk relates to the effectiveness and efﬁ ciency of our people, integrity of internal control systems and processes and externalities that affect the day-to-day operations. It includes project tender and execution risks, unfavourable regulatory changes, tight labour situation, wide cost ﬂ uctuations, suppliers dependency, IT downtime, information security, catastrophic events, among others. Operational risk management is integrated into the day-to-day business operations and projects across all business units to facilitate early risk detection for proactive management and control. Guidelines and tools are used to provide guidance in the identiﬁ cation, assessment, mitigation and monitoring of risks. Speciﬁ c focus groups, comprising members from a spectrum of expertise, are established to manage and monitor speciﬁ c risks. Where appropriate, this is supported by risk transfer mechanisms such as insurance and outsourcing, as well as joint ventures. Financial Financial risk relates to our ability to meet ﬁ nancial obligations and mitigate credit risks, liquidity risks, currency risks, interest rate risks and price risks. To manage these risks, the Group’s policies and ﬁ nancial authority limits are reviewed periodically to incorporate changes in the operating and control environment. These policies set out the parameters for management of Group’s foreign exchange exposures, loans and deposits, use of ﬁ nancial instruments and listed investments. The Group has continued to place emphasis on improving ﬁ nancial discipline in cash and liquidity management. Formalised processes, which include counterparty evaluation and review against pre-established guidelines, have been established. For more details on the ﬁ nancial risk management, please see pages 89–90 of this Report. SHARPENING COMPETITIVE EDGE The Group has intensiﬁ ed its efforts to strengthen its risk-centric culture. Continuous education and regular communication through various forums and in-house publications on risk management related topics are integral in inculcating risk awareness and reinforce risk discipline among employees. In-house workshops are developed and conducted to train key personnel and management staff to increase awareness of the Group’s risk management methodology and tools available in mitigating risks. Embedding risk management in the performance evaluation process aims to raise risk accountability and reinforce a risk-centric culture in the Group. 118 Keppel Corporation Limited Report to Shareholders 2010 1 2 1_Evacuation drills are conducted regularly at the various yards around the world. 2_As part of the effort to raise risk awareness, quarterly talks are organised. Sustaining Growth Risk Management 119 Sustaining Growth Environmental Protection We aim to contribute towards a clean and sustainable urban living environment in all the communities where we operate. Keppel Corporation is committed to operate its businesses in a manner that is environmentally responsible. Beyond supporting and championing green causes, we believe that incorporating environmentally responsible practices makes good business sense. 120 Keppel Corporation Limited Report to Shareholders 2010 Key Eco Principles Ecollaboration Working with stakeholders, policy-makers and decision-makers to build a better future Economy Balancing commercial viability and environmental sustainability Ecommitment Promoting environmental awareness and supporting green initiatives Ecommunity Creating sustainable developments for future generations Keppel’s Environmental Key Performance Indicators Energy Waste ENVIRONMENTAL INDICATORS Water Emissions and Effluents Mitigating environmental issues is a key concern for many of our businesses. Our environmental engineering business is a leading player in the provision of waste-to-energy (WTE) and water treatment technologies. 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. 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. The Keppel Group will track, measure and manage its environmental performance in the areas of energy, water, waste and emissions. For our initial efforts, we have focused on our operations in Singapore with the view to include our overseas operations in the future. The reporting will include Keppel Offshore & Marine (Keppel O&M) (and its signiﬁ cant subsidiaries, Keppel FELS, Keppel Shipyard and Keppel Singmarine), Keppel Land, Keppel Integrated Engineering (KIE), Keppel Telecommunications & Transportation (Keppel T&T) and Keppel Energy. 2010 Quick fact Waste g We recycled 91,598 tonnes of waste. Sustaining Growth Environmental Protection 121 Environmental Protection Keppel Group’s Direct and Indirect Energy Consumption (GJ) Keppel Group's Potable Water and NEWater Used (m3) Keppel Group's Recycled and Incinerated Waste (tonnes) 2010 2009 753,985 1,905,497 1,002,906 1,717,831 2010 2009 1,566,587 2,905,055 2010 2,083,658 1,972,627 2009 (estimated) 91,598 87,000 116,712 126,600 2,100,000 1,800,000 1,500,000 1,200,000 900,000 600,000 300,000 0 3,500,000 3,000,000 2,500,000 2,000,000 1,500,000 1,000,000 500,000 0 140,000 120,000 100,000 80,000 60,000 40,000 20,000 0 Direct Energy Indirect Energy Potable Water NEWater Recycled Waste Incinerated Waste ENERGY1,2,3 Energy is a vital element in our businesses. As a Group with businesses in Offshore & Marine, Environmental Engineering, Power Generation, Logistics, Data Centres and Property, we depend heavily on both direct and indirect sources of energy to drive our businesses. Liquid fuels, natural gases, liqueﬁ ed petroleum gas and compressed natural gas are the major types of direct energy consumed by the Group. In 2010, the total amount of direct energy consumed by the Group, excluding Keppel Energy, were 753,985 GJ, compared to 1,002,906 GJ in 2009. The direct energy consumption was 25% lower due to a lower volume of work at our Offshore & Marine Division, and initiatives to improve energy efﬁ ciency. Keppel O&M was the most signiﬁ cant contributor to direct energy consumption after Keppel Energy. The total amount of indirect energy or electricity consumed increased 11% from 1,717,831 GJ in 2009 to 1,905,497GJ in 2010. Despite the increasing demand for energy as a result of expanding operations, the Group will be focusing on increasing energy efﬁ ciency through technical improvements, which includes the replacement of less efﬁ cient machines or equipment, and energy conservation initiatives. The total amount of energy saved by the different business units in the Group through such initiatives in 2010 were 161,160 GJ or 44,766,666 kWH. WATER1 Like energy, water is a vital resource for the Group. Not only does the Group’s Offshore & Marine Division consume large volumes of potable and non-potable water, other subsidiaries, such as KIE and Keppel Energy, also use water for energy generation. The Group’s water consumption can be segmented into potable water, NEWater, both purchased from PUB, and recycled water. NEWater is reclaimed water produced by Singapore’s Public Utilities Board. Speciﬁ cally, it is treated wastewater that has been puriﬁ ed through advanced technologies such that it is potable and ﬁ t for industry use. The Group does not draw any water from ground or surface water sources directly. For 2010, the Group used 1,566,587m3 of potable water, 25% less compared to 2,083,658m3 used in 2009. 122 Keppel Corporation Limited Report to Shareholders 2010 The Group used 2,905,055m3 of NEWater compared to 1,972,627m3 used in 2009, registering an increase of 47%. KIE’s Senoko WTE plant is equipped with a wastewater treatment plant that treats the wastewater from the refuse. The treated water is subsequently used for general washing. In 2010, 56,133m3 of water were recycled. WASTE2 For 2010, a total of 91,598 tonnes of waste were recycled. This was an increase of approximately 5% compared to an estimated 87,000 tonnes of waste recycled in 2009. The waste recycled included metal, plastics, grits and papers which were materials used for the Group’s operations. As a responsible company, Keppel Corporation is committed to promote more recycling and reusing efforts to reduce the amount of waste being disposed of. In Singapore, all solid municipal waste that cannot be recycled is sent for incineration. The incinerated ash and other non-incinerable waste are then sent to Semakau Landﬁ ll. For 2010, across the Group, 116,712 tonnes of waste were sent for incineration, which was 8% lower than an estimated 126,600 tonnes of waste that were sent for incineration in 2009. Chemical, oil, fuel spills are threats to our environment and severely affect the soil, water, air and biodiversity. For 2010, there were no reports of major spillage for the Group. EMISSIONS AND EFFLUENTS1,2,3 Carbon Emissions The emission of greenhouse gases (GHG) has a detrimental impact on the atmosphere. Governments, businesses, communities and individuals need to take responsibility for their own carbon footprint and minimise their GHG emissions. 2010 Quick facts Energy g We saved enough energy to power 115,676 four-room apartments for a month. Water g 56,133m3 of water were recycled by Keppel Group, which is equivalent to Singapore’s monthly average water consumption for 2,900 four-room apartments. Direct emissions occur from the assets that are owned or controlled by the Group. In 2010, the total direct carbon emission of the Group, excluding Keppel Energy, was 123,443 t-CO2 , which registered an approximate 29% increase from 2009’s carbon emission level of 95,619 t-CO2. Indirect emissions are from purchased electricity consumed by the Group. Other indirect emissions are a consequence of the activities of Keppel Group, which occur from sources not owned or controlled by Keppel. In 2010, indirect emissions from the Group stood at 240,013 t-CO2, registering 17% increase from 251,477 t-CO2. Other Emissions Keppel Energy and KIE have kept their monthly average emissions of oxides of nitrogen and sulphur dioxides well below the limits of 700mg/Nm3 and 500mg/Nm3 as stipulated in the National Environment Agency’s (NEA) Code on Pollution Control respectively. Dust or particulate matter is also emitted from the stacks of KIE’s WTE plants when refuse is being burnt. For 2010, the monthly average emission levels were 43mg/Nm3 for KIE’s Senoko WTE plant and 29 mg/Nm3 for Keppel Seghers Tuas WTE plant, which were within NEA’s emissions limits of 100mg/Nm3. There were no signiﬁ cant emissions of oxides of nitrogen, sulphur dioxide and other air emissions from our Offshore & Marine and Property divisions. 1 The increase to indirect energy, NEWater used, direct and indirect carbon emissions were due mainly to the inclusion of new 2010 data from Senoko WTE and Keppel Seghers Tuas WTE plants, which were acquired and commenced operations respectively in late 2009. 2 For some business units, 2009 data for some aspects was unavailable. For the purposes of comparison, the 2009 data was assumed to be the same as 2010. Those assumptions represented 5% or lower of the consolidated ﬁ gures at Group level, and are therefore unlikely to cause signiﬁ cant variance and are negligible. 3 Due to commercial sensitivity, Keppel Energy’s direct energy consumption and direct carbon emission are not included in this Sustainability Report Highlights nor Keppel Corporation’s Sustainability Report 2010 to be published in June 2011. Sustaining Growth Environmental Protection 123 Sustaining Growth Product Excellence Product and technology excellence as well as innovation are key to strengthening our core competencies and developing new growth drivers. The Keppel Group is recognised for high quality products and services, and over the years, we have won numerous awards, testament to our commitment towards excellence. 124 Keppel Corporation Limited Report to Shareholders 2010 Key business units in the Keppel Group are certiﬁ ed to ISO 9001, ISO 14001 and OHSAS 18001 standards, achieving the objectives of product quality, environmental protection and occupational health and safety (see table on page 127 on recent awards and certiﬁ cations). In the Offshore & Marine Division, Keppel FELS has developed propriety designs for jackups and semisubmersible rigs. The KFELS B class jackup rig and KFELS semisubmersible drilling tender (SSDT) have set benchmarks in the industry for their contributions towards sustainable operations, as well as to the safety and well-being of the rig crew. In the Infrastructure business, the Group’s high quality standards have led to contract awards to provide essential services in Singapore. In partnership with public sector agencies, Keppel Seghers operates a NEWater plant supplying recycled potable water and a waste-to-energy plant treating solid waste and generating energy. In Property, Keppel Land has achieved 22 Green Mark Awards to-date for its environmentally conscious developments both in Singapore and abroad, as well as four FIABCI Prix d’Excellence Awards since 2006 for excellence in property development and management. To stay in the forefront of technologies, the Keppel Group invests heavily in research and development. Keppel Offshore & Marine Technology Centre (KOMtech) and Keppel Environmental Technology Centre (KETC), the research arms of Keppel Offshore & Marine and Keppel Integrated Engineering (KIE) respectively, engage in product development, process improvement and knowledge management, to sustain market leadership and strengthen the business units for long-term growth. Ongoing The KFELS B Class design is the industry standard for efficient and high grade performance; to-date, more than 30 such units have been delivered for operations in various parts of the world. research efforts in KOMtech include ice-resistant rigs for the Arctic, drilling systems and mini-LNG supply chain for associated gas. CUSTOMER HEALTH AND SAFETY The Group places great importance on the health and safety of customers who use Keppel’s products and services. Much care and diligence are applied in the design, construction, and operation of our products and services to ensure that they are ﬁ t for their intended use and do not pose hazards to customers’ health and safety. Customers’ health and safety impacts are constantly assessed over the products’ life cycle stages, to help us seek further improvement. Policies, procedures and guidelines on the environment, health and safety are implemented and adhered to at all times. For example, our KFELS SSDT is designed and constructed to facilitate emergency response operations, such as ﬁ re ﬁ ghting and emergency evacuations. The SSDT has a large deck space, ﬁ xed equipment pathways, and dedicated life saving equipment. In an emergency situation, the rig can Sustaining Growth Product Excellence 125 Product Excellence quickly move away from the drilling platform to a safe standby position. Another case in point is Keppel Land’s adoption of the “Design for Safety in Buildings and Structure Guidelines” for all its new projects. This is a safety management tool that requires design consultants to review the safety and health risks associated with their design at various stages of the project. For infrastructure projects undertaken by KIE, the company adheres to a set of health and safety policies and procedures that provides guidance in the design, construction and operation of plants and facilities. Procurement of materials and equipment are made with responsible and reputable vendors, taking into consideration the health and safety impacts during their useful life. Only authorised disposal companies are engaged to ensure proper disposal of hazardous waste. meeting the needs of our homebuyers. Their feedback is obtained for the review and improvement of future projects. Regular events and activities are also organised to build rapport with homeowners and tenants. CUSTOMER ENGAGEMENT ‘Customer Focus’ is one of the Group’s eight core values. As such, our customers’ feedback is valuable to us in our drive to continuously improve our products and services, vital for sustainable growth and long-term success. Mechanisms for customers to provide feedback are in place to assess and maintain customer satisfaction with our products and services. COMPLIANCE Keppel’s products and services are designed, developed and delivered in compliance with relevant laws and regulations concerning health and safety. In 2010, the Group has not identiﬁ ed any non-compliance with laws, regulations and voluntary codes concerning the provision and use, including the health and safety impacts, of our products and services. Moving into the future, the Keppel Group will remain focused on customer needs and exercise due care to ensure customers’ health and safety while providing products and services stamped with our hallmark quality and excellence. Surveys are also conducted regularly to gather feedback and suggestions. For example, Keppel FELS conducts surveys once every four months, involving face-to-face interviews with customers. Other business units such as Keppel Energy, Keppel Shipyard and Keppel Telecommunications & Transportation also gather feedback on a regular basis for continuous service improvements. Keppel Land has established a Customer Focus Unit (CFU) since 1997, which is dedicated to Marina at Keppel Bay is the first marina in Asia to be awarded the 5 Gold Anchors rating from the Marina Industries Association Australia and was named “Best Asian Marina 2010” at the Asia Boating Awards. 126 Keppel Corporation Limited Report to Shareholders 2010 Awards and Certifications OFFSHORE AND MARINE Keppel FELS Shell Platform Rig of the Year Award Offshore Yard Award Singapore Quality Class Certiﬁ cation (SQC) Singapore Innovation Class Certiﬁ cation (I-Class) IES Prestigious Engineering Achievement Awards Asean Outstanding Engineering Achievement Award MAXA 2008 Award ISO 9001 Certiﬁ cation Keppel Shipyard The Shipyard of the Year Award by Lloyds List The Ship Repair Yard Award by Lloyds List ISO 14001 Certiﬁ cation ISO 9001 Certiﬁ cation 2010 2010 Since 2002 Since 2004 2009 2009 2008 Since 1994 2010 2009 Since 2004 Since 1996 INFRASTRUCTURE Keppel Seghers Engineering Singapore ISO 9001, ISO 14001 and OHSAS 18001 Certiﬁ cation Since 2009 Keppel Telecommunications & Transportation Singapore Domestic Logistics Service Provider of the Year 2010 PROPERTY Keppel Land Best Retail & Fast Moving Consumable Goods (Singapore) 2009 Best Domestic Logistics Service Provider (Singapore) 2009 ISO 13485 and GDPMDS ISO 14001, OHSAS 18001 Certiﬁ cation ISO 9001 Certiﬁ cation Since 2009 Since 2002 Since 1993 4 BCA Green Mark Awards (Total 22 awards to-date) 2010 Euromoney Real Estate Awards – Best Ofﬁ ce Developer in Singapore 2010 & 2009 FIABCI Indonesia BNI Prix d’Excellence – Best Middle Class Residential Development (Jakarta Garden City) 2009 4 FIABCI Prix d’Excellence Awards Since 2006 Best Asian Marina Award Clean Marina Award ISO 14001 Certiﬁ cation List of awards and certiﬁ cations are in relation to product excellence and are not exhaustive. Sustaining Growth Product Excellence 2010 2008 Since 2008 127 Empowering Lives People Matters Apart from a Can Do! spirit, Keppel employees display a strong sense of esprit de corps, and are bonded by our Group Vision, Mission and Core Values. Keppel is committed to be an employer of choice. We value our employees and recognise their contributions towards achieving sustainable growth for the Group and creating value for our stakeholders. 128 Keppel Corporation Limited Report to Shareholders 2010 With people as a core asset, Keppel continues to actively grow and enhance the capabilities of our global workforce and talent pools through the Keppel College leadership development programmes and training opportunities, while spurring them to achieve greater results through rewards and incentives. We are also committed to a culture in which all employees strike a balance between work and play, and we constantly engage our employees through social and recreational interaction and family bonding activities. We continue to build trusting and harmonious working relations with our unions whom we see as a strategic partner in reaching out to our employees. ENGAGING OUR EMPLOYEES As part of the Group’s efforts to identify areas for continuous improvement, the annual group-wide Organisational Climate Survey (OCS) was conducted in October 2010. The OCS collects feedback and views from our employees so that we can continue to review and reﬁ ne our HR policies and programmes. This is the second year that the survey was rolled out across the Group. LEARNING & DEVELOPMENT In 2010, we invested a total of $18.3 million in the training and development of our employees globally. Since 2004, Keppel has sponsored 269 employees from all levels as part of our Employee Development Scheme (EDS). 38 outstanding employees were sponsored under the EDS in 2010 to pursue further education. We continued to adopt government initiatives such as the Skills Programme for Upgrading and Resilience (SPUR). In 2010, four in-house Keppel-SPUR courses were organised for a total of 68 participants. Besides skills development, bringing together staff from various business units under the SPUR courses helps in building bonds. Manpower by Segment (number) Corporate Office Offshore & Marine Infrastructure Property Total 161 27,567 4,418 4,572 36,718 Manpower by Region (number) Americas Asia Europe Middle East Singapore Total 8,951 9,145 705 1,652 16,265 36,718 Executives / Non-Executives (number) Executives Non-executives Total 7,236 29,482 36,718 Note: The headcount ﬁ gures in this table include associated companies where Keppel has management control. Empowering Lives People Matters 129 People Matters ATTRACTING TALENT In 2010, we continued our efforts to attract the best and brightest into the Group through scholarships and internships amongst other initiatives and recruitment exercises. Nine new scholars were inducted into the Keppel family at the Keppel Group Scholarship Awards Ceremony on 16 July 2010. They will be groomed for roles in the business units according to their aspirations and qualiﬁ cations. To-date, we have awarded 176 Keppel Group Scholarships, and have 96 working scholars in various business units within the Group. GRADUATES TRAINING PROGRAMME Our new graduate hires undergo comprehensive development and training programmes which provide on- the-job training and exposure to various functional roles. In Keppel Offshore & Marine (Keppel O&M), new graduate engineers undergo a two-year Management Traineeship Scheme (MTS) which has been accredited by internationally recognised professional membership body, the Institute of Marine Engineering, Science and Technology (IMarEST), since 2009. Upon completing the MTS, participants with the relevant academic qualiﬁ cations and working experience can register as an Incorporated Engineer or Chartered Engineer with IMarEST. In 2010, Keppel O&M recruited 81 graduates, bringing its total MTS participants to 659 since its inception in 1986. Keppel Energy and Keppel Integrated Engineering also have similar MTS for new hires. Keppel Land re-launched its Management Associate Programme (MAP) in 2010 to attract bright graduates. Three Management Associates were recruited and placed in a 12-month rotation programme to gain exposure through different functional roles. TALENT MANAGEMENT To manage talent in a systematic and structured way, a framework has been put in place that focuses on the topmost tier of the high potential and high performing talents, so that they can be fully developed and put in leadership positions. Various training platforms are planned for our talents which include overseas assignments, special projects and job rotations. We recognise succession planning as a vital business imperative and have put in place an internal process of succession planning. Our succession plan today is closely linked to talent management to provide a dynamic closed-loop process. The synergy between the two programmes helps in recognising and building our pipeline of talents over the mid to long term. Keppel College Keppel College centralises the Group’s programmes for leadership and executive development. Targeting three levels of talent – young leaders, middle management and senior management – Keppel College aims to Educate, Empower and Energise our talents so that they can Learn, Lead and Leap-frog to the next level of success. Courses such as the Global Young Leaders Programme and the Global Advanced Management Programme are customised in collaboration with the Nanyang Business School, with Keppel’s talents from as far as Brazil, the Netherlands, Bulgaria, Azerbaijan and Norway participating in them. To-date, Keppel College has some 1,000 alumni. Training and development programmes are also specially planned for new hires. Three Keppel Group Orientations were held in 2010 for 217 new members. The Group Orientations held during the year were enhanced by having the new hires go on site visits at the various business units to gain a better understanding of the Group’s diverse businesses. Mentors are assigned to help new hires and talents assimilate quickly into the Company’s culture as well as facilitate knowledge transfer. To-date, the Mentoring Scheme has trained a total of 540 mentors. Senior management is actively involved in talent development. They frequently meet and exchange views with our talents at various dialogue sessions and regular interactions such as TalenTime and Executive Chat! Series. Keppel Young Leaders As a seedbed to nurture high-potential employees, Keppel Young Leaders (Keppel YL) was inaugurated on 16 July 2010 to serve as a central platform to cultivate global mindsets, innovativeness and entrepreneurship. As an offshoot of Keppel’s talent and succession management framework, Keppel YL aims to ensure a continuous stream of future leaders for Keppel. Members are given opportunities to champion and participate in high-impact projects and cross-border assignments beyond their regular job scope. REWARDS & RECOGNITION The annual performance review serves as a platform to assess employees’ performance, formalise employees’ development needs and career planning opportunities, as well as to ascertain employees’ current estimated potential. We advocate a pay-for-performance remuneration philosophy where rewards and incentives are guided by market competitiveness and performance orientation principles. Annual Performance Incentive (API) includes a bank mechanism where a portion of the earned API is deferred in the individual’s bank for future payouts so as to encourage better performance in employees. Apart from monetary rewards, we provide comprehensive beneﬁ ts to 130 Keppel Corporation Limited Report to Shareholders 2010 1 2 1_Senior Management and key process owners are involved in the development of Keppel College programmes to drive talent development. 2_More than 2,000 Keppelites kicked into high gear with an energetic workout during the Keppel FELS ACTIVE Day which aims to remind people that work-life balance and a robust body and mind are very important. relations with our unions. In our business units, bargainable employees in Singapore are governed by their respective Collective Agreements (CAs). In 2010, Keppel Shipyard, jointly with Keppel Singmarine, Keppel Land and Keppel Logistics renewed their CAs with their respective unions. BURSARIES Every year, we make contributions to our co-operative and unions that go towards helping deserving members and their children in the pursuit of education. Under the Keppel FELS Co-operative Bursary & Education Grant, Keppel O&M awarded 43 Bursary Awards and 16 Education Grants in 2010, totalling $12,800. employees such as leave entitlement, medical beneﬁ ts and group insurance plans, taking into consideration industry practices and market norms. A total of 394 Keppelites from across the Group in Singapore received their Long Service Awards in 2010. EMPLOYEE WELLNESS With a holistic approach in promoting employee well-being, Keppel Corporation puts in place a framework that promotes healthy lifestyle and employee well-being through activities that strengthen bonding and work-life balance, such as wellness workshops and basic health check-ups. The eighth run of the Keppel Games was organised over two months to provide a platform that will bring interaction amongst staff to another level and underscore the element of sportsmanship. MANAGEMENT-UNION RELATIONS Keppel’s management sees the unions as a strategic partner in caring for our employees. Over the years, through constant dialogues and sharing, we have built harmonious working Empowering Lives People Matters 131 Empowering Lives Safety and Health Keppel is focused on ensuring a safe and healthy environment for everyone from employees to subcontractors and customers at our work sites. Keppel’s Safety Training Centre provides core competency, safety leadership development programmes, and Workforce Skills Qualifications courses certified by the Singapore Workforce Development Agency. 132 Keppel Corporation Limited Report to Shareholders 2010 Through investments in infrastructure, improvements in processes, training of our workforce and promotion of a safety culture, we aim to achieve zero incidents in all our business activities. One of Keppel’s core values, the safety of our employees and workplaces forms part of each business unit’s key performance indicators and is an integral element of our business operations. As a Group, we invested over $23 million in 2010 on improving our safety systems and training our workforce. We took another major step in our safety journey last year with the introduction of the Keppel Workplace Safety & Health (WSH) 2018 strategy. Keppel is the ﬁ rst company to launch a corporate initiative in line with the Singapore Government’s WSH 2018 initiative. MANAGEMENT AND SYSTEMS Keppel Corporation established the Board Safety Committee (BSC) in 2006, the ﬁ rst by a listed company in Singapore, to review and develop safety policies across its multiple business units. One of its ﬁ rst measures was to start all operational meetings with safety as the ﬁ rst agenda. To better understand the different operating environments, the BSC and senior management conduct numerous site visits in Singapore and overseas. Keppel companies comply strictly with all applicable laws and regulations in the countries we operate in. In Singapore, we work closely with the Ministry of Manpower (MOM) and the Workplace Safety and Health Council (WSHC) to implement initiatives that help to raise safety standards within our industries. With more than 600 subcontractors in our Singapore operations, we help to instil their workers with a strong commitment to safety and equip them with the necessary competencies to carry out their tasks safely. Four Thrusts of the Keppel WSH 2018 strategy: 1. Establish an Integrated WSH Framework across Businesses Worldwide g Keppel has introduced a centralised electronic Global Incident Reporting System across the Group, to ensure timely updates of incidents and immediate corrective measures. 2. g Implement an Effective Safety Management System Individual business units will undergo a self assessment programme to develop a roadmap and identify the measures needed to improve their safety performance. Assessors from across the Group will be trained. 3. Enhance Safety Ownership g Keppel has rolled out an exchange programme where project leaders are attached to safety departments to better understand workplace safety management, so that they can apply the knowledge acquired in their regular duties. 4. Strengthen Safety Partnerships g Keppel will continue to support numerous industry, client and national campaigns and conferences. Keppel management and union workers ‘hand printing’ their commitment to safety as part of the National Workplace Safety and Health campaign 2010. Empowering Lives Safety and Health 133 Safety and Health 5 KEY PRINCIPLES FOR SAFETY If safety is expensive, disasters cost more Passion for Health, Safety and Environment Excellence Value Everyone’s Safety Zero Tolerance for Incidents Recognise Safe Behaviours SAFETY IN NUMBERS The cumulative effect of Keppel’s safety journey has seen its Accident Frequency Rate (AFR) improve from 0.43 reportable accidents for every million man-hours worked in 2009 to 0.33 in 2010. Our Accident Severity Rate (ASR) however, increased to 133 man-days lost per million man-hours worked in 2010 from 93 man-days lost in 2009, due to four fatalities in 2010. We deeply regret the loss of these lives and have thoroughly investigated the causes, all of which involved falls from height. Efforts were stepped up to prevent future incidents and the lessons learnt were shared across the Group. We have introduced further stringent measures and increased awareness on height safety. ALL HANDS ON DECK Comprising employees, contractors and subcontractors who are represented in unions and councils across the Group, our workforce plays an important role in our efforts to achieve zero incidents. There are regular dialogues between management and unions as well as Collective Agreements that address health and safety issues, amongst others, for union members in various countries. WORKPLACE RESPONSIBILITY Safety practices are integrated in our work processes. In all our operations, there are daily safety brieﬁ ngs while regular walkthroughs of project sites are conducted to ensure full compliance with safety regulations as well as to identify and rectify any safety hazard. High Impact Risk Activities (HIRA) require a special focus. Through efforts led by Keppel Shipyard, six HIRA were identiﬁ ed: height safety, conﬁ ned space safety, lifting safety, ﬁ re safety, permit-to-work and electrical safety. A campaign was launched in 2010 to create awareness and increase scrutiny on HIRA at the workplace. A buddy system was also introduced in 2009 where workers had to look out for each other at the workplace. COMPETENCE As a conglomerate with a workforce hailing from different cultures and countries, everyone has to undergo safety training to ensure alignment with the Company’s safety policies. In June 2010, we launched the Keppel Safety Training Centre which offers courses run by qualiﬁ ed instructors. Employing the latest technology, simulations and methodologies, the centre not only equips employees and subcontractors with relevant safety training and skill competencies but engages them in the Group’s safety culture. In 2010, some 8,300 workers and subcontractors were trained at the centre. Across the Group, each worker undergoes an average of some 20 hours of training in health and safety. Key courses include safety leadership, conﬁ ned space training, height safety, electrical safety as well as ﬁ re safety. CULTURE AND COMMUNICATION Each stakeholder plays a part in building a strong safety culture by sharing their knowledge and experience as well as looking out for one another’s well being. The promotion of this safety culture is thus a key focus of senior management. Safety conventions and campaigns as well as a Group HSE newsletter help in encouraging and communicating safety as a way of life. LEADERSHIP One of the most effective ways to foster a safety culture is to lead by example. At Keppel, personnel in leadership positions attend training to learn how to be a safety leader regardless of their vocation. We also aim to extend this leadership role beyond our companies, into 134 Keppel Corporation Limited Report to Shareholders 2010 our chosen industries. As a leader in safety, we participate in national and industry events, such as Singapore’s ﬁ rst WSH conference and the International Association of Drilling Contractors Safety conference to share our experiences. OCCUPATIONAL HEALTH In addition to a safe environment, we also aim to protect and promote the health of our workforce. Workers have to undergo regular health checks and be certiﬁ ed ﬁ t before they can take on strenuous work. Other occupational health programmes include hearing conservation and respiratory protection system. Talks on AIDS awareness, malaria and dengue protection, cancer symptoms and nutritional diets were also conducted across the business units. AWARDS AND ACCOLADES While safety is its own reward, recognition of safety efforts encourages vigilance and act as incentives. Awards and bonuses are given out to projects and individuals with exemplary records and performances by the business units as well as customers. A testament to Keppel’s safety commitment, these accolades spur us to maintain our vigilance in our safety journey. To attain our 2018 vision of ensuring that everyone at our workplace goes home safely, we will look to complete our safety assessment and extend our safety road map to all our operations and partners. Cumulative Accident Frequency Rate – Keppel Group (per million man-hours) 0.49 0.43 0.33 0.5 0.4 0.3 0.2 0.1 0.0 2008 2009 2010 Cumulative Accident Severity Rate – Keppel Group (man-days lost per million man-hours) 143 93 133 200 160 120 80 40 0 2008 2009 2010 Empowering Lives Safety and Health 135 Nurturing Communities Community and Society Keppel Nights, a ticket subsidy scheme, contributes towards the promotion of the arts to all levels of the community in Singapore. Wherever we operate, Keppel is committed to seeking ways to contribute meaningfully to the development of our industries and the well-being of society and communities. 136 Keppel Corporation Limited Report to Shareholders 2010 COMMUNITY ENGAGEMENT AND VOLUNTEERISM As a global corporate citizen, Keppel believes that as communities thrive, we thrive. This is why we engage and nurture communities where our businesses are and support them in moving towards a sustainable future. Keppel encourages its employees to become responsible citizens with a greater awareness and concern for the well-being of others. Since its inception in 2000, Keppel Volunteers has been spearheading regular activities that make meaningful contributions to local communities, social institutions and non-proﬁ t organisations. On a monthly basis, Keppel Volunteers runs activities in collaboration with Keppel’s adopted charity, the Association for Persons with Special Needs (APSN). In 2010, the activities included life-skills programmes for APSN students and visits to the Singapore Science Centre, the Singapore Airshow and the National Day Parade Preview. Keppel Volunteers also organised the annual Keppel Group Blood Donation Drive which was held for four days at three venues across the Group’s operations in Singapore. A record 485 packets of blood were collected over the Christmas season in 2010 when the Singapore blood bank experienced a shortage. To help a larger group of beneﬁ ciaries and to attract more volunteers, Keppel Volunteers conducted a survey to understand volunteerism patterns within the Group. Since then, it has expanded its activities to include other programmes such as a monthly home maintenance programme with the Moral Senior Activity Centre. Keppel Volunteers also reached out to animal care by participating in the Society for the Prevention of Cruelty to Animals’ ﬂ ag day and Fun Run. In Brazil, Keppel FELS Brasil mobilised a workboat and barge to help in the search and rescue operations in the 1 January landslide on Ilha Grande Island. Keppelites also donated basic necessities as well as helped in the distribution of the relief supplies. Volunteers from Batangas Shipyard in the Philippines also participated in the Alay Lakad project, an annual nationwide walk-for-a-cause event to raise scholarship funds for out-of- school youths. INDUSTRY ENGAGEMENT 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 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. In 2010, the Keppel Group supported several major events and initiatives that promote the development of our industries and showcase our Group strengths and Singapore to the world. A key highlight was the Singapore The third annual Keppel Group Blood Donation Drive garnered a record 485 packets of blood. Nurturing Communities Community and Society 137 Community and Society 1 International Water Week (SIWW), which serves as a platform to discuss the challenges of rapid urbanisation such as increasing demand for housing, water, food and basic services. At the SIWW in June 2010, Keppel Integrated Engineering (KIE) presented a showcase of their waste and water treatment technologies as well as district heating and cooling systems capabilities. The inaugural Lee Kuan Yew World City Prize was presented during the World Cities Summit (WCS) which was held alongside SIWW in 2010. Keppel Group sponsored the prize of $300,000 and the gold medallion for this prestigious biennial award which recognises individuals and organisations that have made outstanding contributions to the creation of vibrant, liveable and sustainable urban communities around the world. Keppel Land highlighted its eco-township developments throughout the region at the WCS exhibition. Keppel Offshore & Marine (Keppel O&M) supported various academic events to inspire study and research of its industry and create platforms to share insights and ideas. The Chua Chor Teck Memorial Lecture, which commemorates the former Managing Director of Keppel Shipyard and a pioneer of Singapore’s maritime industry, was a key highlight in 2010 which saw two runs of the Lecture. In January, Mr Sven Ullring, Board Director of Keppel Corporation and Chairman of the third Maritime Research & Development Advisory Panel for the Maritime & Port Authority of Singapore, shared his views on the Singapore maritime sector’s unique competitive edge. In December, Professor Sir Eric Ash, former Rector of Imperial College (UK) and a member of the Keppel Technology Advisor Panel, spoke on the issues surrounding the use of nuclear energy in the maritime industry. Asia Business Forum 2010. Helmed by a set of distinguished panellists, the forum addressed issues such as investment and partnership opportunities as well as best business practices and strategies. Keppel Group was a special sponsor for the inaugural China (Binhai Tianjin) International Eco-City Forum, which highlights the achievements in eco-city construction and the development of a low carbon economy in China. Dr Lee Boon Yang, Chairman of Keppel Corporation, spoke on the challenges of eco-urbanisation at the Forum while KIE and Keppel Land showcased their offerings for sustainable urban living at the Forum’s Eco Expo. Keppel Corporation played host to the ASEAN Council on Petroleum Games in 2010, which saw the participation of teams from national oil companies across the ASEAN region. The Games aims to foster friendship and strengthen ties among industry players. To support growing ties between Asia and Latin America, Keppel O&M was the strategic sponsor for the Latin Together with the National University of Singapore, Keppel Corporation jointly launched the book “Why Am I Here?”, authored by Singapore’s President, HE S R Nathan. The story of his experience (as Seamen’s Welfare Ofﬁ cer in the mid 1950s) provides a glimpse into the struggles of Asian merchant seamen and their contributions to Singapore’s development as a maritime nation. 138 Keppel Corporation Limited Report to Shareholders 2010 2 1_Mr Teo Chee Hean, Singapore’s Deputy Prime Minister and Minister for Defence (third from left) was briefed on the Group’s broad portfolio of projects in environmental engineering and sustainable development by Dr Lee Boon Yang, Chairman of Keppel Corporation (second from left), as Dr Yaacob Ibrahim, Minister for the Environment and Water Resources (ﬁ rst from left), looked on. 2_Supporting the Earth Hour were Keppel employees and their families holding candles from ChaCha Cottage, an organisation which supports women in need. GREEN ENDEAVOURS 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. Keppel is committed to promote and pursue green endeavours to encourage our employees and the public to embrace a green lifestyle. Sustaining their efforts since 2007, Keppel Volunteers divers continued to support the coral nursery project located in Pulau Semakau, Singapore. The divers shifted coral fragments from the nursery to a breakwater area and cleaned the corals to help them “breathe”. The Keppel Group rallied efforts both in Singapore and overseas to support Earth Hour on 27 March 2010. For one hour from 8.30pm to 9.30pm, it was lights out across our seven shipyards in Singapore, the Marina at Keppel Bay and the Ulu Pandan NEWater Plant. 32 of Keppel Land’s developments across Asia also turned off non-essential lights and appliances, achieving estimated energy savings equivalent to what is needed to power a ﬁ ve-room ﬂ at for 7.7 months. In the Netherlands, 100 Keppel Verolme employees became scooter commuters in an initiative to reduce car trafﬁ c on the highway to the Port of Rotterdam by at least 20%. SHOWCASING SINGAPORE An 80-strong contingent marched in Singapore’s National Day Parade on 9 August 2010, in a proud display of Keppel’s roots and its place as a leading home-grown conglomerate in the country. The contingent went through rigorous training over four months before the event. Keppel supported the Clipper Round the World Yacht Race 2009-2010 and was the primary sponsor for the Singapore yacht, Uniquely Singapore, and host port sponsor for the Singapore stopover, together with the Singapore Tourism Board. SUPPORTING WORTHWHILE CAUSES As part of our wider Keppel Group programmes, we also contribute back to communities by raising funds for worthwhile initiatives. Nurturing Communities Community and Society 139 Community and Society With Keppel Corporation’s $20,000 sponsorship of the Dover Park Hospice SUNday walk, APSN students showed their caring spirit for others by joining the walk with Keppel Volunteers. Introduced in 2008, Keppel Nights is Singapore’s ﬁ rst ticket subsidy scheme to beneﬁ t and cultivate audiences for the arts. Since then, the scheme has supported about 150 events, offering 12,500 subsidised tickets and beneﬁ tting more than 11,000 people. Keppel O&M continued its support as the title sponsor for the third SAFRA Keppel Quadthlon. The Quadthlon aims to provide participants with the exciting and distinct opportunity to experience a race where they will push their physical and mental abilities to the maximum. For the second year running, Spring City Golf & Lake Resort in Kunming, China partnered a group of Singaporean doctors and nurses in a voluntary medical mission to perform cataract surgery on villagers who cannot afford medical treatment or are too weak to travel to the nearest town or city. To-date, the Resort has sponsored more than RMB200,000 with about 150 patients beneﬁ tting from this initiative. In Shanghai, Keppel Land donated RMB500,000 to a relief fund rendering support to families affected by a local ﬁ re that set a 28-storey tower ablaze. The tower had been home to some 440 people in 156 households. PROMOTING HEALTHY LIVING AND NURTURING THE ARTS A regular winner of the Patron of the Arts award in Singapore, Keppel Corporation unveiled the enhanced Keppel Nights scheme in 2010, together with the Ministry of Information, Communications and the Arts. The new scheme opens up more opportunities for ﬁ rst-time attendees and those who cannot afford full-price tickets to enjoy performances, exhibitions and shows. 140 Keppel Corporation Limited Report to Shareholders 2010 Directors’ Report & Financial Statements Independent Auditors’ Report Contents 142 Directors’ Report 148 Statement by Directors 149 150 Balance Sheets 151 Consolidated Profit and Loss Account 152 Consolidated Statement of Comprehensive Income 153 Statements of Changes in Equity 156 Consolidated Statement of Cash Flows 158 Notes to the Financial Statements 208 Significant Subsidiaries and Associated Companies Interested Person Transactions 219 220 Directors and Key Executives 233 Major Properties 237 Group Five-Year Performance 241 Group Value-Added Statements 242 Share Performance 243 Shareholding Statistics 244 Notice of Annual General Meeting and Closure of Books 251 Corporate Information 252 Financial Calendar 141 Directors’ Report For the financial year ended 31 December 2010 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 2010. 1. Directors The Directors of the Company in office at the date of this report are: Lee Boon Yang (Chairman) 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 Tan Ek Kia (appointed on 1 October 2010) Danny Teoh (appointed on 1 October 2010) Teo Soon Hoe Tong Chong Heong 2. Audit Committee The Audit Committee of the Board of Directors comprises five independent Directors. Members of the Committee are: Lim Hock San (Chairman) Tony Chew Leong-Chee Oon Kum Loon (Mrs) Alvin Yeo Khirn Hai Danny Teoh (appointed on 1 December 2010) 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, KCL Restricted Share Plan and KCL Performance Share Plan. 142 Keppel Corporation Limited Report to Shareholders 2010 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) Lee Boon Yang 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 Alvin Yeo Khirn Hai (deemed interest) Teo Soon Hoe Tong Chong Heong (Share options) Choo Chiau Beng Teo Soon Hoe Tong Chong Heong 1.1.2010 or date of appointment, if later - 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 Holdings At 31.12.2010 21.1.2011 20,000 9,000 2,321,666 200,000 99,000 9,000 49,000 40,000 9,626 26,172 1,750 20,000 4,088,332 1,659,582 20,000 9,000 2,321,666 200,000 99,000 9,000 49,000 40,000 9,626 26,172 1,750 20,000 4,088,332 1,659,582 2,150,000 2,760,000 1,540,000 1,770,000 2,530,000 1,580,000 1,770,000 2,530,000 1,580,000 (Contingent award of restricted shares to be delivered after 2010) 1 Choo Chiau Beng Teo Soon Hoe Tong Chong Heong (Contingent award of performance shares issued in 2010 to be delivered after 2012) 2 Choo Chiau Beng Teo Soon Hoe Tong Chong Heong - - - - - - 150,000 100,000 90,000 150,000 100,000 90,000 300,000 200,000 180,000 300,000 200,000 180,000 Keppel Land Limited (Ordinary shares) Choo Chiau Beng Tony Chew Leong-Chee (deemed interest) Tow Heng Tan (deemed interest) Tan Ek Kia Keppel telecommunications & transportation Ltd (Ordinary shares) Teo Soon Hoe 100,000 1,286,100 95 - 102,204 800,000 95 114,000 102,204 800,000 95 114,000 28,000 28,000 28,000 Directors’ Report 143 Directors’ Report 4. Directors’ interest in shares and debentures (continued) 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 1.1.2010 or date of appointment, if later Holdings At 31.12.2010 21.1.2011 894,000 - 2,635,000 10 250,000 494,000 2,635,000 - 10 250,000 494,000 2,635,000 - 10 250,000 $100,000 $100,000 $100,000 2,000 2,000 2,000 2,000 2,000 2,000 1 2 Depending on the achievement of pre-determined performance targets, the actual number of shares to be released could be zero or the number stated. Depending on the achievement of pre-determined performance targets, the actual number of shares to be released could range from zero to 150% of the number stated. 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. 144 Keppel Corporation Limited Report to Shareholders 2010 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 8,079,000 Ordinary Shares (“Shares”) were granted during the financial year. There were 11,017,200 Shares issued by virtue of exercise of options and options to take up 3,264,800 Shares were cancelled during the financial year. At the end of the financial year, there were 53,391,000 Shares under option as follows: Date of grant 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 09.02.10 Balance at 1.1.2010 or later date of grant 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 8,079,000 67,673,000 number of share options Exercised (570,000) (690,000) (762,000) (1,401,000) (1,685,000) (2,573,200) (1,244,000) - (688,000) (597,000) (692,000) (95,000) (20,000) (11,017,200) Cancelled - - - - (1,000) (29,300) (338,000) (849,000) (453,000) (524,000) (502,000) (384,500) (184,000) (3,264,800) Balance at 31.12.2010 - 70,000 345,000 807,000 1,440,000 2,805,000 4,822,000 6,431,000 6,210,000 7,252,000 7,502,000 7,832,000 7,875,000 53,391,000 Exercise price* Date of expiry $2.78 $3.01 $4.19 $6.01 $6.16 $7.43 $8.90 $12.72 $9.73 $10.03 $3.81 $7.98 $8.01 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 08.02.20 * Adjusted for dividend in specie of K-Green Trust units 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 5,430,000 5,730,000 3,774,200 Options granted during the financial year 310,000 230,000 200,000 Aggregate options exercised since commencement of the Scheme to the end of financial year 3,086,250 2,626,250 1,784,200 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 1,770,000 2,530,000 1,580,000 Name of Director Choo Chiau Beng Teo Soon Hoe Tong Chong Heong There are no options granted to any of the Company’s controlling shareholders or their associates under the Scheme. Directors’ Report 145 Directors’ Report 7. Share plans of the Company The KCL Restricted Share Plan (“KCL RSP”) and KCL Performance Share Plan (“KCL PSP”) were approved by the Company’s shareholders at the Extraordinary General Meeting of the Company on 23 April 2010. Details of share plans awarded under the KCL RSP and KCL PSP are disclosed in Note 3 to the financial statements. The number of contingent Shares granted was 3,796,500 under KCL RSP and 680,000 under KCL PSP during the financial year. No Share was released under the KCL RSP and KCL PSP during the financial year. 38,534 Shares under the KCL RSP were cancelled during the financial year. At the end of the financial year, there were 3,757,966 Shares under the KCL RSP and 680,000 Shares under the KCL PSP as follows: Date of grant KCL RsP 30.06.10 KCL PsP 30.06.10 Balance at date of grant 3,796,500 680,000 number of shares Adjustment Vested Cancelled Balance at 31.12.2010 - - - - (38,534) 3,757,966 - 680,000 The information on Directors of the Company participating in the KCL RSP and the KCL PSP is as follows: Contingent awards granted during the financial year 150,000 100,000 90,000 300,000 200,000 180,000 Aggregate adjusted awards granted since commencement of plans to the end of financial year Aggregate awards released since commencement of plans to the end of financial year Awards released during the financial year 150,000 100,000 90,000 300,000 200,000 180,000 - - - - - - - - - - - - Aggregate awards not released as at the end of financial year 150,000 100,000 90,000 300,000 200,000 180,000 Name of Director KCL RsP Choo Chiau Beng Teo Soon Hoe Tong Chong Heong KCL PsP Choo Chiau Beng Teo Soon Hoe Tong Chong Heong There are no contingent award of Shares granted to any of the Company’s controlling shareholders or their associates under the KCL RSP and the KCL PSP. Other than Choo Chiau Beng who received 760,000 or 6 percent of the aggregate of the total share options under the Scheme and contingent award of Shares under the KCL RSP and KCL PSP, no employee received 5 percent or more of the total number of share options and contingent award of Shares granted during the financial year. 146 Keppel Corporation Limited Report to Shareholders 2010 8. Share options and share plans of subsidiaries The particulars of share options and share plans of subsidiaries of the Company are as follows: (a) Keppel Land Limited (“Keppel Land”) At the end of the financial year, there were 133,720,072 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, $500 million principal amount of 1.875% Convertible Bonds due 2015 at a conversion price of $6.72 per share and 5,551,871 options under the Keppel Land Share Option Scheme. In addition, there were 874,000 contingent shares granted under Keppel Land Restricted Share Plan and 656,000 contingent shares granted under Keppel Land Performance Share Plan at the end of the financial year. Details and terms of the options and share plans 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 1,822,000 unissued shares of Keppel Telecommunications & Transportation Ltd under option relating to Keppel T&T Share Option Scheme. In addition, there were 553,500 contingent shares granted under Keppel T&T Restricted Share Plan and 180,000 contingent shares granted under Keppel T&T Performance Share Plan at the end of the financial year. Details and terms of the options and share plans have been disclosed in the Directors’ Report of Keppel Telecommunications & Transportation Ltd. (c) K-REIT Asia Management Limited (“KRAM”) At the end of the financial year, there were 70,500 contingent K-REIT Asia units granted under KRAM Restricted Unit Plan and 108,000 contingent K-REIT Asia units granted under KRAM Performance Unit Plan. The grants will be settled in K-REIT Asia units owned by KRAM. Details and terms of the unit plans have been disclosed in the Directors’ Report of Keppel Land Limited. 9. 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, 22 February 2011 Teo Soon Hoe Group Finance Director Directors’ Report 147 Statement by Directors For the financial year ended 31 December 2010 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 150 to 218 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 2010, 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, 22 February 2011 Teo Soon Hoe Group Finance Director 148 Keppel Corporation Limited Report to Shareholders 2010 Independent Auditors’ Report to the Members of Keppel Corporation Limited For the financial year ended 31 December 2010 Report on the Financial Statements 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 2010, 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 150 to 218. Management’s Responsibility for the Financial Statements Management is responsible for the preparation of financial statements that give a true and fair view in accordance with the provisions of the Singapore Companies Act (the “Act”) and Singapore Financial Reporting Standards and for 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 sheets and to maintain accountability of assets. 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 of financial statements that give a true and fair view 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, 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 2010 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. Report on Other Legal and Regulatory Requirements In our opinion, 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 22 February 2011 Independent Auditors’ Report 149 Balance Sheets As at 31 December 2010 share capital Reserves share capital & reserves non-controlling 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 Group Company Note 3 4 2010 $’000 906,409 5,833,377 6,739,786 2,984,097 2009 $’000 832,908 5,152,439 5,985,347 2,727,226 2010 $’000 906,409 3,783,517 4,689,926 - - 2009 $’000 832,908 3,924,918 4,757,826 9,723,883 8,712,573 4,689,926 4,757,826 5 6 7 8 9 10 11 2,243,150 3,207,539 - 3,606,723 299,896 28,646 107,676 9,493,630 2,157,172 3,051,247 - 2,723,169 152,046 547,665 90,118 8,721,417 5,120 - - 3,580,409 55 - - 360 - - 3,585,944 5,430 3,393,466 3,074 584 3,402,554 12 4,440,827 3,178,182 - - 13 13 14 15 16 17 12 18 13 13 19 27 20 - 305,162 1,958,993 536,872 4,245,990 11,487,844 - 287,922 1,727,099 456,515 2,935,787 8,585,505 1,732,273 2,575 82,416 - - 207,073 2,024,337 1,642,528 6,056 103,575 33,507 1,785,666 4,342,963 1,638,193 83,586 4,051,972 1,683,392 68,856 - 180,609 391,764 484,699 736 7,122,550 - 168,186 839,117 450,951 1,668 7,264,142 138,435 - - - - 241,792 - - 9,047 - 26,147 - - 415,421 132,302 265,546 27,169 425,017 4,365,294 1,321,363 1,608,916 1,360,649 19 21 3,675,968 459,073 4,135,041 918,410 411,797 1,330,207 500,000 - 4,934 504,934 5,377 5,377 net assets 9,723,883 8,712,573 4,689,926 4,757,826 See accompanying notes to the financial statements. 150 Keppel Corporation Limited Report to Shareholders 2010 Consolidated Profit and Loss Account For the financial year ended 31 December 2010 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 non-controlling 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 Total distribution Note 2010 $’000 2009 $’000 22 23 24 25 25 25 8 26 27 26 28 29 9,782,922 (6,210,898) (1,367,077) (188,633) (259,820) 1,756,494 7,946 111,350 (64,701) 215,249 2,026,338 661,101 2,687,439 (580,632) 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) 2,106,807 1,829,831 1,419,052 203,932 1,622,984 483,823 2,106,807 1,264,611 360,506 1,625,117 204,714 1,829,831 88.7 cts 88.1 cts 79.4 cts 79.2 cts 101.5 cts 100.7 cts 102.0 cts 101.8 cts 16.0 cts 26.0 cts - 42.0 cts 15.0 cts 23.0 cts 23.0 cts 61.0 cts See accompanying notes to the financial statements. Consolidated Profit and Loss Account 151 Consolidated Statement of Comprehensive Income For the financial year ended 31 December 2010 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 Non-controlling interests 2010 $’000 2009 $’000 2,106,807 1,829,831 130,996 1,663 139,760 66,405 (1,247) (47,508) 207,336 247 (100,559) 10,013 (144,436) 23,505 3,133 (3,509) (20,832) 271,985 2,103,298 2,101,816 1,659,042 444,256 2,103,298 1,943,492 158,324 2,101,816 See accompanying notes to the financial statements. 152 Keppel Corporation Limited Report to Shareholders 2010 Statements of Changes in Equity For the financial year ended 31 December 2010 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 Non- controlling Interests $’000 Capital Employed $’000 832,908 540,289 4,695,478 (83,328) 5,985,347 2,727,226 8,712,573 - - - - - - - - - - - - 91,717 1,622,984 - - (55,659) 1,622,984 36,058 483,823 (39,567) 2,106,807 (3,509) 91,717 1,622,984 (55,659) 1,659,042 444,256 2,103,298 - 36,633 (991,006) - - - (991,006) 36,633 - 1,608 (991,006) 38,241 (345) 441 (96) - - - - - - - - (20,987) (9,060) - - - - - - - (129,580) (129,580) 5,091 5,091 282 16,973 282 16,973 (30,047) (96,987) (127,034) 6,317 (1) 73,501 5,733 9,495 - 12,050 9,494 73,501 - - - - - - - - - - 73,501 6,317 - - - (1) - 73,501 21,618 (999,626) (96) (904,603) (187,385) (1,091,988) Group 2010 As at 1 January total comprehensive income for the year Profit for the year Other comprehensive income Total comprehensive income for the year transactions with equity holders, recorded directly in equity Dividend paid Share-based payment Transfer of statutory, capital and other reserves to revenue reserves Dividend paid to non-controlling shareholders Cash subscribed by non-controlling shareholders Disposal to non-controlling shareholders Acquisition of subsidiary Acquisition of additional interest in subsidiaries Equity component of convertible bond issued by a subsidiary Other adjustments Shares issued Total transactions with equity holders As at 31 December 906,409 653,624 5,318,836 (139,083) 6,739,786 2,984,097 9,723,883 See accompanying notes to the financial statements. statements of Changes in equity 153 Statements of Changes in Equity Attributable to equity holders of the Company Foreign Exchange Translation Account $’000 Capital Reserves $’000 Revenue Reserves $’000 Share Capital $’000 Share Capital & Reserves $’000 Non- controlling 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 1,625,117 - - (84,444) 1,625,117 318,375 204,714 (46,390) 1,829,831 271,985 402,819 1,625,117 (84,444) 1,943,492 158,324 2,101,816 - 22,672 (573,562) - - - (573,562) 22,672 - 1,142 (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 8,337 10,125 (572,780) (3) (554,321) 416,571 (137,750) Group 2009 As at 1 January total comprehensive income for the year Profit for the year Other comprehensive income Total comprehensive income for the year transactions with equity holders, recorded directly in equity Dividend paid Share-based payment Transfer of statutory, capital and other reserves to revenue reserves Dividend paid to non-controlling shareholders Cash subscribed by non-controlling shareholders Acquisition of additional interest in subsidiaries Other adjustments Shares issued Total transactions with equity holders As at 31 December 832,908 540,289 4,695,478 (83,328) 5,985,347 2,727,226 8,712,573 See accompanying notes to the financial statements. 154 Keppel Corporation Limited Report to Shareholders 2010 Company 2010 As at 1 January Share Capital $’000 Capital Reserves $’000 Revenue Reserves $’000 Capital Employed $’000 832,908 91,555 3,833,363 4,757,826 Profit/total comprehensive income for the year - - 815,140 815,140 transactions with equity holders, recorded directly in equity Dividend paid Share-based payment Shares issued Total transactions with equity holders As at 31 December 2009 As at 1 January - - 73,501 73,501 - 34,465 - 34,465 (991,006) - - (991,006) (991,006) 34,465 73,501 (883,040) 906,409 126,020 3,657,497 4,689,926 824,571 70,042 2,250,226 3,144,839 Profit/total comprehensive income for the year - - 2,156,699 2,156,699 transactions with equity holders, recorded directly in equity Dividend paid Share-based payment Shares issued Total transactions with equity holders - - 8,337 8,337 - 21,513 - 21,513 (573,562) - - (573,562) (573,562) 21,513 8,337 (543,712) As at 31 December 832,908 91,555 3,833,363 4,757,826 See accompanying notes to the financial statements. statements of Changes in equity 155 Consolidated Statement of Cash Flows For the financial year ended 31 December 2010 operating activities Operating profit Adjustments: Depreciation and amortisation Share-based payment expenses (Profit)/loss on sale of fixed assets and investment properties Impairment of assets Operational cash flow before changes in working capital Working capital changes: Stocks & work-in-progress Debtors Creditors Investments in bonds and shares Intangibles 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 and further investment in associated companies Acquisition of fixed assets and investment properties Disposal of subsidiaries Proceeds from disposal of interest in a subsidiary Return of capital from associated company Proceeds from disposal of associated companies Proceeds from disposal of fixed assets and investment properties Dividend received from investments and associated companies net cash (used in)/from investing activities Financing activities Proceeds from share issues Proceeds from non-controlling shareholders of subsidiaries Proceeds from term loans Repayment of term loans Acquisition of additional shares in subsidiaries Dividend paid to shareholders of the Company Dividend paid to non-controlling shareholders of subsidiaries net cash from/(used in) financing activities net increase in cash and cash equivalents Cash and cash equivalents as at 1 January Note 2010 $’000 2009 $’000 1,756,494 1,504,791 188,633 38,437 (4,949) 10,715 - 1,989,330 (794,558) (292,304) (65,033) (71,646) (5,256) - 928 (73,660) 687,801 112,888 (57,223) (293,226) 450,240 (49,184) (343,788) (873,073) - - 16,281 - 300,000 - 3,165 58,430 245,119 (643,050) 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) (212,395) (475,797) 1,465,767 48,936 130,282 427,359 73,501 5,091 3,221,224 (921,644) (117,464) (627,183) (129,580) 1,503,945 8,337 510,224 196,658 (431,184) (3,814) (573,562) (87,136) (380,477) 1,311,135 2,934,119 717,030 2,217,089 A B Cash and cash equivalents as at 31 December C 4,245,254 2,934,119 See accompanying notes to the financial statements. 156 Keppel Corporation Limited Report to Shareholders 2010 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: 2010 $’000 2009 $’000 Fixed assets Investments Long term receivables Stocks & work-in-progress Debtors Bank balances and cash Creditors Amounts due to associated companies Taxation Term loans Deferred taxation Non-controlling interests Goodwill on consolidation (Note 11) Amount previously accounted for as associated company Purchase consideration Less: Purchase consideration payable Less: Bank balances and cash acquired 123,536 185 - 120 - 8,425 20,764 16,643 (25,679) (494) - (415) - (10,625) - (16,973) - 115,487 10,560 (42,689) - 83,358 (17,531) (16,643) 143,507 161 463,546 12,842 (13,752) (70,935) (9,765) 525,604 24,615 550,219 (7,943) (12,842) Cash flow on acquisition net of cash acquired 49,184 529,434 B. Disposal of subsidiaries During the financial year, the fair values of net assets of subsidiaries disposed were as follows: Fixed assets Long term receivables Stocks & work-in-progress Debtors Bank balances and cash Creditors Taxation Deferred taxation Amount accounted for as associated company Amount accounted for as advance from associated company Distribution of dividend in specie (less expenses) Add: Bank balances and cash disposed Cash flow on disposal net of cash disposed C. Cash and Cash equivalents (1,007) - (589,440) - (14,538) - (86,376) - (57,949) - 21,492 - 1,782 - 12,659 - (713,377) - 349,552 - (57,947) - 363,823 - 57,949 - - - 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) See accompanying notes to the financial statements. Consolidated statement of Cash Flows 4,245,990 (736) 2,935,787 (1,668) 4,245,254 2,934,119 157 Notes to the Financial Statements For the financial year ended 31 December 2010 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, logistics and data centres; – 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 2010 and the balance sheet and statement of changes in equity of the Company at 31 December 2010 were authorised for issue in accordance with a resolution of the Board of Directors on 22 February 2011. 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 2010. 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: 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 from Customers Consolidated and Separate Financial Statements Business Combinations 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. 158 Keppel Corporation Limited Report to Shareholders 2010 (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. Acquisition-related costs are recognised in profit or loss as incurred. 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 non-controlling interest. 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. Changes in the Group’s interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions. The carrying amounts of the Group’s interests and the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognised directly in equity and attributed to owners of the Company. When control of a subsidiary is lost as a result of a transaction, event or other circumstance, the revised Standard requires that the Group derecognise all assets, liabilities and non-controlling interests at their carrying amount. Any retained interest in the former subsidiary is recognised at its fair value at the date control is lost, with the gain or loss arising recognised in profit or loss. On a transaction-by-transaction basis, the measurement of non-controlling interests (previously referred to as ‘minority’ interests) is either at fair value or at the non-controlling interests’ share of the fair value of the identifiable net assets of the acquiree. Contingent consideration is measured at fair value at the acquisition date; subsequent adjustments to the consideration are recognised against goodwill only to the extent that they arise from better information about the fair value at the acquisition date, and they occur within the ‘measurement period’ (a maximum of 12 months from the acquisition date). All other subsequent adjustments are recognised in profit or loss. notes to the Financial statements 159 Notes to the Financial Statements 2. Significant acounting policies (continued) (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. 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. 160 Keppel Corporation Limited Report to Shareholders 2010 (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. If the Group’s interest in the fair value of the acquiree’s identifiable net assets exceeds the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree and the fair value of the acquirer’s previously held equity interest in the acquiree (if any), the excess is recognised immediately in profit or loss as a bargain purchase gain. Other Intangible Assets Intangible assets include development expenditure and customer contracts. 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 17 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. (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. notes to the Financial statements 161 Notes to the Financial Statements 2. Significant acounting policies (continued) (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. (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. 162 Keppel Corporation Limited Report to Shareholders 2010 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. (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. notes to the Financial statements 163 Notes to the Financial Statements 2. Significant acounting policies (continued) (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. 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. 164 Keppel Corporation Limited Report to Shareholders 2010 (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. (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. notes to the Financial statements 165 Notes to the Financial Statements 2. Significant acounting policies (continued) (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 and Share Plans The Group operates share-based compensation plans. The fair value of the employee services received in exchange for the grant of options, restricted shares and performance shares is recognised as an expense in the profit and loss account with a corresponding increase in the share option and share plan reserve over the vesting period. The total amount to be recognised over the vesting period is determined by reference to the fair values of the options, restricted shares and performance shares granted on the respective dates of grant. At each balance sheet date, the Group revises its estimates of the number of options that are expected to become exercisable and share plan awards that are expected to vest on the vesting dates, and recognises the impact of the revision of the estimates in the profit and loss account, with a corresponding adjustment to the share option and share plan reserve over the remaining vesting period. No expense is recognised for options or share plan awards that do not ultimately vest, except for options or share plan awards where vesting is conditional upon a market condition, which are treated as vested irrespective of whether or not the market condition is satisfied, provided that all other performance and/or service conditions are satisfied. The proceeds received from the exercise of options are credited to share capital when the options are exercised. When share plan awards are released, the share plan reserve is transferred to share capital if new shares are issued. (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. 166 Keppel Corporation Limited Report to Shareholders 2010 (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. notes to the Financial statements 167 Notes to the Financial Statements 2. Significant acounting policies (continued) 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. 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 assumptions are 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. 168 Keppel Corporation Limited Report to Shareholders 2010 3. Share capital ordinary shares (“shares”) Issued and paid up: Balance 1 January 1,594,496,680 Shares (2009: 1,593,134,180 Shares) Issued during the financial year 11,017,200 Shares (2009: 1,362,500 Shares) Balance 31 December 1,605,513,880 Shares (2009: 1,594,496,680 Shares) Group and Company 2010 $’000 2009 $’000 832,908 824,571 73,501 8,337 906,409 832,908 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 11,017,200 Shares for cash upon exercise of options under the KCL Share Option Scheme. This comprised 570,000 Shares at $3.01 per Share, 690,000 Shares at $3.24 per Share, 448,000 Shares at $4.42 per Share, 314,000 Shares at $4.19 per Share, 972,000 Shares at $6.24 per Share, 429,000 Shares at $6.01 per Share, 1,200,000 Shares at $6.39 per Share, 485,000 Shares at $6.16 per Share, 1,632,200 Shares at $7.66 per Share, 941,000 Shares at $7.43 per Share, 333,000 Shares at $9.13 per Share, 911,000 Shares at $8.90 per Share, 688,000 Shares at $9.73 per Share, 597,000 Shares at $10.03 per Share, 96,000 Shares at $4.04 per Share, 596,000 Shares at $3.81 per Share, 53,000 Shares at $8.21 per Share, 42,000 Shares at $7.98 per Share, 4,000 Shares at $8.24 per Share and 16,000 Shares at $8.01 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 Danny Teoh (appointed on 1 December 2010) At the Extraordinary General Meeting of the Company held on 23 April 2010, the Company’s shareholders approved the adoption of two new share plans, with effect from the date of termination of the Scheme. The Scheme was terminated on 30 June 2010. Options granted and outstanding prior to the termination will continue to be valid and subject to the terms and conditions of the Scheme. 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 169 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 2010 2009 number of options 59,594,000 8,079,000 (11,017,200) (3,264,800) 53,391,000 Weighted average exercise price ^$8.15 $8.01 $6.55 $9.24 $8.40 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 Exercisable at 31 December 30,561,000 $9.70 28,056,500 $8.79 ^ Weighted average exercise price adjusted for dividend in specie in K-Green Trust’s units The weighted average share price at the date of exercise for options exercised during the financial year was $9.84 (2009: $8.04). The options outstanding at the end of the financial year had a weighted average exercise price of $8.40 (2009: $8.38) and a weighted average remaining contractual life of 7.6 years (2009: 7.9 years). On 9 February 2010, the Company granted 8,079,000 options under the KCL Share Option Scheme. The estimated fair value of the options granted is $1.97 per share. Options granted on 5 February 2009 and 6 August 2009 had estimated fair values of $0.64 per share and $1.98 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 2010 09.02.2010 $8.24 $8.24 42.98% 4.0 years 1.15% 4.61% 2009 05.02.2009 $4.04 $4.04 41.43% 4.0 years 0.96% 8.66% 06.08.2009 $8.21 $8.21 42.82% 4.0 years 0.97% 4.38% The expected volatility is determined by calculating the historical volatility of the Company’s share price over the previous 4.0 years (2009: 4.0 years). The expected lives used in the model have 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. 170 Keppel Corporation Limited Report to Shareholders 2010 KCL share Plans The KCL Restricted Share Plan (“KCL RSP”) and KCL Performance Share Plan (“KCL PSP”) were approved by the Company’s shareholders at the Extraordinary General Meeting of the Company on 23 April 2010. The two share plans are administered by the Remuneration Committee. Details of the KCL RSP and the KCL PSP are as follows: Plan Description KCL RsP Award of fully-paid ordinary shares of the Company, conditional on achievement of pre-determined targets at the end of a one-year performance period KCL PsP Award of fully-paid ordinary shares of the Company, conditional on achievement of pre-determined targets over a three-year performance period Performance Conditions Return on Equity a) Economic Value Added b) Absolute Total Shareholder’s Return c) Relative Total Shareholder’s Return to MSCI Asia Pacific Ex-Japan Industrials Index (MXAPJIN) Final Award 0% or 100% of the contingent award granted, depending on achievement of pre-determined targets 0% to 150% of the contingent award granted, depending on achievement of pre-determined targets Vesting Condition and Schedule If pre-determined targets are achieved, awards will vest equally over three years subject to fulfillment of service requirements If pre-determined targets are achieved, awards will vest at the end of the three-year performance period subject to fulfillment of service requirements Movements in the number of shares under the KCL RSP and the KCL PSP are as follows: Balance at 1 January Granted Adjustment Vested Cancelled Balance at 31 December 2010 KCL RsP - 3,796,500 - - (38,534) 3,757,966 KCL PsP - 680,000 - - - 680,000 Executive Directors who are eligible for the KCL Share Plans are required to hold a minimum number of shares under the share ownership guideline which requires them to maintain a beneficial ownership stake in the Company, thus further aligning their interests with shareholders. At the end of the financial year, the number of contingent Shares granted but not released was 3,757,966 under the KCL RSP and 680,000 under the KCL PSP. Depending on the achievement of pre-determined performance targets, the actual number of Shares to be released could be zero or 3,757,966 under the KCL RSP and range from zero to a maximum of 1,020,000 under the KCL PSP. notes to the Financial statements 171 Notes to the Financial Statements 3. Share capital (continued) The fair values of the contingent award of shares under the KCL RSP and the KCL PSP are determined at the grant date using Monte Carlo simulation method which involves projection of future outcomes using statistical distributions of key random variables including share price and volatility. On 30 June 2010, the Company granted contingent awards of 3,796,500 shares under the KCL RSP and 680,000 shares under the KCL PSP. The estimated fair value of the shares granted ranges from $7.72 to $8.30 under the KCL RSP and amounts to $7.08 under the KCL PSP. The significant inputs into the model are as follows: Date of grant Prevailing share price at date of grant Expected volatility: Company MXAPJIN Correlation with MXAPJIN Expected term Risk free rate Expected dividend yield 2010 KCL RsP KCL PsP 30.06.2010 $8.51 30.06.2010 $8.51 47.54% # # 0.5 - 2.5 years 0.42% - 0.53% * 47.54% 40.13% 82.60% 2.5 years 0.53% * # * This input is not required for the valuation of shares granted under the KCL RSP. Expected dividend yield is based on management’s forecast. The expected volatilities are based on the historical volatilities of the Company’s share price and the MXAPJIN price over the previous 36 months immediately preceding the grant date. The expected term used in the model is based on the grant date and the end of the performance period. Details of share plans 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 and share plan reserve Fair value reserve Hedging reserve Bonus issue by subsidiaries Others Revenue Reserves Foreign Exchange Translation Account Group Company 2010 $’000 2009 $’000 2010 $’000 137,410 370,162 95,474 40,000 10,578 653,624 100,777 231,920 141,999 40,000 25,593 540,289 126,020 - - - - - - - - 126,020 2009 $’000 91,555 91,555 5,318,836 4,695,478 3,657,497 3,833,363 (139,083) (83,328) - - 5,833,377 5,152,439 3,783,517 3,924,918 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. 172 Keppel Corporation Limited Report to Shareholders 2010 5. Fixed assets Group 2010 Cost At 1 January Additions Disposals Write-off Subsidiary acquired Subsidiaries disposed Reclassification - Stocks - Investment properties - Other assets - Other fixed assets categories Exchange differences Freehold Land & Buildings $’000 Leasehold Land & Buildings $’000 Vessels & Floating Docks $’000 Plant, Machinery & Equipment $’000 Capital Work-in- Progress $’000 Total $’000 54,337 147 - (22) 68,377 - - (676) (92) 1,333,783 30,454 (2,573) (68) 3,762 - - - (7,615) 233,049 48,017 (22,797) - 44,033 - 1,855,079 52,817 (20,062) (4,751) 60,517 (1,239) 278,232 99,405 - (7,442) - - 3,754,480 230,840 (45,432) (12,283) 176,689 (1,239) - - - (946) 162 (30) - - (945) (946) (514) (8,682) 606 (1,119) 16,100 (20,137) 21,247 (2,907) 71,480 (21,652) (109,433) (3,419) - (49,234) At 31 December 121,558 1,353,706 320,642 1,991,375 256,398 4,043,679 Accumulated Depreciation & Impairment Losses At 1 January Depreciation charge Impairment loss (Note 26) Disposals Write-off Subsidiary acquired Subsidiaries disposed Reclassification - Stocks - Other assets - Other fixed assets categories Exchange differences 18,852 2,319 - - (22) 13,254 - - (26) - (620) 522,729 48,382 10,319 (1,742) (470) 2,539 - - (1,158) 450 (8,942) 125,689 22,760 - (11,532) (3,913) 10,522 - 930,038 113,254 17,453 (16,839) (3,634) 26,838 (232) - - 178 (89) - (1,794) (450) (13,584) At 31 December 33,757 572,107 141,732 1,052,933 - - - - - - - - - - - - 1,597,308 186,715 27,772 (30,113) (8,039) 53,153 (232) 178 (1,273) - (24,940) 1,800,529 net Book Value 87,801 781,599 178,910 938,442 256,398 2,243,150 notes to the Financial statements 173 Notes to the Financial Statements 5. Fixed assets (continued) Group 2009 Cost At 1 January Additions Disposals Subsidiary acquired Subsidiary disposed Reclassification - Stocks - Other assets - Other fixed assets categories Exchange differences Freehold Land & Buildings $’000 Leasehold Land & Buildings $’000 Vessels & Floating Docks $’000 Plant, Machinery & Equipment $’000 Capital Work-in- Progress $’000 Total $’000 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 During the financial year, the Group recognised impairment losses of $27,772,000 (2009: $655,000) which relates to write-down of non-performing assets in the Offshore & Marine and Property divisions. These non-performing assets were fully written down. Certain plant, machinery and equipment with carrying amount of $83,665,000 (2009: $14,322,000) are mortgaged to banks for loan facilities (Note 19). 174 Keppel Corporation Limited Report to Shareholders 2010 Company 2010 Cost At 1 January Additions Disposals At 31 December Accumulated Depreciation At 1 January Depreciation charge Disposals At 31 December net Book Value 2009 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 6,569 - - 6,569 1,752 41 - 1,793 4,776 6,542 27 - 6,569 1,711 41 - 1,752 4,817 - - - - - - - - - 7,046 133 (312) 13,615 133 (312) 6,867 13,436 6,433 298 (208) 8,185 339 (208) 6,523 8,316 344 5,120 484 - (484) 6,952 417 (323) 13,978 444 (807) - 7,046 13,615 82 5 (87) - - 6,295 385 (247) 8,088 431 (334) 6,433 8,185 613 5,430 notes to the Financial statements 175 Notes to the Financial Statements 6. Investment properties At 1 January Acquisition of properties Development expenditure Fair value gain/(loss) (Note 26) Disposals Write-off Reclassification - Fixed assets - Stocks Exchange differences At 31 December Group 2010 $’000 3,051,247 379,891 262,342 64,719 (32,258) - 514 - (509,564) (9,352) 2009 $’000 3,029,675 107,690 75,536 (131,920) (19,458) (255) (21) (10,000) 3,207,539 3,051,247 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 2010: – Colliers International Consultancy & Valuation (Singapore) Pte Ltd for properties in Singapore; – Savills (Qld) Pty Limited and m3 Property Strategists for properties in Australia; – CB Richard Ellis (Vietnam) Co. Ltd and Allied Appraisal Consultants Pte Ltd for properties in Vietnam; and – KJPP Wilson & Rekan (an affiliate of Knight Frank) and KJPP Benny, Desmar & Rekan for properties in Indonesia. Interest capitalised during the financial year amounted to $1,968,000 (2009: $1,992,000). Certain investment properties with carrying amount of $2,024,600,000 (2009: $2,125,600,000) are mortgaged to banks for loan facilities (Note 19). 7. Subsidiaries Quoted shares, at cost Market value: $4,276,939,000 (2009: $3,243,780,000) 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 2010 $’000 2009 $’000 1,788,191 2,169,218 3,957,409 (377,000) 3,580,409 - 1,728,360 1,933,706 3,662,066 (265,000) 3,397,066 (3,600) 3,580,409 3,393,466 265,000 112,000 - 265,000 377,000 265,000 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. 176 Keppel Corporation Limited Report to Shareholders 2010 8. Associated companies Quoted shares, at cost Market value: $885,408,000 (2009: $474,190,000) Unquoted shares, at cost Provision for impairment Share of reserves Advances to associated companies Group Company 2010 $’000 2009 $’000 2010 $’000 2009 $’000 561,226 966,034 1,527,260 (147,800) 1,379,460 1,176,775 2,556,235 1,050,488 208,176 795,997 1,004,173 (94,207) 909,966 527,549 1,437,515 1,285,654 3,606,723 2,723,169 3,074 3,074 3,074 3,074 3,074 - - 55 55 - - 55 - - 55 - - 55 - - - - - - - - - - - - Movements in the provision for impairment of associated companies are as follows: At 1 January Write back to profit and loss account Impairment loss (Note 26) Reclassification (Note 10) Exchange differences At 31 December 94,207 - 1,544 52,522 (473) 33,993 (56) 61,000 - (730) 147,800 94,207 Advances to associated companies are unsecured and are not repayable within the next 12 months. Interest is charged at rates ranging from 1.18% to 3.63% (2009: 1.47% to 4.47%) per annum. During the financial year, the Group recognised an impairment loss of $1,544,000 (2009: $61,000,000) on investment in associated companies. The carrying amount of the associated companies were reduced to its recoverable amount, which was based on the estimated future cash flow from operations discounted to present value ranging from 5.53% to 6.05% (2009: 11%). The share of net 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 net profit# Group 2010 $’000 2009 $’000 215,249 775,821 991,070 (184,730) 321,683 100,684 422,367 (57,226) 806,340 365,141 # This comprises share of net profit before exceptional items of $178,295,000 (2009: $276,013,000) and share of exceptional items (net of tax) of $628,045,000 (2009: $89,128,000). The summarised financial information of associated companies, not adjusted for the Group’s proportionate share, is as follows: Total assets Total liabilities Revenue Net profit before exceptional items Net profit after exceptional items 16,274,056 8,426,896 3,964,732 574,042 2,657,740 12,657,767 7,478,745 3,777,218 673,342 912,386 Information relating to significant associated companies whose results are included in the financial statements is given in Note 37. notes to the Financial statements 177 Notes to the Financial Statements 9. Investments Available-for-sale investments: Quoted equity shares Unquoted equity shares Unquoted property funds Unquoted bonds 10. Long term receivables Group 2010 $’000 2009 $’000 126,343 51,738 104,130 17,685 - 49,992 40,351 61,703 299,896 152,046 Receivables from service concession arrangements Staff loans Long term trade receivables and others Less: Amounts due within one year and included in debtors (Note 14) Provision for doubtful debts Movements in the provision for doubtful debts are as follows: At 1 January Amount written off Amount utilised Exchange differences At 31 December Group Company 2010 $’000 - 2,543 27,534 30,077 (1,431) 28,646 - 2009 $’000 564,387 2,941 40,028 607,356 (55,957) 551,399 (3,734) 28,646 547,665 3,734 - (3,810) 76 3,930 52 - (248) - 3,734 2009 $’000 793 793 (209) 584 584 - 2010 $’000 - - 560 - - 560 (200) 360 - - 360 - - - - - - - - - Included in staff loans are interest free advances to certain Directors amounting to $259,000 (2009: $210,000) and to directors of related corporations amounting to $221,000 (2009: $436,000) under an approved car loan scheme. Long term receivables are unsecured, largely repayable after five years and bears effective interest ranging from 2.00% to 13.00% (2009: 2.00% to 5.00%) per annum. As at 31 December 2009, receivables arising from service concession arrangements arose from the following: (a) (b) (c) a 20-year contract to build and operate a water treatment plant. The plant started commercial operations in 2007; a 25-year contract to build and operate a waste-to-energy plant. The plant started commercial operations in November 2009; and 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 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 respectively in the year ended 31 December 2009. During the financial year, the subsidiaries holding these arrangements were disposed pursuant to the distribution of dividend in specie of K-Green Trust units. 178 Keppel Corporation Limited Report to Shareholders 2010 In the previous financial year, certain assets of the waste-to-energy plant with carrying amount of $163,337,000 are mortgaged to banks for loan facilities (Note 19). During the previous financial year, the Group recognised an impairment loss of $107,522,000 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%. During the financial year, impairment loss of $55,000,000 (Note 26) was reversed and the remaining impairment loss of $52,522,000 (Note 8) was reclassified to provision for impairment of associated companies upon the distribution of dividend in specie of 51% equity interest in K-Green Trust units. The fair value of long term receivables for the Group is $28,329,000 (2009: $547,272,000). 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 2010 At 1 January Additions Amortisation Impairment loss (Note 26) Reclassification Exchange differences Goodwill $’000 Development Expenditure $’000 Customer Contracts $’000 87,004 10,560 - - (24,615) - 3,114 5,256 (450) (314) 3,883 (257) - - (1,468) - 24,963 - Total $’000 90,118 15,816 (1,918) (314) 4,231 (257) At 31 December 72,949 11,232 23,495 107,676 Cost Accumulated amortisation 2009 At 1 January Additions Amortisation Impairment loss (Note 26) Reclassification Exchange differences At 31 December Cost Accumulated amortisation notes to the Financial statements 72,949 - 21,050 (9,818) 24,963 (1,468) 118,962 (11,286) 72,949 11,232 23,495 107,676 73,253 24,615 - (11,568) 704 - 5,234 151 (467) - (1,655) (149) 87,004 3,114 87,004 - 12,981 (9,867) 87,004 3,114 - - - - - - - - - - 78,487 24,766 (467) (11,568) (951) (149) 90,118 99,985 (9,867) 90,118 179 Notes to the Financial Statements 11. Intangibles (continued) For the purpose of impairment testing, goodwill is allocated to cash-generating units. Goodwill allocated to Offshore & Marine division amounted to $15,771,000 (2009: $5,211,000). 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 7.32% to 15.25% (2009: 7.30% to 16.10%). The key assumptions are those regarding the discount rate and expected changes to selling prices and direct costs. Management estimates discount rate using pre-tax rate that reflects current market assessment of the time value of money and risks specific to the unit. Changes in selling prices and direct costs are based on past practices and expectations of future changes in the market. Goodwill allocated to Infrastructure division amounted to $57,178,000 (2009: $81,793,000). In the previous financial year, this includes provisional goodwill of $24,615,000 arising from the acquisition of Keppel DHCS Pte Ltd (previously First DCS Pte Ltd). Upon the completion of purchase price allocation during the current financial year, provisional goodwill was allocated to the attributable assets and liabilities. The recoverable amount of goodwill at balance sheet date is based on current bid prices of the cash-generating unit. During the previous 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 (a) (c) (d) Group 2010 $’000 605,210 164,400 3,671,217 2009 $’000 648,925 248,109 2,281,148 4,440,827 3,178,182 Billings on work-in-progress in excess of related costs (b) (1,638,193) (1,683,392) (a) Work-in-Progress in excess of Related Billings Costs incurred and attributable profits Provision for loss on work-in-progress Less: Progress billings 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 180 2,279,293 (3,651) 2,275,642 (1,670,432) 7,027,504 (2,809) 7,024,695 (6,375,770) 605,210 648,925 2,809 1,597 (768) 13 3,651 1,534 1,963 (611) (77) 2,809 14,541,819 (16,180,012) 11,753,627 (13,437,019) (1,638,193) (1,683,392) Keppel Corporation Limited Report to Shareholders 2010 (c) Stocks Consumable materials and supplies Finished products for sale (d) Properties Held For Sale Properties under development Land cost Development cost incurred to date Related overhead expenditure Progress billing 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 Charge/(Write-back) to profit and loss account Amount utilised Exchange differences At 31 December Group 2010 $’000 2009 $’000 161,620 2,780 235,984 12,125 164,400 248,109 2,583,577 1,500,932 645,352 (1,059,510) 3,670,351 44,813 3,715,164 (43,947) 1,537,652 1,066,114 576,876 (1,047,505) 2,133,137 196,212 2,329,349 (48,201) 3,671,217 2,281,148 48,201 3,128 (7,378) (4) 72,187 (13,237) (10,739) (10) 43,947 48,201 Interest capitalised during the financial year amounted to $16,368,000 (2009: $17,319,000) at rates ranging from 1.00% to 2.50% (2009: 0.91% to 4.14%) per annum for Singapore properties and 2.88% to 15.50% (2009: 3.10% to 21.00%) per annum for overseas properties. Certain properties held for sale with carrying amount of $444,705,000 (2009: $101,879,000) are mortgaged to banks for loan facilities (Note 19). notes to the Financial statements 181 Notes to the Financial Statements 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/31 December Group Company 2010 $’000 2009 $’000 2010 $’000 2009 $’000 - - - - - - - - - - - - - - - - - - 6,876 1,731,997 1,738,873 (6,600) 6,155 1,642,973 1,649,128 (6,600) 1,732,273 1,642,528 161,893 79,899 163,307 102,239 241,792 265,546 6,600 6,600 Advances to and from subsidiaries are unsecured and are repayable on demand. Interest is charged at rates ranging from 0.07% to 5.25% (2009: 0.10% to 6.00%) per annum on interest-bearing advances. Associated Companies Amounts due from - trade - advances Provision for doubtful debts Amounts due to - trade - advances 76,959 228,872 305,831 (669) 86,330 207,728 294,058 (6,136) 2,575 - - 2,575 - - 6,056 6,056 305,162 287,922 2,575 6,056 5,867 174,742 13,388 154,798 180,609 168,186 - - - - - - - - - - - - Movements in the provision for doubtful debts are as follows: At 1 January (Write-back)/Charge to profit and loss account At 31 December 6,136 (5,467) 1,113 5,023 669 6,136 Advances to and from associated companies are unsecured and are repayable on demand. Interest is charged at rates ranging from 0.18% to 12.50% (2009: 0.13% to 5.31%) per annum on interest-bearing advances. 182 Keppel Corporation Limited Report to Shareholders 2010 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 Land tender deposits Advance land payments Recoverable accounts Accrued receivables Advances to subcontractors Advances to corporations in which the Group has investment interests Advances to non-controlling shareholders of subsidiaries Provision for doubtful debts Group Company 2010 $’000 2009 $’000 2010 $’000 2009 $’000 1,053,217 (39,156) 1,014,061 1,105,613 (36,552) 1,069,061 1,431 62,598 57,275 106,488 23,189 88,466 19,751 18,246 140,021 241,796 41,765 9,459 116,386 250 44,759 971,880 (26,948) 944,932 55,957 87,293 31,118 117,906 19,258 91,184 21,289 23,092 - 20,664 43,509 9,412 107,129 48,551 9,496 685,858 (27,820) 658,038 - - - - - - 200 371 197 81,228 - - - - 42 378 - - - - - - - - - - - - - - 82,416 - - 82,416 209 269 166 102,502 48 381 103,575 103,575 Total 1,958,993 1,727,099 82,416 103,575 Movements in the provision for debtors are as follows: At 1 January Charge to profit and loss account Amount written off Reclassification Exchange differences At 31 December 64,372 5,609 (2,598) - (1,279) 58,431 11,996 (5,546) 67 (576) 66,104 64,372 - - - - - - - - - - - - notes to the Financial statements 183 Notes to the Financial Statements 15. Short term investments Available-for-sale investments: Quoted equity shares 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 2010 $’000 2009 $’000 412,438 1,223 52,323 465,984 322,108 27,680 46,393 396,181 70,888 - 70,888 59,415 919 60,334 536,872 456,515 Bank balances and cash Fixed deposits with banks Amounts held under escrow accounts for overseas acquisition of land, payment of construction cost and liabilities Amounts held under project accounts, withdrawals from which are restricted to payments for expenditures incurred on projects Group Company 2010 $’000 2009 $’000 1,225,434 2,910,461 447,051 2,379,201 2010 $’000 2,845 204,228 2009 $’000 3,051 30,456 24,141 54,898 85,954 54,637 - - - - 4,245,990 2,935,787 207,073 33,507 Fixed deposits with banks of the Group mature on varying periods, substantially between 1 day to 3 months (2009: 1 day to 3 months). This comprised Singapore dollar fixed deposits of $1,474,593,000 (2009: $956,427,000) at interest rates ranging from 0.00% to 1.13% (2009: 0.10% to 1.10%) per annum, and foreign currency fixed deposits of $1,435,868,000 (2009: $1,422,774,000) at interest rates ranging from 0.00% to 14.00% (2009: 0.10% to 18.00%) per annum. Fixed deposits with banks of the Company mature on varying periods, substantially in 5 days (2009: 4 days to 3 months). This comprised foreign currency fixed deposits of $204,228,000 (2009: $30,456,000) at interest rates ranging from 0.28% to 1.20% (2009: 0.04% to 3.45%) per annum. 184 Keppel Corporation Limited Report to Shareholders 2010 17. Creditors Trade creditors Customers’ advances and deposits Derivative financial instruments (Note 34) Sundry creditors Accrued operating expenses Advances from non-controlling shareholders Interest payables Other payables Group Company 2010 $’000 682,357 74,999 51,720 754,078 2,305,512 337,410 17,131 119,756 2009 $’000 875,892 60,515 57,864 623,888 2,112,151 221,384 9,653 90,625 2010 $’000 38 57 26,950 16,905 90,980 - - 3,505 - - - 2009 $’000 53 57 37,171 11,829 83,192 4,342,963 4,051,972 138,435 132,302 Advances from non-controlling shareholders of certain subsidiaries are unsecured and are repayable on demand. Interest is charged at rates ranging from 1.04% to 6.00% (2009: 1.25% to 4.64%) per annum on interest-bearing loans. 18. Provisions Group 2010 At 1 January Charge to profit and loss account Amount utilised Reclassification Exchange differences Warranties $’000 Claims $’000 Total $’000 60,953 11,213 (963) - (3,005) 7,903 14,989 (2,000) (5,500) (4) 68,856 26,202 (2,963) (5,500) (3,009) At 31 December 68,198 15,388 83,586 2009 At 1 January Charge to profit and loss account Amount utilised Exchange differences 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 notes to the Financial statements 185 Notes to the Financial Statements 19. Term loans Group Keppel Corporation Medium Term Notes Keppel Land Medium Term Notes Keppel Land 2.5% Convertible Bonds 2013 Keppel Land 1.875% Convertible Bonds 2015 Keppel Structured Notes Commodity-linked Notes K-REIT Asia term loans Bank and other loans - secured - unsecured Company Keppel Corporation Medium Term Notes Unsecured bank loans 2010 2009 Due within one year $’000 - 20,000 282,536 - 41,920 - Due after one year $’000 500,000 380,000 - 478,436 - - 29,808 17,500 1,221,141 1,096,391 Due within one year $’000 - 248,000 - - - - 174,761 416,356 Due after one year $’000 - 70,000 275,925 - 41,920 190,085 268,045 72,435 391,764 3,675,968 839,117 918,410 - 9,047 500,000 - 9,047 500,000 - - - - - - (a) (b) (c) (d) (e) (f) (g) (h) (a) (a) The $500,000,000 Fixed Rate Notes due 2020 were issued during the financial year under the US$600,000,000 Multi-Currency Medium Term Note Programme by the Company. The notes were unsecured and carried fixed interest rate at 3.10% per annum. (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 $400,000,000. The notes are unsecured and are issued in series or tranches, and comprised fixed rate notes due 2011 to 2017 of $400,000,000. Interest payable is based on money markets rates ranging from 2.67% to 4.25% (2009: 1.14% to 4.25%) 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 2010 $’000 275,925 14,111 (7,500) 2009 $’000 269,579 13,846 (7,500) 282,536 275,925 Interest expense on the convertible bonds is calculated based on the effective interest method by applying the interest rate of 4.78% (2009: 4.78%) per annum for an equivalent non-convertible bond to the liability component of the convertible bonds. 186 Keppel Corporation Limited Report to Shareholders 2010 (d) The $500,000,000 1.875%, 5 year convertible bonds were issued during the financial year by Keppel Land Limited. Interest is payable semi-annually. The bonds, maturing on 29 November 2015, are convertible at the option of bondholders to Keppel Land ordinary shares at a conversion price of $6.72 per share. Any bondholder may request to redeem all of its bonds 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: Face value of convertible bonds issued Equity conversion component, net of deferred tax liability Deferred tax liability Bond issue expenses Liability component on initial recognition Interest expense Interest paid Liability component at 31 December 2010 $’000 500,000 (12,050) (2,468) (7,400) 478,082 1,135 (781) 478,436 Interest expense on the convertible bonds is calculated based on the effective interest method by applying the interest rate of 2.5% per annum for an equivalent non-convertible bond to the liability component of the convertible bonds. (e) (f) 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 0.77% to 1.21% (2009: 1.21% to 1.50%) per annum. K-REIT Asia, a subsidiary of the Company, secured two fixed rate mortgage loans in 2006 totalling $190,085,000 from a special purpose company, Blossom Assets Ltd. The loans consist of a Tranche A Mortgage Loan amounting to $160,197,000 and a Tranche B Mortgage Loan amounting to $29,888,000, which are funded by the proceeds of commercial mortgaged-backed securities notes issued by Blossom Assets 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% (2009: 3.91% to 4.06%) per annum. The term loans were fully repaid in the year. (g) The secured bank loans consist of: – A $323,385,000 bank loan 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 0.62% to 2.34% (2009: 0.85% to 2.49%) per annum. – A term loan of $158,600,000 drawn down by a subsidiary. The term loan is repayable in 2013 and is secured on the investment property of the subsidiary. Interest is based on money market rates ranging from 1.37% to 1.60% (2009: 1.60% to 2.17%) per annum. notes to the Financial statements 187 Notes to the Financial Statements 19. Term loans (continued) – A term loan of $240,000,000 drawn down by a subsidiary during the financial year. The term loan is repayable in 2014 and is secured on other assets of the subsidiary. Interest is based on money market rates ranging from 1.00% to 1.10% per annum. – Bank loans of $425,000,000 drawn down by a subsidiary during the financial year. The term loans are repayable in 2015 and are secured on the investment properties of the subsidiary. Interest is based on money market rates ranging from 1.24% to 1.35% per annum. – A term loan of $60,863,000 drawn down by subsidiaries during the financial year. The term loan is repayable between one and five years and is secured on certain fixed assets of the subsidiaries. Interest is based on money market rates ranging from 0.85% to 0.86% per annum. – Other secured bank loans comprised $43,101,000 of foreign currency loans. They are repayable between one and three 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 11.75% (2009: 6.25% to 14.50%) per annum. (h) The unsecured bank and other loans of the Group totalling $1,113,891,000 comprised $880,000,000 of loans denominated in Singapore dollar and $233,891,000 of foreign currency loans. They are repayable between one and five years. Interest on loans denominated in Singapore dollar is based on money market rates ranging from 0.85% to 2.54% (2009: 0.93% to 3.46%) per annum. Interest on foreign currency loans is based on money market rates ranging from 0.90% to 15.50% (2009: 9.88% to 21.00%) per annum. The net book value of property and assets mortgaged to the banks amounted to $2,552,970,000 (2009: $2,405,138,000). These are securities given to the banks for loans and overdraft facilities. The fair values of term loans for the Group and Company are $4,100,179,000 (2009: $1,777,695,000) and $481,832,000 (2009: $nil) respectively. These fair values are computed on the discounted cash flow method using a discount rate based upon the borrowing rate which the Group expect would be available as at the balance sheet date. 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 Group Company 2010 $’000 2009 $’000 2010 $’000 2009 $’000 527,257 2,548,711 600,000 289,111 556,253 73,046 - - - - 500,000 - 3,675,968 918,410 500,000 - 188 Keppel Corporation Limited Report to Shareholders 2010 20. Bank overdrafts Secured Unsecured Group 2010 $’000 718 18 - 2009 $’000 1,668 736 1,668 Interest on the bank overdrafts is payable at the banks’ prevailing prime rates ranging from 5.50% to 6.66% (2009: 5.19%) 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 2010 $’000 2009 $’000 161,896 192,534 122,671 477,101 167,141 175,860 88,117 431,118 (13,821) (4,207) (18,028) (13,498) (5,823) (19,321) 2010 $’000 - - - - 4,934 4,934 - - - - - - 2009 $’000 5,377 5,377 Net deferred tax liabilities 459,073 411,797 4,934 5,377 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 $547,551,000 (2009: $722,190,000) 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 189 Notes to the Financial Statements 21. Deferred taxation (continued) Movements in deferred tax liabilities and assets are as follows: Charged/ Charged/ (credited) to other (credited) to comprehensive income profit or loss $’000 $’000 At 1 January $’000 Subsidiary Subsidiaries Reclassifi- cation disposed $’000 $’000 acquired $’000 At Exchange differences 31 December $’000 $’000 167,141 3,885 175,860 16,917 88,117 431,118 36,955 57,757 (13,498) (5,823) (19,321) (310) 1,244 934 - - 688 688 - - - - (12,659) 3,600 (71) 161,896 - - - - - - - 382 (625) 192,534 - (12,659) (3,825) 157 736 40 122,671 477,101 - - - - - - (13) 372 359 (13,821) (4,207) (18,028) 411,797 58,691 688 - (12,659) 157 399 459,073 159,029 (1,843) 212,017 (35,616) - - 9,765 - 78,951 449,997 14,497 (22,962) 14,309 14,309 - 9,765 (40,323) (28,462) (68,785) (1,884) 22,889 21,005 - - - - - - - - - - - - - - - 190 167,141 (541) 175,860 (20,679) (20,679) 1,039 688 88,117 431,118 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 5,377 (443) 5,608 (231) - - - - - - - - - - 4,934 5,377 Group 2010 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 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 Company 2010 Deferred tax Liabilities Offshore income 2009 Deferred tax Liabilities Offshore income 190 Keppel Corporation Limited Report to Shareholders 2010 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 and share plans 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 and share plans granted Depreciation of fixed assets Write-off of fixed assets and investment properties Amortisation of intangibles (Profit)/loss on sale of fixed assets and investment properties Profit on sale of investments Fair value (gain)/loss on - investments - forward foreign exchange contracts - forward HSFO contracts notes to the Financial statements Group 2010 $’000 5,931,575 1,480,738 192,705 2,165,992 6,182 5,730 2009 $’000 8,990,796 1,337,742 181,871 1,715,563 6,555 14,594 9,782,922 12,247,121 Group 2010 $’000 1,078,364 114,952 38,437 135,324 2009 $’000 1,093,522 96,026 23,682 159,175 1,367,077 1,372,405 Group 2010 $’000 1,409 3,764 964 410 2009 $’000 1,270 3,824 1,426 309 801 642 33,807 100 7,993 186,715 4,244 1,918 (4,949) (11,795) (8,028) (14,813) - 31,326 420 3,119 173,846 255 467 5,781 (24,967) 64,320 8,112 (3,053) 191 Notes to the Financial Statements 24. Operating profit (continued) Provision for - warranties - claims Provision/(write-back) for - work-in-progress - properties held for sale - stocks Provision 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 (recovered)/written down Rental expense - operating leases Direct operating expenses - investment properties that generated rental income Loss/(gain) on differences in foreign exchange Non-audit fees paid to - auditors of the Company - other auditors of subsidiaries 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 (loss)/gain on interest rate caps and swaps Group 2010 $’000 11,213 14,989 1,597 3,128 379 - 4,055 - 1,554 (79) 80 993,343 (169) 2009 $’000 5,397 7,601 1,963 (13,237) 11,382 60 614 (159) 13 858,217 72,975 64,632 60,647 56,766 53,161 59,843 (5,166) 135 2,121 118 608 Group 2010 $’000 2,055 5,891 2009 $’000 1,694 3,407 7,946 5,101 111,350 73,676 (62,959) (1,742) (51,838) 2,163 (64,701) (49,675) 192 Keppel Corporation Limited Report to Shareholders 2010 26. Exceptional items Gain on disposal of subsidiaries, associated companies and investments * Gain on acquisition of additional interest in subsidiaries Impairment (loss)/write-back of: - Fixed assets (Note 5) - Associated companies (Note 8) - Long term receivables (Note 10) - Intangibles (Note 11) - Other assets Other assets written off: - Costs associated with long term receivables - Foreign exchange translation deficit - Other assets Loss provision for cost overruns and completion delays Fair value gain/(loss) on investment properties (Note 6) Share of associated companies ** (Note 8) Cost associated with restructuring of operations and others Taxation (Note 27) Non-controlling interests Group 2010 $’000 8,645 - (27,772) (1,544) 55,000 (314) (12,556) - - (9,984) (186,775) - 64,719 775,821 (4,139) 661,101 (164,150) 496,951 (293,019) 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 Attributable exceptional items 203,932 360,506 * ** In 2009, this represents substantially the gain on disposal of an associated company. In 2010 and 2009, this represents substantially the Group’s share of fair value gain on investment properties of associated companies. 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 2010 $’000 2009 $’000 337,273 2,471 184,730 (2,533) 289,420 (2,621) 57,226 5,807 58,691 (1,957) 580,632 347,875 notes to the Financial statements 193 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% (2009: 17%) 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/(credit) of exceptional items (Note 26) (b) Movement in current income tax liabilities Group 2010 $’000 2009 $’000 2,026,338 1,855,576 344,477 (45,495) 95,189 (22,376) - 42,216 2,471 164,150 315,448 (41,316) 109,862 (6,816) (10,272) 7,650 (2,621) (24,060) 580,632 347,875 At 1 January Exchange differences Tax expense Adjustment for prior year’s tax Income taxes paid Subsidiary acquired Subsidiaries disposed Reclassification Others Group Company 2010 $’000 450,951 (6,067) 337,273 2,471 (301,546) 415 (1,782) 2,924 60 2009 $’000 344,020 5,268 289,420 (2,621) (172,200) - - 4,371 (17,307) 2010 $’000 27,169 - - 8,000 - (9,022) - - - - - - - 2009 $’000 19,669 13,000 (935) (5,334) 769 At 31 December 484,699 450,951 26,147 27,169 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 Group 2010 $’000 2009 $’000 Basic Diluted Basic Diluted 1,419,052 1,419,052 1,264,611 1,264,611 - 1,419,052 203,932 (760) 1,418,292 203,932 - 1,264,611 360,506 - 1,264,611 360,506 Adjusted net profit after exceptional items 1,622,984 1,622,224 1,625,117 1,625,117 194 Keppel Corporation Limited Report to Shareholders 2010 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 2010 number of shares ’000 2009 Number of Shares ’000 Basic 1,599,251 - Diluted 1,599,251 11,017 Basic Diluted 1,593,398 - 1,593,398 3,474 1,599,251 1,610,268 1,593,398 1,596,872 88.7 cts 101.5 cts 88.1 cts 100.7 cts 79.4 cts 102.0 cts 79.2 cts 101.8 cts The Directors are pleased to recommend a final dividend of 26 cents per share tax exempt one-tier (2009: final dividend of 23 cents per share tax exempt one-tier) in respect of the financial year ended 31 December 2010 for approval by shareholders at the next Annual General Meeting to be convened. Together with the interim dividend of 16 cents per share tax exempt one-tier (2009: 15 cents per share tax exempt one- tier), total cash dividend paid and proposed in respect of the financial year ended 31 December 2010 will be 42 cents per share tax exempt one-tier (2009: 61 cents per share tax exempt one-tier which included the special dividend in specie of K-Green Trust units of 23 cents per share tax-exempt one-tier). The Directors are also proposing a bonus issue to shareholders on the basis of one bonus share for every ten existing ordinary shares in the capital of the Company. The proposed bonus issue is conditional upon certain approvals being obtained as described in the announcement dated 25 January 2011. During the financial year, the following dividends were paid: A final dividend of 23 cents per share tax exempt one-tier on the issued and fully paid ordinary shares in respect of the previous financial year A special dividend in specie of K-Green Trust units of 23 cents per share tax exempt one-tier in respect of the previous financial year An interim dividend of 16 cents per share tax exempt one-tier on the issued and fully paid ordinary shares in respect of the current financial year $’000 368,021 366,882 256,103 991,006 30. Acquisition of subsidiary The following was acquired during the financial year: Subsidiary Subic Shipyard and Engineering, Inc Date of acquisition Gross interest before acquisition Interest acquired Gross interest after acquisition Net assets acquired $’000 Consideration $’000 29.9.2010 45.59% 41.60% 87.19% 72,798 83,358 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 195 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: Non-controlling shareholders’ shares Group 2010 $’000 2009 $’000 102,718 413,760 571,943 322,986 91,214 857,985 152,072 181,316 99,304 1,521,113 (415,033) 3,625 140,305 92,276 1,508,391 (548,047) 1,106,080 960,344 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 2010 $’000 2009 $’000 55,484 194,599 629,552 55,100 198,259 707,541 879,635 960,900 2010 $’000 322 119 - - 441 2009 $’000 252 192 444 (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 Company 2010 $’000 2009 $’000 2010 $’000 2009 $’000 173,405 271,723 150,676 152,049 148,775 65,825 595,804 366,649 - - - - - - - - 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. 196 Keppel Corporation Limited Report to Shareholders 2010 32. Contingent liabilities (unsecured) Guarantees in respect of banks and other loans granted to subsidiaries and associated companies 154,618 24,656 477,213 686,376 Group Company 2010 $’000 2009 $’000 2010 $’000 2009 $’000 Bank guarantees Others 61,198 57,521 53,885 54,055 - - - - 269,701 136,232 477,213 686,376 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. 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 2010 $’000 1,119 2009 $’000 6,540 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. As at the end of the financial year, the Group has outstanding forward foreign exchange contracts with notional amounts totalling $3,666,123,000 (2009: $4,080,268,000). The net positive fair value of forward foreign exchange contracts is $68,794,000 (2009: $66,455,000) comprising assets of $97,480,000 (2009: $106,000,000) and liabilities of $28,686,000 (2009: $39,545,000). These amounts are recognised as derivative financial instruments in debtors (Note 14) and creditors (Note 17). notes to the Financial statements 197 Notes to the Financial Statements 34. Financial risk management (continued) As at the end of the financial year, the Company has outstanding forward foreign exchange contracts with notional amounts totalling $3,476,028,000 (2009: $4,009,822,000). The net positive fair value of forward foreign exchange contracts is $54,278,000 (2009: $65,331,000) comprising assets of $81,228,000 (2009: $102,502,000) and liabilities of $26,950,000 (2009: $37,171,000). 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 $’000 107,696 138,338 68,980 54,269 58,029 1,365 - - 2010 euro $’000 1,063 - 2,429 1,208 - others $’000 USD $’000 2009 Euro $’000 Others $’000 49,587 255,355 79,061 106,702 31,434 80,877 837 - 30,269 46,451 154,103 118,161 59,209 27,052 46,695 - 7,031 - 85,817 14,464 - - - 228 1,815 95 - 501 - - 7,622 181 25,097 - 118 Sensitivity analysis for currency risk If the relevant foreign currency change against SGD by 5% (2009: 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 2010 $’000 2009 $’000 2010 $’000 2009 $’000 3,243 (3,243) 114 (114) 69 (69) - - 7,045 (7,045) 1,205 (1,205) 25 (25) 382 (382) 6,970 (6,970) 1,571 (1,571) - - - - - - - - - - - - 198 Keppel Corporation Limited Report to Shareholders 2010 (ii) Interest rate risk The Group is exposed to interest rate risk for changes in interest rates primarily for debt obligations, placements in the money market and investments in bonds. The Group policy is to maintain a mix of fixed and variable rate debt instruments with varying maturities. Where necessary, the Group uses derivative financial instruments to hedge interest rate risks. The Group purchases interest rate caps to hedge the interest rate risk exposure arising from its US$ 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 2010 2009 Notional amount $45,758,000 $48,579,000 Maturity 2011 2011 Interest rate caps 3% 3% The positive fair values of interest rate caps for the Group are $nil (2009: $78,000). This amount is recognised as derivative financial instruments in debtors (Note 14). The Group enters into interest rate swap agreements to hedge the interest rate risk exposure arising from its S$ 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 $929,075,000 (2009: $366,765,000) whereby it receives variable rates equal to SIBOR (2009: SIBOR) and pays fixed rates of between 1.43% and 3.62% (2009: 2.55% and 4.42%) on the notional amount. The net negative fair value of interest rate swaps for the Group is $19,807,000 (2009: $15,564,000) comprising assets of $3,217,000 (2009: $2,340,000) and liabilities of $23,024,000 (2009: $17,904,000). 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% (2009: 0.5%) with all other variables held constant, the Group’s profit before tax would have been lower/higher by $5,040,000 (2009: $3,545,000) 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 $93,331,000 (2009: $73,529,000). The net positive fair value of HSFO forward contracts for the Group is $5,781,000 (2009: $9,073,000) comprising assets of $5,791,000 (2009: $9,488,000) and liabilities of $10,000 (2009: $415,000). 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. notes to the Financial statements 199 Notes to the Financial Statements 34. Financial risk management (continued) Sensitivity analysis for price risk If prices for HSFO increase/decrease by 5% (2009: 5%) with all other variables held constant, the Group’s hedging reserve in equity would have been higher/lower by $4,956,000 (2009: $4,130,000) as a result of fair value changes on cash flow hedges. If prices for quoted investments increase/decrease by 5% (2009: 5%) with all other variables held constant, the Group’s profit before tax would have been higher/lower by $3,544,000 (2009: $3,017,000) as a result of higher/ lower fair value gains on investments held for trading, and the Group’s fair value reserve in other comprehensive income would have been higher/lower by $29,555,000 (2009: $20,925,000) as a result of higher/lower fair value gains on available-for-sale investments. Credit Risk Credit risk refers to the risk that debtors will default on their obligation to repay the amount owing to the Group. A substantial portion of the Group’s revenue is on credit terms or stage of completion. These credit terms are normally contractual. The Group adopts stringent procedures on extending credit terms to customers and on the monitoring of credit risk. The credit policy spells out clearly the guidelines on extending credit terms to customers, including monitoring the process and using related industry’s practices as reference. This includes assessment and valuation of customers’ credit reliability and periodic review of their financial status to determine the credit limits to be granted. Customers are also assessed based on their historical payment records. Where necessary, customers may also be requested to provide security or advance payment before services are rendered. The Group’s policy does not permit non-secured credit risk to be significantly centralised in one customer or a group of customers. The maximum exposure to credit risk is the carrying amount of financial assets which are mainly trade debtors and bank balances, deposits and cash. (i) Financial assets that are neither past due nor impaired Trade debtors that are neither past due nor impaired are substantially companies with good collection track record with the Group. Bank deposits, forward foreign exchange contracts, interest rate caps and interest rate swaps are mainly transacted with banks of high credit ratings assigned by international credit-rating agencies. (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 2010 $’000 96,298 30,152 82,611 2009 $’000 254,892 149,638 122,779 209,061 527,309 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. 200 Keppel Corporation Limited Report to Shareholders 2010 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. 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 2010 Gross-settled forward foreign exchange contracts - Receipts - Payments Net-settled HSFO forward contracts - Receipts - Payments 2009 Gross-settled forward foreign exchange contracts - Receipts - Payments Net-settled HSFO forward contracts - Receipts - Payments Company 2010 Gross-settled forward foreign exchange contracts - Receipts - Payments 2009 Gross-settled forward foreign exchange contracts - Receipts - Payments Within one year $’000 Within one to two years $’000 Within two to five years $’000 2,791,408 (2,704,945) 830,045 (804,220) 171,831 (172,359) 5,335 (10) 448 - 8 - 3,789,510 (3,730,427) 367,391 (359,079) 3,439 (3,206) 9,292 (415) 160 - 37 - 2,593,056 (2,546,137) 781,779 (773,457) 171,831 (172,359) 3,737,912 (3,679,578) 353,197 (344,527) 1,448 (1,469) notes to the Financial statements 201 Notes to the Financial Statements 34. Financial risk management (continued) 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 2009. The Group and the Company are in compliance with externally imposed capital requirements for the financial year ended 31 December 2010. 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 Group 2010 $’000 2009 $’000 177,522 1,176,592 9,723,883 8,712,573 0.02x 0.14x 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. Group 2010 Assets Derivative financial instruments Investments - Available-for-sale investments Short term investments - Available-for-sale investments - Investments held for trading Liabilities Derivative financial instruments Level 1 $’000 Level 2 $’000 Level 3 $’000 Total $’000 - 106,488 - 106,488 126,343 - 173,553 299,896 412,438 70,888 52,323 - 1,223 - 465,984 70,888 609,669 158,811 174,776 943,256 - 51,720 - 51,720 202 Keppel Corporation Limited Report to Shareholders 2010 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 2010 Assets Derivative financial instruments Liabilities Derivative financial instruments 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 - - - - 81,228 26,950 102,502 37,171 - - - - 81,228 26,950 102,502 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 profit and loss account Fair value loss recognised in equity Subsidiary acquired Transfer from Level 2 Reclassification Exchange differences At 31 December 2010 $’000 124,338 77,123 (57,124) 417 - (3,795) 185 - 6,683 - 28,347 (1,398) 2009 $’000 105,588 23,730 (596) (2,938) 1,343 (2,789) 174,776 124,338 During the financial year ended 31 December 2010, the Group transferred investments from Level 2 to Level 3 of the fair value hierarchy as the inputs to the valuation models for investments ceased to be observable. notes to the Financial statements 203 Notes to the Financial Statements 35. Segment analysis Offshore & Marine $’000 Infrastructure $’000 Property $’000 Investments $’000 Elimination $’000 Total $’000 2010 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 Non-controlling interests other information Segment assets Segment liabilities Net assets Investment in associated companies Additions to non-current assets Depreciation and amortisation Geographical information 5,577,010 - 5,577,010 2,510,113 111,958 2,622,071 1,684,786 2,537 1,687,323 11,013 63,541 74,554 - (178,036) (178,036) 9,782,922 - 9,782,922 1,119,047 2,441 74,888 (4,787) 75,027 - 4,037 (23,306) 553,157 5,425 36,765 (71,860) 12,316 80 86,339 (58,480) (3,053) - (90,679) 93,732 1,756,494 7,946 111,350 (64,701) 50,061 37,197 101,995 25,996 1,241,650 (31,743) 1,209,907 (242,119) 967,788 92,955 (136,932) (43,977) (26,978) (70,955) 625,482 844,176 1,469,658 (301,035) 1,168,623 66,251 (14,400) 51,851 (10,500) 41,351 987,202 (24,762) 962,440 5,348 967,788 56,627 (135,998) (79,371) 8,416 (70,955) 325,957 379,092 705,049 463,574 1,168,623 49,266 (14,400) 34,866 6,485 41,351 - - - - - - - - - - - 215,249 2,026,338 661,101 2,687,439 (580,632) 2,106,807 1,419,052 203,932 1,622,984 483,823 2,106,807 6,211,833 4,350,655 1,861,178 2,886,615 12,532,848 7,133,845 1,974,392 5,399,003 912,223 5,998,926 4,447,447 1,551,479 (6,648,748) 20,981,474 (6,648,748) 11,257,591 9,723,883 - 171,501 244,138 133,189 499,445 421,006 44,824 2,704,497 887,326 10,194 231,280 13,299 426 - - - 3,606,723 1,565,769 188,633 External sales Non-current assets Singapore $’000 7,088,728 7,155,063 Far East & other ASEAN countries $’000 1,045,200 1,300,191 America $’000 1,117,208 161,592 Other countries $’000 531,786 548,242 Elimination $’000 Total $’000 - - 9,782,922 9,165,088 Information about a major customer Revenue of $1,308,330,000 is derived from a single external customer and is attributable to Offshore & Marine division for the financial year ended 31 December 2010. 204 Keppel Corporation Limited Report to Shareholders 2010 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 Non-controlling interests other information Segment assets Segment liabilities Net assets Investment in associated companies Additions to non-current assets Depreciation and amortisation Geographical information Offshore & Marine $’000 Infrastructure $’000 Property $’000 Investments $’000 Elimination $’000 Total $’000 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 Singapore $’000 8,489,626 6,708,057 Far East & other ASEAN countries $’000 1,494,261 1,068,854 America $’000 1,713,466 170,310 Other countries $’000 549,768 74,485 Elimination $’000 Total $’000 - 12,247,121 8,021,706 - Information about a major customer No single external customer accounted for 10% or more of the Group’s revenue for the financial year ended 31 December 2009. notes to the Financial statements 205 Notes to the Financial Statements 35. Segment analysis (continued) 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 M1 Limited. (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: FRS 24 (Revised) Amendments to FRS 32 Amendments to INT FRS 114 INT FRS 115 INT FRS 119 Related Party Disclosures Financial Instruments: Presentation – Amendments relating to Classification of Rights Issues Prepayments of a Minimum Funding Requirement Agreements for Construction of Real Estate Extinguishing Financial Liabilities with Equity Instruments 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 except for the following: INT FRS 115 Agreements for Construction of Real Estate INT FRS 115 is effective for annual periods beginning on or after 1 January 2011. The Interpretation addresses how entities should determine whether an agreement for the construction of real estate is within the scope of FRS 11 Construction Contracts or FRS 18 Revenue and when revenue from the construction of real estate should be recognised. In the period of initial adoption of the Interpretation, the method of recognising revenue among real estate developers for sales of units before construction is complete, may change. The Interpretation is issued with an Accompanying Note that explains the application of the Interpretation to property development sales in Singapore by considering the Singapore legal framework. When the Group applies INT FRS 115 in 2011 retrospectively, the 2010 comparatives for revenue and net profit are expected to decrease by approximately $38,805,000 and $7,933,000 respectively. The properties held for sale as at 31 December 2010 is also expected to decrease by approximately $192,237,000. (b) RAP 11 Pre-Completion Contracts for the Sale of Development Property RAP 11 is still applicable in Singapore as INT FRS 115 shall be effective from 1 January 2011 only. 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. 206 Keppel Corporation Limited Report to Shareholders 2010 The Group uses the POC method for recognising revenue from partly completed residential projects which are held for sale. Had the COC method been adopted, the impact on the financial statements of the Group will be as follows: Decrease in opening revenue reserve Decrease in revenue recognised for the year Decrease in profit for the year Increase in carrying value of property held for sale Balance as at 1 January Balance as at 31 December Increase/(decrease) in non-controlling interests Balance as at 1 January Share of profit for the year 2010 $’000 2009 $’000 (265,157) (186,558) (786,666) (82,514) (99,194) (78,599) 390,350 894,351 28,686 390,350 (171,214) 18,957 (195,582) 24,368 37. Significant subsidiaries and associated companies Information relating to significant subsidiaries consolidated in these financial statements and significant associated companies whose results are equity accounted for is given in the following pages. notes to the Financial statements 207 Significant Subsidiaries and Associated Companies Gross Interest 2010 % Effective Equity Interest 2010 % 2009 % Cost of Investment 2010 $’000 2009 $’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) Deepwater Technology Group Pte Ltd 75 45 45 100 100 100 FELS Offshore Pte Ltd 100 100 100 Fornost Ltd(1a) 100 100 100 FSTP Brasil Ltda(1a) 75 75 75 FSTP Pte Ltd 75 75 75 Hygrove Investments Ltd(4) 100 100 100 Keppel AmFELS, LLC(3) (formerly known as Keppel AmFELS Inc) 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 # Brazil Holding of long-term investments and provision of procurement services Procurement of equipment and materials for the construction of offshore production facilities # Singapore Project management, engineering and procurement BVI/HK Investment holding # # USA Construction and repair of offshore drilling rigs and offshore production facilities Marine and offshore engineering services Engineering, construction and fabrication of platforms for the oil and gas industry Marine and offshore engineering services # Bulgaria # Brazil # India 208 Keppel Corporation Limited Report to Shareholders 2010 Gross Interest 2010 % Effective Equity Interest 2010 % 2009 % Cost of Investment 2010 $’000 2009 $’000 Country of Incorporation /Operation Principal Activities Keppel Norway A/S(1a) 100 100 100 Keppel Offshore & Marine USA Inc(3) Keppel Offshore & Marine Technology Centre Pte Ltd 100 100 100 100 100 100 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 Seafox 5 Ltd(n) 75 75 Topaz Atlantic Unlimited(n)(4) 100 100 - - Wideluck Enterprises Ltd (4) 100 100 100 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 # # # # # # # # # # # # # # # # # # # # # Norway Construction and repair of offshore drilling rigs and offshore production facilities # USA Offshore and marine-related services # Singapore Research & development on marine and offshore engineering # Netherlands Construction and repair of offshore drilling rigs and shiprepairs # Netherlands Holding of long-term investments # 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 # Isle of Man Owning and leasing of offshore rigs and equipment - # # BVI BVI Holding of long-term investments Holding of long-term investments 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 Engineering and construction of specialised vessels significant subsidiaries and Associated Companies 209 Significant Subsidiaries and Associated Companies Gross Interest 2010 % Effective Equity Interest 2010 % 2009 % Cost of Investment 2010 $’000 2009 $’000 Country of Incorporation /Operation Principal Activities Keppel Singmarine Pte Ltd 100 100 100 Keppel Singmarine Brasil Ltda(n)(1a) 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 51 100 100 100 # # # # # # # # # # # # # # Singapore Shipbuilding and repairing Brazil Shipbuilding Singapore Provision of towage services Singapore Holding of long-term investments BVI/Norway Holding of long-term investments Singapore Provision of towage services Singapore Provision of technical consultancy for ship design and engineering works Marine Technology Development Pte Ltd Subic Shipyard & Engineering Inc(1a) Associated Companies Arab Heavy Industries Public Joint Stock Company(3) 87+ 84+ 44+ 3,020 3,020 Philippines Shipbuilding and repairing 33 33 33 # # UAE Shipbuilding and repairing Consort Land Inc(1a) 49+ 39+ 32+ 55 54 Philippines Land holding company and power distributor Chartering tugs and other marine services # Malaysia # Qatar Shiprepairing Kejora Resources Sdn Bhd(3) 49 25 25 Nakilat-Keppel Offshore & Marine Ltd(3) 20 20 20 # # INFRASTRUCTURE Power Generation subsidiaries Keppel Energy Pte Ltd 100 100 100 330,914 330,914 Singapore Investment holding 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 # # # # # # # # # # # # # # 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 210 Keppel Corporation Limited Report to Shareholders 2010 Gross Interest 2010 % Effective Equity Interest 2010 % 2009 % Cost of Investment 2010 $’000 2009 $’000 Country of Incorporation /Operation Principal Activities environmental engineering subsidiaries Keppel Integrated Engineering Ltd 100 100 100 540,290 272,554 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 Brixworth Group Ltd(4) 100 100 100 FELS Cranes Pte Ltd 100 100 100 Keppel DHCS Pte Ltd 100 100 100 Keppel FMO Pte Ltd 100 100 100 Keppel Prince Engineering Pty Ltd(2a) 100 100 100 Keppel Sea Scan Pte Ltd 100 100 100 # # # # # # # # BVI/Qatar Trading in industrial goods Singapore Fabrication of heavy cranes and provision of marine-related equipment # Singapore # Singapore Development of district cooling system for the purpose of air cooling and other utility services 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 UK Ltd(1a) 100 100 100 Keppel Seghers Holdings Pte Ltd 100 100 100 Keppel Seghers Hong Kong Ltd(1a) 100 100 100 Associated Companies GE Keppel Energy Services Pte Ltd(2) K-Green Trust Tianjin Eco-City Energy Investment & Construction Co Ltd(3) 50 50 50 49 20 49 20 100 20 Tianjin Eco-City Environmental Protection Co Ltd(3) 20 20 20 # # # # # # # # United Kingdom Design, supply and installation of Flue Gas treatment equipment # Singapore Investment holding # HK Engineering contracting and investment holding # Singapore Precision engineering, repair, services and agencies # Singapore Infrastructure business trust # China # China Investment and implementation of energy and utilities related infrastructure Investment, construction and operation of infrastructure for environmental protection significant subsidiaries and Associated Companies 211 Significant Subsidiaries and Associated Companies Gross Interest 2010 % Effective Equity Interest 2010 % 2009 % Cost of Investment 2010 $’000 2009 $’000 Country of Incorporation /Operation Principal Activities 80 80 80 397,647 397,647 Singapore Investment, management and holding company network & Logistics subsidiaries Keppel Telecommunications & Transportation Ltd(2) Keppel Data Centres Pte Ltd(2) (formerly known as DataOne Asia Pte Ltd) ECHO Broadband Gmbh(2a) Keppel Communications Pte Ltd(2) 100 80 80 100 100 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) Asia Airfreight Terminal Company Ltd(3) 45 36 36 10 8 8 Citadel 100 Datacenters Ltd(3) 50 40 40 Computer Generated Solutions Inc(3) Radiance Communications Pte Ltd(2) 21 17 17 50 40 40 SVOA Public Company Ltd(2a) 32 26 26 Trisilco Folec Sdn Bhd(2a) 30 24 24 Trisilco Radiance Communications Sdn Bhd(2a) 40 32 32 Wuhu Annto Logistics Company Ltd(3) 35 28 28 # # # # # # # # # # # # # # # # # 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 # Ireland # USA # Singapore # Thailand # Malaysia # Malaysia # China Operation of air cargo handling terminal Provision of data centre facilities and co-location services IT consulting and outsourcing provider Distribution and maintenance of communications equipment and systems 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 Transportation, warehousing and distribution 212 Keppel Corporation Limited Report to Shareholders 2010 Gross Interest 2010 % Effective Equity Interest 2010 % 2009 % Cost of Investment 2010 $’000 2009 $’000 Country of Incorporation /Operation Principal Activities PROPERTY subsidiaries Keppel Land Ltd(2) 52 52 52 1,390,051 1,330,220 Singapore Holding, management and investment company K-REIT Asia(2) 76 54 54 Keppel Bay Pte Ltd 100+ 86+ 86+ 79+ 55+ 55+ Keppel Philippines Properties Inc(2a) Acresvale Investment Pte Ltd(2) Aintree Assets Ltd(4) 100 100 Alpha Investment Partners Ltd(2) 100 Avenue Park Development(2) Bayfront Development Pte Ltd(2) Beijing Kingsley Property Development Co Ltd(3) 52 100 100 Bintan Bay Resort Pte Ltd(2) 90 Boulevard Development Pte Ltd(2) 100 Changzhou Fushi Housing Development Pte Ltd(3) 100 52 52 52 27 52 52 47 52 52 52 52 52 27 52 52 47 52 52 Chengdu Hillwest Development Co Ltd(3) 100 52 52 Da Di Investment Pte Ltd(2) Devonshire Development Pte Ltd(2) DL Properties Ltd(2) Double Peak Holdings Ltd(4) Dovesdale Development Pte Ltd(2) Estella JV Co Ltd(2a) Evergro Properties Ltd(2) Hillwest Pte Ltd(2) International Centre(1a) Jiangyin Evergro Properties Co Ltd(3) KeplandeHub Ltd(2) Keppel Al Numu Development Ltd(2a) 100 60 65 100 52 31 34 52 52 31 34 52 100 52 52 55 100 100 79 99 100 51 29 52 52 58 52 52 27 29 52 52 53 43 52 27 # 626 493 # Singapore Real estate investment trust 626 Singapore Property development 493 Philippines Investment holding # # # # # # # # # # # # # # # # # # # # # # # # # # # Singapore Property development and investment BVI/Asia Investment holding 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 Singapore Investment holding Vietnam Property investment # China Property development # # Singapore Investment holding Singapore/ Saudi Arabia Property development significant subsidiaries and Associated Companies 213 Significant Subsidiaries and Associated Companies Gross Interest 2010 % Effective Equity Interest 2010 % 2009 % 80 42 - 100 52 52 Keppel Bay Property Development (Shenyang) Co Ltd(n)(2a) Keppel China Township Development Pte Ltd(2) Keppel Hong Da (Tianjin Eco-City) Property Development Co Ltd(3) 100 74 74 Keppel Land China Pte Limited Keppel Land (Mayfair) Pte Ltd(2) 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 Tianjin Eco-City Investment Pte Ltd(2) 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) Mansfield Developments Pte Ltd(2) 100 Merryfield Investment Pte Ltd(2) Ocean & Capital Properties Pte Ltd(2) Ocean Properties Pte Ltd(2) OIL (Asia) Pte Ltd(2) 100 100 88 100 100 100 100 100 100 100 100 100 68 51 52 52 52 52 52 52 52 52 35 27 52 52 52 52 52 52 52 52 35 27 45 23 23 100 52 52 100 52 52 100 100 100 52 52 52 52 52 52 46 52 52 52 52 52 52 52 40 52 Country of Incorporation /Operation Principal Activities Cost of Investment 2010 $’000 2009 $’000 # # # # # # # # # # # # # # - China Property development # Singapore Investment holding # China Property development # # Singapore Investment holding Singapore Property development and investment # 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 Investment holding Singapore Investment holding Singapore Property and investment holding Singapore Property investment Singapore Investment holding 100 74 74 41,010 - Singapore Investment holding 214 Keppel Corporation Limited Report to Shareholders 2010 Gross Interest 2010 % 100 Effective Equity Interest 2010 % 52 2009 % 52 Cost of Investment 2010 $’000 # 2009 $’000 # Country of Incorporation /Operation BVI/ Singapore Principal Activities Investment holding 100 51 51 100 80 80 100 70 60 75 100 90 100 99 52 27 27 24 42 42 20 36 31 39 52 47 47 51 52 27 27 24 42 42 20 34 31 39 52 47 47 51 100 52 52 99 51 51 99 51 51 99 51 51 100 52 52 100 100 100 100 55 100 52 52 52 52 29 52 52 52 52 52 29 52 100 52 52 100 52 52 # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # # Indonesia Property investment and development Indonesia Property development and investment Indonesia Property development and investment Indonesia Golf course ownership and operation Indonesia Property investment and development Indonesia Property development Indonesia Hotel ownership and operations Vietnam Property investment Vietnam Property development Vietnam Property investment Singapore Investment holding Vietnam Property development Vietnam Property development # China Property development # China Property development # China Property development # China Property development # China Property development # Singapore Property development # Singapore Investment holding # Myanmar Hotel ownership and operations # # Singapore Property development and investment Singapore Investment holding # BVI/China Investment holding # China Development of marina lifestyle cum residential properties # Singapore Property development # Singapore Investment holding and marketing agent Pembury Properties Ltd(4) PT Kepland Investama(1a) PT Mitra Sindo Makmur(1a) PT Mitra Sindo Sukses(1a) 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 Cove JV LLC(2a) Riviera Point LLC(2) Saigon Centre Holdings Pte Ltd(2) 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) Success View Enterprises Ltd(4) Sunsea Yacht Club (Zhongshan) Co Ltd(3) Tat Chuan Development (Pte) Ltd(2) Third Dragon Development Pte Ltd(2) significant subsidiaries and Associated Companies 215 Significant Subsidiaries and Associated Companies Gross Interest 2010 % Effective Equity Interest 2010 % 2009 % 100 52 52 100 52 52 Tianjin Fushi Property Devt Co Ltd(3) Tianjin Merryfield Property Development Co Ltd(3) Wiseland Investment Myanmar Ltd(3) 100 52 52 Country of Incorporation /Operation Principal Activities Cost of Investment 2010 $’000 2009 $’000 # # # # China Property development # China 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 98+ 90+ 90+ Petro Tower Ltd(3) Alpha Real Estate Securities Fund 76 98 68 98 68 98 # 48 # # # 7 # # Singapore Under liquidation Singapore Investment holding Vietnam Property investment 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+ 83+ 40,948 14,510 Singapore Investment holding Keppel (USA) Inc(4) 100 100 100 7,117 7,117 USA Investment holding Keppel Houston Group LLC(4) 100 86 86 Keppel Kunming Resort Ltd(3) 100 100 100 # 4 # USA 4 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 90 75 83 Substantial Enterprises Ltd(4) 100+ 83+ 83+ 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) 10 50 33 - 33 5 26 18 - 17 5 26 17 16 17 50 26 26 50 26 26 50 25 26 13 26 13 # # # # # - # # # # # # Singapore Investment holding # BVI/China Investment holding # Guernsey Property investment # Singapore Fund management # # # Singapore Property development Singapore Liquidated Singapore Property development # China Property development # Singapore Investment holding # # Vietnam Property development Singapore Property management 216 Keppel Corporation Limited Report to Shareholders 2010 Gross Interest 2010 % Effective Equity Interest 2010 % 2009 % Cost of Investment 2010 $’000 2009 $’000 39 39 38 50 33 50 50 25 25 20 40 25 50 33 33 20 26 18 26 26 13 13 10 21 13 37 33 33 20 26 17 26 26 13 13 10 21 13 42 Harbourfront Three Pte Ltd(3) Harbourfront Two Pte Ltd(3) Keppel Magus Development Pvt Ltd(3) Kingsdale Development Pte Ltd(2) 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(1a) INVESTMENTS subsidiaries Keppel Philippines Holdings Inc(2a) 54+ 54+ 54+ China Canton Investments Ltd 75 75 75 # # # # # # # # # # # # # - # Country of Incorporation /Operation Principal Activities Singapore Property development Singapore Property development India Property development Singapore Investment holding 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 Kepmount Shipping (Pte) Ltd - - 100 Keppel Investment Ltd 100 100 100 # - # # HK Investment company 4,000 Singapore Strike-off # Singapore Investment company Keppel Oil & Gas Services Pte Ltd - - 100 - 116,609 Singapore Strike-off Kepventure Pte Ltd 100 100 100 48,526 30,650 Singapore Investment holding KI Investments (HK) Ltd(3) 100 100 100 KV Management Pte Ltd 100 100 100 Travelmore Pte Ltd The Vietnam Investment Fund (Singapore) Ltd 100 100 100 100 100 56 # 250 265 # # HK Investment company 250 Singapore Fund management 265 Singapore Travel agency # Singapore Venture capital fund significant subsidiaries and Associated Companies 217 Significant Subsidiaries and Associated Companies Gross Interest 2010 % Effective Equity Interest 2010 % 2009 % Cost of Investment 2010 $’000 2009 $’000 Country of Incorporation /Operation Principal Activities 36 20 36 16 36 16 # # # # Singapore Investment holding Singapore Telecommunications services 3,957,409 3,662,066 55 3,074 Associated Companies k1 Ventures Ltd M1 Limited(2) (formerly known as MobileOne Ltd) 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 220 significant subsidiaries and associated companies as at 31 December 2010. 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. 218 Keppel Corporation Limited Report to Shareholders 2010 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 Certis CISCO Security Pte Ltd Gas Supply Pte Ltd Mount Faber Leisure Group SembCorp Industries Group SembCorp Marine Group Singapore Airlines Group Singapore Airport Terminal Services Group transaction for the Purchase of Goods and services Gas Supply Pte Ltd Mapletree Investments Pte Ltd SembCorp Industries Group Divestment transaction Singbridge International Singapore Pte Ltd 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) 2010 $’000 2009 $’000 2010 $’000 2009 $’000 - - - - - - - - - - 10,582 10,582 - - - - - - - - - - - - 25,420 142 482 2,179 10,500 28,500 570 2,500 2,400 - 19,300 - - 1,988 14,500 21,000 - 40,000 668 - - - 99,856 70,293 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. Interested Person transactions 219 Directors and Key Executives Lee Boon Yang, 63 Chairman and Independent Director B.V.Sc Hon (2A), University of Queensland, 1971. Chairman of Keppel Corporation Limited with effect from 1 July 2009 (Director since 2009; date of last re-election: 23 April 2010). 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, 64 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: 23 April 2010), he is an independent and non-executive Director. Mr Lim is also 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 Chairman of Gallant Ventures Ltd, the National Council Against Problem Gambling and Ascendas Pte Ltd. Mr Lim also sits on the board of Indofood Agri Resources 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. 220 Keppel Corporation Limited Report to Shareholders 2010 Choo Chiau Beng, 63 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 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 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 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, 75 Independent Director Master of Science, Swiss Federal Institute of Technology (ETH), Zurich. Appointed to the Board in 2000 (date of last re-election: 23 April 2010). An independent and non-executive Director, he is 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 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). Directors and Key executives 221 Directors and Key Executives Tony Chew Leong-Chee, 64 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 is Chairman of the Nominating Committee and a member of the Audit Committee. Mr Chew is Executive Chairman of Asia Resource Corporation and Chairman of KFC Vietnam. He also serves on the boards of Macondray Corporation, Air Alliance 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, Advisor to the Singapore Institute of International Affairs, and served on the Economic Strategies Committee. He is a Public Service Award recipient. Oon Kum Loon, 60 Independent Director Bachelor of Business Administration (Honours) from the University of Singapore. Appointed to the Board in 2004 (date of last re-election: 23 April 2010). An independent and non-executive Director, she is Chairperson of the Board Risk Committee and a member of the Audit 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 China Resources Microelectronics Limited, Keppel Land Limited, Singapore Power Ltd and Aviva Ltd. Tow Heng Tan, 55 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. 222 Keppel Corporation Limited Report to Shareholders 2010 Alvin Yeo Khirn Hai, 49 Independent Director LLB Honours, King’s College London, University of London. Appointed to the Board in 2009 (date of last re-election: 23 April 2010), Mr Alvin Yeo is an independent and non-executive Director. He is a member of the Audit and Board Risk Committees. Mr 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 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, Tuas Power Generation Pte Ltd and Thomas Medical Centre 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. Tan Ek Kia, 63 Independent Director BSc Mechanical Engineering (First Class Hons), Nottingham University, United Kingdom; Management Development Programme, International Institute for Management Development, Lusanne, Switzerland; Fellow of the Institute of Engineers, Malaysia; Professional Engineer, Board of Engineers, Malaysia; Chartered Engineer of Engineering Council, United Kingdom and Member of Institute of Mechanical Engineer, United Kingdom. Appointed to the Board on 1 October 2010, Mr Tan is an independent and non-executive Director. He is also a member of the Nominating and Board Safety Committees. Mr Tan is a seasoned executive in the oil and gas and petrochemicals business, with more than 30 years of experience in design, engineering and construction, project management, health, safety and environment, production, logistics, procurement and drilling operations management, business management and development, joint venture management and governance, and organisation change/transformation. He has worked in different countries and cultures. Prior to his retirement as the Vice President (Ventures and Developments) of Shell Chemicals, Asia Pacific and Middle East region (based in Singapore) in September 2006, he held senior positions in Shell including Managing Director (Exploration and Production) of Shell Malaysia, Chairman of Shell North East Asia and Managing Director of Shell Nanhai Ltd (both based in Beijing, China). His other directorships include PT Chandra Asli Petrochemical Tbk, SMRT Corporation Ltd, CitiSpring Infrastructure Management Pte Ltd,, Keppel Offshore & Marine Ltd and Dialog Systems (Asia) Pte Ltd. Mr Tan is also Chairman of City Gas Pte Ltd, a wholly owned subsidiary of CitySpring. Directors and Key executives 223 Directors and Key Executives Danny Teoh, 56 Independent Director Member of the Institute of Chartered Accountants in England & Wales. Appointed to the Board on 1 October 2010, Mr Teoh is an independent and non-executive Director. He is also a member of the Audit and Remuneration Committees. Mr Teoh spent 27 years in KPMG LLP, Singapore and over the years, held various senior positions including member of KPMG’s International Board and Council, Head of Audit and Risk Advisory Services and Head of Financial Services. He was the Managing Partner of KPMG LLP, Singapore from 2005 until his retirement in September 2010. His other directorships include DBS Group Holdings Ltd, DBS Bank Ltd, Changi Airport Group (Singapore) Pte Ltd and JTC. He chairs the Audit Committee and is a member of the Board Risk Management Committee of DBS Group Holdings Ltd. Teo Soon Hoe, 61 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 Chairman of Keppel Telecommunications & Transportation Ltd, M1 Limited 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, Keppel Infrastructure Fund Management Pte Ltd (the Trustee-Manager of K-Green Trust), Keppel Energy Pte Ltd, Singapore Tianjin Eco-City Investment Holdings Pte. 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, 64 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 in 2009 (date of last re-election: 23 April 2010). He is an Executive Director. Mr Tong is the Chief Executive Officer of Keppel Offshore & Marine, Keppel FELS and Keppel Shipyard. He is also Chairman of Keppel Integrated Engineering Limited. He served for 28 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 was awarded the Medal of Commendation (Gold) Award at NTUC May Day 2010. He is appointed a member of Board of Institute of Technical Education (ITE) Governors with effect from 1 April 2010. He is a member of the NTUC-U Care Fund Board of Trustees and DNV Southeast Asia Offshore Committee. Mr Tong is also appointed a member of the Singapore Maritime Institute Governing Council on 1 January 2011. He had served as Vice President/President of Association of Singapore Marine Industries (1993-1996). He is a member of Society of Naval Architects and Marine Engineers (USA), American Bureau of Shipping and Nippon Kaiji Kyokai (Class NK). He is a Fellow of The Royal Institute of Naval Architects (RINA) UK as well as Fellow of Institute of Marine Engineering, Science & Technology, member of Singapore Institute of Directors and Fellow of the Society of Project Managers. 224 Keppel Corporation Limited Report to Shareholders 2010 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, 55 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, 52 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., Keppel Integrated Engineering Ltd and Keppel DHCS Pte Ltd. Michael Chia Hock Chye, 58 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 Director (Group Strategy & Development) of Keppel Corporation and 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 Deputy Chairman 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 225 Directors and Key Executives Michael Chia Hock Chye, 58 (continued) His directorships include FELS Cranes Pte Ltd, Keppel FELS Brasil SA (Brazil), Keppel Amfels Inc (USA), Keppel FELS Ltd, Deepwater Technology Group Pte Ltd, Willalpha Ltd, Bintan Offshore Fabricators Pte Ltd, Keppel FELS Engineering Shenzhen Co Ltd, 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 Ventus 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., 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., Keppel Seghers Gmbh, Keppel Seghers Tuas Waste-to-Energy Plant Pte Ltd and Tianjin Eco-City Keppel New Energy Development Company Ltd. Yeo Chien Sheng Nelson, 54 Bachelor of Science in Mechanical Engineering (First Class Honours), 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 Chairman of Keppel Philippines Marine Inc., Subic Shipyard and Engineering, Inc., Keppel Batangas Shipyard, Inc., Keppel Smit Towage Pte Ltd, Maju Maritime Pte Ltd and Keppel Singmarine 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 and DYNA-MAC Holdings 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 29 years of working experience in the shipyard industry. Wong Kok Seng, 60 BSc (Hons) Naval Architecture, University of Newcastle Upon Tyne; Graduate of Management Development Program, Harvard Business School. Mr Wong is the Managing Director of Keppel FELS Limited (KFELS). Prior to this appointment, he was the Executive Director of KFELS. 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, Assistant General Manager (Commercial) and Executive Director (Operations). 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. In addition to his current appointment, he is also the Chairman of the Centre of Innovation, Marine and Offshore Technology (COI-MOT) Advisory Committee and a member of the Workplace Safety & Health (WSH) Council Marine Industries Committee. Mr Wong is a Chartered Engineer and member of the Royal Institution of Naval Architects. 226 Keppel Corporation Limited Report to Shareholders 2010 Hoe Eng Hock, 60 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, 55 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 Keppel Amfels Inc, Deputy Chairman of Keppel Fels 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 Board 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, 49 Bachelor of Science summa cum laude, University of Denver, USA; Master of Business Administration, Imperial College, University of London, UK. Mr Ang joined Keppel Land Group in 1991. He is currently Executive Vice Chairman of Keppel Land China Limited and Executive Director of Keppel Land International Limited. Keppel Land China, a wholly-owned subsidiary of Keppel Land Limited, owns and independently operates Keppel Land’s businesses in China. Mr Ang was previously Executive Director & Chief Executive Officer, International of Keppel Land International Limited, responsible for 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; was the Group’s country head for Vietnam; and had also concurrently headed Sedona Hotels International. Mr Ang is 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 227 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 is a director of Keppel Offshore Marine Ltd, Keppel Land China Limited and various fund companies and subsidiaries. Pang Hee Hon, 50 Bachelor of Science and Bachelor of Commerce, University of Birmingham; Masters in Public Administration, Harvard University. Mr Pang is the Chief Executive Officer of Keppel T&T, appointed with effect from 4 January 2010. Previously the Deputy President (Operations) of ST Electronics (Info-Software Systems), Mr Pang oversaw business operations and international marketing. He was Chairman of the eGov Chapter in the Singapore IT Federation, which provides feedback on eGov policies and promotes internationalisation of local ICT companies. Mr 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. Tay Lim Heng, 47 Bachelor (Honours) in Engineering Science and Economics, University of Oxford; Masters in Public Administration, Harvard University; attended Advanced Management Programme, Harvard Business School. BG(NS) Tay is the Chief Executive Officer of Keppel Integrated Engineering Ltd, appointed with effect from 1 January 2011. He is also Head, Sustainable Development, of Keppel Group. Prior to joining Keppel Group, BG(NS) Tay was the Deputy Secretary (Development) in the Ministry of National Development (MND). Before that, he was the Chief Executive of the Maritime and Port Authority of Singapore. BG (NS) Tay has also held senior key appointments in the Singapore Armed Forces (SAF). He was absorbed into the Singapore Administrative Service in 1996 and served until May 2010 when he left public service. He was awarded the Public Administration Medal (Gold) (Military) in 2005. In 2010, he was elected to the Council of Singapore Water Association. His directorships include Keppel Integrated Engineering Limited, Keppel Seghers Engineering Singapore Pte Ltd, Keppel Seghers Holdings Pte Ltd, GE Keppel Energy Services Pte Ltd, Keppel Seghers Belgium NV, Keppel Prince Engineering Pty Ltd, Keppel DHCS Pte Ltd, Keppel FMO Pte Ltd, Keppel Sea Scan Pte Ltd and Keppel Land China Limited. 228 Keppel Corporation Limited Report to Shareholders 2010 Thomas Pang Thieng Hwi, 46 Bachelor of Arts (Honours) and Master of Arts, University of Cambridge; Investment Management Certificate from The CFA Society of the UK. Mr Pang has been the Chief Executive Officer of Keppel Infrastructure Fund Management Pte Ltd (the Trustee-Manager of K-Green Trust (“KGT”)) since 29 June 2010. He was seconded to the Trustee-Manager on a full-time basis but remains under the employment of Keppel Offshore & Marine Ltd. As the CEO of the Trustee-Manager, he is responsible for working with the board to determine the strategy for KGT. He works with the other members of the Trustee-Manager’s management team to execute the stated strategy of the Trustee-Manager. Mr Pang joined Keppel Offshore & Marine Ltd in 2002 as a Senior Manager (merger integration office) to assist in the merger integration of Keppel FELS Limited and Keppel Shipyard Limited. He was promoted to be the assistant General Manager (corporate development) in 2003 and subsequently the General Manager (corporate development) in 2007 to focus on the investment, mergers and acquisitions and strategic planning of Keppel Offshore & Marine Ltd. Before joining Keppel Offshore & Marine Ltd, Mr Pang was the vice president (finance and business development) of Arrakiis Pte Ltd, where he was involved in fund raising and business development. Prior to that, he was an investment manager with Vertex Management (UK) from 1998 to 2001. Mr Pang was also the Vice-President (Central USA) of the Singapore Tourism Board from 1995 to 1998, as well as assistant head at the Economic Development Board of Singapore, responsible for local enterprise development from 1988 to 1995. Ng Hsueh Ling, 44 Bachelor of Science Degree in Real Estate from the National University of Singapore. Ms Ng has been the Chief Executive Officer and Executive Director of K-REIT Asia Management Limited (the manager of K-REIT Asia) since 17 August 2009. She has 21 years of experience in the real estate industry. Her experience encompasses the strategic sourcing, investment, asset and portfolio management and development of assets in key Asian cities, as well as extensive fund management experience in the areas of real estate fund product creation, deal origination, distribution and structuring of real-estate-based financial products. Prior to this appointment, Ms Ng has held key positions with two other real estate companies, CapitaLand and Ascendas. Before her appointment as Chief Executive Officer and Executive Director in K-REIT Asia Management Limited, she was CEO (Korea & Japan) at Ascendas Pte Ltd. Ms Ng is a Licensed Appraiser for land and buildings and is a Fellow of the Singapore Institute of Surveyors and Valuers. Aziz Amirali Merchant, 46 Bachelor of Engineering (First Class Honours) in Naval Architecture & Ocean Engineering from University of Glasgow; Master of Science in Naval Architecture from University College London (UCL), University of London. Mr Merchant is the Executive Director of Keppel FELS Ltd and Head of Deepwater Technology Group Ltd. Prior to this, he was the General Manager (Group Design & Engineering) for Keppel Offshore & Marine and the General Manager (Engineering) for Keppel FELS Ltd since 2002. Mr Merchant is a director of Keppel Singmarine Ltd, Deepwater Technology Group Ltd, Keppel Offshore & Marine Technology Centre Pte Ltd, Floatec LLC, Keppel FELS Baltech Ltd, Keppel FELS Shenzhen and Keppel FELS Offshore and Engineering Services Mumbai Pvt Ltd. Mr Merchant is the Member of the Ngee Ann Polytechnic Marine & Offshore Technology Advisory Committee and the American Bureau of Shipping South East Asia Technical Committee. He is a Fellow of the Society of Naval Architects and Marine Engineers Singapore. Directors and Key executives 229 Directors and Key Executives Chor How Jat, 49 Bachelor of Science (Honours) in Naval architecture, University of Newcastle Upon Tyne. Master of Science in Marine Technology, University of Newcastle Upon Tyne. Mr Chor is the Executive Director of Keppel Shipyard Limited, appointed with effect from 1 Jan 2011. Mr Chor began his professional career with Keppel Offshore and Marine in 1988 and held appointments as Shiprepair Manager, Deputy Shipyard Manager, Shipyard Manager and prior to his appointment as Executive Director of Keppel Shipyard Limited, he was General Manager (Operations) of Keppel FELS Limited. Mr Chor serves as director on the Board of Keppel Shipyard Limited, Regency Steel Japan Limited, Asian Lift Pte Ltd, Keppel FELS Offshore and Engineering Services Mumbai Pvt. Ltd. and Atwin Offshore and Marine Pte. Ltd. Mr Chor is also a council member of Association of Singapore Marine Industries (ASMI). 230 Keppel Corporation Limited Report to Shareholders 2010 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; Singapore Refining Company; SMRT Corporation Ltd; SMRT Buses Ltd; SMRT Light Rail Pte Ltd; SMRT Road Holdings Ltd; SMRT Trains Ltd; Nanyang Business School Advisory Board. Sven Bang Ullring Chairman of the Supervisory Board 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 Schmidt Electronics Group Ltd; Gas Supply Pte Ltd; PSA International Pte Ltd; SP PowerGrid Ltd. Tow Heng Tan IE Singapore; Shangri-la Asia Limited. Alvin Yeo Khirn Hai Civil Service College; Asian Civilisations Museum; SMOE Pte Ltd. Tan Ek Kia Orchard Energy Pte Ltd; Power Seraya Ltd. Danny Teoh KPMG Advisory Services Pte. Ltd.; KPMG Corporate Finance Pte Ltd; KPMG Services Pte. Ltd.; SIFE Singapore; Viva Foundation For Children With Cancer; Singapore Dance Theatre. Teo Soon Hoe Keppel Shipyard Limited; Singapore Petroleum Company Limited; Travelmore Pte Ltd. Tong Chong Heong Nil. Directors and Key executives 231 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. Dr Ong Tiong Guan Corporacion Electrica Nicaraguense S.A.. Michael Chia Hock Chye Nil. Yeo Chien Sheng Nelson Alpine Engineering Services Pte Ltd.; Blastech Abrasives Pte Ltd.; Keppel Tuas Pte Ltd. Wong Kok Seng Keppel Shipyard Limited; Keppel Nantong Shipyard Company Limited; FloaTEC L.L.C.; Offshore Technology Development Pte Ltd; Bintan Offshore Fabricators Pte Ltd; Seafox 5 Limited. 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; Creek & Cove Properties Pte Ltd. Chow Yew Yuen Nil. Ang Wee Gee Various subsidiaries and associated companies of Keppel Land Limited; Evergro Properties Limited. Loh Chin Hua Pteris Global Limited (previously known as InterRoller Engineering Limited). Pang Hee Hon PM-B Pte Ltd; INFA Systems Limited; ST Electronics (e-Services) Pte Ltd. Tay Lim Heng Nil. Thomas Pang Thieng Hwi Nil. Ng Hsueh Ling Ascendas Korea Inc.; Ascendas Japan Pte Ltd; Ascendas Japan Inc.; Ascendas China Fund Management Pte. Ltd.; Ascendas China Commercial Fund Management Pte. Ltd.; Raffles Quay Asset Management Pte Ltd; Central Boulevard Development Pte Ltd. Aziz Amirali Merchant Nil. Chor How Jat Nil. 232 Keppel Corporation Limited Report to Shareholders 2010 Major Properties Held By Completed properties Effective Group Interest Location Description and Approximate Land Area Tenure Usage Ocean Properties Pte Ltd 46% DL Properties Ltd 34% K-REIT Asia 54% Mansfield Development Pte Ltd 52% Ocean Towers Collyer Quay, Singapore Equity Plaza Cecil Street, Singapore Prudential Tower Cecil Street & Church Street, 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 23,422 sqm 30-storey office building 99 years leasehold Commercial office building with rentable area of 16,320 sqm (73.4% of the strata area) 15-storey office building 99 years leasehold Commercial office building with rentable area of 22,876 sqm 275 George Street Land area: 7,074 sqm Brisbane, Australia 30-storey Grade A commercial building 77 King Street Sydney, Australia Land area: 1,284 sqm 23-storey office and retail Grade A commercial building Freehold Freehold Commercial office building with rentable area of 20,874 sqm (50% interest) Commercial office building with rentable area of 13,752 sqm Keppel Towers Hoe Chiang Rd, Singapore GE Tower Hoe Chiang Rd, Singapore 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 One Raffles Quay Pte Ltd 18% 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% Keppel Bay Tower HarbourFront Avenue, Singapore Land area: 17,267 sqm 18-storey office building 99 years leasehold Commercial office building with rentable area of 36,072 sqm HarbourFront Two Pte Ltd 33% HarbourFront Land area: 10,923 sqm Tower One and Two 18-storey and 16-storey HarbourFront Place, office buildings Singapore 99 years leasehold Commercial office building with rentable area of 48,668 sqm Major Properties 233 Major Properties Held By Keppel Bay Pte Ltd Effective Group Interest 86% Location Caribbean at Keppel Bay Singapore Description and Approximate Land Area 163 out of 168 units of corporate residences have been sold Tenure Usage 99 years leasehold A 969-unit luxurious waterfront condominium development PT Straits-CM Village 20% Club Med Ria Bintan Land area: 200,000 sqm 30 years lease with Bintan, Indonesia option for another 50 years A 302-room beachfront hotel PT Kepland Investama 52% Keppel Land Watco I Co Ltd 35% BFC Development Pte Ltd 18% International Financial Centre (formerly, Barclays House) Jakarta, Indonesia Saigon Centre (Phase 1 Tower) Ho Chi Minh City, Vietnam Land area: 10,444 sqm 20 years lease with option for another 20 years A prime office development with rentable area of 27,875 sqm (Tower 1) 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 Marina Bay Financial Land area: 20,505 sqm Centre (Phase 1)/ Marina Bay Residences Marina Boulevard/ Central Boulevard, Singapore 99 years leasehold An integrated development comprising office, retail and 428 condominium units Properties under development Ocean Properties Pte Ltd 46% Ocean Financial Centre Collyer Quay, Singapore Land area: 2,557 sqm 999 years leasehold Commercial building with Central Boulevard Development Pte Ltd 17% 99 years leasehold Marina Bay Financial Land area: 15,010 sqm Centre (Phase 2)/ Marina Bay Suites Marina Boulevard/ Central Boulevard, Singapore Land area: 83,591 sqm 99 years leasehold Keppel Bay Pte Ltd 86% Reflections at Keppel Bay Singapore Keppel Bay Plot 3 and 6, Singapore Land area: 82,619 sqm 99 years leasehold Waterfront condominium development rentable area of 78,587 sqm *(2011) An integrated development comprising office, retail and 221 condominium units *(2012) A 1,129-unit waterfront condominium development *(2013) 234 Keppel Corporation Limited Report to Shareholders 2010 Description and Approximate Land Area Tenure Usage Held By Keppel Land (Mayfair) Pte Ltd Effective Group Interest 52% Shanghai Pasir Panjang Land Co Ltd 51% Shanghai Hongda Property 51% Development Co Ltd 21% Spring City Golf & Lake Resort Co (owned by Kingsdale Development Pte Ltd) CityOne Development (Wuxi) Co 26% Location The Lakefront Residences Lakeside Drive, Singapore Eight Park Avenue Shanghai, China The Springdale Shanghai, China Spring City Golf & Lake Resort Kunming, China Central Park City Wuxi, China Keppel Township Development (Shenyang) Co Ltd 52% The Seasons Shenyang, China Land area: 16,117 sqm 99 years leasehold Land area: 33,432 sqm 70 years lease 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) Keppel Hongda (Tianjin Eco-City) Property Development Co 74% Development in Sino-Singapore Tianjin Eco-City Tianjin, China Land area: 365,722 sqm 70 years lease (residential) 40 years lease (commercial) A 629-unit condominium development *(2015) A 930-unit residential apartment development (Plot B) *(2014) A 2,667-unit residential development with integrated facilities *(2015) Integrated resort comprising golf courses, resort homes and resort facilities *(2011 Phase 2) A 5,000-unit residential township development with integrated facilities *(2012 Phase 2) A 4,748-unit residential township with integrated facilities in Shenbei New District in Shenyang *(2013 Phase 1) A mixed development, primarily residential (5,000 units) together with some commercial space *(2012 – 2014) PT Mitra Sindo Sukses/ PT Mitra Sindo Makmur 27% Jakarta Garden City Land area: 2,700,000 sqm 30 years lease with option for Jakarta, another 20 years Indonesia A 7,000-unit residential township *(2011 Phase 1 & 2013 Phase 2) Estella JV Co Ltd 29% The Estella Ho Chi Minh City, Vietnam Land area: 47,906 sqm 50 years lease A 1,393-unit high-rise residential development with supporting commercial space in An Phu Ward in prime District 2 *(2012 Phase 1) Major Properties 235 Major Properties Held By Dong Nai Waterfront City LLC (owned by Portsville Pte Ltd) Effective Group Interest 26% Location Dong Nai Waterfront City Dong Nai Province, Vietnam Description and Approximate Land Area Tenure Usage Land area: 3,667,127 sqm 50 years lease A 7,850-unit residential township *(2015 Phase 1) 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: 776,827 sqm 30 years leasehold buildings, workshops, drydocks and wharves Shiprepairing, shipbuilding and marine construction * Expected year of completion 236 Keppel Corporation Limited Report to Shareholders 2010 Group Five-Year Performance selected Profit & Loss Account Data ($ million) Revenue Operating profit Profit before tax & exceptional items Net profit before exceptional items Attributable profit 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 Non-controlling interests Capital employed Per share Earnings (cents) (Note 1): Before tax & exceptional items After tax & before exceptional items After tax & exceptional items Total distribution (cents) Net assets ($) Net tangible assets ($) Financial Ratios Return on shareholders’ funds (%) (Note 2): Profit before tax and exceptional items Net profit before exceptional items Dividend cover (times) Net cash / (gearing) (times) employees Number Wages & salaries ($ million) 2006 2007 2008 2009 2010 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 9,783 1,756 2,026 1,419 1,623 5,451 4,443 10,979 108 20,981 6,730 4,068 459 9,724 6,740 2,984 9,724 110.8 88.7 101.5 42.0 4.20 4.13 27.9 22.3 2.1 0.02 29,185 931 31,914 1,132 35,621 1,329 31,775 1,372 31,360 1,367 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. Group Five-Year Performance 237 Group Five-Year Performance 2010 Group revenue of $9,783 million was 20% lower than last year. Revenue from Offshore & Marine Division of $5,577 million decreased by $2,696 million or 33% because of a lower volume of work. During the year, the Division completed and delivered twelve rigs, eighteen specialised vessels, five FPSO conversions/upgrades and several rig upgrade/repair contracts. Revenue from Infrastructure Division increased by $83 million or 3% to $2,510 million. Higher revenue generated from the cogen power plant in Singapore was partly offset by lower revenue from Engineering, Procurement and Construction (EPC) contracts in Qatar. Revenue from Property Division of $1,685 million was $177 million or 12% above the previous year. The increase was mainly attributable to the sale of apartments at Keppel Bay and progressive revenue recognition from Reflections at Keppel Bay. Rental income from investment properties improved because of the acquisitions of investment buildings in Australia in 2010 and additional six strata floors of Prudential Tower in November 2009. At the pre-tax level, Group profit of $2,026 million was 9% higher than FY 2009. Pre-tax earnings from Offshore & Marine Division increased by 15% to $1,242 million. This was due to improved margins driven by cost efficiencies and higher productivity on delivered contracts. Profit from Infrastructure Division decreased by 38% to $93 million as a result of losses from EPC contracts in Qatar, partly offset by better performance from the cogen power plant in Singapore. Property Division recorded profit of $625 million, an increase of 31% over the preceding year. This was mainly attributable to higher contribution from several residential projects in Singapore, China and Vietnam, and share of profit of the associated company developing Marina Bay Suites in Singapore. Profit from Investments Division was lower as the previous year included contribution from Singapore Petroleum Company which was disposed in June 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 fourteen rigs, fourteen 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 $476 million, 30% higher. Earnings have increased because of higher revenue recognition from the sale of residential properties and share of profit of associated companies developing Marina Bay Residences in Singapore and The Botanica in Chengdu, China. Profit from Investments was lower following the disposal of Singapore Petroleum Company in June 2009. Revenue ($ billion) Pre-Tax Profit ($ million) Net Profit ($ million) 7.6 10.4 11.8 12.2 9.8 1,139 1,556 1,597 1,856 2,026 751 1,026 1,097 1,265 1,419 15.0 7.5 0 238 2,500 1,250 0 1,500 750 0 2006 2007 2008 2009 2010 2006 2007 2008 2009 2010 2006 2007 2008 2009 2010 Keppel Corporation Limited Report to Shareholders 2010 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 three semisubmersibles and thirteen 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 Singapore Petroleum Company. The income tax expense of the Group included a write-back of $15 million for tax provision in respect of prior years. After minority share of profit, the net profit before exceptional items was $1,097 million. 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 $51 million or 3% of Group pre-tax profit. This was mainly derived from new projects and the initial Shareholders’ Funds ($ billion) Capital Employed ($ billion) Market Capitalisation ($ billion) 4.2 5.2 4.6 6.0 6.7 5.6 7.0 6.7 8.7 9.7 13.9 20.6 6.9 13.1 18.2 8.0 4.0 0 10.0 5.0 0 25.0 12.5 0 2006 2007 2008 2009 2010 2006 2007 2008 2009 2010 2006 2007 2008 2009 2010 Group Five-Year Performance 239 Group Five-Year Performance 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 Singapore Petroleum Company, 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 net 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. 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 Singapore Petroleum Company, 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 accounts the higher taxation charge and minority share of profit, the attributable profit to shareholders was $751 million. 240 Keppel Corporation Limited Report to Shareholders 2010 Group Value-Added Statements ($ 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 2006 2007 2008 2009 2010 7,601 (5,738) 1,863 10,431 (8,123) 2,308 11,805 (9,099) 2,706 12,247 (9,196) 3,051 9,783 (6,470) 3,313 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 87 574 711 120 215 661 4,309 1,367 581 65 130 991 1,186 total Distribution 1,481 1,952 2,897 2,431 3,134 Balance retained in the business: Depreciation & amortisation Minority share of profits in subsidiaries Retained profit for the year 127 60 593 780 126 474 889 1,489 139 120 - 259 174 118 1,051 1,343 189 354 632 1,175 2,261 3,441 3,156 3,774 4,309 Number of employees 29,185 31,914 35,621 31,775 31,360 Productivity data: Gross value added per employee ($’000) Gross value added per dollar employment cost ($) Gross value added per dollar sales ($) 64 2.00 0.25 72 2.04 0.22 76 2.04 0.23 96 2.22 0.25 106 2.42 0.34 ($ million) 4000 2000 0 Depreciation & Retained Profit Interest Expenses & Dividends Taxation Wages, Salaries & Benefits 3,441 1,489 351 469 1,132 3,156 259 1,280 288 1,329 2,261 780 292 258 931 3,774 1,343 711 348 1,372 4,309 1,175 1,186 581 1,367 2006 2007 2008 2009 2010 Group Value-Added statements 241 Share Performance Turnover (million) Share Prices ($) 400 300 200 180 160 140 120 100 80 60 40 20 0 40 30 20 18 16 14 12 10 8 6 4 2 0 2006 Turnover 2007 2008 2009 2010 High and Low Prices Share Price ($)* 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 ($) Distribution yield (%) (Note 3) Net price earnings ratio (Note 3) Net price to book ratio (Note 3) Net assets backing ($) 2006 2007 2008 2009 2010 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 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 11.32 11.46 7.87 9.10 88.7 42.0 4.6 10.3 11.32 3.7 12.8 2.7 4.13 Notes: 1. Earnings per share are calculated based on the Group net profit 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. * Historical share prices are not adjusted for special dividends, capital distribution and dividend in specie. 242 Keppel Corporation Limited Report to Shareholders 2010 Shareholding Statistics As at 24 February 2011 Total number of issued shares : 1,611,918,880 Issued and fully paid-up capital : $947,154,405.19 Class of 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 Temasek Holdings (Pte) Ltd Citibank Nominees Singapore Pte Ltd DBS Nominees Pte Ltd DBSN Services Pte Ltd HSBC (Singapore) Nominees Pte Ltd Raffles Nominees (Pte) Ltd United Overseas Bank Nominees Pte Ltd BNP Paribas Securities Services S’pore Pte Ltd DB Nominees (S) Pte Ltd Merrill Lynch (Singapore) Pte Ltd Shanwood Development Pte Ltd Lim Chee Onn Morgan Stanley Asia (Singapore) Pte Ltd Teo Soon Hoe OCBC Nominees Singapore Pte Ltd Royal Bank of Canada (Asia) Ltd BNP Paribas Nominees Singapore Pte Ltd OCBC Securities Private Ltd Phillip Securities Pte Ltd UOB Kay Hian Pte Ltd Total number of shareholders 485 27,793 3,296 33 % 1.54 87.93 10.43 0.10 number of shares 216,865 84,526,454 117,537,583 1,409,637,978 % 0.01 5.25 7.29 87.45 31,607 100.00 1,611,918,880 100.00 number of shares 337,643,902 330,013,775 229,838,382 170,744,338 146,639,575 56,701,115 46,515,334 14,358,803 10,718,732 6,406,732 6,400,000 5,121,166 5,019,202 4,088,332(i) 3,974,251 3,688,276 3,374,570 3,256,202 3,157,853 2,783,984 1,390,444,524 % 20.95 20.47 14.26 10.59 9.10 3.52 2.89 0.89 0.66 0.40 0.40 0.32 0.31 0.25 0.25 0.23 0.21 0.20 0.19 0.17 86.26 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 20.95 9,011,931(i) 0.56 346,655,833 21.51 Note(i): By operation of Section 7 of the Companies Act, Temasek Holdings (Pte) Ltd is deemed to be interested in an aggregate of 9,011,931 shares in which its subsidiaries and associated companies have an aggregate interest. Public shareholders Based on the information available to the Company as at 24 February 2011, 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 24 February 2011, there are no treasury shares held. shareholding statistics 243 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 43rd Annual General Meeting of the Company will be held at Raffles City Convention Centre, Collyer Room (Level 4), 2 Stamford Road, Singapore 178882 on Thursday, 21 April 2011 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 2010. Resolution 1 To declare a final tax-exempt (one-tier) dividend of 26 cents per share for the year ended 31 December 2010 (2009: final dividend of 23 cents per share tax-exempt (one-tier)). Resolution 2 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 Tony Chew Leong-Chee (ii) Mr Tow Heng Tan (iii) Mr Teo Soon Hoe 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) Mr Tan Ek Kia (ii) Mr Danny Teoh 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) (the “Companies Act”) to hold office until the conclusion of the next annual general meeting of the Company (see Note 2). Resolution 3 Resolution 4 Resolution 5 Resolution 6 Resolution 7 Resolution 8 244 Keppel Corporation Limited Report to Shareholders 2010 6. To approve the ordinary remuneration of the non-executive directors of the Company for the financial Resolution 9 year ended 31 December 2010, comprising the following: (1) the payment of directors’ fees of an aggregate amount of $944,170 in cash (2009: $1,144,095); and (2) (a) the award of an aggregate number of 29,500 existing ordinary shares in the capital of the Company (the “Remuneration Shares”) to Dr Lee Boon Yang, 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, Mr Tan Ek Kia and Mr Danny Teoh as payment in part of their respective remuneration for the financial year ended 31 December 2010 as follows: (i) 10,000 Remuneration Shares to Dr Lee Boon Yang; (ii) 3,000 Remuneration Shares to Mr Lim Hock San; (iii) 3,000 Remuneration Shares to Mr Sven Bang Ullring; (iv) 3,000 Remuneration Shares to Mr Tony Chew Leong-Chee; (v) 3,000 Remuneration Shares to Mrs Oon Kum Loon; (vi) 3,000 Remuneration Shares to Mr Tow Heng Tan; (vii) 3,000 Remuneration Shares to Mr Alvin Yeo Khirn Hai; (viii) 750 Remuneration Shares to Mr Tan Ek Kia 1; and (ix) 750 Remuneration Shares to Mr Danny Teoh 2; (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 29,500 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). 7. To re-appoint the Auditors and authorise the directors of the Company to fix their remuneration. Resolution 10 Special Business To consider and, if thought fit, approve the following Ordinary Resolutions, with or without any modifications: 8. That pursuant to Section 161 of the Companies Act, and Article 48A of the Company’s Articles of Association, authority be and is hereby given to the directors of the Company to: Resolution 11 (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 1 Mr Tan Ek Kia was appointed as non-executive director with effect from 1 October 2010. 2 Mr Danny Teoh was appointed as non-executive director with effect from 1 October 2010. notice of Annual General Meeting and Closure of Books 245 Notice of Annual General Meeting and Closure of Books (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; provided that: (i) (ii) (iii) (iv) 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) shall not exceed fifty (50) per cent. of the total number of issued Shares (excluding treasury Shares) (as calculated in accordance with sub-paragraph (ii) below), of which the aggregate number of Shares to be issued other than on a pro rata basis to shareholders of the Company (including Shares to be issued in pursuance of Instruments made or granted pursuant to this Resolution and any adjustment effected under any relevant Instrument) shall not exceed five (5) per cent. of the total number of issued Shares (excluding treasury Shares) (as calculated in accordance with sub-paragraph (ii) below); (subject to such manner of calculation as may be prescribed by the Singapore Exchange Securities Trading Limited (“SGX-ST”)) for the purpose of determining the aggregate number of Shares that may be issued under sub-paragraph (i) 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 4). 246 Keppel Corporation Limited Report to Shareholders 2010 Resolution 12 9. That: (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 (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 five (5) 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 (as hereafter defined), 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) (b) in the case of a Market Purchase, 105 per cent. of the Average Closing Price (as hereafter defined); and in the case of an Off-Market Purchase pursuant to an equal access scheme, 120 per cent. of the Average Closing Price, notice of Annual General Meeting and Closure of Books 247 Notice of Annual General Meeting and Closure of Books 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 (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 5). 10. That: (1) 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”); (2) (3) (4) 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 6). To transact such other business which can be transacted at the annual general meeting of the Company. Resolution 13 248 Keppel Corporation Limited Report to Shareholders 2010 notICe Is ALso HeReBY GIVen tHAt: (a) (b) the Share Transfer Books and the Register of Members of the Company will be closed on 29 April 2011, for the preparation of dividend warrants. Duly completed transfers received by the Company’s Share Registrar, B.A.C.S. Private Limited, 63 Cantonment Road, Singapore 089758 up to 5.00 p.m. on 28 April 2011 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 10 May 2011; the Share Transfer Books and the Register of Members will be closed at 5.00 p.m. on 28 April 2011 to determine Shareholders’ entitlements to Bonus Shares under the Bonus Issue. Duly completed transfers received by the Company’s Share Registrar, B.A.C.S. Private Limited, 63 Cantonment Road, Singapore 089758 up to 5.00 p.m. on 28 April 2011 will be registered to determine Shareholders’ entitlements to Bonus Shares under the Bonus Issue. Shareholders whose securities accounts with The Central Depository (Pte) Limited are credited with Shares as at 5.00 p.m. on 28 April 2011 will be entitled to Bonus Shares under the Bonus Issue. Bonus shares, when issued, will not be entitled to the final cash dividend in respect of the financial year ended 31 December 2010 (which shall be subject to the approval of shareholders at this annual general meeting). Please refer to the Company’s announcements dated 25 January 2011, 26 January 2011 and 28 January 2011 for details; and (c) the electronic copy of the Company’s Annual Report 2010 will be published on the Company’s website on 6 April 2011. The Company’s website address is http://www.kepcorp.com, and the electronic copy of the Annual Report 2010 can be viewed or downloaded from the “Financial Reports” section, which can be accessed from the main menu item “Investor Centre”. To view the electronic copy of the Annual Report 2010, 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, 23 March 2011 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 Tony Chew Leong-Chee will upon re-election continue to serve as Chairman of the Nominating Committee and member of the Audit Committee. Mr Tow Heng Tan will upon re-election continue to serve as member of the Remuneration, Nominating and Board Risk Committees. Mr Tan Ek Kia will upon re-election continue to serve as member of the Nominating and Board Safety Committees. Mr Danny Teoh will upon re-election continue to serve as member of the Audit and Remuneration Committees. Mr Sven Bang Ullring will upon re-election continue to serve as Chairman of the Board Safety Committee and member of Remuneration and Nominating Committees. Except for Mr Tow Heng Tan who is considered a non-independent non-executive director, these directors are considered by the Nominating Committee to be independent directors. 3 The proposed award of Remuneration Shares to the non-executive directors forms part of the ordinary remuneration of the non-executive directors for the financial year ended 31 December 2010, 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 10,000 Shares as part of his ordinary remuneration as non-executive Chairman for the financial year ended 31 December 2010. 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 Tan Ek Kia and Mr Danny Teoh will each, subject to Shareholders’ approval, be awarded 750 Shares as part of their respective remuneration for serving as non-executive director from 1 October 2010 to 31 December 2010. The Chairman and the non-executive directors will abstain from voting, and will procure their respective associates to abstain from voting, in respect of this Resolution 9. 4. Resolution 11 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 50 per cent. of the total number of Shares (excluding treasury Shares) (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). 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. Of the 5 per cent. sub-limit, in relation to the Company’s Restricted Share Plan and Performance Share Plan (collectively, the “Share Plans”), the Company shall not award shares (“Awards”) under the Share Plans exceeding in aggregate 2 per cent. of the total number of issued shares in the capital of the Company (“Yearly Limit”). However, if the Yearly Limit is not fully utilised in any given year, the balance of the unutilised Yearly Limit may be used by the Company to make grants of Awards in subsequent years. 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 11 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 11 is passed, and any subsequent bonus issue, consolidation or sub-division of Shares. 5. Resolution 12 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 23 April 2010. However, at this annual general meeting, the Company is seeking a lower “Maximum Limit” of 5 per cent. of the total number of issued Shares, which is lower than the 10 per cent. Maximum Limit allowed under the Companies Act. Please refer to Appendix 1 to this Notice of Annual General Meeting for further details. 6. Resolution 13 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 to this Notice of Annual General Meeting for details. 250 Keppel Corporation Limited Report to Shareholders 2010 Corporate Information Board of Directors Nominating Committee Registered Office Lee Boon Yang (Chairman) 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 Tan Ek Kia Danny Teoh Teo Soon Hoe Tong Chong Heong Audit Committee Lim Hock San (Chairman) Tony Chew Leong-Chee Oon Kum Loon (Mrs) Alvin Yeo Khirn Hai Danny Teoh Remuneration Committee Lim Hock San (Chairman) Lee Boon Yang Sven Bang Ullring Oon Kum Loon (Mrs) Tow Heng Tan Danny Teoh Tony Chew Leong-Chee (Chairman) Lee Boon Yang Sven Bang Ullring Tow Heng Tan Tan Ek Kia 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 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 Tan Ek Kia Company Secretary Caroline Chang 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 Corporate Information 251 Financial Calendar 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 Despatch of Summary Financial Report to Shareholders Despatch of Annual Report to Shareholders Annual General Meeting 2010 Proposed final dividend Books closure date Payment date Proposed Bonus Issue Books closure date FY 2011 Financial year-end Announcement of 2011 1Q results Announcement of 2011 2Q results Announcement of 2011 3Q results Announcement of 2011 full year results 31 December 2010 22 April 2010 22 July 2010 21 October 2010 25 January 2011 23 March 2011 6 April 2011 21 April 2011 5.00 p.m., 28 April 2011 10 May 2011 5.00 p.m., 28 April 2011 31 December 2011 April 2011 July 2011 October 2011 January 2012 252 Keppel Corporation Limited Report to Shareholders 2010 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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