Keppel Corporation 1Q 2011 Results Announcement Question and Answer Session 20 April 2011, Keppel Corporation Limited, Board Room, 5.30pm Speakers: CCB TSH TCH Choo Chiau Beng, CEO, Keppel Corporation Teo Soon Hoe, Senior Executive Director and Group Finance Director, Keppel Corporation Tong Chong Heong, Executive Director, Keppel Corporation, CEO, Keppel Offshore & Marine, Chairman, Keppel Integrated Engineering Cheryl Lee, UBS: Could management comment on the level of enquiries for semisubmersibles? Has interest in semisubmersibles risen and can we expect Keppel to announce semisubmersible-related orders? Does Keppel Corp expect profit contribution from Tianjin Eco-City in 2011? TCH: We are getting enquiries on semisubmersibles but have yet to secure any contracts. With enquiries coming to Singapore and Brazil, we are definitely in the race for new semi orders. TSH: We have said that the operations of the Tianjin Eco-City project will be profitable starting from next year. We hope contributions will commence towards the later part of this year. Kevin Chong, Deutsche Bank: What is the number of outstanding rig options, their total dollar value and whether most of these options would expire by this year? TCH: We have more than ten options and the dollar value could be derived by multiplying the number of options by the respective value announced. Some options will expire this year and customers will have to exercise or let their options lapse. Cheryl Lee, UBS: There is a healthy improvement in Infrastructure's operating profit in 1Q11 compared to the previous quarters in 2010. What is driving this improvement? Were there any writebacks of provisions? TSH: Most of the increase in Infrastructure Division s profit was contributed by Keppel Energy, and there were no writebacks of provisions this quarter. Kay Lim, DnB NOR Markets: With tighter yard capacity following recent rig orders, how many rig orders for delivery in 2013 can Keppel take in? TCH: At the right price, we are able to find a way to deliver to the customers according to their desired schedules. 1
Harry Suhartono, Reuters: Can you give us an indication on how much new Offshore & Marine orders are you hoping to secure for the entire 2011? TCH: We had a strong start in securing new orders and are still open to more. However, we are unable to give any guidance. We will be more selective. Jason Saw Koon Khim, DMG & Partners: Can you comment on a recent Upstream article on Petrobras cancellation of one part of their domestic rig-building programme? What is the latest status of the drillship tender? CCB: We must understand that Petrobras, as a state-owned company, has certain bidding rules. Hence, when they could not achieve what they want, they had to cancel the tender. Currently, a company with Petrobras as a 10% investor has been formed and it will go out to negotiate with qualified bidders. Jason Saw Koon Khim, DMG & Partners: Have any of the jackup options lapsed? TCH: So far only one option has lapsed. Janice Chua, DBS Vickers: With the Korean yards having secured several drillship contracts, what are the outlook and enquiry levels of drillships for Keppel? What is the feedback from clients on Keppel's drillship design and your take on the possibility of securing a contract? Any targeted timeline? TCH: Korean yards are shipbuilders essentially and they have huge facilities which allow them to price their drillships attractively. Keppel is better at building jackups and will continue to focus on that. Nonetheless, we have a compact drilllship design which we have presented to owners. They like the design. When the capacity at the Korean shipyards tightens further, we believe we will be in a better position to market our drillships. Koh Miang Chuen, Goldman Sachs: Can we get a sense on the capacity utilisation of Keppel's yards and whether Keppel still has the capacity to accept jackup orders for delivery in 1H13? While Offshore & Marine s margins remain high in 1Q11, are high margins sustainable through the year? CCB: We have seven facilities in Singapore, one facility in Bintan, two yards in the Philippines and one yard in Nantong, China. Besides these yards in Asia, we also have a big yard in Brownsville, Texas, United States. As not all the yards are busy, we do have capacity. It all boils down to pricing and whether it makes commercial sense. 2
Offshore & Marine s margins remain high in 1Q11 because we are still working down some good contracts obtained two to three years ago. For the rest of the year, we will still have some of these orders to be delivered while none of the projects that we have secured recently will be delivered this year. Ajay, JPMorgan: Is Keppel still providing 20:80 payment terms for customers? Has Keppel seen an improvement in payment terms? TCH: We are getting better terms. Gordon Mackay, Ignis Asset Management: Do you expect any negative impact on North Sea related orders given the recent tax changes by the UK government? CCB: At the moment, we are not receiving orders directly from oil companies in the North Sea region. Hence, we are not seeing any direct impact on Keppel. Jason Saw Koon Khim, DMG & Partners: Can you reveal which customer did not take up the option that lapsed? CCB: It is not appropriate for us to disclose. Lisa Lee, Nomura Singapore: Given that the payment terms of the recent contracts secured are mostly 20:80, how will the Group book revenue and profits for these contracts? Will profits booking be upon completion? TSH: We will continue to have percentage of completion method, and we will be very conservative in recognising profits for these jobs. Nancy Wei, UOB Kay Hian Research Pte Ltd: Which of the rig options have been cancelled and what was the reason for the cancellation? Will Keppel consider speculatively building a drillship to showcase its capability? CCB: We will not be able to reveal to you which option has been cancelled. Traditionally, some drilling contractors are very conservative. They will not build a rig on speculation unless it is backed by a particular drilling contract. As our yards are quite busy, we have no need to build a drillship to showcase our capability. We have built drillships before and our customers are aware of that. 3
Brenda Lee, BNP Paribas: What is the key reason for the sequential Offshore & Marine margins decline compared to 4Q10? CCB: The strong margins of 4Q10 were derived from contracts booked two to three years before. As these contracts get delivered, there will be a mix of new and old contracts, and we can expect overall margins for 2011 to be lower than that of 2010. Low Pei Han, OCBC Investment Research: Are you seeing more enquiries for semisubmersibles compared to a quarter ago? TCH: The level of enquiries is about the same. Zuo Li, IIFL Securities: Can you share more colour on your Qatar and UK projects? Can you explain why earnings for the Infrastructure segment are so volatile? TCH: We are completing the Qatar Domestic Solid Waste Management Centre soon while the Doha North water treatment plant will take a little bit more time. TSH: The volatility of earnings is due to the significant provisions made in the previous quarter, while for this quarter, operations have returned to normal. Rohan Suppiah, Kim Eng Research: Referring to your quarter-on-quarter pickup in infrastructure earnings, is there still room for further earnings recovery in the coming quarters, following your difficulties in Qatar? TSH: If our energy business continues to perform well, we can expect Infrastructure s earnings to be good in the coming quarters. Zuo Li, IIFL Securities: What is the cash balance for Keppel Offshore & Marine at the end of March? Are there changes to the payment terms of new orders? TSH: We would like to look at the cash balance of Keppel Offshore & Marine in the context of the Group. The Group has net cash of about S$220 million in which a large amount would be from Keppel Offshore & Marine. As for new orders, changes of payment terms are for the better compared to the 20:80 payment terms that we received earlier on. 4
Nancy Wei, UOB Kay Hian Research Pte Ltd: Keppel says that it will jointly pursue topside module business beyond Singapore with Dyna-Mac Holdings. How will this fit in with BrasFELS in Brazil? CCB: With the planned projects by Petrobras, there is enough work for the yards in Brazil. We welcome Dyna-Mac to be in Brazil, to work jointly with Keppel Shipyard and BrasFELS. <End of Q&A session> 5