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Keppel sees more job cuts after profit falls

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by October 22, 2016 General
Cutting cost: A view of a Keppel Corp shipyard in Singapore. Keppel, which also builds properties, slashed workforce at its offshore and marine business by 26 or about 8,000 jobs, in the nine months through September. – Reuters

Cutting cost: A view of a Keppel Corp shipyard in Singapore. Keppel, which also builds properties, slashed workforce at its offshore and marine business by 26 or about 8,000 jobs, in the nine months through September. – Reuters

SINGAPORE: Keppel Corp, which has already eliminated more than a quarter of its workforce this year, said “painful measures” and job cuts will continue as profit at the world’s biggest oil-rig builder drops.

Senior managers at the Singapore-based company have taken a cut in their monthly pay and directors will propose lower fees, Keppel said in a stock exchange statement on Thursday.

Keppel, which also builds properties, slashed workforce at its offshore and marine business by 26% or about 8,000 jobs, in the nine months through September.

Oil-rig makers like Keppel and its closest rival Sembcorp Marine Ltd and shipbuilders have fired thousands of workers in the past two years and are planning more cuts amid weak demand for equipment to explore and transport oil.

Companies in the oil and natural gas sector have cut more than 350,000 jobs since crude prices started to fall in 2014 and explorers reduced hundreds of billions of dollars in investment to weather the rout.“Given that our expectations are that the market is going to be slow for the foreseeable future, we have to continue to rightsize,” Keppel chief executive officer Loh Chin Hua said on Thursday.

“We have been relying on natural attrition until now. So going forward, we have to look at ending contracts a bit earlier and possibly look at retrenchment.”

Shares of Keppel fell as much as 2.9% to S$5.28 in Singapore, the biggest intraday decline in three weeks. The stock has fallen 19% this year, the second-worst performer on the 30-member Straits Times Index.

“While higher oil prices have helped share prices in the recent weeks, we reiterate the fact that shipyards are the last beneficiary in an oil boom cycle,” UOB-Kay Hian Pte. analyst Foo Zhi Wei wrote in a note yesterday.

“The oversupply in the rig sector will not clear until 2020 at the earliest, and the offshore and marine business will suffer low contract wins in between.”

Keppel reported on Thursday third-quarter net income dropped 38% from a year earlier to S$224.5mil (US$161mil), mainly because of the difficulties at its offshore and marine sector.

Profit at the real-estate business of Keppel jumped 23% to S$157mil, according to its statement. The offshore marine unit’s net income tumbled 93% to S$11mil.

Keppel is looking at cutting yard capacity by mothballing some facilities, Keppel Offshore & Marine CEO Chow Yew Yuen said in a post-earnings webcast on Thursday. The company is on track to deliver four more projects in the current quarter and Keppel received no deferment requests last quarter, he said.

“We believe prospects of new mobile offshore drilling unit orders are unlikely to materialise unless excess supply in the market has been sufficiently absorbed,” Royston Tan, a Singapore-based analyst at Daiwa Capital Markets, wrote in a report on Thursday.

Keppel has also been hit by non-payment by one of its biggest clients, Sete Brasil Participacoes SA, which filed for bankruptcy protection in April. A provision of S$230mil it made earlier is “adequate,” Keppel said on Thursday.

Demand in the offshore and marine market will remain tepid despite a recovery in oil to above US$50 a barrel because of oversupply, Loh said.

“Rightsizing of our offshore and marine business will continue as we prepare for an extended period of weaker demand for new oil rigs,” Loh said. “Our aim has always been to emerge from this downturn stronger.” – Bloomberg

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