Key takeaways from post-results luncheon - ALERT
• Management highlighted P-52 is an isolated incident: Excluding the losses in P-52, O&M operating margins would have been 9.7% instead of 7.8%. Management also stressed that the losses arising from cost overruns with P-52 is isolated as the project is the first it undertook in Brazil and the learning curve was steep. In fact, the losses only pertain to FY07 and the project is still profitable on an overall basis. However, management confirmed that swift actions have been taken to eradicate issues encountered when executing its projects. Management does not see similar problems with its P-51 and P-56. Raw material prices are locked in upon securing of contracts and cost escalation clauses are also built. O&M currently accounts for about 70% of
revenue and 50% of PATMI for the Group.
• Management highlighted P-52 is an isolated incident: Excluding the losses in P-52, O&M operating margins would have been 9.7% instead of 7.8%. Management also stressed that the losses arising from cost overruns with P-52 is isolated as the project is the first it undertook in Brazil and the learning curve was steep. In fact, the losses only pertain to FY07 and the project is still profitable on an overall basis. However, management confirmed that swift actions have been taken to eradicate issues encountered when executing its projects. Management does not see similar problems with its P-51 and P-56. Raw material prices are locked in upon securing of contracts and cost escalation clauses are also built. O&M currently accounts for about 70% of
revenue and 50% of PATMI for the Group.
• Throwing in the kitchen sink: We also understood that management has taken the opportunity, on the back of a strong set of full-year results, to fully write off the S$81MM goodwill in relation to its Brazilian operations – FELS Setal, and impair its infrastructure assets, in preparation for better profitability ahead.
• Infrastructure to see greater contribution moving forward: With the maiden contribution of S$27MM by the 500MW Keppel Merlimau Cogen, Keppel’s two projects in Qatar – the solid waste management center and Doha North Sewage Treatment plant – are also expected to contribute positively to earnings from FY08 and beyond. Management also indicated that the unprofitable EPC projects secured previously in 2002 have been completed and will not be a drag on earnings moving forward.
• Tianjin Eco-City jumpstarts similar interests in the Middle East: The 30-km2 Tianjin Eco-City project has garnered interest from the Qatar Public Works Authority for a similar project to transform and enhance the surrounding area of the 16-km2 Doha North Sewage Treatment Works into an EcoPark to showcase ideas on sustainable and resource-conscious development.
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