Keppel Corp posts 72% drop in full-year net profit after 'painful chapter' of Brazil bribery case

Keppel Corp posts 72% drop in full-year net profit after 'painful chapter' of Brazil bribery case

Keppel Corp CEO Loh Chin Hua on Thursday (Jan 25) called the misdeeds of its offshore and marine unit in Brazil "a painful chapter" for the company and said that compliance controls have been put in place to prevent a repeat of such incidents.

SINGAPORE: Keppel Corp CEO Loh Chin Hua on Thursday (Jan 25) called the misdeeds of its offshore and marine unit in Brazil "a painful chapter" for the company and said that compliance controls have been put in place to prevent a repeat of such incidents.

Mr Loh's comments came as the conglomerate posted a 72 per cent fall in net profit for its financial year in 2017, due mainly to penalties its subsidiary Keppel Offshore & Marine were slapped with as a result of its bribery scandal in Brazil.

Net profit last year came in at S$217 million, down from S$784 million in 2016, the company said.

"The global resolution reached by Keppel Offshore & Marine over past misdeeds in Brazil brings an end to what has been a painful chapter for Keppel - one that we have recognised and dealt firmly with. This is not Keppel. We care not just about results, but also how they are obtained," Mr Loh said at Keppel's full-year earnings briefing.

"We have put in place enhanced compliance controls, including comprehensive training and certification, to prevent any repeat of such misdeeds," Mr Loh said. These include an enhanced code of conduct within the group, the hiring of experienced compliance personnel, a comprehensive compliance e-learning and test platform as well as a new whistle-blower policy within the organisation, Mr Loh added.

Keppel said in its financial report that the net profit took into account a one-off financial penalty of S$570 million arising from Keppel O&M’s global resolution with criminal authorities in the US, Brazil and Singapore, and S$49 million for related legal, accounting and forensics costs.

Mr Loh said during the question-and-answer section of the briefing that the financial penalty of S$570 million will be paid in two phases: 87.5 per cent by the first half of this year, with the remaining 12.5 per cent by 2020.

Going into the details of the first phase of payment, Mr Loh said that 25 per cent of the penalty was paid in January, 12.5 per cent will be paid in March and 50 per cent in May.

He also said internal investigations conducted were “very thorough” and done by third-party counsels, which explains the high costs in legal and forensics work.

Mr Loh was also asked when resources were put into investigating the incident, to which he said: “I think we’re going a bit too far into this, so I will not answer that question.”

He added: “I think we’ve done our part, and as a very responsible organisation”, when Keppel notified authorities in October 2016 regarding the suspicious transactions.

The offshore and marine division incurred a net loss of S$835 million for 2017, compared to a net profit of S$29 million for 2016. This was mainly due to the one-off impact of the financial penalty and related costs, an additional S$81 million provision for losses made on the Sete Brasil projects and S$54 million in impairment on other assets.

Keppel O&M’s involvement in an international corruption scandal came to light on Dec 23 last year after Keppel Corp announced that its rig building unit would pay US$422 million in fines as part of a global resolution with authorities in the US, Brazil and Singapore over corrupt payments made by a former agent in Brazil.

As part of the resolution, Keppel O&M was also issued a conditional warning by the Corrupt Practices Investigation Bureau.

“The global resolution allows the Group to draw a line in the sand, and for us to continue operating in Brazil and US markets,” said Mr Loh at the briefing.

Asked if Keppel O&M will be put in a disadvantaged position in future tenders, the CEO said: “I don’t believe so.” This, he said, is because the company has “lots of strengths” such as being able to deliver projects on time and he is confident it can win contracts “legally and ethically”.

Court documents released by the US Justice Department said that the company "knowingly and wilfully conspired” to pay bribes between 2001 to 2014 to win business deals with Brazilian oil firms Petrobas and Sete Brasil. 

The illicit payments, amounting to US$55 million, helped Keppel O&M to secure 13 contracts from Petrobas and Sete Brasil.

(sk) Keppel Offshore & Marine timeline

Following the shocking disclosure, Keppel’s stock took a hit. Shares of the conglomerate sank as much as 5 per cent on Dec 26, before clawing back losses to close 2.4 per cent lower at S$7.29. 

But the counter has since managed to regain lost ground. Keppel shares ended down 0.6 per cent on Thursday at S$8.58, compared to its closing level of S$7.47 on Dec 22. 

Keppel had said in its statement in December that it would make provision for the fines in the current financial year, but that the impact on its profit-and-loss statement is a "one-off" and it will "ringfence" the penalty when considering this year's final dividend.

The company has proposed a final dividend of 14 cents per share, compared to the final dividend of 12 cents declared for 2016.

Source: CNA/aj

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