Keppel Corporation Limited

Loh Chin Hua - CEO Chan Hon Chew - CFO Chow Yew Yuen - CEO, Offshore & Marine Ang Wee Gee - CEO, Keppel Land Ong Tiong Guan - CEO, Keppel Infrastructure

Ling Xin Jin - Morgan Stanley

Very good evening to all of you, on behalf of my colleagues on the panel, a warm welcome to this conference and webcast on our results and performance in the second quarter and first half of 2015, the global economy today is characterized by slower growth and greater volatility. The U.S.

economy appears on track for moderate expansion following a sluggish first quarter. We've recent improvements in the employment situation market watchers are expecting a Fed rate hike within this year.

In a recent testimony Janet Yellen has all but confirmed this. Over the past few months, the Greek debt crisis has grabbed international headlines.

There are still a few more hurdles to cross before the deal to prevent an exit by Greece is settled and accepted by all parties. How this issue plays out may have long-term implications on the EU.

What we can take some comfort in is that even if the worst happens, the transmission effect of an exit by Greece has been greatly reduced. China's economy continues to grow steadily, at a slower, but possibly more sustainable, pace.

Even at this lower rate, China's absolute growth is still very significant based on a larger US$11.3 trillion economy, compared with five or ten years ago. In selected Chinese cities, we have seen improvements in the property market on the back of the government's stimulus measures.

We also saw great volatility in the stock market, but these are part of the growing pains of a country progressively opening their financial system to the world. Since the steep fall in oil prices last June, the price of Brent crude has rebounded from the mid $40 a barrel range, but still remains relatively low, hovering at about average US$60 a barrel.

With the recent US-Iran nuclear deal, sanctions on Iran could be lifted soon and that will increase global oil supply. Lower oil prices for a sustained period, is a reality that oil and gas industry needs to grapple with.

Longer term, when supply and demand is more elastic to price levels many expect oil to stabilize at levels between $70-$90, with the shale oil here to stay, we may not see US$100 oil for some time. In Singapore, various factors, including the global economic climate will weigh on us.

Based on advance estimates, the Singapore economy grew by 1.7% on a year-on-year basis in the second quarter, lower than the 2.8% growth in the previous quarter. Amid these headwinds, Keppel continues to perform respectably.

Comparable to the year before, we achieved an overall net profit of S$397 million in the second quarter, and S$757 million in the first half of 2015. Our annualized ROE for the period was 13.1%, while EVA was S$225 million.

To reward shareholders, the Board of Directors has approved an interim distribution of 12.0 cents per share for the first half of 2015, which will be paid out in August. The Group's ability to sustain its creditable performance and dividend payouts are due in some measure to Revaluations, Major Impairments and Divestments, in short, RIDs.

RIDs are a regular course of our business and should not be viewed as one-off or extra-ordinary items. As you can see from this graph, RIDs have constituted about 20% of the Group's annual earnings every year over the past five years, averaging at about $400 million a year over that period.

In the first half of 2015, RIDs contributed $272 million or 36% of the Group's net profit. This includes a gain of $202 million realized from the sale of our 51% stake in Keppel Merlimau Cogen Pte Ltd (KMC) to Keppel Infrastructure Trust in the second quarter.

The divestment of the 51% in KMC has also unlocked cash of almost S$1 billion for the Group. As a conglomerate, Keppel is well-placed to capture value by riding on the Group’s unique ability to create good assets, which we can own, manage and then recycle at the right time to earn the best risk-adjusted returns.

We have, over the years, channeled efforts to build up platforms with which we can unlock value effectively. Our fund management arms in Property and Infrastructure, with a combined AUM of S$23.7 billion to date, will continue to provide a solid base for recycling capital as well as generating stable fee-based income such as asset management fees, facilities management fees, and operations and management fees.

We remain confident of the long-term fundamentals of our chosen industries. At the completion of Keppel Land’s privatization, we achieved a total shareholding of 99.27% in the company.

With that, we have obtained almost full control over all the key business units in Keppel. This will enable us to deploy capital effectively across the Group with a focus on generating sustainable returns.

We will also be able to right size our property book to take advantage of the cycles. There will be savings in interest cost estimated to be about $18 million a year borrowing under KCL credit.

For the half year, the privatization has yielded an additional $73 million in net profit contributions from Keppel Land. Our multi-business approach has allowed us to cushion the 25% fall in net profits from Offshore & Marine with higher contributions from Property and Infrastructure to bring us to about even compare to a year ago.

Leveraging the Group’s robust financial position, we will weather the headwinds and position ourselves to build strong business verticals and seize growth opportunities. Keppel Offshore & Marine has a net order book year to date which stands at $11.0 billion, which is keeping our yards busy through to 2020.

Year-to-date 2015, Keppel Offshore & Marine secured $1.5 billion worth of new contracts. Just yesterday, Keppel Shipyard signed a US$684 million contract with Golar for an FLNG conversion, which is the third for such won by Keppel.

We continue to focus on executing our projects well, ensuring safe, on-time and on-budget deliveries to our customers. Amongst 12 major projects completed in the first half, apart from the five jackup rigs, the other noteworthy deliveries were for the fourth high-specification accommodation semis to Floatel International, and a Depletion Compression Platform (DCP) to Shell by Keppel Subic Shipyard, our satellite yard in the Philippines.

Of the ten jackups we will deliver in the second half, five KFELS B Class jackup rigs will be handed over to Mexican customer, Grupo R. We have reaped synergies working on five rigs at one time, optimizing resources and improving efficiencies in the process.

BrasFELS continues to make good progress on the DSSTM 38E drilling semis for Sete Brasil. The first three units are 90%, 63% and 36% completed.

Besides the six semis, BrasFELS is also working on the module fabrication and integration for two FPSO units P-66 and P-69 for Petrobras, as well as the repair of the drilling semis ENSCO 6002. With the current low oil prices, we are likely to see an acceleration in the replacement cycle for aging rigs.

Days are numbered for many old rigs. It is estimated that about 94 jackups and 27 floaters around the world are more than 30 years old.

The scrapping of old rigs will hasten a rebalance of demand and supply in the offshore market and sow the seeds for the upturn It has also been estimated that some 238 projects in the appraisal, planning, or bidding/final design stages worldwide potentially require a floating production/storage system. Our established track record of having us competed over a hundred complex FPSO, FSO and FSRU conversion projects, coupled with a growing pool of in-house FLNG expertise, puts us in good stead to offer quality solutions to some of the challenges faced by the offshore LNG industry.

The global FLNG industry is expected to attract more than US$65 billion of investments from now through to 2020, driven by rising costs of onshore LNG terminals. Asia-Pacific, in particular, is expected to draw a majority of investments in the FLNG sector with its sizeable line-up of re-gasification and liquefaction projects.

Our gas strategy and suite of products for the offshore gas industry will provide some cushion to the current weak demand for drilling rigs. Even as we await the upturn in the drilling market, we are not resting on our laurels.

From 2010 to the present, we have secured S$11.2 billion worth of contracts for non-drilling solutions and services. This marks a 64% increase over the preceding five-year period from 2005-2009.

Our expanding suite of innovative solutions will put us in pole position to capture more work in the non-drilling markets, which up till now remain resilient as proven by our order wins year-to-date. I will now update on our Property business.

With the completion of the privatization exercise, Keppel Corporation now owns over 99% of Keppel Land which was delisted from the Singapore Stock Exchange on 16 July, 2015. The full ownership of the division will also give us the ability to right-size the balance sheet of the property business in response to opportunities, and allocate resources across the Group for optimal returns.

Keppel Land will provide a strong pillar for earnings and long-term value creation for the Group. To meet housing needs in the region arising from a fast expanding middle class and a high urbanization rate, Keppel Land has a pipeline of over 18,000 launch-ready units.

In the first half of 2015, Keppel Land sold over 1,800 homes, which is higher than 1,300 units that were sold in the first half last year. In China alone, Keppel Land sold about 1,170 homes in first half 2015, compared to about 1,060 units sold in the first half 2014.

This improvement was underpinned by the relaxing of cooling measures by the Chinese government since the first quarter this year. Over in Indonesia, specifically in Jakarta where we are focused, the residential market continued to record modest absorption amidst poor market sentiments that have been affected by lower GDP growth and depreciation of the Rupiah.

However, the mid-to-long-term prospects for the residential market remains positive supported by an expanding middle class and urbanization trends. We are positioned to meet demand for quality homes with our West Vista project in West Jakarta.

In Ho Chi Minh City, Vietnam, the completion of major ring roads and the introduction of a metro system will improve accessibility and have a positive impact on surrounding property values. The recent amendments to the foreign-ownership law, which came into effect in July, should boost housing demand.

With improving market conditions, we sold about 450 homes from our Estella Heights and Riviera Point condominium projects in Ho Chi Minh City, compared to about 100 units the previous year. Seizing opportunities in a softening market, Keppel Land is re-investing $430 million to develop new residential projects in Chengdu, China, in Jakarta, Indonesia.

At the same time, Keppel Land continues to strengthen its commercial portfolio and expertise, with an overseas portfolio under development totaling about 840,000 square meters GFA. Array Real Estate, which Keppel Land acquired a major stake in December last year, has been renamed Keppel Land Retail Management and is collaborating with our various country teams to actively explore retail-related opportunities in our core and growth markets.

Targeted for opening next year is the retail component of Saigon Centre Phase 2 in Ho Chi Minh City, which is now more than 70%, pre-committed led by anchor tenant Takashimaya. Across the globe, Keppel Land had in the first half reinvested $186 million in a refurbished office building in London.

The recent developments in our infrastructure division, demonstrates Keppel’s serious commitment to grow this third leg of business. Even as we nurture green shoots in our infrastructure division, we are committed to complete the complex EPC projects.

I am pleased to update that we have successfully handed over both phases of the Greater Manchester Energy from Waste Plant. Meanwhile, Doha North Sewage Treatment Works will achieve significant completion this year.

I am disappointed that in spite of our best efforts, we had to take additional provisions in the second quarter due to delays and cost over runs. We believe that this will be the final round of adjustments.

With the formation of an enlarged Keppel Infrastructure Trust, through the combination of CitySpring Infrastructure Trust and KIT as well as the acquisition of a 51% stake in KMC, we created the largest Singapore infrastructure-focused business trust. To fund the acquisition of KMC, KIT has also successfully raised $525 million through a private placement and preferential offering, which is the largest equity deal-to-date in Singapore this year.

With the KMC acquisition, KIT has a total asset size of over S$4 billion. Today, Keppel T&T announced plans to develop its fourth data centre in Singapore.

The Greenfield data centre development, Keppel’s second largest in Singapore, is strategically located in close proximity to our existing facilities in Tampines. We are confident that this latest facility will be able to meet our customers’ requirement for high-availability data centre space Meanwhile, Almere 2, Keppel T&T’s purpose-built data centre facility in the Netherlands, will commence operations later in the third quarter this year.

Just five months after its listing, Keppel DC REIT acquired from Macquarie Telecom the Intellicentre 2, strategically located in a research and business park in Sydney that specializes in the communications and information technology sectors. The acquisition builds on Keppel DC REIT's established track record in Sydney and stands it in good stead to tap the market's growth potential.

Keppel T&T is expecting to kick-start operations of several of its logistics projects in China and Vietnam this year and we expect progressive contributions from these regional projects as they come on stream. Back in 2012, Keppel took an interest in KrisEnergy an independent upstream oil and gas company because we believe in its long-term growth potential and that it would offer sustainable returns over the long run.

Recently, KrisEnergy announced that oil production has commenced in the Nong Yao field in the Gulf of Thailand, the first development project in its portfolio to be brought on stream. To support KrisEnergy in its efforts to finance upcoming projects, Keppel has recently undertaken to subscribe for its full entitlement, which is about 31.3% of the rights issue by KrisEnergy to raise $169.5 million.

Keppel will act as sub-underwriter for all the underwritten rights shares. In the event that Keppel is required to sub-underwrite all the sub-underwritten shares, Keppel’s interest in KrisEnergy will not exceed 50.0%.

With a long-term view on its potential, Ocean Mineral Singapore (OMS) was established, together with UK Seabed Resources, a wholly owned subsidiary of London based Lockheed Martin UK Holdings and Lion City Capital Partners, to leverage Keppel's experience in the offshore and marine sector. Recently, OMS entered into a 15-year exploration contract for polymetallic nodules at a 58,000-square-kilometre site within the Clarion-Clipperton Fracture Zone in the Pacific Ocean with the International Seabed Authority.

Sponsored by the Singapore Government, OMS is the first Singaporean company to be awarded an exploration contract for polymetallic nodules. As we move into the future, we aim not only to develop the engines of growth in our key businesses, but also reinforce the pillars that will continue to support Keppel’s expansion, even when conditions are rough.

The next graph illustrates the recurring income generated across our business divisions. Recurring income currently contributes $170 million or about 22% of the Group’s total net profit for first half 2015.

We aim to continue to grow this to improve the quality of our earnings. In the Offshore & Marine division, we will continue to invest in R&D to come up with technology that can be commercialized in the near term, as well as better processes to raise the skill sets and productivity of our yards.

Keppel O&M will continue to pursue its build and grow strategy by exploring potential partnerships with customers in niche markets that require solutions such as floating accommodation, Floating LNG, and Plug and Abandonment, all of which will enable it to create sustainable income streams to augment its lumpier turnkey contracts. Our Property and Infrastructure divisions will continue to fuel the growth of their respective fund management units by developing a stable pipeline of quality assets for injection, while earning recurring fees through operations and maintenance as well as facilities management.

A sturdy and sizeable recurring income base will enable Keppel to maintain earnings visibility and form a strong foundation for earnings growth. Through 47 years since incorporation, Keppel has grown stronger from every downturn and has been able to continuously integrate and streamline its business units to create value.

I will wrap up by sharing a slide capturing Keppel’s corporate milestones over the last fifteen years to illustrate my point. In early 2000s, shortly after the Asian financial crisis, we consolidated and sold our banking and finance arm.

I think at that time that division contributed roughly about 50% of our net profits. With proceeds from the divestment, in the wake of September 11, we integrated our shipyard operations to form Keppel Offshore & Marine (Keppel O&M), which resulted in over a decade of unprecedented growth.

Keppel O&M is a prime example of the success that we were able to achieve by taking our offshore and marine businesses private. With the flexibility to assign capital, talents and projects across subsidiaries, we have been able to fully harness our Near Market, Near Customer strategy to capture value worldwide More recently, we re-organized the Infrastructure Division and formed Keppel Infrastructure, with a focus on energy.

We are growing Keppel Infrastructure Trust into a sizeable vehicle for Keppel Infrastructure to unlock value from mature assets and reinvest capital in new projects for higher returns. The same is being done with Keppel DC REIT.

Finally, with Keppel Land privatized, even enable us to deploy capital across our businesses more effectively and our property division can focus on generating stronger returns. These are gears that we have set in motion to propel Keppel into its next phase of growth.

We have a strong track record of agility and turning adversity into advantage. Our multi-business approach will help us weather the storm and emerge stronger on the other side.

There will also be opportunities along the way. We will certainly not waste this downturn.

I shall now let our CFO, Hon Chew take you through a review of the Group's financial performance.

A very good evening to all, now I shall take you through the Group's performance for the second quarter of 2015. The Group recorded the net profit of 397 million this quarter which was 2% below the same quarter last year.

Earnings per share correspondingly decreased by 2% to $21.09, our EVA was lower at 122 million. The free cash flow outflow of 542 million for this quarter is higher compared to a 390 million outflow in the second quarter of 2014, this in mainly due to lower operation of cash inflow.

Just a reminder that exclude expansionary acquisition and CapEx and major divestments in our free cash flow statement, for instance the cash inflow of 952 million from the divestment of the 51% interest in Keppel Merlimau Cogen during the quarter is excluded. The Group's revenue for the second quarter dropped by 19% or 614 million from the same quarter last year.

All divisions except property division that caught at lower revenues during the quarter. Operating profit at 414 million saw a decline of 11% or 53 million as compared to the second quarter of 2014.

This was mainly due to lower profits from Offshore and Marine and investment divisions which were partially offset by higher profits from property and infrastructure. Profit before tax decreased at the higher rate of 16% or 95 million due to higher net interest expense and lower contributions from associated companies such as the Botanica in Chengdu and Marina Bay Financial Center Tower 3.

After tax and non-controlling interests, the drop in net profit narrowed to 2% or 9 million as a result of lower tax expenses and non-controlling interests. Tax expenses were lower because of lower taxable profits while reduced non-controlling interest was the result of the acquisition of additional shareholding in Keppel Land.

Correspondingly earnings per share decreased by 2%, overall, the Group’s revenue was 19% lower than the same quarter last year, driven largely by the decline in the Offshore and Marine division as a result of lower volume of work and deferment of some projects. This was partially offset by a 24% growth in Property revenue, primarily due to higher revenues from residential projects in China like the Luxurie, Eight Park Avenue and Seasons Residences in Shanghai and Park Avenue Heights in Chengdu.

Infrastructure's 28% drop in revenue was mainly due to lower revenue from power and gas business as a result of lower prices and volume, as well as the absence of revenue from Keppel FMO Private Limited which was divested in the fourth quarter of 2014. Offshore & Marine division's pre-tax profit was 36% or $124 million lower due to lower revenues at lower operating margins, lower contribution from associated companies and lower net interest income.

The division's operating margin for the quarter was 13% compared to 14.6% in the same quarter last year. Property division's pre-tax profit was slightly lower by 5% despite higher revenues, due mainly to higher net interest expenses and lower contribution from associated companies like The Botanica in Chengdu and Marina Bay Financial Tower 3.

Infrastructure division reported a $67 million increase in pre-tax earnings for the same period last year despite 28% drop in revenues. This is driven by the gain from divestment of the 51% interest in Keppel Merlimau Cogen and the combination of Keppel Infrastructure Trust and CitySpring Infrastructure Trust, partially offset by losses following finalization of the cost to complete the Doha North Sewage Treatment Plant.

Investment division’s pre-tax profit is lower this quarter, due mainly to write back of impairment of associated companies and higher sale of investments in the same quarter last year. As a result, the overall Group pre-tax profit was 16% or $95 million lower than last year.

After tax and non-controlling interests, the drop in Group net profit was at a lower rate of 2% or $9 million. As alluded to in an earlier slide, the Group benefited from reduced non-controlling interests as a result of the increase in shareholding in Keppel Land.

This reduction in non-controlling interest helped to increase Property division net profit by 75% or $50 million. Next, I shall take you through the performance for the first half of 2015.

Net profit for the first half of 2015 was $757 million, up 2% from the same period last year. Earnings per share also increased by the same extent to 41.7 cents, annualized ROE declined to 13.1% while EVA was lower at $225 million, due mainly to lower net operating profit after tax.

Free cash outflow decreased from $781 million in the first half of 2014 to $316 million. This is due to lower increases in working capital.

Our net gearing increased from 11% at the first half year of 2014 to 42% this year, mainly due to funds used for the acquisition of additional shareholding in Keppel Land, partially offset by proceeds from the disposal of 51% of Keppel Merlimau Cogen plant. We are pleased to announce an interim cash dividend of $0.12 cents per share for this half year.

The Group recorded a 13% or $796 million decrease in revenue to $5.4 billion, largely due to lower revenue from the Offshore & Marine and Infrastructure divisions. Operating profit decreased by a lesser extent to $812 million, an 8% or $70 million decrease from the first half of 2014.

The decrease is led by lower revenues from Offshore & Marine and Infrastructure divisions, and losses following finalization of the cost to complete the Doha North Sewage Treatment Plant, partially offset by gains from divestment of Keppel Merlimau Cogen and the combination of Keppel Infrastructure Trust and CitySpring Infrastructure Trust. Pre-tax profit dropped 12% compared to the 8% decrease in operating profit, due to higher net interest expense and lower contributions from associated companies compared to the same period last year.

After tax and non-controlling interests, net profit was higher by 2% or $12 million despite lower pre-tax profit as a result of lower tax expenses and non-controlling interests in Keppel Land. The Group earned total revenues of $5.4 billion in the first half of the year, 13% lower than the same period last year.

The decrease was mainly driven by lower revenues from Offshore & Marine and Infrastructure, partially offset by higher revenues from Property and Investments. In the Offshore & Marine division, major jobs completed to date this year include five jack-up rigs, an accommodation semi, one depletion compression platform, one floating crane and an FPSO integration.

Property revenue increased by 12% as compared to the first half of 2014, led by higher revenue from residential projects in China. Lower revenues for infrastructure was attributed mainly to decreases in revenue from the power generation business as well as the absence of revenues from Keppel FMO which was disposed off in the fourth quarter of 2014.

Lower revenues and operating margin resulted in Offshore & Marine reporting a 27% decrease in pre-tax profit for the first half of the year. The division also recorded lower net interest income and contribution from associated companies.

Offshore & Marine operating margin for the first six months was 12.5%, compared to 14.4% in the same period last year. Despite higher revenues, the Property division registered a 13% decrease in pre-tax profits mainly as a result of higher net interest expense and lower contribution from associated companies.

Infrastructure’s pre-tax profit was higher by 58% for the first half of 2015, led by gains from divestment of Keppel Merlimau Cogen and the combination of Keppel Infrastructure Trust and CitySpring Infrastructure Trust. Partially offsetting this increase was losses recognized for the Doha North Sewage Treatment project and the reduced contribution from the power and gas business, investment division’s pre-tax profit increased by $27 million, mainly due to higher profits from the sale of investments.

The increase in pre-tax profit from Infrastructure and Investment divisions partially offset the decrease in pre-tax profit of Offshore & Marine and Property divisions, resulting in an overall 12% or 132 million decreased in Group pre-tax profit to $953 million. Despite a lower Group pre-tax profit, the overall net profit after tax and non-controlling interests was 2% or $12 million higher than the same period last year.

As we explained before, this was due to lower tax expenses and reduced non-controlling interests in Keppel Land. At 757 million, the net profit for the first half of 2015 is higher than the same period last year.

If I may say so, this is a credible performance despite a weak economic environment and low oil prices. Annualized ROE decreased to 13.1% in 2015.

ROE of 18.8% for financial year 2014 included revaluation gains from investment properties which would be assessed only at each year end. Our proposed interim dividend to our shareholders for this period will be 12.0 cents per share.

This represents a pay-out ratio of 29% of our profit for the first half. In the first half of 2014, the Group generated 637 million of cash flow from operations.

After accounting for working capital requirements mainly from the Offshore & Marine and Property divisions and proceeds from sale of investments, operating cash outflow for the six months was 272 million, compared to an outflow of $642 in the same period last year. Net cash used in investing activities amounted to $44 million, comprising divestment and dividend income from associated companies of 164 million, as well as investments and operational capital expenditure amounting to $208 million, mainly from the Offshore & Marine division.

The resultant cash outflow was 316 million for the first half of this year, which is 465 million, lower than 2014. In the face of strong headwinds, the Group leverages on our core competencies and expertise to tackle the challenges and remain competitive amidst the changes in macro-economic conditions.

The Group will continue to invest in the future through constant innovation in technologies and solutions. This is so that we may maintain our resilience and agility in a fast changing environment, and thus remain poised to seize any new opportunities to deliver sustainable growth and create value for our shareholders and customers in the long run.

Thank you.

Now we're ready to take questions. You can either ask us questions for those of who are present and we can also take questions on the Internet.

Do we have first question?

Ling Xin Jin from Morgan Stanley, I have two questions one is on the Offshore & Marine division. Given that there is a potential that your order book could see a decline if you're not able to replenish as fast as you are recognizing your revenue.

What are your options or some other initiatives that you can take to actually lower your cost on the O&M side?

Well, we have -- the yards are still very busy for the next two years. We still have a very sizeable order book to execute.

Of course, we also have to respond and get ready for the market conditions ahead. The team led by YY had been looking very closely at our costs and I think you know -- this -- after a very long 10 years period of very good Group.

This is also a good period for us to consolidate and look at how we can continue to improve on our cost-efficiencies. So this is something that we're looking at, but I will say that for the yards, next two years were still going to be very busy.

But we do have an eye -- keeping a very firm eye on costs.

And the second question is on infrastructure division. Would you be able to elaborate a little bit more on what exactly the finalization costs for Doha were?

If I do a simple calculation, it looks as if in the second quarter the Infrastructure division actually registered a loss of close to $160 million?

Let Hon Chew, you want to take them?

Yes, I think you saw in the slide earlier in the second quarter, the Infrastructure division's net profit was higher by $67 million. That has a number of -- so called lumpy items in there.

I think as we have mentioned during the quarter we also divested 51% interest in Keppel Merlimau Cogen into KIT, Keppel Infrastructure Trust, as Chin Hua has mentioned that actually provided a gain of about $202 million. The combination of KIT with CitySpring also resulted in a gain of about over $60 million.

So in total it's about $261 million gain arising from these two related transactions. Yes that's partially offset by additional losses that we have taken up as a result of finalization of the cost to company.

In numbers, it's roughly just under $200 million and we do believe that this should be the final round of adjustments that we need to make for Doha North. And with this the three EPC projects will be behind us.

We would have taken up all the losses arising from cost to compete for all these three projects. With that answers your questions.

This is submitted by Mr. Attavar from Jefferies.

First -- there are two questions. First question, can you please indicate -- sorry there are three questions.

Can you please indicate the rough contribution of the Sete Brasil projects to those total Offshore, Marine revenues recognized in the second quarter 2015. Second question.

Is Keppel continuing to execute on these projects, given Sete debt restructuring is not yet complete. Third question.

Have you received any progress payment from Sete in the second quarter 2015. As of now it's total payment from Sete is still ahead of work-in-progress on book.

I'll take the third question first. I think as we have reported, we have not received payments since November last year on these projects.

Sete is still going through their financial restructuring. As at the end of the second quarter we have a very small net cash outflow -- very small of all the projects that we have, the six standbys.

On the second question is -- Keppel continue to execute -- I think we have shared before. We are slowing down on construction.

We are in active discussions with Sete. Very clear to us that both Sete as well as the ultimate and the end customer Petrobras need all the six rigs, so they are working with us to see how we can deliver those rigs.

Of course on our part -- we have to wait for their restructuring to be completed. Can I ask Hon Chew to answer -- take the first question.

Well, as Chin Hua has mentioned we have really started to moderate the progress of the Sete Brasil [semis], as we have also updated the progress of the three that we have started work. The first one is now at 90%.

You might recall, the last quarter our update at that point in time was 89%, while the second one this quarter 63%, last quarter was 68%. And the third one this quarter 36% and last quarter was 32%.

You can see the progress has been moderated. So the contribution coming from Sete projects in the second quarter is actually quite small.

Hi, I'm Gerald from Credit Suisse. Just a follow-up question on Sete Brasil.

Will you consider financing the construction of some of the rigs if asked to by Sete Brasil?

It's been reported, I think you are quoting report from one of the press on oil and gas. I think we are discussing with them how best to finance rigs number five and six.

I think we have to look carefully because if the terms have changed and the risk for us. We have to look very carefully and making sure that you know, the terms -- any changes in the terms has to make sense for both sides.

My second question is on the recurring income chart that you show, just any target on how much you intend to grow the recurring income by over the next few years?

We have; we expect that to grow something that we are -- I guess we have an internal target but this is something that of course will depend on market conditions. So we don’t check, we won't be sharing that.

And lastly on the property division, the net profit actually increased between the first quarter this year and the second quarter. Was that driven more by profit contribution in Singapore or in China?

As you've mentioned in the presentation, I think this quarter we had more contribution from China. There was completion of projects in China as you know, the property revenues and profits in China are actually recognized on the completion basis.

So that’s one and of course also higher sales of residential units in China.

Hi. I'm [indiscernible] from IHS Petrodata.

On their IHS Energy. I have three questions and I would like to ask, you mentioned that paying jack-ups are is scheduled to be delivered at the, during second half of 2015.

Are there any delays expected on this any of distinct units since it's understood a number of them do not have contracting hand? That’s my first question and the second; is there any options being exercised for [indiscernible] is there is to be based in excess?

Okay YY will take your questions.

I think this year -- early part of this year, the first quarter I think we have announced also that there have been some shift and that was already taken into account. So the remaining 10 projects for the second half; there is no further delay.

There is no further request while I meet the further delay. And also our projects doing quite well.

They are on time and on budget. Second point is on options.

The [GDI] options are still on but has not been; that nobody has exercised any option at this point.

For the dealership [indiscernible] -- is in Japan. Can we know and when is it expected to come to Singapore and if the tentative deliveries -- over Q4 2015?

You know that dealership. We've build it on our own account.

So actually we quite flexible. So based on current market condition actually we together evolve a Japanese subcontractors that for -- decided that we can actually slow down.

So instead of delivery that we announced previously end of 2016, we actually push it back to the second quarter of 2017. I haven't said that, we are actively obviously marketing the dealership right now.

And distribution which continued to belief that it is a differentiated product and we believe that you know that there will be a demand. Now if somebody comes to us and says that they need to have a earlier delivery and what we now target, there is a possibility for us to actually meet those reform.

So we are quite flexible in the sense because we don’t have to [Under Wealth] it that’s why as deliver and that will be accounting for us.

I think, definitely you were saying the yards will be quite busy or the next year, this year, next year. I think you said that earlier as well based on your order book.

But the numbers they advise; because the numbers are falling. I just wondering next year are we going to see a sharp decline in earnings?

[indiscernible] I think Chin Hua has also mentioned early on that. Actually we are -- this year we'll be -- we have to look at the all the three business division.

Also in the marine our business capital fells. This year you know we are still delivering '15 mix and so we are quite busy.

And next year, we have eight, seven rigs delivery and a year after we have about six rigs of delivery. So mean time we are very busy with a lot of repairs, of course repay margin is higher but the revenue is actually lower.

And capital of shipyard, I would think, I would say that even though there's slowdown in the FPSO, but actually the trend is that FPSO projects may be coming you know back, and on top of that we have the FLNG projects that we're doing right now. Keppel in marine is actually hiring more people because you know our revenue in that area we actually expect to grow by more than 60% from previous year.

So overall you know Keppel FELS this year going forward I think last year has been a very busy year and so in terms of workload there will be a, you are quite right with regards to revenue because there will be actually revenue wise will be lower, but what we are doing actually, is actually taking this opportunity to stick to right size our different organization. So in that process we are also making some natural attrition to those people who are near retirement and at the same time we have the subcontractors that we are able to use them to make the adjustment.

Yes, I think early on there was one question on cost savings, I just wondering whether a group or a target on how much cost you want to realize in the offshore marine side, I just wondering about it, because like we talk to other companies who do have some figures that they want to work towards to.

Well we don’t really have a figure but what I can say is that, we have obviously not sat on our laurel, so when we look at the optimal operation, what would be the right size of overhead, right size of workforce and so on so we've been driving on, top of that actually we're doing a lot of productivity improvement, but we've continued to invest in R&D and to make sure that our processors, our productivity during this period. I said it before that we must not waste this [crisis] and this is exactly what we're trying to do and with the supply chain there's a lot we could do with the supply chain, so in fact in today's market a lot of the supply, the equipment and materials cost has come down.

So those are opportunities also for us.

I think the point here is that you know, this downturn when we're talking about right sizing it's also about doing [indiscernible] value engineering rather than just cutting costs across the board. We're still investing in R&D, we're still investing in training, improving our productivity but certainly there're areas where we can tighten up and I think the main thing is to make sure that our overheads are well under control and that you know we are ready if the market conditions get tougher and we can continue to make a profit, I think that's key.

Let me address a question from the net. This is from Peter from [Valesni] and the question here's -- two questions.

Can you discuss your first FLNG conversation with Gola, how is that proceeding relative to plan and budget? Well it's performing according to plan and budget so we're quite happy with that.

It's something that we're tracking very closely. Second, what does the runway with Gola on FLNG look like going forward, for example if we fast forward five years is it possible you'll build 10 FLNGs for Gola by that point.

Well we hope so but I think we’re not making projections here. I think the key here is that FLNG is a growth market, I think I've quoted some numbers, there's still a lot of people that expect investment going into this area and we're one of the, we're the first mover so we've done now, we're going to now three FLNG conversions and we've built up track record for that and of course in partnership with Gola and other partners we hope to do more in this area.

Maybe I can add, first of all the first FLNG Gola Dahili is actually doing quite well, so I'm pleased to inform that we are on budget, on schedule and as for the opportunity with Gola in the next five years I think that current arrangement is that there is one for Gola, one FLNG per year starting in 2017, then 2018, 2019. Now I cannot foresee what the market is like but at least what the trend like in the FLNG side of the business as Chin Hua has mentioned in his opening address that there are a very sizeable budget for FLNG business.

So we are, we have some very active inquiry from other parties other than Gola, so I think suffice to say is that actually we are quite optimistic about that segment of the business.

Any further questions, yes.

Gonio from Straits Times. I just wanted to check, for second quarter of this year, staff cost came down 17.5%, is there any particular reason why staff cost came down so sharply?

As you know, the way we pay for performances, so we have fixed and variable component to our remuneration and so the bonus part is actually packed with the performance. So as you know, looking at the results with a -- there is some reduction in the provisions for the variable component of the remuneration.

It doesn't mean that we have cut our workforce by 17%, so please don't report that.

Yes, that follows on to my next question. So when you right size your operations in next two years.

Does that involve job redundancy in Singapore?

I think -- I think put it this way. We are also -- we have to meet -- the quarter over the next few years.

So that's something that we have been planning already and we have -- talking about the offshore marine site, we have also in the last couple of years, started to upgrade our regional yards, so this is part of our process to improve productivity and some of this work that we cant do in Singapore, we will be shifting to these overseas yards.

Actually one of our concern has always been that if activity level has remained the same one of our biggest challenges within the government's quota, so naturally over the last couple of years, we have been looking to see how we can increase our production capability, so that's why already invested in some of our oversea facility. And I'm pleased to tell you that actually we're on target to meet the government's quota.

So the -- foreign worker quota. No, no, no.

Foreign quota as you know, the government has actually -- fostered the piece of that change. So in fact by 2018, our quota will be 3.5.

Hi, this is Sheryl from UBS. I have a few questions.

First question is on Infrastructure division. We know that you've sold the 51% stake in KMC, however you still have an exposure to the [leisure city] market by your retail business.

So, could we -- can just have sense on how -- that's how the business performed in the second quarter? And also the outlook.

That's the first question. The second question would be on Property, and it would -- could you just clarify the basis for the $18 million savings you've mentioned in interest expense on Keppel Land privatization.

And just do clarify whether this takes into consideration the $3 billion that you'd have [indiscernible]. And yes, these would be my questions, thanks.

Wee Gee, would you like to take the first question?

I think we divested 51% of KMC, doesn't mean that we are out of the generation business. We continue to be exposed to the commercial part of the business.

And we continue to keep the gas business, that's why we have gased of power integrations. And this will go on for some time, I think we plan to continue to stay and grow the business.

The Singapore I think as you are familiar, we have a long gas situations. The margined compressions is showing up quite fast.

So we are seeing margin compressions. And the business margin will be quite challenging over the next few quarters, and particular in '16, I think the pressure will be higher.

As '15 I think we're still managing it quite well.

Thanks Wee Gee, I think on the second question, on the $18 million interest savings just to elaborate, I was referring to the existing loan book from Keppel Land, over time if you'd refinance it based on KCL credit, that would lead to a savings in interest a year of about $18 million. The interest that not with is actually interest, because -- when we used the funds to buy or to privatize the Keppel Land, some of these funds are actually cash in our balance sheet, of course even though it's cash -- over time if we use the cash our net gearing will actually go up.

So it's very difficult to tell you that it's actually an additional cost up -- all the interest is already effected in the numbers that you see. Okay, let me go through the question on the web, we have a question from Ajay from JPMorgan.

He says thanks for the presentation. Two questions from my side.

On Sete Brasil, can you update us on delivery dates for six semis? If there has been any change in that regard?

On the second question on gearing. Does management expect to normalize a current levels of 0.4 to 0.5 times?

Thank you. I'll ask YY to answer the first question and Hon Chew to address the second.

Thanks.

I think on Sete Brasil Semis, as you know they have -- they have not paid us since November of last year. So we have been engaging in discussion with them.

And what we basically told them is that once the payment resumption, there will be a little bit of time for us to reactivate. So as you can see that we have continue to [indiscernible] them on slope basis slower pace and I'll say that there is some discussion between Sete and us as far as what the new delivery day if they resumption is next two months and more or less I will say that the new delivery date will be -- if you consider that if they pay us in October and there will be 10 months delay in our payment.

But because we have a slope down. So our corresponding shift in date will probably be less than 10 months.

And that counsel the rest of the units. Because every units there is a 10 months interval.

So then subsequently there will be dominant effect on that.

I'll take the second question on gearing. I think when we look at gearing, it's not meaningful to look at it at the Singapore or in [indiscernible] 40% to 50%.

Really I think at the end of day, it's really as we deploy capital as we allocate capital in the Group, we want to make sure that we don’t provide extend our balance sheet, we still maintain an institutional quality balance sheet that’s important operating principal. So in that regard it will be very unlucky for us to have our gearing exceeding one time for example.

Hi and follow up question just on Sete Brasil and what's going on there. Can you give a sense of how much of CapEx has being spent in the yard and in that area on capitals books in the last I say 10 years.

And also I mean there would be at the end the day financial cost related to having a lower level of revenue spread cost offering consequences and so far. So would you just give a sense of the financial impact and yeah?

Well we've been quite careful in spending money not just in Brasil but in all our yards. Actually the yard that you referred doing [indiscernible] rise actually was a bankrupt yard that we bought, and of course we've been quite careful -- it's actually a yard that leased -- so it is a yard that we are also quite careful to make sure that we don’t over invest but I'll see that in the last few year we have invested for instance in [indiscernible] and this has helped in terms of efficiencies but this is no way near the kind of capital required to build a new yards.

And as you know, many other yards have to build new yards in Brasil so there is something that we didn't have to do.

Maybe I can add that. You know we have always gone in the [indiscernible] yard to reactivate.

If you look at the older yards worldwide that we have -- I think we have a saying saving in capital. What is a good yard to acquire, one that has bankrupt twice.

Perhaps that’s answer to your question.

Thank you. [indiscernible].

I have two questions, could I get a general your view on the -- how the rig orders have been globally for this year, in the last press conference you said that. I mean we really seen that there hasn't been -- you haven't been seeing much activity so if any of these [indiscernible] changes?

That’s why first question and second is as far as the residential sales go China constitute 63% so far. Do you see that it shall be changing in the future, for example even the number of properties to be -- for a number of properties lined up in China.

Do you see a change in the percentage of China whether the properties is going up or down or how you view the China's residential markets the possibility of it, [crushing] for example.

Okay. Thank you for your question.

I'll ask to Gee to answer the second question but before he does that, the market is for drilling rigs right now is the headwinds are very tough. I think for the year as far as we know there are only three rigs that were ordered.

One in a close market in the Middle-East, two in China. But the two in China is we believe is to a related party, so it's not exactly representative of demand in our opinion.

So it's going be quite tough but I think one has to take a step back and realize that we have gone through a period of tremendous growth in the offshore side. And this downturn is not totally unexpected.

But as I said in my speech, there are things that are happening like retirement of old rigs et cetera, scrapping of old rigs, that would position the market for growth in the future.

Okay, regarding the China's residential market, we are quite positive with the market in the coming one to two years, we are seeing the market recovering with the government lifting the [cooling] measures. In the banking sector we see the government cutting interest rate three times this year and also lowering the bank reserve ratio, so we see the market coming back and in China there's a phenomenon of urbanization and growing the income and there's a real fundamental need for housing and as you know you probably know in the last few years the market was slower and that creates pent up demand, so we see demand coming back and we see the proportion of contribution from our China residential business growing in the next few years,

Thanks.

Next address a question from Mr. Shin from Thomson Reuters.

Good evening, I wanted to ask about offshore and marine's order book. This year we haven't seen a jack up rig order, correct me if I'm wrong, I just said there are three but not really representative.

Instead we've seen orders for FLNG conversion, lifeboats, etc. I was wondering if you might be able to give us some insights on the breakdown of the current order book, how much is from jack ups, and how much is from others.

How does it compare with the situation in 2014 or 2013.

I think if you refer the slide number nine in the presentation slide you will find the answer to that question. It's on the web, right?

Okay, it's confirmed it's on the slide, it's on the web so you can download that if you have not done so.

What does Keppel plan to do to replenish the order book if rig orders remain few and far between?

I think we have really covered that in the presentation that we are, we do see demand from FLNG and also from non-production side of things. What would the focus on niche products mean for the profitability?

Well I think all this would depends on the market conditions and of course you know some of the products for this year that we have secured, that is not on the drilling side, I would say that the margins are what we would have expected in normal times.

Any further questions from the floor?

Okay this is from Kian from Smart Comma, I like the name. Hi, I've three questions.

Given the weak sentiment in the deep water drilling are you still working on the drill ship or you plan to pause for a while. What is the progress of this drill ship?

Let me ask, you already answered that, okay. On Sete Brazil site, if you need to fund the construction what is the expected interest rate?

Well I think this is a bit presumptuous so let’s wait and see. The progress in deep sea mining is very encouraging, could you elaborate more on your deep sea mining.

How much is the estimate investment in this segment, and what is the timeframe? Well, let me start with the last question, the timeframe, we expect it to be quite long.

This a very exciting project for Keppel, besides the actual investment in this we're also looking to develop new technologies from our KOM side to see how we can provide the solutions that can allow us to do this activity in a sustainable basis and the estimate of investment, I would say that we are taking it one step at a time, over time you know it doesn't mean that we have to fund everything ourselves. Over time we can also partner with others to exploit this, just suffice us to say that you know at Keppel we are always very disciplined in how we look at investments and also risk, so before we take every step in this project we will look very carefully to make sure that the sums still make sense.

This is from Lin Sui Ki from CIMB. Hi there, O&M revenue dropped by 18% to 1.58 billion in second quarter versus 1.9 billion in first quarter 2015, is it mainly due to slowing down in Sete Brazil construction as well as deferment of some rig contracts.

I guess the answer is yes.

Any further.

This is submitted by Mohammad Razali, retail investor. What is the progress on Keppel Heads of Agreement with Petronas on the import of FNG?

How about the negotiations with PEMEX on the six new build jack-ups, any progress? Wee Gee you want to take the first one?

Our Heads of Agreement with Petronas is subject to we winning the aggregator ships license, so I suspect that we will put it on hold for the time being. But we will continue to discuss with Petronas for our future imports, both LNG and pipe gas.

Second question with PEMEX, I think the negotiation is still ongoing. So, I think we will make the announcement when we finalize.

Okay, this is from Mr. Attavar from Jefferies.

What would your dividend payout policy be based on? Sorry -- would your dividend payout policy be based on total reported profits including the gains on Keppel Merlimau or would you look at recurring project based profits as you have shown to keep a consistent DPS.

I think the key here is that we look at RIDs as part and parcel of our earnings. So is available to us in terms of funding dividend payouts.

Just back to the offshore industry, because I was reading some analyst reports that this slump resembles 1985, what's your take on it? The rig-building industry?

Personally I have through first of all four cycles. I think it's too early to say, whether it is a -- because there are so many factors here.

You have shale oil that is out here, you have Iran coming out. The world economy is mapped on the growth path that -- we'll increase demand too much, but even though demand will probably go up by1.4% on a daily basis.

So I think it's very difficult to predict but I like -- like Chin Hua said we have got 10 -- good 10-year run. And actually if you look at a good 10-year run, maybe it's not necessary, something that we did not foresee, but I think is more the speed of it that I think we have to manage.

So I think we will take this time to consolidate, I'm quite sure the market will come back up again. And I think after every downturn, Keppel has always come up stronger, so I think we'll take this opportunity to streamline our operations, strengthen our businesses and get ready for an upturn.

Any -- okay, if there are no further questions, thank you for attending this conference. Thank you.