Keppel Corporation Limited

Thank you. Good evening.

Welcome to the conference and webcast on Keppel Corporation’s results and performance in the second quarter and first half of 2019. The global economic environment has done more somber in recent months.

We’ve trade tensions between the world’s largest economy, slowing global growth, trade and growth and falling investments on the back of declining business confidence. Flash estimates by Singapore’s Ministry of Trade and Industry last week showed that Singapore’s economic growth has slowed considerably in the second quarter.

So far the trade tensions have had a limited direct impact on Keppel. However, if tensions were do worsen and the international supply chain and technology access threatened to bifurcate, this could have a significant impact on the international economic and operating environment.

We must therefore remain agile and be prepared not only to deal with the possible challenges ahead, but to seize opportunities that may arise from these disruptive changes. Against the backdrop of a volatile macro environment, Keppel has remained resilient underpinned by our multi-business model and diversification across sectors and geographies.

As we execute our businesses, we’ve continued to seek new opportunities and growth platforms, whether in renewables or cleaner fossil fuels such as LNG or expanding our property business in high growth cities such as Nanjing in China or Ho Chi Minh City in Vietnam. For first half 2019, we achieved a net profit of $356 million lowered than the $586 million achieved in first half of 2018.

In the same period last year, the group had made a profit of $416 million from the en-bloc sales of development projects in China and Vietnam whereas profits from en-bloc sales were lower in the first half of 2019. On an annualized basis, our return on equity was 6.3%.

We had free cash outflow of $614 million in first half of 2019 mainly due to higher working capital requirements in the O&M and Property Divisions as well as lower proceeds from en-bloc sales compared to the inflow of $873 million in first half 2018. Our net gearing was 0.82 at end June 2019 compared to 0.72 as at end March.

This was mainly due to $273 million of cash paid to shareholders in May 2019 as the final dividend for financial year 2018 as well as $224 million incurred for the privatization of Keppel T&T. Taking into account the group’s performance, the board has approved an interim dividend of $0.08 per share for first half 2019, which will be paid to shareholders on the 6th of August.

We remain focused on improving the quality of our earnings. Recurring income contributed $145 million or about 40% of our net profit in first half higher than the $114 million last year in part due to the higher contributions from M1 resulting from our consolidation of its results and higher contribution from our asset management business.

RIDs made up $207 million of net profit. This includes the fair value gain from the remeasurement of our previously held interest in M1 as well as revaluation gains from our investment properties.

In the O&M sector, the market for offshore drilling rigs remains challenging. However, we continue to seize opportunities in production in LNG assets as well as specialized vessels.

Keppel O&M’s efforts to reshape its business are also bearing fruit, especially in the renewables sector. On the back of Keppel O&M’s efforts to secure new orders and aggressive cost management, our O&M division made a profit of $10 million in the first half 2019 compared to a net loss of $40 million last year.

In line with the increased workload, Keppel O&M has also started growing its headcount from 10,843 in the first quarter to 11,582 as of end June 2019. New contracts secured by Keppel O&M year-to-date amount to close to 1.9 billion more than the 1.7 billion of new orders secured for the whole of 2018.

Close to 60% of the new orders are for LNG and renewables related projects. Among the new contracts secured, our offshore wind projects worth about $720 million from tenent offshore for the design, construction and installation of two converter stations servicing offshore wind farms in the German sector of the North Sea as well as two offshore wind farm stations from Ørsted for Taiwan.

We have also secured FPSO conversion contracts from our regular customers: SBM Offshore and Yinson Production. As demands for offshore renewables continues to gain traction, we will leverage and extend our capabilities in offshore engineering and construction to tap on this fast growing adjacent sector.

KOM’s net order book has risen to $5.5 billion as of end June 2019 excluding our projects for Sete Brasil compared to $4.3 billion as of end 2018. This is the highest that our net order book has been since 2016 when we first excluded the Sete rigs from our order book.

In the first six months of 2019, KOM continued to focus on delivering its projects well. We delivered two FPSOs including Liza Destiny, Guyana’s first FPSO, which was delivered to SBM for ExxonMobil’s Lisa field.

We will soon commence work on the second FPSO for the Liza field. We also delivered three units of the world’s first EU Stage V dredges to Jan De Nul further strengthening our track record in the non-oil and gas segment.

In addition, we delivered a jackup to EnscoRowan for operations in the UK, North Sea and have struct steel for the Gimi FLNG conversion. Our Property Division made a net profit of $262 million for the first half of 2019 lower than the $606 million in the first half of 2018, which had been boosted by en-bloc sales of development projects.

Keppel Land continues to deepen its presence and strengthen its portfolio in the key markets of China and Vietnam. Last week, Keppel Land inked a conditional share purchase agreement with established Vietnamese developer Phu Long to acquire a 60% interest in tree land parcels in Ho Chi Minh City.

The 2,400 premium apartments to be built under sites will add to our current pipeline of about 15,000 homes in Vietnam. The Property Division saw about 2,100 homes with a total sales value of about $1.2 billion in the first half of this year, significantly higher than the 1,385 units in the same period last year.

This include about 110 homes in Singapore, 1,140 in China, 610 in Vietnam, 50 in Indonesia and 190 in India. Despite cooling measures in China, our well-located projects in high growth cities such as Nanjing, Wuxi and Tianjin continue to draw strong interests.

For example, both the first and second phases of our Nanjing residential projects where 10 times oversubscribed, and balance had to be held among the prospective buyers. All 716 launch units in the two phases have been sold out.

Earlier this month we launched 193 units at Seasons Residence Phase 3 in Tianjin Eco-City and all the units were sold within a day. This latest sales in Tianjin have not been included in the home sales data for first half this year.

Our homes in Vietnam have also been well received by home buyers with more than 98% of the 194 units in the last tower of Palm City Phase 2 sold at the launch in May. In all, we expect the sale of some 8,690 overseas units worth about $2.9 billion to gradually contribute to earnings over the next few years from second half this year to 2022.

We currently have a residential land bank of about 46,000 homes as at end June of which about 15,000 units are launched ready from second half of this year to 2021. Our infrastructure division achieve a net profit of $59 million in first half 2019 with strong earnings growth from Keppel Infrastructure, offset by losses in the logistics business.

The divisions net profit was lower year-on-year due primarily to the absence of dilution gain following Keppel DC REIT’s private placement exercise in first half 2018. Keppel Infrastructure delivered creditable first half results with strong underlying performance from across all its three divisions; energy, environment and infrastructure services.

The construction of Keppel Marina East Desalination Plant is over 85% completed. It is ramping up to commence testing and commissioning in third quarter 2019 and is on track to commence operation in early 2020.

Meanwhile, the Hong Kong Integrated Waste Management Facility is in advanced stages of design and engineering and has been contributing to the Group’s bottom line since first quarter this year. Keppel Electric continues to grow its customer base in the OEM.

It has signed on about 150,000 household customers to date and is currently the leading OEM electricity retailer in Singapore. We continue to strengthen the capabilities of Keppel Data Centers, which has invested in a minority stake in Etex, a Luxembourg-based data center developer and provider of data center co-location services.

This investment allows Keppel Data Center to gain a deeper appreciation of how cloud players are exploring the deployment of small scale edge data centers in high potential markets, which is often a precursor before they upscale their deployment. Our investments division made a net profit of $25 million for first half 2019, compared to a net loss of $46 million in the same period last year.

This is due to stronger earnings from Keppel Capital driven by new acquisitions, higher contributions from M1, following our acquisition this year and re-measurement gain or previously held interest in M1. Keppel Capital continues to leverage its underground presence and network to expand its portfolio and grow its AUM.

During the quarter, Keppel REIT acquired a stake in T Tower, a freehold Grade A office building in Seoul’s CBD. Separately, the Alpha Asia Macro Trends Fund III acquired another three Grade A offices also in Seoul.

Seoul is a familiar market for Keppel Capital. We have since 2004 managed close to $3 billion worth of assets with GFA of 5.2 million square feet in South Korea.

Keppel REIT’s foray into Seoul is testament of the Group’s ability to hunt as a pack to seek strategic investment opportunities for growth. Keppel Capital has also announced that it will participate as a strategic partner in a proposed listing of prime U.S.

REIT, thus further steepening our presence in the U.S. We will continue to work with SPH and the board and management of M1 to drive M1’s transformation.

This includes accelerating core consumer growth, expanding the B2B segment, improving cost efficiencies and looking beyond Singapore for growth opportunities, harnessing Keppel’s international presence in network. As a first step to drive consumer growth, M1 has revamped its mobile offerings and launch a new simplified plan to replace its previous 2019 plans, as well as a new website to enhance customer experience.

Since the launch of the new One Plan in May, M1 secured more than 15,000 new customers within a month, taking its base to $2.25 million as at end June, an increase of about 80,000 customers year-on-year. M1 will continue to drive growth through other exciting offers in the near future.

M1 also recently won the 5G Trial Tech Call awarded by IMDA and PSA. The partnership with IMD and PSA offers M1 an opportunity to work on 5G network infrastructure development for future applications across various industry verticals.

This trial will help augment M1’s in-house 5G competencies, strengthen its readiness to harness new capabilities for customers in the digital economy and place it in a good position to participate in IMDA’s upcoming call for proposal for 5G spectrum and license. We are also driving collaboration between M1 and other Keppel entities.

We have announced the Keppel O&M and M1 are working with the NPA to test-bed maritime autonomous surface fab ships in Singapore waters. The collaboration harnesses KOM’s autonomous vessel technology and M1’s ultra low latency 4.5G network connectivity to establish reliable ship-to-shore communication links and support mission critical IoT maritime applications.

Keppel Data Centers is also collaborating with M1 to widen its data center capabilities and offerings. We see M1 as a key pillar of Keppel’s connectivity business.

It is an enabler which links and enhances our various other businesses such as our smart districts and buildings, data centers, yachts and vessels. We will continue to drive the necessary changes in M1 to enhance its competitiveness and grow M1 to be a pillar of recurring income for the Group.

I’ve said at the last quarter’s results briefing that the key pieces of our business transformation are in place. As we execute and deliver on our plans, we will leverage new technologies and innovations to stay ahead.

Our innovation strategy includes tapping the startup ecosystem to gain insights as well as access to emerging trends, creative solutions and deal flows. In the year-to-date, we have invested about $100 million in venture capital and high growth businesses and startups in areas such as prop tech, China tech startups, enterprise and deep tech, edge data center solutions and batteries for electric vehicles.

These efforts to acquire new knowledge and capabilities will not only enhance the depth and breadth of our solutions for sustainable urbanization, but also keep us ahead of potential disruptions in the fast changing landscape. I’ll now hand over the time to Hon Chew, who will take you through the company’s financial performance.

Thank you.

Thank you, Chin Hua, and a very good evening to all. I shall now take you through the group’s financial performance.

In the second quarter of 2019, the group recorded a net profit of $153 million, which was 39% lower than the same quarter last year. Correspondingly, the earnings per share decreased by 39% to $0.084 in this quarter.

The group’s revenue for the second quarter was 17% or $261 million higher than the same quarter last year. All divisions except the Offshore & Marine registered higher revenues during the quarter.

However, operating profit fell by 43% or $120 million despite higher revenues, largely due to absence of gains from en-bloc sales of development projects compared to the same quarter last year. Profit before tax at $206 million decreased by lower percentage of 31%, due mainly to higher investment income and higher share of profits from associated companies arising from fair value gains on investment properties.

The group has historically revalued its investment properties only at the end of the financial year, which can result in lumpy recognition of significant fair value gains or losses in the last quarter of the year. To provide more timely reporting and better understanding of the performance of the property investment segment, the group has adopted mid-year revaluation of its investment properties with effect from this quarter.

After tax and non-controlling interests, net profit was 39% or $96 million lower than – lower at $153 million translating to an earnings per share of $0.084. In the next slide, we take a closer look at the group’s revenues by division.

In the second quarter of 2019, the group’s revenues at $1.8 billion or 17% higher than the same quarter last year. Revenue from the Offshore & Marine division decreased by 21% to $481 million, mainly attributable to the absence of revenue recognized from the sale of jackup rigs to Borr Drilling as compared to the same quarter last year.

The Property divisions revenue increased by 11% from last year, mainly due to higher revenue from China trading projects, such as the Waterfront Residences in Wuxi and Serenity Villa in Chengdu, partly offset by the absence of revenue from Highline Residences, which was fully sold in 2018 as well as lower revenue from reflections at Keppel Bay. Infrastructure Division saw a 12% growth in revenue as a result of increased sales in the power and gas business, as well as progressive revenue recognition from the Hong Kong Integrated Waste Management Facility project.

Revenue from the Investments Division increased by $281 million to $306 million, largely due to consolidation of M1’s results and higher revenue from the asset management business. Moving on to the group’s pre-tax profit.

The group recorded $206 million of pre-tax profit for the second quarter of 2019, 31% lower than the same period last year. The Offshore & Marine division’s pre-tax profit was $4 million as compared to a pre-tax loss of $11 million in the same quarter last year.

This was mainly due to higher operating results, higher investment income and lower net interest expense, partly offset by share of associated companies’ losses as compared to share of profits in the same quarter last year. The Property Division’s pre-tax profit was 38% lower at $161 million, due mainly to absence of gains from en-bloc sales of development projects compared to the same quarter last year, partly offset by higher investment income and higher contribution from associated companies arising from fair value gains on investment properties.

The Infrastructure Division’s pre-tax profit of $51 million was 16% higher than last year, due mainly to higher contribution from energy infrastructure and environmental infrastructure, as well as better performance from associated companies. These were partly offset by the absence of dilution gain arising from Keppel DC REIT’s private placement exercise last year and lower contribution from logistics business.

Excluding the charges relating to acquisition of M1, the Investments Division registered pre-tax profit of $6 million, an increase of $1 million from last year. This was mainly due to higher contribution from M1 resulting from the consolidation of its results and higher contribution from the asset management business.

The increase was partly offset by higher net interest expense and fair value loss on KrisEnergy warrants. After tax and non-controlling interests, the group’s net profit decreased by 39% or $96 million, with Property division being the top contributor to the group’s earnings followed by Infrastructure and Offshore & Marine divisions.

I shall now take you through the performance of the first half of 2019, compared to the same period last year, net profit for the six months was 39% lower at $356 million. Consequently, annualized ROE decreased to 6.3%.

Free cash outflow for the six months of the year was $614 million, as compared to inflow of $873 million in the same period last year, mainly due to higher working capital requirements with the construction progress of Offshore & Marine’s major projects and capitalize additional property development and land acquisition costs as well as lower proceeds from en-bloc sales. Net gearing increased from 0.48 as at end of 2018 to 0.82 at end of June 2019.

This was due mainly to borrowings drawn down for the acquisition of M1 and the privatization of KTT, working capital requirements, payment of final dividend for financial year 2018, as well as the recognition of lease liabilities following the adoption of Singapore Financial Reporting Standards 16 on leases. The group earned the total revenue of about $3.3 billion in the first half of 2019, an increase of 11% or $322 million compared to the same period last year.

Higher revenues from the Infrastructure and Investment divisions were partially offset by lower revenues from Property and Offshore & Marine divisions. Despite higher revenues, operating profit at $482 million was 37% or $284 million lower than the corresponding period last year.

This was due mainly to lower gains from en-bloc sales of development projects compared to the same period last year, partially offset by fair value gain from the remeasurement of previously held interest in M1 arising from the acquisition this year. Profit before tax at $489 million decreased by a slightly lower percentage of 34% due mainly to higher investment income and higher share of profits from associated companies, partly offset by higher net interest expense as a result of higher borrowings and adoption of Singapore Financial Reporting Standards 16 on leases.

After tax and non-controlling interests, net profit at $356 million was 39% or $230 million lower translating to an earnings per share of $0.196. In the next slide, we take a closer look at the group’s revenues by division.

For the first half of 2019, the group earned total revenues of about $3.3 billion, 11% higher than last year. The Offshore & Marine division recorded a decrease in revenue of $226 million, due mainly to absence of revenue recognized from the sale of jackup rigs to Borr Drilling compared to the same period last year.

The Property divisions revenues decreased by 20% from last year, mainly due to absence of revenues from Highline Residences, which was fully sold by the first quarter of last year, as well as lower revenues from Reflections and Corals at Keppel Bay, partly offset by higher revenues from China trading projects. Infrastructure division saw an 18% growth in revenue, as a result of increased sales in the power and gas businesses, as well as progressive revenue recognition from the Keppel Marina East Desalination Plant project and the Hong Kong Integrated Waste Management Facility project.

Revenue from the Investment division increased by $393 million to $449 million, largely due to the consolidation of M1’s results and higher revenue from the asset management business. Moving on to the group’s pre-tax profit.

The group recorded $489 million of pre-tax profit for the first half of 2019, 34% lower than the same period last year. The Offshore & Marine division’s pre-tax profit was $5 million, as compared to a pre-tax loss of $26 million in the same period last year.

This was mainly due to lower net interest expense and higher share of associated companies in the first half of 2019. The property division’s pre-tax profit was 53% lower at $342 million, due mainly to lower gains from en-bloc sales of development projects and lower contribution from Singapore trading projects.

This was partly offset by higher investment income and higher contribution from associated companies arising from fair value gains on investment properties. The Infrastructure division’s pretax profit of $71 million was 4% lower than last year due mainly to the absence of dilution gain arising from Keppel DC REIT’s private placement exercise last year and lower contribution from logistics business partly offset by higher contribution from energy infrastructure and environmental infrastructure.

Excluding the charges relating to acquisition of M1, the Investments division registered pretax profit of $98 million as compared to a pretax loss of $35 million last year. This was mainly due to fair value gain from the remeasurement of previously held interest in M1 arising from the acquisition and higher contribution from M1 upon consolidation of its results, partly offset by higher net interest expense, fair value loss on KrisEnergy warrants and the provision for impairment of an associated company.

After tax and non-controlling interest, the Group’s net profit decreased by 39% or $230 million with the Property Division being the top contributor to the group’s earnings, followed by Infrastructure and Investments and Offshore & Marine divisions. The group’s net profit of $256 million for the first half of 2019 translated to earnings per share of $0.196.

In the first half of 2019 our annualized ROE decreased to 6.3%. Now our interim cash dividend for our shareholders for this period will be $0.08 per share.

Cash flow from operations was $434 million in the first six months of this year as compared to $346 million in the same period last year, after accounting for working capital changes, interest and tax, net cash outflow from operating activities was $896 million as compared to an inflow of $357 million last year, due mainly to increase in working capital requirements with the construction progress of Keppel Offshore & Marine’s major projects such as Awilco semi, the Jones Act vessels for Pasha Hawaii and also the Borr Drilling jackup rigs as well as Keppel Land’s additional property development cost and acquisition cost of a land plot in Tianjin. Net cash generated from investing activities was $282 million comprising divestment proceeds and dividend income from associated companies totaling $168 million and net advances from associated companies of $119 million, partly offset by investments and operational capital expenditure of $76 million.

The net cash generated from investing activities last year was higher at $516 million. This is largely due to cash in flow from en bloc sales in China and Vietnam last year.

As a result there was an overall free cash outflow of $614 million for the first half 2019 as compared to the inflow of $873 million last year. With that we’ve come to the end of the slides for the results presentation and I shall hand – turn back to our CEO, Chin Hua for Q&A.

Thank you.

Thank you, Hon Chew. We will take questions both from the floor as well as from the net.

For those who are joining us on the net, could I ask – for the person posting the question to please identify yourself and also the organization you are with – you are from. Any questions from the floor?

Yes, I can see you, the gentleman at the back.

Hi Gerald from Credit Suisse I’ve got two questions. Firstly on the O&M division, last quarter you spoke about hiring 1,800 full time staff over the course of 2019, how’s that coming along and whether there are any changes in the plans given the uncertain economic outlook.

Second question is on Property, given the short uptick that you’ve seen for some of the project launches in Nanjing and Tianjin, what are the plans for the land sales in Tianjin Eco-City in the second half of this year?

Okay, first question, maybe I ask Chris Ong if you can address that?

So far there’s no change in plan, based on the contracts that were secured we are continuing our plan to boost up our head counts in order to execute the projects well. So far, just for information in second quarter in 2019 KOM hired about 1,190 new personals in the group.

Actually, I think in Singapore we are actually trying very hard to hire more people. So it’s quite challenging, so we are also hoping to get more people.

The order book, we are executing an order book business and even though, as I said at the beginning of my remarks the external environment has become more somber, we do have an order book to execute and the work flow is expected to pick up Keppel Offshore & Marine from the second – in fact for this year and continuing to the second half of this year. On the Property question, I think your question was related to Tianjin Eco-City, launch of sites.

We are always looking for opportunities to do that. The conditions for land sales in China, actually has improved.

Although, we only saw one site I think it was end of last year, so we are preparing for sale in the second quarter. I think the outlook looks a quite decent, so we will try and take advantage of the more positive sentiment for land sales.

Yes.

Good evening, it’s Jason from Goldman. I’ve got two questions.

First question is on the O&M business, your order book is improving, but how do you think about the trajectory of the profitability of the business because sequentially you haven’t seen a pickup yet. And then the second question is on Singapore property.

Do you see an opportunity to redevelop Keppel and GE Towers, given the CBD incentive scheme?

Can I ask Swee Yiow to address the second question?

Sure. The Keppel Tower fall within the CBD incentive scheme under the government draft master plan, but essentially, they were encouraging, converting more commercials office use into mixed use and residentials.

So there are different parameters in Shuangwei [ph], evaluating the option to see how we can maximize the demand potentials.

Okay. Thank you.

Now, on your question on the O&M, we are very pleased to see that for the first half, KOM is profit compared to first half last year. As I’ve said before, we were looking to do the brick – we are looking for a breakeven first.

The order book has also been replenished. It is at the highest level since 2016 when we removed the Sete – before we remove the Sete contracts from our order book, we are quite happy with where it’s going.

But obviously, we have said before this is not going to be a V-shaped recovery. And I think more importantly, I think if you look at the order book, the new orders that were won in the first half, significant portion of the new orders reflected the pivot that we took in terms of moving, not just at oil, but looking at renewables to the gas strategy as well as into non-oil and gas.

So I think the trend is encouraging, but in terms of profitability we do not see a V-shaped recovery. Yes, is that Cheryl?

Hi. Yes, good evening.

It’s Cheryl from UBS. I have a few questions.

Firstly with regards to the Investment division, the gains – the other gains I think fell from 83 to 34, this – 83 in the first quarter to 34 this half year that, why is that there’s a change in 44 million. And also there were also additional M1 costs related to the acquisition in the first quarter as well as the second quarter.

Is this over or do we expect more of such charges? And then on the balance sheet, debt has increased on a quarter-on-quarter basis.

Could you give us maybe some guidance on your working capital needs, I suppose for offshore and marine and maybe even for property as well to help us understand where the gearing might rise further through the rest of the year? Thank you.

I think the first question, do you – did you get what she was asking?

Okay. Let me try, okay.

I think your question is on the investments net profit quarter-on-quarter. Now, first quarter I think we had the benefit of the fair value gain on the re-measurement of our previously held interest in M1, and you can actually see that in the SGX net pretext that was 158 million.

So with that of course the investments revisions profit was higher, boosted by that. We don’t have the same in the second quarter, we don’t have that.

We don’t have the benefit of that in the second quarter. So as a result a quarter-on-quarter has come down.

You also asked about the M1 costs. In the first quarter as well as second quarter.

They are made up of largely three components. First quarter, of course there were someone off costs that were related to the acquisition of M1.

But second quarter there wasn’t those one-off costs there with the interest costs and also amortization costs. The amortization cost relates to amortization of intangibles because upon acquisition, you need to do what we call PPA, what we call purchase price allocation, where some of the assets have to be written up and as a result that is an up amortization costs that we have to book.

So that part is recovering, so the interest cost and the amortization is recovering, but not the one-off professional fees. Balance sheet, working capital I think as the O&M business recovers, of course there will be increase in the working capital demands because especially some of the projects like the Awilco rig, they are actually based on back in the payment.

So that is the working capital requirement. Likewise, I think if you look at the property business as we progress with the developments, there will be increase in the working capital, as well as I think in terms of land acquisitions that is also reflected as part of working capital.

So I think it is to be expected that as O&M business recovers and as we continue to buy land, there will be the increase in working capital. But partly offset whenever we have, for example, en bloc sales, you will offset against that working capital increase.

And by the way, we do not give projections on such working capital requirements.

I think maybe if I can just add to the last point on gearing, as we sell properties those are overseas we don’t recognize the revenues until it is sold and completed. But quite often in these markets, we do collect the sales proceeds progressively as we built.

So this sales collection or the revenue that we collect, the fund on the sale price can of course help to fund some of our project costs. So it’s not just about en bloc sales, it’s also on the sales of the units, as part of our property trading business.

We have said before that we are watching our gearing very closely. We do not expect our gearing to go above one, and we are watching it very closely, as I said.

And the other thing is that if we look at the property division, we have also set ourselves a target of 12% ROE in the medium-to-long term. So that means that we will have to turn our assets more, so that could be besides a trading we could also look at opportunities for divestments or for en bloc sales.

Okay. Now maybe I take a question from the web.

This is from Lynn Siew Khee of CIMB Singapore. Siew Khee has two questions.

One is – first question Investment divisions, what is a negative movement quarter-on-quarter of $44 million in others in investment in second quarter 2019? Offshore and Marine division, is this as good as it gets for the EBIT margin?

I think the second question, we hope that you improve. I think our top line is still not where we would like to see it.

And we want to see that improve and then of course with better quality projects as the market recovers. We hope to see this margin improve.

But Hon Chew, can I ask you?

Yes, I think the first question is the same question, which Cheryl asked. So quarter-on-quarter, the main reason for the movement is the M1 one-off remeasurement gain that I talked about earlier.

Yes? Question on the floor.

Yes, it’s Adrian from UOB-Kay Hian. My question relates to OEM sector and in particular about – I just wanted to get your thoughts about regional competition and how Keppel is thinking about facing up to it because we are seeing the Korean yards potentially merging, Hyundai Heavy and DSME and also the Chinese shipyards are making moves to merge.

How does Keppel think about this potentially increased level of competition in the region for some of the same jobs that you might be competing for? Thank you.

Chris Ong?

The landscape itself has always been competitive. We know that some of the competitors are merging and all of us are all going for nearly the same pool of job.

But we differentiate ourselves as is evident from the contract wins is that we stay close to the customer. Being a solution provider, we sit down with them to see how in this challenging environment for them, we are able to give value add services.

On top of that we also look at our cost of operation. We train our people even during the challenging times to make sure that they are all geared up for even new technologies like in the renewables area.

So in this different ways of looking at cost, looking at capabilities and looking at solution that we are able to provide to our customers, we will always try to stay ahead of the curve. On top of that for operations within the yard, in terms of efficiency we also spend a lot of time looking at how digitalization can help with the efficiency of the operation.

So we have different measures on how we are gearing up for competition.

Okay, thank you. There’s a question from the web is Andrew.

He is a retail investor based in Singapore. Keppel’s ROE seems to be going down since 2014.

In the property sector, the sales in Singapore is not doing well, admits the oversupply and in the offshore sector, the outlook seems to be dampened despite the oil price stabilization. What’s the company’s strategy?

I think it’s a very question, Andrew, thank you for that. As you’ve been following – assume you’ve been following the developments of our strategy over the past few years, I think 2014, when our ROE was at 18.8%, that was also the start of the decline in oil price.

For those of you who remember a bit long, further back KOM used to be a very strong contributor to the group and we have had years or so where the ROE was even higher than 18.8%. But in recent times, of course with the correction in oil price, I think KOM has undergone a restructuring and in the last few years KOM has not been contributing to the group’s profits and returns.

But we are still very positive that in the medium to long-term KOM will provide good returns for the group. Now, in the meantime, reflecting that, we are a multi-business group, we have other businesses propping us up, particularly in the last few years from property.

We have also businesses that have been nurtured over the decades – decade or two decades, such as Keppel Infrastructure is producing in the first half of this year ROE of close 20%. Keppel Capital is also around 20%, and of course, we also have recently acquired M1, ROE is – I believe is around 20%.

So as a group we do expect to see our ROE in the medium to long-term improve to about 15%, that’s our target. And that will require of course all our engines to be firing and we believe that when that day comes and we have contributions from all parts of the group, we will be able to hit our 15% target.

Yes, Cheryl.

Hi, I have some follow-on questions. With regards to the infrastructure division, there was quite a good pickup quarter-on-quarter, may we maybe have some a bit more colour on whether the improvement was driven by the milestones on the Hong Kong project, which perhaps is sustainable or is it more to do with Keppel’s involvement in the Singapore electricity market, which maybe is a bit more volatile, so just to understand, how sustainable that performance is?

And also, we noticed that you moved quite a number of units as well in – on property for Singapore as well as Vietnam. And maybe could you give some comments about the underlying trends that you’ve seen and what has helped particularly in Singapore?

And again maybe just an overview of the state of the residential market there. Thank you.

Okay. I’ll ask TG Ong, CEO of KI to answer your first question.

On a quarter-to-quarter comparisons and our infrastructure, our environmental and infrastructure is contributing because Hong Kong is contributing and MEDP is contributing as well. So you see a quite a nice pick up and we expect this contributions from Hong Kong to continue.

For the energy infrastructure, we actually announced importations of LNG last quarter, so that helps and that will contribute to quite a meaningful saving all the way up to end of the year. So we expect the contributions from the energy site to be also quite decent.

On top of that, we have our services business that we are operating all the plants throughout the world is also contributing in a positive manner. So all three engines within the infrastructure side is actually firing and the results is very encouraging.

Okay. Thank you, TG.

If I can just add one more point, I think as we complete some of these new projects like MEDP and the Hong Kong IP, they also add to the O&M operations and maintenance fees that we earn. So as each project is completed, we will keep layering and this would contribute to the infrastructure services.

Can I ask Swee Yiow to answer that? Of course that’s a very favourite question on the Singapore market.

Well, I think first of all our China’s and Vietnam’s project, I think we are experiencing a very healthy demand. In China’s projects saw – I mean in Nanjing, Wuxi and Tianjin, and you can see that when we launched Nanjing, particularly for every unit that we launched, there are 10 times oversubscribed, so the demands are pretty healthy and strong.

Singapore, I think our property market’s volume is about steady stage, whether this year or last year, I think because we are mainly selling our Garden Residences. We see a very stable sales volume that are passing through, so we expected that the market will remain relatively stable.

Okay, thank you. There a question from the web Jane Tan, a retail investor in Singapore.

Her question, can you please provide an update on the progress of M1’s transformation? Are there any plans to cut cost as your competitors have done?

May I invite Manjot, the man on the spot on the transformation?

Thank you. Yes, so our transformation strategy actually is multi-pronged, it has multiple elements in it.

And the first proof of the pudding is in the launch of our one plan that we did a month back, which is basically streamlining our tariffs, which were 19 in number to 1, where the power of one and flexibility of subscribers being able to create their own plan. And along with that we’ve also simplified our website, the journey is very simple and the experience is very good.

So that’s the first step that we’ve taken in our transformation journey to align our complicated tariff plans into one simple plan and made the journey very simple. There are other elements of the transformation plan that are being worked on and as we are able to come to points where we can actually share, we will share more and more as you go along, but this is the first step.

As far as the cutting of costs is concerned, we are looking at cost efficiencies, but not necessarily in the same manner as our competitors have done. We are looking at every part of the business from processes that are being followed in the business to tools and technology, how it can help in the business as well as people.

So it’s not necessarily just about people, it’s about creating efficiencies in every part of the business and we are reviewing every part of the business in that sense.

Thank you, Manjot. Any further questions from the floor?

Okay, I don’t – thank you very much, have a good evening.