Keppel Corporation Limited

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

Cheryl Lee - UBS Gerald Wong - Credit Suisse Conrad Werner - Macquarie Tan Hwee Hwee - Singapore Press Holdings

Good evening and welcome to the conference and webcast on Keppel Corporation's results and performance for the fourth quarter and full year of 2016. To those of us celebrating the Chinese lunar New Year later this week, may I wish all of you present here and those joining us over the web, good health, happiness, and prosperity in the new year.

2016 was a challenging and eventful year, marked by the U.S. presidential election, Brexit, and slow global growth.

A rising trend of insularism and increasing anti-globalization sentiments if left unchecked could threaten free trade. The rapid evolution of new technologies and business models has also dis-intermediated many traditional businesses while creating new opportunities for companies able to seize them.

A key development at the end of 2016 was the decision by oil-producing nations both in and outside OPEC to reduce output, the first cut in over a decade. This brought renewed optimism and confidence in the industry with oil prices rising to around SGD55 per barrel, double the price seen a year ago.

While spending by oil majors is expected to increase, we do not envisage a quick recovery for the offshore business which continues to be under pressure from weak utilization of the existing operating fleet coupled with a supply overhang of new builds. We are thus prepared for the challenging conditions in the offshore business to remain for some time.

At the same time, new horizons present themselves in the mega trends of urbanization and digitization of the economy. This augers well for a multi business group such as Keppel which can provide solutions to meet the growing demand for energy, infrastructure, clean environment, good urban living, and connectivity.

In the past year, we carried out several strategic initiatives to shape our future and position Keppel for sustainable growth. We began the year by announcing the restructuring of our asset management businesses under Keppel Capital.

The restructuring was completed in July and Keppel Capital has since obtained approval from MES to centralize certain regulated activities. Keppel Capital is now an integral part of the Group's business model of creating real assets in infrastructure and real estate.

Keppel Land completed its selective capital reduction exercise and we now have full ownership of the property business. Keppel Bay which was formally a joint venture between Keppel Corporation and Keppel Land is now fully integrated under Keppel Land.

Over the year we expanded our capabilities and solutions with our acquisition of the LETOURNEAU suite of jack up rig designs, as well as after sales and after market services. We seized new growth opportunities in LNG supply chain and in ecommerce fulfillment.

We also built on our capabilities and track record in environmental infrastructure with Keppel being awarded the tender by PUB, the National Water Agency for Singapore's fourth desalination plant. We will continue to look for ways to deepen collaboration as One Keppel and hunt more effectively as a pack to create compelling propositions for our customers and investors.

I will now present our results. For the whole of 2016, we achieved a net profit of 784 million, down 49% from about 1.5 billion in 2015.

This was largely due to lower contributions from O&M, as well as additional provisions for impairment during the year of 336 million mainly arising from right sizing of Keppel O&M and impairments of investments and work in progress. In fourth quarter 2016, net profit was 143 million.

However, if we stripped out revaluations, impairments, and divestments and major provisions, net profit of 300 million is comparable with that of fourth quarter 2015. CFO will elaborate later on them.

The Group's economic value added was a negative 140 million in 2016. Our return on equity was 6.9%.

Despite the weaker operating results, our free cash flow was positive year on year with an inflow of 576 million for 2016 compared with an outflow of 694 million in the previous year. Higher home sales, asset recycling, and sale of non-core assets in the property division have helped improve return on assets and free cash flow for the Group.

Net gearing remained at a comfortable level of 0.56, slightly lower than at the end of the last quarter. The Board of Directors will be proposing a final dividend of SGD0.12 per share.

Together with the interim cash dividend of SGD0.08 per share distributed last August, we will be paying out a total cash dividend of SGD0.20 per share to shareholders for the whole of 2016. I shall now take you through the developments in our business divisions.

Our O&M division has remained profitable despite the sharp downturn with a net profit of 29 million for financial year 2016. Keppel O&M's operating profit was 412 million and operating margin was 14.4% for FY 2016 before impairments of 277 million for fixed assets, stocks, and work-in-progress, and investments.

Apart from reducing variable costs, we have also worked on cutting our overheads achieving cost savings of some 150 million year-on-year. We have responded decisively to the challenging conditions facing our offshore and marine division, not just in anticipation of a long and harsh winter, but also to build a stronger, leaner, and more competitive Keppel O&M.

The painful but necessary measures to right-size our O&M division must continue. In fourth-quarter 2016, Keppel O&M reduced its direct workforce by 2,620 or about 11.8% from the previous quarter.

This includes a reduction of about 1,930 in Singapore and 690 in our overseas yards. For the whole of 2016, Keppel O&M reduced its direct workforce by about 10,600 or 35% with about 3,800 in Singapore and 6,800 overseas.

Subcontract headcount in Singapore, which has already been lowered significantly, was further reduced by about 3,300. In tandem, we are also cutting our yard capacity and have mothballed two overseas yards.

In Singapore, we are in the process of closing three yards. In 2016, the offshore marine division secured new contracts worth about 500 million and delivered more than 20 projects, including several FPSO conversions and fabrication jobs and accommodation semi, a land rig, four jackups as well as a few specialized vessels.

We understand the strong headwinds in the offshore industry and continue to work closely with our customers to respond to the challenging conditions. On 30th December 2016, we announced that we had arrived at a settlement agreement with Parden's guarantor for the jackup B361 at a sale price matching the remaining payment obligations of Parden in a new sales contract with an associate of the guarantor.

The rig will be delivered in the fourth-quarter 2017. We have received request to defer the delivery of the jackup for Falcon Energy to the second quarter of this year and that for BOT Lease Co.

to January 2019. For the Falcon rig, we have received 20% down payment and for the BOT rig 60% of the milestone payments.

Meanwhile the DSSTM38M semi being in our Caspian shipyard company in Azerbaijan is on track for delivery, albeit slightly later from fourth quarter 2016 to second quarter 2017 due to additional modifications needed for its charter to TOTAL. Meanwhile the FPSO for Yinson is on track to set sail soon to begin work for Eni in Ghana.

In 2017, our yards will continue to focus on executing both existing and new contracts well. We expect to deliver some 20 newbuild and conversion projects, including the world's first of its type FLNG vessel conversion Golar Hilli.

On the investigations in Brazil, Keppel continues to cooperate with relevant authorities towards resolving issues in relation to contracts with Petrobras and Sete Brasil. Keppel has a zero tolerance stance against any form of illegal activity, including bribery and corruption involving its employees or associates.

Beyond dealing with immediate challenges, Keppel O&M is also positioning itself for the upturn. We are investing prudently in R&D and building new capabilities while looking out for opportunities to service niche, adjacent, or even new markets.

This include production solutions, non-drilling solutions, as well as specialized vessels such as the three dredgers awarded to Keppel O&M by the Jan De Nul Group in July last year. Keppel is also well-positioned to address growing requirements across the LNG value chain.

In addition, we're exploring ways to repurpose the technology that we developed in the offshore industry for other uses. Ultimately our efforts are geared towards entrenching our leadership position in the global offshore and marine industry.

2016 was another strong year for our property division as we stayed focused on our core markets of Singapore and China, and growth markets of Vietnam and Indonesia. The division recorded a net profit of SGD620 million for financial year 2016, with Keppel Land recording a higher net profit of SGD586 million compared to SGD564 million in 2015.

Keppel Land continues to recycle capital from its property assets, in line with the Group's focus to seek higher returns. Over the year, we announced 11 divestments totaling about SGD680 million, including the sale of Keppel Land's stakes in townships in Chengdu and Wuxi, and in Sedona Hotel Mandalay in the last quarter.

At the same time, we are seizing opportunities to redeploy our funds and have made investments of about 460 million across China, Vietnam, and Indonesia. This include inking a JV with Indonesian developer Metland, to develop landed homes in West Jakarta and consolidating our ownership in the residential project, Riviera Cove in Ho Chi Minh City in the fourth quarter 2016.

Bolstered by rapid urbanization across Asia, our property division achieved strong residential sales in 2016, especially in China and Vietnam. A total of 5,720 homes were sold in 2016, comprising about 3,800 homes in China and another 1,520 homes in Vietnam, with total sales value of about 2.3 billion.

This is about 25% higher than the 4,570 homes sold in 2015. We are encouraged by the positive homebuyer sentiments in Vietnam.

For example, we sold some 420 homes over one weekend in December, when we launched phase 1 of Empire City in Ho Chi Minh City. We will continue to capitalize on the positive market sentiments in Vietnam.

With our sizeable landbank, we plan to launch projects for sale in quick succession in the coming years. In Singapore, despite the sluggish market we doubled the number of homes sold, to 380 from 190 in 2015.

Profit from about 4,200 overseas homes sold in and before 2016 will be recognized upon completion over the next three years. In our residential pipeline of about 66,000 units, we have close to 19,000 launch ready homes from now till 2019.

On the commercial front, Keppel Land has over a million square meters of gross floor area under development. These projects will be progressively completed and will contribute to our recurring income and eventually to revaluation and divestment gains.

Riding on the good repute and success of Saigon Centre in Ho Chi Minh City, we will commence marketing for its phase 2 offices in the second half 2017. We do not seek to amass the largest landbank or build the largest property business.

Our goal is to be a developer that builds quality homes, offices, and commercial developments which are highly sought after by buyers and tenants, and for Keppel Land to continue being a developer with one of the highest ROEs in Asia. Before I go to developments in our infrastructure division, this is an image of the landscaped green buffer zone which Keppel had built as part of the Doha North Sewage Treatment Works.

Keppel has begun the 10-year operations and maintenance contract for the project, which is the largest wastewater treatment, water reuse, and sludge treatment facility in Qatar. We are pleased to have played a role in supporting Qatar's vision for sustainable development.

Our Infrastructure Division posted a net profit of 99 million for financial year 2016. Despite the tough conditions in the power market in Singapore, Keppel Infrastructure has done well from operations, registering a net profit of SGD84 million for financial year 2016, excluding RIDs.

This was higher compared to SGD46 million on the same basis in 2015. We continue our focus on building Keppel Infrastructure into a stable contributor to the Group's bottom line, pursuing growth opportunities in energy and environmental infrastructure, both in Singapore and overseas.

We are very heartened that Keppel Infrastructure will design, build, own and operate Singapore's fourth desalination plant with a concession period of 25 years. To be operational in 2020, it will be the first in Singapore with the ability to treat seawater and fresh water from the Marina Reservoir by using reverse osmosis and other advanced membrane technology.

Keppel Infrastructure has also won contracts to provide waste-to-energy technology packs for two major WTE plants in Shenzhen in second-half 2016, building on its leadership position in China. Meanwhile, Keppel Infrastructure is preparing competitive products and services to be ready for the full liberalization of Singapore's electricity market expected in 2018.

In 2016, the Group's data center business increased its footprint by more than 45% in terms of net lettable area in markets such as Hong Kong, Italy, the UK, and Germany. In the last quarter, Keppel data centers and Alpha Data Centre Fund jointly acquired a data center in Frankfurt.

We also completed the divestment of 90% stake in Keppel DC Singapore 3 to Keppel DC REIT, allowing Keppel Data Centre to recycle its capital and provide a valuable deal flow pipeline for unit-holders of Keppel DC REIT. Meanwhile, Keppel DC Singapore 4 is expected to achieve its TOP and complete the first phase of fit-out in first-quarter 2017.

Building on our foundation in third-party logistics, Keppel Logistics is focused on developing capabilities in omni channel distribution. The acquisition of Keppel Logistics -- by Keppel Logistics of e-commerce fulfillment company, Courex, will strengthen our ability to tap the growing e-commerce sector in Singapore and Southeast Asia.

For its reliable last-mile delivery services, Courex has recently been awarded a contract by a major international electronics group. Our investments division recorded a net profit of SGD36 million in financial year 2016, down from SGD185 million the year before, due to impairments of SGD46 million and lower share of results from associated companies.

Since its formation, Keppel Capital has been making steady progress, with profit of SGD64 million, slightly higher than SGD58 million in financial year 2015. During the last quarter, the two new funds launched by Keppel Capital, the Alpha Data Centre Fund and Alpha Asia Macro Trends Fund III, both made their first acquisitions.

In addition, the Alpha Macro Trends Funds II divested its Singapore suburban retail portfolio, achieving an IRR of over 50%. Under Keppel DC REIT, assets under management have increased to approximately SGD1.4 billion with 13 data centers, three of which were added to the portfolio in 2016.

To harness our synergies as a multi-business company, our verticals are collaborating even more closely with one another, capitalizing on their wealth of expertise, industry knowledge, and networks to create value for stakeholders. Keppel leads the Singapore Consortium in the Sino-Singapore Tianjin Eco-City, which is now in its eighth year of development.

With improving infrastructure, connectivity, and a growing range of amenities including schools, business parks, and community centers, we're seeing a steady increase in demand for homes and land in the Eco-City. At a land auction this month, our 50-50 joint venture in the Eco-City achieved the sale of three land parcels for about RMB5 billion.

This works out to be an average of close to RMB14,000 per square meter of GFA, higher than the last record sale price of RMB8,000 of GFA achieved in July 2016. The keen interest by developers and appreciating land price reflect the market's growing confidence in the Eco-City as it matures.

KrisEnergy's preferential offering of the zero coupon secured notes with free in-the-money detachable warrants was fully subscribed by its shareholders. We remain confident of the long-term fundamentals of the oil and gas industry, and believe we can extract good returns from our investment in KrisEnergy when the market improves.

The successful Consent Solicitation Exercise to term out two existing notes, and issuance of the zero coupon secured notes mean that KrisEnergy will be on a stronger financial footing to weather any continuing volatility in oil price. All parts of the Keppel Group are working hard to ensure that we remain resilient despite the headwinds.

Recurring income contributed to 42% of the Group's total net profit for the year. Gains from revaluation and divestments and reversal of prior impairments amounted to SGD270 million, before additional provisions for impairment during the year of SGD336 million.

We will continue to focus on growing stable, recurring income that will enable Keppel to ride out down-cycles. Through the challenges, I'm confident that Keppel will emerge stronger, anchored on our multi-business strategy.

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

Thank you Chin Hua. A very good evening to all.

I shall now take you through the Group's performance for the fourth quarter of 2016. The Group recorded a net profit of SGD143 million this quarter which was 65% below the same quarter in 2015.

Earnings per share were correspondingly 65% lower at SGD0.079. Our EVA was at negative SGD179 million.

The Group's revenue for the fourth quarter was 22% or 539 million lower than the same quarter in 2015. All divisions except the infrastructure division recorded lower revenue during the quarter.

Profit before tax at 206 million was 64% or 368 million lower as compared to the same quarter in 2015. This was due mainly to 313 million in additional provisions for impairment during the year for fixed assets, stocks and work in progress, and investments.

Correspondingly net profit after tax and non controlling interest for the fourth quarter was lower by 65% or 262 million and earnings per share decreased 65% to SGD0.079. Overall, the Group's revenue was 22% lower than the same quarter in 2015 driven largely by the 40% decline in the offshore and marine division, as a result of lower volume of work deferment of some projects and suspension of the Sete Brasil contracts.

Property division recorded lower revenue at 584 million as well due mainly to lower revenue from Seasons Residence and The Springdale in Shanghai, Park Avenue Heights in Chengdu and lower sales for Chorus and Reflections at Keppel Bay in Singapore. These were partly offset by higher revenue from the Glades which obtained TOP in December 2016 and Highline Residences in Singapore as well as Seasons Park and Seasons Garden in Tianjin Eco City.

Infrastructure division's revenue grew 12% primarily due to higher power and gas revenue and higher environmental infrastructure revenue from China. Pretax profit for the Group declined by 64% from 574 million in the fourth quarter of 2015 to 206 million in the fourth quarter of 2016.

In comparison to the same quarter in 2015, offshore and marine division's pretax profit fell from 21 million to a loss of 142 million. The division's losses were mainly due to lower operating results as a result of lower revenue, lower share of associated companies' profits and impairment of fixed assets, stocks, and work in progress, and investment.

This was partially offset by the absence of provision for losses for Sete Brasil rig building contract recording in the same period in 2015. Property divisions pretax profit decreased by 33% or 145 million, due mainly to the absence of cost write back compared to 2015's write back upon finalization of the project cost for Reflections at Keppel Bay and lower fair value gains on investment properties.

This was partly offset by reversal of impairment provision for hospitality assets like Sedona Hotel Yangon and Sedona Hotel in Mandalay. Pretax profit recorded by infrastructure division declined as a result of lower fair value gains on data centers, partly offset by higher operating results in Keppel Infrastructure arising from higher revenue.

Investments division's pretax profit decreased by 54% mainly as a result of share of losses from KrisEnergy and provision for impairment of investments, partly offset by share of profit from our joint venture in the Sino Singapore Tianjin Eco City. After tax and non controlling interests, the Group's net profit in the fourth quarter decreased by 65% or 262 million to 143 million as compared to the same quarter in 2015.

Property division is the top contributor to the Group's earnings, followed by Infrastructure division. Next, I shall take you through the performance for the year 2016.

Net profit for 2016 was down 49% from last year to 784 million. Earnings per share decreased by the same extents to SGD0.432.

This translates to a lower ROE of 6.9% while EVA was lower at negative 140 million. Free cash inflow was 576 million, as compared to an outflow of 694 million in the prior year.

This is due mainly to the slowdown in working capital increases, divestment proceeds from property division and lower operational capital expenditure from offshore & marine division. Net gearing increased from 53% at the end of 2015 to 56%.

However, it is slightly lower than 57% in the third quarter of 2016. We are pleased to propose a final dividend of SGD0.12 per share for this year.

Together with the interim cash dividend of SGD0.8, total cash dividend for 2016 will amount to SGD0.20 per share. During the year, the Group earned total revenue of 6.8 billion, a 34% or 3.5 billion decreased from 2015.

All divisions except property division recorded lower revenues. Profit before tax at 1.05 billion was 47% or 942 million lower than that of 2015.

This was due mainly to lower operating profit from all divisions and additional provisions for impairment during the year of 336 million. These consist mainly of provisions for impairment of fixed assets of 122 million, provision for stocks and work-in-progress of 75 million and impairment of investments and associated companies of 120 million.

In addition, fair value gain on investment properties and share of results of associated companies were lower by 65 million and 159 million respectively. Correspondingly, net profit after tax and non-controlling interest was 49% or 741 million lower at 784 million.

Overall, the Group's revenue of 6.8 billion was 34% lower compared to 2015, led mainly by 54% decrease in offshore & marine division's revenue resulting from lower volume of work, deferment of some projects and suspension of the Sete Brasil contracts. Property revenue increased by 12% to 2 billion as compared to the previous year, due mainly to higher revenue from The Glades and Highline Residences in Singapore as well as 8 Park Avenue in Shanghai.

Infrastructures revenue decreased by 14% mainly due to lower revenue from power and gas business. The Group recorded a pre-tax profit of 1 billion for 2016, 47% or 942 million lower than 2015.

The offshore & marine division's pre-tax profit was 87% or 609 million lower as a result of lower operating profit, impairment provisions for fixed assets, stocks and work-in-progress and investments amounting to 277 million. Interest expenses was high because of increases in borrowings to fund working capital.

Excluding these impairment provisions, the division's pretax profit would have been SGD367 million. The division's 2016 operating margin before impairment was at 14.4%.

The higher margin was due to cost reduction, finalization of contract costs and foreign exchange adjustments. In the property division, pre-tax profit decreased by 11% or SGD89 million due mainly to fair value gains on investment properties, absence of cost write-back compared to prior year's write-back of about SGD110 million upon finalization of project costs for Reflections at Keppel Bay and lower contribution from associated companies, partly offset by write-back of impairment provision of SGD60 million for the hospitality assets, mainly Sedona Hotel Yangon and Sedona Hotel Mandalay.

Infrastructure's pre-tax profit was lower by 49% or SGD120 million. As mentioned last quarter, the division's profits in 2015 included gains from divestment of 51% interest in Keppel Merlimau Cogen Private Limited, and dilution re-measurement gains from the combination of Keppel Infrastructure Trust and CitySpring Infrastructure Trust, partially offset by provision for losses on Doha North Sewage Treatment Works.

Lower fair value gain on data centers and impairment losses of SGD27 million on Nanhai Distribution Centre and Sino-Singapore Jilin Food Zone International Logistics Park also contributed to the decrease in 2016. Investments division's pre-tax profit decreased by 60% or SGD124 million due mainly to share of losses from KrisEnergy, lower share of profit from k1 Ventures, lower gain from sale of investments, and impairment of investment.

This is partly offset by the share of profit from Sino-Singapore Tianjin Eco-City. Pre-tax profit of Keppel Capital of SGD76 million was slightly higher than the SGD72 million achieved in 2015.

After tax and non-controlling interests, the Group's earnings decreased 49% or SGD741 million to SGD784 million. Property division was the top contributor to net profit at 79%, followed by infrastructure division at 13%.

Amidst a poor market environment especially in the offshore and marine sector, the Group recorded a net profit of SGD784 million for 2016. This translated to earnings per share of SGD0.432, which was 49% lower than 2015.

ROE decreased to 6.9% in 2016 from 14.2% in 2015. Our proposed final dividend to our shareholders for 2016 will be SGD0.12 per share.

Including the interim dividend paid, the total distribution for 2016 will be SGD0.20 per share. In 2016, operational cash flow was SGD1.29 billion, a decrease of SGD57 million compared to SGD1.35 billion in 2015.

Outflow for working capital changes, interest, and income taxes was SGD965 million, which is significantly less than the outflow of SGD2.1 billion in the prior period. This was driven mainly by the slowdown in working capital increases in offshore & marine division and cash inflow from the property division.

This resulted in the net cash inflow from operating activities of SGD330 million as compared to an outflow of SGD785 million in 2015. Net cash generated from investing activities amounted to SGD246 million, comprising mainly divestments and dividend income of SGD460 million, less investments and operational CapEx of SGD214 million.

As a result, there was an overall cash inflow of SGD576 million for 2016 as compared to the cash outflow of 694 million in 2015. That brings us to the last slide for the results presentation and I shall now hand over back to the CEO Chin Hua for the Q&A section.

Thank you.

Thank you Hon Chew. That brings us to the Q&A section.

For those of you in the audience, we have colleagues who can hand you a mic. Please state your name and the firm you're with.

I think Horng Han, you have the first. In the meantime, for those of you who are watching on the web, please do send in your questions.

Yes, Horng Han.

I just want to ask with regards to the provision for impairment charges. Now, we know Keppel has always been very prudent in the capital spending there.

So I'm rather surprised by the magnitude of the impairment of 336 million. I'm trying to understand which are the yards that got affected.

Any break down that you could provide in numbers? And secondly, the impairment test, was this already done?

What are the parameters here? Was this largely based on cash flow?

And perhaps with regards to the outlook, does it signal that the outlook perhaps still signal a fairly harsh winter ahead?

Well, thank you for the comments. I think you're right, Keppel is known for being prudent.

I think what we are going through is a very long harsh winter, so it's not business as usual. So the steps that we are taking to right size our KOM, to make it stronger and more efficient for the future necessitates that we will have to take some fairly strong actions in terms of capacity and that has, of course, then resulted in this.

So a lot of the impairments are related to the right sizing exercise. I will pass to CFO, maybe you can give a bit more color to it.

Yes. Yes, as CEO has mentioned, offshore & marine is undergoing right sizing and in the process we have also reviewed the whole capacity of the whole network of yards globally.

So in the whole process, we also took a review of all the fixed assets in the yards doing a comparison between our book cost against net realizable value. And together with our auditors we have identified certain fixed assets that, we actually have to make provision for impairment resulting in the impairment that you see in the financial statements.

And this review actually is quite a robust process, not just together with auditors, but also having gone through the offshore & marine AC, the audit committee, and the Board and also KCR AC and the Board. So it's quite a robust process.

Maybe if I could also add then, nobody likes impairments, but I think if it's necessary then it's right that we do that. But I think you've got to kind of look back at how KOM has run its business through both the up cycle and the down cycle.

We've always been very judicious in the use of capital. Many of our yards, as you will know, are actually not new yards.

Given what we see today, if we had invested even more during the good years into our yards, then perhaps the impairment might have been worse. So I think even though it is negative, I think it also reflects the fact that we've been quite disciplined in how we have used capital throughout the cycles.

I think in terms of the outlook, I think we've shared this before, we do -- despite the -- of course we are happy that oil prices are starting to pick up, so that's a good -- that's a good thing, but we are also quite realistic, it may take a while before you will flow down and there is still quite a lot of -- it's an overbuilt market. But we are not just stopping there.

I think you can see from the presentation as well as the earlier presentation in the last few quarters that we're looking also for other new markets, gas for instance. We're also looking at non-drilling going into production, going into new markets like dredgers, et cetera.

And I think that is really -- and repurposing our technology. I think that's really very key to us.

So it's not just a question of right-sizing, but also looking for new markets and new revenue streams. [indiscernible]

Yes, maybe I can add a little bit more. Just wanted to let you know, I think what the CEO has mentioned is that we were at a very high point and if you were to look before and how we build up to that high point and now that the market has softened.

So we are -- we have to do the prudent thing. And what we have done, as mentioned in the CEO's speech, is that we have actually mothballed two of our oversea yards.

Now, when you say yards, these are really supporting facilities. So these are not primary facilities, but supporting facilities.

And in Singapore we have seven yards and during the good times we have also gone in and acquired some of the supporting facilities. So what we are doing is that we are mothballing the two oversea yards and we are trying to see how we can reduce the number -- the capacity in Singapore which amounts to three supporting yards in Singapore.

So I think just to make sure that you don't -- don't misunderstand, the primary yards remains very much intact. In fact, one of our objective is to maintain our capability, our core competence and prepare our self for the next upturn too.

Yes, Cheryl.

I'm Cheryl from UBS. Just staying on the topic of impairments, I have a few questions.

So could we just clarify of the SGD82 million provisions for impaired stocks and WIP, how much actually relates to property, because I think in the notes it was said it was property as well as O&M? The second question is of the SGD87 million fixed assets, is this largely mothballed yards?

And for the investments again you gave a bit more clarity of the SGD121 million, how much is O&M related, how much is investments and is there any increased energy? And then when you mothball a yard, the cost related to reinstating the land, is that taken through a P&L as a cost item or is it separately like impairment charges or something?

CFO?

Yes.

I hope you got all the questions.

Okay, I'll try my best. If I miss anything, you let me know.

Stocks and work-in-progress, that's largely due to the provision for the [indiscernible] drillship. At the year-end we did a review -- a value in use review and we actually had a third party valuation too to support that provision that was made.

So that's the biggest item under stocks and work-in-progress. For fixed asset provision, as I have mentioned earlier, is actually a review of the yards, the fixed assets in the yards [indiscernible] use of the yards, in arriving at the provision for impairment.

Investments, that includes impairment of various investment including investment in yards and some of the investments are also listed companies. So I'm not at the liberty to actually break them down.

As for mothballing, in cases where if there's a need to reinstate the land of cost, that will be part of costs of reinstatement and it would be included in impairment, but I don't think there's significant reinstatement cost in our case.

Okay, thank you. Now before I take that question from you, maybe I take one question from the net or submitted.

This is a question from Lim Ming Liang of Aries investment Holdings Private Limited in Singapore. Mr.

Lim has three questions. First question, how has the rebound in oil prices helped the profitability of Keppel Corp?

I think as I've alluded to in my opening remarks, I think the rebound in oil prices, I think sets a stage, I think it's a necessary stage for the eventual recovery of the offshore sector, but it is not the only condition. We still need to see improvements in terms of the utilization rate of the existing fleets as well as period of time for the excess rigs new builds to be absorbed.

And most importantly, it's good, hopefully the rebound in oil prices would eventually lead to a more substantial increase in E&P spending. So it will help, but it's not a direct correlation.

Second question, would there be an increase in order-book for 2017 and 2018, in bracket oil and gas? We don't give any forecast in terms of order wins, but certainly the team is working very hard, not just in drilling, but also looking at assets, production assets as well as gas, as well as non-oil and gas.

So those we are working very hard to fill the order-book. The third question, how will an expected increase in Fed interest rates and Singapore dollar interest rates effect Keppel Corp in general.

Hon Chew, you want to take it?

As you know, Keppel Group is in a net borrowing position and of course any increase in Singapore interest rates, it will result in higher interest expense. But that said, I think point to note is we have a prudent mix between fixed and floating.

Suffice to say that fixed is more than 50% of the whole portfolio. That will help to mitigate increase in interest rates.

Thank you. Suki, you have a question?

A few, okay. Maybe you start with one first.

Maybe you have a mic, yes.

So I just wanted to clarify on the impairment because you actually have a few lines of impairment. Just wanted to know how much you record total impairment provision that you took in O&M in 4Q, impairment of fixed assets how much, provision for stocks how much, and I know there's a SGD12 million provision for doubtful debt.

For O&M, the total impairment as I think we…

For 4Q?

For fourth quarter is also about 270 million. Now if you look at the SGX net disclosure of breakdown, but that's for the Group, but offshore marine is the biggest part of the numbers you see in SGX net.

So, if I may refer you page 2 of SGX net, the impairment of fixed assets for fourth quarter is 87.4 million and the impairment of stocks and work in progress, that's 81 million, and impairment of investment in associated companies, that's 121 million.

So for O&M its 270 million about? Yes, okay.

Then for revenue for O&M, actually compared to 3Q of 500 million, 4Q is relatively strong of 800 million. Is there any specific ad hoc things that you're doing or why is this so strong?

No, it's just the timing of the project, that's all. In fact the team is working very hard on some repairs and that kind of thing.

So it's just the timing.

Okay, thanks. Sorry, another thing is negative 17 million of operating profit in investments, so that is because of your listed companies impairment that you can't disclose their result in the.

Yes.

Okay. So and also for revaluation gain for property, I mean last year was 128 million, this year is 63 million.

So which country I mean which areas do you see it coming from?

So we don't give a breakdown, but generally there's a reduction in the fair value gain of office buildings.

Okay. Yes, I'll come back to you, think of a few more questions, I'll come back to you.

Okay, let's take one from the from submitted over the internet. This is a question from Tan Hwee Hwee of Singapore Press Holdings in Singapore.

Congrats on winning the desalination contract. Thank you.

Can you elaborate on the technology that may be applied to this project? Particularly of interest is if any synergy will be derived from your offshore & marine division.

Now before I ask TG to answer the first part of the question, maybe let me try to address the second part of your question. I think this is this project is actually is based on land and it's in the marine [Indiscernible] area, and I think it will be a very interesting and very iconic project when it's completed.

So Keppel is very pleased that we've been selected to do this. Unfortunately there was a very tight time schedule.

If there was a bit more time, perhaps a possible solution might have been a floating unit which of course then will bring in our offshore & marine division. So maybe the next time another project we could see that happen, but for this particular project we're very pleased to have the trust of PUB and Keppel will work very hard to make sure that we deliver on time, on budget, and safely.

So I ask Dr. Ong TG, can you touch on the technology?

The technology we will be using for this project is reverse osmosis, RO technology. While we try to create synergy for the O&M divisions, this projects will create quite a lot of synergy for the infrastructure divisions.

First, we are investing in the projects, we are building the projects, we are operating the projects for 25 years, and we are supplying electricity to the projects for the next 25 years as well. Thank you.

Thank you. Okay.

There is a question at the back. I can't see who is that.

Gerald from Credit Suisse. I have a few follow-up questions on the provisions that were taken.

Apart from the [indiscernible] drillships, were there provisions taken for other rigs? And what is the outstanding carrying value of KrisEnergy on your books?

On the yards that were closed or mothballed, can you maybe mention what are the overseas yards and which Singapore yards have been closed?

Okay, maybe I'll let -- I think I'll answer the last question, let CFO think through the answer for the first few. I think as YY Chow have explained, the overseas yard that we have mothballed is actually supporting yards.

So one is in Bintan Offshore and the second one is in Brazil. This is in Santa Catarina.

Yes. Santa Catarina.

So Hon Chew.

Yes. Okay.

On your question on the impairment on rigs, no, I think the only impairment on rigs is for the [indiscernible] drillship. And your second question on KrisEnergy, the net book value is about 390 million.

Okay. I'll take one question from the web.

This is from Joshua Lee of Deutsche Bank in Singapore. Good evening Keppel team.

My questions are as follows. What is the impairment break-down of 336 million by segments, and from the O&M sector which projects were impacted?

Are there any impairments from your Brazilian yards? I believe this had been broadly addressed in both my speech as well as CFO's answers to the questions earlier, any guidance on your O&M order-book for 2017?

I believe I've also addressed that. Why is there a significant decline in other non-current liabilities?

Hon Chew.

Yes, I think that's largely due to reclassification of long-term loans to short-term loans and also derivative liabilities which was lower because of maturity of some of the assets of fixed assets for contracts -- for export contracts.

Okay. I have a question I think submitted again by Tan Hwee Hwee of Singapore Press Holdings.

Question is [indiscernible] the adjacent markets flat for offshore & marine, can you provide more color what they may be? What opportunities do you see for instance for offshore wind sector?

YY?

Besides the -- our core businesses, I think for us, we are looking at opportunities in for example power generation, desalination, dredgers which we already achieved some success there. And I think we are also looking at some very specialized gas projects which is -- which we have just build up that capability over the last eight years, like small gas distribution milk run type of projects, the small-scale FSRU, those are kind of the adjacent markets that we are targeting.

Now in the wind, the offshore wind we are pursuing opportunities in substation. Some of them are in self-elevating platforms, so we're using our jackup technology to be able to do that, and we are also pursuing opportunity in like production units such as compression modules.

Those are for the self-installing platforms which are jackup technology. So these are some of the things that we are doing.

In fact in the offshore wind there are opportunities for us to actually fabricate some of the supporting substructures, and depends on the location I think, we will look at those opportunity and see what's suitable for us.

Thank you, YY. Let me take some questions from the floor, but before I do so we have quite a good year on property and actually Wee Gee is waiting to answer any questions.

So anyway please feel free to ask any questions on property. Oh, you did.

Okay, ask another one then. Okay, jokes aside, are there further questions from the floor?

Yes, please. Maybe get a mic here, thanks.

Just on the O&M, since you said that you actually provided SGD270 million in 4Q, so if I took that out, your EBIT margin is tremendously good, that 17%. That is one-off related to some repair job, that.

No, it's actually 18.8%, okay, so it's higher than the 17%. But anyway the reason for that is because I think some, that's the reason why our effort, the last two years when we right-sized the organization, I think that's one of the reason why we are doing that.

But what we have, also have in that number is that we have some write-backs on our completed projects for 2016. So actually when you look at the combination of that including the repair jobs these margins are usually better.

So I think when you add those together, our fourth quarter is actually I think 18.8%, but actually for full year is about 14.4%.

How much is the write-back in 4Q?

We don't disclose that, but the write-backs can be significant because it's not tied to the, well, it has an impact, but it's not tied to the revenues. It's not tied to that.

So what you achieve in full year is something that you look forward to or is still on a high side?

We don't, you've been following us for a while, we never give any forecast on margins. I think the key for KOM and it's really quite an achievement that in this kind of very tough environment with strong headwinds KOM is still able to seek out a profit where many of its peers are actually in the red.

So I think for us it's right sizing, making sure that we are ready for a long winter, but more importantly to prepare for the future, to be more competitive, and keeping it profitable I think is already quite an achievement. And if you look at KOM that has been a big contributor to the Group's net profit for many years in the recent times.

So now we have other engines, so waiting for, waiting for KOM to eventually come back and it will we believe, so we are getting ready for the up-cycle, but in the meantime we have to prepare that it will still be a few years.

Thanks.

Yes, there's a hand in the back.

Property, a question for Wee Gee.

Gerald.

Property had a very strong sales in 2016. What's the outlook for your property sales in 2017 particularly for key markets China, Vietnam, and Singapore?

Wee Gee?

For a while I was getting concerned whether I'm redundant up here. Okay, our key markets as you know are China, Singapore, Vietnam, and Indonesia.

I think China the government has introduced cooling measures but we see that the market to continue to be fairly healthy this year. While the economic growth may not be as high as in the past, it is still a very respectable growth in China.

So our projects are still selling well. So we think that the market would remain healthy this year.

Vietnam is a bright spot amongst the countries we are focusing on. I think the last one, two years we have seen a market come up very strongly.

We are very fortunate in the sense that we have been in Vietnam for many years have grew our team there, built up a strong reputation, built up good connection, a relationship while operating there and built our strong brand name. So we are capitalizing on that.

On top of that we have built up a large land bank in Vietnam. And we are capitalizing on that to push out sales as much as possible.

As you would know, we have launched four projects in the second half of last year. The sale was very good and we still have land in Vietnam and we continue to launch project in quick succession one after the other.

For example, we launched Lyndon Residence in Thu Thiem District end of last year. The project has around 500 units.

We sold 400 over units over a weekend and that project we have six residential plots. So we are going to launch the next plot very quickly and we have some more plots to launch.

So Vietnam we are expecting that this year would be good for us. Indonesia, the market is still subdued, but with the continued economic growth, low interest rate environment, we think that prospect will be good going forward.

Singapore, I think a lot of you know Singapore very well. I think we see the market being subdued this year.

We'll continue to sell Highrise Residence and The Glades. Last year we sold more than in 2015, we sold about double the number of units.

And this year we are quite confident we'll continue to sell these two units, sell them out this year.

Thank you Wee Gee. I think just to emphasize what Wee Gee has said or to add a few points, I think Keppel Land has been fortunate that we have actually gone out of the Singapore market for the past 20-odd years.

We are quite well established in some of these growth markets like China, Vietnam, et cetera, and Vietnam has done exceedingly well in recent times, in terms of sales. And the landbank that Wee Gee talked about that we have amassed in Ho Chi Minh City, they're actually in very good location.

So for instance, we have a plot of land in -- this is Saigon's [indiscernible] city and that is in district two and I believe it's about 60 something hectare so 64 - 65 hectares. So we're fortunate because this land was built up over the last period of time and we have a very strong team on the ground as well.

So I think we've planted the seeds, so now it's time for us to do some harvesting. And I think that's one of the key strengths of the multi-business model that Keppel runs that we always have opportunities in various parts of our businesses to provide or to contribute the profits for the Group.

Yes, I think Cheryl has a question.

I have a follow-on question relating to the write-backs for the offshore & marine that you mentioned, I just -- can we understand what were the circumstances that allowed you to write back whatever amount it was? And a follow-up question on property, in China what are the opportunities for land banking in the cities that you're focused, would you look at expanding to other cities?

Hon Chew, you want to take the first?

Yes, maybe just explain when you look at each project when you complete the project, you then finalize the project cost. So that is the point in time when you will actually know whether the actual cost is what you have earlier on projected and you can actually write back upon at that point in time.

Before I invite Wee Gee to tell you a bit about what are some of the cities that we are looking at in China, I just want to kind of remind all of us here that we have about 66,000 pipeline in our landbank for Keppel Land. So based on the sales last year, that's equivalent to about 10 years of supply, so Keppel Land is in a very enviable position where we can buy land and we've bought land in 2016, but we are not forced to buy land.

So if we find pieces of land that is attractively priced, we're prepared to do so, but we do not have to buy land unless it is attractive. Wee Gee, you…

I think you have answered the question, but maybe I just reiterate, I think we are in 10 cities in China, but we focus on five because we believe that we need to focus and [indiscernible] up in some of these fast-growing cities so that we can be as competitive as the local developers. In terms of our strategy for land banking, as Chin Hua has said, we have 6,000 homes in the pipeline of which half of them, about 33,000 are in China in these cities.

So we are not in a hurry to buy land and when land price is high, then there's a saying in China that the flour is more expensive than the bread, when the situation is that we don't buy land, in fact we will take the opportunity to recycle asset. I think last year we saw our two townships, one in Chengdu and one in Wuxi, and that was to capitalize on the high land price whereby land price is higher than apartment price.

So we capitalized on that and so we wait for periods whereby it's supporting for us to build our landbank and we then continue to build our landbank.

It looks like we have a few questions on the web, so maybe I'll try and clear a few of these first before I come back to the floor. First question is from Ajay of JPMorgan in Singapore.

Question from Ajay is can we confirm that O&M provisions are only for young assets or have Keppel also provided for any of the outstanding orders? Hon Chew?

Yes. We explained earlier the provision for impairment.

First of all, relates to fixed assets, so yes, those are young assets, and then on the work-in-progress and stocks, these are also young assets and also on investments, yes, we confirm that we have not made any provisions on any of the outstanding projects.

Next question is from Joshua Lee of Deutsche Bank, Singapore. Term loans and creditors increased 1.3% quarter on quarter, but interest expense increased 45% quarter on quarter.

Why was the interest expense increased so steep? The second question, why is there a significant decline in other non-current liabilities?

Hon Chew?

Okay. The first question, basically the interest expense for the quarter is high because of an accounting adjustment that was done in fourth quarter which is what we call fair value adjustment to a low-end receivable from one of our associates.

Now, in accounting when that's a bond or loan at a certain interest rate, you actually have to compare it against the market interest rate and if there's any difference you need to do a fair value adjustment, basically recognizing interest expense upfront and then recognize that difference over the term of that loan. So in other words, in future years, it will come back in the form of interest income.

So if you remove that adjustment actually the interest expense for the fourth quarter is about comparable to the same period last year.

Okay. Second question.

Second question, I think we addressed this earlier on. It's due to reclassification of long-term loans or short-term loan, and also derivative liabilities was also lower because of maturities, some of the underlying assets of the foreign exchange forward contracts.

Okay. I'll take a question, next question from the web.

This is from Mohammad Razali, retail investor in Singapore. Could Keppel provide an update on the progress of its seabed mining project?

The update is that we continue to work on this project with our partners. Of course we've done the first cruise and the results were very much in line with what we had expected.

So now the challenge is to develop a solution to bring the Nordeus which is situated about 4 kilometers below the sea surface to the surface so that we can then process it. So this is something that we are working on with our partners.

It is not a short-term project, we have gone into this project with the view that this is going to be a long-term project, it's a very exciting project. Second cruise will be planned in the next few years.

Can I take question from the floor? Yes, please, Suki.

On the Parden rig, it says that you actually had agreement to with the guarantor at the sale price matching the remaining payment obligation of Parden. So does that mean that because it's a 20:80 payment terms, so how do we see that?

Do you need to write down the contract value because it was 206 before and now 80% of that, how do we see that accounting-wise?

Okay. Hon Chew?

Yes. We have received the 20% deposit, right, so in other words with this contract we have made whole.

So this contract is 116 then?

No, we have collected 20%, right, so in other words we will still receive the remaining 80% because of this contract. So we do not actually…

There's no loss.

There's no loss.

The, and in terms of the new buyer which is an associate of the guarantor, we still have the benefit of the original guarantee from the guarantor. So essentially there's no change.

You basically have, we had a guarantor to begin with from a very creditable organization, so we're quite comfortable with this, the rig as it is. Now, let me take two questions from Joy Wang of Deutsche Bank in Singapore.

The first question is Keppel Land's divestment is more than investment in 2016. Will we see increase in investment in 2017?

What will be the market and sector focus for 2017?

So, maybe I will answer the first question and I'll ask Wee Gee to answer the second part of that question. I suppose at the end, we don't have any specific target for in terms of investing.

It really depends very much on the opportunities that come up. We are obviously very focused on making sure that all our asset heavy businesses such as Keppel Land produce a good return on capital employed, and not just at a project level, but at the property book level.

There are several markets that I think Keppel Land is looking at, so maybe I'll ask Wee Gee to take that question.

We will continue to focus on our core markets of Singapore and China and growth markets of Vietnam and Indonesia. As a foreign developer, it is very competitive, it is very challenging, the Company overseas market.

And we believe that after investing overseas for many years it is important to focus and to [Indiscernible] up in the cities of focus. So even within countries we will be focusing on certain cities like for China we will be focusing on Shanghai, Beijing, Wuxi, Chengdu, and Tianjin.

For Vietnam mainly Ho Chi Minh City, perhaps Hanoi when there's a right opportunity. Indonesia, Jakarta, or Greater Jakarta; so we think that's the right strategy moving forward.

We will also keep an open mind on other markets. There will be markets that we will invest opportunities, opportunistically and then in terms of sector, we'd also look into moving into other sectors.

So, but the sector of our main focus would be residential, lifestyle residential, townships, commercial office, mixed use developments.

Thank you Wee Gee. Now Joy has a second question and this is on Keppel Capital.

Keppel Capital has been very active. Would we see any promote fees on top of current based fees for any of the funds.

Christina?

Yes, actually I don't think we break down our fees into the promote fees as well as the base fee. All promote fees earned will actually be recognized in the profit and loss, so you will see that recognized in the P&L.

So the answer is yes?

Yes.

If your funds continue to perform well, you should see performance.

Yes, that's right. Yes, definitely.

Okay. Yes.

Cheryl?

Yes, one more follow up question from me. Regarding your dividends, can we get some comments on how you arrived at a decision on a total dividend of SGD0.20 and do you think this is sustainable in absolute terms?

It's a good question, Cheryl. I know you've always asked us questions on dividends.

And I think it's fair because I know that a lot of our shareholders of Keppel are income funds, so they look at dividend as a very important part of the total returns. This is also something that the Board of Keppel Corp is very well aware of.

When we decide the dividend, the final dividend, the total dividend for the whole year, we consider several factors. Of course the first factor is something that we is a sharing.

We've always said that when we do well we want to share with our stakeholders. So in that regard we don't have an explicit policy, but you could see from the recent dividend that we have set is somewhere between 40% to 50% of our net profits for the year.

So at SGD0.20 this year I believe is about 46%, so it's a bit slightly higher than our -- higher of the mid range, but we believe the second factor is to make sure that whatever dividends we set is something that we believe can be sustainable. So on that basis we are comfortable in recommending to our shareholders a final dividend of SGD0.12 which would then make it SGD0.20 for the whole year.

Is it sustainable in absolute terms?

I think based on what we see today, I mean this is something that we can afford to pay. Of course the conditions this year and next year, when we come to the same period next year, we will make that evaluation at that point in time, and it will depend on the Group's capital requirements and the market at that point in time.

Anyone for the last question? Yes.

Conrad Werner It's Conrad Werner from Macquarie. Can I just double-check, did you quote a clean net income number at the very beginning when you were introducing the financials for the fourth quarter?

In other words, the reported number was 143 million and then did you quote a kind of a clean normalized number excluding…

Oh, this is the -- I think the -- in the speech I think -- make sure I get exactly correct, don't misquote myself. All right, here.

I think I said on paragraph 12 in my speech that in fourth quarter the net profit was 143 million. However, if we stripped out RID and major provisions, net profit of 300 million is comparable with that of fourth-quarter 2015.

Is that the number you are referring?

I guess so, yes. So the clean number effectively is 300 million?

Clean number, what's that?

Other words.

What you mean by clean, meaning you have excluded impairment?

Yes.

That's what you -- it's exactly -- we don't -- you see, it's very difficult. Clean could mean different things to different people.

I think if you follow my…

Yes.

Follow that, it's exactly what I say here.

Sure. Sure.

So what you're adding back is the provisions and then taking out some of the one-off gains as well because I think it was…

Yes, for both sides. You see, what we're trying to provide some color here is to say that that the fourth quarter is -- for both 2016 and 2015 is very much impacted by the RIDs, right?

So we're trying to show you that -- we're trying to share with you that if you strip out on a comparable basis on both 2015 as well as 2016 fourth quarter, if you strip out all the -- what I've said there, the impairments, revaluation…

The revaluations, impairments, and divestment gains.

All right.

So for example this -- the 60 million that is quoted in the property division as for the Mandalay project I think it was -- that…

For two actually

Sedona Yangon and Sedona Mandalay.

That we will strip out.

So you would start with a SGD143 million, add back the provisions, but subtract something like that?

Yes.

Yes, right.

Okay. Cool.

Thank you.

Do we have any further questions? If not, thank you very much for joining us and I think we have some, for those of you who are here we have some refreshments.

Thank you.