Keppel Corporation Limited

Good evening and welcome to the conference and webcast on Keppel Corporation's Results and Performance for the First Quarter of 2019. We have had a busy quarter.

Beyond executing our businesses, key milestones were the compulsory acquisition of M1, and obtaining shareholders' approval and sanction of the court to privatise Keppel T&T. These are the latest steps in Keppel's transformation as we seek to build a stronger and more resilient company, committed to delivering value and growth into the future.

For the first quarter of 2019, the Group achieved a net profit of S$203 million, 40% lower than the S$337 million for 1Q 2018. In 1Q 2018, the Group had benefitted from a S$289 million gain arising from the en-bloc sale of Keppel Cove in Zhongshan, China, compared to gains of S$174 million in the current quarter from the divestment of a 70% interest in Dong Nai Waterfront City, Vietnam and the re-measurement of previously held interests in M1 at acquisition date.

Our ROE was 7% on an annualized basis. Free cash outflow was S$617 million in first quarter 2019, compared to an inflow of S$248 million in first quarter 2018 mainly due to higher working capital requirements in the Offshore and Marine and Property divisions.

Our net gearing rose to 0.72 as at 31 March, 2019 compared to 0.48 at 31 December, 2018. Besides higher working capital requirements and financing for the acquisition of M1, net gearing also rose as a result of the inclusion of lease liabilities due to the adoption of the new accounting standard on leases.

I will now take you through the key developments in our business divisions. Keppel O&M continued to seek new opportunities and execute its projects well, while exercising cost discipline.

It made a profit at both the operating and net levels in first quarter 2019, due to the improved contributions of associates and lower taxes. In the year to date, we secured new contracts totalling about S$1 billion.

Our net order book stood at $4.7 billion as at end-March 2019, an increase of S$400 million compared to S$4.3 billion at the end of 2018. As we prepare for the recovery of the O&M business and to handle the anticipated increase in workload from new projects, we are also increasing our workforce in selected Singapore and overseas yards, with plans to recruit about 1,800 full time staff over the course of 2019.

During the quarter, Keppel O&M won a repeat mid-water semi drilling rig order from Awilco Drilling worth about US$425 million. This is the first of three options exercised by Awilco, reflecting the demand for our mid-water, harsh environment rigs for deployment in North West Europe.

Work on the first rig for Awilco is progressing well and we expect to benefit from economies of scale and cost efficiencies as we undertake the second project. Keppel O&M has also secured integration and upgrading contracts worth a combined value of about S$160 million which includes fabrication and integration work on an FPSO.

In addition, we have received the Final Notice to Proceed from Golar LNG to commence full conversion works with enhanced work scope worth US$242 million, bringing the total value to US$947 million for the Gimi FLNG project. Sete Brasil recently called for a tender for the sale of four drilling units, two of which are for semisubmersibles which were being built by BrasFELS before we stopped work in 2015.

A bid has been submitted by Magni Partners for the four rigs. We have discussed with Magni Partners on the cost of completing the rigs if they win the bid.

In addition, Keppel O&M also submitted a bid to purchase the two rigs that were being built at BrasFELS. A decision on the award of the tender will be announced at a later date by Sete Brasil, after they have evaluated the bids.

In Singapore, we have handed over the jackup rig, Cantarell IV, to Grupo R. Cantarell IV is the first rig equipped with Keppel O&M's RigCare Solution, which will significantly transform the efficiency, safety and operability of the rig.

As part of the deal, Grupo R has entered into a sale and leaseback agreement with a wholly owned subsidiary of Keppel O&M. In early May, Cantarell IV will be deployed to work in offshore Mexico.

This is an example of a win-win solution we have achieved with our stakeholders, despite the challenges facing the offshore sector. Testament to our newbuild capabilities and technological expertise, Keppel Singmarine has delivered the world's first EU Stage V dredger to Jan De Nul, further strengthening our presence in the non-oil and gas segment.

Keppel O&M is scheduled to deliver another four state-of-the-art dredgers to Jan De Nul over the next two years 2019 to 2020. The maritime industry is transforming rapidly and we are collaborating with MPA and TCOMS on initiatives to improve the industry.

Keppel O&M has embarked on the development of an autonomous tug, to be operated by Keppel Smit Towage, and has secured a grant of up to S$2 million from MPA for the development of the vessel. It is expected to be one of Singapore's first autonomous vessels when the project is completed.

Harnessing the strengths of the multi-business group, Keppel O&M is also collaborating with M1 for the test bedding of Maritime Autonomous Surface Ships in Singapore's waters. The trial will utilise autonomous vessel technology and leverage M1's ultra-low latency 4.5G network connectivity to establish standards and data transfer links in terms of latency and reliability for the ship to shore communication, and support mission-critical IoT maritime applications.

Our Property Division recorded a net profit of S$132 million for first quarter 2019, lower than the S$378 million in the same quarter a year ago. Keppel Land made a net profit of S$129 million, lower than the S$373 million in first quarter 2018, which had benefitted from the sale of the Zhongshan project.

Keppel Land continued its capital recycling strategy while also deepening its collaboration with Nam Long Investment Corporation, a leading affordable housing developer in Ho Chi Minh City, with the divestment of a 70% interest in the 170-hectare Dong Nai Waterfront City to Nam Long for a consideration of S$136 million. Keppel Land is Nam Long's second largest shareholder and we will work closely with Nam Long, tapping its local network and insights, on the development of the Dong Nai Township.

In another collaborative effort as OneKeppel, Keppel Land China and Keppel Capital, through AAMTF III, as well as other co-investors, have entered into an agreement for the proposed acquisition of Yi Fang Tower, a recently completed prime Grade A office and retail mixed-use development located in North Bund, Shanghai, China. This is the third time that Keppel Land is collaborating with Keppel Capital to invest in prime properties in Shanghai, and the acquisition is in line with our strategy to grow our commercial portfolio in China, with a focus on first-tier cities.

In first quarter 2019, the Property Division sold 390 homes, more than the 300 units sold in same period last year, with a total sales value of S$230 million. Most of the homes sold were in China, mainly in Wuxi.

Notwithstanding cooling measures in China, we continue to see strong demand for well-located projects in high growth cities. We have just launched our new Nanjing residential project last week, and all 271 units in Phase 1 were fully sold at launch.

Due to the overwhelming demand, some 3,200 potential homeowners had balloted for the units, which translates to more than 10 times oversubscription. This year, we intend to push out some 2,000 units across China.

Keppel Land has a residential landbank of about 48,000 units, of which about 17,000 units in key Asian cities are launch-ready from now to 2021. We expect to recognise revenue for some 7,790 overseas homes that have already been sold worth about S$2.4 billion, upon completion and handover from second quarter 2019 to 2021.

We also have a commercial portfolio spanning about 1.6 million square metres of GFA of which about 50% is under development. This portfolio can produce annual net operating income of about S$300 million when fully developed and stabilised, although we may also look to dispose of some of these assets by sale, or contribute them as seed assets in new funds to be formed.

Our Infrastructure Division made a net profit of S$16 million for first quarter 2019, compared to the S$26 million over the same period last year. Excluding the share of Keppel Infrastructure Trust's cost for the acquisition of Ixom, which amounts to S$7 million, Keppel Infrastructure has performed well, mainly due to higher contributions from environmental infrastructure and infrastructure services.

We are growing our market share in the electricity retail market. Keppel Electric is currently one of the largest OEM electricity retailers in Singapore, having signed up more than 100,000 retail customers.

The Keppel Marina East Desalination Plant and Hong Kong Integrated Waste Management Facility are both progressing well. The former has achieved more than 80% completion, while the latter has started contributing to our bottom line from first quarter 2019.

Earlier this month, Keppel Gas completed its first LNG cargo import under Singapore's Spot Import Policy. The spot cargo, which was from North America, demonstrates Keppel Gas' ability to diversify its gas supply beyond Southeast Asia, thus bolstering our gas portfolio and enhancing our competitiveness.

The cargo will be regasified as feedstock for downstream customers and end users, including Keppel Merlimau Cogen. Expanding our data centre business and reach into Indonesia, we have broken ground for IndoKeppel DC 1, located in Bogor, about 35 kilometers from Jakarta.

The high availability data centre will be developed and operated by a 60:40 joint venture between the Salim Group and Keppel Group. Our Investments Division made a net profit of S$49 million in first quarter 2019, compared to a net loss of S$44 million in same quarter last year.

Keppel Capital performed well during the quarter with net earnings of S$23 million, compared to S$9 million last year. Keppel Capital has concluded a conditional share subscription agreement with Gimi MS Corporation and Golar LNG to subscribe for 30% of the total issued ordinary share capital of Gimi MS.

Gimi MS will undertake the development, construction and operation of the Gimi FLNG. In line with the Keppel Group's business model, the Gimi investment will be a seed asset for a new infrastructure fund to be managed by Keppel Capital and when completed and stabilised, can potentially also be injected into Keppel Infrastructure Trust.

Entities under Keppel Capital are also working to grow their assets under management. Keppel Infrastructure Trust has completed its acquisition of a 100% interest in Ixom, a leading industrial infrastructure company in Australia and New Zealand.

M1 is now a subsidiary of Keppel. We are, together with SPH, working with M1's board and management to transform the company and grow it to be a key pillar of earnings for the Group.

The areas we are looking into include redefining M1's consumer product offerings, redesigning the customer experience, increasing our focus on the Enterprise segment, improving operational efficiency, and exploring future growth platforms. Another key area of work is to tap synergies from collaboration with the rest of the Keppel Group.

I mentioned earlier the collaboration between M1 and Keppel O&M. There are many other areas where we can work together.

Keppel has been growing our B2C businesses. They include City Gas with more than 800,000 household customers, Keppel Electric with over 100,000 customers, and now M1, with its 2.2 million customers.

We will build on the complementarity of our consumer offerings in connectivity and energy to launch bundled solutions and services that cater to the needs of Singapore consumers. Already, Keppel Electric and M1 have been working together to market their power and mobile services to customers.

We can also harness M1's capabilities to further enhance the Group's diverse offerings, whether in Singapore or overseas, for example, through collaborating with Keppel Urban Solutions on smart city projects. Keppel can also leverage M1's data analytics capabilities to glean actionable insights that can be applied in our master development projects and retail properties.

Over the past few years, the board and management have worked hard to drive Keppel's transformation to ensure the company's continued relevance, resilience and competitiveness in a fast-changing landscape. To drive collaboration and effective capital allocation, we have simplified the Group's corporate structure, first with the privatisation of Keppel Land, and then the restructuring of our asset management businesses under Keppel Capital.

We are in the final stages of completing the privatisation of M1 and Keppel T&T. We privatised Keppel Land for about S$3.1 billion in 2015.

Since then, we have recognised total net profit of about S$2.9 billion from Keppel Land, compared to S$1.6 billion, if we had just retained our 55% share of the company. With full ownership, we have transformed Keppel Land into a multi-faceted real estate company, right-sized its property book and actively recycled capital to seek new opportunities and higher returns.

Keppel Land has been the largest contributor to the Group for the past four years. At the end of 2018, we calculated the RNAV of Keppel Land to be about S$10.3 billion or approximately S$5.68 for each share of Keppel Corporation.

This does not include the Keppel Group's 45% stake in the Sino-Singapore Tianjin Eco-City Investment and Development Co., [ph] which has RNAV of about S$1.2 billion or S$0.66 for each share of Keppel Corporation. Following the privatisation of M1 and Keppel T&T, we will likewise drive M1's transformation to enhance its competitiveness and value and provide the Group's full support to grow the data centre and urban logistics businesses under Keppel T&T.

We have full confidence in Keppel's strategy. We will work all our engines hard, to strengthen our existing businesses, as we seek out new markets and profit pools.

We will work towards a mid to long-term ROE target of 15% for the Group. This is a realistic goal, bearing in mind that the Group had achieved an average ROE of 17.7% over the past decade.

ROE targets have also been set for each of our key businesses, as you can see on the screen. Let me emphasise that these are not forecasts, but targets, which will serve as guides not just for the business units, but for the Group in our strategic and investment decisions.

The main pieces of our strategy are largely in place. Our focus now is on execution.

When we successfully execute on our strategy, Keppel will be a powerhouse of urbanisation solutions, with not only higher profits, but also higher quality, recurrent earnings. Investors look not just at profits but total returns.

As the market sees the strengths of our business model and the value that we create, we would also expect our share price to trade at close to the sum of the parts, if not higher. The board and the management team of Keppel are fully focused on and confident of fulfilling our mission for the benefit of all our stakeholders.

I will now invite our CFO, Hon Chew, to take you through the Group'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 for the first quarter of 2019.

In the quarter, the Group recorded a net profit of $203 million, which was 40% lower than the same quarter last year. Consequently, annualised ROE decreased from 11.4% in 2018 to 7% in this quarter.

Free cash outflow for the first quarter was $617 million as compared to an inflow of $248 million in the same quarter last year mainly due to higher working capital requirements with the construction progress of Offshore & Marine's major projects, as well as Keppel Land's additional property development and land acquisition costs. Net gearing increased from 0.48 at the end of 2018 to 0.72 at the end of March 2019.

This was due mainly to borrowings drawn down for the acquisition of M1 and working capital requirements, as well as the recognition of lease liabilities following the adoption of Singapore Financial Reporting Standards International 16 on leases. The Group's revenue for the first quarter was 4% or $61 million higher than the same quarter last year.

Higher revenues from the Infrastructure and Investments Divisions were partially offset by lower revenues from the Property Division. The Offshore & Marine Division's revenues were flat year on year.

However, operating profit fell by 34% or $164 million despite higher revenues due mainly to lower gains from en-bloc sale of development projects compared to the same quarter last year, partially offset by fair value gain from the re-measurement of previously held interest in M1 arising from the acquisition this year. Profit before tax at $283 million, decreased by a slightly higher percentage of 37% due mainly to higher net interest expense, as a result of higher borrowings and the adoption of Singapore Financial Reporting Standards 16.

After tax and non-controlling interests, net profit at $203 million was 40% or $134 million lower, translating to an earnings per share of 11.2 cents. In the next slide, we take a closer look at the Group's revenues by division.

The Group's revenue at $1.5 billion was 4% higher than the same quarter last year. Revenue from the Offshore & Marine Division was at the same level as the corresponding quarter of 2018.

The Property Division's revenues decreased by 34% from last year, mainly due to the absence of revenue from Highline Residences, which was fully sold by the first quarter of last year, and lower revenues from Waterfront Residences in Tianjin, Park Avenue Heights in Chengdu, Seasons Residences in Shanghai and Reflections at Keppel Bay. Infrastructure Division saw a 24% 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 Investments Division increased by $112 million to $143 million largely due to the consolidation of M1's results as the Group gained majority control of M1 during the quarter. Higher revenue from the asset management business further contributed to the positive variance.

Moving on to the Group's pre-tax profit. The Group recorded $283 million of pre-tax profit for the first quarter of 2019, 37% lower than the same quarter last year.

The Offshore & Marine Division's pre-tax profit was $1 million as compared to a pre-tax loss of $15 million in the same quarter last year. This was mainly due to share of associated companies' profits in the current quarter as compared to share of associated companies' losses last year, as well as lower net interest expense.

The Property Division's pre-tax profit was 62% lower, due mainly to lower gains from en-bloc sale of development projects compared to the same quarter last year. The Division recorded a pre-tax gain of $65 million from the disposal of a partial interest in the Dong Nai project in Vietnam, compared to the $337 million pre-tax gain from the sale of the Zhongshan development project in China last year.

The Infrastructure Division's pre-tax profit of $20 million was 33% lower than last year, due mainly to lower contribution from Energy Infrastructure and the logistics business, and share of losses of associated companies as compared to the share of profits in the same quarter last year. These were partly offset by higher contributions from Environmental Infrastructure and Infrastructure Services.

Excluding the charges relating to the acquisition of M1, the Investments Division registered a pre-tax profit of $92 million as compared to a pre-tax loss of $40 million last year. This was mainly due to the fair value gain from the re-measurement of previously held interest in M1 arising from the acquisition during the quarter.

In addition to higher contribution from M1 due to the consolidation of its results from the date of acquisition, the Division also benefited from higher contribution from the asset management business and lower share of loss from KrisEnergy. These were partly offset by higher fair value loss on KrisEnergy warrants and provision for impairment of an associated company.

The charges relating to the acquisition of M1 comprised mainly amortisation of intangibles, interest costs and one-off professional fees. After tax and non-controlling interests, the Group's net profit decreased by 40% or $134 million, with Property Division being the top contributor to the Group's earnings, followed by the Investments, Infrastructure and Offshore & Marine Divisions.

The Group's net profit of $203 million for the first quarter translated to an earnings per share of 11.2 cents. Cash flow from operations was $174 million as compared to $180 million in the same quarter of last year.

After accounting for working capital changes, interest and tax, net cash outflow from operating activities was $674 million, as compared to an inflow of $10 million in the first quarter of 2018, due mainly to increase in working capital requirements, with the construction progress of Keppel Offshore & Marine's major projects such as the Borr Drilling jack-up rigs, the Awilco Semi and the Jones Act vessels for Pasha Hawaii, as well as Keppel Land's additional property development costs and acquisition cost of a land plot in Tianjin. Net cash generated from investing activities was $57 million comprising divestment proceeds and dividend income from associated companies totalling $46 million and net receipts from advances to associated companies of $37 million, partially offset by investments and operational CapEx of $26 million.

Net cash generated from investing activities was higher at $258 million in the same quarter last year largely due to the cash inflow from the en-bloc sale of the Zhongshan development project in China. As a result, there was an overall free cash outflow of $617 million during the quarter, as compared to an inflow of $248 million in the same quarter last year.

With that, we have come to the end of the slides for the results presentation, and I shall hand the time back to our CEO, Chin Hua, for the Q&A section. Thank you.

Before we move to the Q&A. I'd like to introduce a new member of our panel.

This is Manjot Singh Mann, who's the CEO of M1. Welcome, Manjot to the Keppel Group.

Thank you very much.

Okay, let's start with questions. First question is from Gerald Wong of Credit Suisse.

What is the timeline in which you expect to achieve the 15% ROE target?

The 15% ROE target is medium to long-term target. I think this is something that we believe is achievable, but you will depending on the industry cycles some may reach it, some of our businesses may reach it earlier than others but it's a target that we have set for the group and then of course within the group as I've shown in the slides there are also individual ROE targets for the different businesses.

Second question, O&M ROE target of 15% appears high compared to 2018 ROE. Could you share your new order and margin assumptions to get to a 15% ROE?

There are no assumptions per se on the reaching in coming out with the 15% ROE. We basically look at what KOM has achieved in the past.

Of course in the past the ROE was in fact much higher but of course the industry has changed so we think that 15% is a realistic target to be set for the long-term.

Third question, what are your plans for land sales at Tianjin Eco-City with the [indiscernible] resi outlook in China. Maybe Hon Chew want to.

Well, as you know the Tianjin Eco-City project is a joint - it's a government-to-government project joint venture for the Chinese Tianjin Government. There are plans to list a number of land plots during the year, but of course we'll have to watch the market to look for conducive window to list those projects.

So yes, we are looking at - booking some land sales during the year.

Okay, next question is from Cheryl Lee of UBS Singapore.

Two questions. First question in arriving at your RNAV of S$10.3 billion for Keppel Land.

How are you valuing your land bank?

Okay, the RNAV calculation is based on certain point of time as of 31 December, 2018 and indeed the calculation is derived based on an as is valuation basis of the properties. And the several factors I should take into consideration calculating the RNAV combination of estimates including internal estimates based on prevailing selling prices for completed inventories and also market comparables for undeveloped land as well as valuation that are provided by independent values.

So that's the basis, that we use in determining Keppel Land's RNAV.

Second question, in your RNAV of S$1.2 billion for Tianjin Eco-City what are the key assumptions. Do you revalue on unsourced [ph] sites at current market prices?

Yes in considering the RNAV for Tianjin Eco-City, it has taken into account the carrying value of SSTEC except 31 December, 2018 and at the same time also the remaining land to be developed or to be sold by SSTEC and that we take into account the prevailing land sale prices and that less of our land cost.

Okay, next question is from [indiscernible] of Macquarie Singapore.

Thanks for taking my question. Could you share the full specs amounts for two items?

Fair value gain from acquisition of M1? Gain from disposal of 70% interest in Dong Nai Waterfront.

Okay, so I'll take that. Okay the re-measurement gain is not subject to tax but it's after NCI at S$125 million gross is S$158 million.

The gain from disposal of Dong Nai gross of tax S$65 million after tax S$49 million.

We're waiting for the questions to come through. This new two questions are from Jason Yeo of Goldman Sachs Singapore.

Why was the O&M operating margins lower in first quarter 2019 than first quarter 2018 with similar levels of revenue?

The mix of projects that are recognized or revenues that are recognized for projects over the year is different so of course the margins quick defer from project-to-project.

Second question. Do you think the market is conducive to launch most of the launch ready units in China and Vietnam this year?

Maybe I ask Swee Yiow.

Well when we get the unit launch ready we also will be carefully evaluating on the each city and each sites where we launch. So we're getting it ready, but we will measure it.

We really look at the market condition before we push out each project.

Next series of questions are from Lim Siew Khee of CIMB Singapore. I will direct the questions between Chris Ong and Hon Chew.

The first question, what is your current staff strength of O&M.

Chris?

The present direct - the headcount is 10,843.

Maybe I'll follow-up with the fourth question for you as well. When do you expect Sete's resolution considering that this has dragged on for so long?

Well I'm afraid I don't have an answer when exactly is the resolution. But it is at the stage whereby they're evaluating the bits, so we await their notification or when they're ready.

Second question, we shall ask Hon Chew to address.

Is there any one-off in O&M's associates profit for this quarter?

Thanks Chin Hua. The O&M's share of results from associates for the quarter is about S$10 million.

I think that's much better performance than last year driven mainly by Floatel's. I wouldn't say it's one-off but of course the performance would be very much dependent on Floatel's underlying performance basically in terms of the charters of the floating accommodation units.

So it's not one-off, but it can be variable depending on performance of the associate.

Third question, what is your definition of medium term for ROE to achieve? Is the three or five years?

I think we're kind of looking at this as a target for the group and as I shared earlier we believe this looking at the past. We believe that this is something that is realistic.

It will depend on how quickly some of the industries they're going through downturn's pick up. Of course if all the industries that were - continue to improve than it will be shorter, if not, it may be a bit longer.

This next question is from the media. Question is posted by [indiscernible] must be Ms.

Dae [ph] of Singapore Press Holdings, Singapore. Mr.

Loh, appreciate if you could share Keppel's performance in Singapore residential markets. Thanks.

I'd like to ask Swee Yiow to address that.

In Singapore first quarter, we managed to sell about 50 units and mainly from the Garden Residences. This is arising from the release of plans for the Cross Island's, MRT Line in January, 2019 and the future Serangoon Garden MRT Station will be just located five minutes away and with the announcement we see the renewed interest in our projects.

Okay, this is a question from a shareholder. Mr.

Bobby Gaul [ph] of Singapore.

May I ask, if there are any plans to reduce the net gearing of 0.72 to the long-term average of 0.3 to 0.5? thanks and regards.

The net gearing as Hon Chew have explained have risen. We have set before that we are very concerned about keeping our balance sheet strong and by that, we define it as not crossing the 1.0 or the 1 mark, so we're still - there's still some hit room.

Of course we're always watching our net gearing very closely. But at this level, we're still very comfortable.

Thank you. Next two question also come from a retail shareholder.

Miss Jane Tang [ph] from Singapore. First question maybe I ask Chris Ong to address this.

Can you comment on the contracting terms and margins outlook for the new built market? I presume this means offshore marine.

Are you seeing some improvements? Chris Ong?

Well in terms of the new built market there's different segments as we have informed. Our strategy is actually to diverse into different new built market.

We have over the years gotten contracts for constructions vessels like dredgers and that not only limit us to offshore rigs. Margin and contracting terms depends on different geographies, different customers.

But on a whole for, I will say that for drilling rigs itself remains quite challenging due to the overhang. There are opportunistic need in the market where we will look at good strategic contracts and in terms of improvement in the market again different segment in the new built, we will be quite selective but we see that the production market will probably be little bit more optimistic compared to offshore drilling.

Second question, is on Keppel has been named as one of the two bidders for Sete Brasil's rigs. Why are you bidding for your own rigs?

Chris?

The bid reflects our confidence in the Brasil market. Moreover the rigs come with long-term charter 10 years of charter rate 299,000 per day.

So we see that as opportunistic bid and also a show of our confidence.

Next question is from Conrad Werner of Singapore.

What is the industrial logic for bidding for the two Sete rigs you're building?

I think that's already answered, addressed earlier.

The second question refers to can you add any more color on the strength of your property end markets. This must be end purchases market in China.

I think as I shared in my speech, things seems to be a bit more positive, now in China in the first quarter. In the Tier 1, Tier 2 cities where it's high growth.

As you can see from our [indiscernible] project, we have met with very strong demand at launch. Of course not every project will be like this, but the projects that we're in, we have confidence that we'll do well and I think the market now is - seems a bit more favorable.

Developers are bit more positive and more importantly, I think the buyers are now also more positive so we think this is a good sign and well we're carefully watching this.

Next question is from Mr. [indiscernible] of Reuters News.

Is this is the first time Keppel is adding to its O&M staff since it started making cuts due to the downturn? When did Keppel last add to its workforce in O&M?

The answer is, we're expecting. So I wouldn't say that we've started to add, but since late 2014 we have been right sizing Keppel Offshore Marine and as reflected in my speech.

We're starting to see that with the expected increase in workflow as well as preparing for the upturn, we would be looking to add to our workforce this year and this would be the first time we're doing it since when we started right sizing in early 2015. Another question from Jason Yeo of Goldman Sachs Singapore.

What drove the quarter-on-quarter decline in O&M net profit from S$39 million in fourth quarter 2018 excluding RID's to S$6 million from the first quarter, 2019?

Can I ask Hon Chew?

Okay, I think Chin Hua mentioned earlier the margins for Offshore & Marine quarter-by-quarter basis really is very much dependent on the mix of the projects that the Offshore & Marine guys are working on. So for instance if that is a lot of the proportion of that comes from same rigs that [indiscernible] drilling rigs, the margin are lower because these rigs are actually, [indiscernible] drillings at certain price which gives us a margin that's actually not very high.

Next question is from Mr. Shankaran [ph], an individual shareholder, retail shareholder in Singapore.

Can you please give some insights into how the Group's plan on sustainable and growing positive cash flow?

I think we do watch the free cash flow very closely, but it will vary from quarter-to-quarter. I think it's also important to see the reasons why there is an outflow.

For this first quarter this is driven primarily by the fact that we have seen better workflow and therefore a need for higher working capital at KOM. We also have seen some replenishment of our land bank.

We have gone through number of divestments in the last few year's en-bloc sales in Keppel Land, so this is part of our replenishment of our land bank. So it's not a bad thing because you do need to spend cash in order to grow our businesses.

But of course we do kind of keep a very close watch that overall on our cash flow. Okay, two questions from Ms.

Lim Siew Khee of CIMB Singapore. First question, I'll direct that to Swee Yiow.

Will you consider developing plot four and six I suppose, there are two plots of Keppel B in the near term?

Yes, we're viewing the development plan probably plot four will go first before plot six.

Okay, second question which I'll direct to Chris Ong.

Can you elaborate why the conditions were not made and cost the cancellation of the Stolt-Nielsen vessels contract recently?

Well we're unable to disclose the exact conditions other than to say that they were due to commercial consideration and those were options that lapsed.

We have three questions, further questions from Cheryl Lee of UBS Singapore.

First question is on, what is the net debt carried under Keppel Land?

The net gearing for Keppel Land is quite low, but we do not disclose that.

Second question, what are your plans for KrisEnergy given the drag in earnings?

It's true KrisEnergy has been a drag on our earnings. I think we've mentioned before it is not a strategic investment for us.

So this is an investment so we will watch and see how we can get the best of the situation we find ourselves in.

Third question, what is the status of the third FLNG conversion with Golar, the Gandria?

Chris Ong, can you?

Well we still have a valid contract for the conversion of Gandria. The owner are marketing the prospect with different customers.

So we will await updates from the customers for further development.

Okay, next question are from Siew Khee, CIMB Singapore and they're both related to M1.

First question, how are you going to optimize cost in M1?

This one maybe I could ask Manjot to address.

Well, we're in the process of understanding our strategic moves and transformation at this point in time and addressing every part of the business, cost being one of them. So the first exercise, we'll be trying to understand and benchmark our cost against the best in c lass in the region to understand where the cost can be rationalized and secondly, when we redefine and reassess our business processes in the transformation exercise that will also give rise to some areas where we can look to optimize cost, so it all depends on our transformation strategic exercise that we're in today.

Second question, will you need to spend upfront restructuring cost in the coming quarters.

I don't believe anything is forecast at the moment. Another question from Cheryl Lee.

I will answer it and then I'll ask Thomas to also contribute to this.

With regards to the ROE target of 12% for Keppel Logistics. Could you share how this might be achieved as this segments profit contribution is generally quite low?

Cheryl, you're right. I think the logistics division has had face a lot of headwinds, but we are also in the midst of remaking our logistics business and I think we have to look at how we can, we've been integrating our traditional third party logistics.

We've bolted on last mile and also gone into omnichannel, we believe that we have a quite a good value proposition now, so is really now up to us to execute on that strategy and deliver something that perhaps would have to be a bit more asset like than what is it today in order to achieve the 12% target. Thomas you want to?

Thank you for the question, Cheryl. As Chin Hua has mentioned, we are in the middle of transforming the logistic business and part of it include strategic review of our assets including the assets in China and also bolting on new innovative services to better serve our customer and we are also in the middle of targeting new segments and new verticals in order to bring about more profitable returns.

Thank you.

Next question is from [indiscernible] of Macquarie. I think the two questions are kind of related.

On your RNAV of SSTEC, what was the prime assumption that has been valued in arriving at S$1.2 billion valuation?

I believe that has been answered by Hon Chew earlier.

: Considering the volatility of land prices in 2017 and 2018. At RMB 13,800 per square meter and RMB 9,500 per square meter respectively.

What guides your confidence in that price assumption go into valuation?

The difference in price is not necessarily just related to the market volatility. It also reflects a bit on the difference in that particular sites plot ratio and users.

So obviously we factor all of that in looking at assumptions as you've heard from Hon Chew. We look at market coms in coming up with this numbers.

Okay, next question is from Gerald Wong of Credit Suisse has another question. I'll ask Christina to address this.

Keppel Capital now has ROE target of 20% on top of doubling its AUM within five years, how do you see this being achieved? Related questions, which assets provide the best opportunities?

Chris?

Thanks Gerald for raising this. You should tell my CEO before we set the targets.

But anyway we're confident in terms of achieving our targets because past in terms of fund management, in terms of our historical performances we're quite - this ROE target of 20% is actually quite achievable and I think the fact that we have the various Keppel entities, our sister companies that provide a very good alternative asset classes to our investor base that helps us a lot because instead of being just a financial investor. Now we have the capabilities of being actually a developer of creator of these assets as well as to able to provide, we have deep operational expertise as well within the group.

So for example like, the [indiscernible] which we've talked about FLNG. Actually a great asset for infrastructure fund that we're looking to establish and it's because of Keppel's proprietary [indiscernible] we're actually able to obtain this.

Otherwise if you're any other financial investor, it's almost impossible to get hold of this asset. So we're quite happy that with rest of the support of the group we're able to actually move into alternative asset classes which provides very good returns because like for the FLNG actually we 20-year charter with established oil major [ph], so that provides actually very good returns for our investors.

This question from [indiscernible] Tokio Marine Life Insurance.

Thus recent government master plan give you added impetus to redevelop Keppel Towers or is the residential cycle still not that conducive? Hence this could be a more of mid-term opportunities instead.

Swee Yiow?

You're right to observe that, Keppel Towers is within the reasons and now is incentive plan within the draft master plan. We're reviewing the different combinations because the incentive thus give you options of developing more resi, hotel or combinations or different usage.

So we're looking at different options and once we conclude our study we will make a recommendation to move forward.

Thank. We have another question from Mr.

Bobby [indiscernible]. Retail shareholder.

Two questions, when is your outlook in the oil and gas business going forward? Any plans to get involved in the US Permian Basin for shale oil exploration?

Maybe Chris Ong, you can tackle that.

On the first question on asking about the outlook for oil and gas business. It depends [indiscernible] if you ask the same question a year ago, I would say that again we're quite cautiously optimistic about the market.

Thus increase of activities tendering and bidding as can seem from FID's of a lot of projects in the different segment of oil and gas. So our strategy in this area will be to stay close with the customer and provide the relevant solution and work with them.

Any plans to get involve in shale oil exploration? The answer is, not in the moment, no we're not involved in this part of the sector.

Follow-up question from Ms. Lim Siew Khee of CIMB Singapore.

Two questions. [Indiscernible] one-off of S$7 million in infrastructure, the division appeared to be weaker this quarter, is this due to consolidation of higher proportion of logistic losses or is there downward trend in the business.

I think Keppel Infrastructure as you heard from my speech and also from Hon Chew's elaboration. KI is still doing well, just about this share of one-off cost related to the acquisition of Ixom.

Our logistics division as we reposition it, we're also taking on additional headcounts as we look to grow the new wings, so that has contributed to the losses we have in logistics.

One portion of the question is, is that due to consolidation of high portion of logistics losses, the answer is no because the scheme only took place after [indiscernible].

Next question Keppel Capital strength this quarter, is it exceptional or normalized?

I think there's some one-off there.

Yes that's right. Actually I think for this quarter we have the purchase acquisition of Ixom, so the fees actually recognized here as well as our divestments in OFC.

So I think but for fund management business is always in a business of acquiring and selling of asset, so we hope to make this more normal trend.

Yes, agree. That's it.

Okay, thank you very much.