Keppel Corp Ltd Ord

Good morning, ladies and gentlemen. Welcome to the Conference for Capital Limited's second half and full year financial results for 2023. We have on the panel this morning, from your left, Mr Manjot Singh Mann, CEO M1, Mr Louis Lim, CEO Real Estate, Ms Christina Tan, CEO Fund Management and Chief Investment Officer, Mr Lo Chin Hwa, CEO, Mr. Kevin Cheung, CFO, and Ms. Cindy Lim, CEO, Infrastructure. Mr. Thomas Pang, CEO, Data Centres and Networks, is not feeling well and will not be attending the session today. We will begin the session with presentations by CEO, Mr. Lo Chin Hwa, and CFO, Mr. Kevin Cheung, followed by the question and answer session. Mr. Lo, please.

Thank you. Good morning, everyone. 2023 has been one of the most transformational years in Keppel's history. Amidst the volatile global environment, we took pivotal steps to transform Keppel, starting with the successful divestment of the offshore and marine business, which allows us to realise some $9.4 billion in value over time. We then unveiled the next phase of our Vision 2030 transformation, shedding our conglomerate structure to become a global asset manager and operator. This was followed by the proposed strategic acquisition of Amon Capital, which we announced in November, to propel our growth as an asset manager at a global scale. Reflecting Keppel's new direction, we changed our name with effect from 1st January 2024 from Keppel Corporation Limited to Keppel Ltd, marking a new chapter in our corporate journey. Today, we are operating more efficiently as one horizontally integrated company, harnessing synergies across our three segments. We have made good progress in the goals we set. By 3rd Q23, we had already exceeded the upper bound of our three-year asset monetisation target of $3 billion to $5 billion. Since October 2020, we have announced the monetisation of about $5.4 billion of assets and released some $4.1 billion in cash over this period to reinvest for growth and reward shareholders. Our transformation efforts have been recognised by the market and our investors. Against a challenging landscape, we achieved Total Shareholder Returns of 49.3% for 2022 and 61.1% for 2023, far exceeding the TSR of the Straits Time Index in both years. But we are not done yet. We will continue to scale up our funds under management grow recurring income and monetise our assets as we execute our Vision 2030 strategy. For the whole of 2023, we achieved a net profit of close to $4.1 billion, more than quadrupled that of FY22. This is the highest profit ever recorded by Keppel in our 55-year history. About $3.3 billion of this was from gains achieved from successfully divesting the O&M business. Our return on equity was 37.9% for FY23 compared to 8.1% a year ago. Net profit from continuing operations was $996 million in FY23, 19% higher than the $839 million in FY22. All segments were profitable, with sharply improved performance in our infrastructure segment. Including the accounting loss of $111 million from the distribution of capital REIT units to our shareholders in November 2023, net profit from continuing operations was $885 million in FY23, or 6% higher year-on-year. For Second Half 2023, we delivered a robust net profit of $551 million, up 36% from $405 million in Second Half 2022, excluding the discontinued offshore and marine operations from both periods and DIS loss. Including the DIS loss, net profit for the second half of last year was $440 million, a 9% increase year-on-year. As you can see, the composition of our profits is very different from what it was a few years ago, when the majority of our earnings were from the lumpy O&M order book business and the property trading business. Keppel today is no longer a rig builder nor a property developer. We are a global asset manager and operator with complementary segments in infrastructure, real estate and connectivity, all contributing positively to the company's earnings. While earnings from real estate were lower year-on-year, the segment continued to perform creditably. and contributed significantly to our net profit, despite challenging conditions in markets like China. On the back of Capital's strong performance and reflecting our confidence in the company's growth trajectory, the Board of Directors has proposed a final cash dividend of $0.19 per share for FY23, which will be paid to shareholders on 8 May 2024. The final cash dividend is higher than last year's final dividend of $0.18 per share. Together with the interim cash dividend of $0.15 per share paid in August 2023, shareholders would be receiving a total cash dividend of $0.34 per share for the financial year 2023. This translates to a cash dividend yield of 4.7% based on Capital's closing share price of $7.16 last evening. including the distribution in species of SAMCorp marine shares and capital REIT units, our shareholders will be receiving total dividends amounting to about $2.70 per capital share for the whole year 2023. As we press ahead with our growth plans, we continue to be prudent and nimble in capital management, keeping our cost of funds competitive and de-risking our portfolio amidst a volatile landscape. As at the end of 2023, our adjusted net debt to EBITDA remained at a healthy 4.6 times. About 66% of our borrowings were on fixed rates with interest costs of 3.75% and weighted tenure of about 3 years. We have managed our hedging well, with our cost of funds not rising significantly over the past few years, despite the high interest rate environment. In the three years from end 2020 to end 2023, our cost of funds increased by a moderate 150 bps compared to the three-year swap rate, which rose significantly by about 240 bps over the same period. as at the end of 2023, we maintain our cost of funds at a relatively small spread of about 110 bps over the three-year swap rate of 2.64%, cushioned by interest rate hedges. Last week, we also secured $1 billion worth of sustainability-linked revolving credit facilities, which we can use for general corporate purposes, as well as the pursuit of business opportunities in the sustainability space. We have also made good progress de-risking our investments. Assetco has done well amidst growing demand for offshore drilling assets and improving utilisation and day rates. Assetco has accumulated a cash balance of approximately $950 million as at the end of 2023 and is receiving active inquiries for its assets. Meanwhile, we remain watchful over our exposure in China. Our Real Estate Division has monetised over $3 billion of assets in China since 2017, including $94 million last year, and recognised total profits of more than $1 billion. It has also repatriated more than $5 billion of cash over the same period. some of the unlocked capital has been reallocated to pursue opportunities in different asset classes and countries, leveraging our asset-light model. Going forward, we will focus on accelerating the monetisation of the vendor notes as well as our residential land bank and inventories, which currently amount to some $6.3 billion on our balance sheet. Some of the proceeds from monetisation will be invested in new growth areas. We will also become more asset-light and require less capital, some of which can be returned to shareholders. As we continue to improve capital's performance, this will bring us closer to our 15% ROE target, which we are confident of achieving well before 2030. Reflecting capital strategy and our shift away from lumpy EPC and development profits, our recurring income from continuing operations rose 54% year-on-year to $773 million in FY23, making up 88% of our net profit compared to 60% a year earlier. The strong improvement was boasted by higher operating income from our Infrastructure Division, which continues to pursue opportunities in renewables, clean energies and decarbonisation solutions, whilst expanding our pipeline of long-term contracts that provide stable income with good earnings visibility. One such example was the recent Global Foundries Power Purchase Agreement, which will see Keppel providing electricity to provide their Singapore operations for more than 15 years. As at the end of 2023, about 60% of our generation capacity was contracted for three years and above. In 2023, our private funds and listed trusts generated a total of $283 million in asset management fees, up by about 6% year-on-year. We raised a total of about $2.3 billion in equity and completed $2.5 billion worth of acquisitions and $500 million in divestments in the same period. Notwithstanding the challenging fundraising environment, we continue to make good progress on our fund initiatives, achieving closings of US$575 million for the Capital Core Infrastructure Fund and RM1.6 billion for our China-focused Sustainable Urban Renewal Programme. We also acquired the remaining 50% stake in Keppel Credit Fund Management, formerly Peerfront Capital, bringing our interest in the platform to 100%. Our FUM grew to $55 billion as at the end of 2023, compared to $50 billion at the end of 2022. When Phase 1 of the acquisition of Amon Capital is completed later this year, Our FUM would grow to about $79 billion, bringing us close to 80% of our interim target of $100 billion by 2026. We remain laser-focused on achieving our FUM target of $200 billion by the end of 2030. Infrastructure is expected to be one of the fastest-growing asset classes in the years ahead. supported by global trends such as the energy transition and push for decarbonisation, as well as rising demand for digital connectivity. We have seen recent M&A transactions involving major global asset managers as they sought to expand in the infrastructure space. Keppel is in an enviable position as we are already an established infrastructure asset manager and operator with strong track record. We also have deep domain knowledge and operating capabilities in multiple asset classes, allowing us to provide more fun products and better value propositions to our LPs. In 2024, we will continue to expand our fund offerings as well as pursue a deal flow pipeline of over $14 billion, the majority of which are in the infrastructure and connectivity spaces. Looking ahead, as inflation eases and interest rates start to stabilise, we expect fundraising and deal-making activities to increase later this year. Nevertheless, investors are expected to remain highly selective of investment strategies and asset classes, with a preference for sectors underpinned by resilient macro trends, such as the energy transition, climate action and digitalisation, all of which are driving demand for Keppel's solutions. These include the Keppel-Sakra Cogem plant, Singapore's most advanced and first hydrogen-ready power plant, our sustainable urban renewal initiatives, as well as green data centre solutions and the Bifrost subsea cable system that we are developing. As we expand our business, we are looking out not just for good assets, but also top talent and strong capabilities that can add value to the company. The proposed acquisition of Ammon, which is progressing well, will give Keppel an immediate and strong foothold in Europe, significantly expanding our presence beyond Asia Pacific, and also bolster our attractiveness to global LPs. Keppel will also be able to widen our network of blue-chip LPs, leveraging Ammon's long-standing relationships with its global clients. The senior team at Amon, with their extensive asset management track record and networks in Europe, is a strong team that would add significant value to Capo. Amon will be Capo's European real estate platform, and both teams will work closely together to seize opportunities. With value-add from Keppel, we believe that Ammon's FUM can grow by 2.5 times to approximately $60 billion in 2030, through the co-creation of European credit funds, data centre funds and various private investment vehicles, and potentially REITs. To conclude, We have harnessed Keppel's deep industrial roots to transform the company into a global asset manager and operator. Our strong investment track record, built up over 20 years, as well as our operating capabilities and domain knowledge in the key segments of infrastructure, real estate and connectivity, provide an unparalleled value proposition to the investors in our private funds, REITs and trusts. Investors also find our active value-adding approach to creating superior returns appealing. Capital shareholders have benefited and will continue to benefit from this transformation. We have made significant progress over the years to adapt to the changing environment. Keppel today is run more efficiently as one company compared to what it used to be as a conglomerate with a few diverse listed operating companies. With Vision 2030, we are executing one business strategy and exploiting synergies amongst our three segments to create greater value for our end customers, our shareholders and our investors. Capital's earnings are now much more recurring and should attract growth multiples, rather than being valued based on price to book and discount to RNAV with a further conglomerate discount. I am confident that capital is well positioned to ride the next S-curve of quality, sustainable growth. Our resilience, with a focus on providing investment solutions and meeting basic needs like clean power, green environment and connectivity, helps us navigate a more complex world. Our new CFO, Kevin Cheung, will now take you through details of the company's financial performance.

Thank you, CEO, and a very good morning to all. I shall now take you through Capo's financial performance. For financial year 2023, Keppel achieved a record net profit of $4.07 billion, significantly higher than the prior year due to the recognition of disposal gain of approximately $3.3 billion from the successful divestment of Keppel Offshore & Marine, known as COMP. Excluding discontinued operations and the loss from distribution in specie of capital REIT units, DIS loss, net profit increased by 19% to $996 million from $839 million in FY2022. All segments were profitable, with stronger year-on-year performance from infrastructure and connectivity. ROE was significantly higher at 37.9%. Excluding the DIS loss, ROE from continuing operations improved to 9.3% as compared to 7.3% in FY2022, supported by higher net profit and lower equity as a result of the distributions in specie of CETRM shares and capital REIT units. Infrastructure was a top performer for FY2023, delivering net profits of almost $700 million. Contribution from the real estate segment remained resilient, with $426 million in net earnings, despite challenging market conditions in China. Net profit from connectivity grew year on year, and accounted for approximately 14% of the net profit from continuing operations. I will further elaborate on the performance of each segment later on. Net gearing increased from 0.78 times as at the end of 2022 to 0.9 times. This was due to higher net debt as a result of net cash outflow from the divestment of COM and lower equity arising from the two distributions in specie and cash dividends paid during the year. Adjusted net debt to EBITDA improved to 4.6 times from 5.1 times as at the end of 2022, mainly due to higher proportionate increase in EBITDA as compared to increase in adjusted net debt. Free cash outflow was $384 million as compared to free cash outflow of $408 million in the same period last year. This was mainly due to lower level of investments and capital expenditure, higher divestment proceeds and dividend income, as well as advances from associated companies and joint ventures, partly offset by increase in working capital requirements. In addition, As Qom had a net cash balance of $968 million, the completion of the divestment resulted in a net cash outflow, partially offset by the receipt of $500 million in cash consideration. Excluding the results of discontinued operations, net profit from continued operations was $885 million, with positive contributions from all income streams. Underpinned by robust operating earnings from infrastructure, recurring income, which comprises asset management net profit and operating income, grew 54% to $773 million from $503 million a year ago. Valuation gains declined mainly due to lower valuation gains from investment properties. Development and EPC earnings was 14% higher year-on-year at $178 million, led by higher contributions from Singapore Trading Projects and Sino-Singapore Tianjin EcoCity. Excluding the DRS loss, gains from capital recycling increased by $145 million, primarily due to completion of several asset monetisation by real estate and connectivity segments. Net loss from corporate activities was $256 million as compared to $20 million in FY2022, mainly due to impact from classification of interest expense associated with the vendor notes and lower fair value gains from investments. Moving on to segmental performance. The infrastructure segment achieved a net profit of $699 million in FY2023, 135% higher than FY2022 of $297 million. This was led by strong operating income growth of $320 million driven by higher net generation and margins from the integrated power business, as well as special distribution from Capital Infrastructure Trust , partly offset by the lower share of results from an associated company following a dilution of interest in the fourth quarter of 2022. Notably, as at the end of 2023, about 60% of our power generation capacity was contracted for three years or more, while our long-term supply and services backlog reached $4.3 billion, bolstered by $1.6 billion of energy-as-a-service contracts secured during the year. Our expanding pipeline of long-term infrastructure contracts will continue to bolster Keppel's recurring income growth. Asset management net profit was 28% higher year-on-year, mainly from higher management fees due to a change in the fee structure that took effect second half of 2022 and better performance by KIT. These were partly offset by lower acquisition fees recognised during the year. The segment also recognised fair value gains from its sponsor stakes in infrastructure private funds as compared to losses in the prior year. As CEO mentioned, infrastructure is expected to be one of the fastest growing asset class and we're in a strong position to build on the momentum to capture the opportunities as an established infrastructure asset manager and operator. Despite challenging market conditions, U.S. state delivered creditable performance, continuing to record fair value gains from U.S. properties, achieving higher development profits as well as higher gains from capital recycling in 2023. Excluding the DIS loss, net profit for the year was $426 million, which was 8% lower than financial year 2022. Asset management net profit was lower year-on-year, mainly due to higher overheads to drive growth. The decline in operating income was a result of lower contributions from our sponsor stakes and co-investments, higher net interest expense, and costs incurred for new business engines. Last year's operating income benefited from a reversal of cost provisions relating to a commercial project in China. While fair value gains were lower year-on-year, development profits rose 11% to $197 million on the back of higher contributions from Singapore trading projects and Sino-Singapore Tenjin Eco City, which recognised profits from the sale of two land plots. Amidst challenging conditions, real estate segment also successfully completed monetisation of servant assets across Vietnam, India, Philippines, Myanmar, China and Singapore, banking in total gains of $105 million for the year. As the real estate division continues its pivot to become more asset-like, we will accelerate our focus on developing new growth engines and shoring up capabilities in areas such as sustainable urban renewal and senior living, which will generate more fee-based recurring income. Net profit from the connectivity segment of $127 million was 30% higher than financial year 2022 of $98 million, mainly due to higher recurring income and gains from capital recycling. The operating income increase was mainly due to higher earnings from M1, supported by its growing mobile services and enterprise revenues, as well as lower losses from the logistics business following divestment of the Southeast Asian operations in mid-2022. The segment also recorded gains from disposal of non-core assets and from the dilution of interest in the Bifrost subsea cable project with the onboarding of co-investors for our fibre pairs. These were partly offset by fair value loss on an investment, as well as lower fair value gains on data centres. Net loss from corporate activities was $256 million as compared to $20 million in FY2022. With the completion of the disposal of the offshore and marine business in February 2023, the effects of the retained CETRUM shares and asset co-vendor notes are reported under corporate activities. Since then, Keppel has recognised approximately $151 million of interest income net of fair value changes on the vendor notes. As the vendor note is a financial instrument and as required by accounting standards, the notes receivables have to be fair valued at initial recognition, or what we term as Day 1 fair value. The difference between the fair value and the transacted price is deferred and amortised over the expected life of the notes. During the year, about $150 million amortisation expense was recognised. The financing costs relating to the vendor notes are now reported under corporate activities, following completion of the Asseco transaction in February 2023. These were previously reported under discontinued operations in financial year 2022, hence explaining the difference in interest expense of financial year 2023. For the investments held at corporate level, lower fair value gains were recognised during the year, partly offset by gains recorded on the retained CETRM shares. Overheads were higher in financial year 2023, mainly due to transformation costs incurred. Prior year comparatives also benefited from right back of certain provisions which were no longer required. With that, we have come to the end of the presentation, and I shall hand the time back to CEO for the Q&A session. Thank you. Thank you, Kevin.