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Good evening and welcome to the conference and webcast on Keppel Corporation's results and performance for the first quarter of 2019. We've 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 privatize 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 $203 million, 40% lower than the $337 million for first quarter 2018. In first quarter 2018, the group had benefited from a $289 million gain arising from the en bloc sale of Keppel Cove in Zhongshan, China compared to gains of $174 million in the current quarter from the divestment of a 70% interest in Dong Nai Waterfront City, Vietnam and the remeasurement of previously held interests in M1 at acquisition date. Our ROE was 7% on an annualized basis. Free cash flow was $617 million in first quarter 2019 compared to an inflow of $248 million in first quarter 2018 mainly due to higher working capital requirements in Offshore & Marine and Property divisions. Our net gearing rose to 0.72 as at 31st March 2019 compared to 0.48 at 31st 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 totaling about $1 billion. Our net order book stood at $4.7 billion as at end March 2019, an increase of $400 million compared to $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 worth about USD 425 million. This is the first of 3 options exercised by Awilco reflecting the demand of -- for our mid-water harsh environment rigs for deployment in Northwest 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 $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 USD 242 million, bringing the total value to USD 947 million for the Gimi FLNG project. Sete Brasil recently called for a tender for the sale of 4 drilling units, 2 of which are for semisubmersibles which are being built -- which were being built by BrasFELS before we stopped work in 2015. A bid has been submitted by Magni Partners for the 4 rigs. We have discussed with Magni Partners on the cost of completing the rigs if we win their bid -- if they win the bid. In addition, Keppel O&M also submitted a bid to purchase the 2 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 5 dredger to Jan De Nul, further strengthening our presence in the non-oil and gas segment. Keppel O&M is scheduled to deliver another 4 state-of-the-art dredgers to Jan De Nul over the next 2 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 $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 utilize 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 $132 million for first quarter 2019, lower than the $378 million in the same quarter a year ago. Keppel Land made a net profit of $129 million, lower than $373 million in first quarter 2018, which had benefited 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 $136 million. Keppel Land is Nam Long's second-largest shareholder and 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 the same period last year with a total sales value of $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 have balloted for the units, which translates to more than 10x oversubscription. This year, we intend to push out some 2,000 units across China. Keppel Land has a residential land bank 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 recognize revenue for some 7,790 overseas homes that have already been sold worth about $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 meters of GFA, of which about 50% is under development. This portfolio can produce annual net operating income of about $300 million when fully developed and stabilized, 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 $16 million for first quarter 2019 compared to the $26 million over the same period last year. Excluding the share of Keppel Infrastructure Trust cost for the acquisition of Ixom, which amounts to $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 a bottom line from first quarter 2019. Earlier this month, Keppel Gas completed its first LNG cargo import under the 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 center 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 center 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 $49 million in the first quarter compared to a net loss of $44 million in the same quarter last year. Keppel Capital performed well during the quarter with net earnings of $23 million compared to $9 million last year. Keppel Capital has concluded the 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 stabilized, 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 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 to our -- 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 privatization of Keppel Land and then the restructuring of our asset management businesses under Keppel Capital. We are in the final stages of completing the privatization of M1 and Keppel T&T. We privatized Keppel Land for about $3.1 billion in 2015. Since then, we have recognized total net profit of about $2.9 billion from Keppel Land compared to $1.6 billion if we had just retained our 55% share of the company. With full ownership, we have transformed Keppel Land into a multifaceted real estate company, rightsized 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 4 years. At the end of 2018, we calculated the RNAV of Keppel Land to be about $10.3 billion or approximately $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 Corp., which has an RNAV of about $1.2 billion or $0.66 for each share of Keppel Corporation. Following the privatization 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 center 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 emphasize 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 urbanization solutions with not only higher profits but also higher quality recurring -- recurrent income. 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 first quarter, the group recorded a net profit of $203 million, which was 40% lower than the same quarter last year. Consequently, annualized 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 Investment 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 remeasurement 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 noncontrolling interests, net profit at $203 million was 40% or $134 million lower, translating to an earnings per share of $0.112. In the next slide, we'll 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 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 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 the 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 Investment 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 pretax profit. The group recorded $283 million of pretax profit for the first quarter of 2019, 37% lower than the same quarter last year. The Offshore & Marine division's pretax profit was $1 million as compared to a pretax 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 pretax 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 pretax gain of $65 million from the disposal of a partial interest in the Dong Nai project in Vietnam compared to the $337 million pretax gain from the sale of the Zhongshan development project in China last year. The Infrastructure Division's pretax profit of $20 million was 33% lower than last year due mainly to lower contribution from energy infrastructure and 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 pretax profit of $92 million as compared to a pretax loss of $40 million last year. This was mainly due to the fair value gain from the remeasurement of previously held interest in M1 arising from the acquisition during the quarter. In addition to the higher contribution from M1 due to consolidation of its results from the date of acquisition, the division also benefited from the 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 amortization of intangibles, interest costs and one-off professional fees. After tax and noncontrolling interest, 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 $0.112. Cash flow from operations was $174 million as compared to $180 million in the same quarter 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 jackup rigs, the Awilco semi and the Jones Act vessels for Pasha Hawaii as well as Keppel Land's additional property development cost and acquisition cost of a land plot in Tianjin. Net cash generated from investing activities was $57 million comprising divestment proceeds and dividend income from associated companies totaling $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 Zhongshan development project in China. As a result, there was an overall 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 Q&A section. Thank you.
Thank you, Hon Chew. Before we move to the Q&A, I'd like to introduce a new member of our panel. This is Manjot Singh Mann, who is 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 Crédit Suisse. What is the time line which you expect to achieve the 15% ROE target? The 15% ROE target is a long term -- 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, I have shared -- 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 better resi outlook in China. Maybe, Hon Chew, you want to?
Yes. Well, as you know, the Tianjin Eco-City project is a joint -- it's a government-to-government project, joint venture with the Chinese Tianjin government. There are plans to lease a number of land plots during the year, but of course, we will have to watch the market to look for a conducive window to lease those projects. So indeed, yes, we are looking at booking some land sales during the year.
Thank you. Next. Okay. Next question is from Cheryl Lee of UBS Singapore. Cheryl has 2 questions. Maybe I direct this to you, Hon Chew.
Okay. Sure.
First question, in arriving at your RNAV of $10.3 billion for Keppel Land, how are you valuing your land bank?
Okay. The RNAV calculation is based on a certain point of time as of 31st 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 in calculating the RNAV, a combination of estimates, including internal estimates based on prevailing selling prices for completed inventories and also market comparables for undeveloped land as well as valuations that are provided by independent valuers. So that's the basis that we use in determining Keppel Land's RNAV.
Thank you. Cheryl has a second question. In your RNAV of $1.2 billion for Tianjin Eco-City, what are the key assumptions? Do you revalue unsold sites at current market prices?
Yes. And in considering the RNAV for Tianjin Eco-City, it has taken into account the carrying value of SSTEC as at 31st December 2018 and at the same time also the remaining land that's 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 costs.
Thank you. Okay. Next question is from [ Foo Zhiwei ] of Macquarie Singapore. "Hi. Thanks for taking my question. Could you share the post tax amounts for 2 items: fair share -- fair value gain from acquisition of M1, gain from disposal of 70% interest in Dong Nai Waterfront?"
Yes. I'll take that. Okay. The management gain is not subject to tax but is after NCI at $125 million. Gross is $158 million. The gain from disposal of Dong Nai gross of tax is $65 million, after tax is $49 million.
Thank you. We're waiting for the questions to come through. Okay. These next 2 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 could differ 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'll ask Swee Yiow.
Well, when we get the unit launch-ready, we also will be carefully evaluating on each city and each sites when we launch. So we are getting it ready, but we will measure -- we will really look at the market condition before we push out each project.
Thank you. Next question is from -- next series of questions are from Lim Siew Khee of CIMB Singapore. I will direct the first question -- I'll direct the questions between Chris Ong and Hon Chew. The first question, what is your current strength, staff strength of O&M? Chris?
The present direct headcount is 10,843.
Okay. Maybe I 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's at a stage whereby they are evaluating the bids. So we await their notification on when they are ready.
Okay. Second question, which I'll 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 $10 million. I think that's much better performance than last year, driven mainly by Floatel. 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.
Siew Khee's third question, what is your definition of medium-term for ROE to achieve? Is it 3 or 5 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 would depend on how quickly some of the industries that are going through downturns pick up. Of course, if all the industries that we're in continue to improve, then it will be shorter. If not, it may be a bit longer. Okay. This next question is from the media. Question is posted by Tay Peck Gek of -- must be Miss Tay, 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, if you could address that.
In Singapore, first quarter, we managed to sell about 50 units mainly from the Garden Residences. This is arising from the release of plans for the Cross Island MRT Line in January 2016 -- 2019 and the future Serangoon Garden MRT station will be just located 5 minutes away. And with the announcement, we see the renewed interest in our projects.
Okay. This is a question from a shareholder, Mr. [ Bobby Go ], of Singapore. "Hi, and congratulations to the first quarter results. 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 said 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 are still -- there's still some headroom. Of course, we are watching -- we're always watching our net gearing very closely, but at this level, we are still very comfortable. Thank you. Next 2 questions also come from a retail shareholder, Ms. Jane Tan from Singapore. First question, maybe I'll ask Chris Ong to address this. Can you comment on the contracting terms and margins outlook for the newbuild market? I presume this means Offshore & Marine. Are you seeing some improvements? Chris Ong?
Well, in terms of the newbuild market, there's different segments as we have informed. Our strategy is actually to diverse into different newbuild market. We have over the years gotten contracts for construction vessels like dredgers and that not only limit us to offshore rigs. Margin and contracting terms, it depends on different geographies, different customers. But on a whole for -- I would say that for drilling rigs itself remains quite challenging due to the overhang. There are opportunistic niche in the market where we will look at good contracts, strategic contracts. And in terms of improvement in the market, again, different segments. In the newbuild, we will be quite selective. But we see that the production market would probably be a little bit more optimistic compared to offshore drilling.
Thank you. Second question from Ms. Tan is on -- Keppel has been named of the 2 bidders for Sete Brasil's rigs. Why are you bidding for your own rigs? So Chris?
Well, the bid reflects our confidence in the Brazil market. Moreover, the rigs come with long-term charter, 10 years, of -- charter rate of 299,000 per day. So we see that as an opportunistic bid and also assure of our confidence.
Thank you. Okay. Next question is from Conrad of -- Conrad Werner of Singapore. First question, what is the industrial logic of -- for bidding for the 2 Sete rigs you are building? I think that's already answered -- addressed earlier. His second question refers to, can you add any more color on the strength of your property end market? This must be the end purchases market in China. I think as I shared in the -- 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 Nanjing 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 they will do well. And I think the market now is -- seems a bit more favorable. Developers are a bit more positive. And more importantly, I think the buyers are now also more positive. So we think this is a good sign and we are carefully watching this. Okay. Next question is from Mr. Aravindan of Reuters News. His question, is this 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 are expecting, so I wouldn't say that we have started to add. But since late 2014, we have been rightsizing 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 is -- this would be the first time we're doing it since -- when we started rightsizing in early 2015. Okay. Another question from Jason Yeo of Goldman Sachs Singapore. What drove the quarter-on-quarter decline in O&M net profit from $39 million in fourth quarter '18, excluding RIDs, to $6 million in first quarter '19? 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 there is a lot of the proportion of that comes from, say, rigs, that Borr Drilling rigs, the margins are lower because these rigs are actually -- or this sold the Borr Drilling at a certain price, which gives us a margin that's actually not very high, yes.
Thank you. Next question is Mr. [ Sankaran ] of -- an individual shareholder, a retail shareholder in Singapore. His question, 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's an outflow. For this first quarter, this is driven primarily by the fact that we have -- we're seeing better workflow and therefore, a need for a higher working capital at KOM. We also have seen some replenishment of our land bank. We have gone through a number of divestments in the last few years of 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 need to -- you do need to spend cash to -- 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. 2 questions from Ms. Lim Siew Khee of CIMB Singapore. First question, I will direct that to Swee Yiow. Will you consider developing plot 4 to 6 of -- 4 and 6, I suppose, there are 2 plots, of Keppel Bay in the near term?
Yes. We are reviewing the development plan. Probably plot 4 will go first before plot 6.
Okay. Second question, which I will direct to Chris Ong, can you elaborate why the conditions were not met and caused the cancellation of the Stolt-Nielsen's LNG vessels contract recently?
The -- well, we're unable to disclose the asset conditions other than to say that they were due to commercial consideration and those were options that have lapsed.
Okay. Thank you. We have 3 questions, further questions from Cheryl Lee of UBS Singapore. First question is on what is the net debt carried under Keppel Land? It's -- the net gearing for Keppel Land is quite low, but we do not disclose that. Second question from Cheryl, what are your plans for KrisEnergy given the drag in -- on earnings? It's true, KrisEnergy has been a drag on our earnings. I've mentioned -- 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 that 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 2 questions are from Siew Khee, CIMB Singapore, and they are both related to M1. First question, how are you going to optimize costs in M1? This one, maybe if I could ask Manjot to address.
Well, we are 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 will be trying to understand and benchmark our cost against the best in class in the region to understand where the costs 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 are in today.
Second question, will you need to spend upfront restructuring costs in the coming quarters? I don't believe anything is forecast at the moment, yes. Okay. Another question from Cheryl Lee. I would answer it and then I will 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 segment's profit contribution is generally quite low? Cheryl, you're right. I think the Logistics Division has -- had faced a lot of headwinds. But we're 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 reported on last mile and also gone into omnichannel. We believe that we have quite a good value proposition now. So it's really now up to us to execute on their strategy and deliver something that perhaps would have to be a bit more asset-light than what it is today in order to achieve the 12% target. Thomas, do you want to...
Thank you. Thank you for the question, Cheryl. As Chin Hua has mentioned, we are in the middle of transforming the logistic business. And part of that include the 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.
Next question is from [ Foo Zhiwei ] of Macquarie. I think the 2 questions are kind of related. On your RNAV of SSTEC, what was the price assumption that has been valued in arriving at $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 CNY 13,800 per square meter and CNY 9,500 per square meter, respectively, what guides your confidence in that price assumption going to valuation? The differences in price is not necessarily just related to the market volatility. It also reflects a bit on the difference in the sites, in that particular site's plot ratio and uses. So obviously, we factor all of that in looking at assumptions as you've heard from Hon Chew. We look at market comps in coming up with these numbers. Okay. Next question is from Gerald Wong of Crédit Suisse. Here's another question. I'll ask Christina to address this. Keppel Capital now has an ROE target of 20% on top of doubling its AUM within 5 years. How do you see this being achieved? Next question, related question, which assets provide the best opportunities? Chris?
Okay. Yes. Thanks, Gerald, for raising this. You should tell my CEO before we set the targets. But anyway, we are confident in terms of achieving our targets because in the past, in terms of funds management, in terms of our historical performances, we are quite -- this target, ROE target of 20% is actually quite achievable. And I think the fact that we have the various Keppel entities, our sister companies have provided 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 assets, creator of these assets as well as to be able to provide. We have deep operational expertise as well within the group. So for example, like the Gimi, which we have talked about, the FLNG, this is a great -- actually, a great asset for infrastructure fund that we're looking to establish. And it's because of Keppel's proprietary deals that we are actually able to obtain this. Otherwise, as -- if you are any other financial investor, it's almost impossible to get hold of this asset. So we are quite happy that with the rest of the support of the group, we are able to actually move into alternative asset classes, which provides very good returns, because like for the FLNG, actually, we have a 20-year charter with an established player, oil major, so that provides actually very good returns for our investors.
Thank you. This is a question from Yeo Zhi Bin of Tokio Marine Life Insurance. Does 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 more of a midterm opportunity instead? Swee Yiow?
You are right to observe that Keppel Towers is within the recently announced incentive plan within the draft master plan. We are reviewing the different combinations because the incentive does give you options of developing more resi, hotel or combinations or different usage. So we are looking at different options. And once we conclude our strategy, we will make a recommendation to move forward.
Thank you. We have another question from Mr. [ Bobby Go ], retail shareholder, 2 questions. What is your outlook in the oil and gas business going forward? Any plans to get involved in the U.S. Permian Basin for shale oil exploration? Maybe Chris Ong, you wanted to tackle that.
On the first question on asking about the outlook for oil and gas business, it depends what's the day term. If you asked the same question a year ago, I would say that, again, we are quite cautiously optimistic about the market. There's increase of activities, tendering and bidding as you can see from FIDs of a lot of projects in the different segment of oil and gas. So our strategy in this area will be to stay close to the customer and provide the relevant solution and book with them. Any plans to get involved in shale oil exploration, the answer is not at the moment, no, we are not involved in this part of the sector.
Okay. Thank you. Follow-up question from Ms. Lim Siew Khee of CIMB Singapore, 2 questions. Other than the one-off of $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, bar -- just bar this share of this one-off infrastructure cost related to the acquisition of Ixom. Our Logistics Division, as we reposition it, we are also taking on additional headcounts as we look to grow the new wings. So that has contributed to the losses we have in logistics. Yes, sorry. Go ahead.
Sorry, one portion of the question said, is it due to consolidation or higher portion of logistics losses? The answer is no because the scheme only took place after mainCubes, yes.
Next question, Keppel Capital strength this quarter, is it exceptional or normalized? I think there are some one-offs.
Yes. That's right. Actually, I think for this quarter, we have the purchase acquisition of Ixom, so the fees are actually recognized here as well as our divestments in OFC. So I think -- but for a fund management business, it's always in a business of acquiring and selling of assets. So we hope to make this more normal trend.
Yes, I agree. That's it. Okay. Thank you very much.