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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good evening. Welcome to the webcast on Keppel Corporation's results and performance in the second quarter and first half of 2020. As we are holding this briefing amidst COVID-19, our panelists are joining this live webcast from 2 separate locations in adherence to our split teams arrangements and safe management measures.
Here with me at the Keppel Leadership Institute are, from my left, Dr. Ong Tiong Guan, CEO of Keppel Infrastructure; Mr. Chan Hon Chew, CFO of Keppel Corporation; and Ms. Christina Tan, CEO of Keppel Capital. Over at the alternate site are Mr. Chris Ong, CEO of Keppel O&M; Mr. Tan Swee Yiow, CEO of Keppel Land; Mr. Thomas Pang, CEO of Keppel T&T; and Mr. Manjot Singh Mann, CEO of M1. Let me now proceed with the briefing. COVID-19 continues to take a toll on the global economy. The impact of the pandemic, which began to be felt in first quarter 2020, grew in the second quarter as governments around the world implemented various lockdowns and travel restrictions to contain its spread. The World Bank has projected that COVID-19 and its related containment measures might result in the global economy shrinking by 5.2% this year, representing the deepest recession since the Second World War.
The Offshore & Marine business has been particularly affected by the crisis following the fall in global demand for oil and plunge in oil prices. For first half 2020, the group's performance was affected by impairments of $930 million, mainly in relation to Keppel O&M's stranded assets, receivables, stocks and share of impairment provisions from Floatel, resulting in a net loss of $537 million. Our CFO, Hon Chew, will share more details on these impairments later. Excluding the impairments, Keppel would have made a net profit of $393 million, which includes a loss of $69 million for Keppel O&M. This is 5% higher than the net profit of $375 million for first half 2019, a reflection of Keppel's resilient portfolio. Revenue for first half 2020 was $3.2 billion, slightly lower than the $3.3 billion in first half 2019. We had free cash outflow of $278 million in first half 2020, an improvement over the outflow of $563 million in first half 2019. Our net gearing was at 1 at end June 2020 compared to 0.88 as at end March 2020, mainly due to investments, higher working capital requirements, impairments to asset carrying values and the payment of the final dividends for financial year 2019. Since the start of the COVID-19 pandemic and the resulting credit crunch, we have worked with our network of banks to secure committed and long-term funding to enhance the group's liquidity and funding resilience. In first half 2020, we tapped the capital markets for about $670 million of medium-term notes and secured more than $2 billion of committed bank facilities, thus ensuring that we have sufficient credit lines to finance the group's operations and fund growth opportunities, whether in a V-, U-, or L-shaped recovery. Taking into account the group's performance and the challenging environment, the Board has approved an interim dividend of $0.03 per share for first half 2020, which will be paid to shareholders on 20th August 2020. While Keppel O&M made a loss for first half 2020, its EBITDA before impairments for first half 2020 was positive at $40 million. Keppel O&M had a good order book coming into 2020 and was in the midst of ramping up its workforce to handle the busier workload before the abrupt downturn in the oil and gas sector. COVID-19 and measures to contain its spread caused a sharp drop in manpower with most of our -- the workers in Singapore under lockdown for most of second quarter 2020. The 2 dormitories managed by Keppel Housing have been gazetted as isolation areas due to COVID-19. Keppel Shipyard also had 2 separate clusters of COVID-19 infections. The first cluster was closed on 29th May after there were no new cases for 28 days, while the second cluster was identified on June 24 just after we entered Phase 2 of the lifting of the circuit breaker. For now, our 2 dormitories remain gazetted as isolation areas, although 2 blocks at Cassia@Penjuru have been designated as cleared blocks and are used to house recovered workers who have resumed work. Keppel's O&M's total workforce in Singapore was around 24,000 in March 2020. For most of 2Q 2020, following the start of the circuit breaker and COVID-19-related lockdowns at the dormitories, the workforce at our Singapore yards was reduced to around 1,200. Over time, the workforce has risen but was still only about 5,000 at the start of this week. The reduced manpower has had a significant impact on our operations and top line. Keppel O&M is now working closely with the authorities to ramp up activities safely. We are mindful of the risk of reinfections and have put in place stringent safe management measures in line with guidance from the authorities. We have also put in place plans to segregate the workforce within our yards so that in the event of any reinfection, as small a group as possible will be affected. It is a major logistical exercise, bringing healthy and recovered workers back to work while ensuring everyone's health and safety. This includes segregating the workers according to projects and applying the same segregation in our yards, dormitories and company-provided transportation. We are also staggering their work hours and off days. Keppel O&M has a pipeline of projects to keep it busy for at least 2 years, and customers want to see their projects completed. The performance of Keppel O&M will, therefore, be impacted by how quickly we can return to work safely and whether there are further infections, which may interrupt safe ramp-up and resumption of work. Our net order book as at end June stands at $3.5 billion with new orders of $107 million secured in the year-to-date. Our pivot to renewables, gas solutions as well as other non-oil solutions since 2015 has paid off. We continue to receive a string of inquiries for renewables. Demand for production assets should continue to be robust, and customers are likely to go for conversions, a key strength of Keppel Shipyard, rather than new builds whenever possible as cost and time to market favor conversions over new builds. At the same time, we're keeping a close watch on the stranded assets as well as our customers' credit. Overall, the biggest impact of the pandemic and low energy prices on the group's business has been on Keppel O&M. Fortunately, other parts of Keppel have fared better and will provide ballast to help the group navigate the difficult period for the O&M sector. Keppel Land has been a major contributor to the group since its privatization in 2015. To date, Keppel Land has distributed upwards to Keppel Corporation $3.9 billion of dividends since 2015, more than the $3.1 billion it had cost the group in the privatization exercise. More importantly, the group has been able to reallocate the capital release to fund other new initiatives like asset management and data centers. This is a continuation of how the group was able to reallocate the net profits made by Keppel O&M of about $7.8 billion in the 10-year period from 2005 to 2014, when the offshore industry was doing well, to other parts of Keppel such as our infrastructure and property businesses. This reallocation is now paying off as Keppel O&M goes through a more challenging period. Operating performance for Keppel Land in first half 2020 is generally in line with first half 2019, even though net profit was lower at $217 million vis-à-vis $258 million, due in part to the absence of divestment gains from Dong Nai Waterfront City in Vietnam. Keppel Land does not have much exposure to retail or hospitality assets. This explains why our half year revaluation has seen an increase underpinned by our resilient commercial portfolio comprising mainly office assets, including Park Avenue Central in Shanghai. Singapore residential sales have slowed, although the impact on office properties, including those under Keppel REIT, has been relatively muted. Cap rates of prime office buildings have not moved in major gateway cities around the world. There has been some concern that post-pandemic, the future of offices will change, and that may eventually have an impact on office demand. As of now, we have not yet seen the impact on capital values. Keppel REIT continue to have high committed occupancy of 98.6% as at 30 June and positive rental reversions for the second quarter. Our other major markets in China and Vietnam seem to be faring well barring a second wave of the pandemic. Home sales and land sales in China have remained resilient, and this has benefited both Keppel Land China and SSTEC, the master developer of the Sino-Singapore Tianjin Eco-City. In the Eco-City, home sales increased almost fourfold in the second quarter on the back of increased supply of homes, pent-up demand during the lockdown and the rollout of government policies aimed at stimulating the economy. Keppel Infrastructure performed well for first half 2020. Excluding the gain from the reclassification of KIT, it made a net profit of $75 million compared to $56 million last year. Despite the impact of the COVID-19 pandemic and lower oil prices, all underlying businesses of Keppel Infrastructure remain resilient and reported higher earnings in the first half. Demand for electricity and district cooling from commercial, industrial and residential customers in Singapore was impacted by the circuit breaker but not significantly. Electricity demand was down by less than 10% in the second quarter. With the phased reopening of economic activities from second of June, electricity demand has shown signs of recovery and is expected to pick up in the second half. Riding on synergy and portfolio optimization, the earnings of our integrated power and gas business have been largely unaffected by COVID-19. The Keppel Marina East Desalination Plant commenced operations on 29th June and will start to contribute to the group's recurring income stream from the operation and maintenance phase. Our other WTE projects under development are progressing well. The Singapore's Tuas Nexus Integrated Waste Management Facility, which was secured in April, will contribute to our bottom line starting from next year. The construction of the Hong Kong Integrated Waste Management Facility is making steady but slower progress amid the disruption caused by COVID-19. Last week, Keppel DHCS, together with its partners, also secured a contract for a district cooling system in Bangkok, establishing a foothold to explore further opportunities in the Thai market. With the growing need for sustainable infrastructure, we expect to see Keppel Infrastructure playing a larger role in the group's connected value chain in the years ahead as part of our Energy & Environment segment. Both of Keppel T&T's data center and logistics businesses have fared well in the first half. Keppel T&T's net profit for first half of $51 million was boosted by gains from the partial sale of units in Keppel DC REIT. This compares favorably to the net profit of $12 million in the first half last year. The connectivity business will be a key beneficiary in the post-COVID-19 world. Globally, data center demand remains strong and looks set to continue growing. Keppel T&T has secured government approval to develop a new data center in Genting Lane in partnership with SPH. Last week, we also announced the development of our first greenfield data center development in China through the Alpha Data Centre Fund. Data centers are much needed in a smart connected world we live in today, but as a large emitter of carbon due to its power consumption, responsible data center operators like Keppel Data Centres are looking for more energy-efficient solutions and new energy sources that are carbon neutral. Keppel Data Centre is, therefore, collaborating with different business, different industry leaders to explore how we can reduce the carbon footprint of data centers, including through the development of floating data center parks, tapping cold energy released from LNG regasification for cooling and hydrogen infrastructure for power generation and accelerating the development of carbon capture, utilization and sequestration systems. These are important efforts by Keppel Data Centre to establish itself not just as a capable data center operator but also one that is environmentally responsible. It also reflects the Keppel Group's commitment to sustainability and opens up additional avenues for Keppel's engineering capabilities and end-to-end business model to create new opportunities for synergy with other parts of the group's businesses. Keppel Infrastructure and Keppel O&M could all have a role in the future solutions of Keppel Data Centres that bring the best-in-breed sustainable data center solutions to its customers. Our logistics business has been an indirect beneficiary of the COVID-19 pandemic with higher demand for our logistics solutions. Channel marketing sales for UrbanFox have also seen unprecedented growth with more customers shopping online. We had earlier announced a strategic review of our logistics business, which is ongoing. Keppel Capital contributed a higher net profit of $47 million in the first half compared to $37 million for the corresponding period last year. With the pandemic, investments and divestments have been pushed to the right. However, fundraising has continued to be strong in the year-to-date with USD 1.5 billion raised for various fund initiatives, including USD 800 million raised in April and May when many cities were locked down. Investors whom Keppel Capital approached before the pandemic were able to continue with their due diligence virtually during the circuit breaker. The interest shown by sovereign wealth funds and large pension funds in the various private fund offerings from Keppel Capital shows that demand for real assets with cash flow and which serve as a long-term inflationary hedge remains strong. There's growing belief that the unprecedented fiscal stimuli and monetary easing will eventually lead to asset inflation. The success of Keppel Capital's fundraising will not only grow its AUM but also provide potential funding for some of the group's solutions. The symbiotic relationship between Keppel Capital and the rest of the group's businesses is an important one that is clearly mapped out under our Vision 2030. Investors invest with Keppel Capital not just because it is a strong and capable asset manager. They also see the benefits from Keppel's other businesses in energy and environment, urban development and connectivity, providing proprietary deal flows and capabilities as a developer and operator of these real assets that the funds they invest in target. So far, we have not seen a lot of distress other than industries most directly affected by COVID-19 and the falling energy price. This may impact the pace of investments, as sellers hold back for better prices, while buyers look to buy at levels reflecting the poorer economic fundamentals. M1 performed well in its financial performance for first half. EBITDA was almost flat at $141 million for first half compared to first half last year. Net profit was $48 million for the first half versus $53 million for the corresponding period last year due to accelerated depreciation in 2020. M1 has been on a journey to reposition itself from a traditional mobile telco to a digital connectivity platform. This was one of the key reasons why Keppel and SPH undertook the privatization exercise in 2018/2019. An ambitious and comprehensive rebuild of M1's tech stack is ongoing, and when completed, a new digital connectivity platform will emerge. The experience for its customers will be transformed. The project is now currently in beta testing stage, and we hope to announce the launch of the new M1 towards the end of this year or early 2021. Already, M1 has substantially increased its market share for postpaid customers, which includes the MVNOs operating on its platform to have the second largest postpaid base in Singapore. The successful award of the 3.5 gigahertz C-band 5G stand-alone license jointly with StarHub is a major coup for M1. The joint license and ownership of the infrastructure for 5G will enable M1 to share costs with StarHub and more aggressively push out 5G service at an affordable cost to our shareholders. Thus far, our share of the expected initial rollout cost for 5G is under $200 million. Besides the CapEx costs, the most important aspects for 5G rollout is the business case for 5G applications, especially for businesses and communities. The real benefits of 5G extend beyond faster download speed for customers but the low latency and the network slicing that have huge industry and business applications. M1 has been at the forefront of 5G trials with numerous joint projects with industry players such as IMDA, MPA, PSA, Keppel O&M, Airbus, IBM, Samsung, et cetera. As a group, we're excited by the prospects of how 5G can transform connectivity solutions for consumers, businesses and communities. Data centers and M1 5G connectivity will be powerful growth engines for our connectivity segment and will be major contributors to the group in our Vision 2030. To conclude, excluding the large impairments recorded as well as the poorer performance by Keppel O&M, the rest of the group has so far navigated the COVID-19 pandemic fairly well. The group's revenue has fallen but only by about 4% for first half 2020 compared to first half 2019. Net profit including the operating losses at Keppel O&M but before the impairments arising from the COVID-19 and the oil price plunge is slightly ahead of first half 2019. The operating resilience reflects the diversity of the group's portfolio. Many of our businesses provide critical essential services, such as power, water, waste management, gas and connectivity. Given the continuing impact of COVID-19, second half 2020 will probably remain very challenging. For Keppel O&M, especially, we'll have to watch our fixed costs closely. Keppel O&M has gone through a period of rightsizing from early 2015 to first quarter 2019. We were leaner and fighting fit going into this crisis with a clear strategy to navigate the energy transition as well as the climate change actions, which will probably accelerate. Further rightsizing will be required to ensure our fixed overhead costs can be brought down in line with the realities for the industry. To that end, to demonstrate our collective resolve and set the tone from the top, the CEO and management of Keppel O&M have volunteered to take a base salary reduction of between 5% to 10%. In solidarity with Keppel O&M, the senior executive management of Keppel Corporation will also take a base salary reduction of between 5% to 10%, while the directors of Keppel Corporation and Keppel O&M will take a 10% reduction in their annual fees. We will continue to work as a group and strive to provide better outcomes than what the underlying economic conditions might otherwise allow. Precisely, in times like this, it is important for the group to be guided by a bold long-term vision, which transcends the impact of the current crisis. This is why we unveiled our Vision 2030 2 months ago. We continue to believe in the inherent long-term value of Keppel, and we'll work hard to make Vision 2030 a reality for the group and maximize value for all stakeholders. I will now invite 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. In the current quarter, the group recognized material impairment provisions pertaining mainly to the O&M business, and the group's financial results were adversely impacted. I will explain the background and nature of these impairment provisions later as well as go through the group's financial performance if such impairment provisions have been excluded so as to allow better understanding of the group's underlying operating performance. For now, we will discuss the financial performance as reported with the impairments. As a result of the impairment provisions, the group recorded a net loss of $697 million in the second quarter 2020 as compared to net profit of $153 million for the corresponding quarter in 2019. Consequently, loss per share was $0.383 as compared to earnings per share of $0.084 in the same quarter last year. Revenue for the second quarter decreased by 26% to $1.3 billion compared to the same quarter last year. All divisions recorded lower revenues. Revenue from Offshore & Marine division fell 44% due to significantly lower level activities as a result of COVID-19 and the sharply reduced workforce in our Singapore yards. Lower number of property units handed over and reduced sales in the power and gas business further contributed to the decline at the top line. The group recorded operating loss of $422 million and pretax loss of $604 million in the second quarter of 2020 as compared to profits in the corresponding period in 2019. All divisions posted higher pretax profits except for the Offshore & Marine division. After-tax and noncontrolling interest, net loss was $697 million for the current quarter, translating to a loss per share of $0.383. The group's net loss for the quarter was $697 million as compared to net profit of $153 million for the same period in 2019. Other than Offshore & Marine, the rest of the Group's divisions, many of which provide essential services and continue operating during the circuit breaker in Singapore, were profitable for the second quarter 2020. The Offshore & Marine division's net loss was $962 million for the current quarter. This included provisions for contract assets, doubtful debts and stocks, favorable loss on investments as well as share of impairment provisions from Floatel amounting to $889 million. Excluding these impairments, net loss for the quarter was $73 million as compared to net profit of $4 million in the second quarter of 2019. The weaker performance was mainly due to the impact of slower progress on projects as a result of significant downtime from COVID-19 and the sharply reduced workforce in the Singapore yards as well as share of losses from associated companies partly mitigated by government relief measures for the COVID-19 pandemic. Net profit from the Property division increased by $32 million to $162 million mainly due to higher fair value gains from investment properties, higher contribution from property trading projects in Singapore as well as gain from the disposal of interest in the Jiangyin project in China, partly offset by lower contribution from associated companies and lower investment income. The higher fair value gain on investment properties for the current period was underpinned by our resilient commercial portfolio comprising mainly office assets in China and Singapore, including a property which was reclassified from stocks previously carried at cost to an investment property carried at fair value. The Infrastructure division delivered a net profit of $78 million, which was $35 million or 81% higher than the same quarter last year mainly due to gain from sale of units in Keppel DC REIT, higher contribution from Environmental Infrastructure and dividend income from Keppel Infrastructure Trust. These were partly offset by lower contribution from Energy Infrastructure and absence of share of fair value gain on Keppel DC Singapore 4 in the same quarter last year. The Investments division registered a net profit of $25 million as compared to a net loss of $24 million in the same quarter last year. This was mainly due to mark-to-market gains from investments, higher contribution from Sino-Singapore Tianjin Eco-City as a result of a land plot sale as well as absence of the share of loss from KrisEnergy compared to the second quarter 2019. I will now explain the impairment provisions recognized by the group during the quarter. The COVID-19 pandemic has severely impacted the global economy and brought about significant market volatility and uncertainty, including a sharp reduction in global demand for oil and oil prices. As these events and conditions have significant financial reporting implications, ACRA had published a financial reporting practice guidance in May 2020, highlighting key focus areas when preparing and reviewing the financial statements, especially in areas where estimates, assumptions and judgments are required. The oil and gas industry is experiencing an unprecedented and very difficult period due to the collapse of oil prices as a result of lower demand. Amidst the highly volatile environment and low oil prices, oil measures are curtailing exploration and the production spending, which has adversely impacted day rates and utilization rates of the offshore and marine industry. Several drilling rig companies were also headed for Chapter 11 in the United States. The events during the quarters -- during the quarter have provided a clearer indication that the impact of COVID-19 and uncertainties in the global economy would likely continue for a prolonged period. Against this backdrop, the group carried out a review during the quarter to assess the assumptions used in the assessment of the carrying values of certain assets of the group, including the recoverability of contract assets, receivable balances and stocks under the work in progress in relation to the Offshore & Marine business and investments in associated companies. To assist in the value-in-use assessment of the rigs, the group engaged an industry expert, Pareto Securities AS, to provide a view on the market outlook, assumptions and parameters, which were used in the VIU computations performance -- performed by an independent professional firm. Key inputs into the estimation of the VIU included day rates and cost assumptions, utilization rates, discount rates and estimated commencement of deployment. The VIU model used by the independent professional firm is consistent with prior periods and is based on the net present value of cash flows generated from the operating of rig over the useful life of the asset. Net cash flows from rig operations are driven by day rates, utilization rates and commencement of deployment, net of costs including operating costs, pre-charter operating costs, operator's margins and maintenance capital expenditures. With weakening demand on the back of COVID-19 and a low oil price environment, we have seen falling day rates, lower utilization rates and delay in the commencement of rig deployment. Such deterioration in the market conditions have led to significant lower estimated returns expected from operating a rig. Coupled with a higher weighted average cost of capital, the result was a considerable contraction in the VIU of the rigs in the current quarter's assessment as compared to the previous quarter. The work performed by the independent professional firm, using inputs and parameters from Pareto, confirmed the group's internal assessment of a lower VIU based on the market observations of such inputs in the current quarter. Arising from the assessment, the Offshore & Marine division recognized provisions of $652 million on contract assets, receivables and stocks. On 1st of June 2020, we have requested Floatel to perform an independent review of the assumptions used in the conduct of its impairment assessment with a focus on the reasonableness of market outlook assumptions and parameters used in the valuation of its vessels. The parameters provided by the independent review were adopted by Floatel in its VIU calculations, thus resulting in the revised valuation, which was lower than the carrying value of its vessels. As a result, Floatel had an impairment charge of USD 398 million on the carrying value of its vessels. Consequently, the group recognized a loss amounting to $237 million being share of impairment charge up to our equity carrying value as well as fair value loss on our investment in Floatel preference shares. With the recognition of these losses, the carrying values of equity and preference share investments have been brought down to 0 during the quarter. As seen from the last slide, total impairment losses recognized during the quarter amounted to $919 million, mainly relating to Offshore & Marine division. Apart from Offshore & Marine, underlying operations in other parts of the group remain resilient amid headwinds brought about by COVID-19 pandemic. The group achieved an EBITDA of $370 million before impairments in the second quarter 2020, 41% higher year-on-year. This was underpinned by strong operational improvements in the Property and Infrastructure divisions. Excluding the impairments, the group was overall profitable for the second quarter of 2020 at $222 million, which was 45% or $69 million higher than the same quarter last year. I shall now take you through the performance for the first half of 2020. The group recorded net loss of $537 million as compared to net profit of $356 million in the first half of last year. Consequently, annualized ROE was at negative 10.3% as compared to positive 6.3% recorded in the same period last year. Free cash outflow for the 6 months of this year of $278 million was an improvement over the free cash outflow of $563 million in the same period last year. This was mainly due to lower working capital requirements, partly offset by lower advances from associated companies. Net gearing increased from 0.85 at the end of 2019 to 1x at the end of June 2020. This was mainly due to investments, working capital requirements and payment of final dividends for financial year 2019 as well as the impact of lower equity due to the significant impairments recorded in the current period. The group earned total revenue of about $3.2 billion in the first half of 2020, a decrease of 4% or $133 million compared to the same period last year. Revenue growth in the first quarter of the year cushioned the decrease in the second quarter. Lower revenues from the Property and Infrastructure divisions were partly offset by higher revenue from the Investments division. The group recorded operating loss of $149 million and pretax loss of $357 million for the first half of 2020 as compared to profits in the corresponding period in 2019.
The pretax loss of the year 2020 included $933 million (sic) [ $930 million ] provisions for contract assets, doubtful debts, stocks, associated companies and investments as well as share of impairment provisions from Floatel. After-tax and noncontrolling interest, net loss was $537 million, translating to a loss per share of $0.295. Losses at Offshore & Marine and Investments divisions were partly offset by profits from the Infrastructure and Property divisions. The Offshore & Marine division's net loss was $959 million as compared to net profit of $10 million in the same period of 2019. Excluding impairments of $890 million, the division's net loss was $69 million, which was largely due to impact of slower progress on projects due principally to significant downtime as a result of COVID-19 and the sharply reduced workforce in Singapore yards and various restrictions in overseas yards as well as share of losses from associated companies, partly mitigated by government relief measures for the COVID-19 pandemic. Net profit from the Property division was $69 million (sic) [ $65 million ] lower at $197 million, mainly due to the absence of gain from the disposal of a partial interest in Dong Nai project in Vietnam compared to the same period in 2019, lower contribution from property trading projects in China as well as lower investment income. These were partly offset by the higher fair value gains from investment properties, higher contribution from property trading projects in Singapore as well as gain from the disposal of interest in Jiangyin project in China. The Infrastructure division posted net profit of $252 million, which was $193 million higher than last year. This was mainly due to mark-to-market gain recognized from the reclassification of the group's interest in KIT from an associated company to an investment following the loss of significant influence over KIT. Excluding the mark-to-market gain, net profit doubled that of the same period last year led by gain from sale of units in Keppel DC REIT, higher contributions from Energy Infrastructure, Environmental Infrastructure and Infrastructure Services as well as lower losses from the logistics business. Investments division's net loss was $27 million as compared to net profit of $25 million in the same period last year, mainly due to absence of fair value gain recognized in 2019 from the remeasurement of previously held interest in M1 at acquisition date as well as mark-to-market losses from investments. These were partly offset by higher contribution from M1 due to the consolidation of M1 from March 2019, gain from divestment interest in Gimi Corporation as well as the absence of share of loss from KrisEnergy and fair value loss on KrisEnergy warrants as compared to the same period in 2019. Underpinned by the Infrastructure and Property business, the group's EBITDA, excluding impairments, was $754 million for the first half of 2020, an improvement of 13% over the same period last year. Excluding the impairment of $930 million, the group was profitable for the 6 months of 2020 at $393 million, 5% or $18 million higher than the net profit of $375 million in the first half of 2019. For like comparison, the net profit of $375 million in half year 2019 had also excluded impairments. Accordingly, annualized ROE without impairment was 6.9%, ahead of the 6.6% last year. The group's net loss of $537 million for the first half of 2020 translated to a loss per share of $0.295. In the first half of 2020, our annualized ROE was a negative 10.3%. Our interim cash dividend to our shareholders for this period will be $0.03 per share. Net cash used in operating activities was $379 million as compared to $845 million in the same period last year, mainly due to lower working capital requirements from Property division and positive working capital changes for Infrastructure division, partly offset by higher working capital requirements from the construction progress of Offshore & Marine division's projects. Net cash from investing activities was $101 million, comprising divestment proceeds and dividend income from associated companies totaling $201 million as well as net receipts of advances from associated companies of $25 million, partly offset by investments and operational capital expenditure of $125 million.
Net cash generated from investing activities in 2019 was at $282 million, largely due to the divestment proceeds and dividend income from associated companies as well as net receipts of advances from associated companies. As a result, there was an overall free cash outflow of $278 million for the first half 2020 as compared to $563 million in the first half of 2019.
The group's net gearing of 1x at the end of June 2020 was partly as a result of the impairments recognized in the current quarter. Excluding the impairments, net gearing would have been 0.92. The group continues to have a strong balance sheet and the necessary credit lines to finance its operations. Nevertheless, given the tightening liquidity and the difficult operating environment that Offshore & Marine division is facing, we will continue to monitor cash flows and gearing closely and exercise discipline in capital allocation and cost management. With that, we have come to the end of the presentation, and I shall hand the time back to our CEO, Chin Hua, for Q&A section. Thank you.
Thank you, Hon Chew. We'll move on now to the Q&A section. I believe some questions have been posted already. Okay. The first question is from Teo of [ Nan ] in Singapore. With his question, with first half 2020 net loss of $537 million and impairments of $930 million, does management believe that there is no material adverse change to its business in relation to the preconditions for Temasek's partial offer? Well, based on the net profit of the second quarter that was adversely impacted by impairment provisions, we believe that the 20% threshold in the MAC clause in respect of net profit after tax has been crossed, which means that the MAC preconditions in Temasek's preconditional partial offer has not been satisfied as of today. However, we are unable to comment on Temasek's preconditional partial offer, and the action that Temasek could take resulting from the nonfulfillment of this precondition. Second question is from Kelvin Wong of Churchill Capital in Singapore. He has 2 questions. Is the material adverse clause for Temasek's partial offer triggered? I believe I've just answered that question.
Have you spoken with Temasek on their intention if the material adverse clause is triggered? We are unable to comment on the partial offer. I think you heard from Hon Chew and myself that the group's underlying businesses other than for KOM remains very strong. We believe in the long-term value of Keppel, and we will do our utmost to realize the full potential of Keppel's investment potential irregardless for all stakeholders. Okay. There's a question from Aradhana Aravindan -- I'm sorry if I pronounced your name wrongly -- of Reuters News in Singapore. Taking the second quarter results into account, has Keppel breached the material adverse change clauses of Temasek's conditional offer? If so, which one? This has been answered in the earlier -- in the first question. Thank you. This is a question from Donald Chua of Bank of America in Singapore. In relation to the MAC conditions in Temasek's partial offer, how much has profit after tax fallen since offer date? I think this question has also been answered. How many percentage has any -- how many -- how much has the NAV fallen since? How close are we in triggering MAC?
I think this has already been answered. I think the MAC, the NAV change from September 2019 to June 2020, Hon Chew, you want to address that?
Yes. I think the NAV decrease is about -- is 5.6% from September 2019 to June 2020.
The question is from [ L ] of -- he's a self-investor. I suppose he's a retail investor in Singapore. Why was the Pareto review not announced previously? And why was the review undertaken in this quarter and not in quarter one? Maybe I'll ask Hon Chew if you can address that.
Yes. Thank you, Chin Hua. I think as we have touched on the impairment question in my speech, I explained that the -- as a result of the COVID-19 and also uncertainties around the global economy, ACRA has also issued a guidance for boards in dealing with these uncertainties, in dealing with issues especially around asset valuations and going concern. We also have noted, observed a lot of terminations of rig contracts, deferral of charters during the months of May and June. There was actually a very sharp increase in such terminations and also reduction in day rates. So I think it is prudent for us to do the review with confirmation from an independent adviser like Pareto, who are industry experts. And as I've explained during my speech, the findings from Pareto, their advice on the inputs into our VIU model have confirmed our own observations. I think the intention of engaging a professional firm like Pareto is to add rigor to the whole process in determining the impairments.
Okay. Thank you. Next. For now -- I'm sorry, this is a question from Ezien Hoo of OCBC Bank in Singapore. For now Keppel has indicated that no additional provisions anticipated -- is anticipated due to KOM, K-O-M, global resolution reached per the 2019 annual report. However, the Brazilian authorities have started enforcement proceedings. Will there be additional provisions made to cover any potential increase in fines? As of this quarter, we have not taken any additional provisions. I think the matter that you referred to has been covered in the announcement and I will not go further into it.
This next question is from Stefan Tudor of Daiwa Securities in Japan. He has 2 questions. First question, what do you think about the current debt levels? Are there any target for net gearing ratio? Any plans for debt issues in the near term? Second question, how much of the credit facilities is still available?
I'll ask CFO, Hon Chew, to address these 2 questions, please.
Okay. Thank you, Chin Hua. I think as we have discussed in the past before, we have always managed our balance sheet in a way that we want to have an institutional quality balance sheet. And as a guide, we wouldn't want our gearing to exceed 1x. But that said, that's a guidance. It's not a target. It's not a cap. I think during different business cycles, there are times when the net gearing is below or above 1. But as of now, the gearing is not in excess of 1x. But that said, I think we have already mentioned in our respective speeches, we are looking very closely in cost management and also looking at how we can look at areas where we can improve on our net gearing.
Second question, how much of the credit facilities is still available. I don't think it's something that we have disclosed. But I think Chin Hua has already mentioned we have, in the past 6 months, issued 2 bonds, raising in excess of $600 million and at the same time also have engaged a number of relationship banks to secure additional credit facilities. Suffice to say that we have sufficient credit facilities to see us through the different scenarios according to our scenario planning, as Chin Hua mentioned, whether it's a V, U or L scenario.
Thank you, Hon Chew. Next question comes from Kwok Wei Chang of Citi Research in Malaysia. How much of the impairments in O&M are related to Sete? Will there be another year-end assessment for more provisions?
I think for that question, we don't provide details of what the impairments relate to for commercial reasons. We do, do impairment testing every quarter. So this is something that we do every quarter.
Yes. Chin Hua, we can say that it's not in relation to Sete.
We can say that, okay. So you want to say that?
Yes, because it's actually...
In comment, okay.
Spelled out in the SGXNet. The provisions are in relation to contract assets, receivables and stocks.
Okay. He has a -- thank you. He has a second question. How should we gauge the level of activity anticipated in the second half 2020? With 5,000 of O&M staff back to work presently, what sort of work levels can be -- can we expect from third quarter onwards?
For that question, may I ask Chris Ong, CEO of KOM, to address it, please?
Thank you, CEO. To gauge the activity, you can actually take a look at 5,000. At full capacity in March, we were at 24,000 staff, including subcontractors in the yard. Now how do we expect work levels from third quarter onwards? It really depends. We are working very closely with authorities on how do we bring our workers back to the yard to work safely. As of now, we have all the safe management measures in place. And right now, it's about making sure that the workers are ready to work. And I think that there will be increased activity coming from the second half given that nationally, more dormitories have been cleared and more workers are being cleared. Exactly what's the number? We will not know, but we are working very closely, monitoring that very closely.
Thank you, Chris. Mr. Kwok of Citi Research has a follow-up question. Net gearing has risen to 1.0. Could you please share with us the group's levers to pare this down to more palatable levels?
Can I ask Hon Chew, yes?
I think as I've discussed in the earlier -- response to earlier question, the 1x is really a guidance. We want -- we don't want to be above 1 consistently for long period. But that said, it's just a guidance. It's not a cap nor a target. And in times like this, I think that given even the very significant provisions we have made, we have not crossed 1, and we will work hard to maintain not above this level. But of course, that's something which is dependent on the performance of the company. But it is something that we are working towards. Chin Hua?
Okay. Maybe I supplement a bit more to give a bit of color here. We have mentioned in our Vision 2030 various steps that we are going to take in order to look at capital allocation in order for us to achieve Vision 2030. And one of the steps that we had outlined was our goal to more actively turn our land -- Property land bank. We have -- the group has quite a considerable-sized land bank in China and Vietnam. And this is land that has been -- some of the land has been accumulated over a number of years. We have a portfolio of about -- I think we can build up to 45,000 units of homes. So Swee Yiow and the group, Keppel Land China and Keppel Land Vietnam, have been looking very actively at how we can activate this land bank. And this would be either through development, master development or it could also -- through joint ventures or it could even be outright sale of those land. So these would be some of the steps that we could take. Of course, within the group, we have also been getting some of our assets ready. Some of these assets, when they are derisked and they're already cash flow generating and they're core, they might be suitable candidates for us to monetize through the various REITs and trusts that we have. Okay. Next question is from -- so his name is [ L ] of -- he's a retail investor in Singapore. His question, previous communication by the company stated that O&M assets will only be reviewed annually and will not be based on subjective DCF valuations but if there's been a specific event in relation to a contract. Also, why was such a large $800 million impairment not updated in the market sooner than 24th of July?
Hon Chew, maybe you want to...
I think we -- quite to the contrary, we actually review provisions and adequacy of impairments every quarter whenever we close our books. And in this case is no different. And in the second quarter of 2020, we have seen unprecedented uncertainties around COVID-19, around the volatility in the oil market. As a result, we have seen -- indeed, we have seen a lot of cancellations of rig charters, contract delays and also among the oil majors, delay in exploration programs, resulting in reduction in FIDs from the oil majors, reduction in spending by oil majors. We also saw a lot of rig companies going to Chapter 11 in the U.S.
So those are events that have taken place during the quarter. And as a result, we had to take a serious look at our impairment provisioning. That is a requirement, something we need to do every quarter. And it is made even more important because of the uncertainties. And this has been emphasized by ACRA in their release of a guidance in response to this. And recently, SGX has also sent out reminders on the importance of the quality of financial statements. So as a result, we have taken the additional step of engaging a professional firm like Pareto. Pareto are industry experts -- to provide us with inputs into our VIU calculations in determining the impairments. So we have ensured there is the rigor in the assessment in the determination of the VIU calculations. And this process has taken time. And as soon as we were aware of the magnitude of the provisions, we gave a guidance last week on the 24th of July.
So this VIU has been a model that we've been using in the course of the -- not just this quarter, but in the course of how we assess the adequacy of impairments as well our carrying assets. Okay. Next question is from Ezien Hoo of OCBC Bank. Assuming Temasek's stake in Keppel stays at around 20%, would this change Keppel's access to bank financing and cost of funding? Are there any banking lines which are contingent on Keppel becoming a subsidiary of Temasek? I think just to be clear, we have -- well, first, I am not going to speculate what's going to happen on the partial offer, as I've said earlier. Keppel has had Temasek as our shareholder for many years, and they've been at this -- around about 20% level for quite a long time. And our -- Keppel's access to bank financing has never been impeded. Our cost of funding has also always been very competitive. So we are quite confident that this will continue whatever happens. We are working very closely, Hon Chew and I, with our network of banks, and we will continue to do so.
I guess we might as well answer that question, are there any banking lines which are contingent on Keppel becoming a subsidiary of Temasek? Maybe you want to...
The answer is no.
Okay. This is a question from Cheryl Lee of UBS. Regarding the $430 million provision on contract assets, as I recall, the valuation on the assets were last reviewed in quarter 1 results. Could management provide some rationale for the size of the provision? For example, was the main reason a change in discount rate, utilization rate and charter rate or others?
I believe the question has already been answered by Hon Chew in his remarks and also to answers to the earlier questions. I am not sure whether Hon Chew want to add any more to it.
Perhaps just to add that there's further information in SGXNet concerning the sensitivities around, for example, discount rates, sensitivities around day rates. Cheryl, I think that might help to give you a sense of the sensitivities.
Thanks. This is from Lim Siew Khee of CGS-CIMB in Singapore. She has 3 questions. First question, given that you have engaged industry expert to review your rigs, how should we be looking at your future review and whether you've done a thorough review this round?
You want to address that?
Yes. I think as we kind of explained earlier on, the industry expert's review basically helped us to confirm our own observations. And I think that makes the whole review much more robust. This time around, I think it is very necessary because of the uncertainties surrounding COVID-19 and also the volatility in oil prices. And we also took a cue from the guidance from ACRA, SGX. I think this is the right thing for us to do to confirm our own observations. Also, I think it is very necessary because we -- even looking at the data points in the whole industry, we saw a very strong increase in some of the contract terminations and also contract delays. We needed to have that confirmation to add rigor to the whole process. On an ongoing basis, I think in the end, the review is still the responsibility of management. From time to time, we may make reference to industry experts if we see -- where we see it's necessary to make sure that the process is robust.
Okay. Second question, how does this impact Temasek's partial offer? I think I've -- we've covered that already.
How are you managing your workforce in O&M now? I think Chris has already addressed it, but I'm not sure. Chris, do you want to add anything else?
I think the question is quite broad. But in short, I think for the past 3 months, the company has been working very closely with the authorities about how we can safely bring the workforce back to work. Of course, there are still active cases country-wide. So we have been very careful. First thing that we do with our workforce is to make sure that they are taken care of. All the communication with our workers while they are locked in and provide assurance to them, provide medical services, meals and necessities to them are our topmost priority. And moving forward, we would be -- need to make sure that we have all the safety measures in place, which means that it's not only limited to -- at the workplace. We now are working also closely with our subcontractors and our own dorms to make sure that they are segregated in terms of -- from the dorm, company transportation and also at the workplace to keep incidences as low as possible. Back to you, CEO.
Yes. Thank you, Chris. Next question. This next question comes from a retail investor, [ Sahas Sankaran ], based in Singapore. His question, net gearing has been a focus in Keppel for some time now. Is there a long-term target to bring this down? And what will be the optimal level of net gearing? I think as you've heard from Hon Chew earlier, we do strive to keep around -- just below 1. So now we are at 1. So obviously, it's elevated, but as you have also heard from Hon Chew, from time to time, it may cross. But I think our goal is always to try and bring it down, and I've explained some of the levers that we can pull in order to bring this net gearing down in terms of being more conscientious, more disciplined in our capital investment, new investment and also looking very closely at how we can activate our land bank and also looking at potential assets that the group has, which may be ready for monetization. Okay. Thank you.
Next question is from Gerald, Gerald Wong of Crédit Suisse in Singapore. Gerald has 3 questions. First question, could you provide details on the impairments for contract assets and doubtful debts in O&M? Do they relate to jackups or semi-subs?
Hon Chew, I'm not sure we can address that.
Yes. I think because of the commercial sensitivity, we do not provide a breakdown by projects, as you will be able to appreciate, because these are our customers. I don't think we can give a breakdown, Chin Hua.
Okay. Second question, was there any impairment for the CAN DO drillship?
Again, I think it's the same.
Okay. So Gerald, same, ditto for the first answer to the first question.
Third question, with the losses in first half '20, first half, and net gearing of 1, could you share the consideration in still paying an interim dividend? This is a good question. I think this was something that the Board debated at length. I think we do see that the losses in the first half has predominantly or primarily been driven by the huge impairment in the Offshore & Marine business. And if you -- of course, you can't extract that, but if you were to exclude that, actually, the group has improved on its performance in terms of net profit for the first half. Our cash outflow is also smaller. And I think on that basis, we have decided that -- to pay a very small interim dividend. Last year, it was $0.08. And this year, we have decided that a small interim dividend is appropriate and something that we can still afford. And that was how we landed on this decision on $0.03. Okay. Next series of questions is from Lim Siew Khee of CIMB in Singapore. First question, what's the reason for the strong revenue in O&M given the lockdown?
Maybe I'll ask Chris Ong. You want to address that?
Yes. The strong revenue also is accounted for by continued activities in the Brazil yard, U.S. yard and the China yard. We still have activities going on in those yards because different jurisdiction will have different approach to the pandemic. The most badly hit will be Singapore, where we have a total lockdown for almost a full quarter. So they have been contributing to the top line for the O&M group during this quarter.
Well, I think, Siew Khee, the other -- thank you, Chris. The other thing is that I think for O&M, our revenue was quite strong in the first quarter due to the -- as I had mentioned in my speech, we actually came into 2020 with quite a strong order book. And first quarter was before the lockdown in Singapore. So we were still able to work. I think in March, we had like about over 20,000 total workforce. So I think the slowdown was mainly in the second quarter, but overall, we were still quite respectable for the first half. Next question, what will happen to your undelivered jackup rigs such as Clearwater, Fecon, TS Offshore? Again, may I ask Chris to address this question.
We still have valid contracts with these customers. The delivery has been delayed, but what we are doing here is that we are in constant conversation with these customers in the midst of this poor market, what we do on these rigs.
Thank you, Chris. So third question, what's the loss if you had just impaired on Floatel? I think we have disclosed what's the Floatel impairment. So you can work that out, Siew Khee.
Yes. You can look at Slide 25. There's a listing of all the impairments, Siew Khee.
What happens to the loan extended to Floatel? That loan is still in our books.
Yes.
Yes. Okay. Next question is from Gerald Wong of Crédit Suisse Singapore. Could you share what was the total amount JSS and other government subsidiaries received in the second quarter? We -- Gerald, we do not disclose a specific quantum. But approximately, the group has about 5,000 employees in Singapore who would have benefited from the JSS. This is a question from Anita Gabriel of Business Times in Singapore. That the MAC has been triggered for Temasek's offer brings great shareholder uncertainty. When do you think the picture could get clearer? Could the financials for the MAC be based on end September showing and not end June if regulatory nods for offer stretch out to them -- to then? I'm afraid, Anita, I'm not going to speculate. I mean this would be a question that probably will be better addressed to the offerer. So I will end there, okay? There's a question from Mayuko Tani of Nikkei in Singapore. With lower demand in O&M, what is the number of manpower you think is necessary in Singapore yards out of 24,000? Will you have to let go some of them before they return to work?
I think the question is regarding what's the outlook going forward, and maybe, Chris, you want to address this?
I think the manpower requirement, as CEO and CFO has mentioned earlier on in their speech, we came into the year with quite a big backlog. The manpower, we have also rightsized for -- since 2015. We are lean. Of course, we are also looking at how to control our costs, and that would be -- part of it will be on our manpower, but that's to streamline. We will be working closely with the stakeholders like our unions to take a look at what is the right size post-pandemic.
Okay. We have another question from Gerald Wong of Crédit Suisse in Singapore. Gerald's question, why was VIU not used in 2014 to 2016 to assess impairments when oil prices were also low and volatile? Hon Chew?
No, we have always used the same VIU methodology. But of course, you are going back between 6 and 4 years ago. Not all the rigs was stranded at that time. But of course, apart from low oil prices, volatile oil prices, today, we also have the COVID-19 situation. So it's a twin crisis today, low oil prices and also COVID-19. But just to be clear, we always use the same VIU methodology.
Thank you, Hon Chew. Next question is from Jason Yeo of Goldman Sachs in Singapore. Several Property companies have seen a fair value loss on investment properties. Can you share what drove the valuation gain for investment properties? I think as I shared earlier in my speech, most of our exposure are not in retail or hospitality, which are probably more impacted by the COVID-19 pandemic. But I will ask Mr. Tan Swee Yiow, the CEO of Keppel Land, to also provide further illumination on this question. Swee Yiow?
Thank you, Chin Hua. I think as shared by Chin Hua, I think most of our portfolio are in prime commercials and not in retail and hospitality assets. So the impact is less. And all our assets in the commercials and so on are good quality, prime, grade A office buildings across the different countries that we operate at, and based on current situations that they are all in very good occupancy in the portfolio. And some of them have been kept in our book for a while. So I think that we can manage to get some valuation gain from here.
Okay. Jason has 2 follow-up questions. One is, is your gearing a concern at this level? I think you've heard Hon Chew address that. It's close to a level of 1, but it's not of a concern to us at this point.
And if so, how are you planning to lower it?
Even though it's -- I mean we are watching it closely, and I've already mentioned some of the levers that we can pull in order to get -- to make sure that it stays at this level or lower. Okay. Cheryl Lee has another question, Cheryl Lee from UBS. Could I clarify if the provisions made to the contract assets and doubtful debts were made against specific contracts or made generally against the entire portfolio of assets? In the coming quarters, if a specific customer reneges on their contract, would further impairments be required?
Hon Chew?
Okay. Thanks, Cheryl for the question. Just to put things in context, I think the contract assets refer to several rigs that were actually constructed by KOM and request was made by customers to defer the delivery dates in the prior years. And in making the assessment on these contract assets, we have precisely considered likely outcomes, such as rigs not delivered and we take possession of those rigs and charter it out to work. And precisely, that's the reason why we use the value-in-use as a basis for determining the impairment. So it has considered that scenario. And as of now, we believe those provisions are sufficient even considering that scenario.
Thank you, Hon Chew. Okay. Next question is from Andrew Ow of SPD Bank in Singapore. His question, how would the huge impairment impact the financials, example, liquidity of the group?
Hon Chew, you want to address that?
Yes, I think we have kind of discussed this issue around the gearing. We will continue to work on managing the gearing of the group and looking at how we can manage costs across the whole group. In relation to liquidity, I think we have also mentioned that in the last 6 months, we have raised a number of additional bonds, raising additional funds, and at the same time, also engaging a number of banks to increase our credit lines to make sure that we have sufficient liquidity for the group.
I think the other thing, I guess, we should say is also -- I mean just to remind everyone, impairment is a noncash item.
Noncash, yes.
Of course, it will impact our net gearing because you reduce the shareholders' equity. But it is a noncash -- there's no cash implication. He has as -- Andrew has a second question. Any further significant impairments expected for Floatel, KrisEnergy offshore? Well, we don't provide a forecast for provision. I think this is based on what we see today, working very closely with our external auditors. We are satisfied that the provisions that we provided today is adequate. Okay. Anita Gabriel of Business Times have another question. Keppel had unveiled a 10-year road map only 2 months ago. And now the company is reporting huge impairments. Would you admit you could have been somewhat wrong-footed in your assumptions up until a week ago? I'm not sure how you draw the comparison between the 2. The 10-year road map, Anita, as we know, is something that will guide the group going forward. And as I've shared in my speech, more than ever, this Vision 2030, it becomes even more important because it will guide the group going beyond the current challenges, the current pandemic. So the short answer is no. It has no -- I mean there's no relationship between the 2. Okay. Next question is from [ Teo ], a retail investor in Singapore. When will Vision 2030 be put into action?
Thank you. Good question. Vision 2030 is already being put into action. I mean we already have the road map for the group that will guide us over the next 10 years to fulfill our ambition to be a solution provider for sustainable urbanization. We have a young group already working on this on the vision. I think the next step for them is to put together very concrete steps for us to realize this Vision 2030. So in short, this has already been put into action. Thank you. Okay. This is a question from Gerald Wong of Crédit Suisse. Given the significant large impairments in O&M in recent years, will there be any changes in terms of risk assessment and appetite to take on new contracts? I think -- Gerald, I think we will always have to be quite looking at new contracts. Particularly, we have to look at the terms of those contracts. And I think this is something that we are now steering towards to make sure that we look at the contracts, what was the project, what are the payment terms, who are the customers. Second question is, will there be any clawback on management remuneration? We -- our management remuneration is long term. We have, of course, some short-term components. But ultimately, the management remuneration will be impacted in terms of some of the longer-term bonus plans that we have, such as our RSP and PSP plans. There is an element of performance. And of course, if the company financial performance is affected, that will directly impact management's remuneration. This is from -- next question is from Foo Zhiwei of Macquarie. On Property, I noticed there was a loss of $7 million for the property trading arm. Could you provide some color there?
Can I ask Swee Yiow to address that question?
For trading projects, from time to time, we do review the cost versus the market value that can be achieved. And if there is a shortfall, we will provide for it. And this is on the portfolio basis that we review for individual basis -- individual projects, leading up to $7 million.
Thanks, Swee Yiow. Zhiwei has a second question. For O&M, your net assets of $1.8 billion includes a $2 billion perpetual security. Given the headwinds in the business, will the perpetual security be converted into equity at some point? Hon Chew, you want to address that?
That is actually an internal financial arrangement. So we do have that flexibility, right? It's something that we can consider. But at this point, the answer is probably not at this point.
Thank you. Another question from Zhiwei of Macquarie. Given that you've impaired financial -- sorry, you've impaired financing provided to your O&M customers, how does this impact the interest income O&M is getting going forward? Is the interest income for O&M in second quarter '20 a representative level?
Hon Chew?
Yes. I'm afraid we cannot provide any guidance on the income, including interest income.
Okay. Another question from [ L ], a retail investor in Singapore. Following up on Gerald's question and your answer, if you did use VIU previously in the O&M business, why was this never disclosed or discussed? Why do you not disclose the process by Pareto when it was performed in quarter 2 like you did with the Floatel VIU review? Do you want to -- was that really...
Just trying to understand -- I think he...
Maybe you answer the first question. Why was this never disclosed? I think on VIU.
I believe we have -- I believe we have discussed about VIU before in the past. But of course, in terms of impairment for contract assets in recent years, this is the first time. But internally, at each quarter-end, year-end, indeed, we do make an assessment of the recoverability of the assets, including contract assets, stocks and also receivables. So that is the basis that we have always been using. But in terms of provisioning, in terms of actually making a provision for impairment, this is the first time in recent years.
Okay. I think VIU is also a pretty accepted accounting methodology, right?
That's right, yes. Because I think it's really the circumstances. Because of the stranded assets, we had to use the VIU model to determine the recoverability of those assets.
Okay. Next question. This is a question from Mayuko Tani of Nikkei in Singapore. Is this the largest quarterly loss for Keppel? I think it's the largest loss at least in the last few decades, 2 decades.
Do you expect a full year net loss is inevitable from the current market and economic condition? We don't provide a forecast. So I can't -- we can't address that question. Okay. Next question -- follow-up question from Ezien Hoo of OCBC Bank. What is the return on equity target in the 10-year road map and by when? The target has always been 15%. We believe that, that is achievable, medium to long term. So we would expect that Vision -- this is part of our Vision 2030. As to when it can be achieved will depend on several factors. I think, first and foremost, we have set ROE targets for all our businesses. And in order for the group to hit our 15% target, all our businesses must be performing and at least performing close to their potential. And at this point in time, I think we would expect that this can be reached probably in the next 3 to 5 years. Okay. Next question is from Siew Khee of CIMB. China property sales is strong in the second quarter. Can you please walk us through what's happening on the ground? Swee Yiow, you want to address this?
Okay. Thank you, Chin Hua. I think when the COVID lockdown lifted, sales flats are opened. Buying interest are coming back quite healthily. In first half 2020, in China, we actually sold about 1,050 homes in China. And compared to 1,140 sold in first half 2019 is quite close. And home sales in most cities that we operate in, such as Chengdu, Wuxi and Shanghai or even Nanjing, are quite resilient and quite healthy, and we expect the resilient demand will continue in the second half.
Thank you, Swee Yiow. Okay. There's a question from retail investor, Mr. [ Lim Hock Chuan ] of Singapore. With the current uncertain and dynamic market situation, does Keppel Vision 2030 needs to be calibrated from time to time? Well, I think our Vision 2030 is broad enough. We do recognize, like you said, markets are now changing and not only changing but changing rapidly. And I think it's -- Vision 2030 is very -- it just -- it spells out very clearly the direction of travel. But I think in terms of the specifics, there can be some agility in the way that we run our businesses, taking into account the changing external environment and also even the portfolio that we have. We have set a very clear way that we will do capital allocation, looking at some metrics, and this will be something that will guide the group going forward. So in short, our Vision 2030 is actually designed to be -- to have that agility to take into account any change in circumstances. The direction of travel is very clear. We want to be -- we want sustainability to be a very key part of our strategy. We know what our strengths are as engineering and project -- with very strong engineering DNA. And of course, we also have this asset management arm that works very symbiotically together with our other business segments to create opportunities for the group and also for the investors that can come through the private funds and the listed securities, the listed trust.
Okay. This is a question from Chew Boon Leong of SPH. With market gradually recovering and large impairment made, would you say that the worst is over? Or are there more challenges yet to come?
Well, it is -- the quarter's impairment reflects the reality of what has happened in the oil and gas market, the changes in -- particularly as what Hon Chew have pointed out. We do hope that this is -- that the market will continue to recover from here on out. But at the same time, I think we always have to prepare for more challenges ahead. And I think the fact that the group is very diverse -- and you can see from our first half results that actually the strength for the other business units, whether it is Keppel Infrastructure, Keppel T&T, Keppel Capital, M1 and Keppel Land, they have all come together. So I think this is how we will navigate this more difficult period ahead.
Okay. Next question. Would you consider the downturn in the oil and gas?
You have to go back.
I haven't answered the second question. Never mind. We'll come back to it.
Next question is from Adrian Loh of UOB Kay Hian. With -- sorry, with $1.5 billion in commitments for Keppel Capital, when does the fund start operations?
Well, I ask Christina Tan, the CEO of Keppel Capital, to provide some comments here.
Sure. For the $1.5 billion in terms of commitments for Keppel Capital, it's actually committed by the sovereign wealth funds as well as the large pension plans into different funds. So for instance, Keppel Asia Infrastructure Fund, we have already started investing. So we have a good deal flow pipeline supported by the group as well as also other investments that we're looking at. We are also into logistics both in Indonesia and in China as well. And we are also looking at assets in Vietnam as well. So actually, the commitments we have already started looking for investments in the various activities that we have.
Thank you, Chris. Adrian has a second question. Can we assume that the 5,000 workers at your Singapore yard now are engaged in maintenance and safety activities rather than revenue-generating work?
Well, I certainly hope not. Anyway, I will ask Chris Ong to provide more color there on what these workers are engaged in.
We have 5,000 workforce in the yard right now. Definitely, not all are in maintenance and safety. It's a mix of people in engineering, procurement and also physical workers on the ground. And all these are all revenue-generating. We're definitely trying to catch up on some of the projects that has been affected by the pandemic.
Thank you, Chris. I think many of our customers have -- actually have very strong interest in -- for us to continue on their projects. So these 5,000 workers would be definitely a godsend in terms of getting our -- as Chris said, to get our project going again.
Okay. Next question, this -- okay, this is the question that I missed. Would you consider -- this is from Chew Boon Leong of SPH. Would you consider the downturn in the oil and gas sector a short-term impact or it may be a longer-term structural issue?
I think we have said a release for some years that for KOM, since 2015, we have already started to pivot away from oil towards renewables, towards gas solutions as well as non-oil and gas. We believe that this energy transition is not a short-term thing. It will -- it's going to be -- if anything, it's going to be accelerated, and KOM is now working -- has actually -- as I mentioned in my speech, has actually profited from this pivot. And we are seeing that increasingly, more and more of our existing orders are in the renewable space, and a lot of the inquiries are also in the renewable space. Okay. Next question is from [ Teo ], a retail investor. Seen against other property players, what would you say are the key comparative advantages of Keppel in the property sector?
Well, I think Swee Yiow is in a good position to address that.
Thank you, Chin Hua. I think our key strength is really in terms of good quality executions. I think you can see from all our past projects, be it -- whether it's Marina Bay Financial Centres, Ocean Financial Centres and Reflections, we are able to deliver good, key quality assets in competitive cost situations. And that's also reflected well in the overseas market, be it Saigon Centres that we have done and the China project. And the other thing is that we tend to be a bit longer terms ahead, looking at it. So we deploy quite a fair bit of innovative solutions, smart features, sustainabilities. So we always look ahead. So in that aspect, for example, we set ourselves a lot of sustainability targets, which we are all on track to deliver it. So -- and generally, we are also very good in working with partner. A lot of project is not just ourselves doing it, but we are able to put the stakeholder together with other partner to deliver large-scale township project as well as large-scale project together. Thank you.
Thank you, Swee Yiow. I think if I could add to that, besides all the strengths that Swee Yiow has outlined for Keppel Land, I would also say that in the more recent years, Keppel Land is also becoming more nimble. We don't always have to develop a project from the ground up. Sometimes, we find that we can actually make quite good money buying older asset and doing asset enhancement. And we have also been a bit -- also more nimble in recent years that we are no longer just developing everything for sale. Sometimes, when the opportunity comes up for us to sell on an en bloc basis, we have also done so. Okay. Next question. This question is from Ezien Hoo of OCBC Bank. Are there any plans to further simplify Keppel's corporate structure in a bid to boost shareholders' returns?
Well, I think our corporate structure has already been simplified in the last few years through the various privatization. I think I mentioned in my speech about Keppel Land's privatization and how that has panned out for us quite well. And the idea is that all the key operating units are now 100% owned. So it makes it a bit easier for us to allocate capital across the whole group. And of course, we are still very open to having listed REITs, which we have IPO-ed a number in the recent years and -- but as far as the main operating arm of Keppel, all the operating units are now private. Only the headstock is listed.
Okay. I think that's the end of the questions. Thank you very much.