Keppel Corporation Ltd

SGX:BN4

Earnings Call Transcript 2019-Q3

[Chin Hua Loh, executive]

Good evening. Welcome to the conference and webcast on our results and performance in the third quarter and 9 months of 2019. Amidst a volatile international environment marked by trade tensions and slowing global growth, Keppel has performed credibly, with stronger contributions from O&M, Infrastructure and Investments Divisions.

For the first 9 months of 2019, we achieved a net profit of $515 million, 37% lower than the $813 million in the same period last year. In 2018, we benefited from the en bloc sales of development projects in China and Vietnam as well as gains from the divestment of our commercial Property in Beijing, which had yielded profits of $544 million. On an annualized basis, our ROE was 6.1%. We had 3 cash outflow of $1.029 billion in 9 months 2019, compared to free cash inflow of $815 million in 9 months 2018, due to higher working capital requirements in O&M and Property Divisions as well as lower proceeds from en bloc sales.

Our net gearing was 0.88 as at end September 2019, compared to 0.82 as at end June 2019, due to $145 million of interim cash dividend paid to shareholders in August 2019 and recent acquisitions by the Property Division.

Reflecting Keppel O&M's progress in securing new orders and the increased workload in our yards, our O&M division made a profit of $18 million for the first 9 months of 2019, compared to a net loss of $38 million last year. In Brazil, Keppel O&M has reached a settlement agreement with Sete Brasil, bringing closure to the outstanding contracts for the construction of 6 rigs. The settlement agreement will become effective upon the fulfillment of certain conditions precedent, including the successful sale of 2 rigs, which are about 92% and 70% completed by Sete Brasil to Magni Partners.

As part of the agreement, the contracts for the other 4 uncompleted rigs are considered amicably terminated with no penalties, refunds or additional amounts due to any party. We will have full ownership over this uncompleted rigs and can explore various options to extract the best value from them.

Keppel O&M continued its focus on executing projects well. It delivered an FSRU in the third quarter and a jackup earlier this week and is on track to deliver Singapore's first dual-fuel bunker tanker later this year. Our yards completed 47 scrubber and ballast water treatment system retrofit contracts in the first 9 months' worth over $80 million as shipowners strive to meet the IMO 2020 and IMO Ballast Water Management Convention regulations. We have received 100 scrubber orders since 2018 and continue to see more inquiries. Our efforts to build new capabilities and capture new opportunities are bearing fruit. Over the past 4 years, gas solutions and offshore renewables have contributed $2.4 billion in new orders for Keppel O&M. Keppel O&M's net order book currently stands at $5.1 billion as at end September 2019, excluding our projects for Sete Brasil, compared to $4.3 billion as at the end of 2018. New contracts secured by Keppel O&M year-to-date amount to about $1.9 billion with close to 60% of these new orders for LNG and renewables-related projects.

On the slide, we see The Podium in Manila, a mixed-use development, which is a joint venture between Keppel and the SM Group. Last month, we were honored to have President Halimah Yacob open The Podium during her state visit to The Philippines.

Our Property business performed well, achieving a net profit of $340 million for 9 months 2019. This is lower than the $768 million for the 9 months last year, mainly due to the absence of en bloc sales and divestments, as mentioned earlier. In China, Keppel Land made 4 acquisitions this quarter, deepening our presence in Beijing, Shanghai and Nanjing and entering new high-growth markets, such as Guangzhou. In the first 9 months of 2019, the Property Division sold about 3,520 homes with a total sales value of about $2.1 billion. Home sales were over 12% higher than the 3,150 homes sold over the same period last year, with significantly more homes sold in China and Vietnam. Vietnam, especially Ho Chi Minh City, is a promising market for Keppel. Last month, we hosted a group of analysts to visit Keppel Land's residential and commercial projects in HCMC as well as the site for Saigon's smart city. We continue to see strong demand for quality homes and commercial projects in Ho Chi Minh City, underpinned by growing affluence and urbanization trends in the city.

Keppel Land currently has about 20 licensed projects in Vietnam with a total registered investment capital of over USD 3 billion. Earnings from Keppel Land Vietnam have grown steadily from $10 million in 2015 to $134 million in 2018 and made up almost 30% of Keppel Land's net profit for the first 9 months of this year. We have over 17,000 homes in our residential land bank, about 153,000 square meters GFA of completed commercial projects in Ho Chi Minh City and another 252,000 square meters GFA of commercial space under development. For first half this year, the adoption rate in the city for new condominium projects were 88% and occupancy rate for Grades A and B offices were more than 96%. We expect to see further growth in Ho Chi Minh City, especially along its eastern and southern corridors. With our strong foothold in the country, other Keppel units are also actively exploring business opportunities to provide solutions as the country continues its urbanization trend.

We'll continue to expand our presence in Vietnam, leveraging our decades of experience and strong capabilities in this market. Our Infrastructure Division achieved a net profit of $145 million for the first 9 months this year, up 20% from $121 million over the same period last year, driven by higher contributions from Keppel Infrastructure and our Data Centre business.

Keppel Infrastructure continued to achieve stable earnings growth with a net profit of $94 million for 9 months 2019, up from $82 million year-on-year. Strong earnings for the first 9 months were underpinned by better performance from energy infrastructure and environmental infrastructure.

Just this week, the Energy Market Authority released statistics, which show that Keppel Electric is the top open electric -- open electricity market retailer with 27% market share of residential consumers. To streamline its operations and better allocate resources, Keppel T&T has entered into agreements to divest its stakes in logistics facilities and operations in Foshan and Hong Kong. The Data Centre business continues to be an important growth area for Keppel. Last month, Alpha DC Fund and Keppel Data Centres entered into agreements to divest a 99% interest in Keppel DC Singapore 4 to Keppel DC REIT for about $385 million. SGP 4 is the first divestment for Alpha DC Fund and demonstrates Keppel's ability to create value for different stakeholders through our business model and hunting as a pack.

The total gain to the Keppel Group from SGP 4 is about $83 million, including our share of fair value gains since 2016 and fees earned by Keppel Data Centres, Alpha and Keppel DC REIT Management. Even after the asset's injection into Keppel DC REIT, the group will continue to earn recurring fees from rendering asset management operations and maintenance services for SGP 4. Keppel DC REIT's proposed acquisitions of SGP 4 and Data Centre 1 have also been well-received by investors with the successful EFR exercise in which its preferential offering was about 75% oversubscribed. Over the past 5 years, from 2014 to 2018, the Keppel group achieved earnings of about $430 million from the Data Centre business, including profits from the development and management of data centers, fees, fair value gains and gains from the divestment of assets to Keppel DC REIT, share of profits from our interest in Keppel DC REIT as well as gains arising from dilution or partial sale of interest in Keppel DC REIT. This does not include the approximately $270 million premium over the carrying value of Keppel's stake in Keppel DC REIT as at the end of September. Over this period, our average shareholders' funds invested in the Data Centre business was about $350 million. We'll continue to seek opportunities in the Data Centre business harnessing the group's ability to create good assets, which we can own, manage and then recycle at the right time to earn the best risk-adjusted returns. Data centers are critical for smart connected cities, but they have a large carbon footprint. As a leading player in providing data center solutions and with our engineering capabilities and rich history of innovation, Keppel is committed to building more energy-efficient data centers.

Our Investment Divisions made a net profit of $12 million for 9 months 2019, compared to a net loss of $38 million in the same period last year. This has been another productive quarter for Keppel Capital as its listed entities and private funds continue to grow their portfolios and, at the same time, realize value from existing assets. Keppel REIT is divesting Bugis Junction Towers in Singapore as part of its ongoing portfolio optimization strategy. As mentioned earlier, Keppel DC REIT is acquiring 2 data centers in Singapore, while Keppel Pacific Oak US REIT is expanding its portfolio with the acquisition of a Grade A office complex in the key growth market of Dallas. Meanwhile, Alpha continued to actively pursue acquisitions and divestments, totaling about USD 1 billion in this quarter. These initiatives will continue to build up Keppel Capital to be a steady pillar of income for the group. Yesterday, we welcome Singapore's DPM, Heng Swee Keat, when he visited the Sino-Singapore Tianjin Eco-City, which is developing well as a model for sustainable urbanization. Our joint venture, SSTEC, has further accelerated the Eco-City's development with the sale of 2 residential land plots in the quarter. Profits from the sale of one plot have been recognized in this quarter, while the second will be recognized upon the completion of the sale, expected in the fourth quarter this year. M1 continues its transformation, harnessing the synergies of being part of the Keppel Group to enhance its B2C and B2B offerings, strengthen its digital capabilities and explore new markets. Following the launch of its New One plan in May, more than 50,000 new customers have signed up for the plan. M1 is working closely with different business units across the Keppel Group to enhance the connectivity of our different solutions whether they are new smarter rigs, advance yards of the future, data centers or urban solutions. We are also expanding the cross-selling of services across the group's different consumer businesses, including M1, Keppel Electric and City Gas. Analysis of publicly available data suggest that only less than 2% of Singapore households currently use all 3 of the group's services. There is, therefore, significant scope to expand our share of customers' wallet. M1 is also actively exploring opportunities with SPH to leverage its extensive media consumer base for new value-added services. M1 has also started multi-vendor 5G trials and will be working closely with government agencies enterprises and institutes of higher learning to co-develop use cases for selected markets and jointly bring new innovative and smart applications that leverage 5G technology to the market. This include, for example, M1 and NTU's partnership to integrate stand-alone 5G technology into cellular vehicle to everything communications around NTU's smart campus to enhance road safety and optimize road usage, a first of its kind in Singapore.

In September, global leaders met in New York City for the UN Climate Action Summit where they announced concrete steps to deal with the climate crisis. Keppel is committed to sustainability, which is at the core of not just how we run our business, but our strategy as a provider of solutions for sustainable urbanization.

Today, Keppel is contributing to a cleaner and greener world with our suite of solutions, including green buildings and townships, environmental infrastructure, water treatment and offshore wind infrastructure, amongst others. At a Board meet -- strategy meeting last month, Keppel reaffirmed our commitment to environmental sustainability, which will be woven into the performance appraisal of senior management across the group. We have set targets to reduce carbon emissions, waste generation and water consumption as well as invest in renewable energy generation. To this end, we have recently established a new business unit, Keppel Renewable Energy, to pursue opportunities for Keppel as a developer, owner and operator of renewable energy infrastructure.

We have also defined the kinds of businesses that we will strictly avoid, such as coal-fired plants, those that we will maintain, and those which we'll grow and expand, taking into account their respective environmental impacts. These are part of our efforts to build Keppel into a stronger, more sustainable company. According to a recent survey conducted by Mercer, Keppel's employee engagement score has risen steadily from 80% in 2015, to 82% in 2017, to 86% this year, compared to the current average of 76% among Singapore companies. This is an encouraging reflection of Keppel's organizational health and the passion and commitment of [ Keppel ], which will stand us in good stead to achieve the company's targets and not only generate good returns, but build a sustainable future for all.

I will now invite our CFO, Hon Chew, to take you through the group's financial performance. Thank you.

[Hon Chew Chan, executive]

Thank you, Chin Hua, and a very good evening to all. I shall now take you through the group's financial performance.

In the third quarter of 2019, the group recorded a net profit of $159 million, which was 30% lower than the same quarter last year. Correspondingly, the earnings per share decreased by 30% to $0.088 in this quarter. The group's revenue over the third quarter was 60% or $772 million, higher than the same quarter last year. All divisions registered higher revenues during the quarter.

However, operating profit fell by 35% or $100 million despite higher revenues, largely due to absence of gain from divestment of Beijing Aether as compared to the same quarter last year. Profit before tax at $227 million decreased by a slightly lower percentage of 32% due mainly to higher share of profits from associated companies, partly offset by net interest expense in the current period as compared to net interest income in the corresponding period last year. After tax and noncontrolling interest net profit was 30% or $68 million lower at $159 million, translating to an earnings per share of $0.088. In the next slide, we take a closer look at the group's revenues by division. In the third quarter of 2019, the group's revenue at $2.1 billion was 60% higher than the same quarter last year. Revenue from the Offshore & Marine Division increased by 52% to $632 million, mainly attributable to higher revenue recognition from ongoing projects. The Property Division's revenue increased by 114% from last year, mainly due to more units handed over during the quarter from trading projects in China, such as Seasons Garden in Tianjin Eco-City and 8 Park Avenue in Shanghai; and from Vietnam, the Riviera Point in Ho Chi Minh City as well as more units sold from Singapore trading projects, the Reflections and Corals at Keppel Bay. Infrastructure Division saw a 10% growth in revenue as a result of increased sales in the power and gas business as well as progressive revenue recognition from the Hong Kong integrated waste management facility project. Revenue from Investment Division increased by $283 million to $308 million, largely due to consolidation of M1's revenues. Moving on to the group's pretax profit. The group recorded $227 million of pretax profit for the third quarter of 2019, 32% lower than the same period last year. The Offshore & Marine Division's pretax profit was 20% lower at $8 million despite higher operating profit, mainly due to net interest expense in the current period as compared to net interest income in the same period last year and also higher share of associated company losses. The Property Division's pretax profit decreased by $121 million to $123 million due mainly to the absence of gain from divestment of Beijing Aether compared to the same quarter last year and higher net interest expense. These were partly offset by higher profits from property trading projects in China and Singapore as well as higher contribution from associated companies. The Infrastructure Division's pretax profit of $92 million was 53% higher than last year, benefiting from higher share of profits from associated companies mainly arising from fair value gains on the data center investment property, the Keppel DC Singapore 4, which will be divested to Keppel DC REIT. In addition, the division's profits were boosted by a dilution gain arising from Keppel DC REIT's private placement exercise.

Excluding the charges related to acquisition of M1, the Investments Division registered a pretax profit of $21 million, an increase of $1 million from last year, mainly due to higher contribution from M1 resulting from the consolidation of its results and higher share of profit from Sino-Singapore Tianjin Eco-City. This was partly offset by higher net interest expense, higher share of loss, increased energy and fair value loss instead of fair value gain on increased energy warrants. After tax and noncontrolling interest, the group's net profit decreased by 30% to $159 million with Infrastructure Division being the top contributor to the group's earnings, followed by Property and Offshore & Marine Divisions. I shall now take you through the performance for the first 9 months of 2019. Compared to the same period last year, net profit for the first 9 months was 37% lower at $515 million. Consequently, annualized ROE decreased to 6.1%. Free cash outflow for the period was $1.029 billion as compared to an inflow of $815 million in the same period last year. This was mainly due to higher working capital requirements with the construction progress of Offshore Marine's major projects and Keppel Land's additional property development and land acquisition cost as well as lower proceeds from en bloc sales.

Net gearing increased from 0.48 at the end of 2018 to 0.88 at the end of September 2019. This was due mainly to borrowings drawn down for the acquisition of M1 and the privatization of Keppel Telecommunications & Transportation, working capital requirements, payment of the final dividend for 2018 and interim dividend for 2019 as well as the recognition of lease liabilities following the adoption of Singapore Financial Reporting Standards 16 on leases. The group earned a total revenue of about $5.4 billion in the first 9 months of 2019, an increase of 26% or $1.1 billion compared to the same period last year. All divisions registered higher revenues during the first 9 months of 2019.

Despite higher revenues, operating profit at $665 million was 37% or $384 million lower than the corresponding period last year. This was due mainly to lower gains from en bloc sales of development projects and absence of gain from divestment of Beijing Aether as compared to the same period 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 $716 million decreased by a slightly lower percentage of 34% due mainly to higher investment income and higher share of profits from associated companies, partly offset by 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 $515 million was 37% or $298 billion lower, translating to earnings per share of $0.284. In the next slide, we take a closer look at the group's revenues by division. For the first 9 months of 2019, the group earned total revenues of about $5.4 billion, 26% higher than last year. The Offshore & Marine Division recorded an increase in revenue of $90 million due mainly to higher revenue recognition from ongoing projects, partly offset by absence of revenue recognized from the sale of jackup rigs to Borr Drilling compared to the same period last year. The Property Division's revenues increased by 5% from last year, mainly due to higher revenue from China and Vietnam trading projects, partly offset by the absence of revenue from Highline Residences, which was fully sold by the first quarter of last year, as well as lower revenues from Reflections at Keppel Bay. Infrastructure Division saw a 15% growth in revenue as a result of increased sales in the power and gas business as well as progressive revenue recognition from the Keppel Marina East Desalination Plant project and Hong Kong Integrated Waste Management Facility project. Revenue from the Investment Division increased by $676 million to $757 million, largely due to consolidation of M1's revenues and higher revenue from the asset management business.

Moving on to the group's pretax profit. The group recorded $716 million of pretax profit for the first 9 months of 2019, 34% lower than the same period last year. The Offshore & Marine division's pretax profit was $13 million as compared to a pretax loss of $16 million in the same period last year. This was mainly due to higher operating profit and higher investment income.

The Property Division's pretax profit was 52% lower at $465 million, due mainly to lower gains from en bloc sales of development projects and absence of gain from the divestment of Beijing Aether, as mentioned earlier. The lower pretax profit was also a result of lower contribution from Singapore trading projects and higher net interest expense. These are partly offset by higher contribution from property trading projects in China, higher investment income and higher contribution from associated companies arising mainly from fair value gains on investment properties. The Infrastructure Division's pretax profit of $163 million was 22% higher than last year, due mainly to higher contribution from associated companies as well as higher contribution from Energy Infrastructure and Environment Infrastructure. Excluding the charges relating to acquisition of M1, the Investments Division registered a pretax profit of $119 million as compared to a pretax loss of $15 million last year. This was mainly due to fair value gain from the remeasurement of previously held interest in M1 arising from the acquisition, higher contribution from M1 upon consolidation of its results and higher share of profits from SSTEC, partly offset by higher interest expense, fair value loss on KrisEnergy warrants and provision for impairment of associated company. After tax and noncontrolling interest, the group's net profit decreased by 37% to $515 million with Property Division being the top contributor to the group's earnings, followed by Infrastructure Offshore and Marine and Investments divisions. The group's net profit of $515 million for the first 9 months of 2019 translated to an earnings per share of $0.284. Cash flow from operations was $729 million in the first 9 months of this year as compared to $512 million in the same period last year. After accounting for working capital changes, interest and tax, net cash outflow from operations was $1.1 billion as compared to an inflow of $164 million last year, due mainly to increase working capital requirements with the construction progress of Keppel Offshore & Marine's major projects, such as the Borr jackup rigs, Awilco's semi and Golar GIMI FLNG vessel 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 $99 million, comprising divestment proceeds and dividend income from associated companies totaling $257 million and net advances from associated companies of $94 million, partly offset by investment and in operational capital expenditure of $250 million. Net cash generated from investing activities last year was higher at $651 million, largely due to cash inflow from en bloc sales in China and Vietnam. As a result, there was an overall free cash outflow of $1 billion for the first 9 months of 2019 as compared to an inflow of $815 million last year. With that, we've come to the end of the slides for the results presentation. I shall hand the time back to our CEO, Chin Hua, for a Q&A session.

[Chin Hua Loh, executive]

Thank you, Hon Chew. So now we'll go to the Q&A. Please submit your questions through the web and we'll be delighted to address them. The first question is from Angela Chan who is a shareholder in Singapore. Question, did O&M continue to increase hiring in this quarter? And second related question, were there new hires in Singapore? For that, can I ask Chris Ong to address that question, please?

[Leng Yeow Ong, executive]

Okay. Thank you, Chin Hua. Year-to-date, Keppel Offshore & Marine has increased headcount by about 2,100 now, more than 1,000 headcount initially envisaged. And the bulk of the increase was overseas, while about 250 were in Singapore. So quarter-to-quarter -- in third quarter 2019, we hired 1,354 personnel, and this include new hires to fill new positions and to replace those who have left due to natural attrition. So comparing quarter-to-quarter, the net increase in Keppel Offshore & Marine global direct headcount was about 1,190.

[Chin Hua Loh, executive]

Thank you. Second question is from Cheryl Lee of UBS. On Tianjin Eco-City, were the profits from the sale of Plot 30C or Plot 34 recognized? The answer is Plot 34 has been recognized, 30C will be recognized when the deal is closed in the fourth quarter. Are there plans to launch -- are there plans to launch, well, any more sites? Sorry, the question seems to have disappeared. Anyway, I remember the question. Are there any plans to launch any more sites at Tianjin Eco-City for the rest of the year? We are constantly looking at the market conditions to see whether there are good opportunities for us to launch any new sites. Should there be any sites that are launched, likely, the closing will be for next year, in any case. There's a related question from -- well, there's a second question from Cheryl Lee. The annualized ROE of 6.1% is quite far away from the group's medium-term target of 15%. Are the targets set for each of the business units still achievable? The short answer is, yes, we believe the 15% target ROE is achievable. As when we first unveiled this target, we have said that this is a medium- to long-term target, and we believe that these are -- this is achievable target for the group. It is a stretch. These are all stretch goals. But if you look at the group's recent history, we have achieved returns well in excess of that. But of course, to get the 15%, all engines of the group must be firing. Indeed, today, I think if you look at some of the group's businesses, like KI, Keppel Capital, et cetera, we are actually already hitting those targets above costs. In order for the whole group to hit 15%, we would need to see KOM come up. We also would need to see Keppel Land improve on its performance from last year, which is already quite good, 11%. So all in all, we believe that this 15% can be achieved.

Okay. I think Gerald Wong of Cr?dit Suisse has a similar question. Well, it's actually related to the Property business. Property annualized ROE is at about 6%, the lowest in several years. Are you still confident of achieving through-cycle ROE target of 12% and what is required to achieve the ROE target? I think as I had alluded to earlier, this 12% is a stretched target for Keppel Land. But again, we have seen in the recent past, Keppel Land has been able to achieve its returns on a consistent basis for quite a number of years. Of course, this year, as was explained in the results, for the first 9 months, we have seen less divestments, so this tends to be more lumpy. In order for us to hit our 12%, I think we need to turn our assets faster. We are also looking to see how we can leverage on our experience in the various markets, like Vietnam and China, to collaborate with different parts of the group to earn higher returns through fees and other -- besides development profits.

Okay. Follow-up question from Gerald Wong of Cr?dit Suisse. O&M new order momentum appears to have slowed down in recent months driving a Q-on-Q -- quarter-on-quarter decline in your order book. Are there signs of declining customer inquiries? And what's the cause of the uncertain macro environment? For that, maybe I'll invite Chris Ong to address this.

[Leng Yeow Ong, executive]

Well, as mentioned, the FID of projects itself is not driven by quarters. And on top of that, although there are still challenges in certain segments of the oil and gas market, for example, the drilling units, we continue to see opportunities in onshore renewables and LNG market. So there are still fresh inquiries going on in those market, and we continue to chase and improve the quality of our order book. So we will inform everybody when there's a material development in the new orders that's to come.

[Chin Hua Loh, executive]

Thank you. There's a question from [ Anshul Singh ] of JPMorgan in India. His question, could you please share with us what were the gains related to the sale of SSTEC land parcel recognized in third quarter 2019 and fourth quarter? Well, I think we're only at the third quarter, so maybe I'll ask Hon Chew to address this.

[Hon Chew Chan, executive]

Well, I think, for the third quarter, as CEO mentioned, we did recognize the gain from the sale of Plot 34. And as for the last quarter, there is one more plot that is 30C, which I think has been listed and close by completion likely to be the fourth quarter, so the profit will be recognized in the fourth quarter. Of course, at this point, we can't say what is the number until next quarter when we announce the results.

[Chin Hua Loh, executive]

Thank you. There's a question from Anita Gabriel of Morgan Stanley Singapore. She has 2 questions, both related to Sete Brasil. First question, since there's a clearer picture arising from the settlement agreement with Sete Brazil, can you indicate if the $476 million provisions of Keppel -- by Keppel in relation to the 6 rigs are adequate and there will not likely be more? The second question. Also, can you let us know what are the expectations on possible write-backs? I'm sorry, I understand that it's not -- it's -- Anita Gabriel is from The Business Times, okay? Can I invite Hon Chew to address the 2 questions?

[Hon Chew Chan, executive]

Okay. Thank you, Chin Hua. Well, I think as we have explained in past quarters, we have made a number of provisions. And you rightly pointed out, in total, indeed, we have made $476 million in provisions for the 6 rigs. And in making those provisions, we have considered a number of different scenarios, different outcomes, and based on those scenarios and outcomes, we believe $476 million provisions is sufficient. And looking at the information we have today, based on the settlement agreement, these provisions are still sufficient. To your next question whether there's any possible write-backs, I think, at this point, it's still too premature. As you know, the settlement agreement is still under discussion, it's not yet settled. But at this point, we believe the provisions are adequate and also reasonable.

[Chin Hua Loh, executive]

Okay. We have now 4 questions on -- from Lim Siew Khee from CIMB Singapore. The first question -- I'll go question by question. The first question, what's the reason for the strong operating profit of $50 million in third Q '19 in Infrastructure? Were there any exceptional items? I think the KI has performed very well during the quarter, but there was a dilution gain from the placement of shares in KDCR, that Keppel DC REIT. Okay. So the second question, can you comment on the losses in associated company in Offshore & Marine? Maybe this one I ask Hon Chew. You want to...

[Hon Chew Chan, executive]

Okay. Yes, indeed, I think for the third quarter, the associated companies of Offshore & Marine did not perform well. And in particular, one of them is Floatel. Floatel has incurred losses in 3 quarter. In fact, we've seen the profits in the earlier quarters because of the 5 vessels. Four are actually out of charter. So Floatel is facing quite a bit of headwinds, and as a result, they have incurred losses in the third quarter.

[Chin Hua Loh, executive]

Okay. Third question, I will direct to Chris Ong. The question is when do you foresee final resolution of the Sete Brasil rigs?

[Leng Yeow Ong, executive]

Well, right now, we have the first order, which means that the creditors are agreeable with the settlement. There are still condition precedent to the final settlement and we -- they have up to 120 days to actually come to a final settlement.

[Chin Hua Loh, executive]

Okay. Thank you. Siew Khee's fourth question is what's your plan with KrisEnergy? And for that, maybe, Hon Chew, can you address that?

[Hon Chew Chan, executive]

Sure. Thanks, Chin Hua. I think, as you know, Siew Khee, KrisEnergy has filed for a moratorium protection. And at this point in time, we have yet to receive any proposal for the restructuring, so we are awaiting for the proposal before we evaluate the options available to us. So I think, at this point, there is no further update from that.

[Chin Hua Loh, executive]

Thank you. Okay, there's a question from Gerald Wong of Cr?dit Suisse Singapore. There was a $14 million charge on the acquisition of M1 in third quarter this year. Is this going to be recurring and what is the run rate going forward? I'll ask Hon Chew to address that.

[Hon Chew Chan, executive]

Well, this relate mainly to a number of different items that have a reason from the M1 acquisition, including, among other things, interest because there is the funding cost related to the acquisition. At the same time, there are also some intangibles that were recognized because of the acquisition. So those intangibles have to be amortized, and as a result, there's a total $14 million in charges. Yes, these are recurring charges.

[Chin Hua Loh, executive]

Okay. I have a question next from [ Jeffrey Tam ], a retail shareholder from Singapore. "Hi. Thank you for taking my question. In line with your commitment to sustainability, are there any businesses that you will exit such as oil?" Jeffrey, we are committed as a business to sustainability. We will -- as I mentioned in my opening remarks, we will not go into any business that is pollutive, and that would, for example, coal-fired power plants. But the oil business by itself, although it has a carbon footprint, the world still requires fossil fuel. And you can see that from our business outcome, we have also started to move. And this was also partly driven by the market. In the last few years, we have moved not just move away or pivoted away from oil, we're still doing oil, but we pivoted away a little bit. And we are focused now on renewables and on gas. And as I have shared in my opening remarks, this has actually paid off for us. For this first 9 months, renewables is about $720 million of the $1.9 billion in the new orders that KOM has secured. So in short, we're taking a portfolio approach. We are looking to emphasize renewables, gas, et cetera, but there's no plans currently to exit any business.

Okay. There are 3 questions from Jason Yeo of Goldman Sachs. First question, are there any updates on the redevelopment possibility for Keppel Towers? Second question, do you see any opportunities for further asset divestments or en bloc sales in fourth quarter? And the third question, what drove others in the investment division from the $39 million profit in first half to a $19 million loss in 9 months? The first 2 questions, I'd like to invite Swee Yiow, the CEO of Keppel Land, to address. And the third question, I'll ask Hon Chew to address that.

[Swee Yiow Tan, executive]

As for Keppel Towers, we have started design redevelopment process. We are in the process of consulting different approving authorities on this redevelopment possibility. We will make announcement when the plan is formal. For asset divestments and en bloc sales, it's very much an ongoing, we call it, portfolio optimizations and it would be on a case-by-case basis. So it's difficult for us to make a forecast to -- for future divestments or en bloc sales.

[Chin Hua Loh, executive]

Thank you, Swee Yiow. Hon Chew?

[Hon Chew Chan, executive]

Yes. Indeed, I think in the first half, under others, there was a $39 million profit, but it turned into a $19 million loss in 9 months, mainly because in the third quarter there was a further share of losses in KrisEnergy, which you can also see from the charts, about $27 million in third quarter. In addition to that, there were further interest cost and also the M1 charges we talked about earlier on. In the first half, of course, we benefited from the onetime remeasurement gain relating to the acquisition of M1.

[Chin Hua Loh, executive]

Okay. Another question from Anita Gabriel of The Business Times Singapore. What are your expectations on the direction of oil prices?

Sorry, we don't give forecasts on oil prices. But I think it's useful to note that, for Keppel, I mentioned earlier, KOM. In the last few years, we have diversified our business in KOM. Whereas in the past, I think we were very dependent on building oil rigs and oil solutions. In today's world, I mean, if you look at the order book that we have, of course, we still have a lot of production assets that are oil-related, but KOM has increasingly a lot of renewable projects as well as gas solutions. So I think oil price, while it's important to us, it's not as critical as it was in the past. And so our focus is, if we look at renewables, offshore renewable wind, the demand there is quite, quite incredible if you believe the projections. And certainly, if we look at the inquiries that we've been getting, this is a market that we believe will grow.

Okay. There's a question from [ Wei Kyang ] of Singapore, I presume a retail investor. "I read that you have a target to grow your fund management business to $50 billion by 2022. Can you provide an update on this? What is the progress?" For this question, may I invite Christina to address, please?

[Hua Mui Tan, executive]

Sure. Thanks, [ Wei Kyang ]. With regard to your question on the funds management business, we are confident in terms of our target to achieve $50 billion. This is because, actually, given the volatile market right now, actually, investors are looking for real assets which can provide long-term cash flows, which is actually more valuable to them given the stability of these cash flows. And actually, Keppel is very well-placed in this creation of these assets. We're able to actually through our sister companies develop infrastructure projects, offshore rigs and gas FLNGs, which provide long-term cash flows for investors. So we are quite fortunate that Keppel Capital is actually part of this ecosystem. And with the demand from the sovereign wealth funds and institutional investors, we are very confident that we are able to achieve this target.

[Chin Hua Loh, executive]

Okay. Thank you, Christina. I believe that's the last question posted. Thank you very much for your attention.