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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good evening, ladies and gentlemen. Welcome to the Conference for Keppel Corporation's Second Half and Full Year Financial Results for 2022. We have on the panel this evening, from your left are, Mr. Manjot Singh Mann, CEO of M1; Miss Cindy Lim, CEO of Keppel Infrastructure; Mr. Chris Ong, CEO of Keppel Offshore & Marine; Mr. Chan Hon Chew; CFO of Keppel Corporation; Mr. Loh Chin Hua; CEO of Keppel Corporation; Ms. Christina Tan; CEO of Keppel Capital; Mr. Lu-yi Lim, CEO of Keppel Land; and Mr. Thieng Hwi Pang, CEO of Keppel Telecommunications and Transportation.
We will begin the session with presentations by Mr. Loh and Mr. Chan, followed by a question-and-answer session. Mr. Loh, over to you, please.
Thank you. Good evening. Welcome to the webcast of Keppel Corporation's second half and full year 2022 results. 2022 was a challenging year for the global economy, marked by the war in Ukraine, heightened geopolitical tensions, slowing global growth, inflation and rising interest rates. The International Monetary Fund has projected that global growth is expected to slow from 5.9% in 2021 to 4.4% in 2022 and 3.8% in 2023.
Amidst a difficult environment, we continued to accelerate Keppel’s Vision 2030 transformation, simplifying and focusing our business, while executing our asset-light strategy. We completed the divestment of Keppel Logistics and are currently in the final stages of executing the proposed combination of Keppel Offshore & Marine with Sembcorp Marine, and resolution of our legacy rigs and associated receivables.
The offshore & marine transactions have received strong support from Keppel’s shareholders at our Extraordinary General Meeting last December, while Sembcorp Marine has announced that it will be holding its EGM on 16 February to seek its shareholders’ approval. Amidst improving conditions in the O&M sector, we are optimistic that the combined entity, with a very strong order book and synergies realised from the integration, will be well positioned to seize opportunities in the evolving landscape.
In 2022, Keppel O&M achieved an annual revenue of S$2.8 billion, its highest in six years. During the year, Keppel O&M secured about S$8.1 billion of new orders, bringing its net orderbook to S$11.0 billion at the end of 2022, which is at the highest level since 2007. This includes the FPSOs projects with Petrobras, which are currently tracking on schedule and within budget.
We have also made good progress in putting our legacy rigs to use. All the available KFELS B Class jackup rigs in the fleet have secured bareboat charters, while we continue to receive active enquiries for the remaining legacy rigs.
With higher utilisation and day rates, we have, based on the value-in-use assessment conducted by our independent advisers, written back part of the impairments which had been made for the legacy rig assets in 2020, when oil price had fallen sharply following the COVID-19 outbreak. As a result of this writeback, the Asset Co Vendor Notes will increase, bringing the total realisable value to Keppel from the O&M transactions from S$9.05 billion to S$9.35 billion.
Had the proposed transactions been completed at the end of FY 2022, we would have booked a pro forma disposal gain of approximately S$3.4 billion or S$1.94 per Keppel Corporation share from the Sembcorp Marine shares received6. On the same pro forma basis, this gain would have increased our Net Tangible Assets as at end-2022 by approximately S$2.05 per share, including other adjustments, from the reported S$5.51 per share to S$7.56 per share post transactions3.
Upon the completion of the transaction, we will distribute in specie 19.1 Sembcorp Marine shares7 to our shareholders for every Keppel Corporation share they hold. The distribution in specie has an implied value of S$2.33 per Keppel Corporation share, based on Sembcorp Marine’s volume-weighted average price of 12.2 cents per share when the transaction was announced in April 20226.
Following the distribution in specie, our pro forma NTA would be reduced from S$7.56 to S$5.23 per share, which is quite close to our reported NTA of S$5.51 per share at the end of 2022. In short, this distribution in specie is backed by the disposal gain that will be booked. Post distribution, our NTA will only be marginally reduced.
Of course, the gain as well as the final value of the distribution in specie will depend on the actual value of Sembcorp Marine’s shares when it starts trading on the SGX post-transaction. Based on Sembcorp Marine’s closing share price of S$14.01 last evening, the implied value of our distribution in specie would be even higher at S$2.69 per Keppel Corporation share.
Including the new shares that we will receive, as well as the vendor notes from the sale of the legacy rigs to Asset Co and the out-of-scope assets, we will in total unlock close to S$9.7 billion from the transactions. This is equivalent to S$5.52 per share in value.
Just as important, the completion of the O&M transactions will accelerate Keppel’s transformation from a conglomerate of diverse parts into a global asset manager and operator, with strong capabilities in energy and environment, urban development and connectivity, which is well-positioned to seize opportunities through creating solutions for a sustainable future. In the midst of an inflationary environment, we see strong demand from investors for real assets with cash flows, which the Keppel Group is able to develop, operate and manage.
Later this year, we will share more details on the next phase of our transformation plans. Robust performance in FY 2022 Keppel delivered robust performance in FY 2022, achieving a net profit of S$927 million, bolstered by stronger results in Asset Management and Energy & Environment.
Net profit was 9% lower compared to S$1.02 billion in FY 2021, mainly due to lower earnings in Urban Development as well as provisions for specific projects at Keppel O&M’s yard in the US, which were partly offset by the partial writeback of impairments for our legacy rigs. 2021 had also benefitted from a higher fair value gain of S$277 million from our investment in Envision AESC. Our CFO Hon Chew will elaborate more on the financials later.
Return on Equity was 8.1% for FY 2022, compared to 9.1% for FY 2021. Free cash outflow was S$408 million in FY 2022, compared to an inflow of S$1.76 billion due mainly to lower divestment proceeds. Net gearing remained stable at 0.78x as at end-December 2022, compared to 0.79x as at end-September 2022.
We have also continued to strengthen our business resilience amidst rising interest rates. As at end-December 2022, about 67% of the Group’s borrowings were on fixed rates, with an average interest cost of 3.24% and weighted tenor of about three years.
In appreciation of the support and confidence of our shareholders, the Board of Directors has proposed a final cash dividend of 18.0 cents per share for FY 2022, to be paid on 10 May 2023. Together with the interim cash dividend of S$15.0 per share, we will be paying out a total cash dividend of S$33.0 per share to shareholders for the whole of 2022, which is the same as the 33.0 cents per share in 2021.
This does not include the additional 19.1 Sembcorp Marine shares7, which I had mentioned earlier, that we will distribute in specie for every Keppel Corporation share held, when the O&M transaction is successfully completed.
Assuming the EGM for the acquisition by Sembcorp Marine is passed by their shareholders on 16 February, it is currently anticipated that Keppel shareholders will be credited their entitlement of the share distribution within a week or so of the ex-dividend date, which will be announced by Keppel in due course.
We have emphasised our plans to move away from an orderbook business and lumpy property development profits, and focus on growing recurring income. For FY 2022, recurring income made up S$560 million or 67% of the Group’s earnings10, an increase of 114% from S$262 million in FY 2021.
Since the start of our asset monetisation programme in October 2020, we have made good progress with over S$4.6 billion announced to date. This puts us well on track to exceed the higher end of our S$3-5 billion target by the end of 2023.
As I have said before, we will not stop at S$5 billion but will continue to unlock capital which can be used to invest in our growth engines alongside co-investors, and also reward our shareholders.
We have made good progress in harnessing our asset-light model for growth, with the announcement of about S$2.8 billion worth of energy & environment and sustainable urban renewal-related investments in 2022, jointly undertaken by Keppel together with the private funds and/or business trust managed by Keppel Capital. This allows us to make large investments in energy transition-related projects without pushing up our gearing significantly. We plan to pursue more of such joint investments going forward.
The Asset Management segment delivered improved earnings of S$311 million in FY 2022, compared to S$301 million in FY 2021, and is the largest contributor to the Group’s net profit. As we transform to be a global asset manager and operator, Asset Management would not just be a vertical within the Group, but a key focus of Keppel’s business, and a horizontal that pulls the other business units together to deliver value, as one integrated company.
In 2022, Keppel Capital completed more than S$7.7 billion in acquisitions and divestments across its REITs, Trust and private funds. Our asset management fees grew about 15% year-on-year to S$267 million11, further boosting the Group’s recurring income.
During the year, we also launched the new Keppel Core Infrastructure Fund and Keppel Sustainable Urban Renewal Fund, which are attracting positive interest from global investors. Having achieved the Assets under Management target of S$50 billion at the end of 2022, we will work towards our next AUM target of S$200 billion.
In our Energy and Environment business, Keppel Infrastructure delivered strong performance, more than doubling its earnings year-on-year to S$241 million12, driven by higher contributions from electricity and gas sales, Keppel Seghers’ overseas projects and an associated company in Europe.
During the year, we actively expanded our business in sustainability-related solutions, in line with our Vision 2030 strategy. These include commencing Singapore’s first renewable energy import, developing Singapore’s first hydrogen-ready power plant, and gearing up for the low-carbon economy through exploring green ammonia and green hydrogen solutions with international partners. We are also expanding our provision of Energy-as-a-Service for commercial and industrial customers, as we both grow recurring income and contribute to global decarbonisation efforts.
Our announced portfolio of renewable energy assets has more than doubled to 2.6 GW, including projects under development, compared to 1.1 GW at the start of 2022, on track towards our target of 7.0 GW by 2030.
Looking ahead, we will continue to tap our asset-light model and harness Keppel Infrastructure’s strong track record to seize growth opportunities in the energy & environment sector.
Our Urban Development business was affected by headwinds in our key markets, especially China, but we were still able to put in a creditable performance. Asset monetisation remained healthy with the divestment of two projects in Shanghai, though it was lower than in 2021.
China, post its zero-COVID policy, should see stronger domestic demand and higher growth. The Chinese authorities have also announced constructive policies which should benefit the real estate sector. Keppel Land will continue its push to grow recurring income and provide Real estate-as-a-Service solutions to enhance our relevance in a world characterised by flexible work arrangements, climate action and where digitalisation is redefining the built environment. We are seizing opportunities in sustainable urban renewal and senior living, as demonstrated by our recent acquisition of an office tower in Seoul and a senior living facility in Nanjing.
In our Connectivity segment, M1’s earnings grew significantly, rising 32% year-on-year to S$75 million in FY 2022, underpinned by its transformation from a traditional telco to a cloud native connectivity platform. Roaming and prepaid revenues have also risen with the progressive reopening of economies. M1 is expanding its enterprise solutions and developing 5G business applications, as it captures new profit pools. The enterprise business has been growing steadily, making up about 33% of M1’s revenue in 2022, up from 20% in 2020.
We expect profit contributions to improve in the coming years as M1 migrates customers to its new cloud native digital platform, which allows subscribers to enjoy its new 5G plans, and cloud services such as cloud gaming, among others, improves customer acquisition and lowers its cost to serve.
In the data centre business, Keppel is uniquely positioned to provide integrated end-to-end solutions, from the provision of clean energy, to the development and operation of high quality green data centres, to the raising of funds to invest in greenfield developments, to the monetisation of stabilised assets through Keppel DC REIT. In FY 2022, our integrated data centre business yielded total earnings of S$66 million13. We have also continued to grow our data centre portfolio with acquisitions in China and the UK.
Looking ahead, we see the trend of increasing digitalisation, including cloud computing, artificial intelligence and the metaverse, generating further demand for the Group’s digital connectivity solutions.
To conclude, 2023 will be an important year for Keppel, as we take the next leap forward in our Vision 2030 trajectory. With sustainability at the core of our strategy, we will continue to both run our business sustainably, and also make sustainability our business through the solutions we provide, which can help the world progress towards Net Zero. We are encouraged to see our sustainability efforts recognised with the inclusion of Keppel Corporation in the Dow Jones Sustainability World and Asia-Pacific Indices, as well as the retention of our triple A rating in the Morgan Stanley Capital Index (MSCI) ESG ratings.
The Keppel of tomorrow will work towards being a leading global asset manager and operator, focused on harnessing the Group’s different capabilities to create solutions for a sustainable future. With the growing global focus on sustainable development and climate change, I believe Keppel is in the right space at the right time. While the macro environment is expected to remain challenging, I am confident that we can build on the momentum Keppel has achieved to deliver strong value for all our stakeholders.
Our CFO will now take you through the Group’s financial performance. Over to you, Hon Chew.
Thank you, Joo Ling and very good evening to everyone. I shall now take you through the group's financial performance. For the full year, the Group's net profit including discontinued operations decreased 9% year-on-year to $927 million.
All segments were profitable with improved year-on-year performance from Energy &Environment and Asset Management. ROE was 8.1%, as compared to 9.1% last year.
In 2022, Asset Management was the largest contributor at $311 million net profit, representing about one-third of the Group’s earnings. Despite the headwinds in some markets, our Urban Development business continued to contribute significantly, accountingfor $282 million or 30% of the Group’s profits.
Reversing the net loss in the prior year, Energy & Environment contributed a net profit of $172 million, or 19% of the Group’s bottom-line. Connectivity and Corporate & Others accounted for 8% of the Group’s profit. Discontinued operations registered a net profit of $88 million, compared to 2021’s net loss of $225 million. I will further elaborate on the performance of each segment later on.
Beyond profitability, the Group has maintained a healthy balance sheet. Net gearing was 0.78 times as at end of December 2022. Compared to the end of 2021, net debt has increased mainly due to investments, dividend payments, as well as the $500 million share buyback programme completed during the year, partly offset by proceeds from divestments. Capital employed decreased as a result of dividend payments, effects of share buybacks and other reserve movements, which were partly offset by profits earned during the year.
Free cash outflow was $408 million as compared to the free cash inflow of $1.76 billion in2021. This was largely due to lower divestment proceeds from asset monetisation completedand higher investments made during the year.
During the year, the Group invested in severalenergy & environment and sustainable urban renewal-related investments including Cleantech Renewable Assets which is a solar platform, Eco Management Korea Holdings Co., Ltd which is a South Korean waste management company, an office building in South Korea which the Group will look into incorporating sustainability features.
The Group continued to scale up and expand its sources of recurring income. Recurring income increased $298 million year-on-year to $560 million. This was underpinned by higher earnings achieved by the power & renewables business and M1, stronger share of results from an associated company in Europe under Keppel Infrastructure and higher contributions from the stakes in the REITs and Trust that we own.
Earnings from Development for Sale were lower year-on-year mainly due to lower contributions from trading projects in China and lower gains from enbloc sales. These aroselargely as a result of the slowdown in the Chinese economy and China’s zero COVID policy, which have affected home sales, the completion and handover of units, as well as asset monetisation.
However, the Chinese economy is expected to recover in the coming months following the relaxation of COVID restrictions. The implementation of support policies targeted at both property developers and homebuyers should also help to bolster market sentiments.
Although lower year-on-year, the Group continued to record healthy revaluation gains on our investment properties and data centres, as well as fair value gains on investments in2022.
Impairments in 2022 were much lower than in the prior year when the Group recognised provisions related to KrisEnergy exposure.
Moving on to the performance by segment. Energy & Environment’s net profit for the year was $260 million, a sharp reversal from the net loss of $414 million in 2021, which had included an impairment of $318 million related to the Group’s exposure to KrisEnergy, partially offset by share of Floatel’s net restructuring gain of $215 million.
Net profit from our infrastructure business more than doubled year-on-year to $241 million, driven by higher electricity and gas sales and contributions from Keppel Seghers’ projects abroad, as well as a higher share of results from an associated company in Europe, as mentioned earlier.
Discontinued operations recorded net profit of $88 million, as compared to a net loss of $225million in the previous year. Keppel O&M recorded healthy revenue growth of 39% due to revenue recognition from new projects and higher progressive revenue recognition on existing projects.
However, OpCo recorded a net loss of $143 million largely due to provisions made for cost overruns on certain ongoing projects in Keppel O&M’s yard in the US, mainly arising from a shortage of manpower, higher-than-expected labour costs, as well as COVID-related supply chain disruptions. Apart from the yard in the US, the projects in Keppel O&M’s other yards, including the FPSOs projects with Petrobras, are progressing well and are on-track and within budget.
Keppel O&M continues to build on its strengths, having secured S$8.1 billion of new orders in 2022, which are expected to yield reasonable gross margins. As at year-end, Keppel O&M’s net order book stood at S$11.0 billion, the highest level since 2007. Notably, significant deposits were also received for the new build FPSO P-80 and P-83 projects, whichhave contributed to Op Co’s healthy net cash position as at end-December 20221.
With improving offshore and marine market conditions including recovery of oil prices, higher rig utilisation and day rates contracted, and supported by the value-in-use assessment conducted by our independent advisers, the Group has partially written back $293 million of impairments which had been made in 2020 for certain legacy rig assets.
As mentioned during 1H 2022 results briefing, following the definitive agreements for the proposed combination of KOM and Sembcorp Marine and the Asset Co transaction, the Group has also ceased depreciation for the relevant assets that have been classified under disposal group held for sale. This amounted to about $71 million for the year 2022.
As such, discontinued operations recorded net profit of $88 million in 2022 mainly from the partial write back in respect of certain legacy rig assets impairment made in 2020 and cessation of the relevant depreciation, partly offset by Op Co’s net loss largely due to cost overrun provisions for certain ongoing projects in the US yard.
Urban Development’s net profit was declined year-on-year at $282 million, mainly due to reduced contributions from China property trading projects and lower fair value gains from investment properties, as well as lower gains from enbloc sales.
Keppel Land completed the disposal of the Upview and Sheshan Riviera projects in Shanghai in 2022, which booked a gain of $20 million. This is lower compared to the recognition of $338 million in gains from the disposal of the Dong Nai project in Vietnam, Serenity Villas project in Chengdu, and China Chic project in Nanjing, and divestment of apartial interest in Tianjin Fushi Real Estate Development Co Ltd in 2021.
Contribution from the Sino-Singapore Tianjin Eco-City was lower year-on-year, as there were no land sales in 2022, compared to the sale of a commercial and residential plot in2021. However, market sentiments are improving following the relaxation of COVID-related restrictions.
1 Net cash position is calculated as at a point in time and may change subsequently depending on the working capital requirements of the projects as they progress, and is not indicative of the future financial position of Op Co.
The Connectivity segment recorded a net profit of $37 million, which was lower year on year as 2021 benefited from gains from the disposal of interests in Keppel Logistics Foshan and Wuhu Sanshan Port Company Limited in 2021.
M1’s mobile and enterprise revenue grew as it continues to expand its enterprise business and 5G offerings. Net profit from M1 was 32% higher at $75 million on the back of better operating results, underpinned by higher revenue and lower depreciation and amortisation expenses, which were partly offset by network service fee expenses.
The Group’s OneDC business, comprising Keppel Data Centres working in collaboration with the private funds and Keppel DC REIT managed by Keppel Capital, contributed total earnings of about $66 million of which $62 million is reported under the Asset Management. Performance of the data centre business under Connectivity segment improved year on yearmainly due to higher fee income, partly offset by lower fair value gains from data centres.
Asset Management achieved a 20% increase in revenue underpinned by higher fee income arising from successful acquisitions completed during the year.
Net profit rose by $10 million to $311 million, backed by higher top-line and higher fair value gains on investment properties under Keppel REIT. These were partly offset by lower fair value gains on data centres under Keppel DC REIT and our private funds, as well as mark-to-market losses from investments, as compared to mark-to-market gains recognised in2021.
Contribution from Corporate & Others was lower year-on-year at $37 million. Our investments in new technology and start-ups continued to yield good returns thatsupported the $91 million of fair value gains recorded in 2022, mainly from investments such as Envision AESC Global Investment L.P. and Fifth Wall.
Investment income was lower due to the absence of distribution of income from iGlobe Partners Platinum Fund I, which matured in 2021.
With that, we have come to the end of the presentation, and I shall hand the time back to CEO, for Q&A. Thank you.
Thank you, Hon Chew. We're ready to take Q&A.
So okay, we have first question. This is from John Lee retail shareholder in Singapore. Mr. Loh, can you elaborate on your point about Keppel's NTA rising first, when the SMM transaction is approved and completed, and then falling after the Sembcorp Marine shares are distributed to shareholders. Does this mean that Keppel's share price will rise and then fall?
Okay. Maybe, let me be clear. All this -- this will all take place, more or less at the same time. So, in other words, at completion of the transaction. So this is all assuming that the shareholders of Sembcorp Marine approves the resolution place in front of them at the EGM on the 16th of June.
So when the completion takes place, we will, as I mentioned in my remarks, opening remarks will make significant gain from the transaction, which will result in our NTA rising first and then of course, we are distributing 19.1 shares per KCL shares, and that will then result in the NTA falling.
The net of it all is that the NTA will be more or less just slightly below what our NTA is as at the end of December, 2022. The key difference here is that unlike distribution from our portfolio to shareholders in species where there is no accompanying transaction, you would have, you would have then let to our NTA falling by the value of the distribution.
So, in this case, the value of the distribution is backed by the gains that we will make or we were booked when the transaction is completed with Sembcorp Marine. Next question.
This is from Nicholas Lim investor in Singapore. Congratulations on the good results in spite of the global economic headwinds. I have two questions. First on dividends, the final dividend is lowered than last year, despite an increase in the company's recurring income. Should we view S$0.33 as the minimal annual dividend by Kepcorp?
The second question, ROE Keppel's, ROE of 8.1% is still some way off your ROE target of 15% for Vision 2030. Could you share what steps you're taking to achieve your targeted 15% sooner?
So maybe, let me explain. I think whilst we don't have a specific dividend policy, the board and the management is well aware that dividend is a very important part of the consideration for our shareholders. And we have so far in recent years endeavored to pay somewhere between 50% to 60% of our earnings.
So this is how we arrive at the S$0.33 final, I mean, the final dividend of S$0.18, making a total of S$0.33 for the year. As the group's recurring income goes up as you have noted, which is also part of our Vision 2030, you will give us more confidence to pay more of our earnings in dividends, but I wouldn't say that this S$0.33 is a minimal annual dividend.
It will all depend on how successful we are to continue on our Vision 2030 to improve the quality of our earnings as well as of course the absolute amount of the earnings going forward.
On your second question, I think that's a fair point. We are still somewhere off the 15% but we're working towards, towards that even in the capital that you see today. You can see that through the asset monetization, we are actually creating a lot more headroom in our balance sheet to take on growth -- new growth opportunities in energy transition in real estate as a service, and of course, in connectivity solutions, and of course in asset management as well.
So, over time, as we move away from having assets in our balance sheet that are sitting there, such as our land bank, which may not produce returns. In fact, the land banks will have a certain holding cost attached to them, and we replace them by new investments with recurring income. I believe our re-target, our ROE will continue to rise.
So we are working towards that 15%, and we remain confident that we will achieve that well within the Vision 2030. Next question.
Okay. This is from Terrence [ph] of Phillips Securities. High management. Thanks for the presentation. Can I find out if the fine pit by capital had an impact on the dividend distribution this year? Hon Chew, do you want to…
Sure. Thanks for that. I think as we have announced after taking into account the crediting of the US$52.8 billion, which the Attorney General Chambers of Singapore and CPID have agreed to, the net fines and damages paid by QM was actually US$2 million.
So there is really no material impact on the earnings, and as a result, there's also no material impact on the decision regarding the dividend distribution decision.
Thank you. Next question is from Jame Osman of Citi Singapore. Hi. Thanks for the presentation. Could you share what was the earnings contribution from the new energy and environment investments that were made in financial year 2022, as well as expectations on how these investments could contribute to the segment's growth in financial year '23 and beyond? Which projects or investment are you most positive on in terms of potential? Hon Chew, are you able to address this?
I think we've as we mentioned earlier, there are a number of investments that were made during the year, but I don't think we're vulnerable to expect these investments to make material returns within such a short span of time.
Okay. So, some of these investments was made during the year. So, and of course, it is also investments that we make jointly with some of the private funds and trust that we have. So over time, we would expect that we will get our share of earnings from these investments or investment dividend income, depending on the type of investment it is, whether it's an associate or an investment.
But on top of that we will also be getting, of course, our asset management fees, etcetera. So this will all add to the returns and the recurring income that the group makes.
The next question is, which projects or investment are you most positive on in terms of potential?
I guess you are referring to new projects, because obviously we are positive on the projects that we have gone into. But maybe I can invite, Christina, you want to share a bit about what are some of the things that Keppel Corporation is excited about despite the very difficult environment.
Thanks. Regarding our investments, I think we are really happy that we have made investments into renewables projects in Europe as well as in Asia. I think the investments referred to, like in Cleantech where we have solar platforms in India, in the C&I space, as well as in the Southeast Asia, I think that's doing really well. So we are very positive about that.
Unfortunately with Ukraine war as well, I think energy prizes have actually gone up substantially in Europe. So our investments in onshore wind in the Nordic, as well as offshore wind in Germany has actually done really well compared to our underwritings probably about three times of what we have underwritten. So we expect that these segments of investments are really something that we can look forward to in terms of contributions to our earnings. Thank you.
Okay. We have a question now from Ms. Lim Siew Khee of CIMB in Singapore. Okay. Well, she has quite a number of questions. So I will try to address them one at a time. So first question, which by itself has, okay, what is your r target, ROE in financial year '23? I guess, we don't give you a specific target for ROE in financial year '23, because that would be like giving you a forecast of what our earnings is going to be.
Second question, why this continued profit came down half-on-half to S$24 million in second half '22 versus S$63 million in first half '23. Do you -- can you decipher her shorthand?
Let me try it. I think if you look at the second half of discontinued volumes, indeed, I think as you have already pointed out, there was some provisions made for overrun, which we have already kind of mentioned in our opening address.
As you know, every financial year as we close the books, we will have to do a very extensive review of our cost for each of the projects, looking at cost incurred to date and projection of what are the future costs to complete those contracts. We need to make certain provisions for any overrun that we may expect to incur in future.
And given some of the increase in labor costs, and especially in this case, in the US as a result, we had to make certain provisions and as you know, these are live projects, and as we speak, the team is also working with the customers to try and recover some of these cost overruns. So due to the sensitivities, I will not be able to tell you which projects and how much.
But suffice to say that if you look at OpCo, as I have covered in my opening address, OpCo has made a loss of S$143 million. OpCo would have made a profit, if not for this provisions that we made for the second half. I hope that helps to give to add some color. To give you a flavor of the second half performance for the discontinued operations.
I think you answered her question. How much was the provision made for the cost overrun and what project it was? Any more provision ahead of course, you come project.
Yes. So as we mentioned, we actually did a very, very extensive review of all the projects for the financial year end. So we can say that up to this point in time, we do not expect any additional provisions to be made for these projects. And I've also covered in the opening address that this is specific to our year in the US. All the other projects in other yards, we don't have the same issue. We don't have to make such a provision, and the other projects are expected to be on budget on time.
Thank you. She has a third set of questions. Energy and environment made S$127 million. I guess this is the second half versus S$46 million in the first half '22. Would you please help to quantify how much is due to strength in power and gas and how much related to Europe associate under capital infrastructure? She's looking for a split between the two.
Yeah. Well, a lot of our business is actually run through not just subsidiaries, but also through associates, right? So this particular associate, I think we can name is actually MET is also in an area in the new energy area and so on, that we are also going into. So I think to kind of try and split the I'm not sure whether it is meaningful, because increasingly more and more of our projects, more and more of our business is actually done through associates.
Anyway. They're, they're both strengthened.
They're both strengthened. So with the increase in oil prices, gas prices, power and gas has gone up as well as some of the businesses done through associates such as MEP.
Okay. I think that's another question coming up that Cindy can help clarify this. This is from the Paul Chew, Phillip Securities. Paul has two questions. The first question is what are the key drivers for electricity spreads in Singapore for 2023? Any opportunity for spreads to widen in 2023? There's a second question, but Cindy, would you take the first one? Thank you.
Thank you, Mr. Loh. Thank you, Paul for the question. The electricity -- the electricity spreads in Singapore for 2022, I believe you are asking, was due to, of course, the increase in HSFO price increase in gas prices brought about by the Ukraine, Russian crisis, as well as the global energy crisis in Singapore, particularly, is also affected by certain plant maintenance activity in some of the generation assets as well as I think throughout 2022, there are occasions of pipe gas disruption upstream in our neighboring exporting country.
As to opportunities for spreads to widen in 2023, can't tell, but I think suffice to say it is healthy and strong, but we remain vigilant in terms of the global activities. Thank you.
Thank you, Cindy. Can I ask Lu-yi to take the next question? Okay. So the next question is from Paul Chu, is, what are the planned number of residential launches in China in 2023? And what is your view of buyer sentiments?
Thank you, Paul. Perhaps I'll start with the second half of the question first. I think as mentioned earlier, we have faced headwinds in China. But at the same time, we are optimistic about the path forward with the leveraging policies and the COVID lockdowns has affected the market. But with the opening of China, we've also seen positive signs. We are getting more inquiries, which have also led to an uptick in sales.
So with that in mind, we will be planning launches based on how we read the market. We're not going to say how many exactly we will be launching, but we do have a number of projects across UCI and Tianjin that we're looking to launch more units next year.
Thank you, Lu-yi. Next question is submitted by a retail investor, Mr. or Miss, or Mr. H.C. Lim of Singapore. With the improvement in O&M sector, will the divestment of com affect future earnings of Keppel Co?
We have a very good business in com [ph] and as you rightly said the O&M sector is also improving, but this is really in keeping with our Vision 2030. As we look for more recurring income rather than lumpy profits that we are doing this divestment or the spinoff.
And of course, there are other reasons associated with that, creating a stronger global player that can play a bigger part in the energy transition. But as far as how you affect capital also depend, or what do we do with the balance sheet space that has been freed up both from the fact that we have the S$500 million in cash coming back.
We will also have some of the -- some of the debt space would be reduced. So that would allow us to invest in the other growth segments that we've identified, including infrastructure, energy transition projects, as well as real estate urban renewal projects, senior living, asset management, as well as connectivity data centers, etcetera.
So it's not just about what we would potentially -- could potentially lose, but also what do we do with the balance sheet that we have now, the additional balance sheet space. What do we do to look for future growth engines under vision 2030?
Next question. This next question looks like is from a retail investor [indiscernible]. Why is the final dividend lower? I think we had or I had explained earlier that whilst we do not have a specific dividend policy, we have been paying about 50% to 60% of our net profits every year.
So our net profits this year is 9% lower than last year. We have paid, of course, a higher interim dividend compared to last year. So overall, the dividend is the total dividend for financial year 2022 remains unchanged from the year before at S$0.33. No questions for connectivity. We must have explained it quite well. There's a duff of questions this evening.
This question is from Jamie Osman of Citi. Hi. Could you show -- could you share what are the main drivers behind the flattish revenue trend in second half '22 for connectivity, despite the growth in subs and ARPU at M1? At least talk a bit about M1I
Sure, sure. Thanks James for the question. I think while our ARPU and subscribers have both grown, there has been a bit of slowness in the handset sales in the second half of 2022 compared to last year, which we are seeing as a trend in the market where handset sales are going down and people are more adopting same-only plans and I think that is what probably you are referring to that the revenue trends are flattish due to handset sales primarily.
But otherwise from a service revenue perspective, roaming subs and ARPU all have grown. So service revenue is quite handsome. It's just the handset sales, which have diluted the revenue to a certain extent. Thank you.
Okay. This is a question that was submitted by [indiscernible] in Singapore. Her question, can I clarify the new launch of new RESI projects in [indiscernible], I heard it will be next year, but is it this financial year or next? Would you also comment on the pace of the recovery in property market in China, Lu-yi?
Okay, thank you. Sorry. To clarify, clarify this year so 2023. Across all four quarters, we do have plans to, to launch units in our RESI projects. The pace of the recovery in the property market, I would love to say it's going to be brilliant, but I think this is very much up to the market itself, but what we have seen is more recently with the Chinese New Year.
There was an expectation that there would be a second wave, which did not quite materialize. So overall, I think we are cautiously optimistic that the market will pick up. Right now, the pickup is more on consumer and tourism, but we look forward to that translating to the property and market in the next few quarter.
Okay. We have a question from Terrance of JPMorgan in Singapore. Thanks for the opportunity. I wanted to ask on data centers, there was mention of potential divestments and asset recycling into Keppel DC REIT. Can you share on which of the data centers in the portfolio alpha are ready for divestments? And also, how is the progress for Keppel DC Singapore Seven. Maybe I can ask Thomas. You want to
Thank you, Mr. Loh. Thank you, Terrence, for the question. DC7 is under construction right now. Phase 1 RFS ready for service should be within the next -- within this quarter. And there will be subsequent phases where we will continue with the fit out and construction and it would be in the fourth quarter. So we will continue to complete the construction and the fitting out and get the space ready for service. And once the revenue stabilize, we will look at potential recycling of asset to the DC REIT.
Okay. Next question. This is a follow up question from Mr. Osman of Citi. Just to follow up on the service revenue trend for M1 in the second half '22, there was a deceleration of growth in second half versus first half. So was the trend of lower handset sales only apparent in the second half? Manjot?
Yeah. Thanks, Jim, for the follow up question. Yes, you're right. The second half was lower than the first half because most of the launches of hand new handsets primarily driven by Apple as well is in the second half of the year. So your observation is correct.
Okay. There's another question from [indiscernible] of Phillips Securities. In connectivity, what are the planned Greenfield data centers, if any and is Singapore's mobile industry right for consolidation? Thanks again.
I think the second part of that question is highly speculative. So we won't touch on that, but can I ask Thomas, you want to speak to the first part of his question on Greenfield data centers?
Thank you very much, Paul. Together with our private fund managed by Keppel Capital, we are looking at quite a number of projects in both in Southeast Asia and North Asia. So there will be -- there are currently projects that is under construction in China and in Singapore. And in other parts of North Asia, we are looking at announcing as soon and negotiating and developing projects for the North Asia market and in addition to that, we are working on designing new generations of innovative green data centers and that being are planned in Singapore. Thank you.
Okay. We have a question from Towe [ph] of Macquarie in Singapore. High management; thanks for the presentation and generous dividend, or thank you for acknowledging. So on the dividend payer ratio, the S$0.18 payout in second half is more than the 50% to 60% range on the second half basis. And as you've mentioned, net gearing was higher due to dividend payment and share buybacks.
With this in mind, how would you think about the dividend payout ratio in 2023 and its impact on gearing, if any? I guess taken as a whole right, we are kind of looking at dividend payout within those ranges as guidelines, but ultimately we also look at things like, how fast our monetization is going. And for 2023 whilst we were very happy with that we were able to continue monetizing those assets that we've identified in our portfolio that are due for monetization. It has been a bit slower compared to 2021. So it will depend on how the monetization goes this year.
As you've heard from Lu-yi, the outlook for China seems a bit more positive now. But again, that's what Lu-yi say is probably too early to celebrate. But we certainly are encouraged by what we see there. And we do have a number of assets there that we potentially could monetize. So this is -- this would depend on how that goes for the rest of the year.
Okay. So this is -- I believe this is the last question. I want to thank everyone for listening in. Since this is still the Chinese New Year period, I want to wish everyone very happy Lunar New Year. Thank you.