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Executives

Loh Chin Hua - Chief Executive Officer

Chan Hon Chew - Chief Financial Officer

Chow Yew Yuen - Chief Executive Officer, Keppel Offshore & Marine

Analysts

Kevin Chong - Deutsche Bank

Ajay Mirchandani - JPMorgan

Abhijit Attavar - Jefferies

Adrian Loh - Daiwa

Clement Chen - Barclays

Keppel Corporation Limited (OTCPK:KPELF) Q2 2014 Earnings Conference Call July 24, 2014 5:30 AM ET

Loh Chin Hua - Chief Executive Officer

Very good evening to all of you. On behalf of my colleagues, a warm welcome to this conference and webcast on our results and performance in the second quarter and first half of 2014. Thus far, the global economy seems to be navigating through this period of change quite well. The U.S. and European economies appear to be on track in their recoveries, although the former is probably in a stronger position. Recently, there was a sell-off in the Portuguese, Banco Espirito Santo, which triggered concerns that the European recovery especially in those countries that had needed bailout, would somehow be derailed. Although the problems at Banco Espirito Santo and its holding company appear to be company-specific, the market nervousness shows that the recovery in Europe is still frail and tentative. Closer to home, there are still some concerns that the slowing Chinese economy maybe headed for a hard landing despite some evidence to the country.

Prime Minister Abe’s economic revival plan for Japan appears on track and has been well-received by the market. Janet Yellen’s recent announcement that the U.S. federal reserve does not see short-term capital market exuberance as the substantial track to the financial system and a signal that the easy monetary policy will be maintained to counteract a slowdown from the Fed’s tapering gave the market much cheer. The global economy has performed reasonably well and the markets have reacted favorably thus far. Goldilock’s porridge has been served just right by the policymakers, neither too hot nor too cold. That said considerable risk still exists to derail this happy confluence of market economy and policies.

Tensions in various hotspots such as Ukraine, Syria, Iraq, Iran, and the South China Sea threatened to boil over. We have to make our plans on the basis that the global economy is on a firmer footing for modest growth with policymakers making the right decisions whilst keeping a watchful eye on what could potentially flare to change this reasonably favorable outlook.

Against this backdrop, our business divisions continue to build on their operational strengths contributing positively to a net profit of $406 million in the second quarter of 2014 or 17% growth year-on-year. On a half yearly basis, net profit rose to $745 million in 2014, almost 6% above the same period in 2013. Annualized ROE was 14.3% while EVA was $341 million for the period. To reward shareholders, the Board of Directors has approved an interim distribution of $0.12 per share for the first half of 2014. Despite some uncertainties in the global economy, we remain confident of the long-term fundamentals of our key businesses and industries.

In recent years, global oil consumption growth has exceeded production by a wide margin, aggravated by declining oilfields worldwide and supply disruptions from major oil producing countries, particularly in the Middle East and North Africa. As macroeconomic conditions improve, global oil demand growth is set to rise by about 1.2 million barrels per day in 2014 and another 1.4 million barrel per day in 2015 covering at above $100 a barrel over the last three years, Brent oil price has been high by remarkably stable and continue to support global exploration and production spending.

In spite of what we believe to be a temporary selective pullback by some oil majors, global E&P spending is forecasted to grow by 6% to $712 billion this year and will further improve in 2015 with increasing investments by national oil companies. Amidst concerns of capital expenditures cut backs and softening day rates particularly in the ultra deepwater sector. We continue to experience good enquires for jack-ups and semisubmersibles in addition to other offshore vessels in our suite of proprietary offerings.

In the first half of 2014, Keppel Offshore & Marine secured $3.2 billion worth of new contracts. Amongst these our first floating LNG vessel conversion project Golar LNG and five new built jackup rigs including the first KFELS N Plus jackup for China. We also partnered the Seafox Group on the study to develop one of the world’s first plug and abandonment jackups with accommodation for subsea fields reaching the end of their productive lives. We are heartened that returning customers as well as new customers across the world continue to place their confidence in Keppel’s proven track record for safe, on-time and on-budget deliveries and ability to provide the best value proposition to them. As at end June 2014, our net order book stood at $14.1 billion with a healthy strength of Offshore & Marine projects spanning new build jackups and semis, FPSO, FLNG vessel conversions as well as other construction upgrading and repair work.

Our yards are executing well, the first three DSS 38E semis that we are building for Sete Brasil are progressing efficiently and on schedule. To-date we have achieved 70% completion on the first unit which arrived at our yard in Brazil earlier this year. The second semi is now over 30% completed and is scheduled to depart Singapore for Brazil in the fourth quarter of this year. Meanwhile the third unit is in initial stages of construction. Brazilian projects contributed nearly a fifth of the Offshore & Marine division’s revenue in the first half of 2014 excluding gains from the sale of Keppel Kazakhstan in February this year.

Offshore & Marine operating margins continue to hold up at 14.5% for the first six months of 2014 registering a year-on-year improvement from 14.1% for the same period in 2013. To Keppel the bottom line is just as if not more important than the top line. We continued to be prudent in selecting projects that we are confident of executing well and earning the best risk adjusted returns. Our ability to manage and execute complex projects innovatively and with precision across various locations was made possible to sustain investments to improve the skills and productivity of our global yards. We stand committed to our near market, near customer strategy and delivering on our promises wherever we plant the Keppel flag.

Towards the end of the second quarter we clinched a highly anticipated contract to convert a first of its kind FLNG vessel for Golar LNG worth $735 million. This was the fruition of a year long front end engineering and design study in partnership with our trend setting and long time customer for whom we have already successfully converted the world’s first three floating storage and regasification units. Natural gas markets are slowly transforming on the back of the shale gas revolution in the U.S. and the increasing integration of fragmented regional markets supported by the rapid expansion of LNG. The global FLNG industry is expected to attract more than $65 billion of investments from now through 2020 driven by rising costs of onshore LNG terminals. Asia-Pacific in particular is expected to draw the majority of investments in the FLNG sector with its sizable lineup of re-gasification and liquefaction projects. As the FLNG market expands, we see opportunities for capital to offer safe, reliable and cost effective solutions catering to the small and midsize LNG segments.

Keppel Offshore & Marine Technology Center has developed its own solutions for LNG liquefaction and transfer to facilitate the production of stranded and associated gas at remote offshore locations. Our established track record of having completed over 100 complex FPSOs, FSO and FSRU conversion projects coupled with a growing pool of in-house FLNG expertise put us in good state to offer quality solutions to some of the challenges faced by the offshore LNG industry. Prevailing urbanizing trends, especially in the emerging economies, they will continue to provide the bulk of global growth, underpin our long-term commitment to develop our business in energy-related infrastructure, datacenters, and logistics solutions and services.

As we hone our strengths and develop new areas for growth in infrastructure division, we remain focused on completing our EPC projects in Qatar and the UK. The Doha North Sewage Treatment Works is going through its testing and commissioning phase and is ready to take in sewage. Meanwhile, Phase 1 of the Greater Manchester Energy-from-Waste Plant is on track for completion this year, after a successful first burn as part of its commissioning process.

In Singapore, demand for datacenter space remains strong. Keppel Datahub 2, the first new built datacenter to achieve the BCA-IDA Green Mark Platinum Award, was completed in the second quarter of this year offering over 6,000 square meters of quality datacenter space. Keppel Datahub 2.0 will enable Keppel T&T to cater to the expansion needs of its clients, while harnessing greater economies of scale. Following its first intake of clients, the new datacenter is enjoying good occupancy and continues to receive strong inquiries from the market. Keppel T&T logistics projects in Singapore and Asia are also shaping up well and will soon augment our offerings of high-quality reliable logistic solutions in Asia-Pacific. The Tampines Logistics Hub in Singapore, the Integrated Distribution Center in Tianjin Eco-City, Chin as well as the third-party logistics distribution center in Vietnam will be completed by the end of this year. We expect progressive contributions from these regional projects as they come on stream.

With eyes on the future, we will continue to nurture the fledging businesses of our infrastructure division, investing prudently and taking thoughtful risks for growth. We will examine our value chains holistically to determine where the profit pools are and for niches where we can add value consistently.

On the back of policy headwinds, home transactions in Singapore and China continue to slide for the second quarter of this year. In June, Singapore’s home sales fell 68% from the some 1,500 units sold in May as developers held back on project launches amid cooling demand. Although home sales have dropped, prices remain relatively stable. The Singapore government has expressed no intention to roll back the property cooling measures anytime soon. A slowing property sector, which makes up over 15% of China’s GDP, continues to put the country’s 2014 growth target of 7.5% at risk. Beijing has been steadily broadening the scope and depth of the assistance through a partial lifting of some of the restrictions on property financing and reported moves by some local governments to raise home buying restrictions. The softening property market is also opening up opportunities, prospects that may not otherwise be available in more normal market conditions.

We will position ourselves to cease opportunities with agility, building our pipeline of residential and commercial developments, whilst recycling capital for better returns. In the first six months of 2014 our Property division sold 1300 homes in Asia. Keppel Land will continue to monitor the markets closely to launch new residential projects across the region such as Highline Residences in Tiong Bahru and Hillcrest Villas in Chengdu, China. In the commercial sector Grade A offices in the Marina Bay area continue to command strong rentals and occupancy. Marina Bay Financial Center Tower 3 is about 96% committed with a good line up of tenants from diverse sectors.

We will continue to actively recycle capital for higher returns and weigh all available opportunities so as to maximize value from our investments. In this – in the second quarter the Property division divested several projects in Singapore and India. Keppel REIT optimized the portfolio with the sale of its 92.8% interest in Prudential Tower for $512 million. Keppel Land and Alpha collectively divested their stakes in Equity Plaza for a total cash consideration of $550 million. Proceeds from the sales of the two prime commercial buildings in Singapore will provide the Property division with greater financial flexibility to pursue other higher yielding projects.

In line with its asset recycling efforts Keppel Land also divested its 37.7% stake in the Elita Garden Vista project in Kolkata, India. Strengthening its foothold in Indonesia, Keppel Land acquired a prime residential site along the outer ring road in West Jakarta which will yield about 3000 homes and ancillary shop houses targeted at middle income home buyers. Riding on improving sentiments in the Vietnamese residential market Keppel Land seized the opportunity to raise its effective stake in phases 2 and 3 of The Estella, a quality residential project in Ho Chi Minh City which has been doing well for the company. Looking ahead for the rest of 2014 it’s still expected to be somewhat challenging. However, I am confident that Keppel will be able to write the improving global economy and market sentiments as we continue to configure the sum of our parts into an optimal whole, seizing opportunities with prudent financial discipline and rigorous innovation to create platforms for sustainable growth and value creation.

I shall now let our CFO, Hon Chew take you through a review of the group’s financial performance. Thank you.

Hon Chew - Chief Financial Officer

Thank you, Chin Hua. Good evening to all. I will start the presentation with the second quarter’s financial performance. The group had a good quarter with net profit for the second quarter of 2014 increasing $59 million or 17% to $406 million as compared to the same quarter last year. Earnings per share for the quarter rose by 16% to $0.223, while EVA was at $190 million. The group’s revenue for the second quarter grew 3% for the same quarter last year led by higher revenue from our Offshore & Marine division coupled with higher operating margins from the Offshore & Marine and Property divisions and write back of impairment of associated companies, the group achieved 10% improvement in operating profit. In addition, the group benefited from higher profit recognition from associates such as The Botanica in Chengdu and FloaTEC, partially offset by decrease in Marina Bay Suites resulting in pretax profit growing at a faster pace of 14%. After-tax and non-controlling interests, group net profit improved 17% and correspondingly earnings per share grew 16%.

Overall, revenue rose by 3% driven by revenue growth in the Offshore & Marine division, which registered a 15% increase in revenue and remain the main contributor to group revenue at 65% for the second quarter. Revenue for Offshore & Marine improved because of higher volume of work. During the quarter, we started revenue recognition for three jack-ups and floating accommodation semi. Lower power generation and prices of energy resulted in the decrease in revenue for infrastructure. The softer property markets in Singapore and China as well as the deconsolidation of Keppel REIT on August 31, 2013 lead to a fall in property revenue in the second quarter.

Offshore & Marine’s pre-tax profit for the second quarter was 15% higher due to higher revenue and better operating margins at 14.7% compared to 14.2% for the same quarter last year. Pre-tax profits of infrastructure and property divisions are $49 million and $160 million respectively for second quarter of 2014 comparable for the same quarter last year. The investment division reported $28 million higher pre-tax profit mainly due to write-back of impairment of associated companies and sale of investments during the quarter. Group net profit in the second quarter of 2014 grew by 17% from $347 million to $406 million, all divisions posted higher net profits except for infrastructure, which reported a slight decline.

Next, we move to the first half financial performance. For the six months of the year, the Group posted a 6% increase in net profit through $745 million from $704 million in the previous year mainly driven by higher revenue, better operating margins and write-back of impairment of associated companies. Earnings per share saw a similar increase to $0.41. Annualized ROE declined marginally to 14.3%, while EVA was lower at $341 million. Our net gearing increased from 11% to 22% largely due to capital expenditure and operational working capital requirements. We are pleased to declare an interim dividend of $0.12 per share for the first half of the year.

With two quarters of revenue growth, the group registered a 6% improvement in the top line to $6.17 billion for the first half of 2014. This translates to an 8% increase in operating profit for the first half as Offshore & Marine continued to report higher revenue and operating margins in the second quarter. However, after-tax and non-controlling interest, net profit increased at a slightly slower pace of 6%. As highlighted during the first quarter, there was a write-back of tax provision at the property division in the first quarter of 2013. Half year revenue at $6.2 billion was 6% higher than 2013. At Offshore & Marine, good progress was made on these current projects including those in Brazil, thus resulting in higher revenue being recognized. Major jobs completed in the first half of the year include two jack-up rigs, two FPSO upgrades and an FPSO conversion.

Infrastructure’s lower revenue was attributed mainly to decrease in revenue from power generation plant. Lower property sales in Singapore and the effects of deconsolidation of Keppel REIT on August 31, 2013 were partially negated by higher China sales in the first six months of this year. Higher revenue and better operating margin resulted in Offshore & Marine reporting a 13% jump in pre-tax profit for the first half of the year. The division also recorded higher net investment and interest income arising from higher deposits. As highlighted in the first quarter of this year, infrastructure’s pre-tax profit for the first quarter of 2013 was higher due to the write-back of provision following the completion of the sale of the power barge business in Ecuador. Excluding this reversal infrastructure’s pretax profit in the first half of 2014 is comparable to the same period in 2013.

Pretax profit of the Property division was at the same level as the corresponding six months period in 2013. Net profit of Offshore & Marine was 13% higher than previous year. It remains the top contributor to the group’s earnings at 67%. Property registered 12% fall in net profit after tax despite registering a flat pretax profit. As highlighted during the first quarter net profit in the first six months of 2013 included a write back of tax provision arising from the finalization of prior year tax provisions. Net profit for the first six months of the year of $745 million is $41 million higher than 2013.

Annualized ROE decreased to 14.3% in 2014. ROE of 19.5% in 2013 included revaluation gains from investment properties which would be assessed only at each year end. An interim dividend of $0.12 per share has been declared. This represents a pay out ratio of 29.3% of our profit for the first half. Cash flow generated from operations continues to be strong. In the first half of 2014, the group generated $1 billion of cash from operations, $93 million or 10% higher than 2013. However, the working capital requirements of Offshore & Marine and Property divisions resulted in cash outflow from operations for the year or for the half year of $642 million, $253 million lower than in 2013.

Net cash used in investing activities amounted to $143 million. $318 million was spent on capital expenditure for Offshore & Marine and Property divisions, receipts from divestments and dividend income was $175 million. The resulting cash outflow was $785 million for the first half of 2014 which is $154 million lower than 2013. The discipline to maintain a strong balance sheet coupled with our commitment to stay in the fore front of our chosen businesses through technology and innovation have allowed us to compete, excel and grow in the marketplace. With global economy fraught with uncertainties Keppel Group is positioned to meet the challenges as we remain vigilant looking out for opportunities to capture and further grow shareholder value in a sustainable manner over time. Thank you.

Loh Chin Hua - Chief Executive Officer

Okay. We are ready for Q&A. Yes Kevin. Kevin Chong?

Question-and-Answer Session

Kevin Chong - Deutsche Bank

Kevin Chong from Deutsche Bank, YY I know the ultra deepwater market – everyone knows since…

Loh Chin Hua

Please address your question to the panel, I will decide who answers. Yes, thanks.

Kevin Chong - Deutsche Bank

The floater market, the ultra deepwater space has been weak everyone knows that. Now people are talking about the jackup market being weak in the second half of this year and perhaps towards the next 12 months, what is your view on this. And secondly on the PEMEX jackups what is the potential for it to be secured this year in the new yard. Early on the write back of impairment of $21 million exactly which business does this relate to. And lastly on the infrastructure business now that we are closer to the delivery what are the prospects for actually more provisions something like last year or will that not be a case this year? Thank you.

Loh Chin Hua

Thanks Kevin. Maybe I suggest we get CFO to answer the last two questions and then YY on the first two.

Chan Hon Chew

Okay. First on – firstly your question on the provision – the write back of impairment of associated companies. That write-back arose from the sale of an investment by k1 Ventures. k1 Ventures owns 80% of a company called Long Haul Holding in the U.S. which actually holds a company known as Helm. That was actually sold during the year and some provisions were made so that can be written off after the sale was done. Your second on the infrastructure EPC projects, for the first half, we have not made any additional provisions, but of course we can be certain whether additional provisions are required until we complete the projects.

Loh Chin Hua

I would – yes, before I hand over to YY, I would add that we are in the last mile for our EPC projects, but it is a challenging last mile. And the team at KI is working very hard to make sure that we get the projects completed. YY?

Chow Yew Yuen

If I am not mistaken, I think you are asking about the outlook on the deepwater and then also on the jack-up market?

Unidentified Analyst

(Question Inaudible)

Chow Yew Yuen

Basically, the outlook on the jack-up, I think the industry fundamentals are still quite strong. I think the jack-up market is still quite resilient. And for a standard B-class type jack-up, which means that rigs that are – can be used anywhere in the world outside of the North Sea, I think we are still getting quite active enquiries. And in the specialized jack-up for say North Sea or ultra deepwater for the shallow side of the market, that one is very specialized. So, we have solutions for that and that is where I think it makes the different when we have the technology and IP behind it. So, we are still quite bullish about the jack-up market. The second question, sorry, could you just….

Loh Chin Hua

On PEMEX?

Chow Yew Yuen

Okay, the update on PEMEX, basically PEMEX is progressing well. We are at a stage where we are finalizing our shareholders agreement. So, until we are able to come to a conclusion, I think we will give you more update later on.

Loh Chin Hua

When we were – when we announced the FEED has been completed for the Golar FLNG, we got a lot of questions from the market when are we going to sign the contract. And we eventually got it signed, but this is the Keppel way. We want to make sure that when we sign on the dotted line and we get the deal agreed. It is with very thoughtful deliberations and making sure that the risks are all appropriately accounted for. We want to make sure that we get paid for taking any risk that we have to take.

Chow Yew Yuen

I think it’s also public knowledge now that actually Mexico has approved the secondary law governing the reform. And so there is going to be some local content requirement amounting to about 25%. So, having a facility there I think will help our prospects.

Loh Chin Hua

Okay. I will answer a question submitted by – or we will answer a question submitted by Peter Gylfe, BAM, United States, okay. And the question is question one, what is your confidence in coming in on budget on the Golar FLNG conversion? Two, what’s your view on the FLNG industry? You have the first conversion now and two more options with Golar. Outside of these first three, when you look out into the future, do you see FLNG developing like the FSRU markets, where potentially, in five years, there are 10 of these on the water? Okay, maybe YY, you want to take this?

Chow Yew Yuen

I think our confidence level on the Golar FLNG, we believe it is quite – we have a high degree of confidence on the budget. As you know, we have been working on this project for quite a few years. And actually, a full complete FEED has been done. So as far as the engineering scope is concerned, I think we have actually have quite high level of confidence. And also in the scope of the FLNG project, the responsibilities are well-defined. The equipment suppliers Black & Veatch, supplies the topside, liquefaction facility, they are responsible to Golar. So, in that sense, I think our scope is, first of all, well-defined. And on top of that our contract also allows us to – this is based on certain quantities, so if there is quantity change, then there is a formula for adjustment.

The second question is that our view on FLNG industry, I think we are quite bullish about them. In fact, FLNG is going to be one of our core businesses going forward. We have already done three FSRU. We will be in the position to do more FSRU. But we are hopeful that FLNG business will become one of our core business, just like our FPSO business. And this is very well suited for our facilities, because a lot of them are converted LNG vessels, very much similar to our FPSO business.

Loh Chin Hua

I think if I can add there as well, I think gas is becoming a very important part of the energy mix. The expectation is that from now until 2020, about $65 billion will be invested in FLNG. And a lot of that is – a bulk of that is going to be in the Asia-Pacific market. So, I think this is an exciting market, but this is the first time. So, we take it one step at a time, but certainly we believe that this is a market that holds a lot of promise. Yes.

Ajay Mirchandani - JPMorgan

Yes, hi, good evening gentlemen. Ajay here from JPMorgan. Congratulations on our pretty strong set of results. Really three questions from me. Just following up on the previous question on the Golar FLNG project, I would love to get a sense how YY talked about the fact it’s going to be a potential core and target market. Is there any internal kind of budgetary targets that management has kept for the gas business over the next three to five years in terms of size as (indiscernible) looks at me? The second question is with regards to the Brazil business, how big is the today – the revenues coming from Brazil as a percentage of the overall offshore business? And thirdly and lastly, just a quick sense on JU newbuild pricing and payment terms if you could give us a sense on that as well? Thank you.

Loh Chin Hua

Okay. I will take the first two questions and I will ask YY to take the third. I think we have – the first question is on the FLNG, I think whilst we have – we believe it holds a lot of promise, we also are looking at a lot of very interesting new markets. At Keppel, we are not just resting on our laurels. So, we are constantly looking for not just existing markets, but new markets. There are, of course, targets, but as Ajay you know, we will not disclose those targets. Okay. Now, the second question I think is on the revenue, Brazilian – the portion of our revenue related to works in Brazil. And I think I mentioned in my speech, it’s currently about 20% of the top line.

Chow Yew Yuen

The third question is about the jack-up pricing and payment, how is it going forward? I think as you know, competition from China has – will always put pressure on pricing and payment term margins. But I think we have been adopting a policy where we will, first of all, use our IP and differentiate – and offer different solutions creation of somehow value for the customer. Secondly is that, we are working very hard on our own productivity. And as you know, we have been embarking on our productivity improvements for many years now. And we are still keeping up with that one. We have set new targets about how much productivity we can improve year-on-year.

And the third point is actually we are also looking at how we can make use of our satellite yards. We have satellite yards in China, in Philippines, in Indonesia. In fact, some of these locations, our cost structure could be even lower than China. So, I think those are areas where we are trying to differentiate. We will continue to work on our IP. We are offering lifecycle cost benefits to the customer because of our quality, our reliability and our safety. So, these are kind of things that we are doing, but there will always be pressure on margin and payment terms and so on, but this is something I think we are working very hard on to try and differentiate ourselves from the rest. We may not necessary be the lowest priced, but we certainly will give the best value.

Loh Chin Hua

Absolutely. I think as I have also said in my opening remarks, we continue to be very selective. I think whatever top line that we have – whilst the top line is important, we must have a reasonable chance of converting that top line to a bottom line with reasonable margins. I think that’s what all investors or shareholders expect of us. Okay, next question, the gentleman there.

Abhijit Attavar - Jefferies

It’s Abhijit from Jefferies. I just wanted to have a question on your receivables. They seem to have jumped quite a bit. Your working capital has deteriorated in this half. Can you just tell us if it’s from any particular customer? And in particular, can you clarify if the payments from Sete Brasil, the milestone payments you are receiving are coming on time?

Loh Chin Hua

Okay, Hon Chew, receivables?

Chan Hon Chew

Right. Just to clarify your question, you are asking for the reason for the increase in receivables? Sorry, come again.

Abhijit Attavar - Jefferies

And generally the deterioration in working capital in the cash flow statement, your negative $1.4 billion in working capital. So, it’s partly receivables, it’s partly inventory levels unless your billings has gone up?

Chan Hon Chew

Right, right. Yes, of course to your first question, the total receivables have gone up if you look at the balance as of June – end of June, that’s really because there are some receivables that were booked at the end of the quarter, some lumpy ones, but I am not able to disclose which are customers. Those receivables we actually receive in the subsequent months.

Working capital, as our businesses grow, of course our working capital requirements would also grow. As you know, YY has also mentioned earlier on, with competition, there is of course pressure on payment terms and so on. So, in the past few years, on the offshore side, some of the projects increasingly, we have more on 20-80 payment terms as opposed to progressive payment, which used to be actually cash flow neutral, but now, going forward, more of our projects actually we have to fund the customer basically. So, that increases our working capital requirements, yes.

Abhijit Attavar - Jefferies

Specifically, on the Sete Brasil milestone payments, on the first semi you already hit about 70% completion, so are you receiving the milestone payments on time?

Chan Hon Chew

Yes, sure. That particular one actually we have progressive payments, it’s not 20-80 payment terms. So, we have been receiving progressive payments for the Sete Brasil project.

Loh Chin Hua

Actually, what Hon Chew says is correct. There is lot of pressure on the payment terms and we are holding our lines as best we can. The recent FLNG with Gola, that one is actually on – is cash flow neutral to us.

Abhijit Attavar - Jefferies

And I will also just quickly put a question on the jack-up side, you have said that there are healthy enquiries, but are your customers looking at the jack-up deliveries scheduled for 2015 looking at 60 jack-ups being delivered to the market, most of which are un-contracted? Are they holding back on signing, because they expect some of these to come to the secondary market since?

Loh Chin Hua

I think the question YY is on the un-chartered jack-ups being built in China.

Chow Yew Yuen

I thought that you asked a question about is it because of the number of rigs that are coming out in 2015, 2016, is that the reason why we are not getting more jack-ups?

Abhijit Attavar - Jefferies

Is that the reason why your customers holding back on signing newbuild contracts, because they expect they expect these jack-ups to hit the market?

Chow Yew Yuen

Yes and no. I think as you know, there are lot of jack-ups built in China, but a lot of those jack-ups are built – also a lot them by speculators. And – but we know that there are some delays of those jack-ups coming out from the Chinese market. And on top of that, I think there is also probably some maybe for the Tier 1 and Tier 2 drilling contractors, they also have some concerns about the lifecycle, the reliability of those units and so on. So, I think – but as long as somebody spends the money to build something, I think that jack-up will somehow be utilized. I would think that in our industry, we always say that there are jack-ups that are built for trading and there are jack-ups that are built for drilling. So, a lot of jack-ups I think in China are probably built for trading. And as long as there is some jack-up there, I think there will always be this reluctance to order.

Now, the second issue already is about our own deliveries. So, right now, we are actually in quite a good position, because 2015, we are quite full, 2016, we are near capacity. And so if somebody comes along, somebody that desire to have one of our units and so on, I think we will bend over the back to see whether we can deliver something in 2016, but if an enquiry comes along and really asks us when we can deliver, I think today we probably would say that it will be at least in the fourth quarter of 2016, but likely to be in 2017. So, that will be in a way also means that because nobody wants a rig delivery in three years time, unless those who have very long-term plans like Transocean and all that. So, I hope that answers your question.

Loh Chin Hua

Maybe we can allow someone else to ask see whether there is anyone else who is interested to ask a question. We will come back to you. Yes.

Adrian Loh - Daiwa

Hi, Adrian from Daiwa. Thanks very much for your presentation. Just wanted to ask a couple of questions. My first one is on investments and CapEx, $218 million for the first half. Just wondering whether you can break that down for us, I know you did say O&M and property were in there. And I just wanted also secondly get an update on your China yard JV with Titan PetroChem? Thank you.

Loh Chin Hua

You want to answer the first question.

Chan Hon Chew

Yes. The CapEx number as we mentioned, I think largely it’s coming from Offshore & Marine. And on the property side, we don’t really split or rather to give the breakdown of that number.

Loh Chin Hua

I think, the – you know the agreement that we signed with Titan is a conditional agreement. So, they are currently going through their process. It’s conditional upon them being able to restructure the company and re-listed – to get the company re-listed on the Hong Kong Stock Exchange. That – as far as we know, that process is ongoing. It’s on track, but that part of the process is being done by Titan.

Okay. I have a question from Ling Xin Jin from Morgan Stanley, Singapore. Hi. I have three questions. How long is the study with Seafox Group on the Plug & Abandonment jack-up expected to take and what’s the contract outlook? Second question, what are the opportunities for the FLNG vessel with other customers in addition to Golar? On the third question, on infrastructure, could you provide details on the $20 million write-back? YY, you want to take the first two?

Chow Yew Yuen

I think for the P&A jack-up, we have been working with Seafox now for quite some time. And actually, the study is ongoing. And I can’t exactly give you the timeline as to when the study will be completed, but I would think that we are at a fairly advanced stage of that study. And the next – the question you want to ask is about whether we expect P&A jack-up and the contract outlook? The P&A jack-up is a very specialized market. I think we work very closely with Seafox and when they decided that they are ready to go forward, I think that’s where the contract will be consummated. So, at this point in time, we can’t put exactly when such a contract will take place. Now, the other thing is that what are the opportunities for the FLNG vessel with other customer in addition to Golar? Okay, with Golar, we have an agreement where they have option for two more. And if other customers come to us and every customer has their own requirements and own solutions. So, I think there are some enquiries right now, but we have not really gone into very much detail as to the configuration for another customer just yet. So, let’s see how we do on the first one. And I think Golar is interested to do the second and the third.

Loh Chin Hua

Good, thanks. Yes.

Chan Hon Chew

Okay. I will take the third question, which says infra, could you provide details on the $20 million write-back? I believe this number must have been picked up from the SGX announcement on Page 2 of 27, but there is some contradiction in that question. The $20.9 million is actually write-back of impairment of associated companies. That has nothing to do with infrastructure. That was what I explained earlier – to the earlier question. This is actually write-back of a provision arising from sale of investments by k1 Ventures. A provision was made some years back on the investments in Long Haul Holding Company in the U.S. and because we sold the investment at above the net book value, we could actually write-back that provision. Well, just in case the question is referring to the other write-back, which under infrastructure but that write-back is actually in 2013, not in 2014. And that arose from the sale of the power barge business in the first quarter of 2013 in Ecuador and because some provisions were made before, we were able to write-back those provisions upon the sale of the power barge business. So, I hope I have covered all grounds, just in case. Yes. Okay, thank you.

Loh Chin Hua

Any? Yes, then after that, the gentleman in the back. Thank you.

Clement Chen - Barclays

Thank you. Hi, good evening gentlemen. It’s Clement Chen from Barclays. I just have two questions. Firstly, can you give us an update on the drillship that you are currently building, how is the progress? And in light of the earlier comments that were made that we are seeing weakness in the ultra deepwater markets, are you still as optimistic on the prospect of eventually selling off the unit or even getting further orders for that particular rig class? And then my second question is maybe more generally for the O&M business we are seeing, some of your competitors actually facing delays in equipment deliveries, so not so much on their end, but on the equipment providers. Are you seeing any pressures as well from your suppliers or your equipment providers? Thank you.

Loh Chin Hua

Thank you. YY?

Chow Yew Yuen

On the first one, with our Can-Do! drillship, you know that our Can-Do! drillship is not – we are not really competing with the Koreans, in the what I call more commodity exploration drillship. We have stated very clear several occasions that we are actually designing and building a vessel that is for the niche market of doing development and completion. And yes, the market today, we believe there is a temporary softening. And we know about their market. We know that day rate for some of the exploration drillship has come down sometimes 10% and sometimes even 15% from the normal day date. But I think we are quite confident, because we feel that this vessel is differentiated when it comes to development drilling, then that’s where the customer will take into consideration the added features that we have put in into this vessel.

We see the – it is to us in the deepwater play this to me is temporary softening. If you look at the number of rigs that are – have been ordered, there is quite a bit of delivery this year and next year. But the year after next actually the number of deliveries actually start to dwindle down and we will talk about maybe even there is no real orders for deepwater drill ships going forward or delivery beyond 2017, 2018 other than the one that Transocean ordered from Sembcorp. So I think it is a question of how the market absorbs this new drill ship coming to the market. So we will watch very closely. We have stated that our intended delivery of our Can-Do drill ship is going to be sometime in the fourth quarter of 2016. So I think we will monitor the market, but we feel that it’s differentiated enough and we feel that there will demand for this.

Loh Chin Hua

Anyway to add on to that, we remain confident that we will do well, we have done our homework, I think this is a unit that we believe our customer would want and we believe that it will do well.

Chow Yew Yuen

What is your second question again? Okay. Yes, I think this is a well-known fact I think our Korean competitors are facing some difficulty. Okay. In fact, all three major Korean yards are experiencing delays. Some of them are due to equipment, mainly the subsea packages. But they are also delayed from maybe variation so on. Now, we are mindful of that. We have currently seven packages that are in the deepwater – 8 packages, four – six of them are for the Sete semi, we have one for our Can-Do drillship and we have one for our DSS 38M for SOCAR in the Caspian Sea. So we are mindful of that one and so we have put up a team to monitor the progress and we are engaging with the equipment supplier to make sure that we have very early engagement of them to make sure that the deliveries of those equipment will not impact our deliveries.

Loh Chin Hua

I think we are running a bit tight on time, so maybe if there are any further questions I think yes. Yes sir.

Unidentified Analyst

(indiscernible) from CLSA, just two question from me. First one was in the – in your financials the share of associates for the Offshore & Marine segment fell quite significantly from $46 million for the first half of last year to $25 million this year, could you explain which segment or which associate was responsible for this. And secondly my question was again on the FLNG side, if I understand correctly the fleet study was partly funded by Golar, so I just wanted to check the IP for the entire conversion sits with Keppel or would it be sitting with Golar or how does that arrangement work?

Loh Chin Hua

Hon Chew.

Chan Hon Chew

Yes, I will take the question on the associates. I think it was also mentioned in the previous quarter last year’s number was actually higher because of FloaTEC which benefitted from some variation orders last year. So as a result, this year when you look at year-on-year comparison that number is lower. So that’s one of the main contributors.

Chow Yew Yuen

Hello. On the Golar FLNG, the IP, the fleet study that we did, we jointly own those IP with Golar.

Loh Chin Hua

Okay. I have one question from the web. It’s from Religare Capital Markets [KE Yan] from Singapore. Question one is there an update on potential sale of the Can-Do drillship, what do you – how do you look at the next generation drillship market now. Second question, any updates on your management agreement of the Quanzhou shipyard, I believe both of those questions have been answered. The third question is recently you have had made progress in deep sea mining, what do you plan to do with this business, do you intend to focus on related sea mining technology or act as a mining company? Well, actually to be more accurate we haven’t started. We have just gotten to the starting point. Okay. Mr. Ong Ye Kung who was our colleague just came back from Jamaica and we successfully lodged our application for the first area. And of course, we are still subject to the contract being signed. But this is a very long-term project. And we see that there is going to be a very interesting opportunity here, but I will stress that this is a very long-term project. And we would still need to – there is still a lot of things that need to be worked out. We need the environmental areas to be very supportive, the regulations, and of course the technology will still have to be developed. So, I would say that it’s a bit early for us to comment on that, yes.

Okay. This is submitted by Rujun Shen from Thomson Reuters, Singapore. Hi. Do you see staff costs in Offshore & Marine continue to rise and eat into profit? What does the company plan to do to keep staff cost in check?

Well, maybe I will deal with this. I think obviously as the volume of work goes up, you would expect that staff costs would go up. But I think that’s just answering it from the sort of financial statements point of view. But I think longer term, you have heard what YY said, I think we are looking to see how we can make better use or greater use of our regional yards and we have been investing in the regional yards. We have two in Philippines, one in Bintan and one in Nantong. And of course when Quanzhou gets concluded, we will have another yard in Quanzhou. So, those are the yards that we will see over time, the work will be – some of the work will be shifted there. The reality is that cost of doing business in Singapore is getting more expensive, the land cost is going up and of course, we have various ratios that we need to look at. So, our goal is to try to look for opportunities for us to do more work in our sister yards in the region.

That’s it. Any last question from the floor? No one. Well, thank you very much for coming. Thank you.

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