Keppel Corporation Ltd (OTCPK:KPELF) Q1 2016 Earnings Conference Call April 18, 2016 5:30 AM ET
Loh Chin Hua - CEO
Chan Hon Chew - CFO
Ang Wee Gee - CEO, Keppel Land
Ong Tiong Guan - Managing Director
Loh Chin Hua
Good evening. On behalf of my colleagues on the panel, we welcome you and those online to the conference and webcast on Keppel Corporation's results and performance in the first quarter of 2016. Joining us on the panel for the first time is Christina Tan, CEO-designate of Keppel Capital, under which we're consolidating our interests in the Group's fund management arm and the managers of our business trust and REITs. The macro environment remains challenging, with slowing growth in emerging economies. China continues its shift towards slower but more sustainable growth. OECD has also recently warned of growth easing off in several of the major advanced economies. While oil prices have recovered from below $30 per barrel in January, it continues to hover at around $40 per barrel.
The sustained low oil price environment continues to take a toll on the global oil and gas industry which is in the midst of one of the most severe downturns in recent years. In the global offshore industry, we're seeing layoffs, mergers as well as large reductions in capital expenditure as the industry prepares for a long winter. Brazil which has traditionally been one of Keppel O&M's key markets, continues to be mired in economic and political challenges, as well as the Lava Jato corruption scandal. As I announced at the start of the year, Keppel has stopped construction on Sete Brasil's rigs since end 2015 and we will not resume construction until payment recommences. Despite the challenges in the oil and gas sector, there continues to be engines of growth, especially in Asia, arising from continuing urbanization. According to the World Bank, despite the migration of almost 200 million people to its cities in the first decade of the 21st century, Asia's urbanization may only be just beginning. This will create demand for high-quality homes and offices, clean urban environments, good infrastructure such as WTE plants and data centers and connectivity.
These are areas where Keppel has strong core competencies and where we can seize opportunities for growth. Against the volatile environment, our multi-business strategy continues to keep Keppel in good stead to perform creditably. We achieved a net profit of SGD211 million in this quarter, down by 41% over the same period in 2015. The higher contribution from Property at 47% helped to partially offset lower profits from Offshore & Marine. Economic Value Add for the period was SGD2 million. On an annualized basis, our Return on Equity was 7.1%. Amidst the headwinds, we're keeping a watchful eye on our gearing and cash flows, exercising financial discipline to maintain an institutional quality balance sheet. Creating high quality assets and then stabilizing and monetizing them to generate strong cash flow and recurring income are integral to Keppel's multi-business model. In particular, we want to work the assets in our asset-heavy businesses much harder and recycle them at the right time to earn the best risk-adjusted returns. To better reflect the contributions of our asset managers under Keppel Capital, we will henceforth report their performance as part of our Investments division.
Meanwhile, our share of associate earnings from the REITs and business trust run by the asset managers under Keppel Capital, will continue to be reported under their respective business divisions in Property and Infrastructure. For added clarity, we will distinguish the contributions of these associates to the two divisions in our results presentation. Similarly, for the Offshore & Marine Division, we will provide more detail by highlighting the collective contributions of associate companies such as Floatel International, Seafox and Dyna-Mac, amongst others. Our asset management business has been a part of the Group for more than a decade. We have grown our assets under management from about SGD2 billion in 2006 to some SGD26 billion by end of 2015. This translates into a 30% growth compounded annually.
The consolidation of our interests in Alpha Investment Partners, the Trustee Manager of Keppel Infrastructure Trust and the managers of Keppel REIT and Keppel DC REIT is part of the strategy to sharpen our focus on asset management and grow this business. By bringing together the strengths of our four asset managers, we can create synergies by centralizing certain non-regulated support functions, as well as enhance talent recruitment and retention and the sharing of best practices. More importantly, the creation of Keppel Capital will strengthen the Group's capital recycling platform, as well as allow us to expand our capital base through the creation of private funds in the real estate, infrastructure and energy spaces. As it creates opportunities for other investors in these areas, Keppel Capital can also serve as a catalyst, pulling through projects for our business verticals. By enlarging the pie with like-minded co-investors, we can give the Group even greater financial capacity to grow, without putting a strain on our balance sheet.
Let me now go through the developments in the Group in the first quarter of 2016. Keppel Offshore & Marine continues to focus on executing our projects with our customers well and delivering them safely, on time and on budget. Just a few weeks ago, we shared the welcome news that Keppel FELS Brasil was awarded an FPSO module fabrication and integration project by its repeat customer MODEC Offshore Production Systems for a contract value of over SGD190 million. The vessel is expected to arrive at the shipyard by the first quarter of 2017 for the integration phase. In the past five years, BrasFELS [ph] has delivered five FPSO projects safely and ahead of schedule, of which three were for MODEC. Pursuing opportunities in the non-drilling market, Keppel is further honing its capabilities in the LNG business across the value chain.
We have jointly secured with the BG Group, now a part of Shell, the license to supply LNG bunker to vessels in the Port of Singapore. This will enable us to capture pull through work for LNG-fueled newbuilds, repairs and conversions. Apart from sharpening capabilities, we're also taking advantage of the downturn to seek new opportunities and expand our services to customers. I am pleased to share that we have obtained the Antitrust approval for our acquisition of the LETOURNEAU jackup rig designs, rig kit business and aftermarket services from Cameron. Expected to be completed in second quarter 2016, the acquisition of LETOURNEAU will broaden our offerings to customers, allowing us to better support them with end-to-end jackup rig solutions. Meanwhile, to ride out the current turbulence, we will continue to stay close to our customers and focus on execution whilst rightsizing the organization so that we can remain profitable even with a lower top line.
Since the start of 2016, our global workforce has been further reduced by 9.4% or about 2800 headcount, of which 2300 are from overseas yards, while 500 are from those in Singapore. Apart from optimizing our resources across our yards, we're also committed to managing our overheads effectively. Keppel offshore and marine had cut its overheads by 10% last year compared to 2014. In this first quarter, we have further reduced overheads by another 28% compared to the first quarter of 2015, enabling us to achieve a healthy operating margin of 13.6% despite lower revenue.
Last month, Keppel FELS delivered two jackup rigs to our customer Grupo R, both of which have secured charters from PEMEX, Mexico's national oil company. Built to our proprietary KFELS B Class design, CANTARELL I and CANTARELL II are part of a series of five jackup rigs that Keppel FELS is building for Grupo R. In total, we have delivered three drilling jackups in first quarter 2016, including one unit to Gulf Drilling International at the start of the year. During the quarter, we have also delivered a liftboat and a transformer platform.
Last month, a naming ceremony was held by Keppel FELS for the accommodation semi Floatel Triumph which will be chartered by INPEX Operations Australia for work in the Ichthys Field off Western Australia. Last week, a naming ceremony was held by Keppel Singmarine for a high-specification deep-water derrick lay vessel built for Hydro Marine Services, a subsidiary of McDermott International. These are among the key projects we expect to complete in 2016 which include a number of jackups, a semisubmersible, a land rig and several conversion projects for floating production and storage solutions. During these challenging times, we're working closely with our customers for win-win outcomes wherever possible.
Earlier this year, Transocean and Ensco have announced the deferment of their projects. Deliveries of two other jackups, for Clearwater and BOT Lease Company, have also been deferred to next year, while deliveries of two semis were deferred from 2017 to 2019 to 2020. The projects are still valid and we're working towards delivering them based on the new schedules agreed upon with our customers. We do not need to make provisions for any of these contracts currently. However, we're monitoring the situation carefully and are focused on executing our projects well. At the Extraordinary General Meeting of Keppel Land held last week, the participating shareholders have given their approval for the proposed Selective Capital Reduction which will result in the cancellation of 0.73% of the total issued share capital in the company. Keppel Land has proceeded to seek the approval and confirmation by the Court of the Selective Capital Reduction.
At the completion of this exercise, Keppel Corporation will own 100% of Keppel Land. In the first three months of 2016, our Property Division sold about 940 homes, mostly in China. This is higher than the 720 homes sold in the same quarter last year. Despite tightening measures in the first-tier cities in China, we continue to experience positive demand for our premier developments in Shanghai, Chengdu, Tianjin and Wuxi. Keppel Land continues its focus on strengthening its presence in its core markets and growth cities, as well as recycling assets for higher returns. As one of the largest and pioneer foreign real estate investors in Vietnam, Keppel Land has been privileged to play a part in Vietnam's urbanization over the years.
The recent relaxation of the Housing Law and Real Estate Business Law, improvements in public infrastructure, growing middle class as well as high urbanization rate continue to drive the demand for quality homes and investment-grade offices in Vietnam. Seizing more opportunities in Vietnam, Keppel Land took a 40% interest in a joint venture to develop a prime 14.6-hectare waterfront site in the Thu Thiem New Urban Area which is poised to become Ho Chi Minh City's future central business district. The planned development will comprise premium residential apartments, office and retail properties, as well as an 86-storey integrated mixed-use tower complex.
We're excited that through this project, we will bring the best in waterfront and urban lifestyles to Ho Chi Minh City as well as augment Keppel Land's quality portfolio of prime residential and commercial properties in the city. Separately, Keppel Land has also entered into a subscription agreement with Nam Long Investment Corporation, a leading affordable housing developer in Ho Chi Minh City, for the subscription of VND 500b, approximately SGD30.4 million, convertible bonds due in 2020. This is in addition to the approximately 5% stake Keppel Land has in the company. The investment underscores our confidence in the long term investment potential of Vietnam which is one of Keppel Land's key growth markets.
In Singapore, Keppel Land has expanded its commercial portfolio with 112 Katong in which it has recently acquired a 22.4% interest. Here is a good example of the collaboration and synergy in the Group where the different businesses in our property vertical work together to extract value from various aspects of asset ownership, management and operations. The remainder interest in 112 Katong is held by the Alpha Asia Macro Trends Fund, a fund managed by Alpha Investment Partners while Keppel Land Retail Management has been appointed the retail manager. Reflecting the group's capital recycling strategy over the first quarter, Keppel Land has also announced divestments of two properties in Hanoi, its stakes in a Thai-listed company as well as a property developing company in Sri Lanka. Keppel REIT has also successfully completed the divestment of its 100% interest in office development 77 King Street in Sydney, Australia, for AUD160 million.
The sale of the property is approximately 40% above its original purchase price and an approximate 27% premium over its last valuation. Tapping on demand in recovering property markets across Asia, Keppel Land has about 20,000 homes in its portfolio ready for launch over the next two years, mostly in China. In parallel, Keppel Land is actively strengthening its portfolio of commercial properties which has increased to over 1m square meters of gross floor area.
On to our infrastructure division, our team is pursuing growth opportunities in key areas such as gas-to-power and waste-to-energy both in Singapore and overseas. They are focused on building Keppel Infrastructure into a stable contributor to the Group's bottom line. In Qatar, Keppel Seghers has begun the 10-year operations and maintenance phase of the contract for the liquids stream, solids thickening and dewatering facilities in the Doha North Sewage Treatment Works. Meanwhile, we continue to work at generating predictable and sustainable cash flows for Keppel Infrastructure Trust. Just last week, together with joint venture partner, Shimizu Corporation, Keppel Infrastructure Trust handed over the newly completed 1-Net North Data Center to their client. The lease agreement is effective for a period of 20 years. Under our data center business, Keppel Data Center Holdings, a joint venture between Keppel T&T and Keppel Land, continues to display strong capabilities by securing SGD84.5 million in contracts to provide colocation and data center services at Keppel Datahub 2.
The contracts were signed with a blue-chip client in the Internet enterprise industry and a government-related entity, bringing commitment at Keppel Datahub 2 to 100% within two years since the facility was completed in 2014. Built to energy-efficient specifications, the facility was the first newbuild data center in Singapore to be awarded the BCA-IDA Green Mark Platinum Award for New Data Centers. Keppel Data Centers also recently expanded its data center footprint with the ground breaking of Keppel Datahub 3, its fourth data center in Singapore. Once completed, it will feature approximately 183,000 square feet of gfa, making it Keppel's second largest data center in Singapore after Keppel Digihub. Just this morning, Keppel Data Centers announced that it has entered into a long term collaboration agreement with Hong Kong's PCCW Global to co-develop and market an international carrier exchange which offers connectivity-related managed services to facilitate interconnects.
The collaboration leverages PCCW Global's extensive global network connectivity and marks the expansion of Keppel T&T's data center footprint into Hong Kong. Expanding its value-added services to customers, Keppel Data Centers had also signed a Memorandum of Understanding with the National Supercomputers - computing Center to explore potential collaboration in areas of supercomputing and high performance computing, InfiniBand connectivity, networking and scientific software applications, green technology for data centers and related areas. In the first three months of 2016, Keppel T&T secured additional clients for its logistics facilities in Singapore and Vietnam. In China, the new distribution center in Tianjin and Lu'an logistics park are expected to commence operations later this year. Our investment division is Keppel's fourth business vertical. It used to comprise mainly the Group's holdings in associate companies k1 Ventures, M1 and KrisEnergy.
As of this quarter, we have also included contributions from the four asset managers under Keppel Capital. Profit from the investment Divisions was impacted in first quarter 2016 due mainly to the absence of gains from the sale of investments last year which amounted to SGD50 million, as well as taking in our share of losses from KrisEnergy. However, the recurring earnings from our asset management business has been steady, contributing SGD15 million in first quarter 2016, vis-a-vis SGD13 million in the same period last year. During the year, the Alpha Asia Macro Trends Fund II managed by Alpha Investment Partners has acquired the remaining 50% stake in the 78 Shenton Way office building as well as a Grade A office building, Jongro Place in Seoul's CBD. We also expect to launch the Alpha Asia Macro Trends Fund III later this year. I have shared our plans to grow Keppel's asset management business and develop our investment divisions - investments division into a steady pillar of recurring income for the Group. Presenting our asset managers' performance in this manner will enable us to better demonstrate and account for the future growth of this business.
Finally, I am pleased to update that we have made good progress in the formation of Keppel Capital. Since the announcement in January this year, we have installed an experienced and capable team of professionals at Keppel Capital and are on track with the restructuring of our asset management business which will be completed by second half 2016.
I will now let our CFO, Hon Chew, take you through a review of the Group's financial performance. Thank you.
Chan Hon Chew
Thank you, Chin Hua and good evening to all. I shall now take you through the Group's financial performance for the first quarter of 2016. The Group recorded a net profit of SGD211 million in this quarter which was 41% below the same quarter in 2015, earnings per share also decreased by the same extent to SGD0.116. EVA was lower at SGD2 million and annualized ROE decreased from 12.9% to 7.1%. Free cash outflow was SGD306 million as compared to free cash inflow of SGD226 million in the first quarter of 2015, due mainly to lower cash flow from operations and higher working capital requirements mainly from the offshore and marine and property divisions. Net gearing increased from 53% as at the end of year 2015 to 56%.
The Group's revenue for the first quarter was 28% or SGD1.07 billion lower than the same quarter last year. Lower revenue from offshore and marine, infrastructure and investments divisions were partially offset by higher revenue from property. As compared to the same quarter last year, operating profit at SGD278 million was lower by 30% or SGD120 million. Lower profits from offshore and marine, infrastructure and investments divisions were partially offset by higher profits from property. Profit before tax fell by a wider margin of 39% or SGD177 million due mainly to lower share of results of associated companies. After tax and non-controlling interest, net profit was lower by 41% or SGD149 million similarly earnings per share decreased by 41% to SGD0.116. As alluded to earlier in Chin Hua's presentation, from this year the asset management business is reported as part of the investments division, to better flag the contributions from our asset managers to be consolidated under Keppel capital in the second half of this year.
At the Group level, revenue was 38% lower than the same quarter last year, led by lower revenues from the offshore and marine division as a result of lower volume of work, deferment of some projects and suspension of the Sete Brazil contracts. The property division recorded an increase of 66% in revenue contributed a higher revenue from residential projects in China such as 8 Park Avenue in Shanghai and The Glades in Singapore, partly offset by the absence of revenue from The Luxurie in Singapore as the project obtained POP in June 2015. Infrastructure's revenue decreased by 23% due to lower revenues from our power and gas business as a result of lower prices and volume. The Group recorded SGD278 million of pre-tax profit for the quarter, 39 % or SGD177 million lower than last year.
Pre-tax profit for the offshore and marine division decreased by 51% or SGD139 million, driven mainly by lower operating results arising from lower revenue and net interest expense as compared to net interest income in prior period, partially offset by higher contribution from associated companies. The division's operating margin was 13.6% as compared to 12% for the same quarter last year. The property division's pre-tax profit was 56% or SGD49 million higher than that of the corresponding quarter in 2015 as a result of higher contributions from residential projects in China and Singapore and lower net interest expense. The infrastructure division registered a 46% or SGD15 million decrease in pre-tax earnings as compared to the previous year, due to lower contribution from the power and gas business. Pre-tax profit from investments decreased by SGD82 million, due to share of losses from associated company KrisEnergy and absence of gains from sale of investments which amounted to SGD50 million in the first quarter of 2015.
After tax and non-controlling interest, the Group's net profit decreased by 41% or SGD149 million to SGD211 million as compared to the same period last year. With property division being a top contributor to the Group's earnings at 47% followed by offshore and marine division at 45%. Higher net profit from the property division partially offset the weaker earnings from offshore and marine infrastructure and investments. The Group's net profit of SGD211 million for the quarter translated to an earnings per share of SGD0.116, 41% lower than first quarter of 2015. Cash flow from the Group's operations was SGD342 million in this quarter, down from SGD420 million in the same quarter of last year. After accounting for working capital requirements mainly from the offshore and marine and property divisions, the Group's net operating cash outflow was SGD354 million as compared to an inflow of SGD284 million in the first quarter of 2015.
Net cash inflow from investing activities was SGD48 million comprising divestment proceeds and dividend income from associated companies of SGD92 million, partially offset by operation on capital expenditure mainly from offshore and marine division and investments amounting to SGD44 million. As a result, there was an overall free cash upflow of SGD306 million during the quarter, as compared to the inflow of SGD226 million in the same period of 2015. In the face of the challenges in the oil and gas sector and global economy, the Group stays focused on our monthly business strategy, with our financial discipline and resilience built from the Group's competencies in our chosen core businesses we remain poised for new opportunities to deliver sustainable value for our customers and shareholders in the long run.
Loh Chin Hua
Thank you, Hon Chew. At this juncture we're ready to address questions.
A - Loh Chin Hua
Okay. First question is from Cheryl Lee of UBS. Hi, good evening. On property, with regards to the property trading segment, what was the geographical split? What percentage of revenue was from Singapore? And how much was from other countries? At a net profit level, what is the geographical split? Thank you. So maybe [indiscernible], Wee Gee, do you want to address that?
Ang Wee Gee
We do not disclose geographical split for net profit. But to give you an idea in first quarter of 2016, we sold about 830 units from China, 60 from Singapore and 50 from Vietnam.
Loh Chin Hua
Okay, second question is also from Cheryl Lee, UBS. CapEx for all divisions fell in the first quarter 2016 to 125 million for the group. In particular CapEx for offshore and property was lower. Is this representative of the CapEx level we should expect for the rest of the year or are there lumpy large items which are planned for later quarters? Thank you.
I think we have been - you can expect that the CapEx will remain at the current levels. We don't expect any lumpy items. But here I would also like to add that particularly for the offshore marine division we have been extremely disciplined in how we have been spending our CapEx even in the years when - last couple of years when things were a lot better. And I think it is this discipline that will enable us to weather the storm much better.
Okay this is a question from Felix, of Felix Investments. What is the current exposure to Sete Brasil? At worst case scenario could we see further write-offs?
I will ask, invite YY to answer the first part of the question and then maybe Chan Hon Chew can answer the second part.
Chow Yew Yuen
I think for Sete Brasil we have reported that we have already stopped work by end of 2015, and we have made a provision of 230 million in the fourth quarter of 2015. We can only say that we are currently in discussion with our customer. I think that's all we can say at this time.
Chan Hon Chew
Yes with regards to the what you call write-offs but provisions, if you have listened in during our briefing, analyst briefing for the 2015 full year we mentioned that we made a provision of SGD230 million in the fourth quarter of 2015. And, of course, we continue to monitor the situation, but as of now that provision remains adequate.
Loh Chin Hua
Okay this question is from Horng Han of CLSA. Good evening Keppel. I have some questions on the property business, and would appreciate it if you can share some insights with us. First question what at the top three selling property projects over the past one year in China? Can you share with us the projects? And how many units have been sold average per square meter and how many remaining units unsold ready to be launched for these projects? Well that's quite a lot of questions. Maybe before we go onto the - can we Wee Gee try and take the first question first?
Ang Wee Gee
Well I'll have to refer to the numbers I have these are quite detailed questions. Top selling projects, we have quite a number of different projects in different cities. Maybe to just answer your question generally the cities that we are selling projects very quickly are actually the cities that we have been focusing on, Shanghai, Chengdu, Wuxi and Tianjin.
Loh Chin Hua
I think the question on how many units were sold I think you've given that number yes for the first quarter?
Ang Wee Gee
Yes I think 800, I mentioned 830 units. Those are the total number. Actually there is no particular projects whereby we sell much more than the others. So generally they are quite well spread amongst those four cities I've mentioned. For the second question specifically for Shanghai how many unites have been sold but is yet to collect and how many unsold units already to [indiscernible] that are left in Shanghai. These are quite detailed questions. I don't have the numbers with me at the moment.
Loh Chin Hua
We will come back to you Horng Han on the specific questions that you have. And we'll post it on the web so that everyone can get the same answers okay? The third question is when was the last time Keppel acquired land in a Tier one city in China? Does Keppel plan to acquire more land bank in China and where would it be? Any clarity would be appreciated. I think the answer to this question is that we are constantly looking at acquiring land in our target cities in China. But we are also very disciplined in how we go about acquiring land, which means to say that if only it would make sense then we will bid at a price that we are comfortable with.
And sometimes when the market is a bit hot in terms of land sales it may mean that we may lose out. But I think it will serve us in the longer term to have that discipline. So we will continue to acquire land when it makes sense. And of course we are also very focused as I shared in my opening remarks in turning the assets, turning the portfolio so that we can get a better return on our assets. Okay this is from Ling Xin Jin from Morgan Stanley. Good evening. Could you please provide details on how you are looking to maintain your free cash flow? Will you require more borrowings for the offshore and marine division? And what will be the impact to dividend payout? I would say something and then maybe invite CFO to add to that. I think for us we are, as I said in the - in my presentation at the beginning we are watching our balance sheet very carefully. For Keppel we only have one balance sheet and that is the balance sheet that we all work out from.
I think we do run - we run a multi-business strategy, and you can see that offshore marine had been a very big contributor to the group over the last 10 to 14 years. Now it's facing some headwinds, but I'm hope - we remain very hopeful that the other divisions will continue to contribute. And we can see certainly last year and the in the first quarter of this year that property division is pulling up - putting in more contribution to the group. The dividend payout will definitely be dependent on things like profits, free cash flow as you've alluded to as well as what's the outlook. I think our goal is always to share when - as a group when we do well we do share the fruits of that with our shareholders but at the same time we want to make sure that dividends paid are sustainable.
Chan Hon Chew
Yes just to add that actually at this point in time our gearing at 56% we still have quite good headroom. Although we do not have a gearing target but suffice to say that our operating principal is we want to maintain an institutional quality balance sheet, which means we don't expect our gearing to exceed 100%. And as to dividends I just want to add that we do not have an explicit dividend policy. But as Chin Hua has alluded to when we make the decision on dividends we have to make sure that we look at our balance sheet, we look at our cash flow requirements and make that decision together with the board when we look at the financial yearend results. That's all I have to add to this question.
Loh Chin Hua
Okay this is from [indiscernible]. What is the outlook for the oil and gas market for 2016 in particular the global rig building market. How will the prospects affect Keppel O&M? Can I invite YY for this?
Chow Yew Yuen
Well with the low oil price I think the outlook for the oil and gas market for 2016 obviously is not very good. But I think I've explained previously that we have three businesses, our repair and conversion FLNG business that one is actually still doing quite well. And our specialty ship building is also doing quite well. The biggest division that - the biggest challenge for us is in the rig building division, we think that the rig building division there will be a prolonged period that we have to be ready where we expect the number of rigs that we will win going forward will be actually not so high. There is still a niche market play that we are looking at, and also non-oil and gas business that we are looking at. So I would say that the prospects for Keppel offshore and marine out of the three divisions the biggest challenge for us is in the rig building business.
Loh Chin Hua
This is from Nancy Wei from UOB Kay Hian. She has two questions. The first question is on O&M. Can you give us some color on your ship repair business? How much of the first quarter O&M revenue was derived from ship repairs and what's the outlook? The second question there was a write-back of impairment of SGD7.8 million in the property division. Can you give some color on that figure? So maybe I invite YY to speak a bit about the ship repair business first, and then perhaps Hon Chew you can address the questions on the write-backs.
Chow Yew Yuen
Actually the ship repair business last year actually we repaired 428 ships. This year the number looks about the same. So in that sense I think from previous year the number of ships that we repair is actually - has gone up by about 10% last year and this year we are likely to see that it will be sustained above that level. The challenge actually is on the margin, the pressure on the ship repair business is actually on margin right now because I think the - because the world economic outlook, some of the ship owners actually are reducing the scope of the repair wherever possible. As far as the percentage of O&M revenue that is from repair I think it is around - do you have the number.
Chan Hon Chew
Yes. The second question on the write-back of impairment of SGD7.8 million this is in respect of this tower in Philippines known as Keppel Center, because the provision for impairment is no longer required because of valuations that actually allow us to do that.
Loh Chin Hua
First question, how much of first question O&M revenue was derived from ship repairs, about 10%, about 10% of O&M [indiscernible].
Okay this next question was submitted by Conrad Werner from Macquarie. Thanks for the answers on CapEx. Similarly, what is the profile for working capital for the rest of the year? Was it mainly O&M driving the increase in working capital in first quarter 2016?
I think the increase in working capital for 2016 was both O&M and property. Of course for property just to refresh everyone's minds, our trading projects are all treated as inventory. So any investments into projects for trading purposes will lead to an increase in working capital.
Ajay here from JPMorgan. One question from me, Keppel was reported to be bidding for the takeover of Biffa UK waste management company which now has been reported to be off the table. Is Keppel still looking to acquire similar cash flow heavy utility type of businesses? Maybe I ask TG to --.
Ong Tiong Guan
I think we will look at opportunities that give us the right level of returns and cash flow. [Technical Difficulty], so we will not chase on the projects that is of marginal nature.
Loh Chin Hua
Okay these next three questions submitted by Lim Siew Kee of CIMB. Hi there, which are the two semi-subs that have been deferred from 2017 to 2019 and 2020? I think that's for a customer that we have not named and remains unnamed. There have been new deferrals in every earnings release. Is your delivery schedule in 2016 realistic? Which quarters are the six jackups to be delivered? The third question can we be assured that there will be no new provisions required for the deferred projects? Maybe I ask - oh there is a fourth question sorry. Fourth question what is the SGD39.9 million loss from associate companies in investments? I will ask YY to answer the second question, the first question has been answered. And Hon Chew maybe you can deal with the third and the fourth question.
Chow Yew Yuen
For question number two whether there's new deferral and whether our delivery schedule in 2016 is realistic. I think in the last meeting in January I mentioned that there would be nine deliveries. And right now those nine deliveries we have delivered three of them. And we've got six month to be delivered this year. And at this point in time there is no request for deferring. So I think we will work with our customer. If they come to us and if there is any challenge and they need us to discuss with them on the delivery we will certainly look for a win/win solution.
Chan Hon Chew
Yes so the third question as YY has explained, now with this discussion on referrals we are actually under the contract and entitled to compensation. So really at this point in time there is no talk of cancellation, it's deferral we are working with our customers. We want to at the same time also be compensated for any incremental cost. So at this point in time there is no requirement for new provisions. But of course as what Chin Hua has mentioned in his speech we will have to continue to monitor this very carefully. But at this point no there is no requirement for additional provisions.
The last question on loss from associated companies under the investment division this relates to our share losses from KrisEnergy. As you know KrisEnergy is a listed company and when we equate the accounts our share of their profit or losses there is a one quarter lag. So in other words the share of loss that we recognize in the first quarter arises from KrisEnergy's announcements of their results for the fourth quarter 2015.
Loh Chin Hua
Okay this is from Hui Yin Win [ph] from SPH. Hi, good evening. The major oil producers have failed to reach an agreement yesterday. What is your view on oil price trend going forward? What is the impact on your O&M business? You mentioned you cut overheads by 28% for O&M. Is this to hit count cut?
I will answer the first question and I will invite YY to provide some insights into the second question on overheads. I think this is an ongoing process in terms of both the OPEC and non-OPEC producers [indiscernible]. So we believe that oil price in the long-term will move to a higher level that is more sustainable. But in the short run we believe that the oil price could be - could remain volatile, so yesterday's failure to reach agreement would contribute to that volatility. But I think fundamentally as well you've heard from YY we believe that the outlook for the offshore and marine - on the offshore side is going to remain quite challenging for the foreseeable future.
Chow Yew Yuen
On the question about cut in overhead by 28% for [Technical Difficulty].
Loh Chin Hua
Three questions next from Gerald Wong of Credit Suisse. Good evening. First question, there was a write-back of SGD8 million for the property division in first quarter 2016. Could you share which project or geography this came from? Second question can you provide an update on [indiscernible] ship? When is the hull for the [indiscernible] ship expected to be delivered? Is there a third question? Following the cut in workforce by 223 from overseas yards how many workers are there remaining in Brazil? Are there plans to reduce the workforce further in Singapore and overseas?
Well on the first question I will ask Hon Chew to address. But before you do that on the second question in terms of the [indiscernible] ship the completion of the [indiscernible] ship will be on the fourth quarter of 2017. I believe the hull will come probably later this year or early part of 2017.
Chow Yew Yuen
Yes the hull will be here in some time January of 2017.
Loh Chin Hua
Okay. The next question, the third question can I address the third question please? Okay, there are approximately - we had a right-sizing exercise last year in Brazil and this continues this year. So currently we have just under about 4000 workers in Brazil or at least 4000 in [indiscernible].
As you have heard in the presentation we've recently won a contract for . Our team is working very hard to make sure that as we say as the top line comes off we want to make sure that we continue to remain profitable. And if there is a need for us to further right-size we will do so. Hon Chew now answer the first question.
Chan Hon Chew
Yes that's right, okay. Gerald I think you might have missed an earlier question from an earlier submission. Now this write-back of SGD8 million as mentioned earlier relates to a capital center in the Philippines. And we can write-back right now because of the valuation that we've got right now to support the write-back so it's in the Philippines.
Loh Chin Hua
YY you want to add?
Chow Yew Yuen
Yes maybe I can add a bit more color to the situation in Brazil in our yard in Angra dos Reis. What Chin Hua mentioned that we just - we recently won this contract from MODEC. Besides the MODEC project there are also two more FPSO integration works that the yard is currently doing, so actually there are three FPSO integration works that is going on in the yard. The latest one of course is the one that we just announced which is the MODEC and that one will include the fabrication of nine [indiscernible].
Loh Chin Hua
Thank you. This is from Nicholas who is an investor. It is noted that Brazil's opposition party succeeded in an impeachment vote for President Dilma Rousseff this morning. Does Keppel Corp see this as posing further challenges to current negotiations of receivables with Sete, given Sete's close links to Brazil's government. I think today's vote as reported in the news basically I think that it just adds to the uncertainty in that country. And I think I've already touched on that so I wouldn't go further into it. The second question is are there any special measures been taken to safeguard Keppel offshore marine business in Brazil should there be major government changes in Brazil?
Well thank you for taking an interest in our staff in Brazil. We do always keep a very close watch on the situation whether it is from natural disasters like earthquakes or from manmade challenges like the recent terrorist events in Belgium [indiscernible] unfortunate there. We do have operations in over 30 countries, so we do take very special care that our people are safe all the time. So I think right now the team are on top of it so we don't expect anything untoward to happen.
Okay this is from Daniel, EDMW Capital [ph]. Good evening. We are a local hedge fund investing in Keppel, and we look to engaging the management and the AGM tomorrow. Despite the poor first quarter results we are glad Keppel has addressed the issue of gender diversity by deploying Miss Christina to Keppel Capital.
We have two questions. And by the way I think we picked her not just because she's a lady but she's suited and she's good at what she does. We have two questions. Can you comment on the geopolitical risks in Latin America, example Brazil and the risk of losing almost SGD300 million BrasFELS shipyard to nationalization.
I think this first question is speculation so I will not address it. Second question, Mr. Loh has just mentioned that Keppel is keeping a . How it had intended to take over Biffa while maintaining an institutional quality balance sheet.
I think first of all I wouldn't want to comment on speculation in terms of our bid, or reported bid, for Biffa. But clearly whenever we take on any investments we do keep a very close watch on the impact that it would have on our gearing and our cash flows. Hypothetically should we have gone into something like Biffa there's always a possibility that with the newly formed Keppel Capital we would find potential co-investors to come alongside with us.
Okay this is from Ling Xin Jin from Morgan Stanley again. On the property division could you share how many units were recognized in first quarter 2016 and how many units are expected to be recognized in 2016? Could you also share the reason for lower operating margins for property division? Should we expect this level of operating margin for the rest of the year?
I think I'll answer the second question first. The operating margin will vary depending on project launches and geography and also of costs on when the land was purchased etc. So it's very hard to draw any trends from first quarter and project it for the rest of the year.
Can someone answer the first question how many units were recognized?
Chan Hon Chew
If you refer to some of the additional slides, perhaps is it possible to flash those slides? It's not possible. Alright okay. It will - it's already I think loaded through the [indiscernible] so if you do not have a copy you can go and download a copy. They are on the website as well.
So there are some notes on profit recognition for instance in Singapore and China the projects in terms of the profit that has been recognized. This is in terms of the profit rather than the number of units, that's I think on slide 38. And the sales achieved in China as well are on slide 39. This is in terms of the number of units sold for the first quarter. And there is also some information on the average selling price as well for each of those projects. So those two slides I think will be of interest to you.
Loh Chin Hua
So please check the website. Thank you. Okay this is from - another question from Hon Han of CLSA. Good evening. Can Keppel disclose what is the outstanding receivables amount from Sete Brasil?
Chan Hon Chew
I think this question has been asked before. And no we do not actually disclose the amount of receivables by customer.
Loh Chin Hua
Well thank you all for a very robust session of questions and answers. Thank you.
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