Keppel Corporation Ltd
SGX:BN4
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Keppel Corporation Ltd
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Okay, good evening, ladies and gentlemen. Welcome all of you, including those of you in this conference over the web, to the conference for Keppel Corporation's fourth quarter and full year financial results for 2018.
First, let me introduce members of our panel. Seated from the left to right are Mr. Tan Swee Yiow, CEO of Keppel Land; Ms. Christina Tan, CEO of Keppel Capital; Mr. Chan Hon Chew, CFO of Keppel Corporation; Mr. Loh Chin Hua, CEO of Keppel Corporation; Dr. Ong Tiong Guan, CEO of Keppel Infrastructure; Mr. Chris Ong, CEO of Keppel Offshore & Marine; and Mr. Thomas Pang, CEO of Keppel Telecommunications & Transportation.
Our CEO, Mr. Loh Chin Hua, will first present the group's business review and outlook. Thereafter, our CFO, Mr. Chan Hon Chew, will present the group's financial results. This will be followed by a question-and-answer session on the company's performance chaired by Mr. Loh.
Without further ado, I would like to invite Mr. Loh Chin Hua to give his opening remarks. Mr. Loh, please.
Good evening, and welcome to the conference and webcast on Keppel Corporation's results and performance for the fourth quarter and full year of 2018. As the Chinese lunar new year is less than 2 weeks away, may I also take the opportunity to wish everyone good health, happiness and prosperity in 2019.
The international economic outlook has turned more uncertain in recent months, with slowing global growth and trade tensions amongst the world's largest economies. In China and Singapore, property market cooling measures have affected sentiments, although we continue to see healthy demand in key Chinese cities, such as Chengdu and Nanjing, where we have deepened our presence.
We're also seeing growing demand for cleaner forms of energy, such as LNG; environmental solutions, such as WTE plants and data centers, all of which are solutions provided by the Keppel Group.
Against the volatile backdrop, 2018 was a transformational year for Keppel as we continued to reinvent and position ourselves for long-term growth. Beyond executing our existing businesses, we are actively exploring and investing in new businesses, such as senior living and renewable energy infrastructure with a view to developing future growth engines. We remain disciplined in picking only businesses that fall within our mission of providing solutions for sustainable urbanization.
We're also growing our presence in B2C businesses. We have gained traction in urban logistics, including last-mile delivery and channel marketing through UrbanFox. Now with over 50,000 household customers in the retail electricity market, we are one of the leading electricity retailers in Singapore.
We have also undertaken a strategic initiative, together with SPH, to gain majority control of M1, with the goal of transforming the business to compete more effectively and harnessing synergies from collaboration with different parts of the Keppel Group.
On 21st January 2019, M1 published the opinion of its independent financial adviser that, "The financial terms of the offer are fair and reasonable and not prejudicial to the interest of shareholders as a whole."
The independent directors of M1 concur with the advice of the independent financial adviser with respect to the offer and have recommended to shareholders to accept the offer and the options proposal. The offeror has subsequently announced that it does not intend to increase the offer price of $2.06 under any circumstances.
We have also announced a scheme of arrangement to privatize Keppel T&T to better align its interests with the rest of the group.
Despite the challenging economic outlook, through steps we have taken in recent years to strengthen our core, build resilience, and stay relevant with new business models and better value propositions for our customers, we will continue to execute on our plan to make Keppel a preferred solutions provider for sustainable urbanization.
The group performed well in 2018. We achieved a net profit of $944 million, up 382% from $196 million in 2017, or up 16% from $815 million if we exclude the one-off financial penalty of $619 million for the global resolution and related costs. This was underpinned by improved performance across our O&M, Property and Infrastructure Divisions, with Property making the biggest contribution to the group. Our ROE was 8.3%, while the group's Economic Value Added was $252 million in 2018.
Our free cash flow stood at $515 million in 2018 against $1,802 million in 2017. Net gearing was 0.48 at end 2018, slightly higher than the 0.46 at end 2017.
The Board of Directors will be proposing a final dividend of $0.15 per share. Together with the interim cash dividend of $0.10 per share and special cash dividend of $0.05 per share distributed last August to celebrate Keppel's Golden Jubilee, we'll be paying out a total cash dividend of $0.30 per share to shareholders for the whole of 2018. Excluding the special dividend, this represents a payout ratio of 48% of our net profit.
Recurring income amounted to $247 million compared to $307 million in 2017. We remain focused on improving the quality of our earnings and growing recurring income to be a stable contributor to the group.
Notwithstanding the recent volatility in oil prices, there is growing optimism in the O&M sector, with more prospects -- with more projects sanctioned at oil prices of between $55 and $65 a barrel. With the gradually declining rig supply overhang as well as increased tendering activity, there are signs of improvements in the offshore rig sector, although we do not envisage a V-shaped recovery.
In the immediate future, we are cautiously optimistic about the offshore production market. We see opportunities in FPSOs, especially conversions, with several projects approaching FID in 2019 and 2020.
Global demand for gas led by Asia continues to grow, with a few FSRU projects also targeting FID later this year. Keppel Shipyard has also seen a pickup in ship repair works, boosted by exhaust gas scrubber retrofits. We secured 65 of such contracts last year from a variety of customers.
Keppel O&M made a profit at both the operating and attributable levels for the full year, excluding RIDs on the back of our expansive rightsizing efforts and new contract wins. However, the division registered a loss of $109 million after provisions, including an additional provision of $167 million for expected losses on the rigs for Sete Brasil, partially offset by write-backs for provisions for claims.
We secured new contracts totaling $1.7 billion in 2018, which is more than the $1.2 billion of new orders won in the whole of 2017. Significantly, LNG and scrubber projects made up more than $600 million of the new contracts secured in 2018.
Keppel O&M's net order book has grown to $4.3 billion as at end 2018 compared to $3.9 billion at end 2017. Keppel O&M has received a limited notice to proceed from Golar LNG to commence early conversion works on Golar Gimi for BP's Greater Tortue Ahmeyim field. Full construction activities will commence when Keppel Shipyard receives the final notice to proceed.
Hilli Episeyo, the world's first converted FLNG vessel, which we delivered in late 2017, has maintained 100% uptime since she began commercial operations and has dispatched 13 LNG cargoes to date. Hilli's successful proof of concept as a quick and cost-efficient solution for monetizing stranded gas reserves continues to add momentum to new opportunities in the liquefaction vessel space.
The group remains committed to putting in place effective and robust compliance and governance regimes and discharging the undertakings given as part of the 2017 global resolution KOM had reached with the relevant criminal authorities. The enhancements to the compliance processes and procedures included increasing the resources of the group's internal audit function and conducting anticorruption compliance audits.
In 2018, KOM engaged an ISO 37001 consultant to conduct a risk review and audit of anticorruption compliance at KOM. And in November 2018, KOM's entities in Singapore achieved certification for the ISO 37001 anti-bribery management system. We will continue to strengthen our policies and procedures to ensure that we win business legally and ethically.
Our Property Division recorded a net profit of $938 million for 2018, up 44% from $650 million a year ago. Keppel Land made a net profit of $940 million, 41% higher than the $666 million in 2017. ROE for Keppel Land was 11.4%, while its gearing was 0.19 as at end 2018.
In line with our goal to make Keppel Land a real estate company with one of the highest returns in Asia, we'll continue to increase our asset turns and make our property portfolio work harder for us.
We completed acquisitions totaling about $0.8 billion in 2018, including residential sites in China and Indonesia and a commercial development in Singapore in the fourth quarter. Over the year, Keppel Land has completed divestments and en-bloc sales totaling about $1.7 billion.
We saw about 4,440 homes, half of which were in China, achieving a total estimated sales value of about $1.8 billion. This does not include the sale of 5 projects, which is equivalent to approximately 11,500 units sold en bloc.
We expect to recognize revenue for some 8,410 overseas homes that have already been sold amounting to about SGD 2.7 billion upon completion and handover from 2019 to 2021. Over the course of 2018, we replenished our land bank with the addition of about 3,600 units in China and 500 units in Indonesia, bringing our total land bank to close to 50,000 homes. We currently have about 19,000 homes in key Asian cities, which are launch-ready.
In its commercial portfolio, Keppel Land has about 1.5 million square meters of gross floor area, of which about 60% is under development.
In China, we are positioning ourselves to capture more opportunities by selectively expanding and deepening our presence in high-growth regions and cities.
While property cooling measures have had an impact on the market, urbanization trends and growing income levels continue to drive demand for quality housing and commercial developments in key regions and cities. We will focus, in particular, on the Jing-Jin-Ji region, Yangtze River Delta, Greater Bay Area and the Chengdu Metropolis, where we see considerable growth potential.
Keppel Land currently has a sizable land bank of about 21,800 homes in China. In 2018, we completed new investments amounting to $680 million to expand our portfolio in Nanjing, Chengdu and Sino-Singapore Tianjin Eco-City. We continue to see healthy demand supply balance in these markets with the supply of homes with presale permits is expected to be absorbed in less than 6 months.
Our Infrastructure Division delivered a net profit of $169 million for 2018, an increase over the $134 million for 2017. Keppel Infrastructure continued to perform well, with a net profit of $117 million in 2018 compared to $109 million in 2017, mainly due to better performance from Environmental Infrastructure and Infrastructure Services.
In 2018, we secured some $120 million worth of contracts for energy and environmental infrastructure across Singapore, Australia and Europe. The construction of the Keppel Marina East Desalination Plant has achieved 65% completion. Meanwhile, the design and engineering for the Hong Kong integrated waste management facility are on track, and the project will contribute to our bottom line from this year.
Last year, Keppel Electric became the largest electricity retailer in Singapore in terms of market share in the commercial and industrial sector. We will continue to improve on its offerings to further extend its reach into the household electricity market. Preliminary results show that it is among the electricity retailers with the largest market share in the open electricity market.
Keppel Logistics continued to grow its omnichannel business. Its channel management customer base has grown significantly, while deliveries doubled in the course of 2018, partly due to impairment loss on an asset and investments into building new capabilities to transform the urban logistics business. We incurred a loss of $24 million for logistics and other operations.
Our data center business contributed $76 million for 2018, an increase over the $15 million for 2017. During the year, the group acquired 4 new data center projects across Asia and Europe. We have expanded our portfolio from 9 in 2014 to 22 data centers to date, with a total value of about $2.7 billion. The total net lettable area of the group's data center portfolio has grown from 0.6 million square feet in 2014 to 1.7 million square feet in 2018, registering a 32% CAGR over the past 5 years.
To further grow its capabilities, Keppel T&T is also exploring innovative concepts, including high-rise data centers and floating data center parks, which utilize naturally chilled water to cool the facilities.
The performance of our Investment Division was affected mainly by our share of losses relating to KrisEnergy. We have also made a provision amounting to $53 million for impairment on investment in an associated company.
2018 was an active year for Keppel Capital, which announced acquisitions worth over $2 billion and explored new platforms for long-term growth, including expanding into new markets and asset classes.
Alpha Investment Partners, Keppel Capital's private fund management arm, has announced the final closing of the AMTF III, which raised a total of about USD 1.1 billion. AMTF III is the third value-add pan- Asian fund in the Alpha Asia Macro Trends series, which focuses on mega trends driving long-term growth in the Asia Pacific.
Our asset management business continued to contribute steadily to the group, though earnings were lower year-on-year due to higher expenses for growth initiatives, lower fees following divestment of several assets and lower one-off performance fees.
Our REITs and trusts have continued to expand and optimize their asset base to deliver value for unitholders.
Keppel Infrastructure Trust has proposed the acquisition of Ixom, which is amongst the leading industrial infrastructure businesses in Australia and New Zealand, supplying and distributing water treatment chemicals as well as industry -- industrial and specialty chemicals.
Keppel Capital's total AUM remained stable at about $29 billion as at end 2018, following a few divestment by Alpha.
Leveraging our track record in master development, Keppel Urban Solutions has signed an MOU to collaborate with Envision technology group to develop a new smart IoT city in Wuxi. We are familiar with Wuxi, where Keppel Land has been active for more than a decade, and we see good growth potential in the city.
Reflecting the continued growth of the Eco-City, the Sino-Singapore Tianjin Eco-City investment and development company sold 3 residential land plots, with total land site area of around 28 hectares for RMB 3.4 billion in 2018.
One plot was acquired by Keppel Land to build on its strong track record and tap the healthy demand for homes in the Eco-City. So far, Keppel Land has sold about 98% of the 4,500 homes, which it has launched in the Eco-City.
Notwithstanding the challenging microenvironment, urbanization trends continue to present many exciting long-term opportunities for Keppel, whether it is providing energy, property, environmental solutions or connectivity. We will remain focused on building a nimble and agile Keppel, ready to seize opportunities in our existing businesses even as we grow new engines for the future. We will also further strengthen collaboration both within the group and with third parties to provide more robust solutions to shape a sustainable future.
I will now invite our CFO, Hon Chew, to take you through the group's financial performance. Thank you.
Thank you, Chin Hua, and a very good evening to everyone. I shall now take you through the group's financial performance.
In the fourth quarter of 2018, the group recorded a net profit of $135 million as compared to a net loss of $492 million recorded in the same quarter in 2017. Given the size of the impact of the global resolution and its one-off nature in 2017, the analysis of the fourth quarter and the full year results in the following slides is normalized to exclude the global resolution penalty and related costs in 2017. This is done to allow a more meaningful analysis of the underlying performance of the group.
So on this basis, the group's fourth quarter net profit of $135 million was $8 million or 6% higher year-on-year, and EVA correspondingly improved from a negative $267 million to a negative $132 million.
The group's revenue for the quarter was 9% higher than the same period in the preceding year. All divisions, except Property Division, registered higher revenues during the quarter.
Operating profit for the quarter decreased by 97% or $142 million to $5 million despite registering higher revenues. This was attributed mainly to lower fair value gains on investment properties in the Property Division, higher provisions for expected losses on Segher contracts and provision for impairment of an associated company in the Investment division.
Profit before tax decreased by a smaller extent of 19%, mainly due to higher share of profits from associated companies, mainly the Sino-Singapore Tianjin Eco-City, Hotel International and Keppel DC REIT. After tax and noncontrolling interest, net profit was 6% higher at $135 million, translating to earnings per share of $0.074.
In the next slide, we take a closer look at the group's revenues by division. In the fourth quarter of 2018, the group earned total revenues of about $1.7 billion, 9% higher than the same quarter in the preceding year.
The Offshore & Marine division reported a 6% increase in its top line as a result of higher revenue recognition from ongoing projects. Revenue from the Property Division saw a 14% decline due mainly to absence of revenue compared to the same quarter in 2017 from Highline Residences, which was fully sold by first quarter this year. Also, lower revenue from Reflections at Keppel Bay and 8 Park Avenue in Shanghai. This was partly offset by higher revenue from Estella Heights in Ho Chi Minh City, Waterfront Residences in Wuxi and Sheshan Riviera in Shanghai.
The Infrastructure Division achieved a 25% growth in revenue as a result of increased sales in the power and gas business as well as higher progressive revenue recognition from the Keppel Marina East Desalination Plant project.
Moving on to the group's pretax profit. The group recorded $164 million of pretax profit for the fourth quarter of 2018, 19% lower than the same period in 2017. The Offshore & Marine division registered a lower pretax loss of $97 million compared to $256 million loss in fourth quarter of 2017. This arose from improved operating performance and higher contribution from associated companies.
Operating loss in the fourth quarter of 2018 was mainly due to provisions for expected losses on the Segher contracts and other asset impairments, partly offset by write-back of provision for claims.
The Property Division's pretax profit was 40% lower due mainly to lower fair value gains on investment properties.
The Infrastructure Division's pretax profit for the quarter was slightly lower at $15 million. The division's lower operating profit due mainly to operating loss from logistics operations was slightly offset by higher share of profit from associated companies.
The Investments Division recorded a pretax loss of $4 million as compared to a pretax profit of $45 million in the same quarter in 2017, mainly due to impairment of investment in an associated company and lower contribution from the asset management business. This was partly offset by higher share of profits from the Sino-Singapore Tianjin Eco-City, benefiting from the sale of a land plot this quarter.
After tax and noncontrolling interest, the group's net profit increased by 6% or $8 million, with the Property Division being the top contributor to the group's earnings followed by Infrastructure Division.
I shall now take you through the performance for the financial year 2018. The group recorded a net profit of $944 million for the financial year 2018, which was 382% higher than in the preceding year. Excluding the one-off penalty and related costs in 2017, the group's net profit of $944 million was 16% or $129 million higher than in the preceding year, due mainly to higher operating profit, partly offset by lower share of profits from associated companies and higher taxation. Consequently, ROE increased to 8.3%, while EVA was also higher at $252 million.
Free cash inflow for the year was an inflow of $515 million as compared to an inflow of $1.8 billion in 2017. This was due mainly to the payment of the financial penalties to the United States, Singapore and Brazil authorities amounting to SGD 464 million arising from the Keppel offshore and risk global resolution as well as the higher working capital requirements from Offshore & Marine and Property Divisions. The group's net gearing increased slightly from 0.46 at the end of 2017 to 0.48 at the end of this year.
In the next slide, we'll take a closer look at the group's revenues by division. During the year, the group earned total revenues of $6 billion, at the same level as last year.
The group -- the Offshore & Marine Division recorded an increase in revenue of 4%, due mainly to revenue recognition in relation to jack-up rigs sold to Borr Drilling Limited and also higher revenue recognition from ongoing projects.
Revenue from Property Division saw a 25% decline due mainly to lower revenues from Corals and Highline Residences in Singapore and China trading projects as number of units were handed over -- as lower number of units were handed over from projects such as Park Avenue Heights in Chengdu and 8 Park Avenue in Shanghai as well as absence of revenue compared to 2017 from The Glades, which was fully sold in 2017. These were partly offset by higher revenue from Park Avenue Heights in Wuxi, Waterfront Residences in Tianjin and Waterfront Residences in Wuxi.
Infrastructure revenues increased by 19% led by increased sales in the power and gas business, partly offset by lower progressive revenue recognition from Keppel Marina East desalination plant.
Investments revenues decreased by 30%, mainly due to lower contribution from asset management business and absence of sale of equity investments compared to last year.
Moving on to the group's pretax profit. The group recorded a pretax profit of $1.24 billion for 2018, 17% higher than in 2017 despite relatively flat group revenues. This is boosted by en-bloc sales of development projects in China and Vietnam and improved operating performance at Offshore & Marine division.
Offshore & Marine division recorded a lower pretax loss of $113 million, arising mainly from improved operating performance, higher contribution from associated companies and lower net interest expense.
As mentioned previously, provisions for expected losses on the Segher contract and other asset impairments, net of the write-back of provision for claims, contributed partially towards the operating loss for the year.
In the Property Division, pretax profits increased by 41% to $1.2 billion. This was due mainly to en-bloc sales of development projects in China and Vietnam, namely Zhongshan, The Seasons in Shenyang, Jones Lang in Shenyang and Quoc Loc Phat in Ho Chi Minh City as well as gains from the divestment of Beijing Aether. The increase was partially offset by lower federal gains on investment properties, lower contribution from associated companies and lower net contribution from the property trading segment.
In the prior year, the Property Division's pretax profit also benefited from en-bloc sale of Waterfront Residences in Nantong, Tunjungan project in Indonesia and Central Park City in Wuxi as well as the divestment gain on Sedona Mandalay and the Bali project.
Pretax profit from the Infrastructure Division increased by 8% to $184 million. This was due mainly to dilution gain following the change of interest in Keppel DC REIT, gain arising from the sale of units in Keppel DC REIT and high contribution from Infrastructure Services, Environmental Infrastructure as well as higher share of profits from associated companies. The increase was partly offset by lower contribution from energy infrastructure, higher losses from logistics and absence of the prior previous gain from divestment of GE Keppel Energy Services.
The Investments Division registered a pretax loss of $19 million as compared to a pretax profit of $290 million in 2017. This was the result of impairment of investment in an associated company and lower contributions from the asset management business and the Sino-Singapore Tianjin Eco-City. In addition, the division's profits in 2017 was also benefited from the write-back of provision for impairment of investment in an associated company, sale of equity investments and contribution from k1 Ventures.
After tax and noncontrolling interest, the group's earnings increased by 16% to $944 million, with the Property Division being the top contributor to the group's earnings followed by the Infrastructure Division.
The group's net profit for the financial year 2018 was $944 million, which translated to earnings per share of $0.52. ROE increased to 8.3% in 2018 from 6.9% in 2017.
Our proposed final dividend to our shareholders for 2018 will be $0.15 per share. Including the interim dividend and special cash dividend paid, the total distribution for 2018 will be $0.30 per share.
Cash flow from operations was $548 million as compared to $519 million in 2017. After accounting for working capital changes, interest and tax, net cash inflow from operating activities was $125 million as compared to an inflow of $1.2 billion in 2017, due mainly to the payment of financial penalties to the United States, Singapore, Brazil, authorities amounting to $464 million arising from Keppel and Offshore & Marine's global resolution and higher working capital requirements in the Offshore & Marine and Property divisions.
Net cash generated from investing activities amounted to $390 million comprising divestment proceeds and dividend income from associated companies totaling $1.1 billion. This partly offset by investments and operational CapEx of $415 million as well as net repayment of the advances from associated companies of $217 million. As a result, there was an overall cash inflow of $515 million for 2018 as compared to an inflow of $1.8 billion in 2017.
With that, we have come to the end of the results presentation segment, and I shall hand the time back to our CEO for the Q&A session.
Thank you, Hon Chew. Before I start, I think we've been introduced to the panel, but I want to draw your attention to Mr. Tan Swee Yiow. This is his first meeting with all of you. He's, of course, taken over as CEO of Keppel Land on January 1 this year.
So let's start with the questions from the floor, if any.
Yes, Cheryl. We're waiting for you.
Cheryl from UBS. My first question is about property. May we have some comments about the demand and price outlook for Ho Chi Minh, Wuxi and Tianjin?
Okay. Swee Yiow -- go ahead.
In Ho Chi Minh, I think we're generally experiencing still very healthy demand, and our launches are generally well received. Same is applied for our Wuxi. And you'll notice that we also ventured into key cities in China, where we believe that the supply demand present a more balanced situations, so in the light of Nanjing as well as Tianjin Eco-Cities.
I'm sure Cheryl has a follow-up question. No? That's it? Okay. Any -- Conrad.
Can we talk a bit more about the provisions in the O&M, Sete Brazil, the write-back, the impairment?
Okay, I will ask Hon Chew to address that question.
Okay. Looks like you want to cover all the impairments and provisions. Perhaps I shall turn your attention to Page 2 of the SGXNet, so that I can go through the numbers. You first asked about Sete Brasil, so the provision for expected loss on contracts, you will see on Page 2 a footnote of Roman numeral 22. This year, there was provision for $167 million compared to provision of $81 million last year. So as you know, we exclaimed in the past that this provision was made really looking at the various possible scenarios. And at each quarter end -- and especially as for year-end, we do a review of the assumptions. And taking into account the developments, we will then look at the provision position as of the year-end. The process, we went through very robust review by auditors. Our KOM Audit Committee and KCL audit committee before we came to the provision. So this is the provision that we believe is adequate at this point in time for Sete Brazil. I haven't finished, but if you would like to follow up, maybe you can follow up.
Okay. I do understand that, but I thought we were kind of -- so this is based on the REITs that you see in the market or is it based on your potential plan to divest these? Or what other more like key development that you have seen that make you -- make further provisions like that?
As I said, I think, as we said in the past, the provisions are made base on a few scenarios, right? And those scenarios in terms of the probability will change over time as developments -- as the progress in the -- especially some of the developments in Brazil concerning Sete's creditor's meeting, and so on. The update also looked at some of the assumptions, including day rates, including exchange rates and so on. So all these updates result in adjustment to our provision. But as you would appreciate, there are many commercially sensitive issues. I will not be able to explain to you these scenarios in detail. So that's the Sete provision. You also asked about the write-back. So there's a write-back of $96 million for provision of claims. These are customer claims in Keppel Offshore & Marine. And again, as you would appreciate, this is very commercially sensitive. I will not be able to review, which are the customers.
The impairment of investments...
Yes, that's right. And if you look at Page 2 again, there is also impairment of investments and associated companies. So in total for the year, there's a $60 million of impairment compared to a write-back last year. I think it was also mentioned in the presentation earlier. Under Investments Division, there was a write-back of $53 billion -- million, sorry, whereas last year, there was a write-back. This year it's a provision. Last year was a write-back. Apart from that, there was also a provision for contract assets, $21 million this year. This relates to one of the checkup routes. And again, as I explained earlier, at every quarter end and year-end especially, we do a review. And as a result of review, the same process I've described, we have made a provision of $21 million of one of the REITs. I believe those are the key provisions.
There's a question from the net, which also relates to this, so maybe I'll take it. This is from Nicholas Lim, an investor in Singapore. Nicholas' question is, does Keppel O&M expect to have completed most of the write-offs for the Sete Brazil REITs with the latest $167 million provision in fourth quarter? Or is there a high likelihood of more write-off for the Sete projects still to come? I think as you have heard from the CFO, we believe that the latest provision is adequate and -- for now. Okay.
Sorry. Just on the impairment, so there's an impairment of associated investment. What is it?
Yes. It's -- again, at each quarter end, year-end, we look at all our investments and -- including investment associate, so there was a provision made. The biggest is in Investments Division, but we are not able to disclose the company because some of these investments are actually listed companies.
Maybe you ask a question we can answer. I think Conrad was -- you have another question?
Sorry, I'll just ask one question that you'll be able to answer. Outlook for your O&M, surely you can...
Of course. That one, we can. I will ask Chris Ong.
As mentioned in CEO's speech, we do not really expect a V-shaped recovery. Based on the development plan from the oil majors, you can see that more projects are coming online for FID in 2019 and 2020. So we are optimistically -- we are optimistic, sorry. Nonetheless, there are different areas that we are targeting at, not only in oil and gas sector. We have always been saying that we -- our diversification plan has gone ahead, and we are looking at even renewables project so far. So we have basically secured $1.7 billion revenue last year. And based on that itself, I think we should also focus a lot on operational excellence on top of the market itself.
I think to add, I think KOM, as you all know, we've gone through quite a number of years of rightsizing. We're extremely pleased that, last year, we were able to break even with a small profit before impairment. So I think if things start to brighten up a bit and we start to get more orders, that would flow down to our bottom line. But of course, we continue have to work very hard. And as I've said, we hope for the best, but we don't expect a V-shaped recovery. Okay, Conrad.
So just to follow on from the recovery thematic, can we think about higher order flow in 20 -- what are we now, 2019 than 2018? Is that one way to think about your optimism if we were modeling it into our numbers?
Well, first of all, we -- Conrad, we don't provide guidance on orders. But of course, last year, the orders, as you've seen, is stronger than the year before, and we are cautiously optimistic for this year. But I think there's still a lot of headwinds, so we are cautiously optimistic.
And then with respect to the gas vessels on the conversions, what is the limited notice to start work? What does that mean? Are you starting work on it? Or...
Chris, you want to -- this is on the GIMI, right?
Yes.
I think the limited notice to proceed includes front-end engineering, ordering of some long-lead items and limited works on the vessel itself. So we -- actually, BP has actually announced that they will take roughly about another quarter to put all the contracts in place. So for the next 4 months, we will be embarking on all our front-end work on that, waiting for the notice to proceed to come our way.
So that implies that we'll have revenue recognition on this vessel this year.
Yes, yes.
And then what is the status of -- isn't there a third vessel in this series of 3 that you have ordered? What is the status of this one now?
I think this one, before we talk about that, the -- we have a notice -- long notice to proceed. I think the -- I'm not sure whether you mentioned it, but we have 4 months, right?
Yes, 4 months.
And so it's likely -- and we know that BP has announced its FID December last year on this particular project. So we would expect that they will go and proceed on to FID for this. So if that all comes to pass, then we would expect that GIMI will become a part of the -- to contribute to the top line for this year. Sorry, your question, Conrad?
Just on the third vessel, the third gas conversion.
I believe you are talking about the Gandria.
Yes.
Yes. For Gandria itself, the contract has been extended by Golar, and we are in talks with Golar to talk about what are the potential deployment for the vessel itself. So this is something that's ongoing, and we will inform when vessel material progress in this.
And then just my last question. On the property business, specifically in China. You mentioned that there is strong underlying demand in your end markets. But is there any sense that the cooling measures are being eased in the markets that you're in? Are we seeing any sign that we could see some relief in that area?
Swee Yiow, do you want to take that?
Not yet at the moment. I think for property business, we always operate on the basis that the cooling measure may not be lifted, so we just have to operate under the existing conditions.
I think Swee Yiow is correct. There is -- the cooling measures are in place. But I think, unofficially, we are starting to see, perhaps they are not so stringent in applying some of these in some markets. But as I think as Swee Yiow said, we can't really kind of take this for granted. The other part, of course, is I think on the demand side, the economy is cooling. So we are watching that very closely.
Cheryl from UBS with some follow-up questions. On the property side, can we just get some clarification. I recall in the last quarter, there was these gains on bonds from Nam Long, I think, which would have been booked in, in this quarter. So just to clarify, which segment, like under property trading or investment? And also how Sete offset? Note that this relate back to Page 2.
Okay. Maybe if you don't mind, Cheryl, there's a question that's popped up from the net that's related to what you just asked. Can we take that together? So this question is from Zhiwei Foo from UOB Kay Hian Singapore. Hi, thanks for taking my question. For the Property Division, apart from Thai Baht and KPN Keppel alliance gains, were there any other divestment gains or revaluation gains in the fourth quarter 2018? And how much was it? Can I ask Hon Chew to address that?
Yes, okay. I think that perhaps just to highlight a number of the more material items. I think relating to an earlier question, yes, that's the divestment and conversion gain on nonconvertible bonds. That's indeed taken up in the fourth quarter. And also there's divestment of 20% stake in OFC by Keppel REIT. That's, of course, at the associate level. And the stake in Thai Baht and SK19 this actually a Thai -- 2 Thai plots there SK19 as well SK28. So these are the main -- the divestments in fourth quarter. Yes.
So I need to ask, can I just clarify also for Keppel, at Keppel corp. So what was the -- for your gains on OFCs, so this would be -- where will we see on Slide 11? And also, which line is it in the MASNET?
So this actually under the share of associate line. So I think it will be part of Page 1 of SGXNet share of associated companies, because this is actually a sale by Keppel REIT.
Okay, sure. And sorry, just a follow-up question on, again, on property. Could you just update us on your plans for Nassim Woods?
Swee Yiow?
Nassim Wood would have commenced looking at the REIT development. So we are just in the design development stage. As in when the plans are firmer then we will make some further announcements. But tentatively, we are looking at REIT to bring it to about 100 units of high-end condominium.
Yes, I will take a question from the net. It's a question from Mayank Maheshwari of Morgan Stanley. Hope I got your name correct. In O&M market, while we have seen new order wins, can the management talk about competitive intensity? Also, what does the management think, worked for QOM 2018 in securing the new orders? Chris Ong, you want to...
I think in terms of the market competitors and the competitive intensity, the challenge and the hit win in the market is not limited to any region, it's basically [ covered ]. So for all the yachts out there and the solution providers, they'll be competing very rigorously in terms of cost base. Therefore, I think the intensity is high because they are yachts, they are competitors, they're hungry. But what worked for us in 2018, I think we stick to our core, which is our core competency: Work on our people, which is our best value. Work with our customers, be close to them, and we have been working at the front-end with a lot of our customers. We show for some of the repeat orders, returning customers. And also at the same time, investing in our people, investing in our existing facilities with new digitalization tools and also be able to work on our cost factor so that we are cost efficient. At the end of the day, it's also execution excellence. That means the ability to deliver our projects as promised within budget. And I think the customers are glad to work with us again. Most important, of course, is the safety record that we have all these years.
Thanks, Chris. Just to add 2 points. I think I've said this before. Whilst we -- O&M is always looking to win top lines, we have to remain quite disciplined especially in today's market because the market is still very competitive. So it's not just about winning orders, but it's making sure that we win the right orders from the right customers with the right profile and margins, et cetera. So this discipline has to continue. The other thing I think we have done in recent times besides rightsizing comm is that comm has also integrated further. So has made -- the 3 business units within comm, Singmarine, Keppel Shipyard and Keppel FELS are now working closely as one comm, and are sharing resources. They're sharing construction methodology. So there's a lot of synergies that have been derived through these couple of years. So I think we are -- we put ourselves in a very competitive position and we're waiting for the market to come back. Okay?
I'll take one more question from the web. This is from Mr. Foo again from UOB Kay Hian. I have 2 more questions. For SSTEC was profit from all 3 land parcels sold, recognized in the $48 million for financial year '18? Second question, with profits from land sales at $120 million in financial year '17 and $48 million in financial '18, how do you see land sales for this year? So maybe, Hon Chew, you want take the first question.
Okay. For the first question, I think Swee Yiow mentioned that there were 3 land plots that were actually sold, but not all 3 have been recognized this year. The 3 land plots, I think, in terms of the plot, the number is plot 26 and 31, which have been recognized in the year, but plot 20B has yet to be recognized. But the references, I think you can refer to Page 60 of the slide. There are some additional information on the land plots.
I think on the second question, first of all, of course, we don't give any guidance on what's this year. But certainly, land sales have been affected by the cooling measures. Cooling measures are also quite strict in terms of the sale of land, and that makes it more difficult for developers to bid. So if these cooling measures continue, then land sales could be affected. But we also see that, as I said earlier, there is a pretty good supply-demand situation in Tianjin Eco-City, where developments with sales permit should be absorbed within 6 months of launch. So I think from that score, there is a shortage of homes that can be sold. So I'm -- developers would likely be attracted to bid for land again. But again, it's difficult to predict whether this year would be better than last year. Yes?
Siew Khee. I've got some follow-up questions. Still going back to the impairment, just wanted to check, excluding the older impairment, is 4Q EBIT level, it's profitable or still a loss because there are some write-backs that could be above and...
You're referring to the Offshore & Marine.
4Q, yes, sorry, yes, Offshore & Marine.
Is it O&M -- just O&M, is it?
Yes. At operating level, is it profitable? Or if it's loss, how much is it?
Even at the net profit level, I think, excluding all the RIDs, we are profitable, even at net profit level.
EBIT level?
It should be positive.
It should be, yes.
So it's profitable, right?
Yes, yes.
Correct. I mean net profit is after interest, after tax. EBIT is before, so definitely.
Yes. So that means operationally, you are quite good. I mean, can we expect this?
Thank you. Well, we accept it's quite good. Can you expect? No answer, no answer. We hope. I mean we've been working towards this breakeven for a while. So we're glad that we've reached that.
Okay. I have 2 more questions. The other one is, is there any, I know you have delivered some rigs to Borr Drilling. Have they been paying? Or is there any challenges in receiving payments from them?
Actually, no issue. In fact, I think -- I don't know whether we can discuss -- disclose this, but there are some discussion about bringing forward some of the deliveries.
Okay. And also Keppel Capital, you had a -- excluding associate impairment at Keppel Capital, is it better? Because I remember last quarter, we had some upfront investment costs that you have made. How did you do this quarter?
There's no impairments at Keppel capital.
I think it's investments. This is under the Investments Division.
It's under -- it's from associates, I think...
It's -- that's correct.
Investments Division.
No, Keppel Capital.
So Keppel Capital is part of the Investments Divisions. Within the Investment Divisions, there were some impairment on associates, but not...
Not from Keppel Capital.
What I mean is how did Keppel Capital do with this quarter? Is it stable? Or are we...
For this year, I think it'll be -- our profits are a bit lower, partly because if you read some of the reports, we have -- we're looking to do quite a few big deals. And some of the deals are pushed to the right, partly because sometimes we have to get governmental regulatory approvals in some of the countries that we're dealing with. So timing-wise, we missed a bit of that. But I think this year, we should be closing the deal, so we should be looking to lock-in some of these fees and profits this year.
Thank you, Chris. Okay, maybe I take a question from the web. This is from Mr. Kwok of Citi Research Malaysia. What is the current stage of work on the Awilco semisub. What would be gone in earnest in 4Q 2018? And can we expect this to further ramp up, hitting into 1Q 2019 to lift O&M revenues? Why are you guys are thinking quarter-by-quarter? Can I ask Chris Ong?
I think during the last quarter, we mentioned what was start in fourth quarter. We are roughly in -- at about 10% in our progress right now, and we expect that the construction activities to hit on into 2019.
Yes, Cheryl?
Sorry, a follow-up question on O&M. When I refer to the segment analysis on the MASNET. So when I compare '14 and '15, and I look at your net assets for O&M, there's quite a big difference, a quite big jump. Maybe you could just share some thoughts on internal thinking -- on thinking of how the group is -- how capital has moved around?
Sorry, you are referring to the segment part on the net assets?
That's right, so for 2018 it's...
Comparing to 2017, there's an increase mainly because -- yes, I think there's an increase of $1.2 billion.
So it scored from $1.2 billion to $2.9 billion?
Yes. That is a capitalization done during the year. This is to help to lift up the balance sheet of Offshore & Marine, and this will be useful for them in terms of like winning contracts and so on. Although we always say we have one balance sheet, but it's still important to look at the balance sheet of our subsidiaries, especially those that need to go in bid for contracts. So that's the main reason, it's the capitalization.
And so previously this would have been solved like sitting at corp level, is that the correct way to understand it?
Well, it's from issuance of equity instruments by KOM to Keppel Corp, the parent.
Understand.
Yes.
Conrad, yes?
Sorry, just to get back to the provisions in O&M. I guess I'm interested to know if there's been any news on the Sete front itself. Have you had any more communications from them? Or has anything evolved around Sete itself?
I think it's nothing more than what you have read in the press. I think there's now an agreement in principle between Petrobras and Sete. And I think there is going to be a bid. There was going to be -- I think the bid was going to be officially launched, I think, on the 19th, right, but there has been delay. So we'll see. But I think it seems -- things seems to be coming to a head, which is good. So we're looking forward to getting this finally resolved once and for all.
Okay. If no questions from the floor, there's a question from the web. It's from [ Mr.Yee ] of -- an investor in Singapore. You have many data centers in many countries. Do you have any potential data centers coming up in China? If so, which are the cities in China that you're looking at? So maybe I ask Thomas.
Thanks, [ Mr. Yee ], for the question. In fourth quarter last year, Keppel Data Center announced a corporation agreement with Xiangjiang Science & Technology and Cloud Engine Network Technology to look at opportunities in China. And we are specifically currently doing due diligence work and negotiation in projects in cities in Bei Shang Guan, Beijing, Shanghai, Guangzhou. So we will make the announcement when we have a definitive agreement. Thank you.
Thank you. Any further questions? If not, thank you very much for your attention. Have a great year ahead.
Thank you, ladies and gentlemen, for attending the conference.