The Investments Division comprises Keppel Capital and the newly established Keppel Urban Solutions, as well as the Group’s investments in k1 Ventures, M1 Limited, KrisEnergy and the Sino‑Singapore Tianjin Eco‑City (Eco‑City).
The Investments Division generated a revenue of $173 million for FY 2017, an increase of $39 million or 29% from the previous year. The Division’s pre‑tax profit was $343 million, up $260 million from FY 2016, mainly due to increased contributions from Keppel Capital, as well as higher share of profit from the Eco‑City and k1 Ventures, write‑back of provisions for impairment of investments and profit on sale of investments. These were partially offset by share of losses from KrisEnergy and recognition of fair value loss on KrisEnergy warrants.
Accordingly, the Division delivered a net profit of $235 million for FY 2017, up from $36 million a year ago. The Investment Division represents 28% of the Group’s total net profit for FY 2017, excluding Keppel Offshore & Marine's one‑off financial penalty from the global resolution and related costs.
|Earnings Highlights ($m)|
|Profit before Tax||343||83||207|
|Average Headcount (Number)||416||286||180|
With a larger and integrated asset management platform, Keppel Capital is delivering stronger performance. On a fully leveraged and invested basis, total assets under management (AUM) reached $29 billion as at end‑2017, up from $25 billion as at end‑2016.
The listed REITs and Trust delivered positive total Unitholder returns in 2017 and made several strategic acquisitions, enhancing their recurring income streams.
Meanwhile, the private funds managed by Alpha Investment Partners (Alpha) registered strong fundraising efforts. Collectively, the private funds under Alpha invested in over US$910 million worth of real estate and data centre assets, and captured value through the divestment of 11 assets worth over US$880 million.
For the whole of 2017, the Group earned asset management fees totalling $134 million, up from the $128 million earned for FY 2016. The REITs and Trust contributed approximately 60% of total asset management fees, while private funds contributed the remaining 40%.
Keppel REIT Management and Alpha continued to pursue strategic acquisitions and portfolio enhancements, including selectively seeking acquisitions for long‑term income and capital appreciation. In July 2017, Keppel REIT acquired a 50% interest in the new office tower to be developed at 311 Spencer Street, Melbourne. Through Keppel REIT Management’s proactive leasing strategy, the committed occupancy of the REIT’s portfolio remained high at 99.7%, while tenant retention was 95%.
In November 2017, the Keppel‑KBS US REIT was listed on the Main Board of the Singapore Exchange, raising gross proceeds of approximately US$553 million. The REIT has a portfolio of 11 quality investment assets in key US growth markets, and drew positive demand from institutional and retail investors during the international placement and public offering.
Meanwhile, the Alpha Asia Macro Trends Fund III raised approximately US$560 million in 2017.
Keppel DC REIT Management stayed focused on its disciplined approach of seeking quality income‑producing acquisitions in key data centre hubs across Asia Pacific and Europe.
In 2017, the REIT added Keppel DC Singapore 3 and Keppel DC Dublin 2 to its portfolio, bringing the total number of facilities under management to 13. These strategic additions enhanced income stability for the portfolio and solidified the REIT’s presence in key markets. As at end‑2017, Keppel DC REIT’s portfolio occupancy remained healthy at 92.6%.
During the year, the Alpha Data Centre Fund closed at US$1 billion, double its initial target size.
All of Keppel Infrastructure Trust’s (KIT) Singapore concessions and contracted assets met their contractual performance requirements and received full availability payments for 2017. City Gas continued to deliver steady growth and secured its 800,000th customer in 2017.
In Australia, Basslink met its contractual availability during the year. KIT announced in November 2017 that it was undertaking a strategic review of its interests in the Basslink interconnector in response to a number of parties which had expressed interest in acquiring the asset.
Looking ahead, KIT will continue its disciplined approach of seeking acquisition opportunities for core and core‑plus infrastructure assets.
As an integrated asset manager, Keppel Capital continues to draw on synergies from its increased scale and operational efficiencies. The company continues to play a key role in working with the Group’s diverse business units to develop, own and operate real assets.
Keppel Capital strives to be the trusted partner for investors, and will continue to pursue both organic and inorganic growth opportunities to grow its AUM to the $50 billion target by 2022, boosting the Group’s funding capabilities and expanding its capital base.
Sino‑Singapore Tianjin Eco‑City
The Eco‑City, which celebrates its 10th anniversary in 2018, remains on track to realising its vision of becoming a model for sustainable urbanisation in China. Leading the Singapore consortium, Keppel works with its Chinese partner to guide the 50‑50 joint venture – Sino‑Singapore Tianjin Eco‑City Investment and Development Co., Ltd. (SSTEC) – in its role as master developer of the Eco‑City.
To date, some 80,000 people live and work in the Eco‑City, which boasts over 5,800 registered companies, 17 schools with close to 10,000 students, three neighbourhood centres, four libraries, three health services centres and a hospital among its amenities. Construction of the new Z4 rail line is on track for completion in 2020.
Demand for the Eco‑City’s homes remained strong in 2017, with over 4,000 homes sold despite a series of cooling measures driving a softening of Tianjin’s overall home sales market. Reflecting the market’s growing confidence in the Eco‑City, during the year, three residential land parcels were sold at record prices of around RMB 13,800 psm of gross floor area (GFA) at a land auction in early‑2017.
With the focus of the development shifting to the Central District, SSTEC has embarked on a new urban design scheme for the district, which will become the main commercial, hotel and recreation hub of the Eco‑City. Meanwhile, work on the Sino‑Singapore Friendship Garden and Sino‑Singapore Friendship Library is on‑going.
In February 2017, Singapore’s Deputy Prime Minister Teo Chee Hean and Minister for National Development and Second Minister for Finance Lawrence Wong met their Chinese counterparts in Beijing for the Joint Steering Council meeting, affirming the Eco‑City’s progress.
The various business units of the Keppel Group continued to contribute towards the growth of the Eco‑City by providing solutions for urban living, clean environment and connectivity.
In 2017, Keppel Land China sold 1,017 homes in the Eco‑City. As at end‑December 2017, Keppel’s Seasons Garden has sold 97% of its 1,190 units, Seasons Residences has sold over 62% of its 380 launched units, and Seasons Heights has sold all of its 124 launched units. Meanwhile, Waterfront Residences was almost fully sold as at end‑December 2017.
Other businesses within the Group also contributed to the Eco‑City’s development. Keppel T&T’s logistics distribution centre in the Eco‑Industrial Park maintained its occupancy at an average of 65% for 2017.
The Sino‑Singapore Tianjin Eco‑City Water Reclamation Centre, a joint venture between Keppel Infrastructure and Tianjin Eco‑City Investment and Development Co., Ltd, was officially opened by Singapore's Deputy Prime Minister Tharman Shanmugaratnam in June 2017. The Centre treats wastewater effluent from an existing wastewater treatment plant to produce recycled water that meets China’s most stringent standards for urban miscellaneous water consumption.
Keppel Urban Solutions
Keppel Urban Solutions (KUS) was established in 2017 to further the Group’s objective of providing solutions for sustainable urbanisation. KUS is an end‑to‑end master developer of urban developments, which leverages the Group’s experience and strong track record of over two decades in the planning and development of large‑scale projects in the Asia Pacific.
KUS brings together the Group’s diverse capabilities in energy, property, infrastructure and connectivity to create highly liveable, vibrant, digitally connected and sustainable communities.
Through strategic partnerships and an open platform, KUS collaborates with best‑in‑class partners to create smart infrastructure ecosystems. KUS is partnering Microsoft to develop smart urban applications, using sensing technology and Internet of Things (IoT), to efficiently manage infrastructure and community services in projects developed by KUS. KUS has also partnered Envision, a global leading smart energy management company, to leverage Envision's technologies and expertise in IoT, as well as its global eco‑system of energy solutions and services, to advance KUS' business and offerings for integrated urban development and operations.
KUS’ capabilities will be applied in its pilot project, Saigon Sports City (SSC), a 64‑hectare township that Keppel Land is developing in the prime District 2 of Ho Chi Minh City, Vietnam. SSC is envisaged to be a bustling hub, combining high‑quality urban living with modern healthy lifestyle concepts.
Trading conditions based on oil price improved for KrisEnergy in 2017 as Brent crude futures recovered, averaging US$55 per barrel (bbl) for the year. However, oil prices continued to be volatile, touching three‑year highs above US$70/bbl in January 2018 before skidding to its biggest weekly loss in two years at around US$62/bbl in February 2018. While average oil prices have recovered, trading and financing conditions remained turbulent. Such fluctuations have caused significant uncertainty in the upstream sector's ability to plan and commit to capital expenditure, and continues to dent investor sentiment and reduce avenues to capital.
In 2017, KrisEnergy reported revenues of US$141 million, stable year‑on‑year as higher average selling prices for both crude oil and liquids as well as natural gas offset lower year‑on‑year sales volumes. FY 2017 operating margins improved significantly, mainly due to a focus on cost‑cutting measures and reduced depreciation, depletion and amortisation charges. Net losses for FY 2017 narrowed to US$139 million from US$237 million in FY 2016, due to improved operating margins, offset by non‑cash impairment charges and write‑offs for non‑core assets as the company directed capital and operational resources towards the Gulf of Thailand and Bangladesh.
During the year, KrisEnergy’s working interest production averaged 12,745 barrels of oil equivalent per day, a decrease of 21% from 2016. Infill drilling at the Wassana field in the Gulf of Thailand was deferred to 4Q 2017 from 1H 2017. Also in the Gulf of Thailand, the Tantawan field and production facilities in licenses B8/32 and B9A permanently ceased production. Meanwhile, natural decline and intermittent weather disruptions curtailed production in other fields.
As at end‑December 2017, KrisEnergy’s working interest proved plus probable (2P) reserves were estimated at 83.5 million barrels of oil equivalent (mmboe), a reduction of 13.6% from 96.6 mmboe in 2016, mainly due to KrisEnergy’s reduced working interest in the Block A Aceh production sharing contract. This was partially offset by a reclassification to 2P reserves of 8.1 million barrels of oil from contingent resources associated with the Apsara development in Cambodia Block A.
Health, safety and the environment remained a priority and KrisEnergy recorded 1,587,181 man‑hours on its operated assets with zero lost time injuries in FY 2017.
In January 2017, KrisEnergy successfully extended its debt profile to 2022 and 2023 in the case of the existing $330 million senior unsecured notes, and issued $139.5 million new zero coupon secured notes (ZCNs) due 2024 combined with detachable warrants. Keppel’s wholly‑owned subsidiary, Keppel Oil & Gas, successfully subscribed for 107,205,985 ZCNs with 964,853,865 Warrants, pursuant to an irrevocable undertaking.
Following the completion of its Consent Solicitation Exercise and financial restructuring, KrisEnergy also revised its strategic and operational goals. In line with its strategy of increasing production and cash flows by focusing on existing producing fields and near‑term development projects, KrisEnergy has divested three non‑core assets since late‑2016 and ceased development activities in the Block A Aceh Production Sharing Contract to focus capital resources on the strategic core area of the Gulf of Thailand. Accordingly, total capital expenditure for 2017 was US$68.7 million, significantly lower compared to the mid‑year forecast of US$110.3 million, as KrisEnergy reduced expenditures in Aceh and deferred infill drilling in the Wassana field.
In the upstream oil and gas sector, capital and financial management remains essential. KrisEnergy continues to review, evaluate and execute strategic options to further bolster its financial position. Without compromising health and safety, KrisEnergy remains vigilant in extracting all possible operational efficiencies to maximise operating free cash flow from all its existing producing fields.
As at end‑2017, M1’s total customer base grew by 2% to 2.23 million. During the year, M1 grew its mobile customer base by 1% to 2.04 million, while fibre customers increased by 18% to 189,000. Overall mobile market share increased to 24.0% as at end‑November 2017, compared to 23.8% as at end‑2016.
With a strong focus on network quality, customer service, innovation and value, M1 introduced a host of new offerings and enhanced its existing products in 2017. This includes the introduction of Singapore’s first unlimited data 4G mobile plan and several innovative large‑data‑bundled plans to meet consumers’ growing data needs for social networking, and mobile video and music streaming services.
During the year, M1 also stepped up its financial and cyber security service offerings, launching Asia’s first network‑based mobile malware detection solution, and a new digital mobile remittance service.
To accelerate smart solutions innovation and support Singapore’s transformation into a Smart Nation, M1 launched Southeast Asia’s first commercial nationwide NB‑IoT (Narrowband Internet of Things) network. To date, M1 and its partners have available IoT solutions such as smart energy management for buildings, environmental monitoring, asset tracking and fleet management.
In the corporate segment, M1 launched the world’s first symmetrical 10Gbps passive optical network connectivity service, as well as a next‑generation unified operations monitoring centre, and expanded its fibre‑to‑the‑building infrastructure with full redundancy capability to more than 55 commercial buildings.
M1 will continue its transformative journey to become a Smart Communications Provider, building up information and communications technology capabilities, as well as a portfolio of digital solutions enhanced with data analytics, to capitalise on new growth opportunities.
k1 Ventures (k1) completed the disposal of its last two investments in 2017, comprising the divestments of interests in KUE 3 LP and in Guggenheim Capital, LLC (Guggenheim) for a gross cash consideration of about US$29 million and US$221 million respectively. Following the completion of the Guggenheim disposal in November 2017, k1 had disposed of substantially all of its assets and property. The company has since distributed its excess cash to shareholders and commenced the voluntary liquidation process.