Keppel(KPELY) - 2023 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - For the full year 2023, Keppel achieved a record net profit of approximately S$4.1 billion, more than quadrupling the profit from financial year 2022, which was attributed to gains from the divestment of the offshore and marine business [7][34] - Return on equity (ROE) for financial year 2023 was 37.9%, significantly higher than 8.1% in the previous year [7][35] - Net profit from continuing operations was S$996 million, a 19% increase from S$839 million in financial year 2022 [7][35] - Free cash outflow was S$384 million, slightly improved from S$408 million in the previous year [39] Business Segment Data and Key Metrics Changes - The Infrastructure segment reported a net profit of S$699 million for financial year 2023, a 135% increase from S$297 million in 2022, driven by strong operating income growth [36][43] - The Real Estate segment contributed S$426 million in net earnings, despite challenging market conditions in China, representing a decline compared to the previous year [37][46] - The Connectivity segment's net profit increased by 30% year-on-year to S$127 million, supported by higher recurring income and gains from capital recycling [50] Market Data and Key Metrics Changes - The company has monetized over S$3 billion of assets in China since 2017, with total profits exceeding S$1 billion [16] - As of the end of 2023, the adjusted net debt to EBITDA ratio was 4.6 times, indicating improved financial health [13][38] - The company raised S$2.3 billion in equity and completed S$2.5 billion worth of acquisitions during the year [20][22] Company Strategy and Development Direction - Keppel is transitioning from a conglomerate structure to a global asset manager and operator, with a focus on recurring income and asset-light operations [3][4] - The proposed acquisition of Aermont Capital is expected to enhance Keppel's growth as a global asset manager [4][27] - The company aims to achieve a funds under management (FUM) target of S$200 billion by 2030, with a current FUM of S$55 billion [22][30] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's growth trajectory, despite external challenges, and emphasized the importance of focusing on recurring income [6][25] - The company anticipates increased fundraising and deal-making activities as inflation eases and interest rates stabilize [25] - Management highlighted the importance of sustainability and digitalization trends in driving demand for Keppel's solutions [25][26] Other Important Information - The board proposed a final cash dividend of S$0.19 per share for financial year 2023, higher than the previous year's final dividend [11] - The company has secured S$1 billion in sustainability-linked revolving credit facilities for general corporate purposes and business opportunities in sustainability [14] Q&A Session Summary Question: Growth expectations and divestment targets for 2024 - Management noted that while 2023 set a high benchmark, they expect to continue improving and are focused on recurring income and asset-light operations [55][57] Question: Details on dry powder for funds and asset classes - Management indicated that they are actively pursuing opportunities in the market and expect to see a faster pace of investments in 2024 [64][66] Question: Sustainability of infrastructure operating earnings - Management expressed confidence in the sustainability of infrastructure earnings due to long-term contracts and strategic partnerships [60][70] Question: Power purchase agreements and profitability - Management highlighted that their contracts are fully hedged or indexed pass-through, reducing fuel volatility risk [78] Question: Plans for platform deals and focus on Aermont acquisition - Management confirmed they are open to other platform deals but emphasized the rarity of finding the right fit [82] Question: Risks of impairments in China assets - Management acknowledged the challenging market in China but expressed confidence in their unique capabilities to improve asset values [86][87]