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Keppel Ltd. (Keppel) reported its highest net profit in history of S$4.1 billion for the full year ended 31 December 2023. Bolstered by a S$3.3 billion disposal gain from the divestment of the offshore and marine (O&M) business, FY23’s net profit more than quadrupled the net profit of S$927 million in FY22. Return on Equity (ROE) was 37.9% in FY23, compared to 8.1% in FY22.
Net profit from continuing operations was S$996 million in FY23, about 19% higher than S$839 million in FY22, excluding the discontinued O&M operations in both years and loss from the distribution in specie of Keppel REIT units. All three horizontal segments – Infrastructure, Real Estate and Connectivity – were profitable in FY23, with Infrastructure’s net profit rising sharply by 135% year on year (yoy) to S$699 million bolstered by the integrated power business. Despite challenging conditions in markets like China, the Real Estate segment continued to perform creditably and contributed a significant S$426 million[3] to FY23’s net profit.
In November 2023, the Company distributed Keppel REIT units in specie to Keppel shareholders, which resulted in an accounting loss of S$111 million. Including this distribution loss, net profit from continuing operations was S$885 million in FY23, or 6% higher yoy. About 88% of FY23’s net profit from continuing operations comprised recurring income, which rose 54% yoy to S$773 million from S$503 million in FY22.
For 2H23, Keppel’s net profit from continuing operations grew 36% to S$551 million, from S$405 million in 2H22, excluding the distribution loss from Keppel REIT units. Including the distribution loss, net profit for 2H23 was S$440 million, an increase of 9% yoy.
The Company’s revenue from continuing operations in FY23 was S$6,967 million, an increase of 5% or S$347 million from S$6,620 million in FY22, underpinned by higher contributions from the Infrastructure and Connectivity segments.
Against the challenging landscape, Keppel has delivered superior value to its shareholders, achieving Total Shareholder Returns (TSR) of 49.3% for 2022 and 61.1% for 2023, far exceeding the Straits Times Index’s TSR in both years[4].
Mr Loh Chin Hua, CEO of Keppel, said, “We have harnessed Keppel’s industrial roots to transform into a global asset manager and operator, with complementary segments in Infrastructure, Real Estate and Connectivity, all of which are contributing positively to Keppel’s earnings. Our strong investment track record, built up over 20 years, as well as our operating capabilities and domain knowledge, provide an unparalleled value proposition to the investors in our private funds, REITs and Trust. Investors also find our active value adding approach to creating superior returns appealing.
“Keppel’s shareholders have also benefited - and will continue to benefit - from our transformation. I am confident that Keppel is well positioned to ride the next S-curve of quality sustainable growth. Our resilience, underpinned by a strong focus on providing investment solutions and meeting basic needs for clean power, green environment and connectivity, helps us navigate an increasingly complex world.”
Steady progress in fund management
In FY23, Keppel achieved S$283 million in asset management fees[5], up 6% yoy. Over this period, Keppel’s private funds and listed real estate and business trusts raised about S$2.3 billion in equity, completed S$2.5 billion in acquisitions and divested S$0.5 billion of assets.
Keppel continued to make good progress on its fund initiatives, achieving closings of US$575 million for the Keppel Core Infrastructure Fund and RMB 1.6 billion for the China-focused Sustainable Urban Renewal programme. It also obtained full ownership of Keppel Credit Fund Management, formerly Pierfront Capital, with the acquisition of the remaining 50% stake.
As at end-December 2023, Keppel’s Funds Under Management[6] (FUM) grew to S$55 billion from S$50 billion a year ago. In November 2023, Keppel announced the proposed strategic acquisition of leading European asset manager, Aermont Capital to accelerate its growth at a global scale. When Phase 1 of the acquisition is completed in 1H24, Keppel’s FUM[6] is expected to grow to about S$79 billion, or close to 80% of the Company’s interim target of S$100 billion by 2026.
In the years ahead, infrastructure is expected to be one of the fastest-growing asset classes, supported by the global energy transition and decarbonisation trends, as well as rising demand for digital connectivity.
Speaking on the opportunities, Mr Loh said, “We have seen M&A transactions involving major global asset managers, as they sought to expand in the infrastructure space. Keppel is in an enviable position, as we are already an established infrastructure asset manager and operator with an AUM[7] of S$20 billion in this space. We have deep domain knowledge and operating capabilities in three segments in the alternative real asset space, namely Real Estate, Infrastructure and Connectivity. This allows us to provide diversity of fund products and better value propositions for our LPs. With conditions in the capital markets improving, we have a quality deal flow pipeline of over S$14 billion, the majority of which are in the infrastructure and connectivity segments.”
Asset-light, capital efficient growth
In 2023, Keppel exceeded the upper bound of its three-year asset monetisation target of S$3-S$5 billion, announcing the monetisation of about S$5.4 billion of assets since October 2020. About S$4.1 billion in cash was released over this period for reinvestment and to reward shareholders, advancing the Company’s asset-light strategy.
Despite the high interest rate environment, Keppel has managed its capital astutely, leading to its interest costs rising at a relatively moderate pace over the past few years. In the three years from end-2020 to end-2023, the Company’s cost of funds increased by a moderate 150 bps, compared to the three-year swap rate, which rose significantly by about 240 bps over the same period. As at end 2023, about 66% of the Company’s borrowings were on fixed rates, with interest cost of 3.75% and weighted tenor of about three years, while Adjusted Net Debt to EBITDA[8] was 4.6x.
Keppel continues to monitor and manage its risk exposure prudently in the volatile environment. Amidst growing demand for offshore drilling assets as well as improving utilisation and day rates, Asset Co has performed well and had a cash balance of about S$950 million as at end-2023. In China, the Real Estate Division has monetised over S$3 billion of assets since 2017, including S$94 million in 2023, and recognised a cumulative profit of more than S$1 billion. Over the same period, more than S$5 billion of cash was repatriated from China, some of which was reallocated to pursue opportunities in different asset classes and countries, leveraging the Company’s asset-light model.
Rewarding shareholder
On the back of Keppel’s strong performance and reflecting confidence in the Company’s growth trajectory, the Board has proposed a final cash dividend of 19.0 cents per share for FY23. Including the interim dividend of 15.0 cents per share paid to shareholders in August 2023, the total cash dividend for FY23 is 34.0 cents per share, which is higher than the 33.0 cents per share in FY22. The FY23 total cash dividend translates into a yield of 4.7% based on Keppel’s closing share price of S$7.16 as at market close on 31 January 2024.
Including the distributions in specie of then Sembcorp Marine shares and Keppel REIT units, Keppel shareholders would be receiving total dividends amounting to about S$2.70[2] per Keppel share for FY23. The proposed final dividend, when approved at the annual general meeting to be held on 19 April 2024, will be paid to shareholders on 8 May 2024.
Financial Highlights
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[1] Excludes discontinued O&M operations and loss from the distribution in-specie of Keppel REIT units.
[2] Based on the closing price of Sembcorp Marine shares as at 1 March 2023 of 11.5 cents per share (the first trading day following completion of the combination transaction), the cash equivalent amount of the dividend declared by the Company was S$3,845 million, equivalent to approximately S$2.19 per Keppel share, based on the Company's issued and paid-up share capital as at the record date (for such dividend in specie) of 1,751,959,918 Keppel shares (excluding treasury shares).
[3] Excludes loss from the distribution in-specie of Keppel REIT units.
[4] Source: Bloomberg
[5] Includes 100% fees from subsidiary managers, joint ventures and associated entities, as well as share of fees based on shareholding stake in associate with which Keppel has strategic alliance.
[6] Gross asset value of investments and uninvested capital commitments on a leveraged basis to project fully-invested FUM.
[7] Includes carrying values of identified assets on the balance sheet, as well as gross asset values of certain identified underlying assets held in joint ventures, that can be potentially converted into fee-bearing FUM.
[8] Adjusted net debt is defined as net debt less carrying value of non-income producing undeveloped land and properties held for sale (completed and under development), while EBITDA refers to profit before depreciation, amortisation, net interest expense and tax.
About Keppel Ltd.
Keppel Ltd. (SGX:BN4) is a global asset manager and operator with strong expertise in sustainability-related solutions spanning the areas of infrastructure, real estate and connectivity. Headquartered in Singapore, Keppel operates in more than 20 countries worldwide, providing critical infrastructure and services for renewables, clean energy, decarbonisation, sustainable urban renewal and digital connectivity. Keppel creates value for investors and stakeholders through its quality investment platforms and diverse asset portfolios, including private funds and listed real estate and business trusts.
