Evolution is the reason why nature’s flora and fauna have become so diverse.
Similar to organisms, companies also need to constantly evolve as the business environment changes.
Keppel Corporation Limited (SGX: BN4) is taking this wisdom to heart.
The blue-chip group has announced the next phase of its transformation by embarking on a major reorganisation to simplify its operating structure and go asset-light.
It’s a great move by management.
Marc Benioff, the CEO of Salesforce (NYSE: CRM), has been quoted saying “You must always be able to predict what’s next and then have the flexibility to evolve.”
Keppel is taking on this mantra by ensuring that it stays ahead and evolves to fulfil future needs.
Here are five things you should know about the group’s reorganisation.
1. The creation of three platforms
As part of its reorganisation, Keppel will adopt a horizontally-integrated business model with three distinct platforms.
These three platforms are the Fund Management Platform, Investment Platform, and Operating Platform.
The focus of the Fund Management Platform is to raise capital for the group and engage with and forge strong relationships with investors.
Capital deployment decisions are the mainstay of the Investment Platform as this division seeks to create value for investors.
Finally, the Operating Platform will house all of the group’s existing business units and will leverage Keppel’s shared support functions for better synergies.
By streamlining its structure, Keppel plans to remove its conglomerate structure to form one integrated business.
It will also be on track to achieving its vision of being asset-light so that the group can enjoy healthy business synergies.
2. Identifying macro trends
Keppel has identified macro trends that can act as catalysts to take its business to the next level.
There are four clear trends that the group has identified.
The first is investors increasing their allocation to real assets, while another is the switch from fossil fuels to alternative, cleaner sources of energy.
Preqin estimates that the alternatives assets under management (AUM) will grow by 5.8 times from US$4 trillion back in 2010 to an estimated US$23.2 trillion by 2026.
Next, Keppel has also identified digitalisation and ageing populations as trends that it can tap into.
These four trends act as opportunities for the group to seize as it scales up its commitment to achieving its Vision 2030 objectives.
3. Updating its Vision 2030 goals
It has been three years since Keppel first announced its Vision 2030 goals back in May 2020.
Back then, it already has the goal of being asset-light and achieving a target return on equity of 15%.
The group has progressed significantly since then as it has divested its Offshore and Marine business to Seatrium Limited (SGX: S51) and retained a 5% stake in the new entity.
Keppel is now updating its Vision 2030 goals by setting new targets.
AUM is targeted to grow fourfold from the current S$50 billion to S$200 billion by 2030.
Cumulative asset monetisation is projected to reach S$5 billion by this year and hit S$17.5 billion in seven years.
Keppel has set intermediate targets of S$100 billion AUM and S$10 billion to S$12 billion in asset monetisation by 2026.
With synergies derived from centralising and optimising support functions across its platforms, the group hopes to achieve S$60 to S$70 million in annual savings by 2026.
4. Devising a virtuous investment cycle
Keppel has a clear plan on how to achieve its S$200 billion AUM target.
It intends to achieve this with the creation of a virtuous investment cycle by harnessing its three platforms.
First off, the Fund Management Platform will raise funds, acquire assets and optimise its portfolio.
The Investment Platform then builds a pipeline of quality investments with attractive return profiles.
Finally, Keppel’s Operating Platform will add value to management’s operating expertise and drive attractive investment performance.
Investors who enjoy healthy returns will then be encouraged to pump in more funds so that Keppel can gather assets at an accelerated pace, thus bringing it closer to its eventual target.
5. A change in reporting structure
For its fiscal 2023’s first-half earnings, Keppel will adopt a new reporting structure known as horizontal reporting.
By doing so, the group hopes to demonstrate its ability to capture multiple income streams through its new operating model.
This new reporting will also turn investors’ attention to Keppel’s recurring income generation and will throw the spotlight on the growth and scalability of its fee-based asset management arm.
Additional disclosures will also accompany this new reporting structure to help investors to better understand and value the group.
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Disclosure: Royston Yang does not own shares in any of the companies mentioned.
