Clp Holdings Ltd S/Adr

Good afternoon, everybody, and welcome to 2022 Annual Results for CLP Holdings. My name is Marissa Wong, Director of Investor Relations, and I'm joined by Chief Executive Officer, Mr Richard Lancaster, and Chief Financial Officer, Mr Nicola Tissot, who will both be delivering the briefing today. We will follow our usual practice and hear from Richard on CLP's 2022 overview, as well as strategic outlook, and then Nicola on our financial results. This will be followed by a Q&A session. For Zoom participants, please use your raised hand icon to ask a live question. And for you joining webcast, please submit your questions through the Q&A box at the bottom right hand of your screen. Some housekeeping matters before we begin. We lodged our 2022 Annual Results announcement with the Hong Kong Exchange around midday today. The announcement, this briefing and the presentation will be available online later. And please remember to read the disclaimer on slide one. With that, I will now hand over to Richard to begin the briefing. Thank you, Richard.

Good afternoon, ladies and gentlemen, and welcome to our 2022 Annual Results presentation. 2022 was a year of challenges and shocks. The events we experienced were unprecedented and they fundamentally saw the energy sector change and the world playing catch up to this change. The Russia Ukraine conflict impacted all of us. Energy costs increased as countries clamoured to secure energy. We saw inflation and rising interest rates putting pressure on the cost of living and the acceleration of the energy transition as the world looked for ways to address climate change. All of these were against the backdrop of a lingering pandemic and the uncertainty of international politics. It certainly was one of the most challenging times in recent years. It also demonstrated that to be a critical energy supplier has its opportunities and also deep responsibilities. Our response is to continue to address all three elements of the energy trilemma, that is to provide reliable, affordable and cleaner energy. We've taken action to smooth energy costs in support of customers by freezing the basic tariff in Hong Kong and providing support packages to vulnerable customers. We're investing in infrastructure and strengthening partnerships that are needed for an orderly transition. We've taken steps to phase out coal plants responsibly so as to reduce our emissions. And we've adapted to the volatility and we've got things done that were in our control with care for people, customers, community and the environment and always with performance at the centre. Now, turning to COP's 2022 financial year performance, we delivered steady growth in earnings in our core markets, Hong Kong and mainland China, while maintaining a strong financial profile and investing for the future. The performance in Hong Kong was again dependable as we complete the infrastructure foundations needed for the transition to cleaner energy. In mainland China, our diversified portfolio delivered strong results and we stepped up the pace of our investments in renewable energy. But our business in Australia saw the impact on earnings of low baseload generation and reflected a very volatile and complex market. We continued our ongoing capital management discipline with a constant eye to returning reliable dividends to our shareholders and pursuing growth opportunities in the energy transition. And finally, with a clear path to net zero embedded in our business, we're well positioned to decarbonize our business, invest in clean energy infrastructure and services, and capture opportunities in the age of electrification. And turning to COP's highlights for 2022, our core markets of Hong Kong and mainland China achieved a strong performance with earnings of $10.9 billion, which was 8% higher than 2021. However, the group's performance was affected by Energy Australia's operating loss and the unrealised accounting fair value movements. And before factoring in the impact of the fair value loss, the COP reported a reduction in operating earnings of 23% to $7.6 billion. With the unrealised fair value loss, operating earnings were at $4.6 billion, which were reduced by 51% compared to 2021. The Board remains confident in the Group's prospects and has approved a fourth interim dividend at $1.21 per share, and this brings the total dividend for 2022 to $3.10 per share, the same as 2021. Based on the year-end closing share price, this provides a yield to investors of 5.4%. Turning to our operating performance, I want to acknowledge our people who've stayed focused on operating our assets safely and ensuring our customers were provided with their energy needs. A cable bridge fire in June led to a loss of supply to some of our customers in the New Territories West region. This impacted our unplanned customer minutes lost, which is our main reliability metric. We've conducted a detailed fire risk assessment of all of our facilities and the necessary follow-up steps to safeguard against any repeat of this unfortunate incident. On other operational matters, our customer accounts in Hong Kong and Australia grew and our greenhouse gas emissions in intensity continued to reduce. And we continue to invest in the transition to clean energy, adding solar and battery projects in China, wind projects in India and storage in Australia. And I'll now hand over to Nicolas to take you through our financial results in more detail.

Thank you, Richard, and good afternoon. Coming back to operating earnings for the group, it is important to highlight that our businesses in our core markets, Hong Kong and mainland China, delivered very robust results, with combined earnings increasing by $0.8 billion to $10.9 billion. The results of our Australia business reflected the challenging environment that Richard spoke about and entirely explains why the Group's operating earnings before and after Energy Australia fair value movements were down 23% and 51% respectively. Throughout 2022, we flagged that earnings in Australia would be weak. The lower against forward sold generation of our coal-fired power plants in a period of high wholesale prices led to a loss of $2.3 billion before negative fair value movements. Including the fair value losses of negative $3 billion after tax, which improved from $8 billion at the half year, again reflecting the volatility, we reported operating earnings of $4.6 billion, 51% lower than 2021. To a far lesser extent, lower capacity tariff at Jajar in India and high coal prices at Hoping in Taiwan impacted contributions from those regions. Adjusted for some negative items affecting comparability, which mainly represent the accounting impact of the sell-down of Aprava Energy, total earnings for 2022 were $924 million. All in all, these accounts bear the mark of the global energy crisis impact on our Australia business, while our core earnings base here in Hong Kong and mainland China have proved very robust and resilient. This slide reconciles our group operating earnings with the metric we use to discuss segment underlying operating performance in more detail, namely the adjusted current operating income or ACOI. As a note to our investors, after careful consideration, we will be moving away from ACOI and adopting more straightforward metrics of EBITDAF and adjusted operating earnings to better reflect the evolution of the group. Our strategy is now focused on our integrated development in Hong Kong and mainland China while we manage our overseas businesses as self-funded entities. In some cases, in partnership, if it better supports our development, like in India. Therefore, reporting a commonly used consolidated EBITDAF which can help compare CLP with other companies in our industry and then studying specifically each business unit performance on an adjusted operating earnings basis makes a lot of sense. So you will see ACOI for the last time today as we will start reporting with these new metrics for our 2023 interims. Of course, we will continue to provide ACOI as a reference throughout the year. Back to the reconciliation. In summary, we recorded a pre-tax unfavorable fair value movement, which is primarily related to Energy Australia's forward energy contracts. Financing costs were higher to meet Energy Australia's liquidity requirements and other operational needs in the group. Tax expenses were lower, mainly as a result of reduced taxable base driven by the loss in Australia. As a result, in 2022, we report a consolidated ACOI of 11.9 billion, or a 22% decrease compared with the prior year, before adjusting for foreign exchange movements. Moving now to a discussion of ACOI. After adjusting for year-on-year foreign exchange movements, the reduction was 20%. The negative foreign exchange impact, aggregating to $293 million, reflects a strong Hong Kong dollar against Renminbi, Australian dollar and rupee. As illustrated clearly in this chart, the reduced contributions mainly came from Australia. I will now address each of the business units in turn. From here, all variances will exclude foreign exchange. Looking at the performance of Hong Kong, the slightly higher ACOI reflected the ongoing investment in electricity infrastructure to ensure a reliable and cleaner supply to our customers. In 2022, on an accrual basis, we invested $12.6 billion of capital expenditure, which was 12% higher than in 2021. This was made up of $6 billion in transmission distribution and smart meters, and another $6.6 billion in low-carbon emitting generation facilities. 2022 was a busy year in Hong Kong where we did our best to minimize the impact of fuel costs on customers. We worked to keep the basic tariff at 93.7 cents per unit of electricity for 2022, the same level as it was in 2021. Although, inevitably, there was an increase in the fuel component of the tariff at the start of the year to reflect higher fuel costs, it is worth noting that the scale did not reach the magnitude seen in many other parts of the world. We acknowledge that this is a challenging time for customers, particularly with the rising cost of living. So we have allocated $200 million to support families in need and have again committed to freeze the basic tariff at 93.7 cents for 2023. Despite disruptions to global supply chain, we are delivering on our key infrastructure projects. The offshore LNG regasification terminal will go into service this year and the second state-of-the-art combined cycle gas turbine at Black Point is scheduled for full operation in early 2024. The demand for energy efficiency and emission reduction solutions continues to grow. Our wholly owned subsidiary, CLPE, is scaling up to deliver urban and industrial solutions across power, heating, cooling, transportation and data centres. Looking ahead, we are working closely with the Hong Kong government to finalize the next five-year development plan, which will start in 2024 and continue to invest in low-carbon energy systems to deliver secure and affordable electricity. Over now to our second home market, mainland China. Where our diversified portfolio performed well and recorded an ACOI of $2.8 billion, 38% higher than the low point of 2021, which was strongly impacted by high coal prices. Earnings from nuclear continued to be high, with Yanyang achieving record electricity generation. Output from our renewable energy portfolio rose because of higher hydro resources and the early commercial operation of our 100 MW Qianyan III wind farm. Altogether, contributions from the non-carbon emitting portfolio now account for most of our earnings in China. The positive variance in thermal earnings was due to a negative one-off adjustment in 2021 for the Shandong joint venture assets that was not repeated in 2022, together with high contributions from coal-fired projects thanks to higher tariffs. In line with our commitment to phase out coal from our portfolio by 2040 and focus on zero-carbon projects, we sold our 70% stake in Fan Qinggang. The proceeds will indeed allow us to release resources to invest in energy transition in mainland China. With the support of the central government, there was an increase in the collection of delayed national subsidies in 2022, allowing for a stabilization of the associated receivables position in Renminbi. Thanks to the stronger Hong Kong dollar against Renminbi, the subsidy receivables stood at HK$2.1 billion at the end of December 2022 versus HK$2.3 billion at the end of 2021. We remain positive about our long-term prospects in mainland China with a healthy grid parity renewables pipeline and the expansion of our integrated energy services to the Greater Bay Area. Turning to Engie Australia's financial results, it was a tough year, where tight market supply led to extremely high wholesale prices and subsequently the unprecedented suspension of the national electricity market in June. The profitability of our baseload plants, Mount Piper and Yellow Horn, were severely impacted for not being able to generate the volumes sold forward during a high wholesale price environment. Consequently, we faced short positions in a high pool price environment. This was the major driver behind ACOI going to minus $3.1 billion. Mount Piper's utilization was low at 49% in 2022 due to scarcity of coal in New South Wales. Yellowhorns availability was at 67% lower than planned due to outages caused by latent and age-related degradation of this nearly 50-year-old plant due to close in 2028. While our baseload coal generators had a challenging year, our gas assets were reliable and responded well to system demands. Despite continuous intense competition, the customer segment resisted well thanks to the hard work put in over the recent years, with both earnings and customer numbers growing and a churn rate below market average. Turning to outlook, we know that our generation assets are now even more critical in an uncertain and sometimes disorderly transition. Our priorities are to announce the reliability of Yelon by making the investments required and improve the coal supply of Vermont Piper. Accordingly, the main coal supply contract has been renegotiated to include a backup mine. Our remaining legacy forward contracts that we entered into before the surge in wholesale prices will have largely rolled off by the end of 2023. We have also reviewed our forward contracting to match the expected availability post the disruptive experience of 2022 and in readiness for the Australian Winter 23 and the Australian Summer 23-24. We are also strategically adding a base of flexible and firming capacity to balance a system with more and more intermittent renewables. This provides a powerful platform to support Australia's energy transition. Regarding our customer segment, we will continue to responsibly grow and support our customer base while managing margins. Taking a quick closer look at market conditions, you can see here that there has been downward pressure on both spot and forward prices since the spike following the war in Ukraine. In particular, Q2 2023 forward prices have come down and settled at around AUD 135 per MWh in New South Wales and around AUD 86 in Victoria. However, 2024 forward prices continue to be well above 2020 and 2021 prices. As we work to introduce generation supply to the system and examine the impact of the recent government price caps, we therefore see signs of recovery of margins and earnings in the Australian business coming progressively in 2023 and then in 2024. Moving to Aprava Energy, we delivered good performance Where we recorded an ACOI of $864 million, 1.4% higher than 2021. Slightly higher ACOI was mainly thanks to full year earnings impact from KMTL transmission project. This was partly offset by the lower wind resources due to an average monsoon season and lower capacity tariff at Jiajia as per its PPA. A new scheme to ensure better payment discipline was introduced by the Ministry of Power in June, and outstanding receivables decreased to $564 million by the end of December, to be compared with $883 million a year earlier. We completed the sale of an additional 10% stake to our partner CDPQ and therefore this will be the last time we report India as a subsidiary. After we closed the transaction in December 2022, it was deconsolidated from our accounts and is now equity accounted as a 50-50 joint venture. With a new board, a strong management team and a new capital structure, Aprava Energy is well positioned to expand its non-carbon portfolio and play its role in India's energy transition. Turning to cash generation, free cash flow was lower at $11.1 billion compared to $16.8 billion in 2021 due to the combination of lower funds from operations mainly in Australia and to a lesser extent in Hong Kong and unfavorable working capital movements in those two geographies. In Australia, negative cash flow from operations of 2.9 billion is largely attributable to lower earnings from the energy segment. There was a high working capital outflow during 2022 for margin deposits of future contracts, although our position significantly improved in the second half with futures contracts rolling off and forward prices declining in the last weeks of 2022. In Hong Kong, a COVID impacted first half and a significant improvement in the second half led to lower funds from operations by around $0.5 billion for the year. There was working capital outflow to help alleviate tariff pressure coming from surging fuel costs, resulting in higher fuel close account. Special rebate provided to customers also impacted cash generation. The group increased its capital investment to $16 billion on a cash basis, comprising of $10.8 billion paid for infrastructure investments in Hong Kong and the remainder in accelerated investments in renewable projects and flexible assets in China, in India and in Australia. In view of a more challenging year, but due to non-recurrent reasons, the Board decided to maintain dividend payments for the year exactly at the same level as last year at $7.8 billion. Group financial situation remain healthy, although net debt increased by $5 billion to $54.9 billion. Our net debt to total capital ratio increased also to 32%. This is driven by the temporary cash deposits required in Australia and accelerated capital expenditure across the group. These increases were partially offset by the deconsolidation of APRAVA's energy $5.2 billion net debt. We were able to raise funds swiftly in July both at Australia and group levels to maintain strong liquidity throughout the year with undrawn bank facilities of $31.6 billion and cash balances of $4.3 billion at the end of the year. In anticipation of the interest rate rises, we have actively reduced our exposure in 2021 and early 2022 by securing competitive fixed rate fundings. As a result, our blended average interest rate for the Group in 2022 is only marginally higher than that of 2021. With our extended debt maturity profile, a majority of fixed-rate debt, and our diversified sources of funding, we are well placed in the current higher interest rate environment. Both S&P and Moody's have maintained the same credit ratings for our Hong Kong entities in 2022, in particular a Standard & Poor's A2 Moody's long-term rating with stable outlook for CLP Holdings. And our credit ratings will be reviewed in the second quarter as usual. Worth mentioning, Moody's recently assigned a BA II rating to Energy Australia with a stable outlook, noting its solid contribution to the national electricity market. We are in a good position to address our commitments to shareholders and bondholders, face our liquidity requirements, and continue to fund our investment plans. With that, I'll turn it over to Richard.