Clp Holdings Ltd S/Adr

Good afternoon, everybody, and welcome to CLP's 2023 Interim Results Briefing. My name is Marisa Wong, Director of Investor Relations, and I'm joined today by Chief Executive Officer, Mr Richard Lancaster, and Chief Financial Officer, Mr Nicola Tissot. We launched our 2023 Interim Results announcement with the Hong Kong Exchange at around midday today. That announcement, in addition to this presentation, are now available on our website. This briefing is also being recorded and will be available on our website a little bit later. Before we begin, please remember to read the disclaimer on slide two. And for today's agenda, we'll follow our usual practice and hear from Richard on CLP overview and strategic outlook and Nicola on financial results. This will be followed by a Q&A session. With that, I will now hand over to Richard to commence the briefing. Thank you, Richard.

Well, good afternoon, ladies and gentlemen, and welcome to our 2023 interim results presentation. Our first half performance demonstrated strengths across the group that positioned us well for the year. First, we delivered a solid and stronger financial performance, which is especially pleasing given the headwinds that we faced last year in Australia. And this is a testament to the need to constantly adapt to a fast-changing energy landscape. Hong Kong's performance was again dependable, as was the nuclear earnings in mainland China. Energy Australia showed signs of progressive initial recovery in a less volatile market environment. And Aprava Energy benefited from a solid performance adding to a positive one-off income. Second, we're making positive strides in low-carbon investments and growth initiatives while continuing to reliably operate our assets to deliver consistent dividends to our shareholders. And third, we continue to play our role in the energy transition, working closely with governments, partners and customers to drive the deployment of non-carbon energy and to deliver fair and affordable energy for all. Our performance today reflects the resilience of our business model. and our strategic focus will position us to capture opportunities arising from the energy transition, putting us on the right path to deliver the full growth and profitability potential of our portfolio. Now, turning to COP's highlights for the first six months in 2023. Financially, the group's operating earnings before fair value movements grew 19% year-on-year to nearly $5 billion. Last year, operating losses and unfavorable fair value movements at Energy Australia significantly impacted earnings. In line with the stabilized wholesale price environment, these extreme fair value movements weren't repeated, and our total earnings for the half were slightly above $5 billion. Based on these solid results and confidence in the group's prospects, the board has approved a second interim dividend of 63 cents per share. This brings the total dividend for the first half to $1.26 per share, the same year on year. Operationally, energy output declined 7% due to exiting Phanchangang coal-fired power station and the deconsolidation of Prava Energy in India. Excluding these changes, output from our portfolio pretty much matched last year's level. For safety, in the first half of 2023, we reported an improvement in our injury rates compared with the same period last year. Our unplanned customer minutes lost, which is our main reliability metric, was slightly higher. Nevertheless, reliability in Hong Kong remains exceptional compared to most major urban centres around the world. And finally, on the customer side, customer accounts grew in Hong Kong, while higher competition and increased churn at Energy Australia resulted in a slight decline in accounts. I'll now hand over to Nicolas to take you through the financial results in more detail.

Thank you, Richard, and good afternoon. I'm pleased to report that we have achieved steady progress in the first half of 2023 after the energy crisis we experienced last year. Before discussing our financial results, just a quick reminder that we have adopted Earnings Before Interest, Tax Depreciation and Fair Value, or EBITDAF, and Operating Earnings Before Fair Value movements as our two key operating financial performance metrics. EBITDAF reflects operating financial performance before financial structure and taxes and allows for easier comparisons with other companies in our industry. Further down the P&L, using operating earnings before fair value movements instead of ACOI allows better understanding of operational profitability after the impact of how we fund our development and how we are taxed in our various geographies. For the first half of 2023, we recorded EBITDAF growth of 5% to $11.4 billion. This reflected stable generation, sustained capital expenditures in Hong Kong and lower operating costs. Adjusted operating earnings before fair value movements grew by 19%, supported by the solid performance across the group, offset by slightly higher interest costs and tax expenses. Including the fair value movements, operating earnings totaled nearly $5 billion, a turnaround result from 2022. And including items affecting comparability, total earnings crossed the 5 billion mark as compared to a loss a year ago. Capital investments were $6.1 billion, a 20% decrease driven by the deconsolidation of APRAVA Energy. And as mentioned by Richard, total interim dividends per share declared in the first half were at $1.26, same as last year. Looking at the EBITDAF chart, the waterfall clearly shows that our markets have delivered well with improvements across all business units. This year, we had a significant scope impact following the deconsolidation of APRAVA Energy, now equity counted as a 50-50 GV, as well as the divestment of Fengqinggang events that occurred late in 2022. Removing the impact of scope and currency movements against the Hong Kong dollar, consolidated EBITDAF of the group was 12% above last year. Also worth mentioning that the group benefited from a favorable one-off in India, which I will detail later. Excluding this one-off, EBITDAF was up 9% on a comparable basis. This slide breaks down the growth of our operating earnings before fair value movements between what comes from Forex and Scope, the organic variants of EBITDAF and then financing costs and taxation evolution. As shown in the previous slide, we recorded an organic improvement of close to 1.2 billion in EBITDAF. Net finance costs increased due to rising interest rates, although we managed to mitigate much of that impact thanks to our active fund management, as I will detail later. Tax expenses were higher, mainly due to an increased taxable base in all our markets. Excluding forex and scope, operating earnings before fair value increased by 16%. Removing the one-off already mentioned in India, operating earnings before fair value grew by 9%. So you can take away, we have delivered a healthy, more or less double-digit growth of our two new reference operational financial performance metrics. At the operating earnings level, we saw higher contributions from all regions, except for a marginal drop in Hong Kong. Hong Kong's underlying performance remained very sound and dependable, driven by higher average net fixed assets. However, increased non-pass-through scheme of control interest costs impacted earnings. Earnings from mainland China grew by 11% off the back of strong nuclear performance, and in particular high output from Mianjiang. China's performance was also helped by a favorable scope effect after the sale of loss-making Fanchenggang power plant. Energy Australia's financial contribution improved as its wholesale segment started to progressively recover in a more stable market environment. This was partly offset by weaker retail performance from higher energy procurement costs to support our customer base. In India, earnings from APRAVA improved largely thanks to a one-off income for amounts owed by the off-takers under the Jajar PPA, and underlying performance was also good. Higher energy tariffs and output and accelerated indexation mechanism at Hoping in Taiwan also contributed positively. Fair value losses improved from a heavy negative $8 billion last year to a slightly positive $17 million, reflecting the stabilization of the market in Australia. We've already covered the operating earnings and total earnings, so now I'll review each business unit's performance and outlook in turn. All variances will be analyzed at operating earnings before fair value movements level and will exclude the impact of Forex and Scope to reflect the actual underlying performance of the business. Starting with Hong Kong, our continued investments in electricity infrastructure and decarbonization drove a 5.5% higher return on average net fixed assets. The recent commissioning of the offshore LNG terminal is a milestone in the execution of our decarbonization strategy to use gas as a transition fuel. However, higher non-pass-through interest costs in the context of rising interest rates resulted in a slight 2% decrease in our earnings. So far in 2023, on an accrual basis, the scheme of control business has invested $4.7 billion, made up of $2.8 billion in transmission, distribution and smart meters, and another $1.9 billion in generation facilities. There have been positive signs on electricity sales, which increased by 3.7% as the Hong Kong economy recovers from COVID. On the fuel cost front, we are seeing international prices beginning to soften. Looking ahead, as we come into the final year of the current five-year development plan, we are in discussions with government on the next development plan for 2024-2028, which should be finalized by the end of the year. We will continue our focus on operational excellence, cost control and supporting our customers to minimize the impacts of high fuel costs and inflation. We are also pursuing opportunities created by the accelerating electrification and decarbonization through new energy infrastructure solutions, harnessing technology and digitalization. Over now to mainland China, where our diversified portfolio delivered a solid performance with operating earnings of nearly 1.4 billion, an increase of 6% over the same period last year on a like-for-like basis. Our two nuclear power plants were the largest contributors, with Daibei and Yangjiang generating a high 1.1 billion in earnings. Notably, Yangjiang achieved a very high electricity generation, showcasing the reliability of nuclear. Our renewables portfolio performed steadily, with higher contributions from wind and solar. This was partially offset by lower hydro resources. The start of commercial operations of Xunjiang II in Yunnan, a subsidy-free grid parity wind project, also contributed positively. Performance of our remaining minority-owned coal-fired assets was lower than last year due to lower output and tariff. Finance costs reduced year on year thanks to refinancing at more favourable interest rates. Looking ahead, we see positive economic and social indicators as China progressively reopens post-COVID, driving higher energy demand and spurring the country's ambitious plans for transitioning to renewables. We've been strengthening our project pipeline in high demand regions like Yangtze and Guangxi, and seeing more corporates seeking green power options, we are well positioned to provide. Our nuclear portfolio is expected to remain strong despite planned outages for both Daya Bay and Yangjiang in the second half. Now turning to Australia. There was progressive recovery of our two coal power plants as a result of stabilizing electricity wholesale environment after the very rough market in 2022. We also started addressing the operational issues we faced last year. Following a full technical review, operational measures were taken to improve Yalon's availability and generation. Therefore, a smaller short position was exposed to the spot in the first half. At Mount Piper, coal supply was still constrained in the first half, but we were able to secure a new long-term supply contract with Centennial. Softening soft prices and the ability to flex more to adapt to high and low pricing led to improved financial performance. Lower generation from the gas asset fleet partly offset the gains from Ylone and Piper. Customer segments' performance was impacted by higher energy costs, ongoing margin pressure from competition and the timing of passing through these higher energy costs. Altogether, there was an increasing gross margin of $463 million in the first half of 2023 compared to first half of 2022. With rising interest rates, net finance costs increased due to higher average debt levels, and tax expenses were unfavorable due to reduced tax credits in line with reduced losses. Looking ahead, our key priority is to strengthen the reliability of our coal fleet. For the aging Yallourn, we begin the accelerated maintenance program to complete major outages for each of its four generation units and the implementation of the new Multimile contract to improve coal reliability in addition to the temporary coal price caps are set to benefit Mount Piper. Our legacy hedges at low prices will continue to roll off in the second half and we have adjusted our hedging approach to lower and more certain levels to reduce our exposure to other potential extraordinary events. For the customer segment, we anticipate repricing will gradually reflect the higher wholesale electricity prices. We remain committed to helping our customers manage cost-of-living challenges through our Energy Assist programme. This will involve around AU$30 million in assistance on top of the government's Energy Build Relief Fund. Completion of the Talara B gas hydrogen generation project in New South Wales is on track to support next summer's peak demand, and we are making progress on new investments in flexible renewable firming projects like the development of the Wurin battery. Taking a look at market conditions in Australia, average prices across in New South Wales and Victoria have normalized to around 90 Australian dollars per megawatt hour during the first half of 2023, with also far less volatility. We see an environment of higher wholesale forward prices than before the crisis, which, together with our operational actions, will set Energy Australia for a better second half and beyond. Finally, to India, where operating earnings from APRAVA increased significantly as a result of a one-off income of 0.3 billion linked to an out-of-court settlement with Jar Jar of takers. Taking out this effect, the underlying earnings contribution from APRAVA was sound as our transmission assets, renewables portfolio and Jadja altogether increased their contribution. With our partners CDPQ, the APRAVA Energy joint venture continues to press ahead to expand its business and support India's energy transition. Commissioning of Sitpo Wind Farm in Gujarat state began in April and is expected to be in operation at its full 251 MW capacity in Q3. Already in 2023, Aprava Energy has successfully secured around 900 MW equivalent capacity including wind, transmission and advanced metering infrastructure with additional bids and projects in the pipeline that could further grow its non-carbon portfolio and support its earnings growth. Turning to Group's cash flows, our cash flow generation has returned to a more normal yearly profile, recovering from a disruptive market environment in Australia a year ago. The cash temporarily required to back our forward electricity sales is progressively normalizing. Cash inflow of 6.8 billion was driven by robust scheme of control cash generation, our nuclear operations in China, and Energy Australia's initial recovery. Also, we benefited from the one-off proceeds from the divestment of Fengqinggan. Cash outflows were made up of 5.6 billion of capital investments and 4.6 billion of dividend payments. Of the 5.6 billion of capital investments, 4.9 billion was for SOC and 0.4 billion was spent on renewable projects in mainland China and Tatarara B in Australia. Last 2022 interim dividend and 2023 first interim dividend payments in the first half were maintained exactly at the same level as last year. Group financial situation remains healthy and liquidity also continued to be sound at similar levels as at the end of last year, above 33 billion. Holdings remain well above 13 billion, and we expect these levels to remain through the year. We followed financial prudency and acted to arrange cost-effective, diversified financing. We raised new credit lines swiftly at Hong Kong, Australia, mainland China, and group levels to maintain high liquidity, which included cash balances of 2.4 billion at the end of June. Net debt to capital ratio was 33.6% at the end of June 2023, and net debt amounted to 58.9 billion, exactly the same level as one year ago. Anticipating interest rate rises, we increased the proportion and tenure of competitive fixed debt over the past years. Fixed rate debt in the group reached 54% at the end of June, More recently, we introduced a component of floating rate using the opportunity offered by the Hong Kong dollar bank loan market. As a result, interest rate hikes have not meaningfully impacted our earnings. Following the yearly credit reviews by Standard & Poor's and Moody's, the credit ratings and outlooks for CLP Holdings, CLP Power and Capco remain unchanged, whether the level of rating or the outlook. We are in good position to address our commitments to shareholders and bondholders, maintain adequate liquidity to operate efficiently, and continue to fund our energy transition plans. With that, I'll turn it over to Richard.