Clp Holdings Ltd S/Adr

Good afternoon, everyone, and welcome to CLP's 2025 Interim Results Briefing. I'm Marisa Wong, Director of Investor Relations. Joining me today is Chief Executive Officer, Mr. TK Chung, and Chief Financial Officer, Mr. Alex Kaiser. We lodged our 2025 interim results announcement with the Hong Kong Exchange at New Day Today. That announcement, in addition to this presentation, is available on our IR website now. This briefing is also being recorded, which you can also access on our website later. Before we begin, Kasturi, for me to remind you to read the disclaimer on slide two. And for today's briefing, TK will open with a business overview, followed by Alex with the financial results, and then TK will provide his strategic outlook, finished with a Q&A session. So with that, I'll pass it over to TK to begin the briefing. Thanks, TK.

Yeah, thank you, Marisa. So good afternoon, everyone. Thanks for joining us. Now as we navigate an accelerating energy transition, shifting market dynamics and heightened geopolitics in the first half of 2025, the group has demonstrated resilience, anchored by the strength of our core Hong Kong business. However, our performance was moderated by specific market headwinds, including downward market tariff evolution in the mainland and strong retail competition in Australia, both of which impacted this half's results. The fundamentals of the business, however, remain strong. Our commitment to operational excellence continues to deliver results. We maintained our track record of excellent reliability in Hong Kong, achieved commercial operation of new energy transition projects in the mainland, and successfully completed the major maintenance overhaul at Mount Piper in Australia, enhancing its flexibility and reliability. We are continuing to build the energy infrastructure needed to drive decarbonisation and the foundation for future recurring earnings. We are funding this growth from a position of strength underpinned by our strong balance sheet and a recently affirmed A-stable rating by S&P. This foundation enables our disciplined capital allocation framework, which prioritizes high-value investments and efficient use of capital, including strategic partnerships, in order to drive sustainable long-term returns. We approach the remainder of 2025 with a robust financial structure and clear pathways to continue to create value for our shareholders. Now turning to the highlights. As mentioned, our results this half was shaped by the market challenges in the mainland and Australia. With that context, our group operating earnings before fair value movements decreased by 8% year-on-year to HK$5.2 billion. This performance flowed through to our bottom line with total earnings decreasing by 5% to HK$5.6 billion. The Board has recommended a second interim dividend of $0.63 per share, bringing total interim dividends to $1.26 per share, equating to a yield of 4.8%. Operationally, we maintained good performance on our safety and reliability matrix, with higher reliability in Hong Kong at 99.999% and less injuries in Australia. On the customer front, we saw growth in accounts in Hong Kong, while competitive market conditions in Australia resulted in a reduction in customer numbers. Generation performance reflected cold output reduction, and we added more non-carbon capacity to our group portfolio. I'll now hand over to Alex to take you through the financial results.

Thank you, TK, and good afternoon. A snapshot of our financial results. Earning before interest, tax depreciation and fair value, or EBITDAF, was down by 5% to HK$12.4 billion compared with the same period last year. Operating earning before fair value movement decreased by 8% and landed at HK$5.2 billion. Adjusted for the fair value movement and items affecting comparability, total earnings was 5.6 billion, a decrease of 5%. Capital investments of over 8 billion was lower than last year, as despite a higher gross capex in 2025, our headquarter acquisition was finalized in 2024. Total dividends per share declared for first half 2025 was $1.26, same as last year. Now let's go into the details. Our core Hong Kong business anchored the group's performance with higher contributions. As highlighted by TK, industry-wide challenges in the mainland and Australia, plus one-offs in India, resulted in lower operating earnings. There were small fair value movements reflecting accounting losses on Energy Australia's forward energy contracts as of end of June 2025. This half results including also a one-off item related to the realization of Energy Australia's Wuring battery post-introduction of our 50-person joint venture partner, Bamboo. All in all, the group total earnings were moderately down by 5% to over 5.6 billion. I'll now take you through the detailed performance and outlook for each business unit. All variances will exclude foreign exchange to reflect the organic underlying performance of the business. Starting with Hong Kong, Hong Kong delivered yet another round of solid and dependable core earnings through our continued investment and reliable operations. We've made good progress on CAPEX, standing at 4.5 billion, primarily for key initiatives to support Hong Kong's growth for the northern metropolis, new housing development, data centres and decarbonisation agenda. While there was slightly lower overall electricity sales, largely because of last year's warmer weather and an extra day which set a high base for comparison, data centres continue to show steady growth. Lower interest costs and positive refinancing outcomes for the US$500 million perpetual capital securities added to Hong Kong's strong reserves. Hong Kong continues to charge ahead, enabling a low-carbon economy across all major sectors, such as road transportation, shipping and building. Demonstrating our leadership in decarbonisation, we partnered with SYNOC to deliver a Hong Kong First, simultaneous liquefied natural gas fueling and handling of a cargo. Looking ahead, our focus is threefold. To continue providing reliable electricity at a reasonable tariff, to deliver the 52.9 billion program of work in the development program, and to advance our decarbonization efforts toward governance 2035 climate target. Moving now to the mainland, where financial performance was affected by market challenges. The combination of soft demand, accelerated growth in new generation capacity and wind resources variability contributed to earning reduction of 15% to 870 million. Operationally, our nuclear joint venture plans delivered strong performance, highlighted by another outstanding performance from Yangjiang. However, lower tariffs for Yangjiang ultimately impacted operating earnings from the nuclear portfolio. Renewable earnings were also lower, driven by lower wind resources, higher curtailment in the northern and eastern regions, as well as lower tariffs. Successful commissioning of three new renewable projects in the first half, as well as higher output from hydro, provided a positive offset, demonstrating tangible value to our disciplined growth strategy. While our minority coal JVs were impacted by reduced dispatch from lower demand. Our reputation as a reliable foreign investor enables us again to secure a GEC of stake agreement with one of the largest green power purchasers in the world, enabling earnings visibility and positioning CLP as a provider of choice for green solutions. Our development pipeline is solid, with over 1 GW of renewable and battery projects in various stages of development. including our largest wind and our first independent battery energy storage system. Looking ahead and in response to Policy Document 136 and the move towards market-based pricing, we will evaluate the renewable portfolio to maximize value. Capital allocation will be based on our value-over-volume principle and focused on risk-return as we track policy implementation and supply and demand trends. Nuclear performance is expected to remain dependable. Also for Yangjiang, we expect increasing market tariff exposure and evolving taxation issues that are being reviewed. turning to Energy Australia results, which overall reflected solid energy market performance, but challenging retail conditions. The first half saw another period of intense retail competition, coupled with cost-of-living pressure, leading to margin compression and reduction in customer accounts. Importantly, despite the weaker performance in the customer segment, our increasingly flexible generation feed performed solidly. The combination of favorable wholesale prices and the ability to capture value in volatility, plus the recoupment of development expense for Lake Lyle, more than offset higher loan depreciation, plus the absence of one-off benefits from last year, namely Montpiper's call compensation and strategy value book outcome. The net impact was a decrease to 167 million operating earnings. We continue to actively shape our energy transition with our growing portfolio of flexible capacity assets, which include six battery storage and one pump hydro into operation or construction. With the objective to have Energy Australia self-funded and with a solid credit rating, a key component of our business model is to fund flexible capacity portfolio through a mix of contracted capacity and partnerships. This first half, we signed two partnerships. One with Bamboo Energy to develop one 350 MW 4 hours battery. It is the single largest investment to date. Another one with EDF Power Solutions to co-develop the potential 330 MW 8 hours pump hydro energy system. Looking ahead, Our focus will be to underpin a foundation for stability and earning growth with three key actions. Ensure performance of our generation to respond to demand and price volatility in favorable wholesale price environments. Improve our customer margin through pricing, re-contracting activities and cost-saving initiatives, including expected longer-term benefits from the multi-year platform replacement. And lastly, advance our strong pipeline of flexible capacity projects with new partnerships alongside Energy Australia's strong customer base. Aprava Energy operating earnings reached almost 80 million thanks to solid renewable performance and Jar Jar's continued reliability. Renewables performance was driven by higher wind resources and full commissioning of Aprava's largest renewable asset, the 250 MW Sipu wind farm, while Jar Jar continued to uphold its reputation as one of India's best-run thermal plants. Earnings performance was however offset by a one-off item for the KMTL asset, which included a non-cash impairment charge of $83 million, following a reassessment of more conservative assumptions in the discount rate. Furthermore, in 2024, we had a retrospective tariff gain from prior years that was not repeated. APRAVA made solid advancement in smart meter rollout, with around 7 million meters under installation. So, near-term cost weighted on contribution. Finally, corporate expenses rose due to mark-to-market losses for aluminum hedges taken for transmission projects. Growth momentum remains robust, 15 projects won within 2 years for an equivalent of 2 GW capacity. As India, the world's third largest electricity producer, strives to reach 500 GW of non-carbon capacity by 2030, our strategic joint venture will deliver its growth potential, funded by its own balance sheet. Finally, to Taiwan region and Thailand. Lower earnings contributed from hopping in Taiwan was attributable to lower recovery of coal cost. Lobb Brewery Solar's performance in Thailand remained stable. In line with the group's strategy to explore new opportunities in the region, higher corporate and development expenses were recorded in the first half for development in the Taiwan region and Vietnam. Together, earnings decreased to 19 million. Looking ahead, OPENG will focus on managing fuel costs and more broadly, we are evaluating renewable energy opportunities backed by long-term contractual agreements as part of our Taiwan region and Southeast Asia growth strategy. Turning finally to cash flow. Free cash flow generation was 7.1 billion, down 0.9 billion versus 2024 first half, unexplained by the underlying EBITDA performance reduction of 0.6 billion and unfavorable working capital movement of 1.3 billion, which was mainly due to a one-off advance receipt for Energy Australia in the first half of 2024 that was subsequently rebated to customers in the second half. On the investment side, with our new headquarter now complete, overall capital spending was lower. The group invested 7 billion in the first half, made up of 5.1 billion for Hong Kong SOC business and nearly 2 billion for renewable energy projects in the mainland and marine battery at Energy Australia. Cash payment for dividends was higher, as a result of the higher final dividends for financial year 2024. Now, our financial structure remains strong, despite an increase in net debt to 62 billion and with a sound liquidity position of close to 30 billion. Our prudent financial management has been recognized by S&P, which reaffirmed our strong investment grade rating for CLP Holding, CLP Power and Capco, all with stable outlooks. The team successfully raised over 10 billion in competitive financing for Hong Kong SOC business, in addition to the refinancing of the 500 million USD perpetual capital securities, all with favorable credit spread. I'll now pass this over to TK for the update on the group's strategic priorities.

Thank you, Alex. Now in our last result presentation, I outlined our strategy to deliver sustained value in a world that is rapidly moving towards electrification and decarbonization. Our execution is focused on clear pillars and I want to update you on our progress for each. It starts with investing in foundational growth in our core Hong Kong regulated business. Now building on that strength, we are systematically targeting opportunities in some of the fastest growing energy transition markets that we are currently operating in, the Mainland, India, Taiwan region, Southeast Asia and Australia. Finally, our enabler for execution is our people, our regional and operational expertise, and access to capital and partnerships, all capabilities that allow us to turn strategic ambition into results. Now our integrated utility business in Hong Kong is central to our continuous investments and dependable earnings, supported by predictable returns under its asset-based regulatory framework. We are executing the 52.9 billion five-year development plan to deliver safe and reliable power at reasonable price and decarbonization. With gas infrastructure now fully commissioned, the focus will be on expanding and modernizing our power systems for new development areas, data centers, and supporting government's economic and infrastructure agenda. We are also accelerating Hong Kong's energy transition electrifying the transport sector, the second largest source of carbon emissions, and working with government to enable more zero-carbon imports to achieve the city's 60-70% clean energy targets by 2035. Delivering a world-class electricity system to support Hong Kong's long-term development sets a strong foundation for the rest of the organisation to deliver returns and value to our customers and shareholders. Almost three-quarters of all solar and wind power projects being built globally are in the mainland, highlighting the country's rapid expansion of renewable energy. Just in this first half, some 270 gigawatts of renewables have been added with another 3,000 gigawatts expected by 2030. Our initial target of less than a gigawatt a year is modest in comparison, but very much aligned with the mainland's build-out. We are making solid progress. With just over half a gigawatt of solar, wind and batteries in various stages of execution in the first half, and importantly, new projects contributing to earnings. We are closely monitoring the recent introduction of Policy Document 136 Market Reform Framework as provincial authorities develop implementation plans. During this transition, we'll assess our portfolio and pipeline and allocate capital based on three pillars. Risk return, focusing on geographic selectivity, prioritizing expansion projects, and green power and green certificate contracts. Maintaining our investment discipline with our value over volume approach. If project economics doesn't meet return threshold, we will not build it. And lastly, optimizing our funding. Our Chinese mainland business is on track to be self-funded by 2026 and will continue to leverage partnerships, a model we have successfully executed in Australia and India, to de-risk capital and enhance returns. To India, the world's most populous country and one of the largest energy transition opportunities, To meet its climate goals, India needs to invest up to 2% of GDP over the next decade. Aprava Energy is our strategic joint venture to capture these opportunities. It's a self-funded platform with local expertise and strong governance that gives us a stake in the growth without consolidating debts onto our balance sheet. And it is delivering with projects across the energy value chain. In the first half of 2025, we achieved full commissioning of Sidpu Wind Farm and progressed critical infrastructure with half a gigawatt equivalent of transmission under construction and around 7 million smart meters being installed across six days. All in all, Aprava has an equivalent of two gigawatts low-carbon projects underway. Crucially, they are all underpinned by long-term government-backed contracts locking in predictive attractive returns. The result is a capital efficient and diversified growth engine that enhances our earnings and our growth profile. Now, to Australia, where the retirement of coal capacity combined with supportive government policies like the capacity investment schemes create a favorable environment to deploy capital. Our strategy is short energy and balanced capacity, pairing contracted renewable energy PPAs with owned and contracted flexible capacity on a self-funded basis. For renewables, we are adopting a capital light model, targeting 3 GW of renewable energy PPAs by 2030. For flexible capacity assets like batteries and pump hydro, we will develop those opportunities on our existing sites where there is access to grid connections and skilled workforce. For opportunities outside our footprint, we will secure capacity through contracting. Smaller flexible capacity assets will be funded on Energy Australia's balance sheet while larger projects will be project financed and leverage strategic partnerships. Momentum is good, with almost 1GW of committed firming capacity, and we are actively exploring additional battery developments at our Mount Piper and Hallett sites. Our partnership model has yielded results in the first half, with Energy Australia signing two important partnerships. One for the 350 MW Burin battery under construction with bamboo The other for the 335 MW Lake Lau pump hydro project under development with EDF Now these new dispatchable capacity combined with our existing highly flexible gas and coal fleet creates a resilient and competitive portfolio that delivers reliability and value in our evolving markets. Now turning to our broader growth ambitions in the Asia Pacific. We are actively evaluating renewable energy opportunities in Taiwan region and Vietnam, two markets that have significant growth potential. While we see potential, we remain disciplined. We will only commit capital if an asset meets our requirements for profitable growth and dependable earnings. This includes securing the right partners and financing structure. We are working on creating the opportunities for future earnings and dividends. Now anchoring our efforts will be our continuous work to uplift and enhance capability. This is guided by our cultural framework of care, excellence, and responsibility, which we are embedding throughout the organization by accelerating three core areas. First, workforce transformation. We are building the teams of the future, making our people more adaptive, skilled and connected. This reflects our care for our people and our commitment to their growth. Second, digital agility. We are modernizing our backbone. Our goal is to shift from doing digital to being digital. With Phase 1 of ERP Go Live completed, we have the foundation to unlock efficiencies and drive more innovative, cost-effective solutions. Third, operational excellence. We are embedding a culture of excellence at every level. In Hong Kong, AI grid monitoring and drones enable early fault detection before they occur. In the mainland, centralized control centers, connecting renewable energy assets, boosted efficiency. Across a group, upgraded platforms, deepened customer engagement. Now these three pillars are interconnected and reinforcing. They fulfill our responsibility to deliver safe, reliable energy at a reasonable price, and they are the engine that will power our disciplined growth for years to come. I'll now hand over the floor to Marisa to facilitate our Q&A session.

Thank you, TK. Thank you, Alex. We will now turn to the Q&A session. Instructions are the analysts on Zoom, please use your raise hand icon to ask a live question and others on the webcast chat, please type your questions in the Q&A box in the bottom right corner of your screen. So we have Pierre on the line. Pierre, if you can unmute yourself and go ahead and ask your question.

Hello, can you hear me?

Yes, Pierre.

Okay, good afternoon. Thanks CLP management for letting me ask questions on the economy. I have three questions. The first one is regarding your Australian business. If you look at your presentation material on page 44, you show that the forward prices will follow downward trend in the next three years. So do you expect the margin of your energy business in Australia, under Energy Australia in second half and this year in 2026 to be lower than first half 2025? The second question is about your China business. If you look at page 19 of your PPT, your target to raise your operational renewable capacity in China from right now 2.3 gigawatt to 6 gigawatt by 2029. We all understand that for new renewable capacity from June this year onward, they will have to sell all their output on market basis, and it is likely to be of lower return. So what kind of expected return do you think you can get for this new project to be added from June 2025? And how much lower compared to the existing one? The last question is for CLP overall. And obviously, we see that your overseas business performance in first half seems to be weaker than expected. So I want to know what managements have considered in your overseas business strategy in view of the performance in the first half. And that means what is your overseas investment strategy right now compared to, say, six months or 12 months ago? What have been changed? Thank you.

Yeah, thank you, Pierre, for the questions. Now, for the first one on Australia forward price, actually you can see 2026 forward price actually is at a more or less similar level as we currently have. Maybe going forward in 2027, 2028, right now we do see a slight kind of a So, actually, when we look at the markets, in particular in the second half of this year, because the government has just announced the revised default offer, both the demo and the video in Australia, and there are increases in those prices. So when we do the repricing, we will see we can increase our price. At the same time, we are also doing re-contracting when our existing contracts of our customers come to an end and then we try to re-contract, there's also opportunity for us to renew the price with a higher price. So we do see opportunities for improved margins in the second half. At the same time, if you look at our retail business, I think one of the issues is about our costs. So we are actually also embarking on a course optimization exercise, hopefully to improve the efficiency of our operation to improve further efficiency. Over the medium term, we are also looking at replacing our customer platform to a more kind of state-of-the-art platform so that we can improve our product and services and also efficiency, customer experience to improve our customer performance. Customer experience, sorry. Now for the second question about China, Right now, we still maintain our targets of achieving about six gigawatt by 2029. Now but given the fact that there is new policy being launched and the fact that the details of the documents, the implementation details would be determined by individual provinces and actually a lot of them are still not available so there are some uncertainties in the market. So because of that, while we would still continue to maintain the target, but we will be more selective in identifying projects as well as making investment decisions. As I explained in the presentation, we will look at geographical areas where the demand is a lot more promising, the tariffs are higher, as well as the Greek curtailment risk is much lower. At the same time, we will also look at projects that are expansion of our existing assets so that the overall cost could be lower, improving our profitability. And last but not least, continue to pursue a longer term kind of green power contracts or green certificate contracts. Now, I think one point I want to stress is that we will maintain our discipline in the investment decision. That means if the project cannot meet our target return, we will not invest. And up to now, we have not changed our threshold hurdle rate, so we'll continue to expand our portfolio with discipline. Now, for the group overall performance, the first half definitely is weaker because of the headwinds China and in Australia now as I mentioned I think Australia we do see the generation business is doing good so that actually pays off through our continued investment in the reliability and you know stability of our generation fleet as well as in the flexible capacity which definitely benefit from you know the wholesale market volatility Now, the issue is on the retail segment, and as I mentioned, it will continue to improve the performance going forward. Now, in China, I think there are a mix of reasons. Some of them are temporary. For example, our renewable energy assets, the reduction in wind resources, we see it more as a cyclical issue. And for the grid curtailment, I think it's also attributed to softened kind of demand growth as well as kind of accelerated capacity addition. Partly I think it's because of the document 136. So a lot of people, they rush completing projects before the so-called deadline. So that resulted in higher kind of surplus capacity. So I think in the coming short term we do see this kind of uncertainty and volatility. So we'll continue to closely monitor the situation and to stay disciplined in our strategy execution.

Thanks TK. Evan Lee from HSBC has a question. Evan, if you could unmute yourself and ask your question.

Thank you, Marisa. Kevin Lee here. I have actually just two simple questions. As TK just mentioned, in Australia, we are looking to achieve a certain amount of renewable energy projects. That's 3 gigawatts of contracted renewables and 1.6 gigawatts of flexible capacity by 2030. I just want to check if this target will be achieved all by self-funding, even without any further potential divestment of Energy Australia. Based on the cash flow or the balance sheet position of Energy Australia, will the company be able to achieve that target based on the current funding situation? That will be my question number one. And the second question would be, if we sort of have to look a little bit further beyond in the next development plan for the future five years, basically looking at the longer term, is there any upside in terms of capex spending in Hong Kong? If so, where those errors might be coming from? Thank you.

Yeah, thank you Evan for the question. Maybe I will ask Alex to answer the first question on the funding. So maybe I just try to answer your second question first. Now for the next development plan, I think we are in a very early stage right now, so I don't think I will have a lot of information to provide. But if I look at more bigger picture, As I just mentioned in the presentation, in Hong Kong for decarbonisation we have just finished, I would say the first phase of investing and building the gas infrastructure in Hong Kong, so that has been finished. So the next step actually is to further decarbonise, we need to import more zero carbon energy from the mainland so maybe the initial part would be our clean energy transmission system that is now being built but the amount would not be very significant but it does help Now in the medium term future, I think based on the government's Climate Action Plan 2050, there is a target of achieving 60-70% zero carbon in our generation fuel mix. So right now I think we have been importing nuclear power from Taipei Nuclear Power Station to Hong Kong. from a whole Hong Kong perspective, it amounts to about 25% for the whole Hong Kong. So that means in order to achieve this 60 to 70%, apart from importing renewables, we do foresee that we need to import a lot more nuclear energy from China. And in that sense, we do need to have additional, transmission infrastructure, cross-border infrastructure in order to import the power. So I would expect that might be one of the new requirements in the next deep plan. But of course details are yet to be finalized. We still need to carry out more study and also discuss with the relevant parties.

How significant would the northern metropolis plan of the government be for the future capex of CLP?

Now for Northern Metropolis, it would be a development spending quite a long period of time. If you look at government's plan, I think at least like 10 years. So for the current development plan, actually it covers part of the CAPEX requirements for the development and I would expect it may be likely more kind of stable CapEx over a long period of time kind of profile rather than you know suddenly there will be a upsurge in CapEx.

Thank you. To answer your question on Energy Australia, first, we have a strong cash flow generation by Energy Australia with a plan to continue to operate our generating assets at performance following the upgrade that we did in Yaloon and the multi-contracting activity that we did in Mount Piper. plus a generation of what we do on our gas plan and we have a turnaround plan also as mentioned by Tiki on the retail side. So the Fonsum operation on GoPath Regarding now its debt capacity, we took the decision to do two things. First, to finance on the balance sheet of EA, I would say the relatively small capex, which are the ones which are linked to generation for maintenance, retail, and the new small flexible capacity, while we decided to do two structures for renewable and flexible capacity of large shards. For renewable, we decided to sign PPAs, while for flexible capacity of large side, We decided to contract the outcome of them with EA while doing a project finance and looking for partners. We were successful in our BAMPU project partnership as you could see and we think that we'll be as successful in the future battery development and we also find the right partner for our pump hydro project with EDF. Now the question is more will we be able to reach our targets. We believe so for the flexible capacity because as you could see we have today a total of 1.1 gigawatts underway with a portfolio of feasibility of 0.8 so well above our 0.6 and it's on a good path. The challenge is more finding the right renewable projects, which is an Australian challenge. Today there are not enough renewable projects being developed in Australia, so we don't see that as a funding challenge, but more as a market challenge.

Thanks, Alex and Evan. You can find those details on slide 21 if you want to see the progress of the flexible capacity additions. Okay, next question from Stephen Choi, JP Morgan. Hi, Stephen. If you can hear me, you can unmute yourself and ask your question.

Hi, thank you, CRP's management. So I have three quick questions. The first is about finance cost, because HIPAA has been declining since the second quarter. So what's our second half outlook on the IFH interest rate and also the full year interest expense? Second question is about the dividends, because we raised dividends per share last year, but given the earnings headwinds in Australia, so shall we expect a stable dividend per share on a full year basis? And the third question is about the growth capas, because if we look at the cash flow, we have around a $4 billion gap between cash inflow and outflow. Given that we may increase capas for the next SOC plan, will it be more prudent in the growth capas, especially in mainland China-reliable projects, given the uncertainty of project return? Thank you.

Thank you Steven. So maybe I'll ask Alex to answer the first question on financing costs and also the CapEx question. So for dividend, our dividend policy has been giving a reliable and consistent dividend targeting steady growth provided the underlying business has sustainable growth. So in the past you can see that we have never reduced our dividend. So we will be very prudent when we want to adjust our dividend. And it's also, I would say, a practice that we'll try to maintain the dividend for the first three quarters, and then the last quarter will be based on the board's decision on the overall dividend level, taking into consideration the underlying business performance. So, I think we'll have more information obviously, you know, when we have the year-end result announcement.

Regarding you two other questions, if you allow me, I'll start with the question number three, which is our funding strategy and our ability to fund our incremental CapEx. Our funding strategy is quite clear and it's based on four principles. First, we want to have strong cash flow being generated by our business unit in order to define what the level of debt that we can target. Second, it's crucial for us to keep a strong credit rating in order to enable us not only to have the financial flexibility but the low cost of debt. As a reminder, with S&P we have confirmed the rating level for CLP Group. for CLP Power and for Capco with stable outcome a few weeks ago. Third, as mentioned by TK, we want to continue our dividend policy to growing dividends with the earning growth. And four, I'm coming to your question now, we want to be able to fund our CAPEX giving first privilege to our CAPEX commitment that we have in Hong Kong and then putting in competition the different alternatives that we have throughout the different regions. In H1, there was effectively a gap, as you could mention, but we are also moving toward a change of strategy by looking for the partners on where we have the growth. We did that a few years ago in the case of APRAVA. We have just shown to you that we are able to do that in Energy Australia with the partnership on a large flexible capacity and we are currently executing our clean energy fund which is basically putting a fund with limited partners for the grid parity project where the fund size would be for 4 billion for a total capex of 20 billion which will enable us not only not to have these funds anymore on our balance sheet but on top of that it enables us to sell our development, our construction and our own capabilities in order to have a higher return. So this is the strategy that we have put in place. Now going to your first question, it's a good observation that our debt has increased by more than 10% but our funding cost, our interest has reduced in the first half. This is linked to two reasons. The first one is we have reduced our debt in the high-cost environment, which is the case of Australia, while increasing our debt level in China, which is a low-interest-cost environment. And second, we need material interest cost reduction in the case of CLP Power and Capco, which enable now to reduce our interest costs well below our 4% threshold. I will not give you what the outlook is for H2, but what I can tell you is that 24 billion are coming to refinancing in the group and with the direction of the interest rate and the ability to be able to capture, as you mentioned, right interest environment as it was the case two months ago in Hong Kong, we hope to be able to reduce further interest costs.

Thanks, Alex. We have Rob Coe from Morgan Stanley in Australia on the line. Rob, go ahead and unmute yourself.

Good afternoon. Can you hear me okay?

Yes, we can.

Thank you. Thank you very much for the presentation. So I just have three questions for you, so they're all related to Australia, I apologise. I guess my first question, just to make sure that I understand the minor resegmentation or restatement of earnings within Energy Australia, it says that the customer earnings there, you've removed a hedge book to make it more comparable Should I be interpreting those customer earnings to now be your kind of actual customer results versus the default tariffs? Is that the way to think about that? So I guess that's question number one. Question number two, a bit more high level. You mentioned the strategy in Energy Australia is to be short energy, balanced capacity, and that's not new, but as the price of capacity is going up, if you're balanced capacity, does that mean that your net earnings leverage in integrated business would actually be neutral, or if that's the correct way to think about it? And then my third question is related to the Waring battery transaction. Congratulations on that outcome. And just very simply, is that kind of a deal template, kind of a 50-50 JV with Energy Australia as operator and off-taker? And should we be thinking about that? Because your pipeline has another half a gigawatt in execution and another 0.8 in feasibility. Is that the kind of template we should be thinking about for that pipeline? Thank you.

Okay, thank you, Rob. Maybe I, can I ask maybe Alex, you answered the last one on the JV partnership. Now for the first one, I think, Now, in a way, actually, the customer business, as you mentioned, the reason why we want to so-called remove the hash book from the customer business is such that we can really understand the performance of the customer business in terms of our efficiency of operation as well as the you know, products and services that we have been providing to our customers, whether they are really competitive. So, actually, the customer business in Australia is more like a margin business. You know, based on the government's default price, there's an assumed margin. So I think the competition is basically twofold. One is efficiency. If we can have more efficient operation, then actually we can have more higher margin. At the same time, if we can package our product and services, in particular those behind the meter products, then we may be able to earn an even higher return. I would not say that it's totally just based on price, and I think it's also depending on the so-called value adding to our customer. For example, if we can have solar plus battery, that could be a kind of product that can give value to our customer. Now for the second question about the short energy and balance capacity, sorry, maybe I may not fully understand your question. Could you repeat that again?

Yeah, sure, TK. I guess you've talked about the company having leverage to fire volatility and being able to capture more volatility through the flexible plant, but then if the integrated operation of Energy Australia is balanced to a capacity, is there an equal offset to that gain, or is it net positive that prices become more volatile?

Now... When we say balance capacity, that is for kind of ensuring that we will not be long, even during the maximum kind of demand period. But doing other times, the reason why we have short energy is that we can make use of the capacity for arbitrage when the wholesale price volatility is high. So that's where we can generate additional profits using our capacity without taking up additional risks if we have length in capacity. So that's the rationale behind.

Thank you. Maybe the answer to the third question will help you also to understand the second one. We have the strategy first to contract capacity if we don't have a cost competitive advantage. And we do that by contracting, of course, this capacity with our retail portfolio. When we consider that we have a cost advantage, meaning being on one of our sites where we have land, transmission, water and people, we are able to capture, as we have proved last year, the fifth tender. When we do that then, what we have decided as a model, and this is our base model, is to contract the capacity with EA, provide the O&M from EA, looking for project finance and Warren was 50% oversubscribed by banks and looking for the right partner for this. We plan to do the same thing for MonPiper. if we have this project being developed, and we plan to do the same thing for Hallett. We have not done it yet because it was too small, it was only 50 megawatts, but if we extend it to another 150, which would give a total of 200, then the cost necessary in order to put the structure in place is outweighed a lot by the benefits of it, so we plan to do it. Now, regarding the development of hydro plant with EDF, we have here kept only 25% while they kept 75%. I think here it's important not to see that Solidi as a structuring financial deal, But there's not a lot of pump hydro being developed, so it was also important for us to look for a partner who have a lot of operational and construction capabilities in order to fund a partnership, bringing on top of money skills from the two in order to develop these projects.

Thank you, Alex. Cici Guan from Bank of America. Cici, go ahead and unmute yourself and ask your question.

Thank you for taking this question. I have two questions. First of all, in the first half, you mentioned that CLP has been making progress upgrading the clean energy transmission system. Thinking Hong Kong with Daya Bay, can you share more about it? For example, by how much has the capacity of the power transmission system has increased and how much more capacity will be needed if we were to import more clean energy from mainland to meet the energy target, like how much more capacity you expect from the transmission system. That's the first question. And secondly, about Energy Australia, we've seen a few partnership on project level, and I would like to ask, going forward, will CLP continue to pursue project level partnership or will Energy Australia actively looking for corporate level partnership? And thirdly, I understand that our shareholders value the dividend payout, and can we commit to a final DPS hike, or what are the considerations for us to decide whether we'll have the DPS? And if we were to have DPS in the final, dividend, will that be a five-cent increment just like before, or we are flexible in terms of the magnitude? Thank you.

Okay, thank you, Cici. Now, for the first question about the nuclear imports, So we are now, I would say, in the final phase of completing the CETS. So it will be completed early next year. So we are considering how to make use of that to import additional solar energy to Hong Kong. But the amounts will not be significant. And as you just rightly pointed out, in order to import more to Hong Kong from the mainland, in order to fulfill the 2035 target as laid out by the Hong Kong government in the Climate Action Plan 2050, the amount will be much more significant. Of course, it will consist of both renewable and nuclear, but given the fact that I think in the nearby region, I think importing nuclear would be the major portion of that steel carbon energy. But I think right now because it's 2035, we still have time and also right now there is no concrete sources identified and we need to do system planning, design in order to determine how to import the power to Hong Kong. So I think at this moment it is still very early stage to have any estimation on capacity required. But I think given the fact that it would be a cross border kind of infrastructure, so I think it would be quite significant. But again the fact is that It will take quite a long time to do, so I think when there are more information, then we may be able to share later. Now for the EA partnership, as I maybe mentioned previously, we are open in terms of partnership at project level or at enterprise level, but I think the more important thing is that EA really can optimize its performance. I think right now in the generation assets, we are doing quite good. We have completed all the major kind of investment in occupying the reliability and safety and maybe the next kind of improvement area will be in our customer business as I just mentioned in order to reduce our costs as well as improving the platform to provide more kind of product and services to adding value to our customer. Now in terms of our dividend payout, I also just explained that we have a dividend policy of providing a reliable and consistent dividend and we, based on history, we have never reduced our dividend so we will be very cautious when we want to adjust our dividend upwards So we'll look at our underlying business performance. If it is supported by more sustainable growth in future, then we'll consider increasing our dividend. But at the end of the day, of course, the dividend will be approved by our board.

Thank you, TK. We have come up to time, so I'm going to have to close the briefing there. Thank you, TK and Alex, for answering the questions and providing the briefing. My team and I will be available if you have any other questions. We'll happily take them after this briefing. And thank you very much for all your very good questions today. With that, I will now close the briefing.

Thank you. Bye. Thank you.