Sembcorp Industries Ltd

Good morning and welcome to SEMCorp Industries' full year 2021 results presentation webcast. I'm Xin Jin from Group Investor Relations. The members of the panel for today's presentation are Group President and CEO, Wong Kim Min, and Group CFO, Eugene Cheng. Without further delay, I will now hand over the time to Kim Min to begin the results presentation. Kim Min, please.

Thank you, Jin. A very good morning and thank you for logging on to SEMCorp Industries' full year 2021 results briefing. For the full year of 2021, the group delivered a strong set of results. Turnover was $7.8 billion, up 43% from 2020. EBITDA was $1.3 billion, up 9%. Adjusted EBITDA was $1.5 billion, up 5%. Net profit before exceptional items was $472 million, up 57%, while net profit was $279 million, up 78%. Earnings per share was $0.156, and EPS before exceptional items was $0.264. Group ROE was 7.9% and Group ROE before EI was 12.9%. The board is proposing a final dividend of $0.03 for ordinary shares for FY 2021. Together with the interim dividend of $0.02 paid in August 2021, this would bring our total dividend for the year to $0.05 for ordinary share. Let me now go through the key highlights of our different business segments. For renewables, net profit of the renewables segment increased 22% to $56 million in 2021, up from $46 million in 2020. This was driven by higher contribution from our wind business. In 2021, we made strides in growing our renewables portfolio. In Singapore, as many of you would know, we successfully commissioned a 60 MW peak floating solar farm at Tengah Reservoir. And this is one of the largest inland floating solar farms in the world. The solar farm was completed in under a year, despite manpower and supply chain constraints due to COVID-19 pandemic. And this is now a showcase of our solar capabilities as the leading regional renewable energy player. In Southeast Asia, we grew our solar capacity in Singapore and Vietnam by a total of 166 megawatts in 2021. In China, we announced two acquisitions of operational wind and solar assets totaling 2.5 gigawatts. In November 2021, we announced the acquisition of a 98% stake in a 658 MW portfolio of operational wind and solar assets. And that will provide a scalable platform for us to drive further growth in the country. And this was followed in December by the acquisition of a 35% interest in SDIC New Energy. This transaction has since completed. The SDIC New Energy portfolio consists of 1.9 GW of operational wind and solar assets located across seven provincial regions in China. These two acquisitions anchors our position for significant growth in China, which is one of the world's largest renewables market. In India, we secured 210 MW of renewables contracts, including 180 MW wind power project, in the 11th National Wide Wind Power Auction held by SECI. Upon completion of the project, the power output will be sold to SECI under a 25-year long-term power purchase agreement. This brings our gross renewables capacity installed and under development in India to 2.3 gigawatts. And in UK, A further 10 MWh of our battery energy storage portfolio was commissioned, bringing our total operational battery fleet to 70 MWh. The remaining 50 MWh is expected to be completed this year. So we saw good progress and momentum in our growth as a leading renewable player in 2021. we secured a total of 2.9 GW of renewable energy projects and this brings our gross in-stock renewables capacity to 5.3 GW including the 658 MW portfolio acquisition in China which is pending completion by the first half of this year So together with over 800 MW of capacity to be completed between 2022 and 2023, our total gross renewable capacity will be 6.1 GW. We are on track and are pushing confidently towards our target of 10 GW by 2025. The integrated urban solution segment delivered a strong performance in 2021. Net profit before exceptional items was $155 million, and that's up 37% from $113 in 2020. This was mainly driven by higher contribution from the urban business and the solid waste management business in Singapore. Net profit was $161 million, up 15%. Despite the shutdowns and delays in regulatory approvals caused by COVID-19 and the resulting slow pace of land sales in the first nine months, higher earnings from urban land sales were recorded due to land price increase across all industrial parks in Vietnam and Indonesia. Total land sales for the year remain resilient at 168 hectares compared to last year's 172 hectares. Net order book is at 279 hectares compared to 277 hectares in 2020. In China, we achieved record land sales at the Sino-Singapore-Nanjing Eco-High-Tech Island project and with the sale of nine plots of industrial and business and commercial and residential land. The urban business continued to focus on building its land bank to ensure a stable launch pipeline. We received the investment license to develop a 481-hectare new industrial park in Quan Tri Province, Central Vietnam. The province has been earmarked as a future economic hub along the East-West Economic Corridor linking Vietnam, Laos, Thailand and Myanmar. With the establishment of the joint venture company completed this month, Our total land bank has increased from 12,588 hectares to over 13,000 hectares. So we now have 15 urban projects strategically located across Vietnam, China and Indonesia. And that provides the platforms to leverage our businesses, drive synergies and future growth in sustainable solutions. The conventional energy segment also delivered a very strong performance in 2021. Net profit before EI was 373 million, up 52% from 245 million in 2020. And this is driven by strong performance in India, Singapore and UK, especially in the fourth quarter of 2021. Net profit was 54% higher than 2020 at $174 million. Exceptional items totaling a negative $199 million were recorded, mainly due to the $212 million impairment for the 49% owned Chongqing Song Zhao Co-Fired Power Plant in China. In India, earlier this year, we secured two long-term power purchase agreements for our supercritical power plants. The first PPA was to supply 625 MW of power to Andhra Pradesh for 12 years and the second was to supply 200 MW of power to Bangladesh until May 2023. With these agreements, 85% of our India thermal plant capacity is now underpinned by long-term and mid-term PPAs. We have also restructured the India corporate entities. The thermal and renewable businesses in India are now held under separate corporate entities. Moving to Singapore, we were appointed by the Energy Market Authority as the new Our portfolio of energy solution enables us to provide sustainable, competitive and reliable energy for our customers in Singapore, where natural gas continues to be a dominant energy source and even as we continue to grow our renewables business. The flexible generation assets in the UK also perform very well in 2021. The volatility in the country's wind generation and weather conditions during the year has resulted in increased imbalance in the system. And we were able to capture the resulting high prices through being vigilant and keeping our operational performance, maintaining high reliability. With sustainability and decarbonization in mind, We continue to pursue new green technologies that will aid in the decarbonization of the energy sector. In October 2021, we signed a strategic collaboration MOU with Chioda Corporation and Mitsubishi Corporation to explore the feasibility and implementation of a commercial scale supply chain to deliver decarbonized hydrogen into Singapore. We also announced the collaboration agreement with Zero Degrees Whitetail Development to explore the development of UK's first net-zero power station at Wilton International Teesside. This slide provides a snapshot of where we are today against the strategic targets we set out for 2025. So as mentioned, net profit from sustainable solutions comprising the renewables and integrated urban solutions segments grew by 33%. Now, in the meantime, contribution from conventional energy segment increased by 52%. Now, so as a result, sustainable solutions accounted for 35% of net profit this year. In terms of our renewables target, we secured 2.9 gigawatts of renewable projects in 2021. So when we complete the 658 megawatt acquisition in China, again, it's expected within the first half of this year, we will have 6.1 gigawatts of gross installed capacity in the portfolio. Urban land sales at 168 actors despite COVID-19 remain resilient. So again, with the addition of the Qua Tree project, total land bank is now 13,000 hectares. We will continue to focus on growing our land bank to ensure a steady launch pipeline. For carbon emission intensity, we are at 0.51 tonnes of CO2 equivalent per megawatt hour. Decarbonisation remains one of our key focus. and we are committed to achieving our 2025 target. So as you can see, we have made decent progress and we will continue to focus on our 2025 targets as we transit the portfolio ground to green. Now, let me hand the time to Eugene to take you through the group financial review. Thank you for your attention.

Thank you, Kim Min. And good morning to the analysts, the investment, as well as the financing community. It is my pleasure to take you through the details in relation to our FY 2021 financial performance relative to FY 2020. Now, on this slide that you're seeing on your screen here presents the top-level details. As Kim Yun has highlighted earlier on, as a group, our turnover returned $7.8 billion for FY 2021, representing a 43% increase over FY 2020. That allowed us to achieve an EBITDA of close to $1.3 billion, Taking into account of our share of results of associates and JVs, we have an adjusted EBITDA of close to $1.5 billion for FY 2021. That flows down to a net profit before exceptional items of $472 million, which represents a 57% increase over $301 million last year. That is also the highest level of net profit before exceptional items we have seen since 2018. In addition, based on the survey of the analyst consensus in relation to net profit before exceptional items, we are confident that this number has meaningfully exceeded the expectations. Now we have seen exceptional items of 193 million in FY 2021 and as you all know 212 million of this is in relation to the impairment of our Chongqing Songcao Power assets as announced in our first half results and that is partially offset by 6 million of gain from divestment of Jingmen a water asset in China and also 13 million gain from a UK land sales and connection fee income. And that brings us to a net profit from continuing operations of 279 million, which represents a 78 million increase from 157 million last year. What this means for us would be we have realized earnings per share before exceptional items of 26.4 cents per share, which is a 66% increase from 15.9 cents the year before, and from continuing operations of 15.6 relative to 7.8 cents the year before, 100% increase. And from ROE before exceptional items standpoint, we turn in 12.9% for our business this year relative to 5.9% last year. Taking into account exceptional items, our ROE from continuing operations, but after exceptional items was 7.9% compared to 3% last year. So all in all, a very strong set of results. Now, when we look at the group turnover breakdown from the sustainable solutions, the renewable segment saw a 26% growth in terms of turnover. And this is driven by good performance from the wind portfolio. We saw higher energy base availability from the India portfolio, slightly offset by lower wind for the year of FY 2021. And we also saw stable performance from the Chinese China portfolio. There was some revenues realized from green credit sales in India. In addition to that, the battery portfolio in UK also contributed. We have 70 megawatts that start contributing in the year of FY 2021. And that led to a 26% increase year on year. For the integrated urban solutions, most of the revenues from the consolidated basis is actually from our waste management and waste resources business and a portion of our water operations. So the increase of 10% is largely as a result of resumption of operations in FY 2021 from our waste management business and also the full year effects of the consolidation of the Veolia acquisition. that have resulted in that growth. All in, the sustainable solutions revenues was 819 million for FY21, representing a 17% increase over FY20. Conventional energy turned in a turnover of $6.7 billion relative to $4.6 billion the year before, a 46% increase. Much of this is driven by strong merchant market performance, particularly where we saw high energy demand and also high margins, both in terms of the dark spreads and spark spreads realized across the UK, India, as well as Singapore, particularly in the fourth quarter of last year where we saw the hike in energy prices. In terms of other business, turnover for FY 2021 was $297 billion, a 72% increase over FY 2020. The reason for that is our SEMCorp specialized construction business resumed normal operations in FY 2021. over to FY 2020, where it was impacted by COVID. So that leads to our total turnover of $7.8 billion, realizing a 43% increase year-on-year. Moving on to the next slide. So this slide shows the breakdown of the group net profit and our focus of the discussion largely on the net profit before exceptional items. Renewables net profit before exceptional items was $56 million for the year, which represents a 22% increase over FY 2020. and the key operational reasons for that increase attracts the discussion in relation to turnover earlier on. But a couple of points to note here. In the renewable segment for FY 2021, as a result of continuing to grow, our portfolio towards our 10 gigawatts target and also realizing the significant acquisition opportunities that came through from China, which will be completed in FY 2022. We have incurred development expenses of about 11 million in FY 2021, which was not as material in FY 2020. Also in FY 2021, the battery portfolio experienced a deferred tax expense of 4 million as a result of UK legislated tax rate increase from 19% to 23% by FY 2023. So all in all, adjusting for these differences on a life-for-life operational basis, our renewable segment turned in actually 71 million relative to 46 million the year before. Integrated Urban Solutions saw net profit of $155 million, a 37% increase, over $113 million in FY 2020. The bulk of the performance is driven by Urban, which saw increased land sales, particularly in the latter part of the second half towards the fourth quarter. across China, offset with slightly lower land sales in Vietnam and Indonesia. For Vietnam, as you know, through the year of FY 2021, it was impacted by COVID, but we did see the situation lightening up and opening up towards the end of the year. Also, average selling prices realized were higher. For the conventional energy business, we turn in 373 million in FY 2021 representing 52% increase over 245 million in FY 2020. To give a little more colour and context of that 373 million, the coal business contributes to about approximately 20% of the segment earnings for FY 2021. which means that the increase of 128 million year-on-year, approximately 75% of that increase is really driven by our gas business in Singapore as well as our UK flex business. So the bulk in dollar terms for the increase for the conventional energy business is driven by our gas portfolio. Other businesses, turned in a net profit of $25 million, over $11 million, a 137% increase for the reasons I discussed earlier on for turnover, which referenced the fact that the SEMCorp specialized construction business resumed normal operations relative to FY2020, which was COVID hit. Now for corporate FY2031 saw a negative expense of 137 million over 140 million which on headline perspective looks like an increase of 20% but to contextualize that 137 million again it was there were two factors that are led to that increase number one we made a 10 million contribution to the SEMCorp Energy for Good Fund, which looks at the CSR activities in the sustainability arena, which is completely aligned with our key strategy of brown to green and also making sustainability our business as a very core central value and tenet of SEMCorp Industries. Now the second element is you will also notice that under our share plans, we have also revamped and we looked at our incentive structure and there were increased provisions in relation to such incentive structures, partly driven by the balanced scorecard performance, as well as putting in place necessary incentives to align the key personnel of SEMCorp Industries with our strategic execution going forward. So in Note 6C of our SGXNet, you will notice that we have discussed these new incentives that is aimed to align performance compensation in line with the execution of our strategic initiatives. So adjusting for these amounts, our corporate cost for FY21 is probably in the 85 to 19 million, which represents a 25 to 27% decrease year on year. So I will not discuss the total net profit after exceptional items for the key reasons that drive the performance has been discussed. Now, if we move to the next slide, I will not dwell on this slide. This is representing the commentary in relation to the earlier slide in a pictorial form to help you visualize that better. If we move on to the next slide. Now, Group ROE. So we saw strong Group ROE performance across all our key segments. Renewables, 4.6% relative to 4.2%, but as contextualized earlier on, taking into account the development span in FY 2021 and also the deferred tax expense impacting the battery portfolio, our renewables ROE realized in FY 2021 will be about 5.9% or closer to 6%. Now, if you recall, we have mentioned earlier that we expect the ROE trends to trend in relation to the maturity of the asset portfolio. And as of now, the asset vintage or the age of the assets averaged across the portfolio that contributed in FY 2021 was between four to five years. So in that asset class vintage, we expect ROEs of between 5% to 7%, which are adjusting for the amounts, the elements that I talked about earlier on. The ROEs of 6% on a light-for-light year basis falls within expectations. Of course, going forward, I did guide everyone that when the assets mature, generating cash flows and amortizing debts, in years 6 all the way up to years 15 you will see ROEs trending above 10% towards the 15% and beyond years 15 and you will start to trend upwards in north of 20% so you know the ROEs for the renewables for FY 2021 is expected in light of the vintage of the assets that we have and for integrated urban solutions we turn in 9.9% which is a significant improvement from 7.4% a year before and for conventional energy 11.4% compared to 8.3%. So the group ROE realizes 12.9% relative to 5.9% taking into account of a good leverage effect on the ROEs. Moving on to the next slide. In terms of capital expenditure and equity investment, you will notice that the bulk of our capital expenditure is in the renewable segment to continue to invest and to drive growth. Point to note is that you have noticed that we have announced in the last quarter of last year that we have made the two significant Chinese acquisitions of which SDIC have completed in January of this year. We are continuing to work on the completion of the CGN portfolio and it is still expected and on track to complete within the first half of FY2022. CapEx that is incurred in the integrated urban solution segment is largely in relation to our waste management business on renewal CapEx and also in relation to some of the sector tenders that we have secured. And in the CapEx that is incurred in the conventional energy and other businesses, it's largely of the replacement CapEx nature. Moving on to the next slide. So from a group-free cash flow standpoint, we're pleased to say that for FY 2021, we turned in a very strong operating cash flow before working capital changes, and that's $1.3 billion. Taking into account changes in working capital and also tax that were paid, it was $1.2 billion for the year of FY 2021. Now from a cash flow from an investing activities standpoint, we did realise $483 million of cash from a combination of divestments, dividends as well as interest income. And we did spend net capex of $583 million. And taking and adding back, you know, expansionary capex as well as equity investment, our free cash flow for the year was $1.3 billion relative to $700 million the year before. Moving on to the next slide. In terms of group borrowings, we did see gross debt reduce about $400 million as a result of a continued project of financing amortizations. And we saw our total equity increase from $303.5 billion to $3.9 billion, bringing our total capital number to $11.3 billion relative to $11.2 the year before. Now, from a debt portfolio standpoint, debt $7.4 billion is largely categorized into our corporate level debt of about $4.9 billion and project finance level debt of $2.5 billion. And taking away our cash and cash equivalents for the year ended 31st December 2021, we have a net debt of $6 billion. So that brings us to our capital management metrics, where debt to EBITDA has reduced from 6.5 times in 2020 to 5.7 times in 2021, and debt to adjusted EBITDA, which is EBITDA adding back the share of profits from our associates and JVs given that the significant amount of our earnings contributed there. Our debt to adjusted EBITDA have declined from 5.5 times in 2020 to 4.9 times. EBITDA to interest improved from 2.4 times to 3 times and adjusted EBITDA to interest improved from 2.8 times to 3.5 times. so this slide is something that you're familiar as well which lays out the group maturity profile for the group now i just want to focus everybody to the table on the top left hand corner which largely highlights the maturity profile as of the 31st december of 2021 our debt portfolio carries a weighted average maturity of 4.8 years and a weighted average cost of borrowings of 4.8 percent You would have noticed that as of 31st December of 2021 and also as highlighted during the investor day, we have a moving forward of our debt maturities and now you see meaningful maturity of our corporate debt within 2022 and also in 2023. Now, as mentioned earlier on, we will be proceeding to look at various elements, particularly green and sustainability-linked avenues to refinance that. And with that as an objective in FY 2022, we will also continue to tap the green and sustainability-linked financing markets in 2022 to raise the necessary growth capital to continue to drive growth towards our 10 gigawatts target. So moving on to the next slide. So from a liquidity standpoint, as of December 31st, 2021, apart from the cash and cash equivalents of 1.3 billion, just want to highlight to everyone that we have unutilized committed RCF facilities of close to 2 billion. We have recalled during investor day, one of the key elements that underpin the success of the financing of our group ambitions is to retain committed RCS of at least one and a half billion to underpin the investments and execution. And as of 31st of December, 2021, we have a 2 billion of liquidity available for us to draw on in quick, short notice to be able to fund growth. So moving on to the next slide. So summarizing all of that, we had a very strong year in FY 2021. And as we look ahead in FY 2022, we do hope that the market fundamentals that has been with us in FY 2021 will carry on forward. But looking into 2022, we do see that there are risks and uncertainties that will persist. That would be naturally the continued impact of the COVID-19 situation and even global economic recovery and also a rising interest rate environment. Now, in 2021, a lot of the significant performance was driven out of the conventional energy segment. Of course, the renewables as well as the integrated urban solution segment performed well as expected. But for the conventional energy segment, they did benefit from a strong energy demand as well as higher spark and dark spreads and margins realized in the fourth quarter of 2021. So the underlying performance of this segment would continue to be subject to global energy market conditions and commodity prices as we go into 2022. And if the market fundamentals hold up, and we definitely will be hopeful of that, that same market fundamentals will continue to underpin the conventional energy segment. But it's really, really dependent upon the market fundamentals and the market conditions. And also the last element to highlight is that we continue to focus on our growth. We expect to complete the 658 MW CGN portfolio in the first half of 2022 and we are very well on track for that. And as mentioned by Kim Min, our gross renewables capacity in stock and under development will reach 6.1 GW. achieved at the end of our first year of execution against our 2025 10 gigawatts target. And we continue to focus on transforming our portfolio from brown to green and the achievement of the 2025 targets. Just a few points to note that is on our radar. FoodMe3 power plant in Vietnam will undergo major maintenance in 2022 and we do expect tariffs continue to reduce as the PPA approaches expiry in 2024, something that is already disclosed and made known to the market early on. for the waste business, there would be an absence of contribution from the woodland issuance sector, which expired on 31st December of 2021, going into 2022. The contribution from this is not expected to be very material. And of course, for the Mingjian IPP, we continue to operate and we continue to provide essential power to the people of Myanmar. Payments continue to be prompt and the plant continue to operate well. But given the situations in Myanmar, we will continue to monitor the developments very closely. So thank you everyone. That ends my presentation and account to all of you in relation to our performance for FI 2021. A very strong set of results that has been put up. And now we want to open ourselves up for Q&A.