Sembcorp Industries Ltd

Ladies and gentlemen, good morning and welcome to SEMCorp Industries' first half 2022 results presentation. A warm welcome to you, to viewers tuning in via the webcast. I'm Sinjin from Group Investor Relations. Before we begin, we would like to request for all mobile phones to be turned off or switched to silent mode. Please be reminded to keep your mask on. If you feel unwell, do approach our staff for assistance. Thank you. The members of the panel for today's presentation are Group President and CEO, Mr Wong Kim In, and Group CFO, Mr Eugene Cheng. There will be a question and answer session after the presentation. For viewers of the webcast, please send your questions for the Q&A through our Investor Relations mailbox at investorrelations.samcorp.com. Without further delay, I will now hand over the time to Kim Min to begin the presentation. Kim Min, please.

Good morning, and welcome to SEMCorp Industries' first half 2020 results briefing. This is the first time we're doing this in this room, so we're very excited about the new space. This has been in place, I think, for more than a year, but we haven't been www.bcorp.co.uk for this purpose to be the backdrop for our results briefing. Each of these screens, they are made up of panels. By the way, they are low cost panels, not high resolution stuff. But each of these screens, what we do is that we will put up operating statistics of our power plants as well as our water businesses and everywhere else around the world. So a visitor or our staff When they come into this room, they can look at this screen and regularly get an immediate sense as to whether or not our India wind farm is having good wind. Our Vietnam power plant, is it having an availability issue? And so on and so forth. So we want to use this space to communicate. internally as well as externally you know the breadth of this company as well as to let people bring together this spirit of one sem corp understanding the what our colleagues are doing around the world all right so just a little bit of that advertisement but otherwise let me get into the results briefing thank you so in the first half of 2022 the group delivered strong set of results turnover increased 45% to $4.8 billion EBITDA was $865 million up 35% adjusted EBITDA was $998 million up 34% net profit before exceptional items was at 94% up at $490 million Net profit after exceptional items was also at $490 million compared to $46 million in one half 2021. Earnings per share was $27.5 cents and group annual rise ROE was 23.1%. The board has announced an interim dividend of $0.04 per ordinary share, which will be paid in August 23, 2022. Let me go through the key highlights for our different business segments. For renewables, net profit increased to $76 million in first half 2022 from $24 million in first half 2021. This was mainly driven by contributions from our newly acquired assets in China. The acquisition of SDIC New Energy was completed in January this year, and Shenzhen Huiyang New Energy, we call HYNE, was completed in June. In India, we experienced higher wind resource in the first half of 2022 compared to the same period last year. And in Singapore, the solar operations performed well, benefiting from higher spot prices with strategic portfolio management. In terms of capacity, we secured an additional 0.9 GW of renewable projects during the first half of 2022. Renewables capacity now stands at 7.1 GW with 1.7 GW under development. So in the span of 1.5 years, we have more than doubled our gross renewables capacity as shown in the chart and the proportion of renewables capacity in our group energy portfolio has increased meaningfully. from 25% to 43%. The renewables business continued to gain good traction with progress made in the first half of the year across all the key markets. In Singapore, we were appointed by the Energy Market Authority to build 200 MWh of energy storage systems on Jurong Island in June. and this is expected to be online by the end of this year. Also in Singapore, we have secured 44 MW peak of solar capacity, including the JTC Solar Roof 3 tender. Our solar farm at Tuas was opened in May, marking Semcorp's first completed ground-mount solar project in Singapore. It is also the country's first solar farm with an integrated rainwater harvesting system. In China, our gross operational capacity has grown from 725 MW to 3.3 GW with the completion of the acquisitions mentioned just now. And this anchors our position for further growth. In India, 115 MW of renewable projects were secured during first half 2022. These contracts were secured with the government as well as commercial and industrial customers. This brings gross renewables capacity under development in India to 725 MW. However, there are some delays to the execution of the 400 MW utility-scale solar project in Rajasthan. In the UK, a further 50 MWh of battery storage was commissioned, bringing our operational battery fleet to 120 MWh. We also secured a 15-year capacity market contract that will contribute to the 300 MWh of battery storage project. Our battery storage portfolio in Singapore and UK now stands at 624 MWh, and this establishes us as one of Asia's largest battery operators. Let me switch to integrated urban solutions segment. Under this segment, net profit before exceptional items was $62 million compared to $63 million in first half 2021. contribution from the urban business was steady with lower land sales mitigated by higher average transacted land prices and residential sales in first half 2022 urban land sales was 42 hectares and net order book remained healthy at 288 hectares during the period our energy from waste plant Wilton 11 in the UK has performed well as it benefited from higher power prices. This was partially offset by higher operating costs in the waste business in Singapore. The urban business continued to focus on building its land bank. We incorporated the joint venture company for our new industrial park in Qua Tri province in Vietnam. and have also started the development of 1,000 hectares of VSIP Bingsun III. Under conventional energy, we posted a net profit of $397 million, an increase of 115% year-on-year. The better performance was driven mainly by high electricity prices in Singapore and India, We also realised gains from favourable gas hedges on the back of higher fuel and electricity prices in Singapore. SEIL Project 2 in India has commenced supply of power to Bangladesh under the 200MW Long Term Power Purchase Agreement since the end of March. and in Singapore we were appointed by the Energy Market Authority to offer competitive fixed price contracts to business consumers such as SMEs, helping to provide pricing stability amidst the volatile Singapore power market. So as at first half of 2022, this is where we stand against our 2025 strategic targets. Sustainable Solutions comprising the Renewables and Integrated Urban Solutions accounted for 25% of group net profit compared to 35% as at 2021. Despite the decline, it is important to note that the Sustainable Solutions portfolio performed well, with net profit growing by 59% year-on-year. However, we saw strong earnings contribution from the conventional energy segment, which led to it being a bigger contributor of group net profit. Gross installed capacity, as mentioned just now, as at the end of first half 2022, was 5.4 GW, and in addition, 1.7 GW of renewable capacities under development, and these are expected to be operational between 2022 and 2024. that takes our in total portfolio of projects operational and under development to 7.1 gigawatts urban land sales for first half 2022 was 42 hectares due to the timing of land sales we will continue to focus on growing our land bank to secure a steady launch pipeline carbon emissions intensity for first half 2022 was 0.51 tons of carbon dioxide equivalent per megawatt hour this is similar to 2021 numbers but an improvement from first half 2021 as a group we continue to actively explore options to reduce our emissions intensity we have made good progress and remain focused on the execution of our brown to green transformation strategy and to achieve our 2025 strategic goals. Eugene will now take you through our group financial review. Thank you.

Thank you, Kim Min. And a warm welcome to all analysts and our banking community. And it is my pleasure to take you through a more detailed review of our financial circumstances for the first half of 2022. I will first share that these set of results were achieved off the backdrop of four key elements. First is off the backdrop of global geopolitical tensions that have been driving tightness in the commodity markets and which led to the second element, stronger electricity prices across key markets that we operate in. We also operate against a rising interest cost environment. In the midst of all of that, the last element I will mention is that we continue to drive growth in our renewable segment and also efficiency across our business to realize the earnings as reported. The overall results in comparison to first half 2021 last year, turnover has increased 45% to $4.8 billion as mentioned, compared to a $3.3 billion last year. I would go into a little more of the relative segments in the subsequent slide. EBITDA has increased 35% from $640 million in the first half of 2021 to $865 million for this current half under consideration. Our share of results from associates have improved from $104 million last year, the same period last year, to $133 million this year. The bulk of the improvement really came from the completion of the SDIC acquisition since January of this year, which contributed $23 million as disclosed in the financial statements that was released. That brings us to adjusted EBITDA being $998 million for this half compared to $744 million in the previous period, which represents a 34% increase. and therefore our net profit before exceptional items is $490 million representing a 94% increase over $252 million which achieved last year and given that you would have recalled that last year we had an exceptional item where we wrote off our China Song Zao Plan of $206 million and so from a net profit perspective it is a very very significant increase So EPS before exceptional items, we did realize 27.5 cents for this half compared to 14.1 cents in the previous period, increasing by a similar magnitude as our net profit before exceptional items. And our earnings per share compared to the same period last year reflects the increase as well. ROE on an annualized basis for this half is 23.1% compared to 8.5% last year. In terms of group turnover, the renewables turnover increased 52% over last year, realizing $222 million in this half compared to $146 million in the same half last year. The key contribution to that firstly is, as mentioned earlier, the successful completion of the SDIC portfolio, which contributed for five months in this particular half, and also the completion of the Hein portfolio, which was completed at the beginning of June, so therefore contributing one month in this particular half. In addition to that, we also saw higher wind resource realized in India, which also came off the back of a greater efficiency of the operations of the assets, resulting in higher energy base availability for us to capture the higher wind resource. In addition, our solar assets in Singapore also benefited from stronger USEP prices in this particular half. The integrated urban solutions segment remained stable compared to last year. And our conventional energy segment saw a significant increase in the turnover, realizing $4.2 billion of turnover relative to $2.8 billion at the same time last year, representing a 51% increase. From a turnover perspective, we did see stronger tariffs, particularly on the IEX for the India coal business, and also stronger electricity tariffs in the local Singapore markets. Our UK picker plants have also performed well. So we move on to the next slide, which detail the breakdown of the group net profit. I just want to focus us largely on the upper half of the slide, which represents our net profit before exceptional items, as there are no exceptional items for this particular half. For renewables, you know, net profit have increased by 217% to 76 million in this particular half compared to 24 million last year. The big part of it is really for the reasons at the turnover level that was discussed in the previous slide. I think in addition to that, our India portfolio also realized some O&M efficiency gains, particularly with the taking back for one of the SACI projects where we took over the O&M operations. OEM and if you recall during the investor day presentation we said that as we take back the O&M operations from the OEM we will be able to realize up to 30% of cost savings so we did realize that in the first half for one of the Proceki projects. In addition to that, we have also refinanced portions of our India Green portfolio. We are refinancing a certain portion of the project, financed that to a more fixed rate, a corporate guaranteed debt of a green loan format, and that has also brought about interest cost savings. Now, when we move on to the integrated urban solutions, performance is stable, realizing $62 million in net profit in the first half of 2022 compared to $63 million last year. The urban business have a stable performance on a year-on-year basis. In terms of our UK waste-to-resource business and waste-to-resource segment, that has performed slightly better compared to last year, while it is slightly offset by our local sand waste business that has faced rising costs from both fuel as well as manpower. Our water business continues to remain stable within the integrated urban solutions segment. Now moving on to the conventional segment. The conventional segment for this particular half performed significantly better than the same period last year as well. We realized net profit of $397 million compared to $185 million last year, representing a 115% increase. now the reasons for that partially have been discussed also in the previous slide as a result of the higher electricity prices that we see across our markets now in addition to that you know we have also benefited from a strong gas portfolio particularly in Singapore where we have a diversified sources and also have hatched positions since last year and that has allowed us to have a a hedge gas position to take advantage of the high electricity prices, therefore realizing the higher gas park spreads. Now, in relation to other businesses, we realized $10 million this year compared to $13 million in the same half last year. It's slightly decreased, and this is really due to a timing of a recognition of the order book. For the key business in the other businesses, our SEMCorp Specialized Construction business. So, we expect earnings to catch up in the second half. Now for corporate, we realized a cost of $55 million compared to $33 million last year, representing a 67% increase. The key element of the increase is really because of rising interest costs and also incurring higher interest costs for funding the equity purchases of SDIC as well as the Hein portfolios. Now in addition to that, it is also worthwhile to note that in the first half of 2021, we realized a fair value gain of $7.1 million in relation to a Bremer Venture Fund that was invested in before. But that same position this year realized a fair value loss of $2 million. So explaining a $9 million delta in relation to that difference. So that gives an overall picture of how our group net profit variances is in this half compared to last. Now if we move on to the next slide. This is presenting what I've just discussed in a pictorial format, so I will not run into a lot of detail. But if you move from left to right of the chart, you would see that from a sustainable solutions perspective, the bulk of the group's net profit improvement came from the renewables, which added $52 million. As mentioned earlier on, a lot of it is in relation to the completion of the acquisition of the Hein portfolio as well as the SDIC portfolio. In the first half of this year, the SDIC New Energy portfolio contributed $23 million and the Hein portfolio, with only one month of contribution, contributed $7 million. Integrated Urban Solutions, as mentioned earlier on, has a steady performance. Now, if we move to the conventional energy segment, if you recall earlier on, first half of this year, we realized 397 million in net profits. Now, if we look at the distribution of that net profit, 196 million of that come from Singapore operations, and the rest of it is split approximately evenly between India Coal, as well as the UK and Middle East operations. Point to note, though, in the $212 million year-on-year gain of the performance realized in the conventional energy segment in the first half of this year compared to last year, $92 million of that came from hedging unwinding gains as well as other income. Now, what is this hedging unwinding gain? Just to characterize it. This hedging unwinding came as a result of we had a cargo that is coming in the first half and we had secured a hedge against that last year. Now the cargo was subsequently cancelled as a result of a certain circumstances. and as a result we also unwound the hedge that was against that cargo and therefore realizing a cash gain so it's not a mark to market gain but it is a cash gain that is realized in that hedging gain So in addition to that hedging gate, we also have other one-offish income that was realized in the first half in India, particularly in relation to annual capacity reconciliation charges, late payment surcharges, and also a reversal of certain provisions. So as mentioned earlier on, other business declined slightly as a result of a slower recognition of income and also because of lower government grant compared to what was received in the first half of 2021 and for corporate, as mentioned earlier on, for the reasons discussed earlier. If you move to the next slide. This slide details our group capital expenditure and also our equity investments. Now, the total capital expenditure and investments incurred in the first half of 2022 was approximately $1 billion. The bulk of it is in relation to the equity investment into the SDRC portfolio as well as the Hein portfolios. That is approximately $850 million. Now the rest of it is a capex across our renewables, integrated urban solutions and conventional energy segments of which the bulk is also invested into renewables of 95 million. So our total investments into the renewable segment was 94% of our total capital expenditure and equity investments for the period. If we move on to the next slide, So from a group fee cash flow perspective, our cash flow before working capital changes is $860 million, which represents a significant increase from the same period last year as a result of the strong underlying performance. Changes in working capital increased to $257 million compared to $137 million last year as a result of a slight increase in inventories particularly in India in the month of June. The reason is because in the month of June we have had our typical annual overhaul for our coal units in India and as a result there was less electricity sales. resulting in a slightly higher inventory. The inventory would be expected to be worked through in the coming months. So all in all, taking into account our divestments and dividends and interest income, as well as our net investments in CAPEX adjusting for expansionary CAPEX and equity investments that was actually paid out during the period, our free cash flow is $593 compared to $562 the previous period. Now if you move on to the next slide, we shall discuss our group borrowings. So our group borrowings increased by slightly over a billion and that is really driven as a result of funding the completion of the acquisition of SDIC as well as Hein. I think other than that, the rest of our positions remain fairly stable from our December 31st positions. What's important to note is that because of the improvement in our underlying results, our balance sheet metrics have improved compared to 31st December of 2021. With that to EBITDA reducing from 5.7 to 5 times on the basis of our annualized first half performance. That to adjusted EBITDA, and if you recall, adjusted EBITDA being EBITDA adding back a share of profits of associates, decreasing from 4.9 times to 4.3 times, and EBITDA interest coverage ratios increasing from 3 times to 4.5 times, and corresponding adjusted EBITDA to interest coverage ratio improving from 3.5 to 5.1 times. So if you look at our current group debt profile, we have improved our weighted average debt maturity from 4.8 years to 5.1 years with a terming out of our debt. And a lot of it has been achieved in the past year with the issuance of a green and sustainability financing instruments. Now till date, we have Ltd Ltd Ltd Ltd Ltd The $675 million sustainability-linked bond done in October of last year. Another $300 million seven-year sustainability-linked bond done in the first quarter of this year. And also the announced $1.2 billion revolving sustainability RCF. that was also announced around the same time of the Sustainability Link Bond that was done this year. In addition to that, if you will recall, I also mentioned earlier on that in our SGI or the India Green Portfolio, we have also refinanced, started refinancing a portion of their project finance debt with green loans secured by corporate guarantees. So that has allowed us to term out our maturities and achieve a weighted average debt maturity of 5.1 years where we stand right now, compared to 4.8 years previously. We will continue to work on the refinancing of our corporate debt. Those that are coming due within one year and within one to two years. And we are confident that we would be able to do that given the momentum of our recent refinancing and debt issuances. Now our borrowing profile. Where we stand right now, we have 32% of our total debt coming from green and sustainability linked borrowings, which is a significant improvement from a year ago. So we are achieving a balanced borrowing profile right now, and we are looking to increase the proportion of our debt that comes from green and sustainability linked sources. In terms of our hedging profile, currently 51% of our debt is fixed with 49% of debt floating. Now, that would have been approximately 57% fixed if not for the consolidation of the Hein portfolio that came in only in June this year. The bulk of the Heim portfolio debt is still a local project finance debt and is floating rate benchmark against the China LPR. From an interest rate perspective, the China interest rate environment is currently a lot more benign than what the global interest rate situation is suggesting, given China's intent to still manage their monetary policies balanced against GDP growth. But in light of that, we will also be working to review the Hain portfolio and to increasingly fix the rates there as well. So the last thing to mention on this page is our weighted average cost of debt which we have reduced it to 4.7% where we stand currently relative to a 4.8% as at 31st December of this year. We have been facing a rising base rates. I think that's a reality. But I think what has worked in our favour is in the recent refinancings that we have achieved using the green and sustainability linked financing format. We were able to reduce our margins and spreads and as a result still able to manage our weighted average cost of debt to within a 0.1% reduction compared to where we stand at the end of December of this year. So our group liquidity position remains strong. Our cash and cash equivalents stand at $1.275 billion relative to $1.3 billion at the end of 31st December, not changing very much. As mentioned earlier on, we continue to have significant committed RCFs and facilities to provide the liquidity to help us fund growth. As of 30th June, our committed unused RCF stands at $2.5 billion. In light of all of that, we have released the following outlook statement to the market to share our thinking in relation to the second half of this year. We recognise that our group has performed well in the first half, and it's mainly driven by the conventional energy segment as a result of higher electricity prices in Singapore and India, as well as having favourable gas hedges that allow us to realise those gains. In the second half of this year, we do expect our underlying earnings for the conventional energy segment to remain strong if the market conditions that we have seen in the first half of this year remain. The performance of the renewables segment in the second half will be underpaid by a full half-year contribution from the China renewables portfolio that have been acquired, namely SDIC as well as the Hein portfolios. Now, in terms of corporate costs, we do expect that to increase as a result of continued rising interest rates and, of course, higher borrowing costs as a result from the acquisitions of the SDIC and Huiyang portfolios. Now, you will recall in the first half of this year, those interest costs that have been incurred was five months for SDIC and one month for Hein. And in the second half of this year, you will see a full six months impact of that. But all in all, we do expect our full year results to be significantly higher than the 2021. and we do want to remind everyone that we continue to operate in a global economic condition that remains uncertain. So as a result, it is our expectation that the commodity markets could potentially continue to be volatile and we continue to face supply chain risks caused by the ongoing geopolitical tensions. and we do expect our interest rates continue to increase and as different governments also seek to have tighter monetary policy to contain inflation, thereby potentially bringing about the risk of a global recession which could potentially negatively impact our performance. But all in all, the group will still continue to focus on the transformation of our portfolio from brown to green and achievement of our 2025 targets. Now, just a couple of points to mention of developments to note. You will recall that earlier in this month, we have also made an announcement of what's going on in Myanmar in relation to our Mingjian IPP. We just want to share that it continues to operate and payments from the off-taker have also been promptly received in accordance with this contract. We will continue to monitor the developments in Myanmar closely and will update the market accordingly. We do have a couple of planned maintenance shutdowns. In the second half of 2022, currently right now in July, one of the units in SEIL Project 2 is still undergoing overhaul as part of a maintenance program. And we also would have a planned maintenance shutdown for our biomass power station in the UK as well. So a couple of developments to know. So I will end my presentation here and we are happy to take the questions from the floor.