Sembcorp Industries Ltd

Ladies and gentlemen, good morning and welcome to SEMCorp Industries' full year 2022 results presentation. A warm welcome to you to viewers tuning in via the webcast. I'm Xin Jin from Group Investor Relations. Before we begin, we would like to request for all mobile phones to be turned off or switched to the silent mode. 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 Q&A session after the presentation. For viewers of the webcast, please key in your questions in the Q&A box by clicking on the raise hand icon on the webcast page. SemCorp Industries Ltd

A strong set of results for 2022 amidst a volatile market. Turnover was S$9.4 billion, 21% higher year-on-year. EBITDA and adjusted EBITDA was S$1.7 billion and S$1.9 billion respectively. Net profit before exceptional items was S$883 million. This is an increase of 87%. Net profit was S$848 million. earnings per share 47.6 cents earnings per share before extraordinary items was 49.5 cents group ROE was 21.9% and group ROE before EI was 22.7% the financial figures mentioned include discontinued operations this is for easy comparison against last year's results this will be different from the financial statements as Semcorp Energy India Ltd or SEIL this has been classified as discontinued operation and deconsolidated given the group's strong operational results the board is proposing a final dividend of $0.04 and a special dividend of $0.04 per ordinary share for FY2022. Together with the interim dividend of $0.04 paid in August 2022, this would bring our total dividend for the year to $0.12 per ordinary share and this is an increase of 140% from the $0.05 in 2021. During the year, we've made significant progress against our strategic goals. Our renewables portfolio grew significantly with a 60% year-on-year increase in capacity to 9.8 gigawatts and this is through organic growth as well as acquisitions. We also successfully commissioned Southeast Asia's largest energy storage system and that was done in six months in Singapore. For the Integrated Urban Solutions segment, we achieved a higher order book in 2022. We extended our lead in Vietnam's industrial park development sector with licenses secured for Kwan Chui Industrial Park, VSIP Bingseng III, VSIP Canthor, and VSIP Nean Park II. In the conventional energy segment, we completed the sale of Semcorp Energy India Ltd, SEIL, which operates two supercritical co-fired power plants in January 2023. This marked an important milestone in our brown to green portfolio transition. As part of our ongoing efforts to decarbonise, we also expanded our strategic partnerships with various corporations to progress hydrogen and other decarbonisation initiatives. Since the launch of our Green Financing Framework and Sustainable Financing Framework in 2021, we have received strong support from investors and successfully raised Singapore Dollars $3.3 billion of funding from green and sustainable financing as well as refinancing. The funds continue to support the group's transformation and our pursuit of growth plans in the sustainable solutions segment. So allow me to go through the key highlights of each business segment. The renewable segment delivered a strong performance with net profit before exceptional items increasing 150% to $140 million in 2022, and this is up from $56 million in 2021. This was driven by contributions from SBIC New Energy and Shenzhen Huiyang New Energy . The solar assets in Singapore also performed better on higher power prices. Net profit after EI was $132 million, up 136% from $56 million in 2021. In 2022, we made strides in growing our portfolio, adding 2.4 GW of renewables from acquisitions and 1.2 GW from organic growth during the year. This brings the total gross renewables capacity to 9.8 GW, which is very close to our target of 10 GW in stock renewables capacity by 2025. Apart from growing our renewables portfolio, we entered into strategic partnerships with Japan Bank for International Corporation, Sojis Corporation, IHI Corporation, and this to progress hydrogen and other decarbonisation initiatives. In addition, we are advancing our collaboration with Mitsubishi Corporation and Chioda Corporation with the commencement of pre-feed studies for the development of hydrogen imports via metacyclohexane, a type of liquid organic hydrogen carrier, into Singapore. The partnerships forged align with our ground-to-green transformation, and will enable us to play a pivotal role in the development of hydrogen as a major decarbonisation pathway in the long run. And complimenting SEMCorp's offerings as a leading renewables player, we launched GoNet Zero, our carbon management solutions corporate venture, at the 27th United Nations Climate Change Conference GoNet Zero offers one-stop access to renewable energy certificates and carbon credits, as well as renewable energy and environmental attribute portfolio management. We are pleased to announce collaborations with leading industry players such as OCBC Bank, Razor and UBS during the launch. This slide shows a little bit more details on the renewables portfolio. Our gross renewables capacity including acquisitions pending completion has more than tripled to 9.8 gigawatts over the past two years. The proportion of renewables capacity in our group energy portfolio has increased meaningfully from 25% to 59%. We make good progress and gain momentum in our growth areas and our growth markets. In December 2022 we successfully commissioned Southeast Asia's largest energy storage system of 285 MWh on Jurong Island in Singapore. This facility will enhance grid reliability and energy supply security. It also demonstrates our ability to replicate our capabilities from the UK to Southeast Asia. In addition, our solar portfolio in Singapore is now 551 MW peak, including the award of Solar Nova 7 project. This portfolio contributes to more than a third of the nation's 2025 target of 1.5 GW peak. In Vietnam, we acquired a 49% stake in bamboo capital group GAIA, our first utility-scale acquisition in the country, with 141 MW peak of operational solar capacity. Our experience and presence in Vietnam has put us in good state to capitalize on opportunities when they arise. In China, we strengthened our presence and successfully completed the acquisition of a 35% stake in SDIC New Energy and a 98% stake in HYNY Huiyang. Since then, SDIC has also grown organically by another 290 MW. In November 2022, we announced two other acquisitions in China. First, 795 megawatts of solar assets through a 49%-owned joint venture with Beijing Energy, Semcorp, Hainan International Renewables. And second, an 892-megawatt portfolio through a 45.3% stake in Hunan Xingling New Energy in China. Hunan Singling New Energy has since completed the acquisition of 792 MW out of the 892 MW portfolio from Wuling Power with the remaining 100 MW expected to be completed in the first half of 2023. These projects expand our geographical footprint in China and the partnerships provide platforms for us to jointly pursue further renewables opportunities. In India, We are also very pleased to have completed an acquisition of 100% interest in Vector Green, which holds 583 MW of renewable assets. The portfolio brings significant utility-scale solar capacity to our India business, complementing our existing wind portfolio. This broadens and deepens our renewable energy presence across the states in India and positions us for more green growth in the country. In addition to the acquisition of Vector Green, we secured a further 195 MW of renewable projects in India during the year, despite competitive market conditions. Last but not least, in the UK, we commissioned another 50 MWh of our battery energy storage portfolio in July 2022, bringing our operational energy storage fleet to 120 MWh. We also began development of the first tranche of 150 MW or 300 MWh of battery storage as part of a planned 360 MW battery storage system on Teesside and secured a 15-year capacity market contract for these assets. These batteries are expected to be completed in 2024, further enhancing our presence in energy storage in the UK. The integrated urban solutions segment delivered a net profit before EI of $148 million compared to $155 million in 2021. In the urban segment, lower land and property sales in China was mitigated by a strong demand in Vietnam and higher sales margin in Indonesia. Our waste to energy plants in the UK, Wilton 11, which serves our industrial customers on Teesside performed better due to higher power prices. Net profit after EI was $140 million compared to $161 million in 2021. We've received investment licenses to develop four other industrial parks in Vietnam and now have 16 urban projects strategically located across Vietnam, China and Indonesia. These parks provide platforms to leverage our business synergies and drive future growth in sustainable solutions. In March 2022, we began the development of VSIP Bingseng III, which is envisioned to be the model of a smart and sustainable industrial park. A distinguishing feature of VSIP Bingseng III is its planned 50-hectare on-site solar farm, offering great reliability and sustainability benefits to its industrial tenants. Lego Group has begun construction of its first carbon-neutral factory in VSIP Bingseng 3, which is planned to be powered by renewable energy drawn from the solar farm installed by VSIP as well as solar panels installed on their sites. As an expansion of our product offerings, we started the development of Semcorp Logistics Park in Quang Nai and Nei An in the provinces of Central Vietnam. Totalling 76,000 sqm in gross floor area, this modern ready-built warehouses provide quality logistics spaces in strategic locations to manufacturers. Construction will be completed in the fourth quarter of 2023. Now we move on to conventional energy. The conventional energy segment delivered a strong performance in 2022. Net profit before EI was $766 million, up 105% from $373 million, driven by higher power prices in Singapore and the UK, as well as gains from favourable gas hedges. This was partially offset by $84 million expected credit loss provision for Semcorp Ningjian Power Company receivables. Net profit after EI was $766 million from $174 million the year before. A major milestone in our brown-to-green transition this year was the completion of the sale of SEIL . The transaction structure was developed in accordance with the strategic commitments we have communicated and will preserve value for shareholders as well as protect the interests of SEIL's many stakeholders. We will continue to support SEIL's operational excellence and initiatives to decrease its greenhouse gas emissions. And this is done through a technical service agreement. To underscore our commitment to sustainability, we have also provided a financial incentive that rewards a reduction in emissions intensity. To diversify our sources of gas, we signed a supply agreement with Total Energies to import LNG into Singapore for five years starting from 2025. This is SEMCorp's largest LNG contract signed to date and it will augment our energy generation sources and supplies in Singapore. This slide gives a snapshot of our progress against the strategic targets that we have explained to you in 2025. So in the year 2022, sustainable solutions comprising the renewables and integrated urban solution segments accounted for 27% of group net profit compared to 35% as at the end of 2021. Despite the decline, it is important to note that the sustainable solutions portfolio performed well, with net profit growing at a compounded annual growth rate of 35% since 2020. However, we also saw strong earnings contribution from the conventional energy segment, which led to it being a bigger contributor to group net profit. In terms of our renewables target, we have achieved 8.3 GW of gross in-stock capacity and a further 1.5 GW of gross capacity under development. We are close to our target of 10 GW gross in-stock renewables to be achieved by 2025 and we continue to look for opportunities to growth this portfolio. Urban land sales in 2022 was steady at 172 ha and this is despite a weak property market in China. 2022 order book was higher also at 312 ha compared to 279 ha in 2021. We will and must continue to focus on growing our land bank to ensure a steady launch pipeline. With the divestment of SEIL, we have met our 2025 carbon emissions intensity target well ahead of time. Excluding SEIL, 2025 emissions intensity, scope 1 and 2, would reduce to 0.31 tons of carbon dioxide equivalent per megawatt hour. Absolute emissions for scope 1 and 2 would decrease to 10.4 million tonnes of carbon dioxide equivalent in 2022. We will continue to actively explore options to reduce our absolute emissions to achieve our 2030 and 2050 targets. Our focus on execution has yielded results and we have made very good progress in our brown to green transition in less than two years. While the global economic outlook remains uncertain, the opportunities ahead are significant. With our capabilities and track record in energy and urban development, we believe we remain well positioned to seize opportunities in this transition. Given the strong growth momentum, we are looking beyond 2025 and will communicate our refreshed strategy and targets to shareholders and investors later this year. Let me now hand over to Eugene. He will give you more details of the group financial review. Thank you.

Thank you, Kim Min. Now, as you have heard Kim Min mention earlier, for this particular year, our group financials, as you will find in the SGXNet, is presented slightly differently, where the discontinued operations, which represents SEIL's contribution for the year, is represented as a single discontinued operations net profit contribution, right? So this particular slide helped to detail from a line-by-line basis the continuing operations and the discontinued operations as a comparison. Within the SGXNet, you can find more details in relation to the discontinued operations under Node 7c. So I'm pointing that out for those who would read the SGXNet to make it easier for you. And essentially, the discussions in the following slides will be with reference largely to the continuing operations. Now, if we move on to the next slide. Now, as Kim Min has mentioned, for FY 2022, we have achieved a set of strong results. When we look at our turnover from continuing operations, it has increased 22% from $6.4 billion to $7.8 billion. and as a result of that strong operational performance, our EBITDA has also correspondingly increased by 48% from $885 million the year before to $1.3 billion this year. The key contribution to the increase in turnover and EBITDA is largely driven by the strong performances in the conventional energy segment as well as the growth that was achieved in the renewable segment. Share of results of Associates and JV's net of tax has increased 20% from $206 million the year before to $248 million. And this improvement is largely due to the contribution from the 35% owned SDIC New Energy Portfolio which was acquired and completed in January of 2022. Now the combination of the EBITDA performance as well as the share of results performance then resulted in a 43% increase in our adjusted EBITDA to $1.6 billion for FY22 compared to approximately $1.1 billion for FY21. Net profit from exceptional items then grew 129% from $323 million the year before to $739 million this year. Again, as for the reasons mentioned earlier on, largely through the completion of our renewables acquisitions as well as much stronger earnings in the conventional energy segment. Exceptional items in FY22 total $35 million for the items that was mentioned earlier by Kim Min. and this is a significant reduction from the $193 million in FY 2021 which largely came across as a result of the impairment of our China Song Zhao assets. All in all, our net profit from continuing operations is $704 million compared to $130 million in FY 2021. and our total net profit for the year is $848 million compared to $279 million. Total net profit for the year in FY 2022, once again to reiterate, excluding exceptional items would have been $883 million as highlighted earlier on. So from an earnings per share perspective, EPS before exceptional items from our continuing operations is $41.5 compared to $18.1 the year before. EPS taking into account exceptional items is 39.5 cents compared to 7.3 cents the year before. And ROE from our continuing operations is 18.2% compared to 3.7% the year before. Moving on to the next slide. This slide details the turnover breakdown as well as contribution from the key segments of our business particularly within the continuing operations. Just want to mention that the renewable segment saw a 43% increase in turnover, and as highlighted earlier on, it's largely due to the completion of the acquisition of the Heim portfolio, as well as the higher energy prices that was realized for our solar operations in Singapore. In addition, we also have an additional 50 MW of contribution from our CalSTAT batteries that came online in August of 2022 that will continue to contribute on a full year basis in FY2023. Now the integrated urban solutions saw a slight decline in revenues and this is largely due to the cessation of a public waste collection contract in the Singapore Waste Management business. Now, the bulk of our urban solutions earnings are contributed at the associate level, and so I'll touch on that in a slide subsequent to this. But all in all, turnover from our sustainable solutions segment is $950 million, compared to $819 million the year before, representing a 16% increase. In the conventional energy, turnover increased by 24% to $6.5 billion from $5.3 billion the year before, driven largely by the strong power price and demand performance, particularly in the Singapore and the UK. Other businesses saw a 10% increase in turnover to $328 million, and this is largely a result of higher volumes of projects from our SEMCorp specialised construction business. When we look at the breakdown of our group net profit for FY 2022 compared to FY 2021, as mentioned earlier on, we have seen the renewable segment contribute $140 million, representing a 150% increase over $456 million that was seen in FY 2021. This $140 million in net profit for the renewable segment largely benefited from 11 months contribution from SDIC and 7 months from Heinz. On a full year basis, on a run rate basis, assuming that SDIC and Heinz have contributed on a full year basis, that $140 million would have been about approximately $166 million. Now the integrated urban solutions segment from a net profit perspective also saw a slight decline and this is largely a result of having one sector less in a waste business also lower land and property sales in our urban business as a result of a slowdown in China. But this has been partially mitigated by higher earnings from Wilton 11 in the UK, which is our waste to energy plant that has benefited from a stronger price performance. All in all, net profit contribution from our sustainable solution segment was $288 million, a 36% increase from $211 million the year before. The conventional energy segment turned in $622 million in a net profit which represents a 115% increase from $289 million the year before. Now, this $622 million has been achieved as a result of strong performances, largely from higher power prices in Singapore and UK, and also benefiting from the fact that we have a diversified portfolio of gas in Singapore that allow us to optimize our spark spreads. Now this has been partially offset by a 84 million ECL or Expected Credit Loss Provision that we have taken for our Mingjian asset, which I will quite painstakingly explain in the slide after because some of you may be wondering how that can come about. Now our other business, net profit contribution has remained rather stable, $23 million compared to $25 million, and from a corporate cost perspective, largely similar levels as well. Now when we factor in the effects of exceptional items directionally, the numbers represent the factors that I've discussed on a before exceptional items basis. Now I just want to move on to the next slide which shows the net profit bridge between FY2022 and FY2021. Now for renewables segment, when we look at FY2021 net profit before EI of The renewable segment contribution growth largely came as a result of the completion of our acquisitions and also stronger solar prices for our solar operations in Singapore. The integrated urban solutions as mentioned earlier on, slightly lower earnings as a result of slower land sales as a result of China slowdown, loss of a sector in the sand waste business offset by stronger performance for Wilton 11. Now for the conventional energy segment, The outperformance is really stronger, a few prices and spreads and margins achieved. Now, I just want to talk a little bit about this 84 million of expected credit loss provision, which is one time in nature that we had to take, and it's non-cash for Mingjian. Now, if you recall, our Mingjian is really a gas-fired power plant incepted in Myanmar in 2018 with a long-term concession with EPGE, which is the national power company. Now as a result of the nature of the contract, instead of accounting for the MinGen power plant as property, plant and equipment and recognising receivables as generation occur, the entire concession contract was recognised as one single large service concession receivable as a result of IFRIC-12 accounting, right? and that service concession receivables total an amount of close to $260 million. Now, because it is a service concession receivable, SFRS 9, which is the accounting standards for accounting for financial assets is applicable in this situation. And at the end of each financial period, we are to assess if there is a significant increase in credit risk based on circumstantial as well as macroeconomic situations to estimate expected credit losses on that basis. Pretty much what a bank would do looking ahead for the asset. So when we reviewed the credit and economic situation surrounding Vietnam, a few things we noted have taken place across 2022. There were currency controls put in place in the first half of the year, although none of them were applicable to Mingjian as an essential services. We continue to receive US dollars even up to this day. Now, as we progress through 2022, certain developments continue to take place in Myanmar, and one, a meaningful one, was Myanmar being placed on the blacklist, so-called, of the Financial Action Task Force. And that is typically, potentially, could be a signal for increased risk of economic and financial sanctions. When we look into January this year, we did notice that certain Myanmar entities faced increased sanctions. It's in the news. We did see certain officials in MOGE being sanctioned, and a couple of Myanmar SOEs, which are mining companies, mining companies 1 and 2, faced sanctions. So while although as of now, operationally, the gas plant being one of the, if not the most efficient gas plant in Myanmar, still generating and still receiving payments up to January of this year. Taking into account of all the factors under the requirements of SFRS 9, we did have to come to the conclusion that there was a significant increase in credit risk surrounding Myanmar as well as the counterparty. As a result, We took a reference to credit ratings of Myanmar, cross-reference against probability of default rates with those ratings on a lifetime basis that are typically put out by the ratings agencies and that ultimately size our additional ECL provision of 84 million. Now I just want to highlight this point because it really came about as a result of how the Mingjian in investment has to be treated on our books as IFRIC 12 service concession receivable and as a result SFRS 9 which lead to a expected credit loss of provisions on a look forward basis have to be applied. It is non-cash in nature and from operations perspective as of now, the asset is still receiving payments for generation as recent as January of 2023. So I just want to highlight this element in relation to conventional energy segment. There may also be a question as to why this $84 million has not been treated as an exceptional item. Now, if you look at it historically, what we have treated as exceptional items are either impairments or gains or losses from a monetization of investments. And given that we have consistently applied the definition of exceptional items, In this situation, while it is a one-time ECR provision, it doesn't fall into how we have consistently applied the exceptional items. And that is the reason why this 84 million is not treated or not disclosed or classified as an exceptional items. Happy to take more questions later on, but essentially I just want to explain this situation. $84 million non-cash ECL provision as a result of application of SFRS 9 on the service concession receivables. Now again, if we touch on corporate, as mentioned earlier on, not much of a significant change compared to last year. Now if we move on to the next slide. Now this slide details our group ROE from our continuing operations. From the renewable segment, ROE stands at a 10.2% compared to a 4.6%, a significant part of it as a result of the completion of the Hein as well as SDIC portfolios and also the continued generation that come through assets maturity. Now, I just want to highlight 10.2% ROEs on the basis of an 11-month contribution by SDIC and a 7-month contribution by Heinz. Assuming both are at run rate, the ROE would have been 12%. The integrated urban solutions saw a slight decline in ROE, also for the reasons mentioned earlier on. Essentially, the loss of that sector in some ways, and also a slowdown in the China property market that that was offset by higher energy prices that was realized for Wilton 11 waste energy plant. At a conventional energy segment, a very strong ROE of 34.8% in FY2022. Now, ROE, which is the table below that, represents a ROE including our exceptional items, but pretty much paint a similar picture.