Sembcorp Industries Ltd

Ladies and gentlemen, good morning and welcome to SEMCorp Industries' first half 2023 results presentation. A warm welcome to, to viewers tuning in via the webcast. I'm Xinjun from Group Investor Relations and Media Communications. Before we begin, we would like to request for all mobile phones to be switched to the silent mode, please. 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 Min, and Group CFO, Mr Eugene Chang. There will be a question and answer 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. Without further delay, I will now hand over the time to Kim Min to begin the presentation. Kim Min, please.

Thank you, Jin. Good morning and welcome to SEMCorp Industries for us to deliver this first half 2023 results. On this first slide, for the first half of 2023, the group delivered a strong set of results. Turnover was S$3.7 billion, 6% lower year-on-year. While EBITDA was $993 million, and this is 59% higher than the same period last year. Adjusted EBITDA was $1.1 billion, an increase of 50%. Net profit before exceptional items increased 55% to $602 million, while net profit was $608 million, 56% higher year-on-year. earnings per share EPS before EI was 33.7 cents and EPS was 34.1 cents annualized group ROE before EI was 26.6 percent and group ROE was 26.7 percent with this set of results the board has announced an interim dividend of 5 cents per ordinary share which will be paid on August 22nd, 2023. Eugene will give you more details on the financials later. In the meantime, let me go through the key highlights of our business segments. Under renewables, we continue to make good progress and maintain momentum in growing our portfolio. We added 2.1 gigawatts in the first half of the year mainly through organic growth, increasing our gross renewables capacity to 11.9 GW. Renewables now account for 61% of our group energy portfolio. During the period, we completed three acquisitions that we announced last November. This includes the 583 MW Vector Green portfolio in India, 795MW Portfolio through 49% owned Beijing Energy SamCorp 892MW Portfolio through 45% owned Singling New Energy Our partnerships in China have enabled us to successfully scale up our renewables footprint organically. since the acquisition of sdic new energy we have added a further 1.7 gigawatts to the portfolio including a 750 megawatt concentrated solar power project our joint venture with spic subsidiary singling new energy also commissioned its first 100 megawatt 200 MWh energy storage project in China. This is testament of our ability to leverage our partnerships, which are platforms for us to grow ourselves further. In March this year, we were awarded our first greenfield renewables project in Oman. This is a 500 MW build-own-operate solar plant. which complements our existing capabilities and track record in the power and water desalination sector in the region. The plant will be operational by 2025 and will be backed by a 20-year power purchase agreement. There's a little bit more details on our expanding portfolio in China. As mentioned earlier, we are developing new projects with our partners. Two notable projects to highlight This was secured in first half 2023. The first one is a 750 MW concentrated solar power project. This is in Gansu province. And the second one is the 100 MW battery energy storage system in Hunan. The concentrated solar project in Gansu, they call it CSP, is a project that we are developing in our JV platform with SDIC. it consists of 640 megawatts of solar PV and 110 megawatts of concentrated solar power or CSP again the CSP plant serves as an energy storage component of an integrated solar project in a CSP plant the sunlight is reflected by mirrors and focus on the fluid field receiver The heated fluid is pumped to a heat exchanger where the fluid transfers its heat to water, turning it into steam. This steam is then used to generate electricity through a steam turbine generator. This project is expected to complete in 2024. The energy storage system in Hunan is our first organic growth project through our joint venture, Singling New Energy. Hunan is located in central China. It's one of the country's power demand centers. The bundling of utility-scale solar or wind projects with battery energy storage systems, either through self-development or leasing or BESS, has become a requirement in Hunan for grid stabilizations as renewables grow. Our project successfully achieved full capacity connection to the grid in June and its entire leasing capacity will be allocated to renewable projects owned by our partner Wuling Power. We expect to sign a 20-year capacity leasing contract from 2024 onwards. These batteries will also provide ancillary services to state grid. These two projects highlight our ability to expand with our partners. We continue to explore other potential projects as energy storage becomes a requirement to make the local grid more resilient. Move on to integrated urban solutions. In the first half of 2023, we achieved higher urban land sales at 85 hectares compared to 42 hectares in the first half of 2022. Land sales in Indonesia have increased mainly driven by higher manufacturing activity after the easing of COVID-19 travel restrictions. Land sales in Vietnam was lower due to pending approvals from local authorities. In China, the property market continued to be challenging. Net order book remained healthy at 292 hectares compared to 288 hectares in first half 2022. earnings contribution from the waste business in Singapore was lower due to the cessation of one of our public cleaning contracts in the second half or rather the second quarter of 2023 we move on to conventional energy under conventional energy we secured two notable long-term power purchase agreements in Singapore and 18-year PPA with Micron Semiconductor to supply up to 450 MW, as well as a 10-year PPA with Singtel with an estimated annual contract value of $180 million. These contracts have allowed us to improve the earnings visibility of our assets moving forward, particularly for the Singapore market, which was more merchant in nature. Compared to the previous year, our gas portfolio, which is contracted for more than five years, has increased to 48% from 39%. Including the Micron and Singtel PPAs, 96% of our gas portfolio capacity is contracted, providing earnings visibility for the segment going forward. We also augmented our existing natural gas supply with a $1.9 billion gas sales agreement in June to import natural gas from Indonesia. Delivery is expected to commence from 2024 for a tenure of four years. Separately, as part of our asset renewal plan, we are developing a new multi-utility centre and a 600 MW hydrogen-ready combined cycle power plant on Jurong Island. powered by a new advanced combined cycle gas turbine. This facility will be among Singapore's most efficient cogeneration plants capable of blending hydrogen at up to 30% of total fuel feedstock when operational by 2026. As at the first half of 2023, This is where we stand against our 2025 targets that we announced in 2021. Sustainable solutions comprising the renewables and integrated urban solution segments remain at 27% of group net profit, similar to end 2022. and this is due to the strong earnings contribution from conventional energy segment net profit from the sustainable solutions increased 20% year on year with renewables net profit increasing by 54% and in terms of our renewables target we have achieved 8.6 GW of gross in stock capacity and a further 3.3 GW of gross in stock capacity under our portfolio That takes our total to 11.9 GW, expected to be achieved well before 2025. And we will continue to look for opportunities to grow this portfolio moving forward. Urban land sales in first half 2023 were at 85 ha as mentioned just now. We expect land sales, particularly in Vietnam, to pick up in the second half of the year. But as mentioned, it's still contingent upon obtaining local authorities' regulatory approvals. And we continue to focus on growing our land bank to ensure a steady launch pipeline under urbans. With the divestment of SEMCorp Energy India Ltd , we have met our 2025 carbon emissions intensity target ahead of time. Excluding emissions from SEIL which has been removed from our Scope 1 and Scope 2, First half, 2023 emissions intensity continued to reduce to 0.29 from 0.31 tons of carbon dioxide equivalent per megawatt hours in 2022. So with that, let me ask CFO Eugene to take you through the group financial review. Thank you, Kevin.

So it gives me pleasure to take you through highlights of the details of our performance in first half 23 this year compared to first half 22 of last year. In terms of headline key financials, our turnover declined slightly by 6% from about $3.9 billion last year to $3.7 billion this year. As Kim Yin highlighted earlier on, the key reason for that is a reduction in terms of gas revenues out of Singapore, of which I will elaborate on later. In terms of EBITDA share of results of associates of JV's net of tax, summing up to adjusted EBITDA, our adjusted EBITDA has increased by 50% from $759 million last year to $1.1 billion this year. This increase in EBITDA is largely driven by strong performance in our conventional energy segment, as well as contribution from new acquisitions that came through in the first half of 2023 this year as well as a full half contribution by a couple of acquisitions that were completed in the first half of 2022 last year. So those elements contributed to our net profit before exceptional items increasing by 55% from $389 million to $602 million in the first half of 2023. Now, taking into account our discontinued operations, which is related to SEIL, our India coal business, of which the divestment took place in January of this year. In first half of 2022, the coal business contributed $101 million in net profit. And in relation to the divestment of SEIL, you would have recalled that I have guided at the end of December 2022 results announcement that we would be likely realizing a loss on disposal as a result of the flushing out of our foreign currency translation reserve in relation to SEIL. net profit for the period taking into account discontinued operations is 530 compared to 490 now if we look at our EPS before extraordinary items we turn in 33.7 cents for the first half of 23 versus 21.8 cents for the first half of 22 and our annualized return on equity before exceptional items is 26.6% for the first half of 2023 compared to 18.3% for the same period last year. Now, when we look at the group turnover, when we look across the different segments, the renewables turnover increased by 71%, largely as a result of full half contribution by the Hein portfolio that was completed in May of last year, as well as the completion of the acquisition of Vector Green, which took place in the earlier part of January this year. We also saw the contribution from the Singapore-based energy storage system, which came online at the beginning of this year. So that has contributed to the strong turnover increase for renewables. For the integrated urban solutions, turnover has declined slightly by 5%, and this lower turnover is largely a result of a cessation of a public cleaning contract in our sand waste business, essentially the Central South District, which we have already highlighted last year. In terms of our conventional energy business, turnover dropped by 13% from $3.3 billion to $2.9 billion. The key reason is because we have a decline in gas sales for those that are indexed to HSFO. You would have seen that the average HSFO has declined from $610 or so in the first half of last year to $420 this half. Now, but in spite of the decline in revenues, the margins in relation to the gas sales is still preserved because our gas costs against these gas sales are not fixed, obviously, right? Else it wouldn't be hedged. And hence, we still realize the margins, the same expected level of margins from the gas sales. Now, moving to the next slide, where we look at the group net profit, our renewables net profit as highlighted earlier up to this point, has increased 54% from $76 million to $117 million, largely as a result of the completion of all the acquisitions and the new projects coming online, as well as the Singapore battery project coming online. Now, you may ask, why did the net profit for renewables increase slightly lower than revenues? The answer to that is really because of non-cash intangible amortization that came through as a result of the acquisitions. So, the non-cash intangible amortization was about $13 million for the period. Now, for the integrated urban solutions segment, net profit has declined by about 23% from $62 million to $48 million. The key contributory factors was in the urban business itself, we saw certain weaknesses in the China property market and in terms of the Vietnam business, we expect regulatory approvals to come through in the second half. So we do expect the earnings particularly in relation to the Vietnam urban business to be a little more back-ended through this year and that will come through in the second half. But of course, that is mitigated by higher land sales that was recognized in Indonesia. In addition to those elements that impacted the urban business, we also saw lower contributions in our sand waste business. And as mentioned earlier on, it is largely due to the loss of a public cleaning contract in Central South. For the conventional energy business, we saw our group net profit before EI increased from $296 million to $435 million, an increase of 47%. And this is really driven by the strong power prices that is achieved through ensuring our assets are optimized, our gas cost portfolios are optimized to be able to capture the strong power prices, particularly in the pull market. Now, of course, going forward, our Singapore portfolio would be a lot more contracted, but I will elaborate it in a subsequent slide. Now, in terms of corporate costs, we did see an increase, a significant increase in corporate costs. Now, this is mainly due to an increase in corporate level interest costs of about $60 million, of which slightly less than half of that is for the purpose of funding the acquisitions that closed in the first half of this year as well. And we also saw some base rate increases as a result of the 29% floating rate portion that was exposed. In addition to that, we also saw a corporate level cost increase in relation to the completion of certain strategic initiatives, as well as certain costs in relation to the execution of certain M&A transactions. I forgot to mention about the DPN income. Of course, this is the first half where we recognize the deferred payment note income that is coming through from the SEIL sale. So what we have recognised in the first half of this year is $122 million, which comprises of two portions. $84 million that is coming from the interest income, and about $38 million, which is a result of positive forex gains due to a positive movement of the rupee against the sink dollars. So all in all, we have debt accounts from a segmental perspective. Net profit before exceptional items of $602, a 55% increase from $389. So now this slide basically, you know, I wouldn't touch too much on this. It essentially pictorially, you know, explains, you know, the narrative that I have provided earlier on in terms of, you know, how our net profit has progressed from $389 million to $602 million for the reasons that we have discussed. So if we move to the next slide. Now, I just want to touch a little bit about, you know, our conventional energy, you know, portfolio. As you have heard Kim Min mentioned earlier on, where we stand as of 30th June this year, 48% of our conventional gas portfolio capacity is contracted for more than 5 years. And 48% of that is between 0 to 5 years, and only about 4% of that is exposed to sport. specifically for the Singapore capacity for the first half of this year. What we have seen is that between January to July of this year, our level of contracted positions was a little lower for a couple of reasons. Number one, We had a takedown of one of the GTs and also this is in view of the long-term PPAs that is expected to be signed and coming in from the second half of this year. So naturally, because of that, particularly in the second quarter of this year, we were able to take having the assets up, we were able to capture a meaningful amount of pool gains. But going into the second half, as you can see, which is the darker green portion of the shaded area chart, our expected contracted capacity would increase markedly again, and we expect to see slightly over two-thirds of our capacity contracted. underpinned by the long-term PPAs as well as the one to three years retail contract. We expect this contracted position to persist not just through the second half of this year, but essentially the philosophy to carry through into 2024 and beyond as well. So what does that mean for us is that we do expect our conventional earnings to be a lot more stable. and in addition to that there were concerns about how the potential TPC may affect us but as we go look ahead you know in terms of the level of contractiveness of our portfolio and the length in which we expect it to be increasingly contracted we do expect the impact of TPC on our Singapore conventional earnings to be much muted So if you look at the next slide, we talk about our group capital expenditure. Total capital expenditure and investment for the first half of 2023, it's $875 billion. of which the bulk of it is really invested in renewables, almost 94% of that. And in the renewable segment, the CAMPEX is really largely related to wind and solar projects in India and Singapore, as well as for battery storage in the UK. Now, the equity investment portion for the renewables pertains largely to the acquisitions of the renewable portfolios in China as well as India. And when we look at the next slide, which highlights our group free cash flow position, we're quite pleased to see that our cash flow generation ability has increased in the first half of 2023 as well. Essentially, our net cash flow from operating activities is $742 million and a significant increase from $566 million the year before. Now, if we take into account what we consider as a stay-in-business or maintenance capex, our free cash flow is $791 million for the first half of 2023 compared to $593 million the year before. So when we look at our group borrowings and capital possession, as of 30th June, we have gross debt of $7.5 billion, an increase of approximately $400 million compared to 31st December the year before. Of course, the increase in the gross debt largely is to fund the completion of the acquisitions that took place in the first half of this year. Total equity increased from $4.2 billion to roughly $4.8 billion, resulting in total capital increasing from $11.2 billion to $12.2 billion. Now, in terms of our cash position, we saw our cash reducing from about $1.3 billion to $882 million. The reason for that is because we were freeing up a lot of the excess cash. www.patreon.com We are quite pleased to see that our leverage ratios have improved markedly. On an annualized basis, our gross debt to adjusted EBITDA improved from 4.5 times to 3.3 times. Our net debt to adjusted EBITDA improved from 3.7 times to 2.9 times. And our coverage ratios, essentially EBITDA to interest, improved from 4.2 times to 4.8 times. And adjusted EBITDA to interest, 5 times to 5.6 times. Now when we look at our group debt maturity profile, essentially it has significantly been lengthened compared to two years ago. And from a weighted average debt maturity standpoint, where we stand right now is four and a half years, which is commensurate with where things stood as of the 31st of December. Now, you would see that within one year, we have about $1.4 billion of debt that is coming due. Approximately $260 million of debt is self-advertising project finance payments that ultimately will be backed by cash flows at the project level. So from a corporate debt refinancing standpoint, we have about $1.2 billion. Essentially, all of those debt that is coming due are in the process of being refinanced, and we have absolutely no issues with access to capital. In any case, in terms of our available liquidity, we have $880 million of cash on balance sheet plus a free on-demand working capital of $1.6 billion, that totaling to $2.5 billion. on demand available liquidity that will be more than sufficient to cover that. But in any case, we do not expect to use any of those resources because where we stand right now, we expect the $1.2 billion to be refinanced and all the discussions with our banks and the financing partners is already underway. In terms of weighted average cost of debt, compared to where we stood in 31st of December, it increased from 4.1% to 4.7%. Now, as explained at the full year earnings announcement, 4.1% represented the weighted average cost of debt for the whole year of 2022. But by the fourth quarter of December of 2022, our weighted average cost of debt as a result of rising base rates was at 4.4%. So essentially from 4.4% to a 4.7%, roughly 30 basis points increase. It's some continued base rate increase in the 29% floating portion. But in addition to that also, we did consolidate some higher cost points. as a result of the completion of the Vector Green acquisitions. We do see opportunities, particularly in the second half, for us to lower our average cost of debt from 4.7% to something lower through continued refinancing efforts, particularly in India and also in China. Now, when we look at our group liquidity, I've touched on that. Cash and cash equivalents as of the 30th of June, we have $880 million. As of 30th June, we have unutilized committed facilities of $2.5 billion. But as of August of 2023, the committed unutilized credit facilities has fallen slightly to $1.6 billion. The reason for that is that we have one committed RCF facility that was still benchmarked on the older SOAR regime. And as we all know, term loans that are benchmarked against the SOAR is expected to be translated to SORA. But given that this particular RCF would have matured in August of this year, we have decided not to transit that RCF from Seoul to Sora. So we've kind of allowed that facility to lapse, but we are in the process of re-documenting the $850 million. So we do expect to maintain our committed RCF facilities. So if we go to the next slide to talk about the outlook that we expect to see into the second half. Essentially, our strong performance in the first half of 2023 is driven by the conventional energy segment. We saw higher power prices and also increased operational capacity in the renewable segment as a result of the commissioning of new projects as well as acquisitions that we have made. Now moving into the second half, we do expect an increase in our contract positions, particularly with longer tenure PPAs. We will expect our conventional energy segment to provide a stable earnings profile into the second half of the year. Now for the renewable segment, we expect that to increase for the full year, especially with the contributions that has come through from the completed acquisitions. However, as you all know, when you look at the seasonality of our historical earnings, second half of the year for the renewables segment is traditionally seasonally lower than the first half. particularly for the urban business. We expect the full-year performance to be dependent on the pace of the regulatory approvals that will come through for Vietnam in the second half and possibly a property market recovery in our countries of operations, particularly China. But we are confident to say, barring unforeseen circumstances, our full year underlying earnings for the group will be higher than 2022. And we do expect our second half earnings to be better than the second half of last year as well. So, but of course, notwithstanding the strong performance and the positive outlook, we do recognize that global growth is projected to slow down amidst high inflation. Their monetary policies remain tight, particularly out of the US. And as a result of that, resulting in rising interest rates and there still remain potential geopolitical tensions. Of course, these macro factors could weigh down on the global economy and ultimately impact business performance. But nevertheless, as we have always emphasized, we will continue to focus on the execution of our strategy and leverage on both our energy and urban capabilities to continue to seize opportunities to grow in the energy transition. So a couple of developments to note. We do have planned maintenance for our Fumi 3 power plant, approximately three weeks in the second half of this year. And that same plant will reach the end of its term of operations at the end of February in 2024. And that development has been highlighted to the market earlier this year as well. So with that, I end. Oh, okay. Thanks for that, Jin. You have a good chance to rest over the weekend, psych yourself up for it, and update your reports very quickly after that investigation. But we do hope to make it an engaging session for you to help us understand what we envisage as targets for the next phase of growth. So with that, I end my presentation, and we are happy to take questions.