Sembcorp Industries Ltd

Ladies and gentlemen, good morning and welcome to SEMCorp Industries' first half 2024 results and urban strategy presentation. A warm welcome to viewers tuning in via the webcast. I'm Xinjin from Group Corporate Communications and Investor Relations. Before we begin, we would like to request for all mobile phones to be switched to the silent mode, please. www.patreon.com and Mr. Eugene Cheng Group CFO. They will be presenting on our first half results, following which Mr. Lee Ak Boon, CEO of Urban, will then give an urban strategy update. There will be a question and answer session after the presentations. 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.

Good morning. Thank you for joining us today. Let me bring you through SEMCorp Industries' first half 2024 results and business highlights. For the first half of 2024, turnover was $3.2 billion. EBITDA was $889 million and adjusted EBITDA was $1 billion. Net profit before exceptional items for the first half of 2024 was $532 million. including exceptional items, EI for short, net profit was $540 million. Compared to first half 2023, the lower profitability was due to the planned major maintenance for one of our Singapore gas-fired power plants. During the full year results briefing in February 2024, We had guided that the maintenance would have an estimated net profit impact of between S$60 million to S$70 million. We were able to reduce the financial impact through our efforts to shorten the maintenance period. We were also able to optimise our portfolio, reducing the impact from lower pool prices. Eugene will share more details in his presentation later. Earnings per share before EI was 29.9 cents, while EPS was 30.3 cents. Group return on equity before EI and group ROE on an annualized basis were both at 21%. In light of the group's robust performance, the Board is proposing an interim dividend of 6 cents This is an increase from the $0.05 last year. Let me bring you through now the key highlights of our business segments. First, the guest and related services segment. This segment delivered robust results in the first half of 2024, despite the planned maintenance of our Singapore co-generation plant. We were able to successfully shorten the maintenance period, reducing the financial impact to the portfolio. There were also concerns on lower wholesale prices impacting the Singapore market with the implementation of temporary price caps from July last year. And despite the lower wholesale prices, we were able to leverage our unique position as an integrated gas and power player and with our strong customer base to optimize our commercial position. This set of results validates our strategy to contract our portfolio long-term. So as at the end of 30th June 2024, almost all of the group's gas-fired generation capacity is contracted, half of which is contracted for more than 10 years, with more than 80% of our gas and related services net profit now contracted This is an increase from 50% a year ago. Our portfolio is now increasingly insulated from merchant market volatility. In the first half of 2024, we signed long term power purchase agreements with Equinix and GSK. Both power purchase agreements have a green element, either in terms of renewable energy or renewable certificates to support our customers in their decarbonisation journey. This is in addition to the long-term PPAs we have signed in 2023 with companies including Micron, Singtel and ST Telemedia. With these contracts, more than 75% of Singapore's generation capacity is contracted to the energy-intensive industries, such as high-tech manufacturing companies and data centres. Today, we are also the leading power provider to the data centre sector in Singapore, capturing a third of the power capacity market share. With demand from corporate customers, including data centres, expected to be strong, We will build on our portfolio to further ensure earnings resilience. In the first half of 2024, our renewables earnings were impacted by lower demand in China as a result of weaker economic conditions which affected power demand. While there are temporary headwinds due to the macroeconomy, in the longer term, Substantial investment and strong government support will continue to drive growth in the sector across these key renewables markets. In China, our diversified portfolio across resource and location also mitigates the impact. We will continue to be selective to invest in good quality projects which are near load centres and where there are net importers of renewable power and this is helping to mitigate curtailment risk. In India, we secured one gigawatt of pipeline from the SECI and SJVN government tenders at higher tariffs. So together with potential brownfield acquisitions, we are well positioned to ride this wave and growth that is prevalent in India today. We also marked our entry into utility-scale solar development in Indonesia with the construction of an integrated 50 megawatt solar and 40 megawatt-hours energy storage in Nusantara. The project is backed by a 25-year power purchase agreement with PT PLN Persero, the state-owned utility provider. As at 30 June 2024, including a 49 MW acquisition pending completion, we have met our 2025 gross installed renewables capacity target of 10 GW well ahead of time. We are confident of our long-term growth and remain focused on achieving our target of 25 GW of gross installed renewables capacity by 2028. The integrated urban solutions segment performed well in the first half and is largely contributed by the urban business. Our urban portfolio recorded healthy land sales during the first half of 2024 and net profit contribution from the urban business more than doubled in the first half of 2024 compared to first half 2023. In May 2024, we strengthened our Vietnam-Singapore industrial park portfolio to 18 industrial parks with the addition of three new investment licenses. We now have a total licensed land area of over 11,000 hectares in the country. We will continue to leverage the group's expertise in renewable energy and decarbonization solutions to enhance our offerings to develop low-carbon industrial parks. Mr Liak Foon, our CEO of Urban, he will be sharing in more details after Eugene's presentation of his strategic plan. I will now hand over to Eugene to go through more details in the financials. Thank you.

Thanks, Kim Min. As I take us through our financial performance for the first half, it is quite important to note that this set of financials has showed resiliency in our portfolio, particularly in the gas and related segment. And as I take us through, I will highlight some of those elements. Now, looking at this slide, which gives the overall view of our first half 24 financials, turnover declined by about 12%, and it's largely driven by the gas and related segment. Now, we did see lower, in general, gas offtake and also some of our gas sale prices. But more importantly, also from an electricity sales standpoint, last year we did benefit from a pretty high demand bcorp Industries Ltd We also saw lower prices and demand in UK, which brought about lower performance for our UK gas and related services segment. In general, also our Singapore operations were affected by the plant maintenance that we highlighted at the start of the year. From an EBITDA perspective, our EBITDA is also a decline for similar reasons as I have highlighted before. And as I mentioned earlier on when I talked to the net profit performance, I will highlight how our contractor positions have allowed us to optimize opportunities. share of results associates and JV's net of tax increased by 5% and as Kim Min has highlighted, a lot of this is a result of a stronger first half 2024 performance by Urban which saw us completing and capturing land sales that were delayed from the second half of 2023. And all in all, that resulted in a net profit before exceptional items of $532 million compared to $602 million last year. And for us, realizing a annualized group ROE before exceptional items of 21% compared to 26.6% last year. In terms of group turnover, as a lot of the highlights I've talked about earlier on, the gas and related services saw the decline in turnover as a result of the reasons that I've mentioned earlier on. From the renewable segment, turnover remains fairly stable, essentially a contribution from new acquisitions from China and India. But as you have heard from Kim Min, offset by a couple of things. Number one, we did see for our consolidated portfolio some slower in demand resulting in a curtailment. Second element of that is also of our UK batteries business. Also, we saw lower batteries performance in the first half of 2024 compared to the first half of 2023 because of a lower scarcity event resulting in a lower volatility in the grid. The decarbonisation solution segment saw a significant growth in terms of revenues, from $5 million in the first half of 2023 to $22 million in the first half of 2024, and a lot of it is driven by GoNet Zero ramping up both REX as well as credit sales activities. and the other businesses which comprises largely our specialized construction business as well as our main business saw a growth in revenue from 215 to 268 and the growth is a result of a stronger order book off the back of our specialized construction business. Looking at the group net profit performance, I'll first touch on the gas and related services. For the first half of 2024, the gas and related services segmented in $339 million, which is a decline from $435 million that was seen in the first half of 2023. And the reasons of this, it's largely through two key reasons. Number one, if you recall in the first half of 2023, as guided, we did experience very high pool gains as a result of high USAP prices realized in the second quarter of 2023, and also us having lower contracted positions in that particular half. So I've also guided that at that point in time, post that, the TPC, the temporary price caps were put in place and as a result we also progressed to really contract our gas portfolio. You have also recalled that I've guided that if the temporary price caps were applied, in the first half of 2023. Approximately 60 million of those pool gains will not be there. So our first half 2024 results have to be seen in that context. Now in terms of the plant maintenance, just on the maintenance itself, we are quite pleased to say that we were able to optimize the maintenance by being able to complete the maintenance ahead of time. So, you know, as a broad guidance, you know, I've previously guided a potential 60 to 70 million impact on costs. But, you know, we have probably came in, you know, closer to around 50 million impact instead. Therefore, optimizing on a pure maintenance cost. But in addition to that, we were able to optimize, you know, our gas, you know, and related services positions in a couple more ways. Number one, given the fact that we were able to complete the operations and maintenance ahead of time, we also have some excess capacity that we were able to realize value by selling in the pool. So that's the first thing. The second thing that we were able to do also through the half is that given the fact that we are contracted, that we were able to take advantage of certain periods of low pool prices where we were able to purchase electricity from the pool instead to fulfill our PPAs, instead saving costs on the gas and being able to realize value of the gas that is saved in a more profitable manner. So the combination of the optimizations and also the maintenance performance being done ahead of time allow us to perform better than what we have guided previously. I think also another factor to consider is that our gas and related services were also slightly impacted by the UK business, which in general saw lower power prices in the first half of 2024. For the renewable segment, we turned in about $15 million lower than last year, or rather about 13%. Now, we continue to be able to commission new capacity and also complete acquisitions in the renewable segment. But in general, we were impacted by a couple of factors in the first half of 2024. Firstly, as Kim Min has highlighted, we did see lower demand in China, which as a result resulted in lower gross electricity sold. And then also in the UK itself for the batteries segment, we did see lower earnings as well because on the average, we did see average ancillary services earnings decline on a half-on-half perspective. So in terms of the $15 million decline from impact across these two elements, I would say approximately two-thirds of that impact is driven by the China impact in the first half, and one-third of it is driven by the batteries impact. Now for the integrated urban solutions segment, we saw a significant growth in terms of net profit, and largely it is driven by, as highlighted earlier on, urban being able to catch up very expeditiously. Land sales in the second half of 2023, which was deferred into the first half of 2024. Our waste and waste management segment, as well as the water segment, remain stable. And in terms of the decarbonization solutions, you will see an increase in terms of a cost investment from $3 million last year to $10 million this year. That, you would see in our public announcement, is largely through a ramping up of activities. I think across GoNet Zero, commensurate with the increase in revenues, we did ramp up resources to capture revenue growth. But more importantly, in the green hydrogen side of things, you have seen our announced positive development in terms of potential 200,000 metric ton green hydrogen plant in India for the potential of off-take into Japan in partnership with Sojit and Kyushu. We have commenced feed studies in that phase. So positive developments in the particular segment, which resulted also in higher cost investments, which we have guided that we believe that this would bring about positive impacts for energy transition further down the road. Now, in terms of corporate cost, corporate cost came in lower than in the first half of 2024 compared to the first half of 2023. Now, in terms of interest cost, we were very, very, very expeditiously looking at opportunities to bring down our effective cost of borrowing. You would see later in the slide, we were able to, in spite of our debt coming up, we were able to maintain our effective cost of borrowing at about 4.5%, while at the same time being able to lengthen our weighted average debt maturity, getting more tenner, and also being able to increase our fixed rate ratio from 72% at the end of December of 2023 to 77% where we are currently. So we were able to look at opportunities to optimize our effective interest rates and to keep it at a level lower than last year. Now, in terms of other corporate costs, we are impacted by two things. Number one, also, we were very focused in making sure we keep our gross corporate costs tight. And also, a second thing is that we did see certain reversal of ECL provisions in this particular half. In terms of the DPN income, we did realize 128 million in the first half of 2024, slightly higher than the first half of 2023. Out of that 128 million, you would see that approximately 46 million will come from positive FX gain because of the positive movement of the rupee against the Sing dollars. In the same half last year, that similar FX impact was a positive 38 million. So I wouldn't touch on this slide because most of the net profit variances was already discussed in a fair amount of detail earlier on. But if we move on to the next slide. In terms of our group CAPEX and equity investments, for the first half of 2024, we spent approximately $700 million in terms of CAPEX and another close to $300 million in terms of equity investments for a total of $1 billion. The bulk of the investments is largely into renewables, about $490 million for continued execution of the pipeline. and about $300 million of that for the completion of Deep Green, which is an acquisition done in India in the first half of this year, and also the completion of three out of four project companies for the Gelex portfolio in Vietnam. The $200 million of CAPEX in the gas and related services relates largely to the H-class as we continue to complete that towards our targeted COD. In terms of the group free cash flow, our cash flow from operating activities is about $517 million compared to $742 million in the comparative period last year. But I think when we look at taking into account dividends and other income that is flowing through, as well as our DPN receipts and adjusting for growth capex, our free cash flow that is available today for the funding of expansion CAPEX and equity investments for the first half is $948 million compared to $791 million last year. So we continue to see a strong free cash flow generation pre-interest and growth expansion in the first half of this year. If we move on to the next slide, when we look at our group borrowings as well as the balance sheet position, our gross debt increased from $7.3 billion as of the end of 2023 to about $8.4 billion as of the end of this year. bcorp Industries Ltd Our cash and cash equivalents also went up from $767 million to about close to $1.1 billion, driven by cash flow generation. We have also drawn down some debt early, just prior to the completion of the half, for the purpose of somewhat refinancing requirements in the coming quarter. But all in all, when we look at our leverage metrics, our gross debt to adjusted EBITDA is approximately four times, a slight increase from 3.5, but taking into account the cash that we have on balance sheet, our net debt to adjusted EBITDA is 3.5 times, a slight increase from 3.2 as at the end of December 2023. Our coverage ratios remain healthy EBITDA to interest at 4.5 times compared to 4.4 times at the end of December 2023 and our adjusted EBITDA to interest is 5.2 times improved slightly So the group debt maturity profile, as I talked about earlier on, if you compare this picture to easily a year or two years ago, it has vastly improved. We are able to term out a lot of debt, moving a lot of the debt towers towards the longer tenors, and we are able to achieve debt with our weighted average cost of debt maintained at 4.5%. You will see that in this half, we have also increased our fixed rate borrowing percentage to 77%, giving more visibility in our interest costs and also being able to lengthen our weighted average debt maturity from 4.4 years to 4.7 years. So essentially being able to get better debt metrics, more fixed, a slightly longer tenor, but yet being able to manage our weighted average cost of debt. So from a liquidity standpoint, you know, a lot of numbers on this slide, but typically, as I've always guided, it's really our on-demand liquidity for the purpose of funding growth. So as of now, we have a cash and cash equivalence of $1.1 billion and also unutilized committed RCF facilities of about $2.9 billion. So essentially, our so-called on-demand liquidity is closer to $3.9 or $4 billion, which is a significant liquidity to continue to fund growth. So all in all, to summarize our outlook statement, which you probably would have already seen in the morning, we have shown a resilient performance in the first half of 2024, in spite of the moderating USEP prices, as well as the maintenance in the gas and related services. We did see slower demand resulting in higher curtailment in China in the first half of this year. and this was offset by an increase in earnings in our integrated urban solutions segment, particularly from a catch-up in land sales in Vietnam and Indonesia. When we look forward into the second half and with the completion of the planned maintenance for our SACRA units in Singapore and with our significantly contracted positions, we do expect our earnings for our gas and related services segment to be higher in the second half of the year compared to the first half of 2024. Our earnings for the renewable segments from a seasonal perspective, it is always lower in the second half of 2024 compared to the first half of the year. But we do expect the seasonality to be partially offset by new project contributions, and some of them are commissioning in the latter part of this half. We do, however, keep a close watch on China because the weak macroeconomy in China could potentially continue to negatively impact the renewable energy demand. Now, the outlook in the second half of our integrated urban solutions segment is expected to be stable. But overall, as you can see currently, the macroeconomic as well as geopolitical uncertainty remains. And as well as the potential policy changes, this could potentially impact the broader economy, the global economy and the economy that we function in, and ultimately impact business performance. But still, barring unforeseen circumstances, we do expect our full-year net profit before exceptional items for the group to be fairly stable compared to last year. And our group continues to be well-positioned to navigate energy transition and continue to grow our renewables portfolio. So we continue to focus our execution of our strategy and to capture market opportunities in the energy transition and to drive value creation.