Sembcorp Industries Ltd

Ladies and gentlemen, good morning and welcome to SEMCorp Industries' first half 2025 results presentation. A warm welcome to viewers tuning in via the webcast. I'm Xin Jin from Group Corporate Communications and Investor Relations. Before we begin, we would like to request for all mobile phones to be turned off or switched to the silent mode, please. If you feel unwell, please do approach our staff for assistance. Thank you. The members of the panel for today's presentation are Group CEO, Mr Wong Kim In, and Group CFO, Mr Eugene Cheng. There will be a question and answer session after the presentation, and for viewers of the webcast, please key in your question 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 In to begin the presentation. Kim In, please.

Good morning, and thank you very much for joining us today. Before we cover SEMCorp Industries' first half 2025 results and business highlights, allow me to bring your attention to some external developments. Now, Can I have the slide? Yes, thank you. First, the announcement of Liberation Day tariffs in April, and this has brought about heightened business uncertainties, as expected, and somewhat tempered customers' expansion plans. For example, we are observing a more cautious stance from several multinational manufacturers in our industrial parks as they assess the impact of the reciprocal tariff announcements. Secondly, there has been a rapid expansion of renewables in China, and that has outpaced demand growth. This coupled with the lack in construction of grid infrastructure has led to increased curtailment. The Singapore dollar, ironically, has also strengthened these or other currencies across the board. and this has resulted in a negative foreign exchange translation impact on our reported earnings. Eugene will share more in his presentation later. Let me now bring you through the key highlights of our performance in first half of 2025. Now amidst the very challenging macro environment, we delivered a resilient performance. For the first half of 2025, turnover was $2.9 billion. EBITDA was $834 million adjusted EBITDA was $1 billion net profit before exceptional items and deferred payment note forex loss was $491 million during the year we recognized exceptional gains of $140 million mainly due to the gain on disposal of SAM environment However, this was partially offset by a non-cash DPN Forex loss of $95 million. As such, reported net profit was $536 million. Earnings per share before EI and DPN FX change was $0.276 and annualized group return on equity was 17.8%. The board has approved an interim dividend of $0.09 per share, underpinned by the resilience of our earnings. Contribution from the gas and related services segment was steady in the first half of 2025. This year, there was lower overseas contribution due to the ownership transfer of Fumid III power plant in Vietnam. in March 2024, and an extension of a major inspection for Mingjian IPP in Myanmar. In Singapore, despite the depressed wholesale power market, we leveraged our unique position as an integrated gas and power player to add over 120 MW of power purchase agreements. New customers include a mixture of data centers and commercial and industrial customers. Including these new contracts, over 85% of our gas-fired generation capacity are underpinned by contracts that are 5 years and above in tenure. In May 2025, we also signed a suite of gas, power and utilities contracts with Esther Chemicals and Energy, with a contract value of over $650 million. In June, we increased our stake in Sunoco Energy to 50% from 30%, which will deliver earnings growth. We also expect to realize synergies of up to $25 million from portfolio and gas sale optimization, cost efficiencies, and lower refinancing costs. In the first half of 2025, the renewable segment saw stronger performance with profitability increasing 27% year on year. This was due to better wind resource in India, as well as contributions from new operational projects. Compared to the first half of 2024, our installed renewables capacity increased by 3.8 gigawatts to 13.8 gigawatts. Some of the new operational capacity includes the landmark 500 MW solar MANA II project in Oman, and the first large-scale 400 MW solar project in Rajasthan, India. Our gross renewables capacity is now at 18.9 GW, of which 5.1 GW are secured or under construction. We continue to gain good traction in India, securing our second hybrid solar and BESS project and our first round-the-clock power project. We also signed a 25-year TPA with a subsidiary of Meta Platforms for 150 MW peak floating solar at Kranji Reservoir, Singapore. This will be Singapore's largest floating solar project to date. earlier we spoke about the higher curtailment in China there's also the uncertainty associated with pricing reforms as a result we have been very very selective in evaluating new projects in China this chart shows the size as well as the number of deals in China and it has been declining starting from two years ago so if you look at the chart the we started with 0.7 gigawatts of capacity right and then rising by 3.7 rising by three and in 2024 across four transactions we took we added 1.1 gigawatts this year there were only three transactions adding only 0.8 Total is about 9.4. Renewable China contributes about 10% to our entire earning space. So the impact, let's say if there was curtailment that will hit you by 10%, it will actually only translate into 1% to group earnings. So I just want to put into perspective what this means. So what we are acknowledging is that there are headwinds in terms of curtailment. and some of that can be near term because the transmission capacity might come in to ease the curtailment some of it might be longer term depending on where they are located and then there is also pricing reforms and because of that we have been very very careful and this chart shows you that as early as 2 years ago we have already started exercising very strong discipline and being very selective now our new investments are in net import regions so in other words those in 2025 they are all in net import regions and we also require a higher return spread above our hurdle rate so across the years actually something that we do not disclose publicly but you look across 2022, 2023, 2024, 2025 in each one of these years the spread above hurdle rate for the deals that are done have always been increasing so right now you know the deals in 2025 you know we are asking for actually very healthy returns that creates a very significant buffer above our hurdle all right so just to paint you the picture that there is headwind in China It forms actually not a very big portion of our earning space and we are exercising a lot of caution in terms of extracting value and also future investments. We will continue to take a disciplined approach as I mentioned as we monitor the impact of regulatory reforms as well as market developments. This is India. Our renewables capacity in India has grown from 2.1 gigawatts in 2020 to 6.6 GW currently at a compounded annual growth rate of 28%. The new projects secured are across technologies. We have also been awarded hybrid and round-the-clock projects comprising wind, solar, battery, energy storage systems. So we now have 3.3 GW of gross in stock capacity with an additional 3.3 GW that are secured or under construction. The projects are expected to be commissioned from 2026 to 2028, providing strong earnings visibility. With a sizeable fleet of operating assets and paired with a strong pipeline of growth projects, we have achieved meaningful scale in India. This puts us in a good position to explore capital recycling initiatives to fund future growth as well as to drive value extraction. The integrated urban solution segment showed steady performance on higher land sales and operational efficiency gains in the water business. The urban business registered stable demand in Vietnam and stronger land sales in Indonesia. During the year, we were awarded two new Vietnam Singapore industrial parks projects bringing a total to 20 parks. The new VSIPs, VSIP Nam Dinh and VSIP Nean III will be developed as low carbon industrial parks and compliment our current 18 VSIPs. We now have a listable portfolio of industrial properties in Vietnam totaling 134,000 square meters. with an occupancy of 84% as at the end of June 2025. Since then, we have signed more leases bringing total occupancy to 91%. Looking ahead, we have a strong pipeline of land bank to grow our recurring income with a further 474,000 square meters of leasable industrial area under development. The water business has demonstrated resilience, holding firmly its earnings contribution compared to last year. We continue to explore initiatives to grow and optimize our water operations. Separately, as mentioned just now, the sale of SAM Enviro was completed in March 2025 and we recognize a net gain of $142 million. Still on integrated urban solutions, Batam, we wish to highlight, is emerging as a prime destination for data centers due to its seamless connectivity to Singapore. It is linked to Singapore as well as other Southeast Asia countries through multiple submarine cables and fiber optic networks. Batam's submarine cable infrastructure is set to strengthen further with the Nongsa Changi Cable and the INSICA cable expected to be operational in 2025 and 2026 respectively. So in June, we signed a letter of affirmation with Panbio Group to collaborate on low-carbon industrial parks in the Batam, Bintan and Karimun region. Together with Panbio, we will jointly develop the Tembisi Innovation District a 100 hectare low carbon industrial park in Batam. Tempest Sea is well positioned to capture growing demand for data centres and other industries and this leverages our capabilities to provide power, low carbon energy solutions and water management that are all essential for the customer's operations. Now moving on to decarbonisation solutions. we are in exclusive discussions for the import of low carbon power from Sarawak to Singapore and we have also signed a preferred supplier agreement with cable supplier Prismian for subsea cable design we also formed a joint venture with Bharat Petroleum Co Ltd BPCL of India to explore renewable energy green hydrogen and Green Ammonia Projects in India. GoNet Zero continues to strengthen its capabilities for long-term growth. The business has expanded its regional reach and strengthened its platform integration. We will continue to calibrate our investments in this segment in accordance with market conditions. We'll have Eugene now take you through the financials. Thank you.

Thank you Kimit I hope you all don't mind my somewhat raspy voice and because of that I will try to hit the salient points in relation to the financial portion of the presentation I think if we look at the overall financials both our turnover and EBITDA declined slightly 8% at the turnover level and about 6% on the EBITDA level and the decline in the turnover is largely attributed to our gas and related service in general prices and also we had the absence of a contribution from our SAM and VIRU business which was completed the sale was completed in March of this year now this was partially offset obviously while we did see higher gas sales in terms of volumes as well as a new capacity additions for acquisitions and acquisitions in the renewables segment I'll talk about this in a little more detail when we look at the net profit Now, in terms of our increases in our associates and JVs, it was largely a result of a contribution of our Sunoco Energy acquisition, of which 30% contributed for the full six months and an additional 20% contributed for two weeks in the month of June. I think in addition to that the underlying business performance contributed by Urban was also stable. Now all this bring about an adjusted EBITDA which is flat compared to last year and when we look at our net profit before exceptional items and our DPNFX we did 491 which is slightly higher than last year or largely flat. Now in terms of our DPN FX which is simply the mark to market of whatever the balance sheet balance in local currency is relative to the prevailing India rupee to Singapore dollar exchange rate on that time so comparing that exchange rate with what was used to mark that same balance At the end of 31st December, there was a depreciation of the Indian Rupee and that has resulted in a $95 million FX mark-to-market downside compared to a $46 million gain in the previous year. The exceptional item of $140 million that is the gain from the sale of the Sam Enviro business and that brings us to a net profit of $536 compared to $543 last year. Group Net Profit Group Net Profit Group Net Profit Group Net Profit Group Net Profit from the gas and related services we did see a fairly steady profit declining by about 9 million a year on year now we did see a significant positive contribution from Sunoco but it is offset by several factors Firstly, in 2024 earnings, there were one-off tail gas as well as upstream gas curtailment earnings of about $25 to $30 million that weren't present in the first half of 2025. In addition, Fumi3 also contributed a little bit in the first half of 2024 and Fumi3's contribution is obviously not here having the concession returned last year. I think in addition to that, we also saw a couple of other factors. Number one, we did see some renewables of the shorter term, zero to five years contract, approximately about 100 megawatts of that, or close to 10% of our generation capacity at lower spreads. So I think if you would recall, These shorter-term contracts are now renewed in a USAP environment that is significantly lower than the highs of when they were contracted, that is 2022 and 2023. So taking that into account and given the performance of the gas and related services business, we do show significant resilience, especially when you look at the broader performance of other Singapore players. Also, impacting our earnings is that we have imported higher-priced Malaysian renewable imports that were signed in December of 2024. But this is not expected to persist for long-term. As announced in December of 2024, it's a two-year contract. So the combination of these factors was offsetting a strong combination from Senoko. The renewable segment delivered 27% growth in net profit and as Kim Min has highlighted earlier on, the higher profitability is really brought about by full half contribution by projects that are commissioned midway through the second half of last year and a lot of it is in the fourth quarter of last year. and also you know we saw phase commissioning of our Rajasthan solar project in India now we also saw higher wind in India which contributed to a positive to the renewables net profit but conversely we did see some of that growth offset by higher curtailment in China as Kim Min has highlighted Now when we look at integrated urban solutions, we see stable performance. Vietnam continued to be stable relative to last year. Indonesia did see a stronger performance as well compared to last year. Our water business in the segment saw a slightly positive improvement as well, about $2 million as a result of a cost optimization. So, you know, some of you may be asking how much did the sand waste contribute to the integrated urban solutions. In the first half of 2024, sand waste contributed $9 million. And in the first half of 2024, sand waste contributed $11 million. So if you remove the effects of the sand waste, you would see that the IUS segment has performed stably. In our decarbonization solution segment, we saw slight increase in cost to $13 million. That is a result of us scaling the development activities as it came in as highlighted in the earlier slide. In terms of other businesses, we saw an increase of $2 million, $21 million relative to $19 million. The improvement in the net profit really came through our SEMCorp Specialized Construction business, which continues to see a strong order book that is coming through from a government-related customer. In terms of corporate cost, it remained flat against last year. At the corporate level interest cost, we saw a reduction of close to 10%. That is because we saw a lower interest rate and we were able to refinance some of our debt, corporate level debt, in the first half of this year. And we were also able to issue longer dated bonds at more competitive interest costs. In terms of our other corporate level costs, We are at $46 million this year compared to $38 million last year. And it is largely commensurate because in last year's $38 million, there was a $9 million ECL reversal as a result of receiving dividends from our coal plant, Song Zhao, which no longer exists in the SEMCorp after its disposal was completed in December of 2024. The DPN income before the effects of the FX mark to market of the balances on the balance sheet was $65 billion compared to $82 million. As guided before, we will expect our DPN income to continue to reduce and to come down simply because we will be collecting the principal through the repayment from cash flows. And to date, in total, since we have completed the transaction, we have collected $928 billion. in cash flows via the DPN and then we have talked about the DPN FX gain loss as well as the exceptional items in the earlier slide if we move on to the next slide now this is a slide where I would just want to indicate a macro development in the market that has impacted us I think in the first half of this year, particularly after Liberation Day, as you can see in all the, you know, the SingDollar versus, you know, our key overseas earnings currencies exposure, quite evidently the SingDollar, you know, appreciated against, you know, all our key currencies. In fact, against most major currencies. So when we look at the currency effect, where we saw our overseas currencies, local currencies depreciate anywhere between 2% to 6% against the SING dollar, that has brought about a $23 million of earnings translation impact. Now this impact, I'm calling it out because it's not something that you see in the P&L in itself. because the P&L capture transaction realized and unrealized gains or losses which is we remain stable because we hatch those right now this is really a translation effect of which it cannot be hatched so it is important for us to call it out because in the absence of this you know FX effect without the impact of the $23 million which comes above from the translation our earnings half on half would have seen a 5-6% increase instead so this is something to take note and something to note for the second half of the year Now you move to the next slide. Now this slide is really to emphasize the defensiveness of our earnings as well as collect cash flows of our business portfolio. Now it's instructive to note that 88% of our group net profit as well as the cash flows comes from investment-grade markets. and this contributes to very defensive earnings to SEMCorp with Singapore contributing to half of the group net profit and this defensive nature of our business and cash flows which you will see in the subsequent slide will underpin our stable dividend with a potential for growth going forward. Now, I will not talk about the net profit bridge because most of the elements were already discussed earlier but if we move to the next slide In terms of our first half capital deployment outcome, in the first half, in total between capital expenditure spending as well as equity investment, we deployed a total of $567 million. This is a reduction compared to $1 billion over the same period last year. The bulk of the capital deployment is in renewables as we continue to execute the pipeline, and also in gas and related services as we continue to work to complete with the target of commissioning of CCP4, which is our H-class, which will come online sometime in 2026. If we move to the next slide. In terms of our group free cash flows, it remains strong. Cash flow from operating activities was 672 million compared to 517 million last year. and taking into account of our divestments, dividends as well as interest income, our DPN receipts and netting away investments in CapEx and adding back the nature of the CapEx that is of a growth perspective. Our free cash flow which is available for both debt repayment, funding new growth and dividends stands at $1.3 billion compared to $927 billion last year. Now granted, in the $1.3 billion of free cash flow, it does capture the net cash inflow of about $383 million from the sale of SAM Enviro. But adjusting for that, our free cash flow for the first half of 2025 is still commensurate with first half of 2024 at $930 million. So showing the resiliency of our cash flow generation. And so from a group borrowings and balance sheet standpoint, in the first half of this year, we saw a deleveraging of the balance sheet. Our net debt reduced by slightly over $400 billion, from $7.8 billion to just under $7.4 billion. And in a commensurate fashion, you see our leverage ratios have improved as well. net debt to adjusted EBITDA coming down from 3.8 times to 3.6 times. One point to note is that our total equity did reduce slightly and this is a result of foreign currency translation reserve because as I mentioned earlier on the SING dollar strengthened against all our overseas currencies. So that resulted in a $330 million impact against equity translation. But in spite of that, even when you look at a net debt-to-equity perspective, the ratio improved from 1.36 times as of December 31, 2024 to 1.34 times as of June this year. So when we look at our group debt profile, compared to as mentioned earlier on, we continue to focus on pushing out our maturities. I think if you look at our debt maturity profile right now, the bulk of our debt has been pushed on in maturity after five years. In terms of the source of borrowing, it remains very balanced across green and sustainability-linked borrowings, corporate debt as well as project finance debt. We remain hedged at close to an 81% fixed rate against 19% floating. Our weighted average cost of that also, as a result of the interest savings at the corporate level, came down from 4.6% to 4.5%. Part of it is helped by the strong outcome of a 20.5-year long-term bond issuance at 3.55%. Our weighted average debt maturity declined slightly from 5.1 years to 4.9 years. This is a result of continued debt amortization as well, resulting in a reduction in our net debt. From a liquidity standpoint, we remain having a significant amount of committed on-demand liquidity. While you see many numbers on the slide, it is important to note that the combination of our cash and cash equivalents as of 30 June 2025 and our unutilized committed facilities stand at $3.5 billion. So we still have a $3.5 billion of on-demand liquidity that we could readily draw on to deploy for growth. So I will complete this by talking about our outlook. Our outlook, essentially we're saying that we show a strong and resilient performance in the first half of 2025 in spite of the macro uncertainties. Our contribution from the gas and related services segment was steady despite seeing a lower wholesale prices in the Singapore market and also not having the contribution from Fumi3 in Vietnam. and a lot of this resiliency was also supported by the contribution from Sunoco Energy. Our renewable segment saw stronger performance in India and also general commissioning of projects. This is offset by lower earnings in China and our integrated urban solutions saw steady performance with higher urban land sales and also operational efficiency gains in the water business as I mentioned earlier on. And this is of course offset by lower SEM and viral contribution given our divestment in March of 2025. Now, looking towards into the second half, we do expect our gas and related services segment earnings to remain resilient despite the lower spreads of some of the contracts renewed since the second half of 2024. Now, in the UK, we could face the possibility of some customer demand reduction as a result of the closure of the Sabic Appellate Cracker facility in Wilton. The earnings for the renewable segment is expected typically, seasonally, to be lower in the second half of the year, and also a possibility of a higher curtailment and lower tariffs in China compared to 2024. But this is expected to be offset by new project contributions. For the integrated urban solutions segment, we expect to be stable in the second half of 2025, of course excluding the contributions from the divested SAM and Viro in the first half of 2025. But we do remain watchful of any potential impact on our land sales in Vietnam, particularly arising from the economic implications of the trade tariffs. So we continue to monitor the macroeconomic developments, including shifts in any of the investment sentiments, and particularly in relation to the strengthening of the Singapore dollar against our major currencies, which may ultimately impact our reported business performance. But we just want to highlight this. The defensiveness of our portfolio will continue to underpin the resilience of our earnings and also the cash flows, as you can see, backed by a strengthening balance sheet. So we expect to maintain a sustainable dividend payout in 2024 that is commensurate with our underlying earnings and in line with our dividend policies. So the group remains committed to capturing market opportunities and to build a resilience in our business and also creating long-term value in our sustainable energy transition strategy. So that ends my presentation and we are open for Q&A. Sorry if you didn't find my voice particularly soothing.