Sembcorp Industries Ltd (U96) Earnings Call Transcript & Summary

Ladies and gentlemen, good morning, and welcome to Sembcorp Industries Full Year 2021 Results Presentation Webcast. I'm Xin Jin from Group Investor Relations. The members of the panel for today's presentation are Group President and CEO; Wong Kim Yin; and Group CFO, Eugene Cheng. Without further delay, I will now hand over the time to Kim Yin to begin the results presentation. Kim Yin, please.

Thank you, Jin. A very good morning, and thank you for logging on to Sembcorp Industries Full Year 2021 Results Briefing. For the full year of 2021, the group delivered a strong set of results. Turnover was $7.8 billion, up 43% from 2020. EBITDA was $1.3 billion, up 9%. Adjusted EBITDA was $1.5 billion, up 5%. Net profit before exceptional items was $472 million, up 57%, while net profit was $279 million, up 78%. Earnings per share was $0.156, and EPS before exceptional items was $0.264. Group ROE was 7.9%, and group ROE before EI was 12.9%. The Board is proposing a final dividend of $0.03 per ordinary shares for FY 2021. Together with the interim dividend of $0.02 paid in August 2021, this would bring our total dividend for the year to $0.05 per ordinary share. Let me now go through the key highlights of our different business segments. For Renewables, net profit of the Renewables segment increased 22% to $56 million in 2021, up from $46 million in 2020. This was driven by higher contribution from our wind business. In 2021, we made strides in growing our renewables portfolio. In Singapore, as many of you will know, we successfully commissioned the 60-megawatt peak floating solar farm at Tengeh Reservoir. And this is one of the largest inland floating solar farms in the world. The solar farm was completed in under a year despite manpower and supply chain constraints due to COVID-19 pandemic, and this is now a showcase of our solar capabilities as the leading regional renewable energy player. In Southeast Asia, we grew our solar capacity in Singapore and Vietnam by a total of 166 megawatts in 2021. In China, we announced 2 acquisitions of operational wind and solar assets totaling 2.5 gigawatts. In November 2021, we announced the acquisition of a 98% stake in a 658-megawatt portfolio of operational wind and solar assets, and that will provide a scalable platform for us to drive further growth in the country. And this was followed in December by the acquisition of a 35% interest in SDIC New Energy. This transaction has since completed. The SDIC New Energy portfolio consists of 1.9 gigawatts of operational wind and solar assets located across 7 provincial regions in China. These 2 acquisitions anchors our position for significant growth in China, which is one of the world's largest renewables market. In India, we secured 210 megawatts of renewables contracts, including a 180-megawatt wind power project in the 11th national-wide wind power auction held by SECI. Upon completion of the project, the power output will be sold to SECI under a 25-year long-term power purchase agreement. This brings our gross renewables capacity installed and under development in India to 2.3 gigawatts. And in U.K., a further 10 megawatt hours of our battery energy storage portfolio was commissioned, bringing our total operational battery fleet to 70 megawatt hours. The remaining 50 megawatt hours is expected to be completed this year. So we saw good progress and momentum in our growth as the leading renewable player in 2021. We secured a total of 2.9 gigawatts of renewable energy projects. And this brings our gross installed renewables capacity to 5.3 gigawatts, including the 658-megawatt portfolio acquisition in China, which is pending completion by the first half of this year. So together with over 800 megawatts of capacity to be completed between 2022 and 2023, our total gross renewable capacity will be 6.1 gigawatts. We are on track and are pushing confidently towards our target of 10 gigawatts by 2025. The Integrated Urban Solutions segment delivered a strong performance in 2021. Net profit before exceptional items was $155 million, and that's up 37% from $113 million in 2020. This was mainly driven by higher contribution from the urban business and the solid waste management business in Singapore. Net profit was $161 million, up 15%. Despite the shutdowns and delays in regulatory approvals caused by COVID-19 and the resulting slow pace of land sales in the first 9 months, higher earnings from urban land sales were recorded due to land price increase across all industrial parks in Vietnam and Indonesia. Total land sales for the year remained resilient at 168 hectares compared to last year's 172 hectares. Net order book is at 279 hectares compared to 277 hectares in 2020. In China, we achieved record land sales at the Sino-Singapore Nanjing Eco Hi-tech Island project and with the sale of 9 plots of industrial and business and commercial and residential land. The urban business continued to focus on building its land bank to ensure a stable launch pipeline. We received the investment license to develop a 481-hectare new industrial park in Quang Tri Province, Central Vietnam. The province has been earmarked as the future economic hub along the East-West Economic Corridor linking Vietnam, Laos, Thailand and Myanmar. And with the establishment of the joint venture company completed this month, our total land bank has increased from 12,588 hectares to over 13,000 hectares. So we now have 15 urban projects strategically located across Vietnam, China and Indonesia. And that provides the platforms to leverage our businesses, drive synergies and future growth in sustainable solutions. The Conventional Energy segment also delivered a very strong performance in 2021. Net profit before EI was $373 million, up 52% from $245 million in 2020. And this is driven by strong performance in India, Singapore and U.K., especially in the fourth quarter of 2021. Net profit was 54% higher than 2020 at $174 million. Exceptional items totaling a negative $199 million were recorded mainly due to the $212 million impairment for the 49% owned Chongqing Songzao coal-fired power plant in China. In India, earlier this year, we secured 2 long-term power purchase agreements for our supercritical power plants. The first PPA was to supply 625 megawatts of power to Andhra Pradesh for 12 years, and the second was to supply 200 megawatts of power to Bangladesh until May 2033. With these agreements, 85% of our India thermal plant capacity is now underpinned by long-term and midterm PPAs. We have also restructured the India corporate entities. The thermal and renewable businesses in India are now held under separate corporate entities. Moving to Singapore. We were appointed by the Energy Market Authority as the new LNG importer. Our portfolio of energy solution enables us to provide sustainable, competitive and reliable energy for our customers in Singapore where natural gas continues to be a dominant energy source and even as we continue to grow our Renewables business. The flexible generation assets in the U.K. also performed very well in 2021. The volatility in the country's wind generation and weather conditions during the year has resulted in increased imbalance in the system, and we were able to capture the resulting high prices through being vigilant and shifting our operational performance, maintaining high reliability. With sustainability and decarbonization in mind, we continue to pursue new green technologies that will aid in the decarbonization of the energy sector. In October 2021, we signed a strategic collaboration MOU with Chiyoda Corporation and Mitsubishi Corporation to explore the feasibility and implementation of a commercial-scale supply chain to deliver decarbonized hydrogen into Singapore. We also announced the collaboration agreement with Zero Degrees Whitetail Development to explore the development of U.K.'s first net zero power station at Wilton International on Teesside. This slide provides a snapshot of where we are today against the strategic targets we set out for 2025. So as mentioned, net profit from Sustainable Solutions comprising the Renewables and Integrated Urban Solutions segments grew by 33%. Now in the meantime, contribution from Conventional Energy segment increased by 52%. Now so as a result, Sustainable Solutions accounted for 35% of group net profit this year. In terms of our renewables target, we secured 2.9 gigawatts of renewable projects in 2021. So when we complete the 658-megawatt acquisition in China, again, is expected within the first half of this year, we will have 6.1 gigawatts of gross installed capacity in the portfolio. Urban land sales at 168 hectares despite COVID-19 remain resilient. So again, with the addition of the Quang Tri project, total land bank is now 13,000 hectares. We will continue to focus on growing our land bank to ensure a steady launch pipeline. For carbon emission intensity, we are at 0.51 tonnes of CO2 equivalent per megawatt hour. Decarbonization remains one of our key focus, and we are committed to achieving our 2025 target. So as you can see, we have made decent progress, and we will continue to focus on our 2025 targets as we transit the portfolio brown to green. Now let me hand the time to Eugene to take you through the group financial review. Thank you for your attention.

Thank you, Kim Yin, and good morning to the analysts, the investment as well as the financing community. It is my pleasure to take you through the details in relation to our FY 2021 financial performance relative to FY 2020. Now on this slide that you're seeing on your screen here presents the top-level details, as Kim Yin has highlighted earlier on. As a group, our turnover, we turned in $7.8 billion for FY 2021, representing a 43% increase over FY 2020. That allowed us to achieve an EBITDA of close to $1.3 billion. Taking into account of our share of results of associates and JVs, we have an adjusted EBITDA of close to $1.5 billion for FY 2021. That flows down to a net profit before exceptional items of $472 million, which represents a 57% increase over $301 million last year. That is also the highest level of net profit before exceptional items we have received since 2018. In addition and also based on the survey of the analyst consensus in relation to our net profit before exceptional items, we are confident that this number has meaningfully exceeded the expectations. Now we have seen exceptional items of $193 million in FY 2021. And as you all know, $212 million of this is in relation to the impairment of our Chongqing Songzao power assets, as announced in our first half results. And that is partially offset by $6 million of gain from divestment of Jingmen, our water asset in China, and also $13 million gain from a U.K. land sales and connection fee income. And that brings us to a net profit from continuing operations of $279 million, which represents a $78 million increase from $157 million last year. What this means for us will be, we have realized earnings per share before exceptional items of $0.264 per share, which is a 66% increase from $0.159 the year before, and from continuing operations of $0.156 relative to $0.078 the year before, a 100% increase, and from ROE before exceptional items standpoint, we turned in 12.9% for our business this year relative to 5.9% last year. Taking into account exceptional items, our ROE from continuing operations but after exceptional items was 7.9% compared to 3% last year. So all in all, a very strong set of results. Now when we look at the group turnover breakdown, from the Sustainable Solutions, the Renewables segment saw a 26% growth in terms of turnover, and this is driven by good performance from the wind portfolio. We saw higher energy base availability from the India portfolio slightly offset by lower wind for the year of FY 2021. And we also saw stable performance from the Chinese -- China portfolio. There were some revenues realized from green credit sales in India. In addition to that, the battery portfolio in U.K. also contributed. We had 70 megawatts that is -- that start contributing in the year of FY 2021, and that led to a 26% increase year-on-year. For the Integrated Urban Solutions, most of the revenues from a consolidated basis is actually from our waste management and waste resources business and a portion of our water operations. So the increase of 10% is largely as a result of a resumption of operations in FY 2021 from our waste management business and also the full year effect of the consolidation of the Veolia acquisition that have resulted in that growth. All in, the Sustainable Solutions revenues was $819 million for FY '21, representing a 17% increase over FY '20. Conventional Energy turned in a turnover of $6.7 billion relative to $4.6 billion the year before, a 46% increase. Much of this is driven by strong merchant market performance particularly where we saw high energy demand and also high margins both in terms of dark spreads and spark spreads realized across the U.K., India as well as Singapore, particularly in the fourth quarter of last year where we saw the hike in energy prices. And in terms of Other Business, turnover for FY 2021 was $297 million, a 72% increase over FY 2020. The reason for that is our specialized -- Sembcorp specialized construction business resumed normal operations in FY 2021 over FY 2020 where it was impacted by COVID. So that leads to our total turnover of $7.8 billion, realizing a 43% increase year-on-year. Moving on to the next slide. So this slide shows the breakdown of the group net profit, and I will focus the discussion largely on the net profit before exceptional items. Renewables net profit exceptional items -- before exceptional items was $56 million for the year, which represents a 22% increase over FY 2020. And the key operational reasons for that increase tracks the discussion in relation to turnover earlier on, but a couple of points to note here. In the Renewables segment for FY 2021, as a result of continuing to grow our portfolio towards our 10 gigawatts target and also realizing the significant acquisition opportunities that came through from China, which will be completed in FY 2022, we have incurred development expenses of about $11 million in FY 2021, which was not as material in FY 2020. Also, in FY 2021, the battery portfolio experienced a deferred tax expense of $4 million as a result of U.K. legislated tax rate increase from 19% to 23% by FY 2023. So all in all, adjusting for these differences, on a like-for-like operational basis, our Renewables segment turned in actually $71 million relative to $46 million the year before. Integrated Urban Solutions saw a net profit of $155 million, a 37% increase over $113 million in FY 2020. The bulk of the performance is driven by urban, which saw increased land sales particularly in the latter part of the second half towards the fourth quarter across China, offset with slightly lower land sales in Vietnam and Indonesia. For Vietnam, as you know, through the year of FY 2021, it was impacted by COVID, but we did see the situation lightening up and opening up towards the end of the year. Also, average selling prices realized were higher. Now for the Conventional Energy business, we turned in $373 million in FY 2021, representing a 52% increase over $245 million in FY 2020. To give a little more color and context of that $373 million, the coal business contributes to about approximately 20% of the segment earnings for FY 2021, which means that the increase of $128 million year-on-year, approximately 75% of that increase is really driven by our gas business in Singapore as well as our U.K. flex business. So the bulk of the -- in dollar terms for the increase for the Conventional Energy business is driven by our gas portfolio. Other Businesses turned in a net profit of $25 million over $11 million, a 127% increase for the reasons I discussed earlier on for turnover, which referenced the fact that the Sembcorp specialized construction business resumed normal operations relative to FY 2020, which was COVID hit. Now for Corporate, FY 2021 saw a negative expense of $137 million over $114 million, which, on a headline perspective, looks like an increase of 20%, but to contextualize that $137 million, again, it was -- there were 2 factors that led to that increase. Number one, we made a $10 million contribution to the Sembcorp Energy for Good Fund, which looks at the CSR activities in the sustainability arena, which is completely aligned with our key strategy of brown to green and also making sustainability our business as a very core central value and tenet of Sembcorp Industries. Now the second element is you would also notice that under our share plans, we have also revamped and relooked at our incentive structure, and there were increased provisions in relation to such incentive structures partly driven by the balanced scorecard performance as well as putting in place necessary incentives to align the key personnel of the Sembcorp Industries with our strategic execution going forward. So in Note 6c of our SGXNET, you will notice that we have discussed this new incentive that is aimed to align our performance compensation in line with the execution of our strategic initiatives. So adjusting for these amounts, our corporate costs for FY '21 is probably in the $85 million to $90 million, which represents a 25% to 27% decrease year-on-year. So I will not discuss the total net profit after exceptional items for the key reasons that drive the performance has been discussed. Now if we move to the next slide. I will not dwell on this slide. This is representing the commentary in relation to the earlier slide in a pictorial form to help you visualize that better. If we move on to the next slide. Now group ROE, so we saw strong group ROE performance across all our key segments. Renewables, 4.6% relative to 4.2%. But as contextualized earlier on, taking into account the development spend in FY 2021 and also the deferred tax expense impacting the battery portfolio, our renewables ROE realized in FY '21 will be about 5.9% or closer to 6%. Now if you recall, we have mentioned earlier that we expect the ROE trends to trend in relation to the maturity of the asset portfolio. And as of now, the asset vintage or each of the assets' average across the portfolio that contributed in FY 2021 was between 4 to 5 years. So in that asset class vintage, we expect ROEs of between 5% to 7%, which, adjusting for the amounts, the elements that I talked about earlier on, the ROEs of 6% on a like-for-like year basis falls within expectations. Of course, going forward, I did guide everyone that when the assets mature, generating cash flows and amortizing debt in years 6 all the way up to years 15, you would see ROEs trending above 10% towards 15%, and beyond years 15, you will start to trend upwards in north of 20%. So the ROEs for the Renewables for FY 2021 is expected in light of the vintage of the assets that we have. And for Integrated Urban Solutions, we turned in 9.9%, which is a significant improvement from 7.4% a year before. And for Conventional Energy, 11.4% compared to 8.3%. So the group ROE realized was 12.9% relative to 5.9%, taking into account of a group leverage effect on the ROEs. Moving on to the next slide. In terms of capital expenditure and equity investment, you will notice that the bulk of our capital expenditure is in the Renewables segment to continue to invest and to drive growth. Point to note is that you have noticed that we have announced in the last quarter of last year that we have made the 2 significant Chinese acquisitions, of which SDIC have completed in January of this year. We are continuing to work on the completion of the CGN portfolio, and it is still expected and on track to complete within the first half of FY 2022. CapEx that is incurred in the Integrated Urban Solutions segment is largely in relation to our waste management business on renewal CapEx and also in relation to some of the sector tenders that we have secured. And in the CapEx that is incurred in the Conventional Energy and Other Businesses, it's largely of the replacement CapEx nature. Moving on to the next slide. So from a group free cash flow standpoint, we're pleased to say that for FY 2021, we turned in a very strong operating cash flow before working capital changes, and that's $1.3 billion. Taking into account changes in working capital and also tax that were paid, it was $1.2 billion for the year of FY 2021. Now from a cash flow from investing activities standpoint, we did realize $483 million of cash from a combination of divestments, dividends as well as interest income. And we did spend net CapEx of $583 million. And taking and adding back expansionary CapEx as well as equity investment, our free cash flow for the year was $1.3 billion relative to $700 million the year before. Moving on to the next slide. In terms of group borrowings, we did see gross debt reduced about $400 million as a result of continued project financing amortizations, and we saw our total equity increase from $3.5 billion to $3.9 billion, bringing our total capital number to $11.3 billion relative to $11.2 billion the year before. Now from a debt portfolio standpoint, that $7.4 billion is largely categorized into our corporate-level debt of about $4.9 billion and project finance-level debt of $2.5 billion. And less -- and taking away our cash and cash equivalents for the year ended 31st December 2021, we have a net debt of $6 billion. So that brings us to our capital management metrics where debt to EBITDA has reduced from 6.5x in 2020 to 5.7x in 2021. And debt-to-adjusted EBITDA, which is EBITDA adding back the share of profits from our associates and JVs, given the significant amount of our earnings contributed that, our debt-to-adjusted EBITDA have declined from 5.5x in 2020 to 4.9x. EBITDA to interest improved from 2.4x to 3x, and adjusted EBITDA to interest improved from 2.8x to 3.5x. So this slide is something that you're familiar as well, which lays out the group maturity profile for the group. Now I just want to focus everybody to the table on the top left-hand corner, which largely highlights the maturity profile as of the 31st December of 2021. Our debt portfolio carries a weighted average maturity of 4.8 years and a weighted average cost of borrowings of 4.8%. You would have noticed that as of 31st December of 2021 and also as highlighted during the Investor Day, we have a moving forward of the -- of our debt maturities. And now you see meaningful maturity of our corporate debt within 2022 and also in 2023. Now as mentioned earlier on, we will be proceeding to look at the various elements, particularly green and sustainability-linked avenues to refinance that. And with that as an objective in FY 2022, we will also continue to tap the green and sustainability-linked financing markets in 2022 to raise the necessary growth capital to continue to drive growth towards our 10 gigawatts target. So moving on to next slide. So from a liquidity standpoint, as of December 31, 2021, apart from the cash and cash equivalents of $1.3 billion, just want to highlight to everyone that we have unutilized committed RCF facilities of close to $2 billion. As you have recalled during Investor Day, one of the key elements that underpin the financing -- the success of the financing of our group ambitions is to retain a committed RCF of at least $1.5 billion to underpin the investments and execution. And as of 31st of December 2021, we have $2 billion of liquidity available for us to draw on in quick short notice to be able to fund growth. So moving on to the next slide. So summarizing all of that, we had a very strong year in FY 2022 -- sorry, in FY 2021. And as we look ahead in FY 2022, we do hope that the market fundamentals that has helped -- that has been with us in FY 2021 will carry on forward. But looking into 2022, we do see that there are risks and uncertainties that will persist, right? And that would be naturally the continued impact of the COVID-19 situation and even global economic recovery and also a rising interest rate environment. Now in 2021, a lot of the significant performance was driven out of the Conventional Energy segment. Of course, the Renewables as well as the Integrated Urban Solutions segment performed well as expected. But for the Conventional Energy segment, they did benefit from strong energy demand as well as higher spark and dark spreads and margins realized in the fourth quarter of 2021. So the underlying performance of this segment will continue to be subject to global energy market conditions and commodity prices as we go into 2022. And if the market fundamentals hold up and we are -- and definitely, we'll be hopeful of that, that same market fundamentals will continue to underpin the Conventional Energy segment. But it is really, really dependent upon the market fundamentals and the market conditions. And also the last element to highlight is that we continue to focus on our growth, right? We expect to complete the 658-megawatt CGN portfolio in the first half of 2022, and we are very well on track for that. And as mentioned by Kim Yin, our gross renewables capacity installed and under development reached 6.1 gigawatts, achieved at the end of our first year of execution against our 2025 10 gigawatts target. And we'll continue to focus on transforming our portfolio from brown to green and the achievement of the 2025 targets. Just a few points to note that is on our radar. Phu My 3 power plant in Vietnam will undergo major maintenance in 2022, and we do expect tariffs continue to reduce as the PPA approaches expiry in 2024, something that is really disclosed and made known to the market earlier on. For the waste business that we would -- there would be an absence of contribution from the Woodlands-Yishun sector, which expired on the 31st December of 2021. Going into 2022, the contribution from this is not expected to be very material. And of course, for the Myingyan IPP, we continue to operate and we continue to provide essential power to the people of Myanmar. Payments continue to be prompt, and the plant continues to operate well. But given the situations in Myanmar, we will continue to monitor the developments very closely. So thank you, everyone. That ends my presentation and account to all of you in relation to our performance for FY 2021, a very strong set of results that has been put up. And now we want to open ourselves up for Q&A.

Thank you, Eugene and Kim Yin. We will now proceed to the Q&A session. Here are some quick instructions. [Operator Instructions]

First in queue, we have Zhiwei.

Can you hear me?

Zhiwei, we can hear you.

All right. Well, Kim Yin and Eugene, congratulations on your outstanding second half. I actually have 4 questions. The first question is on Conventional Energy. I know you don't really talk about quarterlies these days, but could you kind of walk us through the cadence of your earnings within the business across second half? Reason being is that your clean PATMI was about flat half-on-half, but yet you also called out an exceptional fourth quarter '21 on better energy demand and margins. So trying to understand what went on during the quarters. And it would be helpful if you can talk about it in the context of Singapore, India and the U.K. The second question is on renewables, right? Could you talk about your -- what you mean by lower wind resource in India? What was the impact from this sale of green attributes? And how do you see the winds blow in 2022? Third question is on carbon tax. Could you like help us understand what that amount was in '21? And how would -- what steps are you taking to kind of like address the step-up in carbon tax going to 2025? Last question is on gas. I think your Grissik -- your agreement for the Grissik deal is coming up for renewal in 2023. How should we think about the volumes and pricing on recontracting relative to your current obligations?

Okay. I think many of this, Eugene, maybe you should take a first shot at addressing some of these questions.

Yes. Why don't I take it? So first, Zhiwei, I want to address your questions in relation to the conventional business segment. We do not release the earnings from a quarterly segment standpoint, but I can give you color in relation to how things have progressed. Now particularly for U.K., across the -- from September and into the last quarter of last year, right, given hitting the winter months and continued volatility that we did see in the -- as a result of the renewables generation contribution to the national grid, that was a significant volatility. And for our UKPR business, we were able to capture many of those scarcity events particularly in the fourth quarter of last year. And that helped generate higher earnings in relation to the U.K. business. Now for India, as you know, our P2 was not completely contracted. So there was significant exposure to the IEX market. And if you look at how the IEX market has performed, particularly over the months of September and October, right, into the earlier part of November, it has been very strong. In fact, if you look at our IEX tariffs in the month of October itself, it hit as high as INR 8. So that also saw a very strong realization of the market earnings from India in the fourth quarter. And I think closer to home in Singapore, I think you would have seen also how the USEP prices has trended. Particularly in the months of October and November and December, we saw USEP prices in Singapore hitting as high as in excess of $400 per megawatt hour relative to 2Q, right? That was July to September where USEP prices was ranging in the $150-ish kind of range. So we did see a significant step-up in terms of these market elements that has driven contribution to earnings. That said, in Q4, also, we have made our assessment in relation to several things. Some of -- a couple of elements, what I've talked about early on, in relation to contribution to the Sembcorp Energy for Good Fund and also in relation to putting in place the provisions for the transformation incentives going forward. In addition to that, you would have noticed that in our disclosure, there were about $13 million of cost provisions made for remediation of legacy sites. Now this relates to certain legacy sites in the U.K. that had some issues in relation to asbestos. And this provision is in relation to the demolition and the removal of some of these legacy installation. And based on our assessment right now, we do not expect any of that to continue. So largely, that will characterize the evolution of the earnings in the second half of -- for the conventional segment. Now the second question is in relation to renewables. Now if you recall, particularly in the first half of last year for India, from a wind resource standpoint, we did see a lower wind resource relative to historical averages. But we were able to offset that by having a stronger energy-based availability. Now in India in particular, we also saw the realization of income from certain green credit sales. It's something that we have started doing in a greater scale. The contribution, it's at a level where it is not completely material but -- not absolutely very, very large, but it is something that we'll continue to grow in relation to the green credit sales. And as a group, maybe Kim Yin could also help to articulate our thoughts around the strategy. We are now thinking of how we could look across the group and harness the use of our green attributes more. Zhiwei, I believe your couple of other questions, one of them, I may have forgotten them. Do you mind...

Carbon.

Carbon taxes. Okay, we do not disclose our carbon tax cost. But particularly to Singapore, we have said before and it is still the same that Singapore emission, it's about 10% of our group emissions, right? So with that, our group emissions is about 26 million tonnes per year. So you will be able to triangulate to what our Singapore emissions would be. And based on the carbon tax amounts, you will be able to draw your conclusion in relation to that. And the last point is in relation to the renewal of...

Grissik, there were gas contracts in Indonesia.

The gas contract in relation to Indonesia, yes, there are still gas reserves in relation to that, but it will be running on a depleting basis up to 2028. We are reviewing our commercial options in relation to that right now. Yes. So Kim Yin, any areas you would like to supplement?

Yes. Thanks, Eugene. It's quite complete. So but in a nutshell, 4Q, really the -- in the second half of 2021 at the beginning of the second half when we briefed you on the half year earnings, there was a lot of uncertainty, so we couldn't see with full clarity what's going to happen. What Eugene described in terms of winter tightness in U.K. market especially and then all that talk about the new energy crisis, right, if you've been following the energy markets, all that really happening in the fourth quarter. So with all the tightness from upstream all the way to the downstream, then we see margins for us in the power markets that we operate, U.K., Singapore, becoming bigger, right? So we actually -- so in a nutshell, we captured all that in the 4Q, and have to be very honest, we didn't see the extent to which it was coming, right? So for the same reason, it's very important to emphasize that for the same reason, although we think some of the macro conditions contributing to this tightness seems to be -- you can expect it to persist, right, so all the reports and all the studies done by all the think tanks and academics seem to suggest that it will sustain. But we want to be very cautious. So if you see our prospect statement, we say that look, conventional energy has done well, right? But moving forward, for it to continue to do well, it depends on these market conditions that is prevailing now to continue, all right? So that's the important point that I thought I should supplement to what Eugene has mentioned. On the Indonesian gas contract, yes, it is depleting, it is until 2028, all that has been disclosed, and we continue to talk to the upstream. And there is still some gas reserve except that, of course, the cost of extraction compared to when it was first built up 20 years ago, the cost of extraction for every unit of gas, it's just going to be a little bit more expensive. So it becomes cost-benefit analysis from the upstream producers' perspective versus our perspective, whether or not we would buy it and how much of it we can sell in Singapore. But suffice to say, with last year's awarding of the LNG license to be one of the LNG importers into Singapore, then our portfolio of gas business is now more complete. So natural gas continues to -- we can continue to 2028 depleting, but there's the opportunities to buy more depending on availability and price. And then we are now importing LNG as well to supplement the entire portfolio. So today, actually, if I'm not wrong, we are the largest importer of natural gas into Singapore, and we intend to keep it that way. All right. So I don't know whether that addresses your question, but on the gas, that's what I have to say. Eugene mentioned about the -- in terms of renewables. Yes, they -- again, we are subjected to the wind conditions and especially if you look at 2020 year, because we have so much concentration of wind assets in India. So a low wind season in India, notwithstanding that we are spread across the entire Western coastline of India, our assets, but we were quite -- in terms of outcome, there was still the concentration. So I think what I'm trying to say is that moving forward, increasingly, the concentration is lighter. We are having now portfolios of wind assets in China, right? So now if you follow the math with China, with the completion of the 2 acquisitions -- one of them is still pending, right, but we are quite confident it should close. With the completion of that, together with our original 700 megawatts, 725 megawatts [ Guohua ], we've got assets all over China. So I'm quite proud to actually note that. But coming back, the important point from a portfolio perspective is that then the diversification, hopefully, the effect moving forward as we continue to grow, then this low wind and this concentration that -- season to season that sometimes we suffer from, hopefully, from the portfolio perspective, we will enjoy the benefit of this diversification.

Just one follow-up. So coming back to Conventional Energy, you flagged all the pluses mostly happened within the fourth quarter, but yet your second half, we didn't see a higher earnings in the second half. So it was flat instead. So what was driving -- does that mean that your 3Q was actually not as good and the 4Q was actually bringing it up? Is that a correct way to think about it?

Well, Zhiwei, I think in relation to that, right, 3Q -- as I mentioned earlier on, right, for 3Q in itself, okay, U.K. did not have as much tightness, right, relative to 4Q when going to the winter season, right? And then in relation to Singapore, as I mentioned earlier on, when we look at the USEP prices, in Q3, we were still averaging $150 plus, and then in Q4, it stepped up into $400 plus. So there is a differential -- differentiation in terms of the performance from the markets in 4Q relative to 3Q. Now I've also mentioned that in 4Q, right, there were some elements that impacted the conventional market segment. And one of that is in relation to a $13 million provision in relation to a remediation of legacy sites. That is in the SGXNET. And that is in relation to remediating and demolishing certain installations in the U.K. that were impacted with asbestos. And -- but we are reviewing the situation. It was quite clear to us that with that, we do not expect any further issues going forward.

Next in queue, we have Terence Chua.

I'm Terence. I'm from Phillip Securities Research. And congratulations also on the strong second half results. I have 3 questions, but I would just go one -- questions one by one. So my first question is, your -- can you just -- can you provide more details of your new long-term power purchase agreements in India? What rates are these secured at? And are there any in-built escalation in these long-term agreements? Yes, that's my first question.

We won't be able to tell you the details of the contracts. But I understand where you're coming from. I'll be trying to build up the cash flow from this. Suffice to say, Eugene, we don't talk about the margins, right?

We don't. We don't. We don't talk about it, yes.

So what is -- I think what is important is that I think -- let me share this. I used to think about the 2 India power plants, P1 and P2, they almost cancel each other out. So one of them is quite profitable because of these contracts. And the other one, because without contracts, it is really taking its chances in the wholesale market. And at the same time, while it's taking its chances, then it is also cycling up and down. These plants are not designed to run that way, right? So the operating cost increases, outages increases, a lot of other issues happened. So now with the contracts, instead of one -- the numbers from one plant canceling out largely the contribution from the good one, now both are going to be in the positive range. Let's put it that way. And the fact that they are all long-term contracts, the AP, Andhra Pradesh contract is going to be 12 years. The Bangladesh contract, although smaller, it's up to 2033, right? So -- and also quite profitable, right? So they are -- if I may, because the market in India is also becoming more mature and more competitive, right, so the margins from the AP contract is not as good as the margins from the -- from our P1 -- our first -- our early contracts, all right? They're not as good, right? But they are good enough to underpin the profitability of P2 itself. So much so that when we do the 2 -- when we put the 2 together compared to when -- again, like I said, when used to cancel one another out, now both are contributing. I don't see whether that helps you -- escalation at the terms of the contract, those we are unable -- they are covered by the confidentiality and business contracts. Eugene, is there anything you can say to help Terence?

No, Kim Yin, I think that's exactly it. The 2 contracts will underpin the profitability of P2. We can't share the terms because as you know, these are signed with [ disclosure ]. So we can't talk about the terms. Just one more point to note is in terms of timing of contribution. The AP 625 is expected to come onstream for FY 2023, whereas the Bangladesh 200, we expect it to start contributing from Q2 onwards already for this year.

I think it brought a little bit more color, so it's clearer. My second question is, can you comment a little bit on the sales in China? How are you seeing sales in China especially in the last -- yes, in second half?

Sales as in the turnover, you mean?

Yes, correct.

Eugene, you want to take that?

Yes, I'll take it first. I think in the second half for China, part of the turnover is our renewable assets as well as the contracted water assets. So second half for China, it was stable, right? They did not perform out of expectations. The assets continue to -- the availabilities were still within expectations. So they generated in line with historical and also our expectations. So there is -- they are largely contracted assets, renewables, water as well as renewables. So asset performances continue to be strong in availabilities, a stable performance in the second half.

Is that true for your land sales as well in China?

Okay. So land sales in relation to urban, okay. So in relation to the land sales, yes, we saw a strong performance particularly also coming in the fourth quarter for the urban side of things where we saw a growth in the land and property sales, particularly in the Sino Nanjing development. So these land sales were a mix of industrial, commercial and also residential land sales, and that contribute in the second half towards the fourth quarter.

And if I just add a little bit more color then, certainly, the earnings and -- or the turnover from the water business and renewable business, you can expect that to be quite stable, right, other than affected by wind conditions. But land sales season to season, right, so price is one factor. The sale of land very often is also affected by regulatory approvals, things like that, right? So a simple thing like you want to sell your car parks, in China, you can sell car park, but you need to be able to get all kind of approvals associated with delineating the car park properly and then getting the approval to even market it and sell it. So those are -- I want to flag that -- and you already pointed out then, I assume that your question is coming from the end of how stable the cash flow that -- and the turnover that we can get from China. I think the water as well as the Renewables segment, those are more predictable other than wind. But the land sales, I don't want to -- I think it is subject to, season to season, the projects that come along. And it is natural to be expected in this real estate-like, developer-like business. So that's why we look at urban as a [ port ], right? So we do hold ourselves accountable. I do go to Kelvin, our Urban CEO, and say, "Look, if you don't give me big gyrations, earnings as much is you cannot sustain it," and we set ourselves a target of 500 hectares in 2025 on a sustained basis, so then he has to look at -- we have to look at the urban portfolio. So if China is not -- we have a good season, then next season, we expect a bit lower sales, then we have to make it up with our Vietnam -- if South Vietnam is a bit slower, then the North will then have to pick it up or Central Vietnam will have to pick it up or Indonesia. So we think about it in terms of the land sales more as the portfolio, right? So then you can mix and match season to season because these things take time and they are very subject to project-specific conditions or you might want to [ cut the risk ] in terms of timing.

That's very insightful. My last question, as you continue to transform your portfolio from brown to green, so I noted that you all do some acquisitions as well, but I'm just wondering where you're finding all these acquisitions. Sorry, that would be 3 questions.

No, it's not. I'm also asking ourselves all the time where to buy more. The -- no, it's -- if you notice, this season, we're in China, right? We missed acquisitions. I can tell you that our India team, U.K. team, Singapore team, Southeast Asia team, they're all looking. In China, what happened is that you need to be at the right place right time, right, and we are leveraging on our existing relationships and partnerships. So that's why a year ago when we came out here and say, this is our urban strategy moving forward. And we are leveraging on partnerships and platforms, we actually were thinking along these lines already, right? So today, you look at China, very difficult to get in, right? Flights get canceled. You need to do 3 weeks of quarantine and everything else. So -- and the geopolitics also drive away certain of our investors. But we've been there, and we've got boots on the ground. We have an office. We've got people running around. We've got relationships that we put up. We have got partners that we -- as I mentioned earlier, we have made money together and we've lost many together. So the trust, the profile, the relationships are there to enable us to harvest these opportunities when we are ready to do so. So when we went back to China, when we said, "Look, this season, we are ready to do things. Partners, can we rekindle where we jumped off a few years ago?" the initial reaction was, "Oh, are you sure now this time? Don't lead me on." But the moment we show them that we can make decisions fast, the moment we are able to show them that we mean what we say, that we can deliver and that we are very serious and we have the resources and support behind us, the deals start coming. All right. So without answering your question directly because I also don't have a silver bullet, but I think in terms of China, as -- given that we have been able to cut a couple of deals in quick succession, that was my observation as to what happened really because we were able to leverage on our existing position. China -- India is a different situation. Southeast Asia partnership is again a different situation. So -- but our -- leveraging on our profile and reputation, our relationships that in a nutshell where we think we find these deals, there will always be the options and the bankers who bring us opportunities and so on. But I think some of the best deals come from referral. I don't know whether that gave you enough, Terence. But if you're asking me, the next question is, do you -- can you show me your pipeline? I don't think I can show you the pipeline. We have -- if I want to go further, internally, we have the investment process whereby we got -- we have a 2-gate process: the first gate, to clear the strategy; and then the second gate for when we want to make a commitment. So we add up the numbers from gate 1 and also add up the numbers from gate 2. It's a classic funnel, right? And -- but the numbers are big enough that we are comfortable that we have opportunities that we can chase and enough for us to be quietly confident that we will meet our 2025 targets. Let's put it that way.

Next in line, we have Siew Khee.

Can I just check on your presentation, Eugene? You mentioned on renewable, you were going through the exceptionals and all, then you said that it would have been $71 million versus last year, $46 million. Can you explain that again, please?

Yes. Okay. Because in the $56 million that we had this year, right, we did incur about $11 million of development costs, right, for the purpose of growing the portfolio. And a part of that $11 million of development costs also includes the usual development due diligence and all that for the Chinese acquisitions, which did not contribute in FY 2021. So that's the element of that. In the second -- and the second part of that also is that there's a $4 million deferred tax expense charge on the U.K. batteries. That is a result of the U.K. announced legislated corporate tax rate increase, right, from 19% currently to 25% for FY 2023. So from an accounting standpoint, once we know of that, we would have to accrue deferred tax liabilities and deferred tax expenses ahead. So when you adjust for the development expenses as well as that, do -- to have a fair comparison to FY 2020 when it's largely -- operating assets operating as usual, that would be the fair comparison on a year-on-year basis.

Okay. And this $11 million and $4 million is largely incurred in second half, right? Your comment is relating to second half, right?

No, no, no. That -- throughout different points in time, of course, more of it is in the second half because a meaningful amount of debt is in relation to the Chinese acquisition, which was announced...

Yes, the development costs.

Yes, was announced in December -- November, December, yes. And then the $4 million deferred tax expenses was in the first half.

Oh, okay. Just on that renewable, if I -- sorry, I just have to look at half-on-half performance. It actually did much better compared to first half in terms of renewables. And I just want to recap -- thanks for walking through -- very detailed, but I just want to recap that the second half is because wind -- because presumably one of the quarters in India would be strong wind. China is actually in line because second half usually is weaker compared to first half, and then it's because of green credit, right? First, you also mentioned in the slides that U.K. battery storage is good, but is it that material to actually cause the increase in half-on-half performance in renewables?

Sorry, which one, the battery performance or...

Yes, battery, right? For renewables, second half is stronger than first half, maybe because of good wind in India and green credits, right?

Yes, correct. That's correct.

Okay. Can -- and then just on the conventional energy, you also mentioned that gas portfolio, very strong in Singapore. Are we referring to a strategic gas sale?

Strategic gas sale -- no, no, no, we're not referring to strategic gas sales. We're talking about gas as in our gas-fired -- powered cogens in Singapore, not strategic assets. But when I talk about gas business, it's more in relation to our assets as opposed to a gas sale business, yes.

Okay. So that was just talking about the high USEP that you actually saw in 4Q.

That's correct.

So now that it has actually come down by 40% in February, and also, you also mentioned that in India, because P2 is quite exposed to IEX, IEX has also come down this year. So that's why we just have to -- cannot use what we saw in second half to expect this year, right? Kim Yin, that's what you meant, right?

Yes.

Okay. And also just on landfill, so urban solutions did so well because of landfill and land prices in China or both?

No. In relation to that, we saw strong land sales from China on a year-on-year basis. For Vietnam and Indonesia, from a land sale standpoint, it didn't really improve a lot more. I mean Vietnam is like it was impacted by COVID, but we did see better overall average selling prices for Vietnam.

Okay. So the increase in performance, the strong performance in urban in China is because of landfill and land prices increase in China?

Vietnam and Indonesia.

Yes.

Land prices in Vietnam and Indonesia? Okay.

That's right, yes. Siew Khee, that's also one other element, a part of urban, okay? The waste business also contributed meaningfully in FY 2021 over FY 2020. FY 2020, the waste business was impacted by COVID. So in FY 2021, a few things. Normal -- return of normal operations, okay? We did win another sector, and also we have full year contribution from the Veolia assets. But going into FY '2022, one of the developments is that we did lose one sector, which is the Woodlands-Yishun sector. But the contribution is not that material.

I understand. And also just corporate cost, you mentioned that you did some revamp in incentives, et cetera. Hence, it was actually quite high relatively in second half. Is that a one-off thing?

Yes.

Should we be expecting -- yes.

Yes. I mean from a provisioning standpoint, right, it is in relation to the achievement of balanced scorecard and also providing in relation of these incentives going forward. So going forward, we will assess the achievement of the balanced scorecard obviously. But that -- the quantum in itself, we will not say that it would persist going forward. What's more important is to note that the actual gross corporate costs, that means the running corporate cost for the group, adjusting for those 2 elements is actually around $85 million to $90 million, which is really about a 25% to 27% reduction from the same $114 million the year before.

Next in queue, we have Pei Hwa.

Pei Hwa from DBS. Congrats on the good result. I have a few questions. I'll ask one by one. I think first is on the power maintenance. I recorded during first half briefing, you did guide that there's some pushback for power maintenance for first half and second half, and hence, we do asset loss of income there. So did it actually take place as planned? And what was the downtime impact to second half performance? Just wondering whether this also contributed to that offsetting of...

Yes, correct. Pei Hwa, you are correct. Because we did have a power maintenance for several of our assets in the second half. I think one key one, its first, Myingyan, right. We had our hot gas path inspection. So in the second half, but I think it was -- if I recall over the month of October, October going to November. We did see 34 -- roughly a 34 days impact. Then for India, right, for both P1 and P2, right, for P1, we had a kind of like an annual overhaul, roughly about 29 days in the second half. And also for P2, right, we have about -- about 45 days, yes, 45 days in the second half as well.

Okay. Fair. Second question is within the India as well. Now that we are both plants 80%, 90% contracted on long-term PPA, I know you mentioned many times. So I just want to share again, why is your update -- any update on the plan for these coal-fired plants? Is there any chance? Do we stand in a better position to have a corporate action of these 2 power plants?

Kim Yin, do you want to take that?

The 2 things I was expecting you to also ask about, in the past, we've done always impairment, right? So this -- with the contracts, as I mentioned just now to -- I think it was Terence's question, it underpins the profitability. And because of that, I think the headroom -- actually go through season after season to assess impairment which you always do, right, on all our assets. The headroom for this is now much wider compared to 1Q. So that's one. Then in terms of -- certainly, it positions us, it stabilizes the business, right, as compared to the past due season-by-season thinking whether or not you're going to make money. But now with the contracts, the plan is strong. It has its a certain stable operation profile. And so doing the longevity of it is becoming clear. So in a nutshell, it has positioned it. It stabilized the business. And once it's stabilized, then the options open up. So you could keep, you could sell, you could recycle capital and you could do things with it, right? So the short answer to your question, yes. It presents -- puts ourselves in a much better position to consider some of these options, right? And we say it also in the same breath that look, we are very committed to meeting our decarbonization objectives. So the coal plant is a major source of decarbonization or other carbon contribution. But again, having said that, we also said all along that there are many ways to decarbonize. And again, you're being able to have positive cash flow and stable earnings allows us then again to consider all these other options other than corporate action or divestment, if that's what you have in mind. So -- so yes, short -- very short answer, but I wanted to spice it up a lot with explaining that it actually opens up all the options which we are obviously very committed to exploring.

Is IPO, the whole SEIL still an option, or we more looking to divest the coal-fired asset, all right? Any land option...

That is one form of divestment but I think we put that as a possibility that there's always an option out there to doing something out there.

Sure. Next time, really will try my luck.

No, no. And again, with the CapEx, now all those become much more of a possibility, right? With other contracts for IPO, something that, one season makes money, one season don't. Sometimes run, sometimes don't. Very difficult, right? So everything else in a resource, you want to hire people, so easier again to retain talent also easier. So I wanted to take this opportunity of your question to share how important these 2 contracts are because it really changes the profile of the entire coal business, our India business. And for that matter, it has a material impact on our group from decarbonization, from earnings, from profitability. All those things are -- it has made a huge difference. You have other questions, Pei Hwa Ho? No, great. Are you satisfied with my answer? So I can't tell you that I have a contract that I signed it. I will do this or that, we will soon.

Rahul Bhatia. Next in line, we have Rahul Bhatia.

I just have 2 questions. Firstly, I want to touch on the 2025 targets, in particular, related to sustainable solution profit and emissions. Given the stronger performance of Conventional Energy and assuming it continues, do you think that doing divestments is now all more critical to achieve these 2 targets versus your expectation 1 year back, in addition to continue to increase renewable capacity? My second question is, Eugene, you mentioned about corporate debt that need to be refinanced in the next couple of years. So given the higher interest environment, do you think that the financial expenses may actually now increase as compared to the decline we saw in 2021 versus 2020?

Thanks, Rahul. I'll do the first one, Eugene takes the second. The -- it wasn't -- not sure -- when we plan the 2025 targets, we considered the scenario of stronger conventional contributions changing the mix. Because one of our targets in a donut, right? We said that, look, 2020, 60-40 green versus brown, right? So where green is 40, brown is 60, and our target is 2025, 70-30, 70 green, 30 brown, right? So it has always been within our scenario planning that a year like this can happen in which even though our green has grown and contributed well, right, so -- but our brown actually contributes even more, right? And because of that, our ratios go a bit out. So instead of moving closer to 70-30 green business brown, I'm actually moving backwards into, let's say, 35% from 40% pre, right? So -- but that doesn't -- when I say it's within our planning scenarios, it doesn't detract us because we knew that this could be. But if we continue to grow our green, we are quite confident that -- or rather we see a path if we execute, as we say, we would to reach the 70-30 in 2025. So your question, if I recall correctly was, does it then increase the urgency for us to do certain things, right? So I don't -- I think the short answer is that no. We do not -- just because of this, it's a good problem to have in some ways, right? We got all your assets are performing well. But we -- what we want to do, 70-30, to reach our target. Underlying that, there's also the total earnings target that we -- even though we didn't put it out there for 2025, there's also a total earnings target that we need to meet. We are hoping that the size of the donut will not reduce. So the short answer to your question, we're not going to dump assets, conventional assets so that we can meet our 70-30. If that is the question, we will want to grow our green fast enough so that we will reach our target in that sense. And then our brown, we would look at value-accretive actions, and we will only do it if it meets our objectives. I don't -- Eugene, I don't know whether you -- I missed out on the question from Rahul.

Yes. I think Kim Yin, you highlighted it appropriately. I think Rahul, we set our targets, we also set up what we think are certain group targets that we set for ourselves lot. We did say at that point in time, from a renewable standpoint, we expect CAGR to be around 30%. So when we look at our first year on a year-on-year basis, if we adjust for the development costs as well as the deferred tax expenses, we actually grew about 45%, 46% year-on-year. So kind of at least in line with the trajectory that we talked about. And the Integrated Urban Solutions, we say that we expect about a 10% CAGR, right? And in our first year, we realized 37%. So at least the growth that is in relation to the Sustainable Solutions segment that we talk about is in line with what we have guided. A bit better. But of course, this is the first year of execution. We'll see how it goes over the next 5 years. But at least in the first year, the growth rates that we are showing, it's pretty much in line. Now on your second question in terms of the refinancing, given the interest rate environment, I think, Rahul, the reality is that the interest rate environment is really low, right? The Fed has came out. The Fed has said -- give the indication that rate hikes are going to happen. So what -- in terms of the refinancings, I think it would be reasonable to expect that from a base rate perspective, we do expect that to increase, okay? But what we will do is that compared to the historical financings, given where we are right now, given the fact that we are transformed, right, we have released the oil and gas business, and also, we are now focused on sustainable renewables and a sustainability theme, growth and growing very fast, and also being able to structure credibly sustainability-linked financing instruments, we hope to tighten our credit spreads relative to what we had in the past. So it will be a net -- there will be a net effect, right, the base rates will come up because, unfortunately, that's what the Fed has already indicated. But we do -- we did see last year the opportunity in tightening of our credit spreads and also we will continue to drive that in the current year.

We have received some questions in the IR mailbox, and I'll read out the question. The first question is from Goh Laypeng from Fullerton. On the long-term PPA signed in India, what are the committed tariffs of the 2 PPAs? I think that has been answered earlier already. And the second is based on recently announced budget 2022. What is the impact of carbon tax on Sembcorp Industries?

I think that also has been -- that with impact of carbon tax.

Yes.

If anything to add is that the Singapore business contributes to 10%, as Eugene mentioned just now of our carbon footprint, right? And among the plans that we have, we are -- they're coming from our Jurong Island assets and they are cogeneration assets. So our concern is that we generate steam as well, right? So being cogeneration assets compared to the similar technology power generation. So what happens is that we have F machine -- F technology combined cycle gas turbines. And when you generate steam together with electricity, your thermal efficiency, as calculated, will be better, right? So coming back, our Jurong Island assets are all cogeneration assets. And that puts us in...

Kim Yin, just to clarify, you say coal, it's gas generation asset.

Gas generation asset. Sorry, sorry, sorry. So very important.

Yes. Very important distinction.

So anyway, the point is that because we have cogeneration, cogeneration, CO.

Okay. C-O. Okay.

Cogeneration assets, which means we generate electricity. At the same time, we also generate steam for our customers in Jurong Island. So when we are also generating steam, our efficiency is higher. So compared to others who don't do that, all right, in a similar machine, our efficiency is higher. So what the carbon tax does is that you will penalize the higher meeting -- the higher the carbon intensity, the more you will be penalized. So from a competitive landscape perspective, right, our steam cogeneration facilities, selling steam measure, having then a slightly higher efficiency puts us in a better competitive position. So that's the additional point that I wanted to add, in addition to the fact that look the -- the entire market is burning gas. The entire market is actually made up of largely F technology machines. So the party that has a slightly better competitive advantage, slightly battery efficiency will be slightly advantaged when the same tax, same carbon cost is imposed on everyone, right? So that's the additional point, not that it's going to be earth-shattering or change materially things, but we are in no worse position compared to others, if anything, a slightly better position. So I hope that adds on to the point that Eugene made just now. Xin, the next question.

Yes. The next question is from Jagdeep of Nuveen. Sembcorp Industries has a substantial portion of floating rate debt. In light of the rising interest rate environment, please update the financing strategy and how we should think about interest rate sensitivity and impact to the P&L going forward. What is the target gearing level for this year? Should we assume further decline?

Okay. So I'll take this question, Kim Yin. So Jagdeep, thanks for that. I think in terms of the floating rate debt, over time, we have already reduced it meaningfully, when we look at how we have progressed across 2021, where we focus on raising long tenor fixed rate debt in relation to floating. So we have reduced our floating rate exposure meaningfully. I think right now, for the SCI portfolio, our fixed to floating exposure is about 55 to 45. And a focus and as we execute our refinancing as well as a new growth of financing plan in 2022, we would -- we expect to reduce the fixed rate composition of our debt further towards the 80% mark, okay? Now in terms of where it stands now on the sensitivity in part of our P&L going forward, where we stand right now in terms of P&L sensitivity, every 100% -- sorry, 1% increase in base rate, probably would result in a pretax P&L impact of about $30 million or so, right? And we expect that sensitivity to reduce as we fix the portfolio meaningfully in 2022 as well. So the second question, Jagdeep that I can see right here is that you're asking other companies in the renewable space globally have highlighted inflationary costs on project development, combined with greater competition for acquisitions. How is SCI adjusting its acquisition strategy and targeted returns? Should we be -- should we assume lower ROE targets going forward for new projects? Okay. So I think for this question, I think it is known that in the renewables new bidding space, right, it's getting competitive. So in driving our growth, as mentioned before, how we view our projects will be a pretty -- a very methodical buildup of what we expect cost of capital is, right, and then assessing the risks of the cash flows against this cost of capital. So I think that will continue to be our key way in which we will assess the new projects going forward. And we will be -- we continue to be very disciplined in terms of how we select projects on that basis. Now because of the competition that we face for new projects as we have also highlighted previously, we are also augmenting our growth with acquisitions. Now of course, the acquisitions, origination opportunities will come in various forms, right? For example, in the 2 China acquisitions that we made, right, it was a very proprietary origination generation that took place. And increasingly, from an acquisition perspective, we will continue to leverage on our networks, our ability to have visibility into some -- many of these acquisitions to put ourselves in a more positive position to secure the acquisitions without going out into a very high profile cost of capital battle, which obviously could lead to winning target companies at ROEs and returns that are dynamic material. The other element also is that particularly in India, right, where we have build up our platform in scale and strength, right, one acquisition strategy also is to acquire portfolios where there are opportunities for us to enhance it in terms of -- from an O&M perspective, from energy-base availability perspective and a potential refinancing. So we will also focus on those acquisitions where it is not so much so for the best price bidded for, but also an opportunity for us to add value to it and therefore enhancing returns. So our approach to this will be a very balanced one, leveraging on our capabilities, but yet also keeping a very disciplined view on our cost of capital in assessing the acquisitions and projects. Now the third question that you're asking, Jagdeep, is in relation to how much land acquisition should we expect in the Urban Solutions segment this year? And where are the opportunities? I think in terms of land acquisition quantums, right, as you know, we are targeting being able to sustain over 500 hectares of land sales by 2025. So of course, through 2022, we will continue to build up our land bank commensurate with that target in mind. Where are the opportunities? We'll continue to focus across where we are very strong in Vietnam. We will continue also to leverage opportunities in China and also in Indonesia. Just want to see if Kim Yin has any thoughts to add.

No, no. Not really. Thanks, Eugene. I thought that was very clear. Thanks.

Thanks, Kim Yin.

Moving back to Zoom. We have Siew Khee on the line.

Okay. I just have some clarification. Kim Yin, just now you were talking about India, right, on wider hit in terms of -- I think it was in relation to Pei Hwa's question on impairment. So are you saying that because with the contracts, we know that actually put the company at a better state in whatever that you want to do. Are you really suggesting that looking at the contracts and the value in use versus the carrying cost, there is no need for impairment as of what you can see now?

Okay. Kim Yin, let me answer that. So Siew Khee, you and I both know that impairment testing, it's an application of accounting standards, okay, and also a methodology in doing so. So clearly, in line with every results announcement, we will test the assets for impairment. So of course, having these PPAs in place, right, it gives greater certainty in terms of the future cash flows of the assets. So when we test the assets for impairment in relation to value in use, you used a very technical term, which is correct. That's how we've done it in conjunction and in agreement with our auditors, KPMG. The conclusion is quite clear that there is no need for impairment.

That's very clear. Also just on the contract that will start to contribute Bangladesh, will actually start to contribute this year. Can I just check because P2 was significantly exposed to IEX and IEX was so strong second half last year? Was the plan profitable? And if it is not, is it because of maintenance?

Okay. For P2 last year, right, it was not yet profitable, but in terms of the losses, it is very, very much reduced, okay? So the strength in IEX, just to point out, Siew Khee, it wasn't like throughout the whole year, okay? It really, really come in September, October and earlier part of November, where we saw it hitting like INR 8 for tariffs. That was like -- almost unprecedented high, okay? So it wasn't for the full year. But of course, in the context of P2, the earnings that was made during the few months, of course, made up for a lot relative to -- its past performance. So that's one thing to consider and not for the full year. The second thing to consider also for P2, right, in the last quarter, it went through almost 45 days of capital overhaul. So net-net, it was still not profitable, but very much reduced in terms of the losses.

I was just trying to see whether there's a chance that P2 would be profitable when Bangladesh comes in, assuming that our IEX remains at current level, not the super high rate level.

I would say that with that -- with it coming in, the likelihood of that happening, it's a lot stronger.

Next in queue, we have Pei Hwa.

Sorry. I was -- somehow the audio not working just now. So I just continue to finish up my -- the other question. So yes, could you -- firstly, on India, I will try my luck. I know that you can't disclose the tariff for margins for the P2 for other contracts. So let's assume that when all the 81% PPA all comes into effect, if you benchmark against your P1, the projected cash flow or profit or margin, do we assume -- can we say we get to the range that it could be 30% of P1, 50% or 70%?

You are in range.

I mean, you can't give us a number, right? So I try my luck, a range maybe that...

Yes. No, I'm trying to help you also. I want to help myself, right. So yes, you aim well. Let's put it that way. Eugene gave me that look.

I mean -- yes, I mean...

But you can -- actually still -- there's still uncertainties because of fuel supply. One of the biggest costs -- one of the biggest item in the cost structure is the fuel, right? So the fuel supply for the P1, P2, they're not homogeneous, right?

Yes. Not homogeneous.

Yes. Not homogeneous. The sources are not. Yes. So you are in range, but I was not expecting that, let's put it that way, which -- year-on-year. So...

Yes. Correct. And also one point to add, Kim Yin, just one point to note is that from the few mix for P2 is different from P1. So P1 is a lot of it is -- the PPAs are local discoms, so they get to use a local domestic coal under the FSA, right? But then for P2, the PPAs are 2, right? You've got 625, which is Andhra Pradesh, right? So that will allow them to use the local domestic coal. But the Bangladesh 200 and Bangladesh 250, which is current -- ongoing currently, the fuel mix is different. So there's a certain mix of international coal that we need to bring into it. So -- so from that perspective, it is different.

Okay. Great. I mean, lastly, I just would like to touch on the U.K. I think you did mention in the outlook statement just note that in the U.K. business in third quarter, fourth quarter, we still see pretty much volatility. Yes. And I think you certainly, you also announced plan to construct a 360-megawatt energy storage system, at Wilton in Teesside. I just wonder if you had figured a way to better manage the volatility and profitability of the battery business or how should we look at it?

Okay. Let me clarify myself, first, Pei Hwa. For the batteries, when I say volatility is volatility of renewable generation contribution into the grid. The volatility is actually good for the batteries. Because for the batteries, they provide ancillary services for grid stabilization, right? And also opportunities to trade to capture spikes and scarcity events when there's a sudden spike in energy demand at certain blocks in time in the day, which could be caused by a renewable, suddenly no wind, right? No wind means no wind. So then -- so it is that volatility of energy contribution into the national grid that allow us to capture value. Yes. I just want to clarify that point.

Understand Yes. I was really refer to the demand for the P -- yes.

We have one more question from the mailbox. This is from Rachel Lim of Schroders. Congratulations on the strong performance in 2021. Just want to clarify the point about higher ROEs as renewable assets mature. What drives this?

Yes. So as renewables assets mature, right, in the early years, right, your first 5 to 10 years, a lot of earnings would be -- and cash flows will be spent on, number one, servicing interest and also debt amortization, right? So as the asset mature, when the debt is amortized, the interest will come down because it will be reducing balance of the debt exposure, right? But again also our equity cash flows ultimately will improve, will grow. So that's the key element that's driving the ROE's improvement. Okay. That's it.

Yes. We have no further questions on the line now.

So Kim Yin, you want to close or should I?

No, go ahead. I think if anything, I want to make the point that, look, it was a good set of results in 2021. A lot of it came through in the last calendar quarter because of the merchant markets. They've done well, buoyed by the market. Of course, we have to be there to capture it. The teams have done well also to be available and capture all that. But for us to continue, on the Conventional Energy segment, for us to continue to perform like that depends on market conditions, right? So I just want to highlight that point. So that then as we track our profile from an earnings perspective from a business perspective in the immediate future that has to be a key consideration how the markets perform, right? So on our part, we have done some work, and we understand that this volatility, we wanted to reduce it. So on our part, we've done the work to try to reduce some of this. So the India PPAs came in. So that reduced the major part of the volatility associated with our India portfolio, right? But within the portfolio, there's still U.K. and Singapore that will unlikely to have a long-term contracts like we could get in India, right? So that's the part that I think I want to highlight. Second thing is that, notwithstanding all this, our 2025 targets, we are single-minded and focus in more -- right? So all across the next few years, we will continue to remind ourselves and also to remind our investor community that those are our targets. 70-30, 10 gigs in 500 hectares land sales, sustainable basis, with the land bank building up at the same time, carbon intensity reducing. And by 2030, we want to reduce our carbon footprint by half from 2010 levels. These are unambiguous and clear targets. We will continue to plow towards that, all right? So that I just want to emphasize. Then at the same time, in moving in that direction. Another important point is that showing through the numbers also Eugene explained just now, we are putting in place incentive plans that are aligned to these targets right? So if you're asking what has changed compared to the past, we always have incentive plans, right? So this season with the support of the Board, we're putting in incentive plans that are much more targeted at individual outcome, right? So in the past, it was more of a collective outcome. So the whole collection of targets must be met. But this season, we are seeing -- trying out this, if one of us achieve some of this, the person instrumental to achieving that will be rewarded. And you will start seeing that in our disclosure in terms of compensation. You're already seeing that in our disclosure on the provisions for the incentives for compensation, right? So just now there was a question, hey, do we see this recurring? It will recur to the extent it is on the front end of our transformation journey, right? So these things you put -- you want to motivate, you put it up front. You don't put it at the tail end. So we're telling people that, look, for instance, in my case, so Kim Yin, if some of this happen, then Kim Yin will receive some of this incentive shares, for instance, right? But those are the disclosed upfront, right? So they say, hey, look, I've got so much of a compensation this year. But this -- particularly, in my case, given I'm a director, I'm also a group CEO, in terms of disclosure, you will be laid out which are the parts that are deferred, which are the parts that are contingent performance, which are the parts that are subject to callback, which are the parts, I collect now? So -- but more importantly, coming back, the incentive plans are, in this season, linked very closely and very tightly to the delivery of our 2025 targets, all right? So I think that is something that I was working on and we were working on last year. So I was not ready to talk about it. But this season. I think this is one of the key themes. And again, that's why when we look at corporate costs, there's one part that is -- make the numbers look a little bit higher than it should, right? But I think Eugene explained that if you look at from a recurring run rate perspective, we actually have crank it up. Also -- our cost very carefully even as we move forward. I think we want to spend money where we want to spend, where we're supposed to spend. For instance, we are not holding back in terms of investing in capabilities, building and talent. But we want to build our capabilities in renewables, we want to build capabilities in storage. In the longer run, we will start to build capabilities in hydrogen, right? So those very targeted, right? So I just want to paint the picture that thus short-term earnings subject to market conditions because of conventional 2025 targets very clear. 2030 targets very clear for us, and we've got incentive plans for the team. The team is coming together. Everybody is pulling their weight and delivering. So we're feeling quietly confident about our ability to deliver moving forward. We have a pipeline. We can't tell you what is it, but between me and my team, I think we sort of aligned that look, let's let the action do the taking, right? So last year, when you -- when people ask me about our pipeline, we didn't say anything, right? But I think we let the action do the talking. And hopefully, that would be -- we continue to do that. And I think the confidence and the support will continue to build up towards it. So I thank you for your support. And thank you for your understanding and also your insights and the feedback.

And just a couple of points for me to add to what Kim Yin has say, I think in terms of the incentives that we have revamped, we are putting out in the market, you will notice that in our annual report this year, we're going to clearly disclose what are the KPIs or the goals that underpin them. And you would see that they are very firmly aligned with our transformation targets that we have put out. So hopefully, that will give everyone the clear comfort that those strategic targets are completely aligned with ourselves and also with our SPTs for financing. The second point that I just want to leave us with is there seem to be some confusion in terms of the consensus and whether our earnings did meet or not. I think we have clarified the community's expectation of our earnings before extraordinary items. And I'm looking at the numbers, you will be quite clear that what we have achieved for $472 million, it's -- has beaten that. So I mean, to the extent that there are misconceptions out there would appreciate it will also help to clarify, okay?

Thank you. Thanks, everyone.

Thanks, everyone.

Thank you, everyone. We have now come to the end of today's briefing. Thank you for joining us today.

Thank you.