Sembcorp Industries Ltd (U96) Earnings Call Transcript & Summary

Ladies and gentlemen, good morning, and welcome to Sembcorp Industries' First Half 2024 Results and Urban Strategy Presentation. A warm welcome too 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 switched to the silent mode, please. And if you feel unwell, do approach our staff for assistance. The members of today's panel are Mr. Wong Kim Yin, Group President and CEO; and Mr. Eugene Cheng, Group CFO. They will be presenting on our first half results following which Mr. Lee ArkBoon, CEO of Urban will then give Urban Strategy update. There will be a question-and-answer session after the presentations. For viewers of the webcast, please key in your questions in the Q&A box by clicking on the Raise Hand icon on the webcast page. Without further delay, I will now hand over the time to Kim Yin to begin the presentation. Kim Yin, please.

Good morning. Thank you for joining us today. Let me bring you through Sembcorp Industries first half 2024 results and business highlights. For the first half of 2024, turnover was $3.2 billion. EBITDA was $889 million and adjusted EBITDA was $1 billion. Net profit before exceptional items for the first half of 2024 was $532 million. Including exceptional items, EI for short, net profit was $540 million. Compared to first half 2023, the lower profitability was due to the planned major maintenance for one of our Singapore gas-fired power plants. During the full year results briefing in February 2024, we had guided that the maintenance would have an estimated net profit impact of between SGD 60 million to SGD 70 million. We were able to reduce the financial impact through our efforts to shorten the maintenance period. We were also able to optimize our portfolio, reducing the impact from lower pool prices. Eugene will share more details in his presentation later. Earnings per share before EI was $0.299, while EPS was $0.303. Group return on equity before EI and group ROE on an annualized basis were both at 21%. In light of the Group's robust performance, the Board is proposing an interim dividend of $0.06 and this is an increase from the $0.05 last year. Let me bring you through now the key highlights of our business segments. First, the Gas and Related Services segment. This segment delivered robust results in the first half of 2024, despite the planned maintenance of our Singapore cogeneration plant. We were able to successfully shorten the maintenance period, reducing the financial impact to the portfolio. There were also concerns on lower wholesale prices impacting the Singapore market, with the implementation of temporary price caps from July last year. And despite the lower wholesale prices, we were able to leverage our unique position as an integrated gas and power player and with our strong customer base to optimize our commercial position. This set of results validates our strategy to contract our portfolio long term. So, as at the end of 30th June 2024, almost all of the Group's gas-fired generation capacity is contracted, half of which is contracted for more than 10 years. With more than 80% of our Gas and Related Services net profit now contracted, this is an increase from 50% a year ago. Our portfolio is now increasingly insulated from merchant market volatility. In the first half of 2024, we signed long-term power purchase agreements with Equinix and GSK. Both power purchase agreements have a green element either in terms of renewable energy or renewable certificates to support our customers in their decarbonization journey. This is in addition to the long term PPAs we have signed in 2023 with companies including Micron, Singtel and ST Telemedia. With these contracts, more than 75% of Singapore's generation capacity is contracted to the energy intensive industries such as high-tech manufacturing companies and data centers. Today, we are also the leading power provider to the data center sector in Singapore, capturing 1/3 of the power capacity market share. With demand from corporate customers, including data centers expected to be strong, we will build on our portfolio to further ensure earnings resilience. In the first half of 2024, our renewables earnings were impacted by lower demand in China as a result of weaker economic conditions which affected power demand. While there are temporary headwinds due to the macroeconomy, in the longer term, substantial investment and strong government support will continue to drive growth in the sector across these key renewables markets. In China, our diversified portfolio across resource and location also mitigates the impact. We will continue to be selective to invest in good quality projects which are near load centers and where there are net importers of renewable power and this is helping to mitigate curtailment risk. In India, we secured 1 gigawatt pipeline from the SECI and SJVN government tenders at higher tariffs. So together with potential brownfield acquisitions, we are well positioned to write this wave and growth that is prevalent in India today. We also marked our entry into utility-scale solar development in Indonesia with the construction of an integrated 50 megawatt solar and 40 megawatt hours energy storage in Nusantara. The project is backed by a 25-year power purchase agreement with PT PLN Persero, the state-owned utility provider. And as at 30th of June 2024, including a 49 megawatt acquisition pending completion, we have met our 2025 gross installed renewables capacity target of 10 gigawatts well ahead of time. We are confident of our long-term growth and remain focused on achieving our target of 25 gigawatts across installed renewables capacity by 2028. The Integrated Urban Solutions segment performed well in the first half and this largely contributed by the urban business. Our urban portfolio recorded healthy land sales during the first half of 2024 and net profit contribution from the urban business more than doubled in the first half of 2024 compared to first half 2023. In May 2024, we strengthened our Vietnam Singapore Industrial Park portfolio to 18 industrial parks with the addition of 3 new investment licenses. We now have a total licensed land area of over 11,000 hectares in the country. We will continue to leverage the Group's expertise in renewable energy and decarbonization solutions to enhance our offerings to develop low carbon industrial parks. Mr. Lee Ark Boon, our CEO of Urban, he will be sharing in more details after Eugene's presentation of his strategic plan. I will now hand over to Eugene to go through more details in the financials. Thank you.

Thanks, Kim Yin. As I take us through our financial performance for the first half, it is quite important to note that this set of financials has showed resiliency in our portfolio, particularly in the Gas and Related segment. And as I take us through, I will highlight some of those elements. Now, looking at this slide, which gives the overall view of our first half '24 financials, turnover declined, right, by about 12% and is largely driven by the Gas and Related segment. Now we did see lower in general gas offtake and also some of our gas sale prices, but more importantly also from electricity sales standpoint, last year we did benefit from a pretty high spot environment, particularly in Q2 of 2023 which was not present currently, and also for the simple fact that we are a lot more contracted coming into the first half of 2024 following our efforts to contract the portfolio in the second half of 2023. Now, we also saw lower prices and demand in U.K., which brought about lower performance for our U.K. Gas and Related Services segment. And in general, also our Singapore operations were affected by the planned maintenance that we highlighted at the start of the year. From an EBITDA perspective, our EBITDA also declined for similar reasons, as I've highlighted before. And as I've mentioned earlier on when I talked to the net profit performance, I will highlight how our contracted positions have allowed us to optimize opportunities. Share of Results, Associates and JVs, net of tax increased by 5%. And as Kim Yin has highlighted, a lot of this is a result of a stronger first half 2024 performance by Urban, which saw us completing and capturing land sales that were delayed from the second half of 2023. And all in all that resulted in a net profit before exceptional items of $532 million compared to $602 million last year. And for us, realizing annualized Group ROE before exceptional items of 21% compared to 26.6% last year. In terms of Group turnover, as we -- a lot of the highlights I've talked about earlier on. The Gas and Related Services saw the decline in turnover as a result of -- for the reasons that I've mentioned earlier on. From the Renewables segment, turnover remains fairly stable, essentially a contribution from new acquisitions from China and India. But as you have heard from Kim Yin, offset by a couple of things. Number one, we did see for our consolidated portfolio some slower in demand resulting in a curtailment, right. Second element of that is also for our U.K. batteries business. Also, we saw lower batteries performance in the first half of 2024 compared to the first half of 2023 because of a lower scarcity event resulting in a lower volatility in the grid. The Decarbonization Solutions segment saw a significant growth in terms of revenues from $5 million in the first half of 2023 to $22 million in the first half of 2024. And a lot of it is driven by GoNetZero ramping up its -- both RECs as well as credit sales activities. And the other businesses, which comprises largely our specialized construction business as well as our main business, saw a growth in revenue from $215 million to $268 million. And the growth is a result of a stronger order book off the back of our specialized construction business. Now looking at the Group net profit performance, I will first touch on the Gas and Related Services. So for the first half of 2024, the Gas and Related Services segment, $339 million, which is a decline from $435 million that was seen in the first half of '23. And the reasons of this, it's largely through 2 key reasons. Number one, if you recall, in the first half of 2023 as guided, we did experience very high pool gains as a result of high USAT prices realized in the second quarter of 2023, and also us having lower contracted positions in that particular half. So I've also guided that at that point in time, post that the TPC, the temporary price caps were put in place and as a result we also progressed to really contract our gas portfolio. You have also recalled that I've guided that if the temporary price caps were applied in the first half of 2023, $60 million -- approximately $60 million of those pool gains will not be there. So our first half 2024 results have to be seen in that context. Now, in terms of the planned maintenance, just on the maintenance itself, we are quite pleased to say that we were able to optimize the maintenance by being able to complete the maintenance in ahead of time. So as a broad guidance, I've previously guided a potential $60 million to $70 million impact on costs, but we have probably came in closer to around $50 million impact instead, therefore optimizing on a pure maintenance cost. But in addition to that, we were able to optimize our Gas and Related Services positions in a couple more ways. Number one, given the fact that we were able to complete the operations and maintenance ahead of time. We also have some excess capacity that we were able to realize value by selling in the pool. So that's the first thing. The second thing that we were able to do also through the half is that given the fact that we are contracted, that we were able to take advantage of certain periods of low pool prices, where we were able to purchase electricity from the pool instead to fulfill our PPAs, instead saving costs on a gas, and being able to realize value of the gas that is saved in a more profitable manner. So the combination of the optimizations and also the maintenance performance being done ahead of time allow us to perform better than what we have guided previously. I think also another factor to consider is that our Gas and Related Services were also slightly impacted by the U.K. business, which in general saw a lower power prices in the first half of 2024. Now, for the Renewables segment, we turned in about $15 million lower than last year, or rather about 13% lower. Now, we continue to be able to commission new capacity and also complete acquisitions in the Renewables segment. But in general, we were impacted by a couple of factors in the first half of 2024. Firstly, as Kim Yin has highlighted, we did see lower demand in China, which as a result, resulted in lower gross electricity so. And then also in the U.K. itself for the Batteries segment, we did see a lower earnings as well, because on the average, we did see average ancillary services earnings decline on a half-on-half perspective. So in terms of the $15 million decline from an impact across these 2 elements, I would say approximately 2/3 of the impact is driven by the China impact in the first half, and 1/3 of it is driven by the Batteries impact. Now for the Integrated Urban Solutions segment, we saw a significant growth in terms of net profit and largely it is driven by, as highlighted earlier on, Urban being able to catch up very expeditiously, land sales in the second half of 2023 which was deferred into the first half of 2024, our waste and waste management segment as well as the water segment remain stable. And in terms of the Decarbonization Solutions, you will see an increase in terms of a cost investment from $3 million last year to $10 million this year. That you would see in our public announcement is largely through a ramping up of activities. I think across GoNetZero, commensurate with the increase in revenues, we did ramp up resources to capture revenue growth. But more importantly in the green hydrogen side of things, you have seen our announced positive development in terms of potential 200,000 metric ton green hydrogen plant in India, right, for the potential offtake into Japan in partnership with Sojitz and Kyushu. We have commenced feed studies in that phase. So a positive development in the particular segment which resulted also in higher cost investments which we have guided that we believe that this would bring about positive impacts for energy transition further down the road. Now, in terms of corporate costs, corporate costs came in lower than in the first half of 2024 compared to the first half of 2023. Now, in terms of interest costs, we were very, very, very expeditiously looking at opportunities to bring down our effective cost of borrowing. You would see later in the slide, we were able to -- in spite of debt coming up, we were able to maintain our effective cost of borrowing at about 4.5%, right, while at the same time being able to lengthen our average -- weighted average debt maturity, getting more tenor, and also being able to increase our fixed rate ratio from 72% at the end of December of 2023 to 77% where we are currently. So we were able to look at opportunities to optimize our effective interest rates and to keep it at a level lower than last year. Now, in terms of other corporate costs, we are impacted by 2 things. Number one, also we were very focused in making sure we keep our gross corporate costs tight. And also a second thing is that we did see certain reversal of ECL provisions. In this particular half. In terms of the DPN income, we did realize $128 million in the first half of 2024, slightly higher than the first half of 2023. Out of that $128 million, you would see that approximately $46 million will come from a positive FX gain because of the positive movement of the rupee against the Sing dollars. In the same half last year that a similar FX impact was a positive $38 million. So I wouldn't touch on this slide because most of the net profit variances was already discussed in fair amount of detail earlier on. But if you move on to the next slide, in terms of our Group CapEx and equity investments for the first half of 2024, we spent approximately $700 million in terms of CapEx and another close to $300 million in terms of equity investments for a total of $1 billion. The bulk of the investments is largely into renewables, about $490 million for continued execution of the pipeline and about $300 million of that for the completion of Leap Green, which is an acquisition done in India in the first half of this year, and also the completion of 3 out of 4 project companies for the Gelex portfolio in Vietnam. The $200 million of Capex in the Gas and Related Services relates largely to the H-class as we continue to complete that towards our targeted COD. Now, in terms of the Group free cash flow, our cash flow from operating activities is about $517 million compared to $742 million in the first -- in the comparative period last year. But I think when we look taking into account dividends and other income that is flowing through as well as our DPN receipts and adjusting for growth CapEx, our free cash flow that is available for the funding of expansion CapEx and equity investments for the first half is $948 million compared to $791 million last year. So we continue to see a strong free cash flow generation pre-interest and growth expansion in the first half of this year. Now, if you move on to the next slide, where we look at our Group borrowings as well as balance sheet position. Our gross debt increased from $7.3 billion as of the end of 2023 to about $8.4 billion as of the end of this half year. And it's largely driven by borrowings that is incurred for the acquisition activities as well as a continued building up of the pipeline and also consolidation of underlying debt from the acquired entities in the Gelex, as well as the Leap Green acquisition. Our cash and cash equivalents also went up from $767 million to about close to $1.1 billion, driven by cash flow generation. We have also drawn down some debt early just prior to the completion of the half for the purpose of some refinancing requirements in the coming quarter. But all in all, when we look at our leverage metrics, our gross debt to adjusted EBITDA, it's approximately 4x, a slight increase from 3.5. But taking into account the cash that we have on balance sheet, our net debt to adjusted EBITDA is 3.5x, a slight increase from 3.2 as at the end of December 2023. Our coverage ratios remained healthy. EBITDA to interest at 4.5x compared to 4.4x at the end of December 2023 and our adjusted EBITDA to interest is 5.2x, improved slightly. So the group debt maturity profile, as I talked about earlier on, if you compare this picture to easily a year or 2 years ago, it has vastly improved. We are able to term out a lot of debt -- moving a lot of the debt hours towards the longer tenures and we are able to achieve debt with our weighted average cost of debt maintained at 4.5%. You will see that in this half we have also increased our fixed rate borrowings percentage to 77%, giving more visibility in our interest costs and also being able to lengthen our weighted average debt maturity from 4.4 years to 4.7 years. So essentially being able to get better debt metrics, more fixed, slightly longer tenor, but yet able to manage -- being able to manage our weighted average cost of debt. So from a liquidity standpoint, a lot of numbers on this slide, but typically, as I've always guided, is really our on-demand liquidity for the purpose of funding growth. So as of now, we have a cash and cash equivalents of $1.1 billion and also unutilized committed RCF facilities of about $2.9 billion. So essentially our so-called on-demand liquidity is closer to $3.9 billion or $4 billion, which is a significant liquidity to continue to fund growth. So all in all, to summarize, our outlook statement, which you probably would have already seen in the morning, right, we have shown a resilient performance in the first half of 2024 in spite of the moderating [ USAT ] prices as well as the maintenance in the Gas and Related Services. We did see a slower demand resulting in higher curtailment in China in the first half of this year and this was offset by an increase in earnings in our Integrated Urban Solutions segment, particularly from catch up in land sales in Vietnam and Indonesia. When we look forward into the second half and with the completion of the planned maintenance for our Sakra in Singapore right, and with our significantly contracted positions, we do expect our earnings for our Gas and Related Services segment to be higher in the second half of the year compared to the first half of 2024. Now, our earnings for the Renewables segment, from a seasonal perspective, it is always lower in the second half of 2024 compared to the first half of the year, right. But we do expect that seasonality to be offset, partially offset by new project contributions and some of them are commissioning in the latter part of this half. We do, however, keep a close watch on China because the weak macroeconomy in China could potentially continue to negatively impact the renewable energy demand. Now, the outlook in the second half of our Integrated Urban Solutions segment is expected to be stable. But overall, as you can see, currently, right, the macroeconomic as well as geopolitical uncertainty remains and as well as the potential policy changes. This could potentially impact the broader economy, the global economy, and the economy that we function in and ultimately impact our business performance. But still barring unforeseen circumstances, we do expect our full year net profit before exceptional items for the Group to be fairly stable compared to last year. And our Group is continuing to be well positioned to navigate energy transition and continue to grow our renewables portfolio. So we continue to focus our execution of our strategy and to capture market opportunities in the energy transition and to drive value creation.

Okay. Yes. Thank you, Kim Yin and Eugene. As mentioned during our Investor Day in November 2023, we committed to providing the market with an update on our Urban Strategy in the middle of this year. We thought it will be actually more efficient to present the Urban Strategy together with our results, so you don't have to make 2 trips to our office. So let me now hand over the time to Mr. Lee Ark Boon, CEO of Urban, to give a presentation on the Urban Strategy, following which Eugene will provide an update in terms of Group financials. Ark Boon, please.

Thank you, Jin. Thank you, Eugene and Kim Yin. A very good morning to everyone. My name is Ark Boon. I'm the CEO of the Urban division in Sembcorp. Let me first give you an overview of what the Urban business is because I think some of you may be still very new to what we do in the Urban side. In Sembcorp Urban, we have a track record of close to 30 years in development of industrial parks. We started with our first industrial park in Batam and today we have 21 large scale developments in Vietnam, Indonesia and China. And this in total span over 14,000 hectares. Over the years, we have also built up our scale and capabilities. We have more than 1,000 customers located in the various industrial parks. We have attracted close to USD 50 billion in investments and created over 370,000 jobs in the various economies. While Sembcorp Urban's income is generated primarily from land sales, we do have a small but growing proportion of recurring income from our portfolio of industrial properties. Let me share a bit more about the countries that we are operating in today. Vietnam and Indonesia are 2 of the fastest growing economies in Southeast Asia. They have a young and growing population. These countries have tasks enjoyed strong GDP growth and with the manufacturing sector expected to contribute to a larger share of their GDP going forward. With continued urbanization and a growing middle income population, the domestic consumption in these markets is also expected to see very strong growth in the medium to longer term. China, the second largest economy in the world, remains in transition. Nonetheless, China has a strong manufacturing base and very highly developed infrastructure and supply chain. To build upon our capabilities and to capture demand in these markets, our core engine of growth will be to accelerate our land development. And going forward, we are in a very good position to become Asia's leading low carbon industrial park developer. Having sharpened our focus on low carbon development, we will secure new projects and enter new markets. We have been building up a pipeline over the last few months and we hope to bring some of this to the table within the next 6 months to 12 months. As a target, we have set ourselves to reach 18,000 hectares cumulatively in 2028. Our second engine of growth, which we are building up is a portfolio of industrial properties. This will bring in steady and growing rental income. With a meaningfully sized portfolio, it will also open up opportunities for an asset management platform. Our 2028 target is to grow our industrial properties in Vietnam by more than 10x to 1.5 million square meters of ready-built facilities. The immediate demand for these industrial assets are for light manufacturing, but we have designed them to be usable as modern logistics facilities as well. Doing so, we can capture the potential demand from growing domestic consumption and e-commerce. Where and how do we intend to do this? Each of the markets that we operate in will require a differentiated approach. We will grow our presence in Vietnam and Indonesia, where we see continued strong growth. We intend to strengthen our leading positions. VSIP has been named the best industrial and warehouse developer in Vietnam numerous times, while our Kendal Industrial Park has been named the best economic zone in Indonesia out of 20 SEZs in Indonesia. At the same time, we are also actively pursuing entry into new markets, replicating our success that we have achieved in our existing locations. Last but equally important is that we will manage and optimize our China operations to drive better returns. Let me talk a bit more about Vietnam. We intend to seize the continued growth momentum in Vietnam. Under Vietnam's National Masterplan, the total size of industrial parks will grow from about 130,000 hectares today to over 200,000 hectares in 2030. This is a 7% CAGR which is aligned with the projections of a 6% to 7% annual GDP growth to 2030. Major multinational corporations such as Samsung, Google, Microsoft, Apple, Nike, Adidas amongst others, have integrated Vietnam into their supply chains as part of their diversification strategies as well as to plug into Vietnam's growing domestic market. Our industrial parks have always been a premium product, commanding above market rates because of our track record, the quality and our customer service. With 18 VSIPs spread across country, we are present in all key regions offering differentiated positioning to our tenants from the different industrial clusters. However, we cannot stand still as countries and companies recognize the urgency for sustainability, our ability to offer tenants solutions for low carbon production will further differentiate us from the pack. It will enable us to widen our lead as a preferred and premium developer in Vietnam. In the medium to longer term, we also plan to rejuvenate some of our older parks to target new higher value-added and advanced manufacturing, including data centers, whilst helping our older tenants, who may be more labor or land intensive, to shift to locations such as in Central Vietnam where both the land and labor costs are relatively lower. As multinational manufacturers expand into our parks, the ecosystem and supply chain around them are also making the move. These are smaller companies that do not immediately need land to build their own factories or choose to be asset light. Therefore, they are looking to lease ready-built facilities from us. This is where we will tap into the demand for ready built facilities in core locations. The market supply for such ready-built facilities is growing at a CAGR of about 15% from 14 million square meter GFA in 2023, doubling to nearly 30 million square meters in 2028. In addition, e-commerce in Vietnam has grown rapidly due to the expansion of both domestic and international e-commerce platforms and the proliferation of digital payments. In 2021, Vietnam's e-commerce grew at 16% year-on-year with retail revenue reaching USD 14 billion and this accounted for 6% of total retail sales of goods and services. CBRE forecasts that from 2021 to 2026, Vietnam's e-commerce will reach an annual growth rate of 24%. This e-commerce growth will drive further improvements in logistics and infrastructure and also drive up the demand for ready-built warehouses. Let me move on to Indonesia. Here in Indonesia, we have an established presence in Central Java with the 860 hectares Kendal Industrial Park. Likewise, Kendal has benefited from a surge in foreign interests over the last 2 years. Kendal has done well and we were assessed to be the top performing economic zone in Indonesia for 2022 to 2023. Opportunities in high value manufacturing are also emerging due to Indonesia's abundant natural resources and industrial policies. Last year, a subsidiary of China's LBM New Energy acquired a plot in Kendal Industrial Park to build their LFP battery component factory in Southeast Asia. Beijing listed BTR and Stellar, a subsidiary of nickel giant Tsingshan, also announced the joint development of an anode production facility at our Kendal Industrial Park. Both materials supply the electric vehicle industry and this is one which the Indonesian government continues to champion. Last week, we signed MOUs with the Panbil Group to jointly develop low carbon industrial parks in Batam. The proposed projects aim to serve light to medium industries as well as energy intensive businesses such as those involved in advanced manufacturing and data centers. Here in Batam, we will also be providing renewable energy to our tenants. Large international companies now have significant sustainability requirements in their investment processes and they desire to be in industrial parks that not only meet conditions in geographical location and scale, but are also green. Countries have likewise made commitments on their path to net zero. With Sembcorp's capabilities and by being directly involved in all the different elements, we can put together a truly comprehensive low carbon offering which we believe is not available in the market today. This slide gives an illustration of what we are offering in our VSIP Binh Duong III industrial park. VSIP is a platform for low carbon solutions. We support manufacturers' solarization journey by building, owning, operating and maintaining grid-tie rooftop solar energy solutions. Larger manufacturers can also opt for Sembcorp's renewables farms through the DPPA mechanism to ensure that their energy needs are fully met. In addition, Sembcorp provides battery energy storage solutions to complement solar solutions, delivering steady power supply even after dark where some emissions remain unavoidable. And to compensate for these emissions, Sembcorp's carbon management business, GoNetZero, offers quality, verifiable renewable energy certificates and carbon credits by reputable partners. By combining the strengths of Sembcorp's urban, renewables and GoNetZero, we believe we can be a market leader in low carbon industrial parks development. This combination is also highly complementary across different geographies in Southeast Asia and Asia. Hence, Denmark's LEGO Group have chosen to locate their first carbon neutral USD 1 billion manufacturing facility in VSIP Binh Duong III, which LEGO has announced will be their most sustainable to date and their first carbon neutral run facility. Similarly, Pandora, which is also in VSIP Binh Duong III, has announced that it will run on 100% renewable energy. This is testament to the solutions we can provide to our customers. Now, under our 5-year plan, the Group will commit $700 million capital towards the growth of the Urban business. This will be funded by a mix of operating cash, project financing and corporate debt and capital recycling. In 2022, slightly over half of our equity was in China with Vietnam at 40% and Indonesia at close to 10%. Under our revised strategy, our capital will be deployed in high growth markets. By investing in the right markets and products, we expect to achieve net profit CAGR of above 15% between 2022 and 2028. We will achieve ROE of about 10% in 2028, which compares favorably with industrial real estate peers from Southeast Asia who are averaging about 9% ROE. Finally, this slide sums up our strategy for the Urban business. We are riding the wave of robust manufacturing growth in Southeast Asia, supply chain diversification and growing commitment to sustainability. We have set out very clear targets for 2028, and we will leverage our track record as well as the Group's expertise to grow our business. Urban's strategy will be accretive to returns to and will achieve a balanced and diversified income contribution to Sembcorp Industries. Let me now hand back the time to Eugene who will elaborate on the Group financials.

Thank you, Ark Boon. Now indeed, Urban's renewed focus in driving growth and returns by channeling capital towards our highest returning markets and in delivering low carbon industrial solutions to clients, especially in the tech and data intensive sectors, fits very well with the overall group objective of driving value creation and growth through energy transition. Now, I would like to share the incremental updates to our November 2023 guidance on our 2028 financial outlook for the Group, especially given Urban's refreshed strategic plans. Now, in terms of our overall Group capital allocation plan, Urban's capital requirements of $700 million sits within our original intended allocation as guided last year in November. Now our 5-year projected investments up to 2028 remains at $14 billion, with the vast majority of it still expected to be focused on growing our renewable segment. Urban's targeted funding of their capital needs to 25% from operating cash flow, 50% from project level financing and 25% from internal funding, and capital recycling also falls within our broader Group guidance from November of 2023 last year, so there is no material change to our expected capital allocation and funding requirements from a Group wide basis from what we have guided last year. Now in terms of growth outlook, they expected more than 15% compounded annual growth in Urban's earnings from the 2022 base year to 2028 will certainly contribute positively to our previous guidance. Previously, we have guided that we expect the Integrated Urban Solutions segment to remain flat and stable in earnings performance. Now, with the targeted growth in the Urban business within that segment, we are now revising that 2028 outlook to a 9% compounded annual growth from our 2022 Integrated Urban Solutions base year earnings, while achieving a targeted 10% estimated ROE, similar to where we expect the Urban business to land. In the guidance, we similarly expect the water and waste and waste-to-resource businesses to remain stable where they are currently. Now in terms of our 2028 targeted strategic metrics for the Group, I am also pleased to bring positive updates with the updated growth and uptrend in Urban's ROE from approximately 6% in 2022% to 10% in 2028. The Group's target ROE in 2028 will now increase from 12% as previously guided to 13%. Our 2028 net debt to adjusted EBITDA metric is also expected to improve from 4.5x previously guided to 4.2x. Now while we have further improved our debt portfolio quality as mentioned earlier, by maintaining weighted average effective interest rates while increasing our fixed rate ratio and lengthening our weighted average maturities. In terms of interest rate outlook, we are still maintaining a higher for longer interest rate outlook given the volatility in the markets as you can see currently. As such, our 2028 adjusted EBITDA to interest coverage target remains unchanged at 3.2x. So in summary, with the update of Urban strategy, I believe we have today a transformed portfolio of the highest quality. We are well positioned in the fastest growing markets to capture power as well as industrial demand from industrial as well as digital and data growth. We have the strong development, operations and maintenance capabilities to manage and capture renewables growth in the fastest growing Asian Markets. And with a highly contracted portfolio across both our gas and renewables segments, being able to deliver stable and strong underlying cash flows, earnings and returns into the long term, our business forms a highly stable base for us to continue to drive growth and to lead energy transition. We remain in the best position to lead that same energy transition across our portfolios, particularly in our home market, with our strong contracted customers providing longer term green demand. So the combination of all of these presents what I believe to be a compelling investment partnership for us and our shareholders for a long time to come. So with that, I'll end our presentation and we are happy to take questions. Jin?

Thank you very much, Eugene. [Operator Instructions] For those on the floor.

Rahul Bhatia from HSBC. Two questions from my side. First, on the Urban business, you mentioned about 2 parts, right, land area sales and industrial properties, with today majority of the profit coming from land sales, which is lumpy. So if all goes according to your targets, right, which you have set for 2028, could you talk about how the profit split would look like in terms of recurring versus the land sales? And second is on the renewable profit in 1H 2024, could you share what was the contribution to profit from assets that were not part in 1H 2023? I'm trying to understand the organic -- what was the trend on the organic -- at the organic level? And on China renewables, I think, Kim Yin, you mentioned confidence for future stemming from the government support as one of the factors. Could you please expand onto it, what you are seeing on the ground related to this?

Okay. I think in relation to the question, I'll take the first 2, Rahul. I think if I'm not wrong, your first question is basically to say that from a recurring income perspective, how does -- where does that stand in terms of our portfolio currently and where we expect that to grow by 2028. I think, in general, currently, our recurring portfolio, recurring income contribution on the urban side of things, I would say is probably around the 15% area. By 2028, with the growth in the -- particularly in the RBF segments that Ark Boon talked about, that will probably grow to a closer to 30% to 35% of the portfolio by 2028. Now, your second question in terms of -- from a new project contributions for the first half of 2024 for our Renewables segment, when I look across that, approximately, we have close to about $10 million to $12 million of new contribution in the first half of 2024. The bulk of that largely comes from the China acquisitions that were completed in the end of December last year. Now, Gelex closed towards May, June period. So not a meaningful contribution. For Leap Green in itself, that contributed an additional about $1 million to $1.5 million in a half. So that will give you a sense of what are the inorganic additions in the first half of 2024.

Rahul, this point about China, of course, if you think about it, let's talk about the long-term first, right. China, today, they have the bulk of the global manufacturing capacities in equipment, solar and wind, right. Even cables on land, they have the largest capacities. The prices are trending down, right, especially internationally. So they have got this abundance of capacity and they have the low prices. The government, in the long run, also want to reduce dependence on imported energy. On top of that, they also want to go green. So it's almost a no brainer for the government to continue to drive development in this area, right. So because of that, we are partnered with SOEs, right. And the SOEs, you know, these are part of the -- they would align with the states objectives, clearly. And that's why we are seeing projects being built. And that's why now. Then in the meantime, in the shorter term, you have this macroeconomic weakness. Real estate is down. I don't have to elaborate on that. Consumer, they're trying to come prime, but yet to see results. Manufacturing, they're facing headwind internationally. From a policy tool perspective, investment is the one area that they have -- they would be able to pick up some momentum. And again, investment in the area of renewables is fitting squarely into the sweet spot for the reasons that I mentioned just now, low equivalent prices, abundance of capacity, reduction in dependence on imported energy, or going green, right. So all those reasons. So in the near term, we would expect to see headwind from a perspective of energy because not capacity, energy because lower demand, right. Then if more capacity rushes into the market, of course, you might actually experience even a more prolonged weakness when it comes to offtake and so on. That's why what we are saying is that we need to be selective, we need to go to places, projects in places where the demand and supply balance is better. We need to go to places where there is a net importer of energy into the province. You know that China is organized provincial by province. So we have to some extent the privilege position of being selective today. You think about it, given our unique profile. We are a foreign investor which is highly sought after today. We have got already existing relationships that we are leveraging on. We have got very strong partners that has got no shortage of new projects. And in the meantime, our competitors in this unique position, let's say foreign investors, they are -- most of them exited and staying out. So from that perspective, we are in this very good position where we can be selective and so mitigate the short term impact while building up the portfolio for the longer term upside that I just described the direction. So I hope, you know, in a very so-called more macro way, I'm wanting to explain that point. I hope that answer your question, Rahul.

Next question, please.

Horng Han from CLSA. My first question will be focused on renewables. Can we try to understand the profit mix breakdown between India and China for renewables in the first half last year and first half this year? Second question on renewables is that you have maintained your 25% CAGR target despite slowdown in China. Is this target maintained because you expect India to catch up and offset the decline? Or is it because you do think that China in terms of growth momentum has room to accelerate in 2025? And last question on renewables is, has the slowdown in China to some extent affect the way you look at achieving your '25 gigawatt footprint target?

Thanks for that many questions. So I think I will answer the first couple of questions first. Now I think in terms of when we look at the renewables earnings in the first half of this year, right, when looking across the different markets. Just give me 1 second as I look at my numbers. So I think in general, in China -- for China, across the entire renewables portfolio, it contributes about close to 50% of the renewables earnings. And then for India, India contributes about 25% to 30% in terms of earnings. So that's about the earnings contribution in general across our Renewables segment. So your question -- your second question is that am I still maintaining the 25% CAGR target for renewables given the China slowdown, right? I think when we look at our renewables target of 25 gigawatts, our focus is really thinking about it from the perspective of a portfolio, right. So we are in several -- we have a presence in several of the fastest growing renewables market. While China is one, India is also another one, right. And also across several of the Southeast Asian markets, there are opportunities as well. I think, as we grow in our capabilities, right, and also looking at the possibility of entering some new markets, potentially Middle East is also another market for us to consider in a broader context. So from taking a portfolio approach towards achieving our longer term 5-year renewable targets of 25%, at this point in time, where we stand, we do see more than a sufficient opportunities across the markets that we're in and also other possible markets that we could potentially capitalize on to manage the 25 gigawatts and 25% CAGR growth target. And I think the third question that you have is how do we think about China, right, going forward? I think as you have heard what Kim Yin has mentioned earlier on, I think China still remains a very significant growth market for us. For us, we would maintain a discipline, clearly from my perspective from capital allocation, will still be a focus on allocating capital into the projects that meet the right attributes, right, meeting our targeted returns. More importantly also, as you have heard me mention before, right, being centered in more access to a load centers, having -- being in areas where the IRRs could be met with tariffs that can be competitive, right, and sit well in the merit order. So I think we will continue to look at China as a growth market in the longer term, right, with a view that macroeconomic conditions in the longer term should still remain positive for the market. Kim, I don't know if you have anything more to add.

Eugene spoke about portfolio. So really, when we say 25% CAGR, we actually -- when we established this target, we ran many scenarios. China becoming weaker, India becoming stronger, and vice versa, and Southeast Asia stepping up, stepping down. So -- and we have got 5 years -- well, 4 years to get there. So, in the world of, you know, given the volatility in the stock market, it's 5 years -- 4 years is a long time. So on the one hand, there's time, on the other hand is a portfolio. So I want to elaborate a little bit more on this point about portfolio. If you think about it, India this season is the bright spot. So we are seeing higher tariffs. They are coming out from the competitive bids. So if you follow the so-called SECI bids or SJVN bids, the tariff has gone up some -- if I recall, it's something from 3.2 type range going to 3.7 -- 3.6. All right, 3.2 to 3.6. So it's a substantial increase because that drops down all the way to the bottom line. And then, in the meantime, the Indian government is ever more supportive coming up with more entities, what do you call them, the REIA, Renewable Energy Implementing Agencies, right. So, used to be only SECI, right, where we built up our initial portfolio in the last leading up to 2023. Today, there are 4. So other than Solar Electricity Corporation of India, there is now SJVN, NTPC, NHPC. So 4 entities, each one of them -- each one of the additional entities are mandated and target to dish out as much renewable capacity as SECI. So the market opportunity has just quadrupled. In the meantime, because of various reasons that on a good day, get Nithya and Vipul to explain to you the tariff is actually improving. And we are also very uniquely positioned. Why? We have a full blown execution team on the ground. We have been learning so much in the last few years that we are now positioned with, I would want to say, competitive advantages that we never used to enjoy because we started going out there to procure connectivity and land rights where there are good resource. If you think about it, in 2020, when I first came to this company, we were bidding on SECI bids. But in those days, the land and all these rights, connectivity and land rights are actually secured by the OEMs. So they are the ones who we then have to go to -- how should I put it? We have to endear ourselves to them in order to go and bid for SECI. But today, after all that 3 years -- 3 years, 4 years of cultivating, today we are in our own ability to do this. We have already built our own bank of connectivity and as well as land rights. We have a full blown team on the ground securing these things, and we are following through our strategy to do this. The other area that where we have a unique advantage is in the execution of, in particular, wind projects. Everybody knows how to do solar, but if you look at what is happening in India Wind, you will trace through how many wind projects has been really executed and brought to fruition. We are among the top, and that also puts us in a unique position whereby we are capturing some of these, what you call them, hybrid bids, because increasingly, India -- some of these REIA bids are coming out in the form of hybrids; hybrids meaning solar and wind in combination, right. So given our ability and track record, we are very confident delivering the wind, and that puts us in a competitive advantage again in terms of bidding for these hybrid bids. So tariff increasing, opportunities are increasing, unique position with ability now with resource that we never used to have, and also with ability that fewer competitors are able to match. So you put all those things together, India is looking very good, all right. So that's sort of then coming back to Horng Han's question about the portfolio then. So for the first few years of our journey, China was good. And now China a little bit slowing down. And I'm saying that long-term, the dynamics remain good, right. But near term you will see some weakness because of the economic issues, right. But unless, of course, we are praying that China will never recover from it, this challenge, they will never take themselves out, not for another 5 years,10 years, then we have a big problem, right. But short of that scenario, the long-term prognosis China will still be reasonable. And then this sector, renewable sector in China remains. If there is one sector that is at least today sounds positive, it is actually renewables, because of all the reasons I articulated just now. Then coming back then to the portfolio, now while China in the near term experiencing a weakness, my India side is -- the Indian market is taking off. We are squarely in the right place at the right time. So we feel coming back then we are quite confident meeting our 25% CAGR target. I didn't even mention Southeast Asia, right. So you're beginning to see progress after a few years of plowing at it in Vietnam, right. Today, Southeast Asia portfolio is -- we have cleared the 1 gig mark, including Singapore, Vietnam. We made some acquisitions, we're doing some greenfields, beginning to see results. Indonesia, we have our first entry. We are looking at Southeast Asia also taking up some of the growth that we can expect moving forward, right. I don't want to preempt, but I think in the next coming seasons, you should expect to also see us having built up the confidence in our home markets. We would be -- actually, we have been assessing entering new markets and you will see us coming up with some -- some activities in new markets, so for the renewables sector. So portfolio is the answer. India well positioned and market condition is really very conducive. Southeast Asia also looking good, looking better.

Nikhil from Goldman.

I'm Nikhil Bhandari from Goldman Sachs. Just continuing on India renewable, what are the bottlenecks or what are the risk of execution that you see in the next few years in the India's renewable market? In the past, we've always heard land is always one of the bottleneck. And it seems like we are sorted on that. Increasingly we hear about the transmission access is becoming important. Lot of -- some of your competitors have been going ahead and trying to ask for transmission lines well ahead of time. So just trying to understand where is Sembcorp Industries in terms of some of these bottlenecks? Or what do you foresee as the main bottleneck or risk to the view of execution in India? That's the first question. Second question is can you talk more about your storage strategy? Clearly with India, with Asia's electricity demand growing more strongly, that the role of storage is growing, we saw in the India budget, for example, there was more focus on the pumped hydro storage. So what is Sembcorp's strategy -- Sembcorp Industries' strategy on the storage in different markets? And final question is, if you see a very oversupplied LNG market in the medium to next 5 years due to new LNG capacities coming, what does it means to your gas sales business? If, for example, LNG prices fall back to $4, $5 era, what does it mean for your gas sales business?

So I have to unpack your 3 questions. I'm not -- I'm probably not the smartest in this room, so give me a bit of time. So you're talking about what are the challenges, right? That's the first one. So allow me, you're right. So for a while, land and connectivity, right. So it's a very elaborate system to procure that. The short answer is that we saw that coming maybe 3 years ago and we started positioning for that. We actually have a team on the ground now that is actively going out there just to do that, not building turbines, not buying turbines, not buying solar panels. They are out there to procure connectivity, to look at the map, look at the transmission system and identify where they are. So, yes, they remain a challenge for everybody. And that's why while this is existing and continue to exist, having an ability to navigate it. I don't want to say we solved it because it's like a resource, it's like land, right. You can corner yourself in some good places, the moment you use it up to build a project, you have to find new ones, right. So it's an ongoing part of a project development. So that's one challenge. And as I mentioned just now, I think we are positioned as well as anybody, if not better, I don't sit here and -- because I can't prove to you that we are better, right. You have to see it in the results when the projects are here. So -- but I think we -- I dare say that we are positioned as well as anybody where no disadvantage, if not side advantage, given that we're full blown team on the ground in terms of land as well as connectivity. The other challenge, if you ask -- if you ask me, is actually in talent, right. We've been ahead of the game in identifying this problem of land and connectivity and that's why we are now well positioned. I think the next wave people start to realize that you don't have -- your short talent. What will constrain your growth will be talent. We are seeing people coming to us, picking our people away, right. So we have to find ways to keep our talent pool, the key people and then continue to build out the team. We are happy that some of our people, general competitors, were building up the industry capabilities, right, but I think we want to keep the A team and continue to do that. It's a treadmill. So I don't want to say that we have that solved, but I want to tell you, just look at our track record, hopefully, anybody who aspire to join a growing and exciting renewables company in India will find us one of the choice employees, right. So land -- in addition to what you mentioned, land and connectivity, I think talent will become a key bottleneck, right. And then for -- in a very wide competitive field, of course, the companies that has the better capital management and capital raising capability would also have an advantage on it. And I think, through the thick and thin, hopefully we've also shown that we are in a very good place relative to some of the competitors. And that's why you see some of the -- in the last 12 months, some of the players having to divest as interest rates creep high and so on, right. And that presents another set of opportunities, brownfield acquisitions that may come along, but you didn't ask about that. I'm not going to spend too much time on that. Storage, yes, and increasingly, as markets mature, renewables installation connected to the grid, as it matures, increasingly, we will see people or the grid operators or the customers asking for storage, right. This was very obvious in the U.K., right, and even increasingly before the so-called downturn in China, you see a lot of that, right. So India is heading in that direction with more and more renewables hitting the ground. So, yes, there will be more requirements for storage, but today they are not at that point where without storage, they cannot connect. They are not at that point yet. They will reach a certain point. In the case of U.K., we saw that it reached installed capacity from a percentage perspective, U.K. was at 40%, 50% renewables versus conventional, or renewables as a percentage of the entire connected capacity to the grid. So the intermittent capacity renewables is about 40% to 50% before they really start to see. They're willing to pay good money for this expensive storage. So India may be different because it's a very big country and the quality of the transmission system and the quality of the -- or the mix of the demand different places might be different, a little bit like China. So China, some provinces we see they ask for storage, some provinces they don't. So again, coming back then to us operating in India, we obviously -- we have some knowledge on batteries. We are the largest, we operate the largest battery system in Southeast Asia, right, in Singapore. We are one of the bigger players in U.K., right, so very vastly different market. One is a merchant in Singapore is contracted, but in both cases, we get to learn how to -- how storage plays a role in stabilizing the grid, what type of services the grid will require from time to time, the system operator will require from time to time, and that puts us in a good position to address the needs in India. It's the -- our footprint is actually helping our relationships also with battery suppliers, it's also helping, right. So all those are right now -- so the short answer to your question is that today we don't see storage being a constraint. If I link it to your first question, to growing our renewables in India, eventually it may come, but when it comes, we think we actually also have experience and track record to be able to address it with no disadvantage to us. You asked about LNG and Singapore, if I -- I'm actually quite glad you asked about it, because I think the bright spot in today's earnings release is really our Singapore portfolio and our gas portfolio that has shown that the resilience that has given us the base, that we can speak confidently today. If I recall correctly, and please help me out, the question is impact of gas sales in an oversupply LNG market, right. So I think Singapore market is unique though. Singapore market is today almost 100%, despite 1 gig or so of renewable capacity. More than 95% of the power generated here is coming from gas, right? And a lot of it is from pipe gas, 2/3 from pipe gas, and then about 1/3 is coming from LNG. So actually that -- from a market perspective, the need for gas in Singapore for power generation is not as volatile. The demand is not as volatile compared to other international gas markets, right. So that's one. Second, is that then when Sembcorp -- that's the macro. Then on the micro site, when Sembcorp goes out there to sign these gas contracts, I mentioned just now, we saw integrated position. We have got downstream customers, we have our own power plants, right. So we are in the position again that the team has very astutely carved out for ourselves, whereby when we sign these contracts, we are quite confident that we can actually pass through in a way to downstream. Now, it could be to customers, to customer contracts, back to back. It could also be to burn in our gas turbines, right. It could even be for trading, right, although we do very little of that. Generally, our risk appetite and what we do is that we will try to -- when we sign new strips of gas, we will find ways to be able to -- we need to be very confident that we do not take on merchant risk on gas. We don't want to take merchant risk on electricity, and no way in hell we want to take merchant risk on gas. It's almost -- it's actually more risky. The other thing that we've done is that we have got this suite of upstream contracts, including LNG, that we have embedded flexibilities. So when the market is -- precisely when the market is oversupplied, it actually ironically gives us the opportunity to make money, right, because I got other upstream contracts, that is on a certain pricing formula. If the LNG contract today in the market is more favorable, I might be able to swap some of it from my existing contractual positions, right. And doing that, we actually able to add value. And maybe this is the juncture where I want to ask Eugene to explain what was some of the things that we did in the gas portfolio that supported our $540 million earnings, this first half, other than the maintenance, some of the gas things that...

So I think we've had a lot of opportunities for optimization, right. I think one of the key things that came out in the first half from our contracted portfolio was really being able to manage our own generation capacity relative to where the wholesale market was. So the thing is that you have heard me guided that a lot of our contracted portfolios is on the basis of a fixed dollar spark spread, right. The long-term PPAs are on the basis, which means that we have a fixed dollar spark spread to sell into. Now, there are periods we found where the wholesale prices were low enough for us, where the combination of purchasing the price from wholesale to deliver on the contracts allow us to potentially realize an additional margin there, and then also allow us to save on the gas and have the excess gas for sales, right. So we were able to optimize along the lines of taking -- I wouldn't use the word take advantage, but because we have a contracted position, right, with a visible spark spread, we were able to look at that relative to our own gas costs for the purpose of fulfilling those -- that spark spread against where the market price is implying. So I choose my words carefully because the thing is that we do this to optimize our overall gas portfolio, certainly not a situation where we take advantage of our very valued customers. So, which is why, you know, how Kim Yin asked me to explain that, I choose my words carefully. So, you know, we were...

That's why, I asked him to explain.

Yes. So with our contracted position, we are able to optimize. Okay, the word is optimize our earnings against our contracted position.

So within the upstream gas portfolio, we can optimize because we have several sources, right. We can, within limits, take from one versus the other source, right, depending on pricing. Then on the downstream, we can also -- we have also some of that flexibility. We can direct gas from one source to another, right. We also have power plants that we can also have optionality. So we can choose to run the power plant or nothing. If gas prices are so low, my competitor is running a power plant at a low -- low electricity price, selling into the market. Then I shut down my power plant and I say I buy from him and fulfill my contract. That's also one way to do it. My customer is at no disadvantage as long as he gets covered, right. So this integrated position is a little bit awkward to explain, but it boils down to having multiple sources and multiple downstream and optimizing the optionality in between, because each one of them will have a firm volume, each one of them will also have a part that is flexible naturally, right. So you say, you know this one, take or pay, but above take or pay if on a good day I need more of this is my maximum quantity that I can take. So between the take or pay and the maximum quantity, there's a lot of flexibility. And so you -- I think without giving away the whole kitchen sink of what we do, we are in a unique position. Somebody even want to copy, also not easy, right. We are the only ones that have the LNG license in addition to a pipeline. We are the only ones that have this big portfolio of downstream customers, right. And then we also are the largest renewables payer in Singapore, right. So anybody who wants to sign a contract to lock in their long-term supply of energy, and if they want some green, there are not many people to turn to that can give them both. So I think what I'm trying to impress upon is that being a little bit -- it might sound a little bit pounding our chest and being a little bit too proud of it is that the team has taken quite a few years to very carefully construct this position, and we continue to construct this position moving forward, that I think coming back then I want to bring it back to the main point that I really want to emphasize. We told you last season that we have a contracted portfolio. And I think, I feel like people didn't believe us. We say -- I keep on emphasizing, in February, I got earnings visibility, I got earnings resilience, I got brown to green. My brown cash flow is now secure. It's not going up and down. I can -- my balance sheet is good. My risk profile is -- but I didn't feel like you'll believe me. But this season, I feel like we're proven. We prove to you that when we say contracted, it drops down to earnings. When we say contracted, I show you that my earnings can deliver. All right. So I feel this is -- whatever question you want to ask me, in the end, I won't bring it back to this point. So you have to allow me that little bit of extra energy, because I really feel like this is the time, this is the one season that we've proven to you that indeed our contracted strategy, on the one hand, has provided that earnings anchor and the cash flow anchor that we never used to have, that our competitors in Singapore are suffering from the volatility we are not. On the other hand, we also have this optionality that we just took good 15 minutes describing to you how we can optimize around the optionality to create even more value. So that, to me, is, I think, the bright spot this season coming out of this set of results.

Thank you, Kim Yin. Any other questions? Pei Hwa from DBS.

This is Pei Hwa from DBS. Congrats on the good results and very resilient earnings. If I may follow up a question on China renewable. I understand about the longer-term surges is intact. How about in the shorter term, do we see -- foresee a scale back in terms of current budget pipeline or short-term expansion plan in China? Also on renewables, you mentioned about the Southeast Asia market. What is management's thinking about say Malaysia renewable investment opportunity there. I think second is on DPN. The ForEx impact is quite big. It's quite volatile. Could management remind us about the strategy to manage the risk there?

You do the DPN.

Okay. Maybe I'll do the DPN. I want easier, okay. So I think you've heard me talk about it, right? While we have a $46 million gain, if you look at that against the book value of the DPN is about 2.6% in a variation. I think even across last year into now, essentially, we see roughly a rough between a minus 2.5% to a plus 2.5% variation in where the India would be is against typically how we have -- what we have booked the DPN at, right? So the question that I always ask myself, and we do debate it among the management team and at the Board as well is that do we hedge forward I think the -- suffice to say, and I've got many of our banking partners here. So maybe if you give me a better forward rate, we can think about it. But in general, what is being quoted on a forward perspective is anywhere from a 3.5% to 4% to hedge anywhere from 1 years to or 3 years forward. So we have not really seen volatility at this point in time, both recent history, as well as on a forecaster perspective, that the Indian rupee will take that will justify incurring the kind of realized cash costs for the purpose of hedging it. So I would say that, that is how we maintain and manage the risk, where we look at recent variabilities in the rupee, but we also look at the forecasted expected devaluation or appreciation of the rupee against the cost to hedge forward. And any one point in time, where we see sufficient evidence that the expected devaluation of the rupee is more than the cost to hedge forward, then we will certainly hedge it accordingly. Yes.

Short version, Pei Hwa. China selective, right, that will be the word to use. And we will need to factor in the near-term weakness, right? So managing the charge in there and not be conscious of the front end, having weak contributions. So that's China. But the opportunities remain. And like I said, the opportunity set has increased for us now this season with the government continuing pace increasing and also with the competition having withdrawn. So the opportunity set in front of us has actually increased. And so, that's why it's selective in my mind is the right word to describe our activities there and selective conscious of the front-end weaknesses are. So that's China. Malaysia, probably not sure, I'll answer. You're going to have to wait. I spoke about new markets, but it was one not to disclose. So you're going to have to wait. I apologize for that. But we will tell you, where we are going in good time. But I want to reassure you that it will be very measured, and it will be where we feel like we can play without material disadvantage, right? So if you look at our track record in terms of where we have not entered into a market since I joined this company 4 years ago that we do not have boots on the ground, right? Even Oman, we had the IWPP there. China, India, Vietnam, Indonesia, Singapore, we have not gone to one place in which we don't have boots on the ground. So I want to let you know that with that as a habit or a bad habit or some may say too conservative, but that would be the -- at least under this team's leadership, we have been very careful in entering new markets. So I want to reassure you that we would be very calibrated. That's on the one hand. On the other hand, we are this season, feel like we have the confidence to go into a small handful of new markets, where we see opportunities and where we possibly have an angle -- have an angle, right? So I think that's the right way to put it rather than no disadvantage. Every market, no disadvantage, and why don't you go, right? But I think it's where we need to find an angle. That's the right way to put it. So longer than intended answer, but.

If I may follow up on the China renewable front, how about the return that you should think about, given the...

Yes. And that's why I said you are to factor in the front end. So you'll be -- compared to where we used to -- how we evaluate projects in the past. We're going to be looking for a risk adjusted return, let's put it that way. It has to be very calibrated, very selective, and we are seeing opportunities in that direction.

[ Meg ], please, from CIMB -- CGS-CIMB.

I'm Meg from CGS. So I have a few questions regarding your green ammonia business. So first of all, first question is just wondering if there's any update on when you expect to reach FID for your green ammonia plant in India? That's the first one. And second is, what is the sort of CapEx that you expect to spend for this plant? And when do you expect to start spending this amount basically related to the FID? And the third one on that would be a little more broader on do you have a target for how much green ammonia production you want to be involved in over the long term? And is it just India or anywhere else globally as well?

Thank you. We have not put out some of the figures that you asked for. I want to say that this project is serious. We have actually secured land. We have secured incentives from some stakeholders, governments, and that we have got very advanced discussions with customers, right? So -- and we will be investing with the discipline of making sure that we are not exposed to market prices in such a scenario, right? What we do well is that we own and operate. We develop and construct, own and operate infrastructure assets, right? And we are good at also making sure that we manage the capital and manage the investment. That means, as we did with the gas situation, the upstream and the downstream somewhat matching, right? And then we develop in the middle. We derive our margin by operating well, developing it well in a well-constructed commercial structure. That's what we do well. And we will not deviate from that in the ammonia business. Now then again, without giving apologetically not giving you the straight answers to the numbers that you asked for, maybe I can invite our Head of our Hydrogen business, Vipul Tuli to give 5 minutes update on where we are on our project.

Certainly. Thank you, Kim Yin. Who is the question from, please?

Meg.

No, as to reiterate what Kim Yin said, we are proceeding in a very systematic and measured way on this project. The -- we have secured our land, some of the incentives and are -- have started FEED studies as well. From our discussions with customers, our belief is that we have a very strong and competitive project. Part of our strategy going forward, as you would have noted from our previous announcements is to invest along with our customers. And what that does is, it allows us to build a collaborative end-to-end supply chain and also optimize our own capital investments, while focusing on what we do really well. So for instance, we -- a very large proportion of the capital investment involved in these projects is in the renewables chain, which you've heard enough about today. We believe we have a good right to play there. We are also very rapidly building up capabilities in the actual hydrogen and ammonia related aspects, as well. So allows us to actually make the right decisions in terms of our outlay, as well as get the right uplift in returns that we believe we can get. Related to your question about when we expect FID? Of course, the simple answer to that is that, that will be once we have secured our offtake contracts. And while we have not made any announcements about our contracted offtake, some of the announcements we've made in the past should give you an indication of which markets we are looking at. And in a more general sense, I can certainly say that the -- the various processes that are being run to finalize and conclude offtake, especially in Asia and also to some extent in Europe, are proceeding quite nicely. And hopefully, by the end of '24 or early '25, we should start to see some contracts in the world actually getting concluded. We are also in participating in those same markets. And in due course, we will make the announcements. After that, of course, we -- from all indications and our discussions with partners, financers, et cetera, our feedback is that we do have a very strong project and FID would follow thereafter.

Yes. Thanks, Vipul. And for those of you, who might be a little bit concerned that we will invest $200 million into ammonia and then having to sell ammonia in the spot market, it won't happen, all right? So don't worry about that. If we invest that, that our money, it will be because we have got contracts upstream, downstream all tied up that with creditworthy counterparties, so that then, again, I don't have to come back to fall on the sword and explain to you why I'm exposed to the merchant market again after having given you that passionate delivery about contractor positions, all right?

I'll take some questions from the web. First, thanks, Kim Yin. First from Philips Securities, Paul Chew, as well as CGS-CIMB, Siew Khee. How much power was curtailed in China in percentage terms? Is this much different from last year and would was then in the coming years? [ Jagdeep ] also has a similar question, as to what's the -- can we expect sequential improvement in China renewables in the second half of 2024 or will curtailment and other issues continue to weigh on the segment?

Okay. I think -- thanks for the question, Paul and Siew Khee and also Jagdeep, because your questions are similar. I will answer it, firstly, talking largely about the curtailment situation and views going forward. And then after that, then I'll talk more specifically how we think about China in the second half, okay? Now in relation to curtailment, so when we look at the numbers, which is broadly average across the entire group, okay? What we saw is that in 2023, average curtailment across China for us is between about 3.5% to 4%, right, around 3.5% to 4%. Now in the first half of this year, we did see that go up by about close to about 200 basis points, right, in the first half of this year. But of course, it is not really an across-the-board increase in curtailment. We did see probably a little more pronounced curtailment increase in a region such as Gansu, Qinghai, Ningxia, right, and also Hebei. So not entirely across the entire portfolio. But in general, in the first half, we did see roughly about a 200 basis points increase against 3.5% to 4% for the whole -- for the full year of 2023 in the first half of this year. Now the outlook going forward in the coming years, at least from my perspective, I do believe that the curtailment is potent, is largely more demand related. So I think when we look at -- in the longer term, right, where China is, our stand right now is we do expect longer-term fundamentals to continue to see a demand driven in terms of power. So while in the middle term, it's hard to say whether it is going to worsen or get better. I think right now, our outlook into the second half is that it will be fairly stable, right? But in the longer term, at least given a meaningful period of time, we do expect that to be better. So when you translate that into, do we expect a sequential improvement in the China Renewables segment in the second half? Now Jagdeep, I think on that question, there is seasonality. So it is not possible for the China portfolio to improve sequentially over the first half because of the inherent seasonality will suggest that the China renewables portfolio will be weak in the second half. But what I would say is that when we look at it on a half-on-half comparison compared to last year, with the new assets that is on board and currently us taking a fairly stable outlook in terms of these curtailment issues, we do expect the China Renewables segment to be slightly better than how it had performed in the second half of last year. So I think broadly, that is how I will provide the guidance and visibility to these questions.

And Eugene, if I may add this. China, as I started the presentation, it's really the weak economic conditions, then translate into weaker demand. And then it manifests itself in sometimes curtailment or in sometimes lower generation, all those things. So for -- if we are talking about like-for-like same group of assets with no new additions, right, if no new plants under construction coming online or no new acquisitions, then like-for-like for it to the earnings contribution from the China portfolio to be better in the second half, you would take a dramatic improvement in the China economic conditions, which I wouldn't bet on it. So of course, I'm not the best in making predictions, but I wouldn't bet on China coming back in the second half. We are already into August really. We see some little signs here and there. And yesterday, all kind of explanation what happened in the markets, so I'm in no better position. So if you ask me, the second half, I wouldn't be holding my breath that there will be a material uptick, right? But as I mentioned just now, the long run prognosis is good. When it comes to building up a portfolio, this is actually potentially a good time given that opportunities [ above ] and competition is weak, we will be selective coming back again. Yes.

Okay. Still on renewables. How much new renewable capacity will be supporting second half '24 growth? And are you looking for sizable deals for more renewable addition in the second half of 2024. Any challenges that you are facing?

I think in relation to our second half '24 growth, in terms of capacity that we expect to be completed right now, it stands approximately 2 gigawatts, right? But of course, it is not -- it doesn't contribute across the entire second half, right? And a lot of it is actually coming more towards the fourth quarter. So we will probably see the full impact of the capacity additions in 2025 in itself. So in terms of the second question on, are we looking for sizable deals for more renewable additions in the second half of 2024. I think well, at least from my perspective, we are always looking out at opportunities to continue to grow our renewables segment, but -- and we would evaluate the opportunities, as they arise. Kim Yin, do you have anything to add?

Siew Khee is saying do we -- do you face any challenge, if any? I take it that she's asking, do we face any new challenges? No new challenges if you ask me, right? Things we've not encountered something we haven't encountered before that, right? Like China is a case, where there's an economic weakness, but we have navigated. Vietnam in a much smaller way. For a while Vietnam's economic conditions was very uncertain. Political conditions were also not -- a lot of uncertainty. And because of that, you just have to -- as long-term players, we are worried. So short answer to Siew Khee's question, no new challenges. We always have challenge, right? And just now I answered the question from Goldman colleague, what are the challenges that we face in India, particularly land and connectivity and talent is one of them that cuts across, right? I think the last time when we briefed the market on our strategy, I've mentioned that talent is a key asset as well as can easily turn into a challenge if we're unable to keep the team together. So Siew Khee, I don't know whether I answered your question on challenges. I can't tell you that there are no challenges, but I think there is no new challenge that we haven't encountered before.

Now on a financial question from Luis, Citi. For EBITDA breakdown, could you provide more color on other businesses and corporates providing up to $35 million uplift on a year-on-year basis? How much of this was cost reduction versus other business revenue, earnings growth?

Yes. I think in relation to the other business and corporates, you have met, if you heard me mention before, it's a combination of factors, right? The other business segment, which is comprises Mint as well as SSC, our specialized construction business. We did see a revenue uptick, as I mentioned early on, because of a stronger buildup in terms of the order book. So that contributed to the positive development. I think in addition, also you have heard that I have mentioned a couple of things. In terms of corporate interest costs, we were able to keep it down, and we're able to save some gains of where we were in the first half of last year. And then, then in addition, on the gross corporate costs, we were also able to keep that tight and we did see a certain reversal of provisions. So the combination of all of that brought about that $35 million uplift, as you talked about. Yes.

This is a question from Jagdeep as well. Please provide comments regarding your Myanmar and Bangladesh plants given the political situations in both countries? Are you still getting paid? And will further impairments be required?

I can start first and then Eugene can talk about any potential impairments. Short answer is, yes, we are getting paid. We are getting paid in Bangladesh. We are getting paid in Myanmar, all right? So -- and we are getting paid on time in both cases, right? The situation, of course, is something that we watch very closely. In the case of Bangladesh, our plan is away from the urban center. And so far, fingers crossed, our folks are safe, the plant is running. There has been no interruption. We are -- 1 of 4 power plants in a major complex that is very well secured next to Omnichem and so on and so forth. So -- and you provide some of the cheapest power in the country, most reliable power. So again, fingers crossed, so far, so good. And in terms of financials, we've been getting paid, right? Myanmar is just mulling along from the last season, and we are happy that it mulls along to be frank, as long as we get paid, and we are continuing to run the plant. We continue to be able to conduct maintenance on the ground. If you recall, I think a year or 2 ago, we had a major hot gas pipe inspection, and we were able to get experts into the country to help us keep the plant in good condition. And until today, both plants are continued to run well, people are safe, and we continue to be paid and paid on time.

I think in relation more specifically to the impairment question, where we stand right now, there is no form of any impairment trigger. So there's none, any expected impairment on these 2 assets currently.

Yes. Two more questions from Jagdeep online. Is there any update on potential non-core asset sales? And will management consider share buybacks given the sharp underperformance of shares year-to-date?

I think on the potential non-core asset sales, we always evaluate the opportunities for capital recycling, right? And of course, we'll evaluate that in relation to where the market cycle is currently. So I think the real question now is that looking at where the market environment does it -- is it conducive to be considering any form of asset sale transactions, right? So we do take in all these factors and evaluate accordingly. And I think at this point in time, what I would say is that we will come to the market with any form of updates like if there's any non-core asset sales that is imminent. Again, not to say that we do not evaluate. We always evaluate opportunities to recycle the capital. But of course, we have to always look at it against the market environment that we are in. So I guess the next question is, will management consider share buyback given the sharp underperformance of shares year-to-date. I guess, the first question is why is there a sharp underperformance of shares year-to-date. I think that's my first question back to you, okay, but our stickiness, in all honesty, if you look at how we have performed our share buyback, we have always look at it from the perspective of managing our share plans. And considering a share buyback, unless there is a very compelling value to do so, and it makes sense for us to reward shareholders accordingly. It will certainly be something that we will not say no. But I think Jagdeep, what you have noticed that in our -- this set of announcement is that we have come to the shareholders and to say that, look, we are very confident in where we are in terms of our financial position, our ability to generate earnings and cash flows. So much so that from an interim dividend standpoint, you would see that we have also increased our debt by $0.01, right, when we think in terms of how we want to deliver value back to the shareholders. So I think in short, we will look at all the variety of options that we have to us -- available to us. And we will evaluate on -- given the market conditions, our liquidity positions, where we stand in terms of our growth ambition and to see what are the appropriate avenues to deliver value back to shareholders.

Thanks, Jagdeep, for making the suggestion. I'm very open to ideas how we may show better share market performance. So if you look at -- I was just looking at the share price on -- in today, it's $4.50. So that's not very exciting to be frank, anyway. Any other questions?

No other questions online. Any others on the floor. Zhiwei?

Zhiwei from Macquarie. Congratulations on your strong first half '24. One question from me. Given your confidence in your cash flow generating ability, your growth outlook and where share price is today, how do you feel about your dividend payout ratio?

I think Zhiwei, when we look at our dividend payout ratio and as guided in the last Investor Day, right, we have calibrated the delivery of the ROE as well as our capital planning, largely around the all-in a 25% dividend payout ratio, right? And of course, given the more stable cash flow generation ability that we have demonstrated in the portfolio, that has certainly given us more confidence. I think going forward, Zhiwei, I will say this thing, right, we are balancing again being able to deliver earnings accretive growth, right, through a deployment of capital and, of course, returning value to shareholders. So I think in my mind, right, given that objective, still largely from a dividend payout ratio standpoint, that will still remain as the baseline guide, but it doesn't stop us from time to time, looking at the opportunities for us to potentially deliver a bit more relative to where we stand. Remember, our stand is always to balance returns to shareholders, but we will also deliver cash returns via a sustainable and growing dividend. Yes.

You will see that in recent past, we have been increasing it, but we do it in a very calibrated manner. You might think that we can be more aggressive. But I think we think this is something that in Chinese we say, [Foreign Language] you'd rather have it, be sustainable, right, than to be choking the market up and down one season, $0.20, 1 season, $0.12. That's not what we want to do. So when we come out and we say this number, we are actually expressing very strong confidence that come hell or high water, we will be able to maintain it. So -- but I take your point that one should -- one could think -- this one of the things that is also not one season go pass when we go to the Board to talk about our release and our dividend that this didn't turn out to be a discussion, let's put it that way. So it's something that we watch carefully. So thanks, Zhiwei for reminding us.

I believe we have one question at the back.

This is [ Ben from BT ]. Just a few questions about the urban strategy. So I think what stage is the Batam Park development at right now? And also, for the land bank target, right, I guess, what's the sort of breakdown between the 3 markets that you've been identified. So that at 2028, you hit like maybe 3% of the land bank target would be China kind of thing?

Thanks for the question. For Batam, I think right now, we're at a stage, where we are negotiating the commercials with the partner. We hope to make further announcements in the coming few months, definitely by the end of the year. So that's where Batam is. In terms of the land bank split, if I could refer -- I mean, if we look back at the equity distribution come 2028. We do expect Vietnam to remain the core with close to 50% in terms of earnings. And then Indonesia, new markets were slightly over 1/3. This would be sort of representative of where we see the land bank too. Of course, in the 18,000 hectares that we put out, it is on a cumulative basis. And so, a lot of it were historical legacy in Vietnam and China earlier years, for which the value would tend to be lower. But going forward, we do expect on a cumulation basis to be fairly evenly spread between Vietnam, Indonesia and the new markets.

Any other questions. Nikhil?

So just a question on China renewables. I understood that the long-term picture, and I think it makes a lot of sense. Why can't the curtailment issue continue more in the medium term? Given China's grid is still one of the bottlenecks, it's not a fully integrated grid to my understanding, isn't there a risk that the actual deployment or actual curtailments can stay high in the medium term, especially with a lot of new private players also emerging to install a lot of solar connectivity. It appears the grid-related challenges are still there. And what's your view? Do you think the grid-related challenges are easing up fast enough?

Yes. That -- so you've given me the answer from your earlier question. Yes, grid-related challenges and whether or not it can be medium term. Yes, it can be medium term. You do not preclude that possibility. Although we operate in China, India, Southeast Asia, all these markets, right? And I think if I have to rate the speed at which grids come to -- come to match or to link up demand and supply, China has to be one of the fastest, right? You wait for 2 years, 3 years, generally, it shows up. India also has advantage of a national grid, and it -- eventually, it does come, right? And because of that, you see in the last few years, our deployment of renewables in both countries have taken on a certain pace. Projects there are 500, 800, 1.2 gigs, right? But contrast that with Southeast Asia, where we're also sitting Vietnam, Indonesia, Singapore, Malaysia, right, just now Pei Hwa asked about Malaysia, so close to each other. We are yelling out for renewable energy. We can pay the higher surprises, and yet, I cannot collect the electrons here. No national grid. So -- one thing to say that you are right, grid will always -- in terms of the pace, relative pace, grid should keep pace with the renewable and install capacity deployment naturally. And I'm trying to say that based on our experience, China would be one of the people in the top quartile when it comes to grid-keeping pace. It's all relative, right? So -- and then, of course, going back to what I was saying just now, yes, it is one of the challenges, yes, in some places curtailment and some of these could be grid related. But this season, what we're seeing is actually demand related. It's actually not grid. It's existing one is connected. They tell you, hey, please run a little bit less because I cannot consume it at the other end. And this type of issues, they are not long term, not structural, right? Unless, of course, there's a structural economic downturn, which there is also the possibility. So I'm going back to your earlier point, whether or not it can be medium term, some of these demand-related issues, curtailment manifested. It could be medium term, then it is also one of the scenarios that we model. We have to take that into consideration when we think about how we price the acquisition of a new asset. When we think about what is the total returns we want to get in investing in a greenfield project, right? So I want to reassure you that, yes, it is factored into our calculations, the possibility of a prolonged demand weakness, right? And whether or not it is induced by market or grid. I'm trying to say that grid unlikely to be -- our view is, it's unlikely to be very prolonged. The way the Chinese are able to build their grid is really the best that we have observed in the markets that we operate in, right? And would rate India also very well, right? But Southeast Asia, I'm just so sorry, the project that we see are 50 megawatts, 100 megawatts, right. So it's a very stark contrast, where we're sitting. But I think you are very well informed in the coastal regions. Increasingly, they are putting in a lot of rooftop solar, right? And of course, we have consciously stay out that business because I think the -- it requires a different type of capability, right, because you need to have more hands and legs on the ground, chasing after many, many customers versus our model is a B2B customer utility skill and also requires the ability to access the rooftops in a distributed manner, the ability to monitor them in a distributed manner. We have that in Singapore, but you can imagine in China, it's a very different ball game. So yes, rooftop solar being prevalent will also come in to somewhat dampened. But it's -- China is very big. The type of the phenomena they observe in terms of rooftop solar, it happens only in certain places, right? And like I said, just now, that's why going back to Pei Hwa's question is about being selective. I try to make sure that you don't get caught up in some of the situation, make sure that we are in buy into projects that are in more prospective places, where they are less impacted by some of these issues, right, including transmission. So...

Any more from the ground. It looks like there are no further questions. If not...

Okay. So before I let you go, again, contracted portfolio, resilient earnings. So in this still volatile market, if people have to fight to safety, this is a safe company. This one will give you a dividend come hell or high water. This one will give you earnings day in, day out with Eugene running the numbers. So I think the market should differentiate us even in Singapore okay? So anyway, that's my...

I have to say my piece also, so Jagdeep, I think you answered your own question on the underperformance -- are you -- maybe you got to take a look and maybe you provide me the answer, of course, I don't know the answer, right? And I think what I would say is that at the end of the day, I'm very confident of the portfolio that -- and the business that we have built out, right? And it pains me, when capital is allocated out of Singapore into Malaysia. So maybe there's something that you only think about. Okay. So thank you very much.

Yes. Thanks for coming. Thank you for listening to us, and thanks.

Thank you. We've now come to the end of today's briefing. Thank you very much for joining us.