On behalf of the trustee manager, thank you for joining Keppel Infrastructure Trust's first half year 2024 results webcast. My name is Elaine from Investor Relations team. Hosting the session this evening are CEO, Mr. Kevin Neo, CFO, Mr. Raymond Bay, Head of Portfolio Management and Optimization, Mr. Marc Liu. We will begin the session with an update on KIT's operational and financial components for first half 2024, before we open the session for questions. For analysts who are joining us on the Webex platform, please be reminded to only unmute your mic during the Q&A sessions. I will now hand the time over to Kevin for the presentation. Kevin, please.
All right. Thanks, Elaine. Good evening, and thank you for joining us today. I will start with slide four. KIT delivered a steady set of results with higher underlying 1H 2024 distributable income. 1H 2024 distributable income of SGD 91 million was largely due to timing differences as well as one-offs. Factoring in these one-offs and timing differences, 1H 2024 distributable income after adjustments was about SGD 117.8 million, 2.1% higher year-on-year. Accordingly, we declared DPU of SGD 0.0195, an increase of 1% year-on-year.
Aside on the resumption of contribution from KMC and new acquisitions in 1H 2024, which contributed approximately 18% of asset distributable income, the KIT portfolio continues to deliver steady operational performance across its businesses and assets. Moving to the next slide. We continue to grow through acquisitions and value creation. We extended KMC's capacity tolling agreement by 10 years, restructuring the KMC loan to allow the plans to resume contribution to KIT. In January 2024, we made our first solar investment, which grew our AUM to SGD 8.1 billion as at 2 January 2024. With the completion of the acquisition of Ventura on 3 June 2024, as well as the second and third closing of the German Solar Portfolio, KIT AUM increased by approximately 8% to SGD 8.8 billion as at end June.
Moving to slide six. Focusing on the growth along the theme of sustainable infrastructure, KIT completed the acquisition of Ventura, the largest bus service business in Victoria, Australia in June. To recap, given Ventura's significant market share of public commuter routes in Melbourne, it is a provider of essential infrastructure and public services. Its income are highly in defensive with more than 80% of its revenue backed by long-term inflation index government contracts with zero fare box or patronage risk. Revenues are negotiated with government at contract inception and are paid on a fixed basis based on an estimate of service delivery cost plus a fixed margin. Contracts are periodically indexed at relevant benchmarks such as CPI, UI] index and labor index. Additionally, Ventura is reimbursed for capital expenditures on fleet acquisitions and depot upgrades over time.
As a platform of scale, Ventura is a highly accretive business with growth upside, which will generate stable recurring cash flows for KIT. With this, I will hand the time to Raymond, who will go through our business updates and financial performance in greater detail.
Okay. Thanks, Kevin. Turning to slide eight. City Energy achieved 100% plant availability in first half 2024, and continues to maintain a sizable base of over 900,000 customers as at end June. This is supported by the continued recovery of the commercial and industrial segment. In the EV business, City Energy Go continue to leverage in its long-established relationship with real estate developers to secure new charging sites. Since the launch of the EV charging services business in April 2022, City Energy Go has extended EV charging services to about 23,000 car park lots in private residential and mixed developments. For the renewables portfolio, we continue to expand our renewable portfolio with addition of the German Solar Portfolio in phases. We completed the first three closing to date, representing deployment of approximately 55,000 bundled solar system.
In Germany, BKR2 has been granted additional grid capacity that will see its output capacity increasing to 486 MW following equipment upgrades. Moving to transition assets. In the Middle East, demand at AGPC continues to be underpinned by the kingdom's economic growth and favorable demographics. I shall now go into details of the KMC CTA extension as this has been covered earlier. Turning to slide nine. EMK maintained full utilization rate for its incineration business. EMK continued to seek opportunity for growth and has ventured into plastic recycling and asbestos treatment to expand its waste management solutions. The landfill business remains stable despite pricing headwinds in the second quarter. Volumes are expected to improve from the third quarter, while price recovery may take a while longer to filter through. To support future volume expansion, an adjacent site to the landfill was acquired.
Looking ahead, we will continue to drive organic and inorganic growth at EMK. Back in Singapore, operation at our waste and water plants remain stable, fulfilling their contractual obligations in the quarter. Moving to the distribution and storage segment on slide nine. In first half 2024, Ixom continued to see solid performance in its core product of coagulants and chlorine across the Australian and New Zealand water segments. Demands in New Zealand business was consistent with favorable conditions supporting a strong dairy season. Philippine Coastal continued to benefit from its high tank utilization rate of 97.5% as at end June 2024. Leveraging on our deep relationships with our customers in first half 2024, sorry, a contract renewal with a major customer was secured at an attractive pricing for four years.
The construction of new tanks as part of Philippine Coastal's capacity expansion plans is expected to complete in the second half of the year. Continuing with the distribution and storage segment on slide 11. Ventura continued to deliver market-leading performance in metrics such as punctuality and reliability, outperforming bus industry targets in Victoria. Ventura is a strong platform to accelerate growth within its existing business as well as adjacent verticals. Some strategic growth plans include network expansion within and beyond Victoria. Additional electrification revenue from capitalizing on opportunities to monetize unused charging capacity at electrified depots as well as expansion of its private chartering business. Moving to slide 12. To reflect asset values which are largely recognized at cost in statutory report, KIT conducts an annual independent portfolio valuation.
Based on the portfolio valuation done by independent valuer, Ernst & Young, AUM was at SGD 7.4 billion as at 31st December 2023. Following the acquisition of Ventura and the first three phases of completion of the German Solar Portfolio, KIT AUM stood at SGD 8.8 billion as at 30th June 2024. KIT remain anchored by resilient and diversified portfolio that is largely insulated from inflation, having over 90% of the trust business and assets with cost pass-through or CPI-linked mechanism or in market-leading position that allow for some pricing power. Turning to slide 14. Moving on to the financial capital management, we declare higher distribution per unit of SGD 0.0195 for first half 2024. With the books closure date on 5th August, payment of the distribution will be on 13th August 2024.
The next slide provides a breakdown of our first half distributable income. The lower DI due largely to timing differences as well as one-offs. Factoring in this, first half 2024 DI would see an increase of 2.1% year-on-year to SGD 117.8 million contributed by the addition of Ventura and the first three phases of German Solar Portfolio, as well as the resumption of DI contribution from KMC. In the energy transition segment at City Energy, under recovery due to timing fuel cost pass-through was SGD 9.7 million with higher maintenance CapEx of SGD 2.1 million. At the transition assets, there was a one-off gain from unwinding of interest rate swaps at AGPC of SGD 7.4 million in first half 2023.
In the environmental services segment, EMK distribution was lower due to retrofitting works for plastic recycling plant, as well as softer prices for the landfill business in the second quarter as shared earlier in the business update. In the distribution and storage segment, Ixom operating performance was impacted by higher incremental finance costs of SGD 7.8 million, maintenance and growth CapEx of SGD 10.5 million. This is offset by lower tax paid for first half 2024 of SGD 11.1 million. Philippine Coastal's DI contribution would be higher after adjusting for growth CapEx and the upfront financing cost of amounting to SGD 4.2 million. Slide 16 provides a snapshot of our balance sheet position. We maintain a strong balance sheet that is well-capitalized to support our growth aspirations.
The trust net gearing level increased from 41.1% as at 31st March 2024 to 44.7% as at 30th June 2024. This is due to drawdown of the term loan to partially fund the acquisition of Ventura. As a business trust, KIT has the flexibility to go beyond the 45% gearing level if required, but the trustee manager will take a more prudent approach over the long term. Our approach to acquisition has been consistent. The trustee manager will typically fund the new assets with a term loan. If the market is conducive, we will take the opportunity to raise capital and rebalance our balance sheet. We maintain the flexibility to raise capital should there be an opportune time market window.
Meanwhile, KIT's financial position remains strong, maintaining sufficient debt headroom over its financial covenant threshold with no imminent requirement to pay down debt. The trustee manager continue to monitor risk exposure and safeguard against evolving market conditions. To mitigate against fluctuating interest rates, approximately 65.3% of KIT total loans are fixed and hedged as at 30 June 2024. The trustee manager has also hedged approximately 67.9% of the trust's foreign income to mitigate impact of currency fluctuations. Moving to slide 17. With the completion of KMC capital restructuring with 15 years of sustainability-linked loan, all material loans for FY 2024 has been refinanced. The acquisition of Ventura was partially funded with a SGD 392 million term loan due in 2025.
The trustee manager has obtained revolving credit facilities totaling SGD 100 million in first half 2024, increasing our financial flexibility. With this, I will hand the time back to Kevin, who will share more on our sustainability updates.
All right. Thanks, Raymond. I will continue with slide 19 on our investment in the German Solar Portfolio. I will not go into details as this has been shared earlier this year. The German Solar Portfolio is an attractive de-risked portfolio that provides highly predictable and increasing cash flows to KIT, increasing KIT's total renewable capacity to about 1.3 GW upon completion. We have completed the first three closing of the acquisition in first half of 2024, with the fourth phase expected to complete in 3Q 2024. Moving to the next slide. We believe sustainability management is imperative to the continued success of KIT and its ability to create value. We'd like to share some sustainability performance highlights in first half of 2024.
With the acquisition of our German Solar Portfolio, we have expanded our exposure to renewable energy, to about 1.3 GW. This puts KIT exposure to green energy as about 18% of AUM as at 30th June 2024. We are also pleased to note that KIT's MSCI ESG rating was upgraded to A from BBB as testament of our commitment to sustainability. In terms of conducting our businesses responsibly, we will continue to enhance our sustainability disclosures to align with best practices. In contributing to the development of our people and communities, in first half 2024 alone, more than 600 hours has been devoted to supporting community outreach efforts together with Keppel's fund management and investment platforms.
We place sustainability at the core of our strategy to create value and achieve growth, and maintain a responsible approach to managing our portfolio to deliver long-term value to our stakeholders. Thank you.
Thank you, Kevin and Raymond. We will now open the session for questions. We will now proceed to take questions from the audience. Participants may submit your questions in the chat box on the webcast platform. For the webcast, participants please also state your company and your name when addressing your question. May I have the first question, please?
Hi. Good evening. I'm Rahul from HSBC. Could I check, am I audible?
Yes, Rahul, please go ahead.
Oh, perfect. Thank you. I had few questions. Maybe I'll go one by one. First, could you share more on the DI contribution from the German Solar Portfolio? Strangely, Q2 appears to be a negative DI. I assume there is some debt amortization schedule here. Can we take 1H as a base for annualized contribution?
Hi, Rahul.
Hello, good evening.
Hi. For the first half, 2024, the German Solar Portfolio DI is SGD 7.2 million. This is a contribution from the first, second and third quarters of the acquisitions.
Right. Could you speak about what happened from 1Q to 2Q? 1Q was close to SGD 12 million, that implies that 2Q was - SGD 5 million. I'm trying to understand that, like with other assets, are there some debt amortization schedules and all that we should be aware of?
Yes, there is a debt amortization schedule.
That will be half-yearly, I assume.
Yes, it is half-yearly.
Okay, great. Thank you. Second, could you provide more color on Ixom? I mean, if I look back a bit in the history, right, it used to be close to SGD 90 million+ DI contributor. 2023, we had a fall. It appears 2024 is also more like 2023 rather than going back to historical levels, even if we take out the maintenance and growth CapEx. I observed that in 1Q, you actually wrote about a higher OpEx as well at Ixom, nothing related to OpEx in 1H. I'm just trying to understand, is there some operational pressure as well in addition to the higher finance cost?
There is no operating pressure. What happened is actually it's mainly due to finance costs and the growth, maintenance and growth CapEx.
Okay. When we think about the growth CapEx, I mean, when is it going to end?
Maybe, maybe, you know, Thank you, Raymond. I think, this is Marc . I'm, you know, just trying to address your concern on this. I think, basically the growth CapEx is, you know, as you see, we have a new business plan for Ixom. I think you need to have increase on growth paths in order to continue to grow the business. I think we do not expect significant growth CapEx to be input. I think the number itself is, you know, quite within the capability of Ixom's own operational cash flow.
Rahul, maybe I could add that if your, if your question is whether, you know, are we expecting a very heavy CapEx program for Ixom going forward, I think the answer to that is no. We do at the right time, at the Ixom level, in effect for all our other businesses, right, engage in certain growth CapEx to increase EBITDA and to increase DI and so on. Right? I would say, you know, this CapEx that you see over here for the first half of 2024 may not be repeated in the second half this year.
Of course, you know, we are also chasing some organic growth opportunities at Ixom, right? As and when they materialize, we may incur some growth CapEx.
Right, I understand. Next one is about, I think, which Raymond briefly mentioned about, right? The proportion of fixed and hedged debt is now actually down significantly if I compare it to, say, end of 2023. Is it because of the equity bridge loan?
Yes.
Are you comfortable keeping this at current levels or you want to go back to the history where it used to be much higher?
Yes, you are right. This is mainly due to the bridge loan drawn to acquire Ventura. As soon as the bridge loan is repaid, the fixed and hedged debt ratio will go back to the normal level.
Okay. Right. I understand. Just lastly, can you talk about the expected CapEx at Ventura that you foresee over the next few years related to, you know, the investment in EV sites, and will it impact the DI from Ventura?
Yeah, sure. I'll probably have a go at that first. I think yes, there is some growth CapEx expected at Ventura. This is mainly to fund the conversion of depots into diesel depots into what you call fully electrified depots. I think we are expected to incur about CapEx to buy about 30+ zero emission buses every year.
However, this will not affect our distributable income. This is because when we acquired Ventura, we actually sized or procured a very large CapEx facility that can be used to 100% debt fund all the CapEx. There will be no impact to the cash flow from Ventura.
Perfect. Very clear. Thank you. Thank you very much.
Thanks, Rahul. Can we have the next question, please? Ada, please go ahead.
Hi, Kevin and team. Thanks so much for the presentation. I have two questions that are mostly related to capital management. Firstly, could you please provide a bit of guidance on where you see KIT's average cost of debt trending for the remainder of this year as well as for next year? Secondly, given that KIT's gearing is now quite near the internal limit of 45%, and in view of potentially easing market conditions, will you be looking to carry out the equity fundraising exercise in the second half of this year, or is there a possibility that you could postpone this to maybe next year instead? Thanks a lot.
Hi, Ada. I'll take this question. Let me address the gearing question first. While our current net gearing is at 44.7%, there are no gearing limits on business trusts, and the trust financial position remains strong, maintaining sufficient debt headroom over our financial covenants threshold. There is no imminent requirement to pay down our debt, but we will continue to closely monitor the market to ensure that we will capture an opportune time to raise capital from the market. Moving to your second question, I think you ask about our interest rate, right?
Yeah, that's right.
Yeah. The interest rate environment right now, we do expect the interest rate will come down over time as soon as FOMC initiates a cut. We do expect the weighted average interest cost to come down over time. It's not going to be immediate impact because we do have our loans hedged. It's gradual decrease.
On that point, actually, I wanted to check with you for on the tenor of the hedges, because I was wondering if interest rates are going to come down, will you look to hedge less of your debt so that you can capture more of the upside in terms of lower financing costs?
Yes, you're right. We do have a mixture of loans that is hedged to maturity and some are hedged on a short-term basis. For example, we do have hedges as short as one- two years, and hedges as long as 15 years. 15 years is for the KMC loan. For example, those are project finance. It has to be hedged to 15 years to ensure stable cash flow flowing back to the trust. Yeah. For instance, right, another asset that we have long-term hedges is the German Solar Portfolio. There's a 15-year loan or 15- 20-year loan at German Solar Portfolio with interest rate locked in for the full tenure. We do not take any financing risk on the German Solar Portfolio.
Okay, thanks a lot. For the German Solar Portfolio, in terms of the rate that you are locking it in at, is it relatively high given the current market conditions we are facing now?
No. You're talking about the German wind farm, right?
The Solar Portfolio.
The answer is that is, probably no.
Okay.
The portfolio, even though we acquired in January this year, the portfolio I would say is actually built up by the promoter, Enpal over a number of years, since I'll say early 2020s. That was when interest rates are kind of still low and attractive, right? Which is why for the German Solar Portfolio, we locked in a very good financing package, for the rest of the asset life. Something that we like a lot and are very comfortable with.
Okay. That's great to hear. Thanks so much.
Thanks, Ada. Yeah, there was a further question on potential pipeline of assets upcoming. Can the management team share if there's any update on the renewable generation plan or the onshore wind farm pipeline, please?
All right, I will take that question. So for KIT, we are always on the lookout for interesting transactions. Immediate pipeline-wise, as you're probably aware, we signed a term sheet with the sponsor to build infrastructure to acquire the full economic interest in the Marina East Desal Plant. We are still progressing discussions with PUB, and we hope that, you know, the discussions with PUB will be completed soon. As and when we receive approval from PUB, we'll make an announcement. For the drop-downs, I think you are probably referring to our onshore European green fund. We have a five-year or at the inception of the transaction about one or two years ago.
We have a exclusive period of about five years where for us, or Fred Olsen will drop down onshore wind farms that is developing into our platform. We are in discussions with them on drop-downs. We have achieved one drop-down, the Fäbodliden II, 70 MW, some time ago, and we are still in discussions with them for further drop-downs. As and when things materializes, we will make an announcement.
Thanks, Kevin. I have another question. Is the team still actively seeking to unlock the value of the Ixom investment?
We started a strategic review of Ixom about two years back. That was probably in 2021 or 2022, thereabouts. We have since then called a strategic review when the offer received wasn't up to our expectations. KIT, we are what you call a permanent capital vehicle. There's no need for us to exit from our investments. If we do receive a attractive offer for Ixom, we will consider. For now, I think we are committed to growing the business for the immediate future.
Thank you. Next question. There is another question about pipeline acquisitions. Can you also share if you've identified suitable assets from Jinko solar portfolio?
Right. We have a MOU with Jinko Power. We are still evaluating transactions. As and when they propose something that is attractive to us, we will take a look. If any transaction materializes, we'll make an announcement.
One more question. Will the trust be leveraging more on Keppel's network through either Keppel Infrastructure pipeline or the infrastructure arm of Keppel Capital Permanent Investments?
Yes. That's definitely the intention. KIT, we are part of the broader Keppel Group. We definitely wish to leverage on our sponsor for pipelines. This is where we are in a very good position because we have potential assets that we can acquire from our sponsor. ME being with the Marina East Desal Plant being one of them. Of course, we also have the flexibility to acquire attractive assets from external parties. Besides acquiring assets from our sponsor, we also hope and certainly have plans to leverage on our sponsor's operating and technical capabilities to help create value in our portfolio companies.
For instance, you know, we could leverage on their help, if we wish to undertake any expansion programs, in our portfolio companies. For example, our waste-to-energy plants in Korea, et cetera, and so on.
There's one more question. Given the distributable income performance, could management shed light on the sustainability of distribution over the longer term? This is given the various one-off adjustments that mask underlying trends.
Right. KIT, it's, you know, we are a stable counter. Our operating assets are all supported by watertight contracts. Cash flows are stable. We do see that, you know, the DI that we declared, I mean, the DPU that we declared is supported by the DI, the real cash that's received from our operating business. It is in our opinion that, you know, the DPU or distribution that we declared is sustainable.
Yeah, sure. Maybe let me add on to that. I think Maybe let me give you a rather long-winded answer, right? Our cash flows is sustainable because if you look at it, if you look at our portfolio, we have a growing portfolio of evergreen assets that is in very good position and join and generating very sustainable cash flows.
We expect our DI, the sustainability of our DI to continue and in fact grow. There may be certain, so-called, one-offs, or cash outflows, due to timing. For instance, right, at Borkum 2 wind farm assets, we have biannual debt service, debt repayment in the first quarter and third quarter of the year. For the German Solar Portfolio, we have debt amortizations that will happen in the second quarter and fourth quarter of the year. Whilst this may cause some volatility, right, in the DI, but these are more financing related and the underlying operation performance of the assets are very stable.
Thanks, Kevin. I have one more question on our balance sheet. Would you remind us when is the term loan maturing?
For the acquisition term loan, it is maturing in 2025.
It looks as if that there are no further questions from the participants. Will there be any last questions from the analysts?
Hi. Hi, sorry. Could I check on couple of questions? Actually, I see Peggy has asked one question. She's asking for a breakdown of DI between KMC and AGPC. Apart from that, I mean, Raymond briefly mentioned about EMK, right? That there are some pricing pressures even though volumes are recovering. Could you expand on the competitive environment, how it is?
I'll take EMK. Maybe let me take the question on EMK, whilst we provide you with the breakdown of the energy transition assets cash flow between AGPC and the other one. EMK, I think the business operations over there is very stable. On the landfill site, we do see some weakness in the second quarter of the year. I'll say that's probably due to weak, somewhat weaker construction activities in Korea in the first half of the year. Again, we expect that to kind of resolve in the remaining part of the year or maybe come early next.
The landfill, if you look at it, right, is essentially what you call a capacity business, right? We have a fixed landfill with fixed capacity, and we will want to sell our capacity at the highest price possible. When the price is not attractive in a particular month, we probably say, "Hey, let's use, let's accept less waste and reserve the capacity when the demand for landfill are higher." Right? We have adopted that strategy so as to ensure that we achieve the best possible pricing for our business on the landfill site. Of course, we are always looking to see how we could secure an additional land to extend the longevity of our landfill business.
Coming back on the question on the breakdown of AGPC DI and also KMC. AGPC DI for the first half 2024 is SGD 23 million. For KMC is SGD 17 million.
Thank you, Raymond.
Perfect. Thank you.
I have a question on dividends. Will KIT give out a special distribution this year just like last year?
Okay. Let me take that question. For KIT, we are committed to increasing our DPU by 1%-2% or by inflation over the long term. Special distribution could be considered if we manage to realize any value created at any of our portfolio companies, right? This is not something that we can commit to, but, you know, as and when we create any value in our portfolio businesses through a refinancing, et cetera, and so on, we could consider sharing part of those value that we've created through a special distribution.
Thanks, Kevin. Are there any further questions from the participants? If there are no further questions, we will close this evening's call. Thank you, everyone, for joining us, and have a nice evening.