Morning, everyone. Welcome to the KIT first half 2026 results audio webcast. I'm Marilyn from the IR and Sustainability team. Joining me today from the KIT management team are CEO, Mr. Kevin Neo, CFO, Mr. Raymond Bay, and Director of Portfolio Management, Mr. Tan, Jun Da. They will cover KIT's first half 2026 highlights and business strategy, followed by business performance across the portfolio, and close with capital and balance sheet development. Please leave your questions for the Q&A session at the end of the presentation. For analysts who are joining us on the MS Teams platform, please check that you're on mute throughout the presentation. For those joining us online via the webcast platform, please type your questions via the chat box provided. I will now hand the time over to Kevin for the presentation. Kevin, please.
Thanks, Marilyn. Good morning, everyone, and thanks for joining us today. As the largest SGX-listed infrastructure business trust by enterprise value, we own and manage a portfolio of essential infrastructure assets across energy transition, environmental services, distribution and storage, and digital infrastructure, valued at approximately SGD 9.4 billion as at 30th June 2026. Year to date, we have achieved total returns of 13%. Over the past decade, KIT has delivered total returns of 136%, demonstrating our ability to create value across market cycles, underpinned by a strong track record of over 19 years of infrastructure investment and management. KIT's key achievements during the first half include the following. First, DI before divestment gains increased by 1.2% year-on-year to SGD 101.1 million, despite the fuel cost under recovery for City Energy.
We are declaring our 1H 2026 DPU of SGD 0.0199 per unit, maintaining our commitment to deliver sustainable distributions to unitholders. Second, we continue to execute on our capital recycling strategy. To date, approximately 80% of the net proceeds from divestments have been redeployed into two accretive acquisitions. Namely, the acquisition of a 46.7% stake in GMG and the follow-on acquisition of KMC, which increases our stake in KMC to 90%. Third, capital management remains a key strength. We have successfully secured 100% of FY 2026 refinancing requirements ahead of maturity. Our interest coverage ratio has improved to 8.3 x, reflecting the strength of our cash flows and disciplined financing approach. Finally, we are heartened that the positive unit price performance and the consequent total returns of over 13% in the first half of the year reflects continuing investor confidence in our strategy, portfolio quality, and execution capabilities.
Amid the ongoing Middle East conflict, direct exposure is limited. More importantly, we have not experienced operational disruptions across our assets. For AGPC, there has been no disruption to gas supply or operations. Across the portfolio, most businesses operate under long-term contracts and benefit from cost pass-through mechanism. Whilst higher fuel and energy prices may create temporary under recoveries, particularly for City Energy, these effects are generally recoverable over time. At this stage, we remain comfortable with the resilience of portfolio cash flows and continue to monitor developments closely for any second-order effects. Our investment strategy remains focused on sectors supported by strong structural tailwinds of energy transition, rapid urbanization, and digitalization. These themes are expected to require significant long-term capital investments and create attractive opportunities for KIT.
Our focus is on owning essential infrastructure assets and businesses with good cash flows in developed markets where regulatory frameworks are stable and predictable. Combined with Keppel's operating capabilities and ecosystem, this provides a strong foundation for sustainable growth. We apply a disciplined investment framework when evaluating opportunities. Our focus is on assets that provide essential products or services, generate stable and growing cash flows, offer attractive risk-adjusted returns, are DPU accretive, possess high barriers to entry, and have either evergreen characteristics or long asset lives. This framework guides both acquisition and asset management decisions and directly supports our goal of delivering sustainable distributions and total returns. Next, a key feature of KIT's strategy since 2019 has been active portfolio management. Through disciplined acquisitions and capital recycling, we have consistently replaced earnings from maturing concession assets with earnings from businesses that offer stronger growth prospects into the long term.
As a result, portfolio DI has grown at a CAGR of 8.5% since 2018. In FY 2025, approximately 51% of distributable income was generated by evergreen assets as compared to 28% in FY 2018. This strengthens the sustainability and quality of our earnings base. Beyond acquisitions, active asset management remains a significant source of value creation. Across businesses such as City Energy, Ixom, and Ventura, management teams look to deliver continuing EBITDA growth through initiatives including new revenue streams, bolt-on acquisitions, productivity improvements, technology adoption including AI, organizational optimization, and cost management initiatives. This focus on operational excellence enhances cash flow and supports long-term value creation for unitholders. Looking ahead, our priorities remain unchanged. Our objective remains on achieving sustainable DPU growth and higher total returns for unitholders.
First, continue disciplined investment and capital recycling, focusing on assets aligned with our target growth segments. Second, drive operational excellence and pursue margin improvement opportunities through cost optimization and revenue enhancement for our evergreen businesses. Third, maintain active capital management to support stable distributions and future growth. We have already deployed approximately 80% of divestment proceeds and will continue to evaluate opportunities for the remaining capital. Lastly, these key priorities position us well to navigate near-term uncertainties while staying focused on our objective to deliver long-term value to unitholders. I think with that, I'll hand over to Jun Da for the 1H 2026 business updates to the KIT portfolio.
Thanks, Kevin. Hi, I'll take you through the KIT portfolio business updates in the next few slides. City Energy delivered stable operating performance during the first half. Town gas consumption remained stable, supported by continued adoption of residential gas water heaters, which helped offset softer visitor arrival trends. While the Middle East conflict resulted in fuel cost under-recovery during the second quarter, active management actions and cost optimization measures helped contain the impact. Looking ahead, management will continue to actively manage fuel cost recovery while staying focused on pursuing growth opportunities and strengthening performance. Moving on to Ixom. The company continued to demonstrate resilience and operational strength in the first half. Core chlor-alkali and traded businesses performed well, supported by healthy customer demand. The team's multi-supplier strategy allowed it to navigate supply chain disruptions arising from geopolitical developments with minimal impact.
Management remains focused on driving synergy benefits from recent acquisition, improving productivity, and optimizing the portfolio through rationalization of non-core operations. Moving on to Ventura. The company delivered another strong operational performance during the period. For the MBSC business, service reliability remained at 100%, while on-time performance exceeded 90%. Meanwhile, revenue within the government contracted business continues to benefit from contract indexation and network expansion. For the non-MBSC business, Ventura completed the acquisition of Crown Coaches in July 2026. This supports the strategy of growing the non-MBSC segment through both organic and inorganic initiatives. On EMK, the company continues to execute a strategy of enhancing profitability while expanding its incineration capacity. For landfill, pricing remains flat from first quarter, and management has maintained pricing discipline to preserve long-term value of the business. In incineration, management continues to focus on improving incineration pricing mix and operational efficiency.
Looking ahead, phase one of the incineration expansion has commenced and is expected to complete by the end of 2026, creating an additional growth driver for the business. Lastly, on GMG, the company continues to perform in line with expectations following our investment. The fleet remained fully utilized throughout the period, supported by long-term maintenance and charter contracts that underpin recurring cash flows. Management is also progressing with vessel expansion plans to support future growth. Across our remaining portfolio assets, performance remains stable. KMC achieved 100% contractual availability, and following our recent acquisition, KIT now owns 90% of the asset. All contractual obligations with the regulators were met for the Singapore waste and water assets, and management continues to pursue potential opportunities for concession extensions. AGPC continues to operate normally with no supply or operational disruptions.
Within renewables, BKR2 benefited from stronger wind conditions, driving significantly higher generation compared to the prior year. Overall, these assets continue to provide diversified and resilient cash flows that support distributions. I will now hand the presentation to Raymond for the financial and capital management of KIT.
Thank you, Jun Da. Moving to next page. Turning to the financial performance, total asset FFO increased 14% year-on-year to SGD 200.5 million. The growth was mainly driven by stronger contributions from the energy transition and distribution and storage and its digital segment. After maintenance CapEx and debt repayments, the total asset DI remained resilient at SGD 147.5 million. At the trust level, distributable income was SGD 101.1 million, net of corporate costs. Excluding last year's divestment gain, distributable income for first half 2026 increased by 1.2% year-on-year, highlighting the resilience of the underlying portfolio. Moving the next page. The consolidated debt for KIT increased slightly to SGD 3.28 billion as at 30th of June 2026 compared to 31st December 2025. Net gearing increased to 44.2% from 31st December 2025.
This is mainly due to reduced cash position, post distribution paid in February, and the deployment of capital into acquisition of an additional 39% stake in KMC. Nonetheless, the net gearing ratio does not reflect the fair value of KIT's asset and remains within our targeted range, providing meaningful acquisition capacity. Interest coverage improved to 8.3 x from 7.6 x as at last year. The group weighted average cost of debt is stable at 4.4%, with some savings at the trust level achieved through proactive refinancing and disciplined capital management. The portfolio remains well hedged with approximately 77% of debt hedged and nearly 79% of cash flow distribution hedged. Moving to next slide. W e had successfully raised SGD 200 million seven-year MTN funding earlier this year, and the funding is secured for the December refinancing need.
Together with the available committed facilities of approximately SGD 300 million, this positions us well from a liquidity and funding perspective. Our capital management priority of maintaining strong liquidity for financial flexibility remains unchanged. This is done through growing cash flows, optimizing financing costs, and disciplined capital recycling. I will now hand the presentation back to Kevin for the closing.
All right. Thanks, Raymond. To conclude, the first half of 2026 demonstrated the resilience of KIT's portfolio and the effectiveness of our disciplined investment and capital management approach. We continue to execute the strategy of delivering sustainable distributions and long-term total returns through disciplined capital allocation, active asset management, and prudent capital management. Despite the ongoing conflicts in the Middle East, the portfolio demonstrated resilience supported by the defensive nature of our assets, long-term contracts, and diversified cash flow base. We delivered growth in underlying distributable income while executing on our capital recycling strategy, redeploying 80% of divestment proceeds into accretive opportunities that enhances the portfolio's long-term growth profile, all whilst maintaining balance sheet strength and securing our refinancing needs. Looking ahead, we remain focused on disciplined capital allocation, active portfolio management, and value creation to deliver sustainable returns for our unitholders.
Thank you. We'll be happy to take questions.
Thank you, Kevin, Jun Da , and Raymond. We will now proceed to the Q&A session. Analysts, if you'd like to ask a question, please click on the raise hand button and wait for our cue before you pose your question. May we have the first question, please? Hi, Yi Zhen.
Hi. Thanks management for the presentation. I have two questions. The first one is on GMG. Just now it was mentioned that this company is expanding their vessels. I wanted to know whether there will be any capital calls to KIT when that happens, and if so, what kind of timing? The second question is, Keppel, your sponsor, has a number of subsea cables. Wondering whether these cables would fit into KIT's investment mandate. That's all from me. Thank you.
I think we do see a lot of growth in GMG. I think we mentioned in a couple of calls in our results that we have acquired a secondhand vessel that are in the process of being repurposed into a cable laying vessel, right? That requires capital from the shareholders, and KIT will fund that using a debt facility. Again, just to be clear, right? GMG has a debt facility at the GMG level, which will be used for funding growth CapEx and so on. To the extent that it requires additional equity from the shareholders, that will be funded via, I think, debt facilities at the KIT level. There should not be any impacts to our operating cash flows and so on.
With regards to the submarine cables, I would say that submarine cables is a sector or asset class that KIT, that we are very interested in. Of course, my sponsor, Keppel, they are doing very well with Project Bifrost. I think they may have recently announced some sale of certain fiber pairs and so on. These fiber pairs, we do expect them to be sold on an IRU basis, which basically means that the opportunity sets for KIT coming in is quite limited, right? However, there are other submarine cables out there that KIT could look to acquire. I think as a whole, we are quite interested in the digital infrastructure sector. Submarine cable is just one part of the entire value chain. I think we are equally interested in terrestrial networks, mobile towers, and so on.
Just one follow-up question on GMG. You mentioned that if it requires capital, it will come from the debt facility.
Yeah.
For the debt facility at the GMG level, is it recourse to the shareholders?
No, it is not recourse to the shareholders.
Okay. Thank you.
In terms of securing the funding, we always look to the business to fund itself, right? I think when we bought the asset or bought the stake in GMG, we did highlight that there is a lot of growth opportunities out there. To the extent that the debt facilities are insufficient, KIT will be happy to support that because there is a lot of good growth out there in the sector.
That's all from me. Thank you.
Thank you, Zhen. Shekhar, your question please.
Thank you, Marilyn. Morning, Kevin, Raymond, Jun Da. I have two questions on City Energy. The first one is on the under-recovery. Can I get a sense on when can we expect a full recovery? Will it be in the second half 2026 or does it spill into 2027? The second one is on the SGD 4.5 million property tax refund. Is this a one-off? If I could understand what should be the clean underlying DI run rate, if I could strip off, let's say, the under-recovery and this refund.
Yeah. For City Energy, as a quick recap, I think the under-recovery and over-recovery situation depends on actual commodity prices versus the price at which we set the town gas pricing at the beginning of the period, right? In fact, at the beginning of the quarter, we had expected a larger than expected under-recovery. However, I think the company has worked on a couple of initiatives to close the gap. As you can see in the results, the under-recovery has been pretty well managed. I think to answer your question on the property tax, it's one of the one-off initiatives that I think management has worked on to, I think, offset some of the impact of the cost recovery. As to when the under-recovery can be recovered, I think ultimately it's a function of commodity prices going forward, right?
Under the situation where commodity prices come down over time, we should be able to see an under-recovery over a period of time.
Over-recovery.
Over-recovery over a period of time. Sorry.
Shekhar, yes. The property tax refund is one-off. We don't expect that to recur, right? I think we have to see the whole thing in the entirety, right? We had experienced a certain amount of under-recovery in Q2, right? Which is in a way almost offset by the property refund. On a clean state basis, I would like to think that they're in a way a wash, right? As what Jun Da has mentioned, right? Whether we will recover the under-recovery in the second half, I think that depends on the oil and natural gas price going forward. I think it's really hard to predict how it will move because ultimately these are commodity pricing. Again, I will go back to the way how the tariff price is being set, right? In the arrangement with EMA, right?
Let's say for example, the reference tariff price natural gas cost is a pass-through in a way to end consumers through a reference price. The reference price is set at the beginning of each quarter based on the commodity pricing for the previous quarter, right? If the previous quarter the pricing is high, then we will enter the quarter with a high reference price that we will use to charge the customers, right? If during that quarter itself natural price comes down, then that's when we'll go into an over-recovery position. Because the gas price is high in Q2, we are entering or have entered Q3 with a relatively high reference price. Whether we go into an over and under-recovery position depends on the actual price of gas at a point in time.
As we have always emphasized, this is just a very mechanical arrangement of passing through the gas price to end consumers. Whilst we may experience over and under-recovery in certain quarters, we do expect to recover them over a period of time, maybe two quarters, three quarters, thereabout and so on. Hopefully this gives you a bit of guidance on the outlook for the over and under-recovery.
Okay. Thank you, Kevin. Just a quick follow-up. How should I look at second half DI for City Energy? You said this property tax refund is a one-off. What else can management do to manage the under-recovery?
I think it's hard to predict whether we go into over and under-recovery, like I said, we entered 3Q with a relatively high reference price. Hopefully, I think Q3, given the uncertainty in the Middle East, maybe we might be neutral or slight under-recovery or slight over-recovery. I think Q3 could be a kind of neutral position. If the situation improves, right, we could then go into a over-recovery position in Q4, right? I think the key thing is that this over and under-recovery mechanism is what I call a temporal arrangement. They tend to neutralize over time, right? Hopefully that can give you a bit more guidance on how we see, right? In terms of growth-wise, we are always looking to grow City Energy, right? I think we talked about the gas water heaters.
That's an area that we like a lot. Looking to really grow our market share over there, which could then lead to more better DI from City Energy. I would probably say, again, subject to how things are in the Middle East, I'll say the most difficult period for City Energy is probably already over.
Okay. Thank you, Kevin. I'll get back in the queue.
Thanks, Shekhar. Rachael from UBS, your question please.
Hi. Thank you. I have two questions. The first will be, what's the average age of your vessel fleet at GMG? Looking ahead, for vessel acquisitions, trying to get a sense if these will be primarily used for fleet expansion or fleet replacement. My second question is, going forward, are you looking at larger scale acquisitions or bolt-ons for your existing businesses? As well as what sectors will you be targeting?
I think for GMG, maybe I'll just give you a few data points, right? I think the average age of the vessel in the industry is probably about around 30 years, right? I think the average age of GMG vessel is somewhere between 25 - 30, maybe around the 27 years mark. I'll say our average age is in line with market, maybe slightly younger. Again, this is where I would draw a distinction between GMG and the market. The market has placed a number of orders for new vessels, I would say they are mostly for vessel replacements, right? There are certain providers out there with pretty old vessels, age 30 or 35 and above, they're looking to replace that, right? We don't have any vessels that will be too old or mature in the next five, six years.
The secondhand vessel that I spoke about, that's not for vessel replacement. It's actually an addition of vessels to GMG, right? When it starts operations in end of year, early next year, we hope that that will lead to additional revenue and income and DI from GMG.
I think also to supplement, we are quite open to the options of acquiring both existing as well as new build vessels for GMG. I think for existing vessels, although it doesn't really help the fleet age, it does contribute earnings pretty immediately. The purchase price is also I think attractive. In terms of new build, I think ultimately we are also open to the option given that it will improve the average fleet age for our portfolio of vessels. I think it's an option that we will consider.
I think you also mentioned, are we looking to do larger transaction and bolt-ons? I think the answer to both is yes. To me, they are not mutually exclusive. Given the size of KIT, I think we'd like to do larger transaction things that move the needle. Because we want to realize we have a very strong focus on value creation, right? We do realize that when we do bolt-ons, there's probably more opportunities for value creation, realization of synergies and so on. Yes, we like to do larger transaction. Yes, and yes, we like to do bolt-ons for our portfolio companies.
What about the sectors that you're looking at?
It'll be the sectors that we have always mentioned, energy and energy transition, energy security, digital infrastructure, environmental services and so on. These, I think, are areas where there is very strong macro tailwinds behind them, and these are also the areas where Keppel has a lot of expertise over there. We want to play in areas where there's good growth and where we know what we are doing, we are able to value add and so on.
Okay. Thanks. Back to the question on GMG. Is it a case where, coming in five to six years' time, for example, then you will have to spend more CapEx to keep the fleet size stable and to keep running in the same place, so to speak? Is this something that I can interpret it as such?
Okay. Not quite, right? I think when we bought the business, I think GMG has about six vessels. We have acquired a secondhand vessel. That is not for replacing existing vessel. That is an additional vessel. Come end of this year, early next year, we will have seven vessels to run. We do not have any vessels that have to be phased out or decommissioned in the next five to seven, eight years, right? We do see a lot of opportunities for growth. We have customers asking us for more vessels, if we do acquire vessels or commission new builds in the next few years, I will say those are probably for increasing our vessel size and so on, right? There is a lot of growth out there. We are trying to grow.
Of course, if a chance comes up to add vessels, we will announce to the market accordingly. As of now, I think we are focused on commissioning the refurbishment so that it can add additional revenues to GMG.
Okay. Thanks for that. Because the concern is that, let us say we come to 2032, 2033 or to 2034, then it becomes a case of unless you spend CapEx, there is going to be an earnings cliff as you retire a vessel. I think I am looking at it from that angle.
Yes. If you fast forward long enough, there will come a point in time where GMG has to replace vessels, right? That vessel replacement can be through acquiring and refurbishing a secondhand vessel or doing a new build. We have been setting aside capital in that event, right? As in the immediate near-term, I think we are looking to grow the business.
I think to supplement Kevin's point, the condition of the vessels are actually very good, right? There's no need for any retirements in the next five to seven years. Any vessels that we acquire today, if they start contributing earnings, it'll be accretive.
Okay. Thank you very much.
Thanks, Rachael. Next we have Troy from OCBC. Go ahead.
Okay. On slide 13, regarding City Energy, could you please share more about the cost optimization measures that were taken? Thanks.
Yeah. For City Energy, I think given the under-recovery situation that we experienced in 2Q, the management team has been quite cognizant about reigning in costs this year. We are putting in place a couple of initiatives which will partially offset any impacts that we have seen in 2Q, including cost optimization initiatives around marketing, customer acquisition costs, for example. These will present themselves throughout the year.
Thank you.
Thanks, Troy. Shekhar, back to you.
Yeah. Hi. Thank you. I have two more questions on two different business lines. The first one is on BKR2. I see there is a strong wind recovery this half, just trying to remember. I know there's a feed-in tariff that will step down from October 2026. I think it goes down from EUR 184 to EUR 149. How should we assess the DI impact on this tariff revision, probably on a full year basis?
Yeah.
Second is on the first half BKR2. Is this a normalized run rate now? Was wind above average, below average? How should we look at this?
Shekhar, I'll answer your first question first. Yeah, I think you rightly pointed out that there will be a step down on the feed-in tariff in October 2026, and this was part of the information that we had disclosed at the time of acquisition in 2022. There are a couple of factors to think about as we go into 2027. One is the feed-in tariff, which will step down. There is also an offsetting factor in the sense that the loan amortization will also be reduced. Taking into account these two factors, we are expecting about a SGD 4 million impact on a full year basis on DI.
Okay. For the first half, is this like a normalized run rate now for your wind? Is it above, below long-term average? What are you looking at it?
Again, I think the first half wind was stronger year-on-year. Again, I think wind is something which has been quite unpredictable over time now. I'll put it as that.
Okay. Just one more on your Ventura business. There's a Crown Coaches has acquired, doubled its fleet, 150 more charter buses. This happened in July 2026. How should we expect the annualized DI impact, and what kind of multiple did you pay for this acquisition?
I think for Crown Coaches, okay, I forgot the EBITDA, but I think it was acquired at very attractive levels. I think I'll just put it's about 6x EBITDA. We're buying at just below book value. I think that was a very good opportunistic acquisition by Ventura. We intend to use that to grow our non-MBSC business. I think we have always said that Ventura is very strong in Victoria with the MBSC business. We want to grow the non-MBSC business. We see that as a very good platform to also jumpstart the growth over there.
Okay, the DI impact?
SGD 3+ million. Low single digit, to about between I think SGD 1 million - SGD 5 million thereabouts, yeah.
That is an annualized rate, right?
That is an annualized rate.
Yeah. Okay. Got it. Thank you.
Thanks, Shekhar. Perhaps now we can take some questions from the retail investors. First up, could you please explain the drop in environmental services revenue from SGD 25.7 million to SGD 18.5 million, and what is management's plan to maintain and/or grow the performance of this section?
I think the reduction in the environmental service revenue pertains mainly from the decline in DI from SingSpring. Just to maybe backtrack a bit. SingSpring, the original concession matured, expired, then we extended it for three years. The DI contribution of that came down correspondingly. Whilst the DI contribution from SingSpring came down correspondingly, but it was still nonetheless a much better outcome than what we achieved with the Senoko concession extension, right? I would say that. Let me just gather my thoughts up. For SingSpring, right? When we first did the concessions, we never expected or we didn't price in an extension. If we get any extension, that is always a pure upside to us. I think that's also how we've run or looked to run our concession business, right?
Whenever the concession is due for maturing, we will always look to enter into discussions with the relevant authorities to extend that, right? Of course, we will make the necessary announcement as and when we reached any agreement with the authorities and so on. The revenue drop was also partly due to certain debt amortization at MATP as well.
Thanks, Kevin. The next question is relating to AGPC. Do we have any further debt refinancing at AGPC incoming?
There is no further debt refinancing, but we do have the scheduled debt amortization at AGPC level. This will start next year. Starting next year there will be a quarterly scheduled debt amortization profile.
Okay. Thanks, Raymond. Chu Wei, please go ahead with your question.
Sure. Thank you. I have two questions. The first question is, can you walk me through your thinking behind why you increased your dividend despite the fact that your overall DI, including capital gains, is lower? Or if you want to remove the capital gains from last first half, it will be flat year-on-year. How are you thinking about this payout ratio? The second question is on Ventura. It's probably about 1.5 , two years before the re-contracting. I think the government by now should start calling for tenders and all that stuff. How are you going through this entire process? An update there would be helpful. Thanks.
I think on the dividend policy, right, I think first thing, a few points to mention. We look to maintain a very stable DPU payout. Unlike the REITs where they pay out X percent of DI, we maintain a stable DPU. The level of the DPU is based on a, I would say, mid-to-long-term outlook of what we think KIT can achieve. Right? Maybe another way I would put it is that we like to see ourselves as a total return stock, right? Not just a dividend stock where we pay out every single cent. We like to invest in growth CapEx, which will lead to higher EBITDA, higher DI in the future. In a way, when growth opportunities came, I think we are happy to use cash flows to help fund the growth CapEx.
This, I'll say, inevitably will lead to a higher payout ratio, right? I'll say from a long-term perspective, that is probably also good for KIT because the growth CapEx will ultimately lead to higher DI and income for KIT. Number two, I think more importantly is like I said, I keep emphasizing, we take a long-term or even a mid-term outlook to our DPU, right? We sold assets that also resulted in less DI to us, right? There's a bit of under-recovery at City Energy in Q2, right? If you adjust for all this, I think we are actually able to support that DPU payoff. I think in particular, once we reinvest all the divestment proceeds, we have also a very strong balance sheet that we will look to also use to acquire new investments, which will also lead to additional DI for KIT.
Now, on your second question around Ventura. Yeah, you are right that the MBSC contracts are coming up. Renewal and even growth of our existing packages is actually critical and top of mind for management. Ventura has consistently demonstrated that service performance levels are best in class amongst the competitor group. Secondly, we've also demonstrated an ability to operate electric buses and depots efficiently. Last but not least, we have managed the labor force without any industrial action very successfully. These are some of the factors which are top of mind for the Victorian Government when choosing service providers for the next package.
Okay. Thank you. Kevin, follow-up question. If you take it that you have a long-term view, you'll be able to grow and expand. I take it that with this higher DPU and a second half normalization in some of your assets, you're suggesting that things will improve materially, will catch up in second half of 2026-
Yeah.
-be it by DI or asset divestments.
Yeah. I think maybe I can put it the other way, right? Because we don't pay out X percent of our DI, right? We say, "Hey, this is the cash flows that my portfolio generates." Our gross FFO is actually a lot higher than our required distributions, right? If I want to maintain a very healthy dividend payout ratio. I could switch off all my growth CapEx. That will deliver a very healthy payout ratio.
That also means that I am switching off the growth that I can avail myself to. Right? This is where I think we are trying to strike a balance. We want to invest in growth CapEx that will lead to higher DI into the future, right? I can use cash to fund them, I can use debt to fund them, and so on. This is where we are trying to also, from a capital management perspective, try to find balance. Yeah.
Thank you.
Thanks, Chu Wei. Do we have any more questions from analysts or also participants in the public webcast? Hi, Siew Khee. Please go ahead.
Hi. Sorry, am I audible?
Yes. We can hear you.
Sorry, because my microphone is not really working well, I may actually get cut off. Can I just check in on the-- I have two questions. First is German Solar performance in second quarter was quite-- It's a negative in terms of DI. Can we understand or just wondering whether this is the right question to even ask. Why is it a negative in 2Q in basics?
Yeah. I'll take that first. Second quarter, you see a negative DI. This is because of scheduled debt amortization.
When is the-- How do we actually amortize this in the next few quarters, and how does it actually impact the DI?
Yeah. It's being amortized on a semi-annual basis. If you see quarter -to -quarter, Q1, you'll be DI positive, Q2, the DI will drop because of the amortization. Likewise, Q3, you'll see an increase in DI. Q4, DI will drop because of the amortization.
Right.
This is very similar, like how you analyze or you assess the power plant, like KMC. Yeah.
The market-
On a full year basis-
-is actually higher year-on-year, as in the negative is wider year-on-year.
I think this is fair we're going through, right? If you look through all this on a full-year basis, you should see an increase in contribution from the German Solar Portfolio. There's a bit of seasonality in terms of amortization within a year, from quarter-to-quarter. Full-year basis, you should see a higher increase in DI.
Okay. Also just wind farm FFO down QoQ.
Which wind farm you are talking about?
Sorry. Maybe I'll just take this offline. Sorry.
Yeah, sure.
Thanks.
I think maybe just to give you some color, usually there's a bit of seasonality in wind production between winter and summer months. I think we can take this offline.
Thank you.
There is also debt amortization at BKR2 if you are looking at quarter-to-quarter.
Yeah.
Yeah.
Thank you.
Analysts, do you have any more questions before I go to the questions from the? We have one more question. Do we expect a sequential benefit of the Aussie dollar to your DI based on your current FX distribution hedge?
Yes. We have seen the recent hedges that we have entered into for our Aussie dollar cash flow hedge. The rate has gone up, so over time it is beneficial to us. Likewise, on Monday, MAS has tightened the policy. Sing dollar has also strengthened as well. I checked this morning, AUD, it still remains strong. Spot is about 0.9 at this point in time. This is because of the U.S. dollar weakening after President Trump has halt the attack on Iran for the last three days. Yes, to answer your question, we do see a benefit. The AUD strengthening, we do see the benefit to our DI.
Thanks, Raymond. We have about 10 minutes left before the conclusion of the webcast. Just reaching out to see if there are any final round of questions from both analysts as well as the public who have dialed in. Ding Chong, please go ahead with your question.
Hey. Hi. Yeah, Ding Chong here. Sorry. My question is on EMK. Just wondering if would there be any improved performance given capacity expansion is expected to be completed end 2026, and given that capacity is expanding in the incineration business there and ASP is trending upwards, will we see any improved performance in EMK?
Yeah. I think a couple of parts. I think let's focus on the incineration business. The ASP in the incineration business has always been strong in the last couple of years. We have been operating at full utilization or 100% utilization. One of the ways that we are trying to grow it is to undertake an expansion at one of our incinerators. I think it has already started, probably going to end sometime this year or maybe early next year. That will basically mean there'll be more capacity for us to sell. That should correspondingly lead to an increase in revenue and DI for us. Of course, in the meantime of this year, you probably see some weakening of contribution from EMK because the plant is, in a way, shut down, or part of the plant, not the entire plant.
We are doing expansion at one of the plants, and part of it will be shut down for the expansion. I think in the next six months, there'll be a bit of a lower contribution. That should resolve itself once the expansion is completed.
Okay, got it. Thank you.
Thanks, Ding Chong. I think we have time for perhaps one more question from the floor, both analysts and public. Do you have any? It seems like there are no further questions. That being the case, perhaps we will end the public webcast. A big thank you to everyone for making the time to attend. Thank you so much. Bye.