Ladies and gentlemen, good morning and welcome to Sembcorp Industries First Half 2022 results presentation. A warm welcome to you, to viewers tuning in via the webcast. I'm Ling Xin Jin from Group Investor Relations. Before we begin, we would like to request for all mobile phones to be turned off or switched to silent mode. Please be reminded to keep your mask on. If you feel unwell, do approach our staff for assistance. Thank you. The members of the panel for today's presentation are Group President and CEO, Mr. Wong Kim Yin, and Group CFO, Mr. Eugene Cheng. There will be a question and answer session after the presentation. For viewers of the webcast, please send your questions for the Q&A through our investor relations mailbox at investorrelations@sembcorp.com. Without further delay, I will now hand over the time to Kim Yin to begin the presentation. Kim Yin, please.
Morning, welcome to Sembcorp Industries First Half 2020 results briefing. This is the first time we're doing this in this room, so you know, we're very excited about the new space. This has been in place, I think for more than a year, but we haven't been doing it here because of COVID and all that, so we took the opportunity to bring you. This is a what we call a hub, whereby then you know, our staff can mingle and interact and work together each other. Right behind me are some screens. They are not designed for this purpose to be the backdrop for our results briefing, no. Each of these screens, they are made up of panels. By the way, they're low cost panels, not high resolution stuff.
Each of these screens, what we do is that we will put up operating statistics of our power plants as well as our water businesses and everywhere else around the world. A visitor or our staff, when they come into this room, they can look at this screen and regularly get an immediate sense as to whether or not our India wind farm is having good wind. You know, our Vietnam power plant, is it having availability issue? You know, and so on and so forth. We want to use this space to communicate internally as well as externally, you know, the breadth of this company, as well as to let people bring together this spirit of one Sembcorp, understanding what our colleagues are doing around the world. All right.
Just a little bit of that advertisement, but otherwise, let me get into the results briefing. Thank you. In the First Half of 2022, the group delivered a strong set of results. Turnover increased 45% to SGD 4.8 billion. EBITDA was SGD 865 million, up 35%. Adjusted EBITDA was SGD 998 million, up 34%. Net profit before exceptional items was at 94% up at SGD 490 million. Net profit after exceptional items was also at SGD 490 million, compared to SGD 46 million in one-half 2021. Earnings per share was SGD 0.275, and group annualized ROE was 23.1%. The board has announced an interim dividend of SGD 0.04 per ordinary share, which will be paid in August 23, 2022.
Let me go through the key highlights for our different business segments. For renewables, net profit increased to SGD 76 million in first half 2022 from SGD 24 million in first half 2021. This was mainly driven by contributions from our newly acquired assets in China. The acquisition of SDIC New Energy was completed in January this year, and Shenzhen Huiyang New Energy, we call HYNE or Hyne, was completed in June. In India, we experienced higher wind resource in the first half of 2022 compared to the same period last year. In Singapore, the solar operations performed well, benefiting from higher spot prices with strategic portfolio management. In terms of capacity, we secured an additional 0.9 GW of renewable projects during the first half of 2022.
Our gross renewables capacity now stands at 7.1 GW with 1.7 gigawatts under development. In the span of one in a half years, we have more than doubled our gross renewables capacity as shown in the chart. The proportion of renewables capacity in our group energy portfolio has increased meaningfully from 25%- 43%. The renewables business continued to gain good traction with progress made in the first half of the year across all the key markets. In Singapore, we were appointed by the Energy Market Authority to build 200 MWh of energy storage systems on Jurong Island in June, and this is expected to be online by the end of this year. Also in Singapore, we have secured 44 MW peak of solar capacity, including the JTC SolarRoof III tender.
Our solar farm at Tuas was opened in May, marking Sembcorp's first completed ground mount solar project in Singapore. It is also the country's first solar farm with an integrated rainwater harvesting system. In China, our gross operational capacity has grown from 725 MW to 3.3 GW with the completion of the acquisitions mentioned just now. This anchors our position for further growth. In India, 115 MW of renewable projects were secured during first half 2022. These contracts were secured with the government as well as commercial and industrial customers. This brings gross renewables capacity under development in India to 725 MW. Now, however, there are some delays to the execution of the 400 MW utility scale solar project in Rajasthan.
In the U.K., a further 50 MWh of battery storage was commissioned, bringing our operational battery fleet to 120 MWh. We also secured a 15 year capacity market contract that will contribute to the 300 MWh of battery storage project. Our battery storage portfolio in Singapore and U.K. now stands at 624 MWh, and this establishes us as one of Asia's largest battery operators. Let me switch to Integrated Urban Solutions segment. Under this segment, net profit before exceptional items was SGD 62 million, compared to SGD 63 million in first half 2021. Contribution from the urban business was steady, with lower land sales mitigated by higher average transacted land prices and residential sales. In first half 2022, urban land sales was 42 hectares and net order book remained healthy at 288 hectares.
During the period, our energy from waste plant, Wilton 11 in the U.K., has performed well as it benefited from higher power prices. This was partially offset by higher operating costs in the waste business in Singapore. The urban business continued to focus on building its land bank. We incorporated the joint venture company for our new industrial park in Quang Tri province in Vietnam, and have also started the development of 1,000 hectares of VSIP Ming Xin Three. Under conventional energy, we posted a net profit of SGD 397 million, an increase of 115% year-on-year. The better performance was driven mainly by high electricity prices in Singapore and India. We also realized gains from favorable gas hedges on the back of higher fuel and electricity prices in Singapore.
SEIL Project 2 in India has commenced supply of power to Bangladesh under the 200 MW long-term power purchase agreement since the end of March. In Singapore, we were appointed by the Energy Market Authority to offer competitive fixed price contracts to business consumers such as SMEs, helping to provide pricing stability amidst the volatile Singapore power market. As at first half of 2022, this is where we stand against our 2025 strategic targets. Sustainable solutions comprising the renewables and integrated urban solutions accounted for 25% of group net profit, compared to 35% as at 2021. Despite the decline, it is important to note that the sustainable solutions portfolio performed well with net profit growing by 59% year on year. However, we saw strong earnings contribution from the conventional energy segment, which led to it being a bigger contributor of group net profit.
Gross in-stock capacity, as mentioned just now, as at the end of first half 2022 was 5.4 GW. In addition, 1.7 GW of renewable capacities under development, and these are expected to be operational between 2022 and 2024. That takes our end total portfolio of projects operational and under development to 7.1 GW. Urban land sales for first half 2022 was 42 hectares due to the timing of land sales. We will continue to focus on growing our land bank to secure a steady launch pipeline. Carbon emissions intensity for first half 2022 was 0.51 tons of carbon dioxide equivalent per megawatt hour. This is similar to 2021 numbers, but an improvement from first half 2021. As a group, we continue to actively explore options to reduce our emissions intensity.
We have made good progress and remain focused on the execution of our brown to green transformation strategy, and to achieve our 2025 strategic goals. Eugene will now take you through our group financial review. Thank you.
Thank you, Wong Kim Yin, and a warm welcome to all analysts and our banking community. It is my pleasure to take you through a more detailed review of our financial circumstances for the first half of 2022. I will first share that, you know, these set of results were achieved off the backdrop of four key elements. First is off the backdrop of global geopolitical tensions that have been driving tightness in the commodity markets and which, you know, led to the second element, stronger electricity prices across key markets that we operate in. Now, we also operate against a, you know, rising interest cost environment.
In the midst of all of that, the last element I will mention is that we continue to drive growth in our renewables segment and also efficiency across our business to realize, you know, the earnings as reported. The overall results in comparison to first half 2021 last year, turnover has increased 45% to SGD 4.8 billion, as Kim Yin has mentioned, compared to SGD 3.3 billion last year. I would go into a little more of the relative segments in the subsequent slide. EBITDA has increased 35% from SGD 640 million in the first half of 2021 to SGD 865 million for this current half under consideration.
Our share of results from associates have improved from SGD 104 million last year, the same period last year, to SGD 133 million this year. The bulk of the improvement really came from the completion of the SDIC acquisition since January of this year, which contributed SGD 23 million, as disclosed in the financial statements that was released. That brings us to adjusted EBITDA being SGD 998 million for this half compared to SGD 744 million in the previous period, which represents a 34% increase. Therefore, our net profit before exceptional items is SGD 490 million, representing a 94% increase over SGD 252 million, which achieved last year.
Given that you would have recalled that last year we had an exceptional item where we wrote off our China Songzao plant of SGD 206 million. From a net profit perspective, well, it is, you know, a very, very significant increase. EPS before exceptional items, we did realize SGD 0.275 For this half compared to SGD 0.141 in the previous period, increasing by a similar magnitude as our net profit before exceptional items. Our earnings per share compared to the same period last year, you know, reflects the increase as well. ROE on an annualized basis for this half is 23.1% compared to 8.5% last year. Now you can move on to the next slide.
In terms of group turnover, the renewables turnover increased 52% over last year, realizing SGD 222 million in this half compared to SGD 146 million in the same half last year. The key contribution to that, firstly, is, as mentioned earlier, the successful completion of the SDIC portfolio, which contributed for five months in this particular half, and also the completion of the HYNE portfolio, which was completed at the beginning of June, so therefore contributing one month in this particular half. In addition to that, we also saw higher wind resource realized in India, which also came off the back of a greater efficiency of the operations of the assets, resulting in higher energy base availability for us to capture the higher wind resource.
In addition, our solar assets in Singapore also benefited from stronger USEP prices in this particular half. The integrated urban solutions segment remain stable compared to last year. Our conventional energy segment saw you know, a significant increase in the turnover, realizing SGD 4.2 billion of turnover relative to SGD 2.8 billion at the same time last year, representing a 51% increase. From a turnover perspective, we did see stronger tariffs you know, particularly on the IEX for the India coal business and also a stronger electricity tariffs in the local Singapore markets. Our UK power plants have also performed well. We move on to the next slide, which detail the breakdown of the group net profit.
I just want to focus us largely on the upper half of the slide, which represents our net profit before exceptional items, as there are no exceptional items for this particular half. For renewables, you know, net profit have increased by 217% to SGD 76 million in this particular half compared to SGD 24 million last year. You know, the big part of it is really for the reasons at the turnover level that was discussed in the previous slide. I think in addition to that, our India portfolio also realized some O&M efficiency gains, particularly with the taking back for one of the Sakra projects, where we you know took over the O&M operations back from the OEM.
If you recall, during the Investor Day presentation, we said that as we take back the O&M operations from the OEM, we will be able to realize up to 30% of cost savings. We did realize that in the first half. For one of the [projects, Sakra] projects. In addition to that, we have also refinanced portions of our India green portfolio with refinancing a certain portion of the project finance debt to a more fixed rate, a corporate-guaranteed debt of a green loan format. That has also brought about interest cost savings.
Now, when we move on to the integrated urban solutions, our performance is stable, realizing SGD 62 million in net profit in the first half of 2022 compared to SGD 63 million last year. The urban business have a stable performance on a year-on-year basis. In terms of our UK waste-to-resource business in the waste and waste-to-resource segment that has performed slightly better compared to last year. While it is slightly offset by our local sand waste business that has faced rising costs from both fuel as well as manpower. Our water business continue to remain stable within the integrated urban solutions segment. Now moving on to the conventional segment.
The conventional segment for this particular half performed significantly better than the same period last year as well. We realized net profit of SGD 397 million compared to SGD 185 million last year, representing a 115% increase. Now, the reasons for that partially have been discussed also in the previous slide as a result of the higher electricity prices that we see across our markets. Now, in addition to that, you know, we have also benefited from a strong gas portfolio, particularly in Singapore, where we have diversified sources and also have hedge positions since last year. That has allowed us to have a hedge gas position to take advantage of the high electricity prices, therefore realizing the higher gas spark spreads.
Now, in relation to our other businesses, we realized SGD 10 million this year compared to SGD 13 million in the same half last year. It slightly decreased, and this is really due to a timing of a recognition of, you know, the order book for the key business in the other business is our Sembcorp Specialised Construction business. So, you know, we expect our earnings to catch up in the second half. Now, for corporate, you know, we realized a cost of SGD 55 million compared to SGD 33 million last year, representing a 67% increase. The key element of the increase is really because of rising interest costs and also, you know, incurring higher interest costs for funding the equity purchases of SDIC as well as the high-end portfolios.
Now, in addition to that, it is also worthwhile to note that in the first half of 2021, we realized a fair value gain of SGD 7.1 million in relation to a Bremer venture fund that was invested in before. But that same position this year realized a fair value loss of SGD 2 million. Explaining a SGD 9 million delta in relation to that difference. That gives an overall picture of how, you know, our group net profit variances is in this half compared to last. Now if we move on to the next slide. This, you know, is presenting what I've just discussed in a pictorial format.
I will not run into a lot of detail, but if we move from left to right of the chart. You would see that, you know, from a sustainable solutions perspective, right? The bulk of the group's net profit improvement came from renewables, which added SGD 52 million. As mentioned earlier on, a lot of it is in relation to the completion of the acquisition of the HYNE portfolio, as well as the SDIC portfolio. In the first half of this year, the SDIC New Energy portfolio contributed SGD 23 million and the HYNE portfolio, with only one month of contribution, contributed SGD 7 million. Integrated Urban Solutions, as mentioned earlier on, has a steady performance.
Now, if you move to the conventional energy segment, if you'll recall earlier on, first half of this year, we realized SGD 397 million in net profits. Now, if we look at the distribution of that net profit, SGD 196 million of that come from Singapore operations. The rest of it is split approximately evenly between India core as well as the U.K. and Middle East operations. A point to note, though, in the SGD 212 million year-on-year gain, right? Of you know the performance realized in the conventional energy segment in the first half of this year compared to last year, SGD 92 million of that came from unhedging unwinding gains as well as other income.
Now, what is this hedging unwinding gain? Just to characterize it. This hedging unwinding gain came as a result of we had a cargo that is coming in in the first half, right? We had secured a hedge against that last year. The cargo was subsequently canceled as a result of certain circumstances. We also unwound the hedge that was against the cargo and therefore realizing a cash gain. It's not a mark to market gain, but it is a cash gain that is realized in that hedging gain.
In addition to that hedging gain, we also have other, you know, one-off income that was realized in the first half, in India, particularly, in relation to capacity reconciliation, annual capacity reconciliation charges, late payment surcharges and also a reversal of certain provisions. As mentioned earlier on, other business declined slightly as a result of a slower recognition of income and also because of lower government grant compared to what was received in the first half of 2021. For corporate, as mentioned earlier on, for the reasons discussed earlier. If you move to the next slide. This slide details, you know, our group capital expenditure and also our equity investments.
Now, you know, the total capital expenditure and investments incurred in the first half of 2022 was approximately SGD 1 billion. The bulk of it is in relation to the equity investment into the SDIC portfolio, as well as the HYNE portfolios. That is approximately SGD 850 million. Now, the rest of it is CapEx across our renewables, integrated urban solutions and conventional energy segments, of which the bulk is also invested into renewables of SGD 95 million. Our total investments into the renewables segment was 94% of our total capital expenditure and equity investment for the period. If you move on to the next slide.
From a group free cash flow perspective, you know, our cash flow before working capital changes is SGD 860 million, which represents a significant increase from the same period last year as a result of the strong underlying performance. Changes in working capital increased, you know, to SGD 257 million compared to SGD 137 million last year as a result of a slight increase in inventories, particularly in India, in the month of June. The reason is because in the month of June, we have had our typical annual overhaul for, you know, our coal units in India. As a result, there was less electricity sales resulting in a slightly higher inventory.
The inventory will be expected to be worked through in the coming months. All in all, taking into account our divestments and dividends and interest income, as well as our net investments in CapEx, adjusting for expansionary CapEx and equity investments that was actually paid out during the period. Our free cash flow is SGD 593 compared to SGD 562 the previous period. Now, if you move on to the next slide, we shall discuss our group borrowings. Our group borrowings increased by slightly over SGD 1 billion. That is really driven as a result of, you know, funding the completion of the acquisition of SDIC as well as HYNE.
I think, other than that, the rest of our positions remain fairly stable from our December 31st positions. What's important to note is that because of the improvement in our underlying results, our balance sheet metrics have improved compared to 31st December 2021, with debt to EBITDA reducing from 5.7x to 5x times on the basis of our annualized first half performance. Debt to adjusted EBITDA, and if you recall, adjusted EBITDA's being EBITDA adding back a share of profits of associates, decreasing from 4.9x to 4.3x, and EBITDA interest coverage ratios increasing from 3x to 4.5x, and the corresponding adjusted EBITDA to interest coverage ratio improving from 3.5x to 5.1x.
If you look at our current group debt profile, we have improved, you know, our weighted average debt maturity from 4.8 years to 5.1 years, you know, with a terming out of our debt, and a lot of it has been achieved in the past year with the issuance of a green and sustainability financing instruments. To date, we have, you know, issued and have arranged up to SGD 2.9 billion of green and sustainability financing, which includes, you know, our SGD 400 million green bond done in June of last year. The SGD 675 million sustainability-linked bond done in October of last year.
Another SGD 300 million, 7-year sustainability linked bond done in the first quarter of this year, and also the announced SGD 1.2 billion revolving sustainability RCF that was also announced around the same time of the sustainability linked bond that was done this year. In addition to that, if you will recall, I also mentioned earlier on that in our SGI or the India green portfolio, we have also started, you know, refinancing a portion of their project finance debt with green loans secured by our corporate guarantees.
That has allowed us to, you know, term out our maturities and achieve a weighted average debt maturity of 5.1 years where we stand right now compared to a 4.8 years previously. We will continue to work on the, you know, the refinancings of our corporate debt, those that are coming due within one year and within one to two years. We are confident that we would be able to do that given the momentum of our recent refinancings and debt issuances. Now, our borrowing profile. Where we stand right now, we have 32% of our total debt coming from green and sustainability-linked borrowings, which is a significant improvement from a year ago.
You know, we are achieving a balanced borrowing profile right now, and we are looking to increase the proportion of our debt that comes from green and sustainability-linked sources. In terms of our hedging profile, currently 51% of our debt is fixed, with 49% of that floating. Now, that would have been, you know, approximately 57% fixed, if not for the consolidation of the HYNE portfolio that came in only in June this year. The bulk of the HYNE portfolio debt is still local project finance debt, and is floating rate benchmarked against the China LPR.
From a interest rate perspective, the Chinese interest rate environment is currently a lot more benign than what the global interest rate situation is suggesting, given China's intent to still manage their monetary policies balance against GDP growth. In light of that, we will also be working to review the HYNE portfolio and to increasingly fix the rates there as well. The last thing to mention on this page is our weighted average cost of debt, which we have reduced to 4.7% where we stand currently relative to a 4.8% as at 31 December of this year. We have been facing a rising base rates. I think that's a reality.
I think what has worked in our favor is, in the recent refinancings that we have achieved, you know, using the green and sustainability linked financing, you know, format. You know, we were able to reduce our margins and spreads and as a result, you know, still able to manage our weighted average cost of debt to within 0.1% reduction compared to where we stand at the end of December of this year. Our group liquidity position remains strong. Our cash and cash equivalent stands at SGD 1.275 billion relative to SGD 1.3 billion at the end of our 31st December. Not changing very much.
As mentioned earlier on, you know, we continue to have significant, you know, committed RCFs and facilities to provide the liquidity to help us fund growth. As of 30 June, our committed unused RCFs stands at SGD 2.5 billion. Now, if we move on to the last slide. In light of all of that, you know, we have, you know, released the following outlook statement to the market to share our thinking in relation to the second half of this year. We recognize that, you know, our group has performed well in the first half, and it's mainly driven by the conventional energy segment as a result of higher electricity prices in Singapore and India.
As well as, you know, having a favorable gas hedges that allow us to realize those gains. Now, too, in the second half of this year, we do expect our underlying earnings for the conventional energy segment to remain strong if the market conditions that we have seen in the first half of this year remain. The performance of the renewable segment in the second half will be, you know, underpinned by a full half year contribution from the China renewables portfolio that have been acquired, namely SDIC as well as the HYNE portfolios. Now, in terms of corporate costs, we do expect that to increase as a result of continued rising interest rates and of course, you know, higher borrowing costs as a result from the acquisitions of the SDIC and Huiyang portfolios.
Now, you will recall in the first half of this year, those interest costs that are being incurred was five months for SDIC and one month for HYNE. You know, in the second half of this year, we will see a full six months impact of that. All in all, we do expect our full year results to be significantly higher than 2021. We do want to remind everyone that we continue to operate in a global economic condition that remains uncertain. As a result, you know, it is our expectation that the commodity markets could potentially continue to be volatile. We continue to face a supply chain risks caused by the ongoing geopolitical tensions.
You know, we do expect our interest rates continue to increase, right? Different governments also seek to have tighter monetary policy to contain inflation, thereby potentially bringing about the risk of a global recession, which could potentially negatively impact our performance. All in all, the group will still continue to focus on the transformation of our portfolio from brown to green and achievement of our 2025 targets. Now, just a couple of points to mention of developments to note. You will recall that earlier in this month, we have also made an announcement of you know, what's going on in Myanmar in relation to our Myingyan IPP.
You know, we just want to share that it continues to operate and, you know, payments from the offtaker have also been promptly received in accordance with this contract. You know, we'll continue to monitor the developments in Myanmar closely, and we'll update the market accordingly. We do have a couple of planned maintenance shutdowns. We would in the second half of 2022, currently right now in July, you know, one of the units in SEIL Project 2 is still undergoing overhaul as part of a maintenance program. We also would have a planned maintenance shutdown for our biomass power station in the U.K. as well. A couple of developments to know. I will end my presentation here, and, you know, we're happy.
We'll take the questions from the floor.
Thank you, Kim Yin. Thank you, Eugene Cheng. We have now come to our Q&A session. For the benefit of the audience who's viewing the briefing online, for those on-site, please use the microphones for questions. It will be brought over to you when you raise your hand. Please state your name and also indicate the organization that you represent. For viewers of the webcast, please email your questions to our investor relations mailbox at investorrelations@sembcorp.com, and management will address them during the session as well. Zhiwei.
Thank you. Zhiwei from Macquarie. Congratulations management on a set of very stellar results. I have two questions. I think it's directed to Mr. Wong. The first question is about your strategy, right? A large part of your outperformance this year has been driven by conventional, and it's kind of like overshadowed the renewables part. The question is, given the macro environment and how you have been more inorganic in your strategy to grow your renewables business, right? How do you see your renewables business kind of playing catch up, you know, to what conventional has provided, you know, in the coming two, three years?
I know you have 7.1 GW now, and you probably have another 2.5 GW that's in the pipeline but not included in your announcement, bringing you close to your 10 GW target. Just trying to get a sense of how you think about your renewables earnings profile over the next two, three years. The second question is on, I think, fuel hedging. You've obviously benefited from hedging your fuel costs in Singapore, at least for this year. Trying to understand what's your strategy to hedge once you roll over into FY 2023. Yeah.
Thanks, Zhiwei. Those are all good questions. Renewables strategy, if you think about it, what is facing us, many people might agree that we are looking at the strong prospects of recession, right? I'm seeing many people. I'm not in a position to make forward-looking predictions, seems to have expectations that there'll be recession maybe as early as end of this year or next year. You can see some demand disruption. This morning, I read the news, WTI crude prices went down to $88. You know, quite a big and quick decline, signaling worries about demand disruption. There is that looming, rising interest costs, right? As well as some of these geopolitical concerns, right? Taiwan and so on.
Now, having said all that, these concerns, geopolitics as well, so on and so forth, they actually point towards more stronger desire to be less dependent on imports. Stronger desire to be diversified in your sources of supply when it comes to key inputs like your energy, right? Renewables is one of those things that just about everybody has something. You know, even if you stay in an apartment, you can share the rooftop with your neighbors. But in a more macro sense, almost all the countries, even little Singapore, have some solar. If you look at the general direction in terms of going green, that hasn't abated despite you know some of the macro conditions that I spoke about.
Directionally, going green, the demand that we would be experiencing, I think long term, we are still quite confident. Yeah. That's the first thing. Short term, there will be some speed bumps, right? Because of, again, rising interest rates, because of demand being slower. But having said that, again, it's something that everybody else is experiencing. Yeah. What we need to do in the next 6 to 12 months is actually to be very disciplined in our growth, right? Zhiwei mentioned inorganic in order to make the 10 GW. Yes, that definitely is something that we have experienced, as you can see. You know, we can't get to 7 gigs without having done the acquisitions.
We have also some, a fair bit of, organic growth, if you think about it. You know, 100 MW here, 100 MW there. Those are not small. They do add up. What I'm trying to say is that the first general direction, we think is still sound long term, right? Near term, some speed bumps, have to be careful. Now, if we are disciplined and if we know what we're doing, the next 6 to 12 months actually presents even more opportunities. When the tide recedes, you will see who is swimming naked. Sorry to put it that way, but you know, this, there could actually be opportunities that will come about for us to think about some inorganic growth. We need to be very disciplined. It is not a given, right?
Hopefully, you know, from our past behavior, it gives a bit of indication and some confidence. Of course, Eugene and I sitting here together with the rest of the team, it's incumbent on us to be very watchful. Hopefully that gives a bit of a sense as to how we see our growth continuing in the next towards our 2025 target. The other thing is also, for whatever it is worth, we are a little bit ahead of our schedule, right? That gives us the confidence not having to rush. That gives us that opportunity to, in using the same words, to be a bit more disciplined.
Even if, you know, I am a little bit more careful, and I don't have to rush to get to 10 GW. I'm ahead of the game, right? That, you know, we are long. Again, if I may, long direction remains the same, our targets remains the same, still committed fully to go behind it. We're a little bit ahead of the game. Next 12 months, a bit of speed bumps experienced by everybody. We need to be very disciplined. We have that a little bit more luxury given that we're ahead of our game, and we have all the resources lined up, and we have the teams on the ground that will enable us to capture the opportunities when they come about. I hope I dealt with that.
On fuel hedging, can I ask Eugene to help me out with that?
I think in relation to the few hedges as mentioned early on, right? The key thing is once we have clarity on the position and you know the cargoes of the gas that is coming in, we would put on the hedge. For this particular year, right, the gas positions that we have, the cargoes that are scheduled to come in that was contracted last year, we would have put in the hedges last year already. Right now we are reviewing the gas positions in relation to our needs next year. As we contract the cargo coming in, we will put on the hedges.
What you expect to see is that, you know, for our gas position next year, we will be hedging. We have already put in hedges for a meaningful part of it. As we progress through the second half of this year, we will be contracting and also putting on the hedges. You know, in short, the answer to your question, Zhiwei, is that we will hedge our positions next year. Not all of it is currently hedged, but we'll be hedging through the course of this year.
Zhiwei has a follow-up.
Thanks, Mr. Wong, and thanks, Eugene, for the answers. I have two follow-ups. The first one is in terms of where you see people potentially swimming naked, which geographies would those be? The second question is to Eugene. Could you just give us a sense of what sort of Brent or WTI equivalent those hedges would translate to, if you may?
Okay. In terms of swimming naked, I can tell you where we are hunting, right? We continue to hunt in Southeast Asia, China, India, right? These are big markets, right? When you talk about Southeast Asia, you're talking about, you know, a collection of 10 countries. Of course, we focus in Vietnam, Indonesia, and Singapore. It is not across the board. If you, if you're asking about or rather I'm thinking about your question in terms of geography, I'm trying to say that each of these three regions are big and they are diverse, and there will be pockets of strengths and just as there will be pockets of weaknesses. What I can tell you is that we will continue to hunt in these places. We do not.
Right now, if you ask me whether am I going to Europe, other than watching it from U.K. and having boots on the ground in the U.K., where we will also see that as our home market, one of the home markets, the rest of Europe, it will be something that we would have to be very disciplined about. Yeah. Southeast Asia, China, India will be our hunting ground. Continue to be that very focused, not deviating from our strengths.
I think, Zhiwei, to answer your question, are you asking for a hedged gas cost? Because I just want to understand what exactly you're asking for.
Yes, I am. I'm trying to figure out where the rough range of prices you hedged so that, you know, when we look at where, you know, public benchmarks are, we can roughly get a sense of what your spreads might be.
Yeah.
Right.
Okay. Zhiwei, I think in relation to that question, we do not disclose our actual gas cost. Now, what I will tell you is that our gas contracts, right, they are typically formularized with a certain indexation to one of these things, right? The typical index is your JKM, Brent, you know, some HSFO as well. Typically, it's based off a pricing formula against these indices. Naturally, once we have contracted the cargo that is coming in, then what is variable in that price formula obviously is the index. Then, you know, we will hedge against the index, you know, in relation to the cargo that's coming in.
It would be a portfolio approach in managing, you know, our gas sources, both PNG as well as LNG, right? Hedging specifically in relation to our cargoes that's coming in. You know, unfortunately, I wouldn't be able to share with you the exact gas cost. If you see the trends, right, essentially, you know, we will be hedging against, you know, forward expectations of where your JKM and Brent will be coming in over the course of this year. Okay, thank you. I'll hand it over.
Yeah. Can I add that, maybe using this opportunity to emphasize that, when we hedge, really it is in relation to our procurement. Our procurement in terms of gas and coal, it is in relation to our operations. We are not out there to trade for profit, right? That's the first point to make, right? We expect that we'll be running our power plant in order to serve the demand, so we know how much gas we would need to run the portfolio of plants that we have, and we go out there and buy ahead of time because it takes time for the ship to come to Singapore, right? It takes time for it to be unloaded and then for it to be used. It's a rolling, right?
That's the first point is that it is in relation to operations. Second point to emphasize, it is on a rolling basis because you have to keep buying and you don't buy too far ahead, right? Because then the ability to hedge the hedging market will become illiquid if it is too far ahead, right? We are hedging, we're buying and we are hedging what we buy to meet our operational requirements, right? When you think about it being rolling, that means our hedges are following the market up and down, right?
That we're not out there to say, "Oh, you know, and maybe next year gas prices will be still very, very high, you know, so do a bit more, a bit more than double what we need." That's when you get caught. We're not in that business. We cannot do that. We don't know how to do that. Right? I just want to emphasize that as being one point. Related to that, then it's also an opportunity to talk about the gas hedge that we realized in the first half of this year, right? That to some extent, you know, is a one-time thing because we, again, like I say, we hedge based on our operational needs.
As it turn out, you know, that particular shipment, for one reason or another was not no longer used, and then we unwind that. That is not something that we expect that will be repeated in the second half or for that matter in future, right? I just want to take the opportunity to explain that. I don't know whether you wanna add color to that.
No. Thanks for that, Kim Yin. I think, you know, what Kim Yin has alluded to, again, just for, you know, the clarity of everyone else, is that in the first half we did recognize as part of that SGD 92 million of income that I highlighted in the conventional segment. That was a result of unwinding one of the gas hedges where the cargo did not come in, right? Play this out with me. Back in 2021, we contracted the cargo. At that point in time, naturally, we put on the hedge against that particular cargo. Okay?
When the cargo did not come in, right, then what we did was that we unwound the hedge, and then there was a gain because there was a gain against where the export price was as how these hedges would work. We realized a cash gain on that. For the rest of the gas portfolio where we actually burn, then what will happen is that we'll take shipment of the cargo, right, at the contracted price index against the you know spot index at the time when they come in, but we will have hedged that as well. You know, the
If let's say this is the hedge price and the cargo that's coming in, you know, the index is higher than hedge price, right? The physical would be, you know, higher cost, but we would have the corresponding gain. Then this whole hedge, which is, you know, obviously, there will be hedge accounting, hedge accounted for, would then go into cost of sales. Just to clarify that if the cargo comes in, that's how it will work. For that particular one that Kim Yin has mentioned, the cargo did not come in, so we unwind the hedge. We have to unwind the hedge because if not, it would be a trading position, right?
That resulted in the cash gain. Naturally, that particular gain would not. You would not expect it to happen from time to time because our cargo will come in, and as Kim Yin has mentioned, we were burning for operations.
Hi. Rahul Bhatia from HSBC. Just continuing on this hedging aspect. Could you share how you were thinking about hedging in first half of 2022? Both coal and gas prices were sky high. Did you actually do hedging? What is the time period of hedging you look at versus the contracts you have? Is it like both are 12 months, 10 months down the line? How do you think about that? Second question is on the 2025 targets. As Kim Yin mentioned, right, you're already ahead on the renewable portfolio, but what about integrated urban solutions and emissions? There has not been significant movement, upward movement to it in both these sides. What are the plans going forward for that? Finally, just a quick check on India thermal coal plants.
Could you talk about the access to coal there? Did you face any challenges in first half 2022? Maybe just share with us what are the sources of coal for India operations. Thank you.
I deal with the second one first. The fuel hedges, India. In terms of the other targets, right? Integrated urban solutions, a lot of it is, land sales, right? The target is, land sales to reach 500 hectares, or land sales for one year. Right now it is still pegged at some 170. You don't see it increasing a fair bit. We are still confident we can meet it. Why? Because our land bank continues to grow, right? Land sales to some extent, especially in our biggest market, Vietnam, is affected by COVID, right? This season, anybody who travels to Vietnam, you know the place is booming, right? That's why, you know, even some of the historical ones we are getting. We are beginning to see higher prices.
We're quite confident to meeting the target because we have the land bank, we have the project pipeline. Whether or not you reach 500 or 600 depends on what you launch. There's some element of it being able to plan and time some of this. The important thing is actually whether or not it's sustainable. You know, I can boost the sales in one year to make 500. I can make it next year. At some price, somebody will buy, right? But I think what we want to show is a good sustainable land sales pipeline. I'm saying that our land bank and our order book is what is giving us the confidence that we will be able to get there.
First, land bank, we continue to gain the land bank. As I mentioned in my presentation, we've got new park, a thousand hectare new park that is being developed and so on and so forth. That part of it is good. Our order book at 288 hectares, right? That is well ahead of one year's worth of land sales, right? 2021 land sales were over 170 hectares, right? The order book itself is already 288, right? It's strong. You see the demand, so you're not so worried. It's more a matter of us developing it and timing it a little bit slower initially because of mobilization, because of COVID and all that, right? That's on the integrated urban solutions.
In terms of the carbon intensity, if you. The 2025 target is on carbon intensity, and we designed it deliberately so that we don't have a gun to our head to resolving the coal issue. If you work through the numbers, as long as we reach our 10 gig target, we generate enough green megawatts, the intensity will come down. Yeah. That is first thing. Second thing, with regard to our coal positions, again, you know, we do not have something to report at this meeting, but we continue to be working very hard to explore the options that is available to us.
As you know, you know, the last time we met, we just signed the contracts in India, and that has really given us a very big boost. The earnings and the cash flow profile from those contracts are boosted really this season by the Bangladesh 200 MW. Then above and on top of that, by early next year, the AP 625 contract will kick in, and that will really, if I recall, it's some 85% will be totally contracted, and that will put us in a very strong position to explore options on that.
The intensity target, we're also quite confident that we can make it, on the back of, you know, strong renewables, megawatts growth, megawatt hours growth, as well as, potential one-time, so-called step down in terms of our carbon footprint, if we are able to find, you know, inorganic solutions for reducing carbon in our, especially in our coal business. In terms of what. The last question was, Gas hedges. Huh? Gas hedges. No, the first one was gas hedges. Yeah. Oh. Oh, the access to coal. Yes. So the access, we actually, this, last 12 months, there has been tightening and so on in different quarters. We were very lucky in the sense that we have got many sources, right?
The team in India has done well to have diversified the sources and options. The fact that we're next to the port is very useful. The fact that our plant is able to burn coal from more sources than otherwise is also very making it very useful. I'm saying we are at a better position than many, if not most, to deal with coal shortage, right? We have been leveraging on that position. I'll give you one example. For instance, our plant is able to burn Indonesia coal without too much of adjustments, right? Because Indonesia coal has high moisture content. Some other coal plants are reluctant to use it because it will cause operational complications. Let's put it that way.
We have domestic coal, and we've got international sources, and we also are more flexible in terms of the input that we can put inside our boilers. That has given us a better way to manage. So far, it has served us very well. As you can see the results coming out from P1 and P2 in the first half of this year is a testament to good management of fuel input. I think, you know, even if your plant is available, no coal, you're finished, right? I think that part of it, fingers crossed, right? We feel that we are in a good position relative to others, right?
If there's a shortage, maybe I'll be speaking too early, but we like to think that we are in a better position to manage that. I don't want to say that we're the last to be hit, but we'll be in a good position to manage them. Let's put it that way.
I think on the coal situation, given you've allow me, I will just add a little more detail. You know, as you would know, you know, our domestic PPAs is served by domestic coal in India, right? From Coal India. We do have allocation for that, and we are one of the you know, more you know, efficient plant. We stand higher in a merit order. You know, for our domestic PPAs, we do have that stable allocation from Coal India, and we have not faced a significant situations for that.
Now, for our Bangladesh export PPAs, you know, as of now, 450 MW of that, you know, we do have a long-term coal supply agreement with a party in Indonesia, right? One fixed price and one is indexed against, you know, the API4 index. Sorry, the GCV index. You know, those, a couple of sources of coal have been very stable as well, and we have not faced any form of a shortage in relation to that. Now, on the IEX front, we obviously cannot burn domestic coal.
You know, as I mentioned early on, we do have these coal supply contracts that's coming into Indonesia that has, you know, provide us with the necessary coal to serve the IEX market as well. To supplement that, you know, there is also the source of e-auction coal locally, which means that you know, when coal India has unallocated domestic coal, they put it up for e-auction and we've also access to those coal sources, these are key sources of coal that is coming through to us.
We have not experienced any form of shortage pressures and, you know, we continue to leverage on them. You know, Rahul, on your first question in relation to hedge. Again, you know, we don't speculatively hedge, well, if that concept even exists. It simply means that, you know, we will have visibility of gas sources, contracted gas cargo that is coming in, before we put in any hedge, right? We do not hedge. We do not have an open hedge. That's the policy that we have. We have two sources of gases.
We have gas coming in from piped natural gas and, you know, we also have, you know, gas coming in from LNG, right? Typically we have at least 12 months of visibility of a gas cargo coming in. Whenever, you know, we have an identified cargo that's coming in, we will hedge against that cargo. That's essentially how we manage the gas portfolio and as well as the hedges against the cargos that are coming in.
Hi, I'm Izabella from CGS-CIMB. I have two questions. Firstly, what is your progress on decarbonization in India for your CE side? Secondly, will you be able to sustain your SGD 0.04 dividends for the second half of the year or more? Thank you.
I'll take the dividend. Okay. In relation to the dividend question, you will notice that our interim dividend of SGD 0.04, it's, you know, really a doubling of where we were last year, in light of the results that we have achieved this year. I think, if you have a recall, the dividend policy that, well, it isn't exactly a policy. I would call it the dividend principle that we have set for ourselves. It's, we do want to make sure that our shareholders are, you know, appropriately rewarded with a sustainable cash dividend that, but also balances against our brown to green transition and growth objectives.
As a result, you know, in the second half of this year, how we would view that dividend policy in light of the financial results that we would receive this year that we achieved this year, and also the objective of growth. I think an indication would be if you look at how we have managed interim versus final dividends last year, right? Historically that will give you an indication on how we would think about it. We do recognize that this year, it's a strong year, right?
Although a bit, you know, you know, much of the outperformance potentially in the merchant markets. You know, we are also reviewing the possibility of rewarding shareholders with special dividends, you know, in conjunction with our typical ordinary dividend policy. I would say that, you know, that would be how we will look at, you know, the full year dividend in the second half. The first question is in relation to our decarbonization of India.
Yeah. We have spoke about that on quite a number of occasions, Izabella. You have to put up with me, especially those who have heard it before, for me to repeat it. Yes, there are many ways to decarbonize, right? The most direct way, you shut it down. You don't run, then there's no carbon. Another way is that you could change the feedstock. If you're not burning coal, you're burning something else that is deemed to be greener, then you can decarbonize, right? There could also be other, technical, technology-related solutions that could be possible, right? Some people talk about blending with ammonia, and to the extent your ammonia is produced in a green manner, then your carbon footprint comes down. There are also commercial ways of dealing with it.
Of course, multilaterals are talking about providing a framework whereby they would provide aid money or support for substitution of coal-fired megawatt-hours with green megawatt-hours, right? ADB was talking about that, particularly in the context of Philippines, right? We did have conversations with them with regard to India, right? That's one way. Of course, at the end of the day, the other way to do it is just a clean divestment. Yeah. We explore and develop all these options proactively. Yeah. At the moment, we are exploring and developing them very proactively, right? Like I say, we are not able to tell you anything in terms of progress this season. We're hopeful that we would be able to share something in future seasons.
I want to re-emphasize that this is one of the most important, if not the most important agenda on our transformation journey. Right. I want to re-emphasize that the commitment of the management behind this target, behind this goal, is underpinned very, very directly by also incentive programs. Right. It doesn't stop just at this table, but also my India colleagues, my CEO India, Vipul Tuli, his key management team. We are all on the same strong commitment framework, if I have to put it that way. All right. What I want to say again, re-emphasizing, is that there are various ways of doing it. We're proactively developing each of them.
We are very committed to this target and that we hope to see some progress in that department soon enough, right? We have to, in the meantime, make sure that we do not destroy value. Yeah. As we go about decarbonizing, there will be value impact, but we have to weigh the short-term value impact versus the long-term value gain, depending on the solution that we're looking at, right? Because let's say if you change a feedstock , then of course, you know, your input costs will be different. Then how does that, you know, you have ongoing operating cost issue, how to deal with that. Those must be adequately dealt with. What we want to make sure is that we balance all the considerations and make sure that something comes out.
When we do that, we decarbonize in a responsible manner, responsible to all our stakeholders. Yeah. Again, very important target. We are all committed to it. I hope I somewhat give you some assurance that we are on it, right? I cannot say this is definitely the way to go or there is definitely a way. I can't. I'm not at liberty to disclose that at this stage.
We have questions from participants online. This is from Jagdeep Ghuman from Nuveen Asset Management. The first question is a follow-up on decarbonization. Has a strong power price environment positively affected or accelerated these discussions or improved the potential valuation of these assets? That's his first question. The second is, how have rising interest rates affected the company's ability and strategy to acquire renewable energy projects? As project IRRs have declined and funding costs increase, are there still positive spreads to be seen? Any particular geographic markets or asset categories increasingly being emphasized or de-emphasized? Lastly, does the company see opportunities to invest in geothermal, such as in Indonesia, where natural resource is plentiful and government policy is increasingly supportive?
On the first question about stronger electricity prices and margins and so on. Obviously, one is happier when you have an asset that can generate margins. right?. Definitely, the value of these assets have been enhanced, and I think primarily attributable to the contracts that we were able to lock in. Right. Even though, had we not done the contract, the spot market might have also rewarded us handsomely, right, with shortages. What we want is, you know, we want a more stable profile to cash flow as well as, and of course, earnings. Right. The contracts have given us that opportunity now or that profile now. These two business, P1, P2 or SEIL now with the contracts have a stable profile that enables at least the perception of risk has come down. Right.
I think it is quite obvious in everybody's mind that that has provided. In many people's mind that makes it a business that is much more valuable. Yes is the short answer to the question. Whether or not it will be more attractive from an investor's point of view, from a buyer's point of view, we like to think that most buyers would value stability over, you know, a very volatile feast and famine business. From a coal operator perspective, even as the owner today and for the team on the ground, coal plants are designed to be base load.
Having that stability and that assurance that, you know, I don't have to cycle the plant up and down, and then, you know, even though it might make me money, but I have a stable profile, allows for planning, allows for financing, allows for recruitment and all that. Net net, very, very positive. Agree with the suggestion that, yes, indeed, you know, this has in our mind make it much more valuable business. That, that's the first one. In terms of higher interest rate environment, I would ask Eugene to provide more color. Before I ask him to do that, I think we want to bear in mind that this is rising interest rate affects everybody, not just us, right?
Of course, we are in the path to grow. Does it affect our competitiveness when it comes to dealing with when it's a competitive acquisition or a tender bid situation? It doesn't. I like to think that it doesn't affect our competitiveness because the same condition would apply to anybody else who is trying to make the investment. That's number one, right? Of course, if somebody comes along and decides to take an aggressive stance on interest rates going down, then of course, you know, that can affect whether or not you win or lose. Having said that, even without the current interest rate environment, somebody can still come along and make that our assumptions, right? From that perspective, everything else being equal, it doesn't reduce our competitiveness.
Is our funding capacity affected? We continue to see, at least as of today, we are able to raise the capital that we want to grow into the area that we have told everybody we are growing into, which is the green. Right. Eugene, you might.
Thanks. Thanks for that, Wong Kim Yin. I think, you know, I absolutely concur with what Wong Kim Yin has shared, right? In terms of how it impacts us, competitively. Well, the interest rates get factored into looking at projects or acquisitions in two ways, right? One is the actual interest costs that you would incur in a funding for the acquisition. The second is cost of capital, which is a hurdle rate, which any, you know, sane investor would have to take into account. I would say that, you know, given the rising interest rates environment, you know, that would, through those two factors, it will impact all in the same way.
From our perspective, it's, you know, as Kim Yin has mentioned earlier on, we would obviously be more disciplined when we assess these investments. Secondly, you know, when we look at funding these investments, you know, we would also, you know, look at the interest rate outlook. I think from our perspective, I think interest rates increasing, that has already come through. That has. That is a reality. Now, the thing is that, and the question is that, how much and how long? And that is anybody's guess, right? I think what is a slight.
What is somewhat more encouraging for me is that in the latest FOMC meeting, although you know the 75 basis points hike was still put through, the commentary right at that or the narrative that accompanies that rate hike was a lot more dovish as compared to before. Recognition of you know a potential recession potentially coming nearer sooner rather than later. Those factors suggest that perhaps you know the interest rate hikes will not be as aggressive as initially expected. We did see that reflected in the markets. UST 10-year treasuries have traded back down.
The last I checked, it did go down as low as about 2.75% range. It come back up slightly, hovering around 3%, but you know, meaningfully lower than the 3.5% ranges that it hit earlier this year, where the full-blown guns all firing absolute hawkish stance that was taken by the Fed. Now, the second thing also is that, you know, Federal Funds rates where you know, they're expected to land at the end of 2023 have somewhat also moderated, right? I think, you know, previously it was 3.25%-3.5%. Now expectations have come down to 3%.
I think, you know, while interest rate increase, it's accepted. You know, I'm personally encouraged that, you know, at least you know, the magnitude and the outlook, it's, you know, a lot more dovish. Now, what does it mean for us as Sembcorp then when we look at our funding? Clearly, you know, we will have to leverage on our strategic position and our ability to tap, particularly the green and sustainability link financing. In all, whatever the funding is for, it is completely aligned to that purpose and that theme.
You know, as mentioned early on, we were able to manage, you know, our margins and spreads, you know, given the intent and as well as the mode of financing that that we are using. you know, we will continue to use that to kind of like balance off against, you know, the potential base rate increases. I think, you know, from the tangible, you know, interest cost perspective, we want to believe that, you know, our ability to tap into the green and sustainability link financing and also, you know, being able to achieve, you know, better than a traditional financing spreads and, you know, being able to leverage on that to—
Who we are as Sembcorp, with the support of our financiers, many of them are sitting in this room to drive through the transition. Having said that, you know, how the interest rates will factor into cost of capital hurdle rates considerations, that is something that would be viewed, you know, sanely by all investors. As Kim Yin has alluded early on, we will continue to do that as well. Yeah.
Just a little bit more to add to that. You know, it's the way you talked about people swimming naked. You over-leverage, interest rate goes up, that's when you might see some opportunities come around. If one is having a strong enough ability to ride through this type of period, that's when, you know, in fact, it weeds out, it separates the whole pack. When interest rates are very low, everybody has access to money, the competitive environment is actually much more intense in a sense. But at the moment, you know. Actually, in that sense, it may actually be a good thing to those who have access to funding, right? That's one. There was the question about geothermal. I think right now we've been focused on wind and solar, right?
We would like to, if anything, go into more adjacent areas. Let's say if there's offshore wind opportunity, yes, we'll be very happy with that. Especially with, you know, a lot of offshore capabilities also vested in Singapore, in Sembcorp Marine, for instance, you know, a sister company. If anything immediately adjacent to us today, I want to say is batteries. Batteries is increasingly, we see as a very integral and necessary part to any renewables portfolio. In any grid without storage, the issues associated with operations and integration of intermittent renewables is not surmountable. And the cost of battery, cost structure of battery has come to a stage, to a point whereby it is actually commercially viable, if not attractive. Certainly in U.K. we find that attractive.
Yeah. Our battery portfolio there is serving a critical role dealing with all the frequency support in the various slices, you know, of the grid. We're making good margins coming out of that. We see that batteries could become important as more and more grids integrate more and more renewables into their portfolio, right? Where we are in Asia, this battery experience that we have is really giving us a very good advantage or a lead. I'd like to think that we are in a good lead. It takes time to learn how to operate these things, and especially, you know, an advanced market like the U.K.
Today, you know, we claim at least operational 120 in the U.K, and by the end of this year, 200 in Singapore, megawatt hours of batteries. We are developing more in the U.K., where, you know, again, commercially it is viable and attractive. We want to position ourselves to be, you know, in this space, one of the leaders in Asia, if not in the world. I took the opportunity of the question to explain, you know, if we want to do adjacent green business, we think batteries is where we want to. We have decided that we'll go big into, in addition to wind and solar. In terms of geothermal, first, we do not necessarily have a position today.
We do not have any too much of operating experience in the space. The opportunities are also not very pronounced in terms of where we operate in. Of course, if you go to Indonesia, you go to Japan, they will claim to have a lot of potential for geothermal. But we are not actively hunting for geothermal projects, if that helps answer that question. Where are we actively hunting? Of course, continue to be wind and solar, right? To get to our 10 gigs. But, you know, batteries will be something that you should follow us if you're interested in looking at a developer who is becoming a leader in the battery space.
I hope I shed a little bit more color to that related to that question, taking the opportunity.
Questions from the audience. Lady. Yeah, I think she's had.
Hi, Anita from The Business Times. Just want to get a feel of the high prices in the energy complex, and now given the broader slowing economy, if you are already seeing signs of slowing energy demand, and if yes, in which markets? And if no, how soon could you expect that? Are you expecting that to happen? That's my first question. My second question is in relation to the conflicts over Taiwan. How would Sembcorp be bracing for worst-case scenario, if at all, if the tensions escalate?
In terms of energy demand, the first half of this year, it has held up, and in some quarters actually, in fact it has been strong. All right. You have to recognize that energy, at the end of the day, especially power that we operate in, is. It's a basic necessity, right? The way I would think about it is that compared to the other sectors, right, in a recession, energy is relatively will be affected less. Right? That's how I would think about it. In a recession, there will be some slowdown, right? Like, I don't.
Not associated with a recession, but even in this first half of the year, you see China with the strict COVID measures, right, it has affected the economy. You see some manufacturing slowdown in China. That is widely reported, right? Those are the things that I can quote. Our China businesses, we have a cogen plant in Shanghai under a JV. You know, it hasn't been really affected from a demand, from a sales perspective. All right? Now, that is not to say with a recession or bigger slowdown, it won't be affected. All I'm saying is that it is just energy business, power especially, is relatively.
will be affected relatively less compared to some of the more consumer-related type businesses like retail, right, maybe hospitality, you know, travel. I think that's one I can comment. In fact, you know, Anita, you talk to many economists, you know, they are in a better position to answer that question. I can only tell you what we have experienced and how we see moving forward the next year. Yes, you know, generally, there's a lot of, as I started this presentation, we think we receive a lot of feedback that a lot of people expect, you know, a recession, you know, or at least a slowdown, right, in terms of growth during next year.
We think energy will still be needed. Energy demand, even if it has a speed bump in the near term, will return to the growth path. Taiwan, you know, you talk to anybody or there are a lot of keyboard warriors who are in a much better position for me to answer Taiwan. How is it gonna affect our business from a commercial perspective? I think what we need to be very cognizant of is we do operate in India, we operate in China, we operate in Southeast Asia, right? The same geopolitical tension, for instance, you know, before this season, it wasn't Taiwan, it was South China Sea, right?
How is it gonna affect us? Yes, we need to look at how our businesses could or would be affected by some of this, and we have to make plans for it, right? So far, some of this, we are able to continue our business. I think probably all the media people will tell me it's not good for you to draw attention to another one, but I can tell you about Myanmar, right? We have a power plant in Myanmar, right? Then there are all these discussions about what is the risk to us operating in Myanmar?
I draw your attention to that because that's an example whereby you have got a political upheaval, right? We are in the business of a primary input. It provides for an important source, an important input to the quality of life to the economy, right? Despite the political upheaval, we are the cheapest, the cleanest, the most stable source of energy in that part of the country. Because of that, you know, we see our role as continuing to serve that role, and I think that is the socially responsible way.
T o being a commercial player in a foreign country. As long as we're needed, we'll continue to serve our role, and in so doing, we continue to be able to serve also our stakeholders. Moving away from Taiwan, we, like I say, you know, we don't know what's gonna happen tomorrow. Your guess is as good as mine. In fact, probably better since you're closer to the situation. I generalize that to talk about, look, you know, we operate in the region, and the region has many flashpoints, right? Myanmar being one of them. You know, we operate in India and China. They have their border disputes.
It doesn't stop us from serving them cheap, green, stable, efficient, primary input into the quality of lives and the economy of all these developing nations. Maybe I should just stop there. You know, we can go on and on with this, but I wouldn't want you to quote me on Taiwan, let's put it that way. I think today is about the results, and I'm certainly, I'm no expert in it, and we do not have business in Taiwan today. Thank you.
Next question, please. Lady in white. Thanks.
First of all, congrats on the fabulous results. Just would like to follow up on Myanmar. What is the risk of any operational disruption there and, as well as the provisional impairment, and, what could be the trigger for these events?
Pei Hwa, thanks for that. I think in relation to Myanmar, you probably know that for Myanmar, we account for that under the IFRIC 12, right? So that means, you know, it is accounted in our books as a service receivable. So the first line of assessment is really in relation to, you know, the increase. Are there any evidence that, you know, payment has stopped or there's an issue with a payment. I think at this point, when we assess the situation, we are aware, right, of factors.
Clearly, you know, the political situation that's going on, attempts by, you know, the government to start curbing, you know, US dollar or foreign currency denominated outflows in relation to the country. You know, we also in relation to our asset in Myanmar, I think as Wong Kim Yin has already alluded to, right? Number one, essential service. Number two, we are probably one of. I'm not sure if we are the, but we are definitely one of the most efficient producer in Myanmar. From a generation perspective and also receipt of payments, right, in the foreign currency denominated form continue to be.
In fact, you know, they continue to pay us on time and very promptly. Are there signs that indicate that there will be a outright, you know, provisions or impairment where we stand right now? No. The second level of assessment is there actually a credit impairment? That means was there an actual default on receipts in relation to the PPA. As mentioned early on, that it, you know, they continue to pay promptly. There is no payment default.
The payment pattern continues to be prompt, which you know they have continued to pay and they pay ahead of credit terms. As a result, you know, we do not see at this point in time you know an absolute trigger you know for an impairment in relation to the Myanmar asset. Of course, Pei Hwa, we continue to monitor the situation very closely.
Next question.
Hi. This is Shaun from Credit Suisse. I have three questions. The first one relates to the earlier mention of a potential special dividend. How should we think? Like, how large could this be, maybe relative to your gross gearing or something, right? That's the first. The second question is on the India decarbonization, the various options. Maybe could you talk about the considerations and trade-offs that you're looking at for the various options, like say carbon offset using cleaner feed stock and a clean divestment. No need to go to specifics, but just in general. The third one is more housekeeping. I noticed Singapore's net profit figure was mentioned for the first half of last year. Could you provide the number for the second half of last year?
Thanks.
You mentioned, for Singapore, the number for the second half of last year?
Yeah. The conventional energy Singapore.
Yeah. I think if you recall, if you look at last year's conventional earnings in the second half, I did mention that, you know, Not conventional. I'm talking about gas and related activities. I did mention that approximately 60% of that came from Singapore in the full year results. Right? I see Pei Hua nodding her head already. Pei Hua has been taking notes. I think that will give you a gauge in relation to the second question. Maybe I'll take the first question first and last . In relation to a special dividend, I think if you heard what I said earlier on, right?
From ordinary dividend standpoint, interim, we have already announced, we want to make it sustainable. You can look at from a final perspective, you know, how we would think about it in the second half. Now, again, you know, from a special dividend perspective, it really depends on how, you know, the final results turn out. Of which, as mentioned earlier on, you know, it does depend on where the merchant markets go. If the, you know, the conditions that persist in the first half or exist in the first half carry on in the second half, then, you know, we do expect, you know, our performance continue to be strong.
It will be reasonable to think about looking at our historical payout ratios, to see how potentially you know the dividends could be sized. Right? I think how I'm guiding it's you know how the thinking or the principle behind it. You know it will be hard for me to you know share a number if that is what you're after. You know as mentioned you know our dividend principle is always to you know to look to you know balance that cash return to our shareholders, right? The cash return has to be sustainable.
In this current season, we will also balance that against the need for investments into the long term. In terms of, we have, you know, declared our interim dividend. We can take reference to how, on an ordinary basis, the patterns in which we have been looking at it into the second half. You know, there will be merchant markets that may drive our results to be, you know, better than expected again. You know, can look at our historical payout ratios to help you think about it. Yeah.
You fall short of giving him a number.
I don't know. You have to guess for second half then.
Yeah. No, no, you did the right thing. We can't do that and. I think the long and short of it, if you hear Eugene, you look at our history, and that will give you some guidance, our payout ratios and so on. That's one. We're also increasingly positioning, wanting to project the position that we are a company in growth, right? We're shifting to much more a growth company rather than a dividend company, right? In that spectrum, we are positioning ourselves to be much closer to the growth end than the dividend end. That's the one thing I want to add.
Yeah. Thanks.
Having said that, to balance that, having good year, then shareholders, we want to make sure that the cake is cut in a manner that everybody gets fairly allocated a slice of the cake. Yeah. Okay? That's that. India decarbonization options. Now, maybe let me introduce, in addition to my. What I said in, you know, in response to Izabella's question. One additional dimension is time. Right? We have set ourselves a target, 2025 carbon intensity going down to 0.4 tons of carbon dioxide per megawatt hours. We have also set ourselves a target for 2030 to reduce our carbon footprint such that it will become half of our 2010 levels. Right? Let me remind everybody, today we are about 26 million tons of carbon dioxide. Okay?
2010 we were at 5.4 million. Half of 2010 would be 2.7. By 2030, I need to get to 2.7 from 26 now. That, the two targets, the 2.7 absolute carbon emission or greenhouse gas emission by 2030, as well as the 2025 target of intensity down to 0.4. You know, those are. We are fully committed to that. We are, our incentives are tied to that. Now, I explained to you just now how 0.4 can be reached, right? As long as we meet our 10 kWh or rather 10 kW and tons, and if, especially if we go beyond that alone will allow us to get to 0.4. Right?
Now, to get to 2.7 by 2030, we have to do something with the coal plant. Okay? I want to add that dimension in answer to your question. I talked about decarbonization being a big target. I talked about wanting to balance with value, not wanting to destroy value, too much of it. As you know, the balancing the short-term pain with the long-term value, right? Decarbonization being one value in terms of we having that balance in terms of time dimension. The third one, in terms of a target having been set and we are committed to for 2030, also bringing in the time element to it. Hopefully I've given you a little bit more, but I haven't told you exactly, you know, what are the priority lists.
Because if I do that, then I will be giving away my competitive advantage when we deal with potential stakeholders. That's something that I think if you were a shareholder, you wouldn't want me to do that, because that might compromise your value. Yeah. I hope you understand, but hopefully I've told you a little bit more beyond that. Value is important, but decarbonizing is top priority. The targets that were set will tell you how flexible we would have or not have when it comes to actions in evaluating the various options that I told you just now. I hope that helps. Thanks for that, Shaun. Yeah.
Some questions from online on the conventional energy segment. Could you share what percentage of generated capacity was sold on spot for Singapore and India in first half 2022 versus first half 2021 last year? Given the extremely strong conventional energy spreads, how high do you think is the risk of regulatory intervention in India and Singapore?
Let me clarify. The conventional energy sales?
Yeah.
Between the first half 2021 and 2022?
Yeah. What percentage is on spot?
How many percent is on spot? Eugene, do we have that?
Well, in the conventional energy segment, for Singapore, you know, as mentioned earlier, on the bulk of the revenues are merchant, right? The Singapore market and as well as the U.K. market, they are merchant. Now, for the India market, right now, approximately 60% or so it's on the IEX. That's how you would look at it.
By 2023.
The beginning of which then the percentage that is sold in the IEX would reduce materially.
Yes.
Because the AP 625 MW contract would have kicked in, and then that would reduce it down to 15% or less.
15%.
Yeah.
Because the 625 MW, to just remind everyone,
Yeah.
For the AP, one that's coming in, it's large.
The other thing is also even though we say it is spot, let's say in Singapore, a fair amount of it is covered by short-term contracts. Right? Short-term contracts meaning one year, two years, three years, that type of contract. That we have, Eugene mentioned that it is actually a merchant business.
Yes.
Because when we think about a non-merchant, we're thinking about long-term contracts, right? That's not to say that we are totally exposed to the half-hourly pricing in the wholesale electricity market in Singapore. That's not true, right?
Yeah.
The government intervention. How high do you think is the risk of regulatory intervention in India and Singapore, given the extremely strong conventional energy prices?
I think the Singapore government side have always respected market forces and respected investments that were made, right? Even if there was intervention, it would come in various forms that hopefully will not distort normal market operations. Like, I give you one example, like Singapore for the longest time have this concept where U-Save. U-Save is given to households directly as an offset to their electricity bills, right? Singapore Power in retailing power to households, the 1.4 million households in Singapore, they are allowed to vary their electricity tariff charge to the households based on fluctuating input prices. But for the households that needs help, government intervenes directly by providing U-Save to the household itself. They don't give the money to Singapore.
They do not change the rules such as single power cannot charge the input prices. Just like the same in your everybody drives here, you know, your pump prices, your gasoline prices, again, is allowed to fluctuate, right? In that sense, there has been a history of market regulations not being or the government respecting the market framework that has been out there. That's in Singapore, right? If help is necessary because of very high prices that affects people's ability to go about their everyday lives, then government generally would, you know, support by providing means such as U-Save and otherwise. That's one.
In terms of India, so far, I think the Indian government also, if you look in the history, has been very calibrated. In the first instance, the retail prices in India is somewhat controlled. It hasn't gone up with the market as much as, you know, in a merchant type situation or in the U.K., Singapore, Australia, it hasn't gone that way. In the first place, it was controlled. There is much less pressure to go in there to lower it further, right? If you think about it, the price is really when the whole world's energy price has gone up, Indian prices didn't go up correspondingly. There's no pressure to lower it further when then you have to deal with the upstream.
How you're gonna pay the gen cos and so on in India. Is there I think that is my first reaction when you ask me whether or not there is that we expect intervention. At this stage, we're not hearing anything, and the history as well as the situation on the ground don't suggest that. U.K., for instance, has been talking about windfall profit tax, right? It is coming when in a situation where there were political upheaval and you know politicians may or may not have thought through the implications of what they're suggesting, and so we will have to watch that carefully. Now then, take a step back. You know, we operate in all these markets.
We are not the only player in each one of these markets. If indeed there are new regulations or new interventions, if we have to call it that, then, as long as it is a level playing field, right? We would then have to deal with it, as any other player would have to. What is important is that we need to make sure that we are the most reliable. You know, we stand in good terms in terms of efficiency, right? You're the more socially responsible player. Once you have that, you're in a better position to deal with some of these changing regulations. Regulatory risk, if I have to generalize, and again, take a half a step backwards, is present in any market.
There will always be regulatory changes. We operate in a market in which we provide basic necessity. We have to be cognizant that there is always this risk, and it's something that we deal with. The other thing as an investor, when you look at us, of course, we have a portfolio. We're operating in different markets, you know. Not one single market, of course, it will inflict pain on us, just like it will inflict pain on any operators that is operating in the market. Again, we have a portfolio. That's also the other thing that I thought I should emphasize.
Any questions from the floor?
Hi. I'm Ryan from Morgan Stanley. Firstly, congratulations on a great set of results. My first question is on battery economics in U.K. and Singapore. For the U.K. batteries and Singapore batteries, are they on a you know, contracted capacity payments, or is it like a volume thing? My second question is on India, the power plants. You know, like many of your peers in India, the receivables, it's a bit stretched. Receivable days is a bit stretched, and you know, compared to you know, the rest of the utilities in the region. Just curious on how you guys are managing that and if it's a challenge that you're facing, especially in this period.
Could you repeat the second question again?
Sure. It's on the receivable days in your India plants. Like many of your peers in India, the receivable days for the power plants in India are very stretched. You know, are you facing any challenges there, or, you know, is there a challenge that, you know, you see?
Okay. Thanks for that. That one, Eugene can share with you some positive developments, very positive developments. Okay, on the battery economics, these batteries are there mainly to serve a support role to the grid. Right, revenue is derived from providing frequency support. In U.K., they have a market dynamic regulation, dynamic modulation, dynamic containment, right? In addition to firm frequency response and so on. We're very much playing the role to support the grid stability, right? Mainly the revenues derived from that. Another slice of revenue we derive in U.K. is also trading, right? To the extent, you know, there is spare capacity beyond the grid support business, then we are free to trade that business. There's also one slice that is related to capacity provision, right?
From time to time, the portions might change, we expect in future. Right now the bulk of it in U.K., for instance, is in frequency, is in grid support. Singapore, we are not in operations yet. By year-end we'll come online. We expect that the bulk of it will also be in providing backup services for the Singapore energy system, right? I hope I sort of give a bit of a picture to deal with that. It is an evolving space, and we expect that the various slices of revenue coming in, the proportion will change in the future, right? In U.K. today, the grid support is the biggest part of it, and it is actually quite attractive, if I may say. Right.
As an owner of a battery, we will adjust ourselves depending on which slice of the business becomes more attractive over time, right? Today it is the grid support.
Okay. Thanks. I think in relation to the receivables, as Kim Yin said, you know, I think over the past couple of weeks, and one of them as recent as only two days ago, there were positive developments. I think, you know, when you look at the news, you know, concerns around Andhra Pradesh, around Telangana, right, has always been there. I think, you know, what happened was that the Indian government has realized that it's important for the DISCOMs to be able to pay off the dues.
There, you know, in recent weeks, you know, there has been a program that has been developed where the DISCOMs will actually commit to payment of a past due over a fixed period of time. You know, the Telangana,
You know, DISCOM has committed to a pay down of its past dues. You know, they have been the slowest paying customer in any case over a 48-month period, right? That is committed. You know, the Andhra Pradesh has very recently, almost just literally a couple of days ago, you know, also announced that they are signing up and committing to a 12-month program to pay down their dues as well. I think that is a very positive development in our view, where you know, these DISCOMs have stepped up and have committed to a committed payment plan in which you know, we do see the receivables being paid down.
I think, you know, in the past, you know, there were already programs put in place in relation to, you know, LC facilities, to back some of these receivables. We take this, we see this step of a commitment, right, as legislated by the Indian government, for them to step forth to a committed payment schedule for their past dues. That is a positive development.
This is an article by Bloomberg on the 30th of July, where Mr. Modi was quoted as saying that for the country's rapid growth, it is necessary that its power and energy infrastructure is always robust. Finding a solution to the current challenges is the need of the hour, right? Mr.
Modi's government has started an INR 3.1 trillion program to help turn around these companies with the help of technology, including smart meters and improved efficiency. An earlier federal government-led plan starting in 2015 that aimed to revive the retailers by 2019 failed to meet that goal, right? They have put forth an INR 3.1 trillion program. That's why I characterize it as a positive development. Now we have to see it flow through to eventually reduction in our receivables. You know, there is a very positive development actually, not seen for a long time.
Okay, another two questions online. First is on balance sheet. Absolute debt in First Half 2022 went up, and I recall that gross debt versus capitalization was 0.65 times in FY 2021. Can management share what kind of internal targets they look at to keep overall group leverage at a sustainable level? What has led to SEI being relatively slow in fixing its interest rates on debt versus regional peers? And what is the target fixed versus floating ambition by end 2022? In terms of returns question, ROIC on China renewables is about 4% on basis of first half numbers. What could be sustainable ROCE on HYNE?
Okay. Before Eugene tackles that, I just want to point to the fact that, in the last 12 months, we have raised $3 billion of financing, right? Yeah. Of which, 1.5 was fixed rate bonds, about. Yes. That's right. Right. I would disagree respectfully that we are relatively slow, right? $3 billion in this market in 12 months, by any measure, you know, I think is respectable.
Yeah. I think, you know, to respond to that question, I think, the first things first is if you recall, as I mentioned earlier on, the bulk of the financing that we are doing right now are fixed rate, right? Even within the, you know, the SGI, which is the India green portfolio.
We have also been, you know, increasingly fixing their floating rate project financing debt, with, you know, a green loan format, on a fixed rate basis, with a corporate guarantee. We have you know been you know accelerating our fixing of our portfolio, actually. Now, what I mentioned earlier on was that, you know, we were hitting about 57% fixed rate of our debt portfolio, and that came down as a result of the consolidation of the HYNE portfolio.
We will continue to look to fix the HYNE portfolio, you know, where its local, you know, project finance debt is actually, you know, the Chinese local interest rate environment is different from the rest of the world. It is a lot more benign, where, you know, LPR rates in recent time has actually been coming down. Nevertheless, we will be looking to fix that portion of the portfolio. Now, in the longer term perspective, we do expect to translate, you know, our debt towards a 75% fixed relative to floating.
Now, we can't fix completely the entire portfolio. Which simply means that, you know, I will not have flexibility to manage cash versus debt and therefore manage a negative carry, right? I think I will broadly talk about interest rates, you know, as that. Now, in terms of leverage, you will notice that, well, if you did, I apologize that we did not show the statistic, but if you calculate, you would notice that as of 30th June, net debt to total capitalization stands at 0.66, which is, you know, roughly around where things were as of the 31st December. If you would recall, we have announced our, you know, capital structure targets in our Investor Day presentation last year, right?
During May, where we expect by the end of 2025 as we execute the growth plan that we have and through you know the mix of you know new sources of financing coming from green as well as sustainability-linked, as well as you know portfolio capital recycling activities. We expect to maintain a total debt to EBITDA of about 5.4x and total debt to adjusted EBITDA of about 4.8x . Those were the numbers as I recall.
You know, we do have set out the targets where that as we execute our transformation plan, where we will get to and you know that has also been made known to the market. Now, I guess there was a second question in relation to returns.
Yeah.
Yeah.
Yeah.
Do you mind repeating that for me?
Sure. ROIC on China renewables is about 4% on basis of first half numbers. What could be sustainable ROCE on HYNE?
Yeah. I think, you know, when you look at the HYNE portfolio from a ROE perspective, right? It generated, on a first half perspective, approximately SGD 32 million, right? When you look at an annualized ROE for HYNE, right, again, it's a purchase price is closer to 10% actually from a ROE perspective. But of course, for China, typically in the second half, potentially you could see lower wind.
You know, the ROEs that we would potentially see for our SDIC for this HYNE portfolio could be just shy of, you know, what is implied from its first half numbers. I would say that, again, from a returns perspective, our renewables portfolio ROEs does have a certain correlation with the youth of the portfolio. With the vintage of the portfolio, right? You know, the HYNE portfolio, if you will recall, when we announced this last year, right? The average age of the portfolio today will stand around 3.5 years.
3.5 years, you know, for the ROEs, on a full year basis, being shy of, you know, what is implied from the first half. You know, it is within the range that we have expected, if not a little better. I will characterize, you know, the HYNE returns and ROE on that basis. That of course, as the portfolio matures, right, and that has been serviced beyond the 5-year point, you would expect its ROEs to increase towards 10% and beyond that. You know, beyond the 15-year range, you know, ROEs would potentially increase beyond 20%.
I would say that, you know, the ROEs would you know in relation to the maturity of the cash flow of the assets.
What we want to also emphasize is that, I think during Investor Day question also on returns, right? What we say is that by 2025, when we reach our 10 gig targets, we are very confident that we would be able to deliver a 10% average ROE on the green portfolio. Right. I think we continue to stand by that, despite the changing times and changing environment. We think from what we have today, if we.
You know, Eugene talked only about HYNE, but when we dissect all the other, the whole portfolio with India, with other parts of China and Singapore for that matter, we think, on average weighted basis, you know, to reach a 10% for the portfolio is well within—
Yes, that's correct.
Well within our means. Continue to stick to that, right? Even as we talk about HYNE, I want to talk about the entire portfolio and also 2025 target. We stand by that, the estimate.
Any last questions from the floor? If not, we've come to the end of today's briefing. Thank you very much for joining us today.
Thank you.
Thank you.
Thanks for coming. Sorry to be doing it, you know, sort of, lunch hour. We're not providing food, right?
Catered.
Oh, is it?
Yes.
Oh, that's good. Sorry.
Yeah.
We can eat. Where do you want people to eat?
At the foyer.
At the foyer, huh? Can I have the mic? Yeah. Ladies and gentlemen, if you look behind me, this is the screen. Our staff, when they come in here to have lunch or when they mingle, they will see the operating statistics live from our various businesses. You can take a closer look at it. We will continue to enhance this, the content behind it, right? The whole point is, again, to highlight, you know, what we do and to show that actually when we say we got live data, we're able to you know we've got sensors, we've got digital and all those things, you know. Nothing more important than simply showing it on the screen, right?
Behind all this, of course, there are also more sensitive data that we can't show you, that we're not going to make public. You know, we flash some of these things actually more internally to help our staff to get a sense of the type of company they're working for, right? That's. I thought it's important for me to emphasize this since we're using this room instead of any other hotel room or any town hall venue. Right. Thank you very much. Again, lunch is catered outside. Please help us finish all that food. Otherwise, all must dabao. Thank you.