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Edited Transcript of U96.SI earnings conference call or presentation 15-Aug-19 3:00am GMT

Half Year 2019 Sembcorp Industries Ltd Earnings Presentation

Singapore Sep 9, 2019 (Thomson StreetEvents) -- Edited Transcript of Sembcorp Industries Ltd earnings conference call or presentation Thursday, August 15, 2019 at 3:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Graham Cockroft

Sembcorp Industries Ltd - Group CFO

* Lay San Ng

Sembcorp Industries Ltd - SVP of Group Strategic Communications & Sustainability

* Neil Garry McGregor

Sembcorp Industries Ltd - CEO, Group President, Member of Technology Advisory Panel & Executive Director

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Conference Call Participants

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* Cheryl Lee

UBS Investment Bank, Research Division - Head of Singapore Research, Executive Director and Analyst

* Gerald Wong

Crédit Suisse AG, Research Division - Head of Research

* Pei Hwa Ho

DBS Bank Ltd., Research Division - Assistant VP

* Siew Khee Lim

CIMB Research - Head of Research for Singapore

* Zhiwei Foo

Macquarie Research - Analyst

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Presentation

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Lay San Ng, Sembcorp Industries Ltd - SVP of Group Strategic Communications & Sustainability [1]

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Good morning, ladies and gentlemen, and welcome to Sembcorp Industries First Half 2019 Results Presentation. A warm welcome, too, to viewers tuning in via the webcast. I'm Lay San from Group Strategic Communications and Sustainability.

Before we begin today's results briefing , I will now take everyone through a very short safety briefing on the procedures to follow in the unlikely event of an emergency. In the event of an emergency evacuation, an announcement will be made for all to evacuate to the assembly point. Kindly follow the instructions of the ushers and crew on site for evacuation routes. Please exit via the main entrance, which is on your left-hand side of the studio. As you evacuate, walk calmly and in an orderly manner. Once you're out of the studio, head towards the stairs next to the entrance of the concert hall circle and go down to Level 1. Once you're at Level 1, turn right, cut across retail shops and proceed to cafe building for assembly. Thank you for your attention.

Let us now commence the briefing. The members of the panel for today's presentation are Group President and CEO of Sembcorp Industries, Neil McGregor; and Group CFO, Graham Cockroft.

Before we begin, we would like to request for all mobile telephones to be turned off or switched to silent mode, please. Thank you.

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 the e-mail options provided on your screens.

Without further delay, I'll now hand over to Neil to begin the results presentation. Neil?

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Neil Garry McGregor, Sembcorp Industries Ltd - CEO, Group President, Member of Technology Advisory Panel & Executive Director [2]

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Thank you, Lay San. Good morning, everyone, and thank you once again for attending Sembcorp Industries First Half 2019 Results Briefing. For the first half of 2019, the group delivered profit growth despite the challenging operating environment for the Marine business. Group turnover was $4.9 billion compared to $6.1 billion in the first half 2018. Both profit from operations, PFO and net profit improved with PFO up 12% to $455 million and net profit up 20% to $191 million. Earnings per share for the period was $0.097, and group annualized return on equity was 5.6%. The Board has declared an interim dividend of $0.02 per share. This will be paid on September 4, 2019.

The next slide is a snapshot of the performance of our 3 businesses. For the first half of 2019, the Energy business continued to deliver a good performance, growing its net profit by 14% to $177 million from $155 million in the first half 2018. The improved performance was driven mainly by higher contribution from Southeast Asia, excluding Singapore, China and India. So I mean excluding Singapore separately. So the higher contribution came from Southeast Asia, China and India. Amid a challenging market environment, the Marine business recorded a loss of $6 million. The Urban business posted a net profit of $18 million with stable contribution from Vietnam but lower earnings from China. Earnings for this business is very much dependent on the timing of land sales.

Let me now take you through the key developments in our Energy business. Our focus continues to be on reshaping our portfolio and positioning ourselves to become a more sustainable, integrated energy player in the global energy transition. We have made strides in deepening our presence in our key markets, significantly in India and Singapore.

In India, profitability continued to improve with first half 2019 net profit up 46% to $35 million. To support the growth of India renewables business, we undertook an equity injection of $102 million into SEIL in July. We have also commissioned 200 out of the 550 megawatts for the remaining SECI 2 and SECI 3 wind power projects, which were secured under India's nationwide wind power tenders. This brings our total SECI wind capacity in operation to 450 megawatts, the largest generating capacity amongst the SECI wind project developments. We now have over 1,700 megawatts of total renewables capacity in India.

In Singapore, we are strengthening our home base and core market by leveraging our integrated energy offerings. Our solar power portfolio has expanded substantially. It grew over 40% to 166 megawatt peak to date as part of our own customer strategy. As we continue to play our part in supporting the nation's renewable energy ambition, we're a partner to many companies in Singapore who want to play their part in reducing their carbon footprint. On the retail side, our open electricity market was extended nationwide in May 2019. We have secured approximately 60,000 customers to date that have switched out of the current SP-regulated business.

Looking ahead, in Singapore, our power assets will be undergoing maintenance shutdowns in the second half of 2019, which will negatively impact performance. We expect to complete the sale of utilities assets on Jurong Island, formerly serving JAC, or Jurong Aromatics Corporation, to ExxonMobil by the end of this year. We are also on the final stages of making a replacement decision on one of our combined heat and power facilities that provide power and steam to our customer base on Jurong Island. This is to ensure that we have a fleet of high-efficiency assets to better serve our customers, including major industries there on Jurong Island.

In India, 350 megawatts of renewable capacity is expected to come onstream in 2019. We continue to see a positive long-term outlook for the India power market with the current situation of peak surplus expected to reverse by March 2020.

In the U.K., challenging merchant market conditions and the suspended capacity market continue to negatively impact its performance. However, in the medium term, we continue to believe in the value of UKPR's highly flexible fleet, which would help counter the intermittency of the growing renewable power resource base there.

For the first half 2019, the Marine business secured new orders worth about $175 million. The total net order book stood at $5.3 billion. During the quarter, Sembcorp Marine completed the word's largest, strongest and most sustainable semisubmersible crane vessel for Heerema, proving the business' capability to deliver mega turnkey offshore construction projects.

Looking ahead, the Marine business will continue to optimize and rightsize its workforce to meet the current and foreseeable level of business activities. Overall, the challenges in the offshore and marine sector persist and a sustained recovery in new orders will still take time. Meanwhile, completion remains -- sorry, competition remains intense and margins compressed. With insufficient new orders secured in the last few quarters, Sembcorp Marine is expecting the losses for the second half to be higher than the first half with the full year losses projected to be similar in range of those in 2018.

And now to our Urban business. Total land sales was compared to -- sorry, total land sales compared to first half 2018 due to the timing of land sales. However, there continues to be strong interest in Vietnam industrial land, driving our net order book to a high of 504 hectares, a 30% increase from the first half of 2018. 900 hectares of saleable land from 2 new VSIP developments in Bac Ninh and Binh Duong were secured and will be added to our land inventory upon the approval of the master plans for those 2 projects.

Looking ahead, we expect strong demand for industrial land in Vietnam to continue. The sale of the Riverside Grandeur in Nanjing, a residential development in China, is expected to be progressively recognized in the second half of the year while the 504 hectare order book is expected to be booked as land sales over the next 2 to 3 years.

All in all, I believe we have made progress on our -- in our strategy to reposition Sembcorp for success in a rapidly changing world despite the challenging market conditions. We have reshaped our organization and continued to enhance our capabilities. We have deepened our leadership bench strength, promoting internally as well as bringing new -- new expertise onboard in areas targeted for accelerated development. We also grew and strengthened our capabilities in the merchant and retail segment as well as in digital and technology, risk management and compliance.

We have made progress in lifting the performance of our group. Our Energy business has had 6 consecutive quarters of year-on-year earnings growth. Notably, our India operations turned around to profitability last year. The Urban business, which delivered a record net profit last year, has secured a record net order book of 504 hectares. This will underpin its future performance.

To strengthen the financial position of our Marine business amid the current downturn of the global offshore and marine industry, the group has provided a $2 billion 5-year subordinated loan facility to Sembcorp Marine in June. While the offshore and marine industry has shown signs of recovery, such a recovery is expected to be gradual, and sustained new orders for the business will take time to materialize. Working capital needs have also increased especially for major EPC contracts. We believe that this loan provided will strengthen Sembcorp Marine and better position it for the eventual recovery of the industry.

To grow and achieve sustainable value creation, we have continued to deepen our reach in key markets and made strides in rebalancing our Energy portfolio. In line with our aim to be one of the region's leading independent renewable energy players, we grew our renewables portfolio by 20% to over 2,600 megawatts with operational capacity now at over 2,100 megawatts. Our thermal operation capacity also increased by 16% to 9,800 megawatts with the completion of Myingyan power plant in Myanmar and the Sirajganj Unit 4 power plant in Bangladesh and the acquisition of UKPR.

To strengthen our balance sheet and deliver sustainable growth, we continued to focus on active and systematic capital recycling. To date, we have completed a number of divestments in Singapore, China, Oman and South Africa, unlocking cash proceeds of approximately $300 million since the beginning of 2018. We are on track to meet the $500 million divestment target by 2020. Divestments completed this year include the Xinmin -- our Xinmin and the Lianyungang water assets in China and Gallant Venture.

In conclusion, while we fully recognize the challenges we face in our markets and industries, we are committed to executing our strategy and are making progress in repositioning Sembcorp for the future.

Now let me hand over to our group CFO, Graham, to take you through the group financial review. Thank you.

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Graham Cockroft, Sembcorp Industries Ltd - Group CFO [3]

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Thank you very much, Neil, and good morning, everybody. Thank you very much for joining us, particularly given the action in markets overnight. I'm sure everyone's got plenty of other things to do as well. So it's a pleasure that you're with us today.

I'll now take you through the group's financial performance for the first half of 2019. On Slide 10 -- Slide 11, in fact it is, you'll see that the group posted a turnover of $4.9 billion the first half of 2019, 21% lower than the corresponding period last year. Despite the lower turnover, the group earned an EBITDA of $705 million in the first half of '19, 27% higher than the prior year. Profit from operations of $455 million was 12% higher than the first half of '18, and the improved EBITDA and PFO performance came from the Energy and Marine businesses offset by a lower contribution from the Urban business.

Finance costs in the half of $289 million were 23% higher compared to the corresponding period in 2018. The increase there came mainly from the Energy business with the Myingyan and Sirajganj Unit 4 interest costs no longer being capitalized as the plants achieve commercial operation, and the Marine business had higher average bank borrowing in the period as well. The first half 2019 finance costs also included $11 million of deemed interest costs on lease liabilities arising from the adoption of SFRS 16. Higher finance income was attributable to interest income received from a customer of Sembcorp Marine under a deferred payment arrangement.

The group's effective tax rate of 25% for the first half of '19 was lower than the 57% the first half of '18. Tax expenses for India were lower as a result of the amalgamation of our thermal power operations there in the fourth quarter of 2018. Net profit after tax and after noncontrolling interest was 20% higher at $191 million, earnings per share at $0.097 per share and return on equity on an annualized basis was 5.6%.

Turning to slide 12, where we cover group turnover. The Energy business recorded a turnover of $3.2 billion, similar to the first half of '18. Singapore turnover increased due to higher -- high sulfur fuel oil prices and higher electricity sales from the Open Electricity Market. The U.K. operations also included revenue from U.K. Power Reserve, which was acquired in the second quarter of 2018. This increase in turnover was offset by lower turnover in India due to the shutdown of Unit 1 at our Project 1 power plant in January and February this year, lower construction revenue from S4 in Bangladesh, where the high contribution is recognized during construction phase under the IFRIC 12 accounting, and no turnover from the South Africa post -- from South Africa post divestment of the business there at the end of last year.

Marine's lower turnover was the result of lower revenue recognition for rigs and floaters and offshore platform projects, but slightly mitigated by higher repair and upgrade revenue.

Urban's turnover, as derived from providing services to its associates and joint ventures, doesn't really feature much in our turnover line. And other businesses turnover mainly came from design and construction activities from the group.

Turning to slide 13 on group profit from operations. The group registered profit from operations of $455 million in the first half of '19, an increase of 12% over last year. The PFO for Energy was 10% higher compared to the first half of '18. The improved performance came mainly from our overseas businesses, and I'll go through those in more detail in subsequent slides.

Marine's improvement in PFO was mainly due to margin recognition from a newly secured production floater project and the delivery of a rig. The first half '18 loss, that was mainly due to losses recognized upon the sale of a semisubmersible rig.

For the first half of '19, PFO for Urban declined mainly due to lower land sales in China as compared to the first half of '18, and group corporate costs were slightly higher mainly due to an increasing personnel and administrative expenses from businesses acquired last year and an increase in consultancy costs and the building or investment in the group's capabilities of -- in the new business lines, particularly around digital and technology.

Slide 14, looking at net profit. The group posted net profit of $191 million for the first half of '19, 20% higher than first half of '18. Energy business net profit of $177 million increased 14% compared to first half of '18 profit of $155 million. We'll have more details the next few slides on energy's performance.

Marines' loss -- net loss for first half '18 was mainly due to the continued lower business volume. And Urban net profit in the first half of '19 was mainly attributed to industrial land sales in Vietnam. The lower net profit. When compared to the first half '18, was mainly due to lower land sales in China.

Turning to the next slide, we'll look at Energy PFO by geography. So you can see there that the overall PFO of $444 million represented a 10% growth over the first half of '18. And you can see there also that the growth came mainly from the rest of Southeast Asia, rest of the world, China and India.

So we got to the following slide, shows a waterfall of PFO by geography so you can see the delta year-on-year. That reconciles the performance in the first half of '19 against the first half of '18. There's quite a lot of detail in that slide. I won't go through each one of these things. So really just to highlight some of the key factors.

For India, the P2 thermal power plant achieved higher dark spreads from better short-term contracted position, lower coal costs and the recognition of a settlement with a customer for late payment. These improvements were offset by the Project 1 Unit 1 shutdown on first quarter 2019, but overall, Q2 '19 PLF was 82% for Project 1, 84% for Project 2 and 26.4% for SGI. So that -- you can see there quite good PLF factors for the thermal plants.

Other highlights, Myingyan and S4 and the rest of Southeast Asia and rest of world categories, these plants commenced commercial operations in phases during 2018 and 2019. So they clearly are a delta over the first half of '18. Also in China, we had better results from the Energy business there for both thermal and renewable energy. These positives were however offset by Singapore's declined PFO, mainly due to lower spark spreads and the higher operating expenses associated with the Open Electricity Market.

The following slide, similar reconciliation for Energy net profit, where you can see the net profit increased from $155 million in the first half of '18 to $177 million the last half, increased mainly due to an increase in EBITDA of $14 million due to better performance from our China, India and contributions from newly operational facilities in Myanmar and Bangladesh and also an increase in the share of associates and joint ventures of $26 million driven by better performance from Vietnam, China and the Middle East.

However, the above increases were reduced by higher finance costs and profit attributable to noncontrolling interest of $5 million. Taxes were lower by $28 million as tax expenses for India reduced subsequent amalgamation of our thermal operations there at the end of last year.

If we go to the next slide, we're looking at CapEx and equity investment. The CapEx incurred in the first half of '19 was mainly for the expansion of the India renewable energy business and the Marine's Tuas Boulevard Yard. Equity investment made was mainly for the incorporation of subsidiaries in the Urban business for residential development in Hai Phong City, Vietnam in first quarter of '19.

If we go to the following slide on group free cash flow, you can see there that first half '19 cash flow from operating activities was $882 million, $848 million higher compared to the first half of '18. Now this increase is driven mainly by improved operating performance and net inflows from changes in working capital in the first half of '19 from the Energy and Marine businesses.

Net cash generated from Marine in the first half of '19 was $297 million mainly due to receipts from completed projects offset by some working capital for ongoing projects. For the business other than Marine, besides the better operating results, there was also a lower buildup of receivables and the receipt of advances from some customers. The increase in first half receivables included $130 million of service concession receivables from Myingyan and S4 as part of the IFRIC 12 I talked about earlier. We're no longer continuing to accumulate those receivables, and they will be collected over the period of the concession contracts from the time that the power plants actually commenced commercial operations.

Net cash flow used in investing activities was $439 million, mainly for CapEx, as we saw on the previous slide, but offset by proceeds from divestments, dividend and interest income received. The proceeds from the disposal of the Gallant Venture shares were $62 million as part of that divestment line. So free cash flow before expansionary CapEx for the first half of '19 was $933 million.

We then look at the -- a move to balance sheet and have a look at group borrowings. You can see there that the group's net debt was $8.7 billion at the end of June 2019, comparable really to the level at the end of 2018. Interest cover was 2.4x while gross debt-to-net debt, net debt-to-capitalization ratios were 0.57 and 0.46x, respectively. Total gross debt increased by $87 million to $10.8 billion as at the end of June, and the profile of debt change was the increase in project finance from $3.2 billion to $3.8 billion while corporate debt declined from $3.3 billion to $3.0 billion. And Marine also reduced its debt by $116 million in the period.

And the following slide is a new slide for us. We -- in response to some shareholder requests, we're including a more detailed breakout of the debt profile for the business. So there, you can see as of June or the end of June, we had -- of the $10.8 billion, 38% of our debt was due within 1 year, 34% between years 1 to 5 and the remaining 28% after 5 years. What we're doing here is providing a little bit more detail on what -- on the breakdown between years 1 to 5.

Marine's debt due within 1 year amounts to $2.1 billion as at the end of June, but on -- as Neil mentioned before, in June of this year, we signed a subordinated loan arrangement between industries and marine to provide them with $2 billion of subordinated loan. And on the 8th of July this year, the Marine business drew down from that loan a sum of $1.5 billion to retire some of their short-term borrowings and to reprofile the remaining borrowings to longer-term maturities with, clearly, the ultimate goal of strengthening the overall financial position. 35% or $3.8 billion of our total debt is nonrecourse project finance debt, which is mostly attributable to India, Myanmar and Bangladesh. And there's a further breakdown of the borrowings in the appendices for you.

Thank you very much for listening, and we can take any questions that you may have.

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Lay San Ng, Sembcorp Industries Ltd - SVP of Group Strategic Communications & Sustainability [4]

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We've now come to our Q&A session. For viewers of the webcast, please send your questions for the Q&A via the e-mail options provided on your screens. Without further delay, please use the microphone for questions and identity yourselves by name and company. If you raise your hand, the microphone will be brought over to you.

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Questions and Answers

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Unidentified Participant [1]

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From Nikkei. Just a couple of questions on the marine -- on your Marine business. In your opinion, to what extent is the decline or downturn in Marine cyclical? And to what extent is it structural?

And the second question would be can Marine actually borrow money on its own without some form of backstop from Sembcorp Industries.

And maybe just to clarify. You talked about downsizing in Marine. Are you talking about hundreds of jobs or thousands of jobs?

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Neil Garry McGregor, Sembcorp Industries Ltd - CEO, Group President, Member of Technology Advisory Panel & Executive Director [2]

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Lay, you want to mention -- bring up the first question?

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Lay San Ng, Sembcorp Industries Ltd - SVP of Group Strategic Communications & Sustainability [3]

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So the first question was -- is -- in your opinion, is the decline cyclical or structural? Right, [Kevin], that was your question?

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Unidentified Participant [4]

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Yes.

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Neil Garry McGregor, Sembcorp Industries Ltd - CEO, Group President, Member of Technology Advisory Panel & Executive Director [5]

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[Kevin], it's actually both, all right? Cyclical -- the business has always been a cyclical business. I think what is -- what's the issue this time around is that it's particularly protracted, so much, much deeper trough. And when you see what's happening in the world economy, in the macro economy, supply and demand for oil has changed and changed because of the amount of shale, shale oil available to the U.S., which has meant that offshore development has been slowed down. But it doesn't mean to say that it's not going to come back. There are still a need for oil. And oil is still growing, even though it's quite small, less than 1% growth per year, but it's not negative. And there are also depletions happening within the current fields, and that's approximately 4 million barrels per day. So the market is tightening. But I think the real issue will be U.S. demand. And how that occurs, one would probably have to look at rig counts in the U.S.

So on the structural side, yes, there's a change in business model coming through. I think the business is no longer -- well, no longer profitable in the rigs side. But in floaters and platforms, these are still very much bespoke developments, and there's only a couple of players in the world that actually can develop these. So Sembcorp Marine is not a mass producer of rigs. It's moved away from that business, and it's moved towards designer -- well, more bespoke types of solutions for the marine industry. You'll see that in the form of the offshore wind business where it's taking part in tenders for jackets, for platforms, for setting up transformers and for erecting some of these wind turbines in various countries.

The other area that it's moving into is in the gas business. Yes, it hasn't sold Gravifloat. That is a challenge. The business is a very conservative business, and the solutions that we have for developing countries are difficult to implement currently mainly just because of the financial situation. But we know that the solution is a very good solution, and it's one that's constructible and one that will be a solution for the industry in the future. So that gives you some idea in terms of -- the shift of business model away from cookie cutter-type projects in the past, very thin-skinned, thin-walled fabrications to very thick plate assemblies, which are required to exist for a very long time in deep water, harsh environment projects.

So when is the return of this business? I think most of us here, it's not any time soon. We think that it's a few years away. But given its business focus and its change in business model, the platforms have a lead time of about 4 years, all right? So we think that we will start to see some uptick. If it's not on this year, we should see it next year. And that's where we are. The next question.

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Graham Cockroft, Sembcorp Industries Ltd - Group CFO [6]

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I can take the second question. The question was can Marine borrow on its own or can it not borrow on its own, I guess, is your -- the way you were wording it. Yes, it can. It has done, and it will continue to do in the future. I think really it's with -- part of the answer comes from what Neil has just said, that nobody knows how long this decline in the offshore in Marine business will last, so having -- we've taken a view that it makes sense for us to put some money in to help them through this. They could continue to borrow on their own, but they'll be paying a higher price for it, and we're creating a platform that enables them to reprofile their debt over a longer period of time. So they -- that will all be done on their own. There's a third question, but...

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Neil Garry McGregor, Sembcorp Industries Ltd - CEO, Group President, Member of Technology Advisory Panel & Executive Director [7]

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Yes, do you want to bring that one up?

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Lay San Ng, Sembcorp Industries Ltd - SVP of Group Strategic Communications & Sustainability [8]

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The third question was on downsizing. Are you talking about for Marine business? Are you talking about hundreds or thousands?

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Neil Garry McGregor, Sembcorp Industries Ltd - CEO, Group President, Member of Technology Advisory Panel & Executive Director [9]

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I think you have to ask the Marine business that. I can't answer that off hand. They're a separately listed business. So I think you should address the question directly to Marine. Thank you.

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Lay San Ng, Sembcorp Industries Ltd - SVP of Group Strategic Communications & Sustainability [10]

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Okay. Thank you. Could we have the next question?

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Zhiwei Foo, Macquarie Research - Analyst [11]

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I'm Zhiwei from Macquarie. I have 2 questions. The first one's a housekeeping question. Can you share the net profit for the SEIL Projects 1, 2 and SGI at a net profit level? And then after that, how much worth did UKPR make in the second quarter?

The second question is on UKPR itself. Given the risk involved in the business, namely debt, there's a potential that you may not be able to receive payments for the capacity market if the ruling is unfavorable; and second, that you're also facing some changes in regulations to the triad market. Can you share with us your optimism on the long-term prospects for UKPR?

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Neil Garry McGregor, Sembcorp Industries Ltd - CEO, Group President, Member of Technology Advisory Panel & Executive Director [12]

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I'll ask Graham to take the first question. I'll take the second one.

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Graham Cockroft, Sembcorp Industries Ltd - Group CFO [13]

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So the question was the net profit of the 3 India businesses for the quarter or the half?

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Zhiwei Foo, Macquarie Research - Analyst [14]

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For second quarter, yes.

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Graham Cockroft, Sembcorp Industries Ltd - Group CFO [15]

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Second quarter. So the split is project 1 is $30 million, project 2 $1 million and SGI $11 million.

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Zhiwei Foo, Macquarie Research - Analyst [16]

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And where was the settlement from the customer recognized?

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Graham Cockroft, Sembcorp Industries Ltd - Group CFO [17]

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In the second quarter.

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Zhiwei Foo, Macquarie Research - Analyst [18]

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Which -- was is it for the group?

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Graham Cockroft, Sembcorp Industries Ltd - Group CFO [19]

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No, it's for project 1.

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Zhiwei Foo, Macquarie Research - Analyst [20]

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Project 1. And for UKPR, what was the profitability for second quarter?

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Graham Cockroft, Sembcorp Industries Ltd - Group CFO [21]

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UKPR was minus $12 million.

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Neil Garry McGregor, Sembcorp Industries Ltd - CEO, Group President, Member of Technology Advisory Panel & Executive Director [22]

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Okay. To come onto prospects for UKPR. Firstly, you must recognize that it's a peaker business. So it's not a business that has sustained profits or stable profits from year to year. Nonetheless, the business was impacted by mild and windy winter this year and hence, the peaking services were not called on as much as we had expected.

With that, in terms of the longer-term prospects for that business, given the amount of renewable capacity in the U.K. mix, which is now about 40% and the government are looking to take it towards 60% in the next 4 or 5 years, that means that products and solutions for intermittency will be in demand. So the business is a stochastic business. And so one is that the profits year-on-year, or losses, will be lumpy, and they are hard to predict. Having said that, the performance of the business is not where we would like it to be. And that's certainly taking a bit of focus both here in the U.K. and also in Singapore, as we would like to refocus that business as part of our merchant operations. So we've -- as the -- developing our capabilities, we've started to build a merchant business here in Singapore, covering the U.K. and also India coal operations. Only just started. We should see some impact on -- from that business, positive impact next year.

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Zhiwei Foo, Macquarie Research - Analyst [23]

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Just a sort of follow-up. Have you taken measures, provisions in the event that Tempus Energy wins their case and state aid is no longer legal and therefore, you do not get paid for the services you rendered this year in the capacity market?

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Neil Garry McGregor, Sembcorp Industries Ltd - CEO, Group President, Member of Technology Advisory Panel & Executive Director [24]

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Short answer's no. And the reason for that is Tempus is not only taking action in the U.K. It's also taking action in Europe. And given this was a European Union ruling, the likelihood of it succeeding is low. It's still possible. That's our opinion by the way. The U.K. government under Boris Johnson have also come out and said that they would like to see the suspension lifted. Now, is that going to happen this year? Is it going to happen next year? I'm not sure. So you can see the -- part of the volatility of UKPR has been hit by regulatory change and some challenges in the market -- legal challenges in the market on a point of law. This is something that we will defend vigorously, but in the meantime, it's a U.K. and European Union decision, whether they lift the suspension and change the law.

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Graham Cockroft, Sembcorp Industries Ltd - Group CFO [25]

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Just for clarity as well, we haven't booked any revenue from the capacity market since it was suspended in the fourth quarter of last year.

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Lay San Ng, Sembcorp Industries Ltd - SVP of Group Strategic Communications & Sustainability [26]

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Do we have another question? Sorry? Can someone get a microphone to Cheryl or Siew Khee? Thank you.

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Cheryl Lee, UBS Investment Bank, Research Division - Head of Singapore Research, Executive Director and Analyst [27]

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I'm Cheryl from UBS. I have a couple of questions with regards to Singapore. On the decline in the second quarter profit from 43 to 36, you mentioned margin of the electricity business as well as open -- as well as marketing costs for the retail side as contributing factors. Could you just help us understand maybe or quantify perhaps what is the marketing cost, additional marketing costs that you've been facing or -- so what is the cause of the decline? Is it more of the margin? Or is it because of marketing costs? And when you sort of expect to maybe tail off some of these -- the intensity of these marketing campaigns? That's one.

Secondly, you've also mentioned in your statements that you're evaluating investment decision to replace a combined heat and power plant. And just to clarify, is this with regards to the cogen? Maybe sort of like a ballpark of what the CapEx possibility might be? And if you decide not to go ahead, what are your options with regards to this plant that you're evaluating?

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Neil Garry McGregor, Sembcorp Industries Ltd - CEO, Group President, Member of Technology Advisory Panel & Executive Director [28]

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Again, I'll take the second question. I'll ask Graham to take the first.

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Graham Cockroft, Sembcorp Industries Ltd - Group CFO [29]

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So we haven't made any disclosures on what the marketing spend is. But that would -- I would imagine that -- or that is the primary driver of the costs within the Singapore business. The margin on the OEM market, there's relatively small volumes in total and so the margin's not going to have a huge impact. And the margin will move around clearly, as the spot price moves around as well. So we're going to see some volatility in that.

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Cheryl Lee, UBS Investment Bank, Research Division - Head of Singapore Research, Executive Director and Analyst [30]

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And is the intensity of the marketing campaign on the retail side going to be continuous)?

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Graham Cockroft, Sembcorp Industries Ltd - Group CFO [31]

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My impression at this point is that it won't be continuous. I don't think -- I think there was a lot of action at the beginning to make sure that we get a profile there. But I think all of the retailers are in similar situations regarding their OEM businesses, and so I think we'll see them, everybody, easing off a bit on marketing spend.

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Neil Garry McGregor, Sembcorp Industries Ltd - CEO, Group President, Member of Technology Advisory Panel & Executive Director [32]

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Okay, on the combined heat and power solution, I can't give you a value. And the reason for that is there are a few options there, but it does concern our -- an end-of-life decision that we have to make about the replacement of Sakra. Sakra was built in 2001. It's coming, in the next few years, near the end of its economic life. There are better technological solutions which are more carbon efficient and also more cost effective to apply in this market.

The reason I can't give you the indication of value is because the ranges of size, the size of the block replacement is variable and it depends very much on the technology and the OEM that we select. But we're pretty advanced in that selection process.

Naturally, we also need to look at the viability of a new planting that is consistent with the Singapore regulatory framework both current and future, and you know that that's under some review that the EMA is looking at introduction of capacity market in the future. Whether that comes out or not would have an impact on the type of technology and class of technology that we would use. But the main thing here is that we do have to address this issue. There are reliability issues that come up longer term, and there is a finite period that you can run these gas turbines before you have to take on board very major refurbishment costs and it just ends up cheaper to replace them.

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Lay San Ng, Sembcorp Industries Ltd - SVP of Group Strategic Communications & Sustainability [33]

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Siew Khee, you have some questions?

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Siew Khee Lim, CIMB Research - Head of Research for Singapore [34]

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Yes. Just one on Singapore and a few on India. Just compare to first Q, Singapore has actually done quite better because of better spark spreads? Just want to know how is -- just update on the spark spread in the market for Singapore.

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Neil Garry McGregor, Sembcorp Industries Ltd - CEO, Group President, Member of Technology Advisory Panel & Executive Director [35]

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Graham do you want to?

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Graham Cockroft, Sembcorp Industries Ltd - Group CFO [36]

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Yes. Yes, it's at first quarter over -- second quarter over first quarter of '19, we've had higher blended spark spreads.

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Siew Khee Lim, CIMB Research - Head of Research for Singapore [37]

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Is that due to -- what's the reason?

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Graham Cockroft, Sembcorp Industries Ltd - Group CFO [38]

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I don't know exactly. Probably gas prices have been a little bit lower.

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Neil Garry McGregor, Sembcorp Industries Ltd - CEO, Group President, Member of Technology Advisory Panel & Executive Director [39]

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I would second that guess. You may know that we imported some LNG into the country.

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Siew Khee Lim, CIMB Research - Head of Research for Singapore [40]

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Yes. So the import of LNG, is it...

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Neil Garry McGregor, Sembcorp Industries Ltd - CEO, Group President, Member of Technology Advisory Panel & Executive Director [41]

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Well, it lowers our weighted average cost of gas, so therefore, increases the spark spread.

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Siew Khee Lim, CIMB Research - Head of Research for Singapore [42]

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So is this opportunistic move?

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Neil Garry McGregor, Sembcorp Industries Ltd - CEO, Group President, Member of Technology Advisory Panel & Executive Director [43]

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Yes.

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Siew Khee Lim, CIMB Research - Head of Research for Singapore [44]

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Okay. So it will not happen every quarter?

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Graham Cockroft, Sembcorp Industries Ltd - Group CFO [45]

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Don't bank it for every quarter, no.

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Neil Garry McGregor, Sembcorp Industries Ltd - CEO, Group President, Member of Technology Advisory Panel & Executive Director [46]

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Yes, correct.

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Siew Khee Lim, CIMB Research - Head of Research for Singapore [47]

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Okay. So on India, SEIL 2, the profit -- or the $1 million profit that you have, is it more of an impact of low coal costs? Or just the remnants of the short-term contracts that you clinched in 2018 and it will wear out soon, no?

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Graham Cockroft, Sembcorp Industries Ltd - Group CFO [48]

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So you're querying the profit in project 2?

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Siew Khee Lim, CIMB Research - Head of Research for Singapore [49]

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Yes. So I mean, it's profitable?

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Graham Cockroft, Sembcorp Industries Ltd - Group CFO [50]

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Yes, it's profitable and we've got...

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Siew Khee Lim, CIMB Research - Head of Research for Singapore [51]

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Is it because of lower coal cost?

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Graham Cockroft, Sembcorp Industries Ltd - Group CFO [52]

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Again, we've got better spark spreads, yes, lower coal costs and the short-term contracts are holding. So that's you're getting a bit more margin.

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Siew Khee Lim, CIMB Research - Head of Research for Singapore [53]

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So it's the impact is more from coal costs, right, coal cost savings?

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Graham Cockroft, Sembcorp Industries Ltd - Group CFO [54]

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Yes.

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Siew Khee Lim, CIMB Research - Head of Research for Singapore [55]

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So what's the visibility of the second half? I mean for a while, you were not able to see what's going to happen to SEIL 2, but with two quarters with profitability, what's your sense now going forward?

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Neil Garry McGregor, Sembcorp Industries Ltd - CEO, Group President, Member of Technology Advisory Panel & Executive Director [56]

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I don't think we can give a leading statement.

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Graham Cockroft, Sembcorp Industries Ltd - Group CFO [57]

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We haven't given any guidance on that.

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Siew Khee Lim, CIMB Research - Head of Research for Singapore [58]

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Sure, but if you think how you manage your coal...

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Neil Garry McGregor, Sembcorp Industries Ltd - CEO, Group President, Member of Technology Advisory Panel & Executive Director [59]

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But I can tell you just watch the coal price. Coal prices have been low, so you can draw your own conclusion.

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Siew Khee Lim, CIMB Research - Head of Research for Singapore [60]

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But your short-term contracts that you've clinched last year, or 6 to 9 months, would have finished by, say, second half this year and year-on-year, the tariffs that you clinch may be lower. So will -- let's say coal cost remains at current level, will we still see similar profits for second half or will there be a drop because spot -- the spot prices have come down year-on-year for SEIL 2?

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Graham Cockroft, Sembcorp Industries Ltd - Group CFO [61]

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So we're not giving the short term. I mean overall, we're positive on India. We believe that increasing demand is going to support the electricity business there over many years. So we're more concerned about the long term rather than worrying about next quarter or the quarter after that. I know that makes your job a bit harder, but...

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Siew Khee Lim, CIMB Research - Head of Research for Singapore [62]

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Yes. But second half is not short term. How about 2020?

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Graham Cockroft, Sembcorp Industries Ltd - Group CFO [63]

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So that's what I'm saying. We are positive on India. We believe that the demand will continue to rise, that there hasn't been a lot of new thermal planting there at all. The renewables are not going to bridge the gap entirely, so we're reasonably bullish on India power prices over the medium term.

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Neil Garry McGregor, Sembcorp Industries Ltd - CEO, Group President, Member of Technology Advisory Panel & Executive Director [64]

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I think we'd said on our statement that we expect that India to go into a power deficit situation from 2020 on, so that gives you some guidance.

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Siew Khee Lim, CIMB Research - Head of Research for Singapore [65]

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Okay. And also for SEIL 1, in terms of the settlement, so I mean there -- every now and then, we will see some settlement either in SEIL 1, 2 or SGI. The questions that we receive from some clients is can you ensure that the profitability in India is sustained, as in, like okay, now that your SEIL 1 is already back to normalized level, thermal issue resolved, so good that this quarter you are helped with some settlement gain and provision for credit loss. But yes, so how do we track that?

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Neil Garry McGregor, Sembcorp Industries Ltd - CEO, Group President, Member of Technology Advisory Panel & Executive Director [66]

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The only thing I can say to you is that we've definitely got a focus. Being our largest asset in our portfolio, our performance in India, the challenges there are PPAs for Project 2. Project 1, I think you will continue to see sustained profitability. But the next challenge there is receivables. India's always a challenge, particularly after elections, where the state and health of the discoms are always an issue, which means that payments or receivables are often slow.

Now the government of India, the central government, has recognized that, and they have issued an order to all of the states that if they want to access power from the central grid, they have to put in place banker's guarantees or letters of credit directly. And they have to put them directly with the suppliers, which means us. And if they don't do that, they cannot access power from the central grid and we see that as quite a positive change.

Now that doesn't solve the arrears problems, but it does solve the future or the current and future purchase of electricity there in India. So the government, the central government, is working very positively to try and sort out some of these challenges within the industry and to improve the viability of the discoms which are our off-takers within the market. And the reason they're taking that on board is they can also see that demand is very strong for power and that they will be in a deficit situation and there's not enough capacity being built. That's their challenge. So prices may -- I would expect prices to continue to firm there over the medium term.

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Siew Khee Lim, CIMB Research - Head of Research for Singapore [67]

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Okay. Just 2 more questions. So what is the receivable days for SEIL 1 and 2? Or general, if you can give us a gauge on the receivable days for India?

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Graham Cockroft, Sembcorp Industries Ltd - Group CFO [68]

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Are we disclosing that? We're not, no.

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Siew Khee Lim, CIMB Research - Head of Research for Singapore [69]

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So that assume that the review that you have done and the provision that you have made this quarter is specific.

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Neil Garry McGregor, Sembcorp Industries Ltd - CEO, Group President, Member of Technology Advisory Panel & Executive Director [70]

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Yes.

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Graham Cockroft, Sembcorp Industries Ltd - Group CFO [71]

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Yes.

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Siew Khee Lim, CIMB Research - Head of Research for Singapore [72]

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Okay. All right. And my last question is on corporate cost and energy. It just shot up to $25 million this quarter. I mean last quarter, it was $20 million because of some, I think, LD, generally, it was not around this level unless there's some big M&As.

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Neil Garry McGregor, Sembcorp Industries Ltd - CEO, Group President, Member of Technology Advisory Panel & Executive Director [73]

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Yes, I did say last year that our corporate costs would go up and they would mainly go up because we are rebuilding merchant and retail team that never existed before. And we're adding capability in the digital and technology space. So we are improving our systems right across the board. So we're becoming more institutional in our processes. So that costs money to do that. And I would expect similar levels, similar costs to come through.

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Lay San Ng, Sembcorp Industries Ltd - SVP of Group Strategic Communications & Sustainability [74]

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Gerald, please go ahead.

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Gerald Wong, Crédit Suisse AG, Research Division - Head of Research [75]

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Gerald from Crédit Suisse. I've got 3 questions. The first question on UKPR. Can you remind us if there's any goodwill related to the acquisition and whether you see any risk of write down given the weaker than expected performance and the regulatory changes?

Second question on India, Sembcorp Green Infra. Given that the profit has weakened on a year-on-year basis, is that the normalized level of profit we should be expecting for renewables in India? Or would that improve subsequently?

And then lastly on gearing, with the $2 billion subordinated loan to Marine and your high net gearing of 1.1x, how do you see the balance sheet from current levels? You previously mentioned that it will get worse before it gets better. Are we at a point that it is going to be getting better from here on?

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Graham Cockroft, Sembcorp Industries Ltd - Group CFO [76]

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So UKPR, I don't -- we're hoping to -- it will be a ruling on the capacity market before the end of this year. And I think whether or not there's a need for any write-down in the future, it hinges a lot on what that is. So I think it would be premature at this point to say or to take an action on that until we see how that plays out. So it's a wait and see.

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Gerald Wong, Crédit Suisse AG, Research Division - Head of Research [77]

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Could you let us know the goodwill amount related to this acquisition?

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Graham Cockroft, Sembcorp Industries Ltd - Group CFO [78]

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What's what? What, the current value?

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Gerald Wong, Crédit Suisse AG, Research Division - Head of Research [79]

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Yes, goodwill for this acquisition. Is there any goodwill for this acquisition?

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Graham Cockroft, Sembcorp Industries Ltd - Group CFO [80]

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A small amount. But I don't -- we haven't disclosed the number. But it's not a huge amount.

Second question on SGI, the -- we're continuing to build out the renewable business there, and there's additional CapEx that'll be taking play or additional wind turbines being put up over the next 6 to 12 months. So we expect to see the underlying performance grow.

What we are seeing is there's little bit of noise in the quarter-on-quarter reporting. Part of that is due to some arcane tax treatment in India that we're working through. But what I have seen, when I sort of -- when I get through that, you can see the underlying business actually is going quite well. So there's a bit of a negative impact in the short term because of some deferred tax, but that will wash through eventually and we'll see a more sustainable level from that point.

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Gerald Wong, Crédit Suisse AG, Research Division - Head of Research [81]

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But generally, you don't see a decline in the returns for the India renewable business because of the new tariff structure or because of capacity buildouts?

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Graham Cockroft, Sembcorp Industries Ltd - Group CFO [82]

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I think each of those projects were approved on the basis that they were -- they would be profitable, so -- and they're contracted at contracted prices. So there's no -- the market exposure is relatively limited.

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Neil Garry McGregor, Sembcorp Industries Ltd - CEO, Group President, Member of Technology Advisory Panel & Executive Director [83]

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You've also seen added capacity and which will complete at the end of this year from SECI 2 and SECI 3 but it's -- for it to come in to play, you have to wait for the next wind season, which is monsoon period. Normally, there's 2 seasons in India. One is around December-January period, which is the lower or southern part; and then the northern part, plus southern is most affected by the monsoon period, which is June through to August.

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Graham Cockroft, Sembcorp Industries Ltd - Group CFO [84]

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On gearing, I would agree with you. The balance sheet is more stressed than we would like, but clearly, that's the result of quite exceptional circumstances with Marine. And we had a choice. We either support it or we don't. If we support, then how do we support and we believe we've chosen the best option there for the method of support. But then how do we adjust the rest of the business around that? That's clearly what we look at or we'll be looking at over the next 6 months. Really, it depends on the Marine business and how quickly that recovers. That, I think, is the key element to the balance sheet overall.

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Neil Garry McGregor, Sembcorp Industries Ltd - CEO, Group President, Member of Technology Advisory Panel & Executive Director [85]

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Yes. The funding is expected to be sufficient to see it through a prolonged period. So essentially, if you like, we've given them time for the cycle to catch back up.

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Lay San Ng, Sembcorp Industries Ltd - SVP of Group Strategic Communications & Sustainability [86]

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We have a question from the e-mail option. From Goh Lay Peng from Fullerton Fund Management who says on the India power business, in your slides, it was stated that peak surplus is expected to reverse by March 2020. What does SCI think is the extent of the surplus?

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Neil Garry McGregor, Sembcorp Industries Ltd - CEO, Group President, Member of Technology Advisory Panel & Executive Director [87]

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Well, I think the best way I could describe it to you is that GDP is currently running about 7%. That is a proxy for power growth. Current capacity addition is around about 4%. So the delta is 3%. So if you apply the delta of 3% across the capacity in India you get an idea of what sort of addition or tightening that will occur within the market.

It's not just a function of capacity, too. It's also a function of how much wind, and sunshine if you're looking at solar, but given solar's still a smaller part of the energy mix for India, it still comes down to how much coal is available. So you've got to look at domestic coal realization in India.

Where it makes a difference to us is that we are not affected by domestic coal realization, even though 60% of our total demand for coal comes from local sources. The other 40% comes from imports. And the fact that we can get imports given the proximity of our business to a port and to the coast, we are not shut in, which means that our capacity is not affected by lower coal production in India or lower coal realization. So that's the other factor.

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Lay San Ng, Sembcorp Industries Ltd - SVP of Group Strategic Communications & Sustainability [88]

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Do we have any further questions? Mic at the center.

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Pei Hwa Ho, DBS Bank Ltd., Research Division - Assistant VP [89]

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This is Pei Hwa from DBS. I have 2 questions. The first one is relating to SEIL 2. The second long-term PPA for 500 megawatt, when would that likely to commence?

The second question is regarding urban development. We understand that land sale tend to be lumpy from quarter to quarter but it seems to be relatively slow in first half. Could you share with us the outlook for the coming quarters?

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Neil Garry McGregor, Sembcorp Industries Ltd - CEO, Group President, Member of Technology Advisory Panel & Executive Director [90]

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Okay. Do you want to take the first one? I'll take the second.

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Graham Cockroft, Sembcorp Industries Ltd - Group CFO [91]

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I didn't catch the first one.

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Neil Garry McGregor, Sembcorp Industries Ltd - CEO, Group President, Member of Technology Advisory Panel & Executive Director [92]

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500 megawatts PPA, I think -- what was the question around the 500 megawatts?

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Pei Hwa Ho, DBS Bank Ltd., Research Division - Assistant VP [93]

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When will the commencement likely to be?

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Neil Garry McGregor, Sembcorp Industries Ltd - CEO, Group President, Member of Technology Advisory Panel & Executive Director [94]

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Was that the one with Bangladesh that we were looking at?

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Pei Hwa Ho, DBS Bank Ltd., Research Division - Assistant VP [95]

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Yes.

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Neil Garry McGregor, Sembcorp Industries Ltd - CEO, Group President, Member of Technology Advisory Panel & Executive Director [96]

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We've...

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Lay San Ng, Sembcorp Industries Ltd - SVP of Group Strategic Communications & Sustainability [97]

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Are you referring to the LOA with Andhra Pradesh?

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Pei Hwa Ho, DBS Bank Ltd., Research Division - Assistant VP [98]

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LOA, yes. Yes.

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Neil Garry McGregor, Sembcorp Industries Ltd - CEO, Group President, Member of Technology Advisory Panel & Executive Director [99]

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Ah that. Ah, Andhra Pradesh. Okay. Okay. Well, the letter of intent is still there, it's still valid. We have to wait for the new government because there was a change in government in Andhra Pradesh to settle in and it really comes down to how they want to move forward. But the fact is I can tell you that in Andhra Pradesh, their power growth is higher than the rest of India. It's actually -- if you look it up, it's 10% per annum. So in other words, they have some pressure on them to get more capacity. So the likelihood is reasonable. I can't be any more definitive than that.

You know that there has also been some challenges to the renewables side there from the new government, looking at tariffs, looking at validity of contracts. But that's a different issue to our 500-megawatt PPA and the letter of intent that we have. Thank you.

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Graham Cockroft, Sembcorp Industries Ltd - Group CFO [100]

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And on urban, as we've said, the urban earnings are pretty lumpy and somewhat hard to predict. But we have in the prospect statement and the release, we have said that urban's earnings growth is expected to continue into 2019. So make your interpretation of that.

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Lay San Ng, Sembcorp Industries Ltd - SVP of Group Strategic Communications & Sustainability [101]

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Siew Khee, yes?

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Siew Khee Lim, CIMB Research - Head of Research for Singapore [102]

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Sorry, I just have one more question on the rest of world. You added Bangladesh in rest of world this quarter. How much is Bangladesh contribution, the Unit 4 to rest of world?

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Neil Garry McGregor, Sembcorp Industries Ltd - CEO, Group President, Member of Technology Advisory Panel & Executive Director [103]

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How much is Bangladesh contribution in the second quarter?

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Lay San Ng, Sembcorp Industries Ltd - SVP of Group Strategic Communications & Sustainability [104]

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Are you looking at the...

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Neil Garry McGregor, Sembcorp Industries Ltd - CEO, Group President, Member of Technology Advisory Panel & Executive Director [105]

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I don't think we're disclosing that separately are we?

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Graham Cockroft, Sembcorp Industries Ltd - Group CFO [106]

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$7 million. $7 million in the...

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Siew Khee Lim, CIMB Research - Head of Research for Singapore [107]

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Is it a starting phase or a run rate for this plant?

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Graham Cockroft, Sembcorp Industries Ltd - Group CFO [108]

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I think that's a starting phase. It feels a little bit high to me as a sustainable. So...

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Siew Khee Lim, CIMB Research - Head of Research for Singapore [109]

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(inaudible)

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Graham Cockroft, Sembcorp Industries Ltd - Group CFO [110]

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No, no, no. It feels a bit high for me as necessarily a sustainable one. I'm just saying, $7 million is what's reported, what's included in the numbers, but let's wait and see how it goes from here.

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Lay San Ng, Sembcorp Industries Ltd - SVP of Group Strategic Communications & Sustainability [111]

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Do we have any last questions? Over there on the top, please. Zhiwei?

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Zhiwei Foo, Macquarie Research - Analyst [112]

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Zhiwei from Macquarie again. One question on your disposals, right? I think you've reached about the 50% mark of your $500 million target. I'm not too sure what I'm noticing something but there seems to be a lot of water treatment plants mostly in the water space. So is that something that we should expect to continue given I think you don't have much other assets in the engineering, others to kind of dispose?

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Neil Garry McGregor, Sembcorp Industries Ltd - CEO, Group President, Member of Technology Advisory Panel & Executive Director [113]

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Okay, let me just think about that for a moment. I'll just write down what we've done. Okay. South Africa was water. Gallant Ventures was not, right, in total of what we've disclosed. What else have we got there, Graham?

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Zhiwei Foo, Macquarie Research - Analyst [114]

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You've disposed more water assets than anything else.

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Neil Garry McGregor, Sembcorp Industries Ltd - CEO, Group President, Member of Technology Advisory Panel & Executive Director [115]

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Yes, Lianyungang, yes, that's water. So Lianyungang is also water. So short answer to it is look, it's just consolidation within the business. We are not getting out of the water business, but we're trying to deepen our presence and reconsolidate our portfolio. So in areas where they're not around the core, meaning that they're geographically distributed, we're trying to move out of those and deepen presence around a stronger core of facilities. But generally, we're trying to reduce geographies as well, right? So like getting out of South Africa. We'd like to move out of South America. We already mentioned that. That's going to take time. It's a little bit more tricky because we have assets spread across there. They're also water businesses as well. So I think, yes, the general trend is right, but remember, we've still got about a couple of hundred million to go. They may not be necessarily water businesses.

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Zhiwei Foo, Macquarie Research - Analyst [116]

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Would you consider disposing energy businesses if you don't meet your return requirements?

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Neil Garry McGregor, Sembcorp Industries Ltd - CEO, Group President, Member of Technology Advisory Panel & Executive Director [117]

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Yes, I think we consider anything. But the strategy -- anything that's not delivering and not core to our business, definitely, we look at it. We've said so in India, that we would reduce some of our thermal business. Naturally, the structure, we talked about the IPO. There are other options there that we're also currently pursuing because it's -- IPOs are very much market related. There may be other ways, trade sales or other structures there that we could look at as well. But I wouldn't view that as moving out of India as a country. We're still growing the renewables business quite strongly and our emphasis is having a higher mix, energy mix within the energy business of renewables.

So water is still a strong strategy of the business, but we are consolidating that position. So that's why you're seeing the reductions happen there.

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Lay San Ng, Sembcorp Industries Ltd - SVP of Group Strategic Communications & Sustainability [118]

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Thank you. Any last questions? Okay. Thank you very much, everybody, for coming.

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Neil Garry McGregor, Sembcorp Industries Ltd - CEO, Group President, Member of Technology Advisory Panel & Executive Director [119]

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Thank you.

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Graham Cockroft, Sembcorp Industries Ltd - Group CFO [120]

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Thank you.

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Lay San Ng, Sembcorp Industries Ltd - SVP of Group Strategic Communications & Sustainability [121]

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Thank you.