1H 2023 Financial Results Webcast & Q&A Session

Capital recycling seems to have slowed down in the second quarter. You did about S$500 million in the year to date. I am keen to hear how you plan to keep your capital recycling momentum in the next 12 months. Out of the initial S$17.5 billion of assets you highlighted which was available for monetisation, how much is left? Which buckets should we expect future capital recycling to come from?

LCH

On capital recycling, indeed it has slowed. I have alluded to the fact that even on the investment side, we have been a bit more cautious in terms of our acquisition activities for the funds in 1H 2023. But we are still working on quite a number of monetisation opportunities, and we believe that the pace will pick up. We still are looking to hit the S$10-S$12 billion target by 2026. We do not disclose the buckets. But suffice to say, and I think I've explained this before, we have a programme. So, every six months, we look over two to three years and consider what are some of the assets that we could potentially monetise. Over time, some markets will probably not allow us to monetise assets, but there will be some assets that we can move forward. As I explained before, it is like planes taking off. We have a control tower. Over time, if there is slowdown in a particular flight, we will see whether we can move forward any of these projects that we have targeted for monetisation in later quarters or six months down. We don’t give a breakdown of what the different buckets are. But generally, we expect to see this pick up in the second half. I note from your horizontal reporting that Infrastructure did very well in 1H 2023, and there was a surprising operating loss in your Real Estate Division. What drove that loss in your Real Estate operating income? As for your Infrastructure operating income of S$303 million, how sustainable are those earnings, and what was driving the margin expansion in the first place?

CHC

I will highlight some of the points that contributed to the net operating loss in Real Estate. This is mainly because this year, there was an increase in net interest expense. There is also an increase in some expenditures on new initiatives, and at the same time, I also mentioned about lower returns from some of the sponsors’ stakes, and this includes for example, our interest in Keppel REIT. You have seen the results announcement from Keppel REIT. You also asked about Infrastructure. They did very well this year. We have a recurring business. We also operate a power plant. So there is recurring income coming from those businesses. Of course, there would still be market movements, like electricity prices, but we do lock in some of the retail contracts, which are locked in for one to two years. At the same time, we also hedge our gas prices. So as a result, we do have contracted spreads that are sustainable. But of course, you are still exposed to market movements beyond a certain period. So the short answer is, yes, it is a recurring business.

LCH

Cindy, do you want to add anything?

CL

The Infrastructure Division runs an integrated power business, as well as a decarbonisation & sustainability solutions business. Our margin contribution comes from the way we contract our gas, the way we run our generator, in this case, the four units of combined cycle gas turbines, and the way we secure electricity retail contracts – the contracting strategy, the gas purchase strategy and the ability to run our generator at high efficiency and high reliability all contribute to a healthy spread. Under our recurring business for decarbonisation & sustainability solutions, we have long-term O&M contracts. The ability to improve efficiency in terms of how we run such critical assets becomes our secret sauce, because of how we reduce OPEX, how we improve uptime, whether in a district cooling plant, waste-to-energy plant, or water plant. So all these add up and what we see is a promising learning curve efficiency that translates directly to the bottom line.