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The Utilities business delivered strong profit growth in 2011. We recorded a 22% increase in turnover from S$4.0 billion a year ago to S$4.9 billion and grew our net profit attributable to
shareholders (net profit) by 32% from S$231.3
million to a record S$304.4 million. Profit from
operations (PFO) increased 34% from S$313.5
million to S$420.8 million. Singapore operations
performed exceptionally well, with PFO growing
31% and contributing 61% of the business' PFO
during the year under review. Operations outside
Singapore contributed 39% of the PFO, with China
and the Middle East & Africa registering the strongest
growth at 53% and 51% respectively. Total contracts
secured from the industrial sector during the year
amounted to S$1.7 billion, comprising primarily
new gas contracts secured in Singapore.
In April 2011, we were named the Water
Company of the Year at Global Water Intelligence’s
2011 Global Water Awards. This top honour at the
prestigious Global Water Awards recognises the
water company that has made “the most significant
contribution to the development of the international
water sector in 2010”. Besides clinching the top
honour, our Salalah Independent Water and Power
Plant (IWPP) in Oman won the Desalination Deal
of the Year award, in recognition of its “financial
innovation or in meeting the demands of challenging
circumstances”. Despite the deal coming at the tail
end of the financial crisis, the project’s financing
team nevertheless secured funding support at
a competitive cost. Both these awards attest to
our growing standing as a trusted global water
services provider.
During the year, we also successfully integrated
the operations of Cascal into Sembcorp, following
our acquisition of the municipal water and
wastewater service provider in 2010. Fully integrated
into the Group, its operations performed well in
2011 with its maiden full year contribution boosting
our Utilities performance. The success of this
acquisition demonstrates Sembcorp’s capabilities
in executing and extracting value from acquisitions.
We were not only able to successfully identify a
suitable acquisition target that complemented
Sembcorp’s existing business, but we were also able
to smoothly integrate 18 municipal water operations
across eight countries into the Group. The integration
also involved the rationalisation and streamlining
of operations, alignment of systems, processes and
policies as well as the establishment of a unified
organisation-wide branding.
Sembcorp’s Singapore operations delivered
strong PFO growth in 2011. Our Singapore
operations’ 31% increase in PFO to S$258.6 million
was driven primarily by strong performance from
our cogeneration plant due to high energy prices
during the period.
During the year, our multi-utilities operations
on Jurong Island performed well and continued to
provide its petrochemical customers on the island
with reliable utilities, maintaining an average of
97% availability and 100% reliability. To further
enhance our competitiveness on Jurong Island,
we completed a woodchip-fuelled biomass steam
production plant, with a steam capacity of 20 tonnes
per hour, in November 2011. Leveraging synergy
across our businesses, the biomass plant uses waste
wood collected and processed by our solid waste
management business to generate efficient green
steam for our customers on the island. In November
2011, we also started receiving the second tranche
of natural gas from West Natuna, Indonesia. This
second gas sales agreement is for a total of 90 billion
British thermal units per day and increases our
existing supply by 26%. In 2011, a total of
S$1.6 billion worth of new and renewed utilities
and gas contracts were secured. In addition, our solid
waste management business also secured a new
S$121 million contract in July 2011 to serve the
Bedok sector in Singapore. The seven-year contract,
which began in November 2011, entails the provision
of refuse collection and recycling services. With this
contract, Sembcorp now serves five out of nine
geographical sectors in Singapore.
In 2011, our expansion projects in the new
growth area of Jurong Island continued to make
good progress. We commenced construction of our
new combined cycle gas turbine cogeneration plant,
our second on Jurong Island, in the second half of
2011. With a capacity of 400 megawatts of power
and 200 tonnes per hour of process steam in the
initial phase, the plant is expected to be completed
by the fourth quarter of 2013. Construction of our
new 9,600 cubic metres per day integrated industrial
wastewater treatment plant also commenced in
2011. Expected to begin operations in the second
half of 2012, the plant will be capable of treating
high concentration industrial wastewater with
chemical oxygen demand of up to 800 milligrammes
per litre, which is two times the concentration of
municipal sewage. Once operational, Sembcorp’s
industrial wastewater treatment capacity will more
than double. At the same time, we are also
developing a new multi-utilities facility in the area,
expected to be completed by the fourth quarter
of 2013. As a provider of third-party open access
service corridor networks across the island, we also
continued to extend our service corridor network
to the new growth area, connecting customers
located there to the rest of Jurong Island. These new
facilities in the Banyan and Angsana districts of
Jurong Island will serve the energy and water needs
of our customers as well as other companies in
the new area, reinforcing our market position as a
global leader in the provision of energy, water and
on-site logistics to multiple customers in energy
intensive clusters.
Our operations in China continued to deliver
a strong performance in 2011, contributing
S$41.2 million of PFO, an increase of 53% over
2010. This growth was largely underpinned by
better performance from our cogeneration plant in
Shanghai due to higher electricity tariffs, full year
contribution from our municipal water business as
well as higher customer demand. In 2011, volume
demand from our existing customers grew, with
volume demand for industrial wastewater treatment,
industrial water and municipal water growing
approximately 20%, 30% and 12% respectively
over the previous year. Our China operations also
secured a total of S$63 million of new and renewed
contracts in 2011.
During the year, we continued to expand our
facilities and grow our water and wastewater
capabilities in various targeted industrial sites. In
Zhangjiagang, we opened our first water reclamation
plant in China, capable of producing 20,000 cubic
metres per day of industrial water and up to 4,000
cubic metres per day of demineralised water for
supply to customers in the Zhangjiagang Free Trade
Port Zone. This award-winning facility is able to
produce industrial water using treated effluent from
Sembcorp’s existing centralised industrial wastewater
treatment plant in the zone, thereby promoting
water reuse and environmental conservation. In
Nanjing, we expanded our industrial water capacity
output by 20% to 120,000 cubic metres per day,
while in Qinzhou we completed our 15,000 cubic
metres per day industrial wastewater treatment plant
in the Qinzhou Port Economic & Technological
Development Zone.
Focusing on industrial sites and the water-stressed
regions of China, and leveraging our
extended presence through our newly-acquired
municipal operations from Cascal, we also signed
several letters of intent and memoranda of
understanding during the year to explore
opportunities to expand our water and multi-utilities
business in the provinces of Liaoning, Jiangsu,
Shandong, Inner Mongolia, Hebei, Tianjin
and Heilongjiang.
PFO from Rest of Asia and Australia declined
24% in 2011 to S$34.2 million due to one-off
integration costs and purchase price allocation
adjustments relating to the acquisition of WSN
Environmental Solutions (WSN) in Australia as well
as lower contribution from our Phu My 3 power
plant in Vietnam, which was impacted by lower
tariffs and the depreciation of the US dollar.
Looking to expand our reach in Vietnam, we
signed a memorandum of understanding with the
People’s Committee of Quang Ngai Province in
January 2012 to explore the feasibility of developing a
1,200-megawatt coal-fired power plant in Dung Quat
Economic Zone, located in central Vietnam’s Quang
Ngai province. Meanwhile, in India, we made progress
on our first investment in the fast-growing Indian
energy market. In February 2011, we injected the first
tranche of equity for our 49% stake in Thermal
Powertech Corporation India. The total consideration
that will be injected by Sembcorp for the entire 49%
stake is Rs1,042 crores (S$293 million). In the same
month, we commenced construction of the
1,320-megawatt coal-fired power plant in
Krishnapatnam, Nellore District, Andhra Pradesh.
Construction has been progressing well and full
commercial operation is expected to begin in 2014.
In Australia, our solid waste management
associate, SembSITA Australia, strengthened its
leading position with the completion of the
A$235 million acquisition of WSN, a solid waste
management service provider previously owned by
the New South Wales government, in January 2011.
Adding over 90 facilities and service centres
nationwide, SembSITA is now the second largest
waste management operator in Australia and the
largest in the state of New South Wales.
PFO from the Middle East and Africa grew 51%
from S$21.7 million to S$32.9 million. In the UAE,
our Fujairah 1 Independent Water and Power Plant
continued to deliver good operating performance,
underpinned by its long-term purchase agreement
with Abu Dhabi Water & Electricity Company.
In Oman, a significant milestone was achieved
when we successfully completed the first phase
of our US$1 billion Salalah IWPP in July 2011. The
facility met the tight timeline of 19 months from the
signing of the power and water purchase agreement
and began dispatching 61 megawatts of net power,
on schedule, to the Dhofar power grid in southern
Oman. Targeted to commence full commercial
operations in the second quarter of 2012, the plant
will have a total gross power capacity of 490
megawatts and will produce 15 million imperial
gallons (69,000 cubic metres) per day of water. Set to
be the most energy-efficient power and water plant
in Dhofar, this project will enhance our Middle East
portfolio and play a major role in meeting the
region’s pressing power and water needs.
In South Africa, in recognition of our continuing
efforts to provide water and sanitation services of the
highest quality to our customers, both our municipal
operations, Sembcorp Silulumanzi and Sembcorp Siza
Water, received the prestigious Blue Drop and Green
Drop status for some of its water and wastewater
systems in 2011.
PFO from the UK improved 46% from
S$30.8 million to S$45.0 million largely due to
the full year contribution of our municipal water
business and a reduction in the UK tax rate from
27% to 25%. Our municipal water operations in
Bournemouth delivered a healthy performance
during the year, while contribution from our Teesside
operations declined marginally compared to the
previous year as the business continued to face a
challenging operating environment with low power
spreads and carbon prices.
In Bournemouth, new tariffs were effected for
our municipal operations according to the five-year
tariff schedule set during its 2010 tariff review with
the UK water services regulator, Ofwat. In Teesside,
our 52-megawatt steam condensing turbine project
was completed in the fourth quarter of 2011 and
commenced dispatching power to the grid in
February 2012. Modification works to our biomass
plant were also completed to increase heat recovery
and enhance our green income from renewable
obligation certificates.
Meanwhile, PFO from the Americas, comprising
Chile, Panama and the Caribbean, grew from
S$2.3 million to S$10.1 million due to full year
contribution from the region as well as a one-off
adjustment from the change in accounting treatment
for a service concession arrangement in Chile.
In January 2012, the World Bank reduced its
forecast for global economic growth in 2012 to
2.5% from 3.6% in its earlier forecasts in June 2011,
and cautioned that the financial turmoil generated
by the intensification of the fiscal crisis in Europe
has spread to both developing and high-income
countries and is generating significant headwinds1.
Growth in the high-income economies is expected
to be subdued at 1.4%, with the Eurozone countries
expected to contract by 0.3%. Developing countries
are still expected to grow, albeit at a slower pace of
5.4% compared to 6.2% previously.
In Singapore, the government expects 2012
Gross Domestic Product growth to be in the range
of 1% to 3%, compared to 2011’s growth of 4.8%.
Singapore’s Economic Development Board reported
that total fixed asset investment commitments
increased from S$12.9 billion in 2010 to S$13.7 billion
in 2011 despite economic uncertainties during the
second half of the year. After the electronics sector,
the chemical sector received the next largest
investment commitment at S$2.5 billion. The
Economic Development Board is cautiously optimistic
about the investment climate in 2012, but expects
investment commitments in 2012 to be sustained
at 2011’s level, citing that investment interest in
Asia remains healthy in spite of the uncertainties
in the global economy, especially in the Eurozone.
Meanwhile, petrochemical companies with confirmed
investments continued to push ahead with the
construction of their new plants on Jurong Island.
These include Denka and Sumitomo Chemical whose
plants are expected to start up in 2012; Chang Chun
Group, LANXESS, Asahi Kasei and Zeon in 2013; and
Jurong Aromatics Corporation and Evonik in 2014.
In 2012, our Utilities business is expected to
deliver a steady performance despite our
cogeneration plant in Singapore undertaking a
planned major maintenance during the year.
However, the weaker macro-economic environment
may impact power and carbon prices and affect the
performance of our energy businesses in Singapore
and the UK.
With a healthy pipeline of projects both in
Singapore and overseas, we are committed to
delivering long-term growth through the focused
execution of these projects as well as the active
pursuit of new growth opportunities.
1 The World Bank, ‘Global Economic Prospects January 2012: Uncertainties and vulnerabilities’
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