Good performance underpinned by overseas growth and divestment gains
Despite continued intense competition in the Singapore
power market, the Utilities business continued to
perform well in 2015, underpinned by overseas growth
and divestment gains.
The business’ turnover was S$4.3 billion
in 2015 compared to S$4.9 billion in 2014.
Profit from operations (PFO) was S$947.5 million, an
82% increase from last year’s S$521.9 million, while
net profit was S$701.5 million compared to S$408.0 million,
representing a 72% increase year-on-year.
The increase in PFO and net profit was backed by
divestment gains from the sale of our 40% stake in Australian
solid waste management joint venture SembSita Pacific,
as well as municipal water operations in Bournemouth,
UK and Zhumadian, China. These divestments created value
for the business by unlocking a net gain of S$425.6 million
and will allow us to recycle capital for investment in businesses
and markets with high growth potential, in line with our focus on
the energy and
water sectors.
During the year, we exited the chemical feedstock business
in Singapore and relooked the operating model on Jurong Island
to optimise our operations following a reduction in demand.
As a result, impairments were made for our steam assets, as well as
some other assets relating to specific customers. This resulted in
an impact of S$25.0 million on PFO and S$31.4 million on net profit.
A S$24.3 million net allowance for doubtful debts was also
made in China during the year.
Divestment gains, less the impact of the exit from the chemical
feedstock business and impairment of assets in Singapore, net of
settlement amounts from customers and the net allowance for doubtful
debts in China, comprised the significant items recorded for the year.
Excluding these significant items, Utilities’ PFO and net profit was
S$571.2 million and
S$331.6 million respectively.
The business’ overseas growth strategy remained on track. Utilities
operations outside of Singapore contributed 66% of the business’ PFO
and 60% of the business’ net profit, excluding corporate
costs and significant items.
In 2015, PFO from
Singapore operations decreased 29%
to S$203.9 million, mainly due to continued intense competition
in the local power market. The Uniform Singapore Energy Price averaged
S$96 per megawatt for the year compared to S$137 per megawatt in 2014.
Vesting contract level for the industry stood at 30% for the first half
of 2015, stepping down to 25% during the second half of the year.
The business’ PFO from the
Rest of ASEAN, Australia &
India grew 186% to S$179.0 million from S$62.5 million in 2014. The increase in
PFO was mainly due to contributions from
India from our thermal power business and
our newly acquired renewable energy business, Sembcorp Green Infra.
The first unit of the Thermal Powertech Corporation India (TPCIL)
power plant started operations in March, while the second unit was completed
in September. However, unprecedented heavy rainfall during a cyclone contributed
to a lower than expected plant load factor, coal losses and lower demand in the
fourth quarter and at the net profit level, our Indian operations posted a loss.
PFO contribution from the Rest of ASEAN and Australia was lower for the year
with the divestment of our stake in Australian joint venture SembSita Pacific
in November. In addition, in 2014, a S$10.3 million one-off net gain was
recognised due to the increase in our effective stake in the Phu My 3 power
plant in Vietnam.
In
China, our PFO increased to S$110.7 million in 2015 compared to
S$86.4 million in 2014, due to better performance from energy operations.
PFO from our
Middle East and Africa operations also increased to S$52.7 million
in 2015 from
S$46.4 million in 2014. This increase was driven by better operating
performance and efficiency gains at our operations in
the UAE and Oman.
PFO in the
UK decreased to S$41.3 million from S$46.4 million due to the
divestment of municipal water assets in Bournemouth, mitigated by a better
performance from Teesside operations.
Meanwhile, our businesses in
the Americas spanning Chile, Panama and the Caribbean
registered a combined PFO of S$10.1 million, compared to S$9.3 million in 2014.
Positioned for long-term growth with a strong project pipeline
Adding more than 3,800 megawatts of power and over 1.3 million cubic metres per day of water and wastewater treatment capacities to our operating portfolio from 2016 to 2018
In 2015, we continued to invest for long-term growth,
and secured over 3,000 megawatts of new energy projects.
We made good headway in building up our overseas project
pipeline with maiden investments in the fast-growing
emerging markets of Bangladesh and Myanmar. In addition,
to position ourselves for growth with a balanced portfolio
of energy assets, we deepened our capabilities in the
renewable energy sector, which presents a new engine for
our growth. By acquiring wind and solar power capabilities
in India and expanding our wind power capabilities in China,
we grew our renewable energy capacity four-fold to 1,546
megawatts. Renewables now represent 15% of our total power
capacity, and present a new platform for the business
to grow.
Moving forward, we will continue to
leverage our strength in project development and focus on
securing and executing energy and water projects, especially
in rapidly developing economies. Over the next three years,
we will add more than 3,800 megawatts of power and over 1.3
million cubic metres per day of water and wastewater treatment
capacity to our operating portfolio. This brings our gross power
and water capacity to over 10,600 megawatts and over nine
million cubic metres per day, achieving our ‘10/10 vision’ set
in 2011 of growing our gross power and water capacities to
approximately 10,000 megawatts and 10 million
cubic metres per day.
Strengthening our presence in India
In 2015, we continued to strengthen our presence in the
fast-growing India power market. A significant milestone
was achieved with the successful completion and commencement
of operations for our first thermal power plant in the country.
The supercritical coal-fired power plant, operational since
March with the completion of the first 660-megawatt unit,
commenced full commercial operations of its entire 1,320-megawatt
capacity in September. To date, it has secured a 25-year
long-term power purchase agreement for the supply of 500 megawatts
of power to Andhra Pradesh and Telangana Power Distribution Companies.
In addition, it secured an eight-year long-term power purchase
agreement for the supply of 570 megawatts to the Southern and
Northern Power Distribution Companies of Telangana in February 2016.
With 86% of its net capacity contracted under long-term power
purchase agreements, TPCIL is now eligible for mega power status.
In addition to securing long-term power supply opportunities
as and when they arise, the plant also sells the balance of
its output on the Indian Energy Exchange under short-term contracts.
Meanwhile, construction of our second coal-fired supercritical
power plant on an adjacent site in Andhra Pradesh is progressing
well, with the plant on track to be completed in 2016. Upon completion,
the 1,320-megawatt plant will double our thermal power capacity in
India and help meet power demand in the country,
particularly in the
southern states.
In 2015, we also grew our renewable energy business and
strengthened our capabilities by acquiring a majority stake in
Green Infra, a leading renewable energy company in India. We now own
a 64.1% stake in the unit, which we have renamed Sembcorp
Green Infra. Following this acquisition in February, we continued
to grow our renewable footprint in the country, expanding our
renewable power capacity in operation and under development to
918 megawatts.
Since our entry into India in 2011, we have
built up over 3,500 megawatts of power capacity in operation
and under development in the country. With investments in
both thermal and renewable energy, we are now well-positioned
to continue to grow in the energy sector with a balanced
portfolio of assets.
Growing our energy and water business in China
In 2015, we continued to focus on expanding
our energy and water business in China,
particularly in the areas of niche power and
advanced water solutions for industries.
At the end of 2015, we formed a joint venture
for a 1,620-megawatt mine-mouth coal-fired power
project in Chongqing. Through the joint venture,
we hold a 49% stake in an existing 300-megawatt
coal-fired power plant and will develop an adjacent
1,320-megawatt supercritical coal-fired power plant.
These are the city’s only mine-mouth coal-fired power
plants. The new greenfield plant is set to be one of
the most efficient power plants in Chongqing and is
scheduled for completion in 2017.
Maintaining our growth momentum in the world’s
largest wind power market, 2015 saw two expansion
projects to our wind power capacity in Huanghua,
Hebei province, through our 49%-owned joint venture
with Guohua Energy Investment. The first of these
expansions, a 48-megawatt wind farm in Jiedijianhe,
commenced operations in 2015 and supplies power to
the Hebei South grid. We also started construction of
a 150-megawatt wind farm in Laoshibeihe, which is
expected to be completed in 2017. Our total wind
power capacity in operation and under development
in China is now
544 megawatts.
On the water front, we successfully completed the
expansion of our Nanjing industrial water facilities,
doubling our industrial water capacity in the
Nanjing Chemical Industrial Park to 240,000 cubic
metres per day. This increased capacity will allow
us to better serve the fast-growing water needs of
our existing and potential customers in the industrial
park. In recognition of our capabilities in providing
specialised total water and wastewater solutions for
industries, we also received a special award for being
the Leader in Water Treatment for Industrial Parks at
the China Water Industry Annual Awards.
Expanding our footprint in fast-growing emerging markets
In line with our commitment to building platforms
for long-term growth, our Utilities business
expanded its footprint into two new fast-growing
emerging markets in 2015: Myanmar and Bangladesh.
In Myanmar, we were awarded a project to develop
and operate a 225-megawatt gas-fired power plant
in Mandalay’s Myingyan district. We were awarded
the project following an international tender,
called by state-owned entity Myanmar Electric
Power Enterprise and advised on by the International
Finance Corporation, a member of the World Bank Group.
The project is expected to be completed in 2018
and will supply power to the Myanmar Electric
Power Enterprise under a 22-year power purchase
agreement. The US$300 million plant is set to be
the largest gas-fired independent power plant in the
country, and will help ease the country’s severe power
deficit and support its economic growth.
In Bangladesh, we will be developing a 426-megawatt
combined cycle gas-fired power plant in the Sirajganj
district under the country’s first public-private
partnership for the power sector involving a foreign
investor. To be built, owned and operated through a
partnership with North-West Power Generation Company,
an enterprise of the Bangladesh Power Development Board,
the US$390 million plant will supply power to the grid
under a 22.5-year power contract with the Bangladesh
Power Development Board upon its completion in 2018.
2015 also saw the successful completion of an expansion
to reverse osmosis facilities at the Fujairah 1
Independent Water and Power Plant in the UAE that
increased the plant’s seawater desalination capacity
from 100 million imperial gallons per day to 130 million
imperial gallons per day. This makes the plant the
largest reverse osmosis desalination facility in the
Middle East. The additional water output from the
expansion will be sold to the Abu Dhabi Water & Electricity
Company under a 20-year water purchase agreement.
The World Bank expects growth in the global economy
to pick up modestly to 2.9% in 2016, from 2.4% in 2015.
In Singapore, the Ministry of Trade and Industry
has forecast the economy to expand by between 1%
to 3% in 2016. Meanwhile, due to global economic
uncertainty, the Economic Development Board forecasts
that fixed asset investments will be between S$8 billion
and S$10 billion in 2016, compared to S$11.5 billion in
2015. The operating environment for our Utilities business
in Singapore is expected to be challenging in 2016,
with continued intense competition in the power market.
The business will continue to focus on enhancing
operational excellence and efficiency as well as
managing costs.
In China, the World Bank expects growth to slow
slightly to 6.7% in 2016, from 6.9% in 2015.
However, the country’s upcoming 13th five-year
plan is expected to contain increased focus on
the environment. In addition, China has announced
plans to peak its carbon dioxide emissions by 2030
or before, and lower the carbon intensity of its
gross domestic product between 60% to 65% below
the 2005 level by 2030. This is expected to provide
further opportunities for growth in sectors aligned
with this objective. Our Utilities business continues
to be well-placed to benefit from this emphasis
on environmental protection with our sustainable water
solutions and renewable energy capabilities.
The South Asia region, led by India, is projected to be
a bright spot in 2016, with growth in the region forecast
to increase to 7.3% from 7% in 2015. India, the dominant
economy in the region, is forecast to grow by 7.8% in
2016, up from 7.3% in 2015. 2016 will see the first
full year of profit contributions from our 1,320-megawatt
TPCIL power plant, as well as the phased completion of
our second 1,320-megawatt power plant adjacent to it.
Following a landmark deal negotiated at the 2015
United Nations Climate Change Conference in Paris,
countries around the world are expected to place
increased focus on managing climate change moving forward.
This is expected to lead to more opportunities in the
renewable energy sector,
amongst others.
Backed by strong operational, management and technical capabilities,
the business remains focused on the execution of its
pipeline of projects and the pursuit of new growth
opportunities to deliver long-term growth.
