Q3 2017 Sembcorp Industries Ltd Earnings Call

Nov 02, 2017 AM SGT

U96.SI - Sembcorp Industries Ltd
Q3 2017 Sembcorp Industries Ltd Earnings Call
Nov 02, 2017 / 09:15AM GMT

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Corporate Participants
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* Chiap Khiong Koh
Sembcorp Industries Ltd - Group CFO
* Lay San Ng
Sembcorp Industries Ltd - SVP of Group Corporate Relations
* Neil Garry McGregor
Sembcorp Industries Ltd - CEO, Group President, Non-Executive & Independent Director and Member of Technology Advisory Panel

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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
* Conrad Werner
Macquarie Research - Head of ASEAN Equity Research
* Gerald Wong
Credit Suisse AG, Research Division - Head of Research
* Siew Khee Lim
CIMB Research - Head of Research for Singapore
* Zhiwei Foo
UOB Kay Hian Research Pte Ltd - Investment Analyst

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Presentation
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Operator [1]
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Good day, and welcome to the Sembcorp Industries Limited 9 Months 2017 Results Announcement Conference Call. Today's conference is being recorded.

At this time, I would like to turn the conference over to Ms. Ng Lay San. Please go ahead.

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Lay San Ng, Sembcorp Industries Ltd - SVP of Group Corporate Relations [2]
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Good evening, everyone. Thank you so much for calling in to Sembcorp Industries 9 Months 2017 Results Briefing. I'm Lay San from Group Corporate Relations. I'm here with Group President and CEO of Sembcorp Industries, Neil McGregor; and Group CFO, Koh Chiap Khiong.

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Chiap Khiong Koh, Sembcorp Industries Ltd - Group CFO [3]
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Hello.

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Lay San Ng, Sembcorp Industries Ltd - SVP of Group Corporate Relations [5]
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To enable you to follow the briefing, it would be helpful for you to have our announcement on hand. This includes a copy of our MASNET financial statements, a PowerPoint presentation on the results as well as our press release. This call is being webcast, and you can also follow the results briefing slides presentation online. The webcast can be accessed through our website's homepage at www.sembcorp.com.

Without further delay, I will now hand over to Neil and Chiap Khiong to take us through the results this evening.

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Neil Garry McGregor, Sembcorp Industries Ltd - CEO, Group President, Non-Executive & Independent Director and Member of Technology Advisory Panel [6]
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Thank you, Lay San. Good evening, and thank you once again for calling into Sembcorp Industries Third Q results forecast.

We now move to Slide 4, Third Q performance roundup. For the 9 months of 2017, the group delivered an improved underlying performance. Group turnover improved 6% to $6.2 billion compared to $5.9 billion for the 9 months of 2016.

Profit from operations increased 11% to $685.5 million from $617.1 million in the same period last year on better performance by Utilities and Urban Development. However, group net profit was affected by exceptional items and higher finance costs.

Net profit was $208 million compared to $247.4 million in the 9 months of 2016. Earnings per share for the period was $0.099, and annualized return on equity was 4%.

I shall now take you through key developments in each of our business segments starting with our Utilities business. I now turn to Slide 6. In 3Q 2017, the Utilities business contributed $125.9 million in net profit, 51% lower than the same period in 2016. Underlying net profit before exceptional items of $95.4 million was $221.3 million. These exceptional items relate mainly to SGPL's refinancing costs taken in the first half of the year. This quarter, in light of the challenging power business and our optimization of the steam assets, we also made certain noncash impairment charges on the Singapore assets and investments.

On an operational basis, however, the Utilities business saw improvement. Underlying 3Q 2017 Utilities profit from operations grew 18% to $622.2 million, underpinned by Singapore and India operations. Singapore operations, which contributed 53% of Utilities earnings, performed well, underpinned by centralized Utilities and gas businesses.

Notably, we have entered into new agreements with ExxonMobil, which demonstrates Sembcorp's strong position as a leading provider of centralized Utilities on Jurong Island and beyond. This included the sale of our Utilities assets in Banyan currently serving the assets sold by Jurong at Aromatics Corporation to ExxonMobil for USD 113 million.

The sale of the boilers and the cooling tower and the associated assets is planned for completion between second half of 2019 and first half of 2020. Until then, we will continue to own the assets and supply utilities to the plant. Additional power and natural gas contracts with ExxonMobil were also signed while a service corridor contract is being finalized.

On the solar energy front, we continue to enhance our green energy capabilities. We have so far secured 4 rooftop solar projects with a total capacity of 10 megawatts. This reinforces our commitment to greener energy for Singapore as the market here moves towards an open electricity market.

Moving to India. This is where we continue to strengthen our position in the country as a leading energy player with a balanced portfolio of thermal and renewable assets. On the renewables side, as the 100% owner of Sembcorp Green Infra, we will be able to drive SGI's growth and increase our investment in a renewables portfolio that will complement our thermal power assets in the country.

On top of the 250-megawatt bid won in India's first national wind power tender earlier this year, we have successfully bidded for another 250 megawatts in the latest tender and are now waiting for the formal letter of award.

On the thermal side, our focus continues to be on asset performance and cost reduction. Operationally, our thermal assets continue to perform well, with high plant availability factors and plant load factors for both plants in the Sembcorp Gayatri Complex.

I now move to Marine, which is Slide 8. You probably heard details of Sembcorp Marine's results from Weng Sun and the team. In third quarter 2017, Sembcorp Marine contributed a net profit of $28 million to the group comparable to third quarter 2016 net profit of $27.3 million. In early October, Sembcorp Marine delivered -- sorry, entered into agreements to sell 9 jackup drilling rigs to Borr Drilling for approximately $1.3 billion, which is SGD 1.77 million -- let me correct that, it's $1.77 billion. The upfront payment of USD 500 million for these rigs has been received. This is a positive development as it will significantly improve the Marine business' liquidity position and help it ride through the current business cycle trough.

With this, the total net order book for Marine stands at $7.97 billion and at $4.85 billion if excluding the Sete Brasil drillships. Contracts secured to date is $2.04 billion. This also included the contracts secured by the Brazil Yard for the FPSO P-68. The quarter also saw the signing of a letter of intent with SeaOne Caribbean for the design and construction of 2 large compressed gas liquid carriers.

Now on to Urban Development, Slide 10. The Urban Development business continued to deliver a robust performance. Its net profit grew eightfold, recording a net profit of $53.9 million in [9M] (corrected by company after the call) 2017 compared to $6 million in [9M] (corrected by company after the call) 2016.

All markets, namely, Vietnam, China and Indonesia, performed better than last year and booked in higher profits in [9M] (corrected by company after the call) 2017. Notably, in 3Q 2017, Vietnam delivered healthy land sales, reflecting its strong underlying demand and continued interest in industrial land deals. Overall, in [9M] (corrected by company after the call) 2017, the Urban Development business achieved total land sales of 178 hectares compared to 82 hectares in [9M] (corrected by company after the call) 2016, and a healthy total net order book of 272 acres -- hectares, sorry.

Strategic review. As for our strategic review process, I am glad to inform you that we are reaching the final stages, and we are looking forward to sharing the conclusions of the review with you soon on a separate occasion. Until then, we hope you will understand why it's not appropriate for us to share partial or preliminary views at this point in time.

Now let me hand over to our Group CFO, Chiap Khiong, to take you through the group financial review. Thank you very much.

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Chiap Khiong Koh, Sembcorp Industries Ltd - Group CFO [7]
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Thank you, Neil. I'm on Slide 12. Sembcorp Industries posted a turnover of $6.2 billion for the 9 months of 2017, a 6% increase from 9 months 2016 -- over 9 months 2016. The group achieved an EBITDA of $1.052 billion in 9 months 2017, a 14% growth over the same period last year.

Improving underlying performance group net profit from operations was $686 million, an increase of 11% over 9 months 2016 on better performance by Utilities and Urban Development. Higher financing costs for 9 months 2017 was due to Marine's higher bank borrowings and SGPL's finance cost, which were expensed in 3Q '17 but capitalized in 3Q '16 while under construction.

The effective tax rate was higher, mainly because of the impairment losses. In 3Q '17 -- losses in 3Q '17 were generally not deductible for tax purposes, and the tax benefit for losses from the subsidiary in India was not recognized. 9 months '17 effective tax rate was also impacted by the disposal gain from the Cosco Shipyard Group, which was not subject to Singapore tax.

Net profit achieved for 9 months 2017 was $208 million, down 16% mainly due to the exceptional items and higher financing costs. Earnings per share amounted to $0.099 for 9 months 2017.

Group turnover. Utilities turnover in 9 months 2017 was higher, primarily due to the Singapore higher HSFO prices, contribution from our India second thermal plant, SGPL, and construction revenue from our Myingyan and Bangladesh power projects.

Marine's turnover for 9 months 2017 decreased mainly due to lower revenue recognition for rig building and offshore platform projects. Reversal of revenue in 9 months '17 due to termination of 2 rig contracts in the customer has further resulted in the lower revenue recognition in the rigs for this segment.

Slide 14 now. Group PFO. The group registered $685.5 million profit from operations in 9 months 2017, an increase of 11% against last year. Before exceptional items, Utilities business increased 18% to $622.2 million from $528.9 million. More details will be provided in the next slide, Slide 15. Utilities charged $92.3 million exceptional items at PFO level.

Meanwhile, the Marine business contributed a PFO of $101.1 million compared to $125.3 million in 9 months 2016, mainly due to lower contribution from rig building and offshore platform projects.

The Urban Development PFO grew five-folds to $59.7 million from $9.2 million last year. This was driven by higher profit contribution from all its markets, namely Vietnam, China and Indonesian operations.

Utilities underlying PFO before exceptional items was $622.2 million in 9 months 2017. This is an increase of 18% compared to last year.

PFO operations posted an improved performance in this 9 months on higher contribution from the centralized utilities and gas businesses.

In China, in the absence of contribution from Yangcheng, China posted lower profit. India operation was the largest PFO contributor to the Utilities underlying PFO. Our first thermal plant, TPCIL and our renewable energy arm, SGI, contributed $170.1 million and $109.8 million, respectively.

Higher contribution from the Rest of Asia arose mainly from service concession revenue from our Myanmar and the Bangladesh power projects. Net profit from the Middle East and Africa was comparable to last year. U.K. and the Americas both declined. U.K.'s weaker performance resulted from planned maintenance at the Sembcorp biomass project, Wilton 10, in 2Q and outage in 3Q.

In addition, Wilton 11 had teething problems as compared to 2016 when we recognized income as a result of the IFRIC 12 treatment. Compared to the same period last year, corporate costs were lower.

In 3Q '17, exceptional items comprised noncash impairment charges mainly relating to the Singapore assets $25.8 million and investment with $30.5 million. The impairments were mainly made in light of challenging operating environment for this power business and optimization of the steam production assets. 9-month '17 exceptional items also included the refinancing cost incurred for Indian power project, $39.1 million, of which $3.1 million was charged as finance costs.

Group net profit was $208 million, down 16% because of higher finance costs and exceptional items. The Utilities business contributed $125.9 million in net profit compared to $258 million last year.

Marine business contributed a net profit of $28 million in these 9 months compared to $27.3 million last year. Notwithstanding the higher finance cost, Marine has recognized tax credit in 9 months 2017 to the extent that it's probable that the related tax benefit will be realized. In 9 months 2016, net tax expense was recognized.

The Urban Development business recorded a higher net profit, $53.9 million, compared to $6 million last year for same reason explained in the earlier slides.

Slide 17. The underlying net profit before exceptional items was $221 million compared to $258 million in 9 months last year, mainly due to the higher finance cost as explained from SGPL. SGPL's finance costs were capitalized last year while it was under construction.

Singapore operations posted an improved performance, up 38% to $127 million on higher contribution from the centralized Utilities and gas businesses. There's a $14 million net write-back of the JAC provision included in this number. However, even without this, the Singapore operation still delivered an increase of 22% compared to last year.

China was down 52% to $41 million. This was primarily due to the absence of Yangcheng's contribution and Chongqing's weaker performance as explained.

For India, the net loss in 9 months '17 was mainly due to the higher finance costs. This market remained challenging. SGPL operating income was not sufficient to cover its finance cost during this period. Mitigating this was better performance by TPCIL and SGI, which contributed $38 million and $22 million in India's net profit, respectively.

Other regions net profit variances are mainly as explained under the PFO slide, Slide 15.

Net profit from the Middle East and Africa was comparable.

Corporate incurred higher finance costs in 9 months '17 but overall costs compared to the same last year -- compared to last year were lower. Exceptional items was as explained earlier in Slide 15.

Our Energy segment continues to be the largest net contributor in 9 months '17, contributing 47% Utilities net profit. The on-site and the Water -- the Water and On-site Logistics and Solid Waste Management contributed 33% and 20%, respectively.

Group CapEx was $521.8 million and equity investment was $14.1 million. CapEx from Utilities was mainly for the renewable energy business, while Marine's CapEx was lower compared to last year's -- compared to last year. Marine will only proceed with yard CapEx needed to secure contracts.

Urban Development equity investment was mainly for its investment in Indonesian joint venture.

Cash flow from operating activities before changes in working capital was $1 billion in 9 months '17. The cash outflow from changes in working capital was mainly due to Marine's working capital for ongoing projects.

Utilities India working capital for operations and also its concession receivable from the Myingyan and the S4 power projects amounting to $352 million, which will be received after they commence commercial operations and over the concession period.

Net cash outflow from investing activities was $194 million, mainly for the CapEx mentioned in the previous slide.

Group gross debt was $10 billion in 3Q 2017 comparable to the debt position in 2Q '17. Annualized earnings per share amounting -- amounted to $0.132. And on an annualized basis, return on equity for the group was 4%. Interest cover was lower compared to 9 months last year, mainly due to higher finance cost from Utilities India and Marine. NAV has increased to $3.86 per share.

For the outlook statement, Utilities. Utilities underlying operations are performing well. However, net profit contribution from the business is expected to be lower than 2016. The performance of Utilities China operations in '17 is expected to be lower than '16 due to the expiry of the Yangcheng cooperative joint venture agreement.

In India, Sembcorp has 2 thermal power plants and renewable energy totaling over 3,800 megawatts. This renewable energy business and its first thermal power plant, TPCIL, are performing well but are not expected to fully mitigate the expected losses from its second thermal power plant at SGPL.

In Singapore, the centralized Utilities, Gas and Solid Waste Management businesses are expected to continue to do well. The Power business continues to face intense competition.

Marine. Global exploration and production spending continues to show signs of improvement. Inquiries for nondrilling solutions continue to be encouraging. Sembcorp Marine has been actively responding to more inquiries and tenders for developing engineering solutions for the production segment.

Good progress has been made in the development and commercialization of Sembcorp Marine's Gravifloat technology for nearshore gas infrastructure solutions.

For repairs and upgrades, niche markets in LNG carriers and cruise ships continue to underpin performance. Sembcorp Marine expects this trend to continue.

Sembcorp Marine continues to strengthen its balance sheet and prudently manage its financial resources. The company remains focused on the pursuit of operational excellence, investing in new capabilities, technological innovation, active customer engagement and business development.

On Urban Development. The Urban Development business is expected to deliver a better performance in '17 underpinned by land sales in its Urban Developments in Vietnam, China and Indonesia.

For the group, the market environment is expected to remain challenging in '17. With strong capabilities and resilient businesses, the group is strengthening its balance sheet and is repositioning the business for the future.

Thank you.

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Lay San Ng, Sembcorp Industries Ltd - SVP of Group Corporate Relations [8]
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Thank you, Neil. Thank you, Chiap Khiong. The panel will now be happy to take any questions you may have. Can we have the first question?

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Questions and Answers
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Operator [1]
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(Operator Instructions) We will now take our first question from Cheryl Lee from UBS.

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Cheryl Lee, UBS Investment Bank, Research Division - Head of Singapore Research, Executive Director and Analyst [2]
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Okay. Two questions regarding the write-down. Could you elaborate? So for the impairment charge for the PPE, the one that was impaired for $25.8 million, what was the useful life left of the assets? And also elaborate just in terms of the goodwill and why was that necessary. And the second question is just regarding Utilities. Apart from the write-back for JAC, was there any other lumpy items in any of the other countries?

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Chiap Khiong Koh, Sembcorp Industries Ltd - Group CFO [3]
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Cheryl, Chiap Khiong. For the impairment, let me take one at a time. I think the asset impairment is really relating to some old boilers. These boilers were built in late-'90s. As you know our EfW plant, which is the energy waste plant, is actually commissioning, and it will be starting up in 4Q. And when it starts up, it will be the most efficient steam production steam plant. The old boilers becomes not efficient anymore. So what we're planning to do is putting it to -- it will not be used. The EfW -- we will be using for more efficient steam production. So as a result, we took down the net book value that is still as at 9 months, so we brought it down and impaired it. This is -- so that the new, more efficient plant will be actually helping us in producing the steam.

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Neil Garry McGregor, Sembcorp Industries Ltd - CEO, Group President, Non-Executive & Independent Director and Member of Technology Advisory Panel [4]
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Not uncommon for assets that are around 20 years of age. But Chiap Khiong was right in that they have been displaced by the new energy from waste plant that's now producing steam.

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Chiap Khiong Koh, Sembcorp Industries Ltd - Group CFO [5]
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Yes. So I think these are all the old assets that we have for boilers. The second one, which is the goodwill. The goodwill is relating to Sembcorp Cogen. This goodwill was created when we bought over Tractebel's shares I think a long time back, probably you can remember. This was actually held in the balance sheet. And as you know, probably said it, we do not amortize the goodwill anymore. So it's tested on a yearly basis and quarterly basis. So we think it's prudent as well because Cogen has been having losses over the period of time, and I think we think that this goodwill is probably no longer the value that we hold. Since we bought, we have actually made back all the money. So this goodwill has just been standing there - and we took the opportunity to write this off in the 3Q as well. So these are the 2 key areas. One is the boiler. One is the goodwill relating to Cogen.

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Cheryl Lee, UBS Investment Bank, Research Division - Head of Singapore Research, Executive Director and Analyst [6]
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Any (inaudible)...

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Chiap Khiong Koh, Sembcorp Industries Ltd - Group CFO [7]
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So I don't think there's any lumpy -- anything that we have not highlighted. The only thing is the JAC write-back of our debt, which is about $14 million. So remember we provided this when JAC went into receivership. We were not very sure some of this debt will be recovered. So good to report that most of the debt pre-receivership date, we have actually recovered most of it. We are as good as a secured lender, so that is a good thing. And in this quarter, we actually write back once the transaction is completed.

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Cheryl Lee, UBS Investment Bank, Research Division - Head of Singapore Research, Executive Director and Analyst [8]
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Okay. And just one more quick question from me. For the India segment, could you give some sense for the third quarter -- what was the breakdown between TPCIL, SGPL and the Green Infra?

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Chiap Khiong Koh, Sembcorp Industries Ltd - Group CFO [9]
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In terms of the profit there?

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Cheryl Lee, UBS Investment Bank, Research Division - Head of Singapore Research, Executive Director and Analyst [10]
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Yes, that's right. Net profit, yes.

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Chiap Khiong Koh, Sembcorp Industries Ltd - Group CFO [11]
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Okay.

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Lay San Ng, Sembcorp Industries Ltd - SVP of Group Corporate Relations [12]
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Yes, if you look at the third quarter net profit, SGI made about $14 million; TPCIL, $11 million and SGPL made a loss of $26 million.

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Operator [13]
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We will now take our next question from Gerald Wong from Credit Suisse.

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Gerald Wong, Credit Suisse AG, Research Division - Head of Research [14]
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Just a follow-up question on India, particularly SGPL. Given that you had refinanced the borrowing in the second quarter, why is the loss in the third quarter still quite similar to previous quarter?

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Chiap Khiong Koh, Sembcorp Industries Ltd - Group CFO [15]
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Gerald, there are a few reasons. You're right. If you strip it out, the interest cost has actually come down second Q to third Q. Second Q, we have certain short-term contracts that is a higher margin, and that drops off. Interestingly, we also secured some other short-term agreements, but as you know, September, the month, the IEX price came up as well. So I think because we have contracted on the lower tariff basis so you see the 3Q results being affected because of the lower spread compared to the higher kind of -- lower interest finance cost, but lower tariff as a result of the short-term agreements that we have signed as well.

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Chiap Khiong Koh, Sembcorp Industries Ltd - Group CFO [17]
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Yes, higher coal prices. That's right. The dark spread is lower.

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Operator [18]
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We will now take our next question from Lim Siew Khee from CIMB.

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Siew Khee Lim, CIMB Research - Head of Research for Singapore [19]
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Just on the -- I've got a few questions. I'll start out with Singapore. The $14 million write-back from JAC, where is it recorded? Is it under Energy or Solid Waste or Water?

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Chiap Khiong Koh, Sembcorp Industries Ltd - Group CFO [20]
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It's in Energy.

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Siew Khee Lim, CIMB Research - Head of Research for Singapore [21]
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Okay. Fully in Energy. So that explains why the Energy popped up q-on-q?

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Lay San Ng, Sembcorp Industries Ltd - SVP of Group Corporate Relations [22]
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Mostly.

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Chiap Khiong Koh, Sembcorp Industries Ltd - Group CFO [23]
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Mostly in Energy.

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Siew Khee Lim, CIMB Research - Head of Research for Singapore [24]
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Then the ExxonMobil deal, the boiler that you're going to sell, is there any gain or losses that you will make on that?

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Chiap Khiong Koh, Sembcorp Industries Ltd - Group CFO [25]
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Yes. But we record it when we transfer the assets, not recorded yet.

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Siew Khee Lim, CIMB Research - Head of Research for Singapore [26]
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But what is the book value for the boiler now?

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Chiap Khiong Koh, Sembcorp Industries Ltd - Group CFO [27]
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Okay. Yes, actually Siew Khee, if you look at the MASNET, look under the assets held for sale, you will see about $99 million.

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Siew Khee Lim, CIMB Research - Head of Research for Singapore [28]
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Okay. Also for -- you had the waste energy boiler coming up fully on the supply steam, is it?

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Siew Khee Lim, CIMB Research - Head of Research for Singapore [30]
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Who will take up the steam?

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Chiap Khiong Koh, Sembcorp Industries Ltd - Group CFO [31]
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Remember, these plants we actually use the waste of our Sembcorp waste management fuel, the industrial waste. And it generates energy and we convert it, which is actually steam, and we are pumping into the current SUT customers, the contracts that we have in the steam customers.

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Siew Khee Lim, CIMB Research - Head of Research for Singapore [33]
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So just replacing what you have left, so...

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Chiap Khiong Koh, Sembcorp Industries Ltd - Group CFO [34]
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Yes, correct.

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Siew Khee Lim, CIMB Research - Head of Research for Singapore [35]
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That why there's a pickup in volume because you would have gained new customers from this?

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Chiap Khiong Koh, Sembcorp Industries Ltd - Group CFO [36]
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So it's not so much of new customers but actually -- it's quite central to all other natural gas and steam and -- - but lower cost structure.

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Siew Khee Lim, CIMB Research - Head of Research for Singapore [37]
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Okay. Are there any other assets in Singapore that you are looking at writing off? Or this is it?

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Chiap Khiong Koh, Sembcorp Industries Ltd - Group CFO [38]
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So you really look at it. Siew Khee, you know our usual practice, right. So I think every quarter, we will review, but we have done whatever we think is necessary.

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Siew Khee Lim, CIMB Research - Head of Research for Singapore [40]
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Okay. Because your U.K. assets would also be a bit old and there are some new assets that come up. So will you practice the same thing for U.K. as what you're doing to Singapore, meaning there will be some that you might write down or impair going forward?

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Chiap Khiong Koh, Sembcorp Industries Ltd - Group CFO [41]
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Siew Khee, I think some time back, we did that for U.K., and then -- and we also found that subsequently, I think last year, we actually looked at some because we took an assumption that we think that the customer will follow, but like some of the customers continue. So we actually wrote back some of this. So therefore, I think it's -- with fixed asset, we always have to look at whether there's a -- the useful life is still relevant or not, and that's always the assessment.

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Siew Khee Lim, CIMB Research - Head of Research for Singapore [42]
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Okay. Sorry, just going back to India. So last quarter, you had about $29 million for SGPL, and this quarter it didn't really improve, because I thought the refinancing is really completed in 2Q, but then this quarter, you still have refinancing penalties, and then, in addition to that, the losses didn't really narrow.

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Chiap Khiong Koh, Sembcorp Industries Ltd - Group CFO [43]
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So we don't have any more refinancing penalty this quarter. The number did not really narrow. I think Gerald asked the question as well. I think finance costs, you will see that it's actually come down after the refinancing, but the main variable is really the dark spread, which is really the tariff and the coal price. Coal price has actually gone up. And in 2Q itself, we had a better tariff, short-term agreement and that drops off, and we entered into something else, which has a lower tariff. But I think for those who are monitoring IEX prices as well, you will find that the IEX prices, which is a short-term price, has actually firmed up in the -- from September, October period. That actually is good for the business because you know that we are relying on short term and some IEX contracts or IEX open position. So if IEX price goes up, then underlying positions will be better as well.

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Siew Khee Lim, CIMB Research - Head of Research for Singapore [44]
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So if we actually used what we are seeing at IEX October pricing for 4Q matched against coal prices, we will still see similar or maybe just slightly better performance right? Because this quarter, you have already taken in the full effect of the interest cost savings. Am I right? Or there'll be like more in 4Q?

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Chiap Khiong Koh, Sembcorp Industries Ltd - Group CFO [45]
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Interest, there's no more 4Q. So the whole effect of the financing has -- new financing costs has started from 3Q onwards. The only thing that I would say that you need to know what is our contracted position and what's the tariff which it is contracted. Other than that, yes, what you're saying is correct. So actually, interestingly, for SGPL, if the price goes up, then it's how much we contract versus whether we take an open position and look at the short term. So I think we are balancing the 2, and that's how I think we'll be looking at it going forward.

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Siew Khee Lim, CIMB Research - Head of Research for Singapore [46]
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But is there a chance that you will be (inaudible)?

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Chiap Khiong Koh, Sembcorp Industries Ltd - Group CFO [47]
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So maybe to give you some help as well, I think what you have -- what you may need to know is really the contract and what it's sort of priced at. So that one maybe is price-sensitive. But if it is totally open for us, then IEX price and coal price will actually flow through, and it will be quite similar to what you put in your projections. So I think it's a balance between the 2. So I would also say that in month of September and going into October, our contract level is still quite high because of short-term agreements, but actually, easing off now from October months onwards. So we are more on the open position and hopefully, we can capture some of the higher IEX prices.

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Neil Garry McGregor, Sembcorp Industries Ltd - CEO, Group President, Non-Executive & Independent Director and Member of Technology Advisory Panel [48]
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Essentially though, there is a lag effect in terms of the contract position. But as Chiap Khiong has pointed out, in the future there could be more direct where the lag effect comes up. Think of it like a rolling average.

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Siew Khee Lim, CIMB Research - Head of Research for Singapore [49]
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Okay, because I think we -- I don't know how to forecast your India profit or losses next year. I mean, previously because of the refinance costs, it was a bit clearer --okay, this is a cost savings that we expect (inaudible)...

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Chiap Khiong Koh, Sembcorp Industries Ltd - Group CFO [50]
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Siew Khee, the interesting part of this is this is not totally 100% contracted like TPCIL or like our Middle East where you will be able to predict quite easily. This one has a lot more variability. Sometimes it can do very, very well, and sometimes it's not so well. It really depends on the market conditions. So I think for us, it's really a bit of a balance because if you look at TPCIL and SGI, our Green Infra project, we are really quite contracted and the cash flow is flexible in that. So this plant itself, the variability, if there's a movement in the short-term contract, the variability itself will give us a little bit more opportunities, which will make it (inaudible).

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Siew Khee Lim, CIMB Research - Head of Research for Singapore [51]
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Can I just go back to Singapore? If I were to exclude the JAC gains from, it is equally strong as 2Q, because 2Q, you said it had better optimization of that portfolio, which I don't really understand. So why is there strength in 3Q as well?

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Chiap Khiong Koh, Sembcorp Industries Ltd - Group CFO [52]
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I think I did say that the gas optimization plus also the higher contribution from our central Utilities contracts. So both is the same for third Q as well compared to second Q.

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Siew Khee Lim, CIMB Research - Head of Research for Singapore [53]
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Volume from JAC and...

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Chiap Khiong Koh, Sembcorp Industries Ltd - Group CFO [54]
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Yes, the centralized Utilities and gas optimization. That's right.

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Siew Khee Lim, CIMB Research - Head of Research for Singapore [55]
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Do you buy any PNG and sell them? Do you buy or sell like on spot on these?

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Chiap Khiong Koh, Sembcorp Industries Ltd - Group CFO [57]
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So one thing I think you know is that if we are contracted, and we don't produce, we would have excess gas. So some of this excess gas we can actually sell in the market. So possible that we have done that (inaudible) yes, yes.

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Siew Khee Lim, CIMB Research - Head of Research for Singapore [58]
------------------------------
Okay. Sorry, final question for China. So last quarter, you did mention that you're hoping for some tariff adjustment. Have we seen that come in this quarter? Or is just not yet?

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Chiap Khiong Koh, Sembcorp Industries Ltd - Group CFO [59]
------------------------------
The tariff adjustment, yes. But if you're talking about the Chongqing plant-- So the low service hours still continue, the coal price is still high. So it won't offset totally. And I think as most coal plants as you know from our Indian assets as well, there's also a little bit of teething problems -- up and down. So not totally stabilized at this point in time, no.

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Operator [60]
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We will now take our next question from Conrad Werner from Macquarie.

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Conrad Werner, Macquarie Research - Head of ASEAN Equity Research [61]
------------------------------
Sorry, just to revisit this one more time just to be clear. There was a $40 million write-back in the third quarter in the Singapore Utilities net profit. Is that right?

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Chiap Khiong Koh, Sembcorp Industries Ltd - Group CFO [62]
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14, 1-4.

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Conrad Werner, Macquarie Research - Head of ASEAN Equity Research [63]
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Oh, 1-4. Okay, sorry. That's what was confusing.

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Chiap Khiong Koh, Sembcorp Industries Ltd - Group CFO [64]
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That's relating to the JAC pre-receivership debt.

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Conrad Werner, Macquarie Research - Head of ASEAN Equity Research [65]
------------------------------
Okay, sorry. It was the 4 -- I misheard it, that was throwing me off. And then just to double-check. So that positive 1-4 is there in the $62 million -- or largely there in the $62.3 million that you reported for the 9 months '17 Energy part of the Singapore Utilities, so you've left that in there, right? You don't treat that as an exceptional?

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Chiap Khiong Koh, Sembcorp Industries Ltd - Group CFO [66]
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Yes, that's right.

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Conrad Werner, Macquarie Research - Head of ASEAN Equity Research [67]
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So the exceptionals really just takes out the bad -- like because in the past, you would have probably treated, I can check this, but a write-down of something like this as an exceptional, right, as a negative?

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Chiap Khiong Koh, Sembcorp Industries Ltd - Group CFO [68]
------------------------------
No, the receivable, the provision for bad debt has always been consistent. I think in -- for JAC we have actually knocked it off and not shown as exceptional.

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Conrad Werner, Macquarie Research - Head of ASEAN Equity Research [69]
------------------------------
Okay. And then sorry, could you -- Lay San gave us this breakdown for the Indian profits, I think. And it was -- just happened a bit too quick for me to write it down. Do you mind just giving that to us one more time, please? I mean, one more time?

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Lay San Ng, Sembcorp Industries Ltd - SVP of Group Corporate Relations [70]
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Sure. That is for the third quarter for SGI, which is the renewable unit, $14 million, TPCIL...

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Conrad Werner, Macquarie Research - Head of ASEAN Equity Research [71]
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Is that 1-4 or 4-0?

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Lay San Ng, Sembcorp Industries Ltd - SVP of Group Corporate Relations [72]
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1-4, 1-4.

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Conrad Werner, Macquarie Research - Head of ASEAN Equity Research [73]
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1-4, okay. I'm having trouble with that today. Okay.

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Lay San Ng, Sembcorp Industries Ltd - SVP of Group Corporate Relations [74]
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TPCIL, $11 million; SGPL, $26 million loss.

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Conrad Werner, Macquarie Research - Head of ASEAN Equity Research [75]
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Minus $26 million, right, yes. Okay, cool.

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Lay San Ng, Sembcorp Industries Ltd - SVP of Group Corporate Relations [76]
------------------------------
Minus $26 million.

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Conrad Werner, Macquarie Research - Head of ASEAN Equity Research [77]
------------------------------
And then just maybe a last question for me, and I'm not asking about the conclusions from the strategic review at all, but just maybe in terms of content. Will we be getting sort of a road map in terms of kind of the vision for some of the headline metrics of the group in that review like ROE and that kind of thing? Is that part of what the strategic review entails or not?

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Neil Garry McGregor, Sembcorp Industries Ltd - CEO, Group President, Non-Executive & Independent Director and Member of Technology Advisory Panel [78]
------------------------------
It is what the strategic review entails, but we will not be giving an indication of what those returns are. But we will be giving a vision statement of the business and what the various strategic changes are when we come to that position.

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Conrad Werner, Macquarie Research - Head of ASEAN Equity Research [79]
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Okay, but you won't even kind of even provide a broader range on some of the sort of headline metrics?

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Operator [81]
------------------------------
We'll take our next question from Cheryl Lee from UBS.

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Cheryl Lee, UBS Investment Bank, Research Division - Head of Singapore Research, Executive Director and Analyst [82]
------------------------------
I just have a follow-up question, and it just relates to India. There are some press reports saying that you are looking for an IPO of your India business. I mean, given that you've actually been increasing of these [business], could you just talk about maybe broadly what you actually foresee in terms of -- just in terms of like your businesses and why you might think that this is an appropriate thing to consider at this point in time?

------------------------------
Neil Garry McGregor, Sembcorp Industries Ltd - CEO, Group President, Non-Executive & Independent Director and Member of Technology Advisory Panel [83]
------------------------------
Sure. So on a couple of fronts, firstly, we're trying to create a balanced business in India. And the opportunity came up from IDFC, which is a closed-end fund to purchase the remaining stake in SGI. And that complements our business in India, and leads us to a more sustainable product that we can sell in the future as India moves towards a merchant market. So one is from a customer angle, and the other is from an investor and financing goal where we want the company to become more sustainable. And that's why the business actually interested us, and that's why we purchased it at the time. On the more broader issue in terms of the speculation that's been around in the market, there's been many speculations over what we would do in India and elsewhere, and I don't intend to add to it. But suffice to say, that look, we're always evaluating options in terms of how we look at our business. And India's no different. So these options can include various capital-raising initiatives. But at this stage, we have no comment to make. And if we do, we will be coming forward to the market and making that statement.

------------------------------
Cheryl Lee, UBS Investment Bank, Research Division - Head of Singapore Research, Executive Director and Analyst [84]
------------------------------
Okay. And just maybe one last question for me before I pass it on. Regarding Urban Development. Why is there an interest to do residential projects in Vietnam?

------------------------------
Neil Garry McGregor, Sembcorp Industries Ltd - CEO, Group President, Non-Executive & Independent Director and Member of Technology Advisory Panel [85]
------------------------------
That's because the market is actually changing. Initially, we started off as an industrial park developer, and the market has changed to mixed use, which has meant that we've had to go into higher-value areas like commercial and commercial plus residential. So the needs of the market are changing, and so the urban business has changed to meet the needs of that market.

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Operator [86]
------------------------------
We will now take our next question from Zhiwei Foo from UOB Kay Hian.

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Zhiwei Foo, UOB Kay Hian Research Pte Ltd - Investment Analyst [87]
------------------------------
I have 2 questions. The first -- both questions relate to SGPL. The first question is how would you position yourself in terms of your mix between short-term contracts and spot prices given that spot prices are now coming up? What sort of ratio should we be thinking about? And the second one is given this sort of mix, at what sort of spot electricity prices should we expect from a breakeven for SGPL?

------------------------------
Neil Garry McGregor, Sembcorp Industries Ltd - CEO, Group President, Non-Executive & Independent Director and Member of Technology Advisory Panel [88]
------------------------------
On the spot ratio question, look, at the end of the day, we can't give you that because it's actually dynamic pricing, and it depends on what the market is prepared to take. So we contract, it can be anything, like 1-month, 3-month, 6-month contracts. And it can be variable in terms of load and capacity that we take up into that market. Suffice to say that the market has actually been tightening. And the spot prices have been improving. They are hovering around what I would call our cash costs, but I don't think we've given the cash cost figures before, and I don't intend to at this stage. Just to give you an indication that we are starting to come towards our cash costs for SGPL.

------------------------------
Zhiwei Foo, UOB Kay Hian Research Pte Ltd - Investment Analyst [89]
------------------------------
I see. And as a follow-up, are you above the cash cost? Or are you still below it?

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Operator [91]
------------------------------
We will take our next question from Lim Siew Khee from CIMB.

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Siew Khee Lim, CIMB Research - Head of Research for Singapore [92]
------------------------------
Just a follow-up on the IEX prices. So maybe can you shed a light on why is there a tightening in terms of supply? And also, what you think the trend is going to be? Do you think this level on the increase is sustainable?

------------------------------
Neil Garry McGregor, Sembcorp Industries Ltd - CEO, Group President, Non-Executive & Independent Director and Member of Technology Advisory Panel [93]
------------------------------
We've done a number of markets studies that show that the market is tightening, and that's partly because of demand. But also because different power producers can't get access to local coal and do not have an ability to import coal. So that has led, on the supply side, to some increase on costs, which have reflected into pricing. But essentially, the economy is also growing, leading to additional demand. But it is -- it's not large, but we expect the trend to continue according to the market studies that we have done.

------------------------------
Siew Khee Lim, CIMB Research - Head of Research for Singapore [94]
------------------------------
So right now, do you have any issue in getting local coal? What's your composition of your coal base?

------------------------------
Chiap Khiong Koh, Sembcorp Industries Ltd - Group CFO [96]
------------------------------
I think it's quite close to the guaranteed realization, about 60% for (inaudible).

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Siew Khee Lim, CIMB Research - Head of Research for Singapore [98]
------------------------------
60, right?

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Siew Khee Lim, CIMB Research - Head of Research for Singapore [100]
------------------------------
Okay. Sorry, I've just got one very anal question. If I add up the SGI breakdown, at least India's breakdown, I only get $1 million, but you talked about $3 million. What is the other like losses?

------------------------------
Lay San Ng, Sembcorp Industries Ltd - SVP of Group Corporate Relations [101]
------------------------------
That's also the corporate cost of what we have at India.

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Siew Khee Lim, CIMB Research - Head of Research for Singapore [102]
------------------------------
Okay, so we should expect this to be like a recurring theme right, not just this quarter, right?

------------------------------
Lay San Ng, Sembcorp Industries Ltd - SVP of Group Corporate Relations [103]
------------------------------
Yes.

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Operator [105]
------------------------------
We do not have any question at this time. I will turn the call over back to you. Please go ahead.

------------------------------
Lay San Ng, Sembcorp Industries Ltd - SVP of Group Corporate Relations [106]
------------------------------
Okay. Thank you very much, everybody. If there are no further questions, we will now conclude this evening's results presentation. Thank you once again, and have a great evening ahead. Thank you.

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Operator [108]
------------------------------
This concludes today's call. Thank you for your participation, and you may now disconnect.

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