Earnings Transcript for 0002.HK - Q2 Fiscal Year 2021

Angus Guthrie: Welcome, ladies and gentlemen, to CLP's 2021 Interim Results Analyst Briefing and Webcast. I'm joined here today for the webcast by the CEO of CLP Holdings, Mr. Richard Lancaster to my right; and the CFO of CLP Holdings; Mr. Nicolas Tissot to Richard's right. We announced our results and lodged them with the Hong Kong Stock Exchange at around about midday today. That same announcement and the presentation materials we will address today are available now on our website as well. We will follow the usual practice and Richard and Nicolas will, first of all, take us through the presentation, following which we will undertake a Q&A session. [Operator Instructions]. Our priority will be given to the analysts asking live questions, but we will try and endeavor to get through all of the questions that are presented. As a final note, Richard, Nicolas and myself have all been vaccinated, we are appropriately spaced here. So we will not be wearing masks today as part of this presentation. With that format explained, I'd like to hand over to Richard Lancaster to commence the presentation.

Richard Lancaster: Thanks, Angus, and good afternoon, ladies and gentlemen, and welcome to our presentation of the 2021 interim results. As we emerge from one of the most challenging periods we've seen for some time, I'm pleased to say that we've made good progress on our decarbonization goals and we've delivered safe and reliable operations and customer services across the business. In Hong Kong, we continue to make investments to reduce the carbon intensity of electricity generation. In Mainland China, where our noncarbon assets already contribute most of our earnings, we continue to pursue new opportunities with our main focus on noncarbon investments in the Greater Bay Area. In Australia, we've announced the early closure of the Yallourn Power Station, and we've made several new commitments to flexible generation and storage projects that will help support the energy transition. And in India, we continue to be focused on investments in low-carbon assets along the electricity supply chain. In this first half of 2021, we recorded operating earnings of $5.7 billion or $2.26 per share, which is 7% lower than the same period last year. Hong Kong's solid performance was not enough to offset the impact of high coal prices on our thermal assets in Mainland China and the challenging wholesale prices we've seen in Australia. The Board has kept the second interim dividend constant at $0.63 per share, and this is in line with the first interim dividend of 2021, and it's the same as the first 2 interim dividends last year. Based on our recent share price, this provides a yield to investors of around 4%. Operationally, output from our generators was 8.5% higher than last year, and we continue to increase our generation capacity. Our focus on our operations continues to provide a highly reliable power supply to the residents of Hong Kong. We continue to see growth in our customer accounts in Hong Kong while intense competition in Australia has resulted in a modest decline in accounts there. I'll now hand over to Nicolas to take you through the financial results in a little bit more detail.

Nicolas Tissot: Thank you, Richard, and good afternoon, ladies and gentlemen. During the first half of 2021, in a still challenging environment, revenue increased to nearly $41 billion and EBITDAF rose to almost $13 billion, driven by Hong Kong's resilient performance. Higher depreciation and amortization in Hong Kong and Australia resulted in a decrease in ACOI or EBIT before fair value adjustments. Capital investments of nearly $6 billion across the group was higher than last year with a clear focus on decarbonization. I will discuss our operating and total earnings on the next slide. At the operating earnings level, we see a stronger contribution from Hong Kong. This has been more than offset by decreases in the contribution from thermal assets in other regions, driven by higher coal prices in Mainland China and Taiwan and lower wholesale prices in Australia. Around $100 million after tax or roughly 1/3 of the decline in Australia relates to noncash changes in the fair value of energy hedging contracts. Operating earnings went down by 7% and total earnings for the first 6 months reduced to $4.6 billion after items below the line, namely the settlement in March this year of the litigation arising from the disposal of the Iona Gas Plant in 2015, which included both the payment of a settlement amount and an extension of the existing long-term contracts for the provision of gas storage services. The provisioning to ensure safe operations at the Yallourn coal mine following the impact of extreme rainfall and a revaluation loss on investment property in Hong Kong. Together, these items resulted in a charge of $1.1 billion for the half year, which drove total earnings down 23.2%. I will now turn to our business performance at the ACOI level. This slide summarizes the change in earnings at the ACOI level across the business units. We benefited from positive foreign exchange movements during this half year, mostly related to the Australian dollar and the Chinese renminbi. Thus, ACOI is 2.8% lower year-on-year at the headline level and is down 6.7% once these foreign exchange movements are excluded. All future variances in this presentation will be excluding Forex. Hong Kong earnings are 4.7% higher as we continue our decarbonization investments. Meanwhile, earnings in Mainland China and overseas have declined, mostly driven by lower earnings from our thermal assets. You will also notice a positive variance in other earnings largely driven by the net fair value gain on our innovation investments. Over the years, we have built a portfolio of strategic investment to access and deploy the best energy technologies from around the globe into our business. This brings a net fair value gain of over $90 million in other earnings. I will now take you through the performance and outlook of each of the business in turn. In Hong Kong, the business continues to be strong and resilient. ACOI for the half of the year is up by 4.7%, excluding Forex, in line with the growth in our asset base. Capital expenditure was $4.8 billion as we continue to focus on investments that secure reliability, progress our decarbonization efforts and deliver a smarter and greener power system in Hong Kong. Electricity sales have increased by 4.4%, driven by favorable seasonal weather patterns and the beginning of the post-COVID economic recovery. In the coming months and years, we will continue to execute the current development plan and accelerate our transformation towards a utility of the future. As we look further ahead, we are very encouraged by the government's plans for Hong Kong to become carbon neutral by 2050. We are deeply engaged with the government discussing solutions and plans. This will require both the decarbonization of the electricity sector and significant growth in the use of clean electricity in transportation industry, and everyday household use. It will also require importing more 0 carbon energy to Hong Kong, leveraging our connections with the Greater Bay area. In Mainland China, our nuclear assets have performed reliably and have increased their contribution. We have seen smooth operations for renewables and earnings have varied in line with the evolution of resources. Wind was higher, solar was steady, while hydro resources were lower. Meanwhile, significantly higher coal prices have taken a toll on earnings from our thermal assets, and our expenses have also increased as Shandong assets approach the end of their economic life. As a consequence of these movements, we recorded ACOI of $1.25 billion during the first half, down 24%, excluding Forex. In the second half of the year, we anticipate reliable contribution from our nuclear and renewable assets to continue with rising costs -- coal costs, putting significant further pressure on the thermal margins. We will continue to pursue the payment of the HKD2.2 billion of national subsidies outstanding at the end of the first half. As we look forward, we will continue to progress carbon-neutral investments in renewables, energy infrastructure and energy as a service with a particular focus on the Greater Bay area. In Australia, low wholesale electricity prices over the last 2 years drove down earnings. This has resulted in a 33.7% decline in ACOI, excluding Forex. Despite intense competition, our customer business has benefited from lower electricity procurement, lower cost of bad debt and also improved efficiency and cost effectiveness of our operations. In the Energy segment, as anticipated, lower wholesale electricity prices and higher gas supply costs have significantly reduced margins despite the dampening effect of the hedging policies we have in place. In addition, specific items from Yallourn have weighted on the Energy segment contribution. In March, we announced that as part of our decarbonization strategy, we are bringing forward the closure of Yallourn by 4 years to 2028. This has resulted in accelerated depreciation for the balance of its operational life, which will amount to around HKD250 million on an annualized basis. Also, in mid-June, we reacted proactively to extreme rainfall and restricted operations at Yallourn as a precautionary measure. This resulted in lost opportunity impact on earnings of around HKD190 million before normal operating conditions were safely resumed after 2 weeks. There was no flooding at the mine itself and no damage to either mining or power generation facilities. However, some damage was sustained to the Morwell River diversion, which runs above the mine and the provision has been made to deal with it as noted earlier, under items affecting comparability. Turning to the outlook. In the short to medium term, we expect to continue to see pressure on margins. We believe intense competition in the customer segment will continue, while in the Energy segment, we will see more impact of lower realized wholesale electricity prices and continuing high gas procurement costs. Looking further ahead, we will continue our focus on excellence and cost reductions in customer service, optimizing the operation of our energy segment portfolio, progressing investments, which will deliver a cleaner and more flexible generation portfolio in the future. And preparing for the closure of Yallourn. In India, the major planned outage at Jhajjar resulted in a lower contribution. This was despite the contribution from wind and solar having increased, thanks to higher wind generation, interest received on delayed payments from renewable debtors and the commissioning of 2 new solar projects. The business delivered an ACOI of $476 million, down by 5.7% compared with last year. We are actively pursuing overdue payments from the state-based distribution companies. We have made good progress on securing long-dated payments during the first half of the year with the outstanding amount at the end of the half being $0.8 billion. Our focus in India remains on new 0 carbon investments in renewable generation and transmission assets, construction of the Sidhpur wind farm in Gujarat and the anticipated completion of our acquisition of the KMTL transmission asset during the second half of the year are part of that. Operationally, our assets in Southeast Asia and Taiwan continue to perform well. However, financially, ACOI was down 19.8% because as anticipated, the contribution from Ho-Ping is lower this year in line with the 1-year delay in the coal cost adjustment mechanism. While higher coal costs have already had an impact on our earnings from Ho-Ping, this impact is expected to be significantly greater in the second half. We also remind investors that there will be a significant step down in tariffs for our Lopburi solar project in Thailand at the end of this year. Cash flow generation has been sound in the first half and follows the normal yearly profile. Cash inflow for CLP is usually lower in the first half while dividend payments are higher due to the usual practice of a higher final dividend. Dividend payments for the half reached $4.6 billion and the group invested $5.4 billion. Within this total, $4.9 billion was for investments to improve networks and move towards cleaner generation in Hong Kong. And we also spent $0.5 billion on projects in Australia, Mainland China and India. Our financial position remains strong. Our debt levels are healthy. We have significant undrawn debt facilities, solid cash in hand levels, and we have stable credit ratings, which were reaffirmed in recent reviews by both S&P and Moody's. Net debt has increased by $5.3 billion to around $47.9 billion, except for the payment of the litigation in Australia. This is in line with the usual seasonal trend of dividend payments, CapEx and free cash flow generation. This has resulted in a net debt to total capital ratio at a sound 27.4%. During this half, we announced our financing by successfully issuing several loans and bonds to support our operations and growth. This included a $300 million energy transition bond for CAPCO in February and a $300 million conventional bond for CLP Power in July. This locked in favorable terms, extended the debt maturity profile and diversified sources of funding. Our blended average interest rate for the first 6 months was about 0.5 percentage point lower than the first half last year. To protect against potential rate increases, 50% of our debt has maturities of beyond 5 years compared with around 40% 2 years ago. And nearly 2/3 of our debt is on fixed rates compared with around half 2 years ago. We are, therefore, well placed to address our commitments to shareholders and bondholders while continuing to have the ability to fund our investment plans. I will now hand over to Richard to discuss the strategic outlook of the business.

Richard Lancaster: Thank you, Nicolas. At CLP, we're addressing the energy transition across all of our operations. We're decarbonizing and digitalizing the business as we progress towards our vision of the utility of the future. In Hong Kong, we're working towards a target of carbon neutrality by 2050. We've been decarbonizing our portfolio through the construction of highly efficient gas-fired generation units, diversifying our gas supply, upgrading our clean energy transmission system and studying the potential to develop the first offshore wind farm in Hong Kong Waters. Looking ahead, we know the best solution is to adopt a range of technologies which will include more renewable energy from solar and offshore wind projects in Hong Kong, more important clean energy from the mainland and ultimately, the use of green hydrogen as a fuel for local electricity generation. As we pursue these decarbonization goals, we're increasingly integrating our efforts in Hong Kong with the broader Greater Bay Area. Our clean energy transmission system already links us to imports. It's being upgraded as part of the current development plan, and we anticipate it will become part of a network of connections to bring clean energy from the Greater Bay Area to Hong Kong in the future. We're looking at an offshore wind project in Hong Kong Waters, and we will also investigate the feasibility of further developments across the Greater Bay Area. In addition, we're making investments and building partnerships that seek to leverage our expertise in Hong Kong across the Greater Bay Area. For example, we're seeing energy management being part of the service that we can provide. There are many Hong Kong companies that are in factories or property developments in the Greater Bay Area. There are customers of ours in Hong Kong and they look to CLP to help them manage their energy costs as well as their carbon footprint. For governments, communities and businesses to achieve carbon neutrality, it's important that energy consumers have the means to reduce their carbon emissions. Many of our customers are embarking on their own decarbonization journeys. Through our emerging energy infrastructure and energy as a service approach, we can provide end-to-end product offerings to help make a difference. This includes supplying low-carbon electricity, using electricity more widely for transport and industry, improving energy efficiency and helping offset emissions that can't otherwise be avoided. We're also partnering with innovation -- with innovators to ensure that we can access and deploy the best energy technologies. This includes a portfolio of strategic investments in leading global innovation hubs within China, the U.S. and Israel, covering technologies, including demand response management, smart buildings, cybersecurity and hydrogen storage. These investments not only strengthen our business, they provide financial returns, as Nicolas has mentioned earlier. Looking more broadly across the business, we continue to invest and innovate as we decarbonize our operations. The Qian'an III project in Jilin province will be our first grid parity wind farm in Mainland China and it will be built with other company in battery storage. In India, we expect to complete acquisition of our first interstate transmission project, and we've commenced construction of our largest wind farm to date in Gujarat. Meanwhile, in Australia, we've recorded 3 significant firsts this half. We brought forward the closure of the Yallourn power station by 4 years to 2028, providing our people and the community with 7 years' notice of closure and announcing workforce support packages to assist in the transition. Simultaneously, we announced the construction of a 350-megawatt battery facility to be built close to our Jeeralang power station. If constructed today, this would be the largest battery facility in the world, and it will help smooth the power market transition in Victoria as Yallourn closes. In New South Wales, we announced the expansion of the Tallawarra B gas-fired power station. It will be designed and built to use 5% green hydrogen from the time it commences operation and will be Australia's first net 0 emissions gas peaking plant. And in Queensland, the 250-megawatt Kidston Pumped hydro storage facility has been -- has begun construction. Energy Australia won't own this asset, but has secured the operational dispatch rights for this important facility when it's completed in 2024. We continue to see opportunities to make investments to accelerate Australia's energy transition. This will be capital intensive and will proactively explore ways to optimize our capital structure, including forming partnerships with others where appropriate. Collectively, these projects demonstrate our commitment to working with governments and communities to accelerate the energy transition. At CLP, we aim to be the leading responsible energy provider in the Asia Pacific region from one generation to the next. We seek to provide our customers with sustainable energy solutions. So in addition to our investments in low-carbon technologies, we'll increasingly focus on energy infrastructure and energy as a service. Hong Kong remains the core of our business. And as it increasingly integrates with the Greater Bay Area, we'll build on our experience in innovation and new business models with our business in Hong Kong. Across all regions of our business, we're well progressed on our journey to decarbonize our energy supply. We've embraced the challenge of new cleaner energy technologies and of managing the increasing complexity of our energy systems. We, therefore, look forward to releasing new science-based targets for the decarbonization of our business in the lead up to COP26 in Glasgow later this year. But whatever we do, we'll put our customers at the heart of our decisions and ensure we have a skilled and agile workforce that can meet their changing needs. These are exciting times. And at CLP, we believe we can make a real difference as the world undertakes the energy transition and as we build the utility of the future. So thank you, ladies and gentlemen, and we'll now be happy to take your questions.

A - Angus Guthrie: Thank you, Richard, and thank you, Nicolas, for undertaking the presentation. [Operator Instructions]. If I could just then look at the queues, I don't think we have any analysts on the lines at the moment, but we do have a question from the webcast. So I will read that out. It's from Simon Lee of Morgan Stanley. His question is, last week, Origin Energy downgraded its energy markets, divisional earnings by about AUD 100 million based on higher cost of New South Wales coal prices are up $50 a tonne half-on-half. And the question is, is Mount Piper coal exposed similarly to market-linked mechanisms. Richard?

Richard Lancaster: Firstly, I can't comment on another company's results. But just to say, we have two coal-fired power plants in our portfolio in Energy Australia. Yallourn comes with its own mind, so basically, there is no exposure to the market there. With Mount Piper, we have long-term agreements for the supply of coal. We're not connected at Mount Piper to the international market, and we basically secure our call under long-term contracts.

Angus Guthrie: Thank you, Richard. I believe that there's a question on the lines now from Evan Li of HSBC.

Evan Li: It's Evan from HSBC. A couple of questions. First, I'd like to get a little clarification about your comment about making -- already made a provision for the mine in Australia. How much that provision was? And was that included under ACOI during one of the slides that you mentioned that from the red -- green and red bar that you show, I don't know if the provision has been included in that? And second question is that that's been mentioned that Energy Australia, the retail business will be extending into broadband, mobile and insurance. Could you maybe perhaps you can add a little bit more details on that? Are we talking about like owning like mobile spectrums and things like that?

Richard Lancaster: I'll just say a few words about the Yallourn mine, and I'll ask Nicolas to just clarify and just make sure that you're clear on the numbers there. But essentially, we had a very extremely heavy rain in -- around the Latrobe Valley in early June. Around 30x the normal flow of water was flowing at the peak. We did make a big investment in river diversion just to cope with floodwaters and that held up. But when the water receded, we did find that the ground in some parts of the local area had developed some cracks. So we did take the precaution of stopping mining activity for a short period and we now need to investigate and do some temporary repairs. So that's the background to what we're providing for is those repair costs. And Nicolas, you may want to just clarify where that accounting treatment is.

Nicolas Tissot: So we are basically from those extreme weather events in Australia in the region where Yallourn operates. We have type of impacts. One is above the line, and it is a loss of opportunity for restricting operations at Yallourn for a couple of weeks, and this is AUD 40 million impact, HKD190 million, which is above the line. And then we -- as we mentioned in the items affecting comparability, we have taken a further provision to ensure safe operation at the industrial site, specifically at the mine, and this represents an impact below the line of AUD 65 million. And this is to bring a solution to the elevated risk, which was identified, as Richard described, around the Morwell River diversion, which runs above the mine.

Richard Lancaster: And Evan, just on your second question, the -- our focus as a business in Australia is on energy, both electricity and gas. And we -- if we do find opportunities to provide additional value to our customers, we're certainly open to those. So part of that is energy management services, but also where we have a retail business, we are open to looking at areas where we can provide extra value to our customers. So this is not a strategic move into another sector. This is looking at optimizing and looking at enhancing our existing customer relationship to see how we can provide extra value to customers.

Angus Guthrie: Okay. Thank you for the answers. We have another question on the phone lines there from Cissy Guan of Bank of America Merrill Lynch.

Cissy Guan: My first question is after Energy Australia recontracting its gas supply contract, how much impact is there on unit fuel cost and how much total profit impact to the generation profitability? Second question is how much tariff cut were there for the default market offer from July? And how much do you expect the margin impact on the retail business? Thirdly, I want to ask, like, we have seen a significant outage scheduled for Mount Piper and Yallourn generation capacity from both 2020 and 2021. And what is the schedule like for 2022 and the years forward?

Richard Lancaster: Well, I'll take the third question first and then invite Nicolas to comment on the profitability of the gas supply contracts and also the impact on the -- of the adjustments in the tariff. But basically, for our outage program, we have quite a heavy program in 2020 and 2021. And the -- we have 2 units at Mount Piper, 4 units at Yallourn, the units at Yallourn are of different vintages. So as we get through 2021, we will see we're over the hump, and we will just be back to more normal levels of maintenance outages.

Nicolas Tissot: So on your question on gas contracts, so we announced already as we published our full year results in February that we were recontracting our gas contracts at less favorable conditions. We are not disclosing specifically the impact. But clearly, this is one of the reasons which has weighted on the profitability of Energy Australia starting this first half and expected to continue during the second half. On tariff cut, I'm not sure what you are exactly referring to, but talking about the first half I think the highlight is the repricing we've seen in Victoria, which has helped the profitability of our customer business resisting during the first half together with other factors, specifically, our efforts to reduce and master the level of costs and the efficiency and also doing a specific effort to announce our operation in the customer business and the lower cost of bad debt in that business, and that has protected our performance during first half.

Cissy Guan: Just to clear on my question. Previously, we have mentioned that Victoria deferred offer was reset from January and the other DMO will be reset from July. So I was asking like how much of the margin impact do you expect from the DMO rate for the second half of the year?

Richard Lancaster: Cissy, maybe if it's okay, I'll quickly address that. Those numbers are generally public in the sense that the reduction in the tariff is published. There are a few percentage points reduction in New South Wales, South Australia and Queensland, Victoria has a more modest impact through our areas in any case. However, we don't provide specific guidance on that. What we are saying, though, and making quite clear is that we do expect retail competition to remain very intense and that includes these kind of pressures on our retail margins.

Angus Guthrie: I might -- I don't believe that -- I hope that's okay. There's not another question on the telephone lines at the moment, but we do have a question from the web, so I might go to that. It's from Daniel Fitzgerald of Martin Currie. And the question is how serious are the cracks discovered at the Yallourn mine? And is there a risk it does not run until 2028? Could you give any more details around the provision. Richard or Nicolas?

Richard Lancaster: I'll address that one. This is an area which has had coal mining for more than a century. And we saw a flood that was a 1 in 75-year event. So it's natural that when you've had flooding and when the floodwaters recede, you need to assess what's happened underneath the water. In coal mining areas, there is always some level of subsidence that happens and flooding in the surrounding region can accelerate that. So essentially, that's what we are looking at. We are a very responsible operator. So we have taken a very close look at the whole area. We have a plan to keep the plant running until 2028 and to make sure that it is responsibly rehabilitated in line with agreements with the Victorian government, and they have been working very closely with us as well to make sure that the mine is left safe and with reliable operations and that we have the ability to lower the water level, so that we can properly assess what work needs to be done to fix it.

Angus Guthrie: And if I could just mention the mine and the power station while they were restricted in operations for two weeks, have been back up to full operational capacity since early July. So there is no immediate long-term cessation of operations there and those repairs will be undertaken at the same time. There is a follow-up question actually from Daniel, and I might just read that out. What are your return thresholds for new investments in generation capacity, such as batteries and gas in Australia? And given the group is investing more in the country, presumably, the group has a more positive view of long-term power prices.

Richard Lancaster: I will just say a few words about our investments and how we view Australia. Nicolas may want to supplement with comments around our thresholds. But essentially, we do look for investments that will earn our cost of capital. We do see Australia having very sound fundamentals, and we take a long-term view in our business. So we do believe that Australia is a good market to be in. It is going through an energy transition as is every market around the world. And we have a strong and significant position in that market. And we are making investments that we believe will be profitable investments to enable us to continue to run our business in the long term.

Nicolas Tissot: Basically, we apply investment criteria, which are based on our weighted average cost of capital in the various geographies where we operate, and we are looking for projects, which cover our cost of capital. You will understand that for competitive reasons, we don't want to disclose specifically those thresholds, but this is the framework we use to operate.

Angus Guthrie: Okay. We have another question from the phone lines from Peter Shaw [ph] of...

Unidentified Analyst: So my question is, I think, Richard earlier mentioned that hydrogen as the ultimate -- one of the ultimate solutions for Hong Kong's decarbonization. So I wonder if hydrogen is happening, how compatible it is with CLP's current infrastructure? And will CLP still need lots of investments for hydrogen, if it's happening?

Richard Lancaster: Thank you for the question, Peter. We use natural gas as a fuel in Hong Kong at our combined cycle power station at Black Point. And we have 2 generations of machines. The first 8 machines were built in the 1990s. And we're now building the second generation at the moment. The older machines can use up to 15% hydrogen blended with the natural gas without any change whatsoever and our new machines can use up to 30% hydrogen blended with the natural gas. So clearly, we can start to use hydrogen as it gets blended in our natural gas supply for a period of time without any change whatsoever. Once you get above the 15% or the 30%, then we will need to start making changes to our machines. These are very -- they are essentially very large jet engines, but the combustion system is a relatively small cost in the overall scheme of things. So by changing the combustion system, you can convert the machines to use different fuels relatively inexpensively. So the question is, where is the hydrogen going to come from? We have a diverse mix of gas supplies. Some of it comes from pipeline gas supplies, some over long distances such as our West to East gas pipeline. And we believe that green hydrogen produced from renewable energy will become part of China's energy mix. And as long as we are able to move in line with the transition from natural gas to green hydrogen at the -- being at the end of that pipeline, we'll be able to take advantage of that. We also are building an offshore LNG terminal. And one of the nice aspects of an offshore LNG terminal is that you store your fuel on a ship. And if you want to change the fuel, all you have to do is take away one ship and bring another one in that's suited for that fuel. So everything that we're doing is being built with the future in mind and with the ability to convert as and when green hydrogen becomes available.

Angus Guthrie: Thank you, Richard. We have another question on the line from Simon Lee of Morgan Stanley. So I'll read that one out. Chief Executive, Carrie Lam recently said she met with the 2 power companies regarding 2050 Hong Kong decarbonization. In addition to offshore wind, the clean energy transmission system and green hydrogen, as Richard just mentioned, what can CLP do to contribute to Hong Kong's decarbonization road map?

Richard Lancaster: Thank you, Simon, for the question. If you consider that the electricity sector contributes around 65% of Hong Kong's carbon emissions, simply, that number may sound high, but it's simply because we have very little other industry in Hong Kong. And if you consider that the transport sector is the next biggest contributor, which is around 18%. Then if you can decarbonize the electricity supply and use decarbonized electricity for the transport sector than essentially you've sold 83% of Hong Kong's carbon emissions. So with those initiatives that you've mentioned there with the combination of offshore wind with more imported energy, clean energy important from the Mainland and also by using hydrogen instead of natural gas at our gas facilities. We have all the tools that we will need to manage and produce decarbonized electricity. We may well need a few batteries dispersed here and there just to maintain the supply and demand balance. But essentially, that is how we will decarbonize the electricity supply. We believe it can be done by 2050, that is 30 years away, and we have all the technology that we need. We have all the expertise that we need. And by working and working with our regional partners, we believe all of this can be put in place within 30 years. And then for that to help Hong Kong achieve full decarbonization, it will involve the use of more electricity in places where fossil fuels are currently used. The transport is just 1 sector in any industry that could be making use of electricity will be able to decarbonize just by simply shifting from their current fuels to electricity.

Angus Guthrie: We've got another question on the webcast from Adrian Nang [ph] who is -- has got three questions, in fact. The first is what is the status of the Argyle Street redevelopment project? Secondly, when will the property sales proceed and when are they expected to be booked? And the third element of that is, will a special dividend be considered?

Richard Lancaster: Perhaps I'll address those. The Argyle Street redevelopment project is under construction at the moment. It is the residential property is really taking shape now. We did receive an initial payment from the developer and there may be some further sales proceeds as the flats are sold. But essentially, most of that was covered by the initial payment. And we having moved out of the Argyle Street office and moved into temporary office accommodation, we still have to provide ourselves with an office at the moment, we're in a temporary accommodation. And so essentially, those sales proceeds won't be able to be distributed as dividends because we'll need to reserve at least some of that for paying the cost of our new office.

Angus Guthrie: There is one more question from the web again. This one from Carol Hung [ph]. This question has in part been addressed. But basically, the question is from Australia, and I think this is a reference to the hydrogen component that is being incorporated in our Tallawarra B power station there. Would you consider having hydrogen application in Hong Kong? So again, Richard, maybe just to elaborate on that.

Richard Lancaster: Sure. Yes. The answer is yes. We are very keen to understand the conversion of natural gas to hydrogen. We have natural gas plants in Australia. We also have natural gas plants in Hong Kong, and we will be using all of these opportunities to build our expertise and to understand the implications of converting from natural gas to hydrogen.

Angus Guthrie: Thank you, again. Now there do not appear at this stage to be further questions. But if I could just have one last call for questions, both from the phone lines or from the webcast. We still do have a few minutes, and we'd be happy to take 1 or 2 more. However, if that is not the case, then I would just say that my team will be available through the remaining course of the afternoon and early evening to address questions that people may have after this. Actually, we have now got another question. And again, Cissy from BAML.

Cissy Guan: I remember we previously mentioned that we are very cautious in renewable energy investment in China. But now we have seen like we've made new investments in dealing grid parity project, what is the project IRR like? And do we have -- is there any change for our renewable energy investment strategy in China?

Richard Lancaster: Thank you, Cissy. I'll ask Nicolas to comment on the well, it does obviously meet our IRR hurdle, but this was our first grid parity project, no subsidies provided for this project. And we believe that the -- with the cost -- the EPC cost with our financing costs that we can still make this a profitable project that still meets our IRR hurdle. So it is consistent with all of our other investments in China or wherever they be made, they do need to earn their cost of capital. This is the -- this is the first. And what does make this an interesting project for us is that it's being combined with battery storage. So that does improve the economics. So we're using new technology to make these projects a little bit more profitable, and that's how we get them over the hurdle.

Nicolas Tissot: So not much to add. We apply the same framework I mentioned about Australia, which is we always target to cover our cost of capital calculated specifically for every region or every country. And specifically, in China, we are in a region where we expect double-digit type of IRR. And also maybe worth mentioning that we always want to finance those projects on a nonrecourse basis. And those IRR targets are to be appreciated also with this approach of our investments overseas.

Angus Guthrie: Once again, ladies and gentlemen, I think that's the end of our questions that are available. But if anybody has a last moment, one, we still do have a few minutes. I don't think we've got another question on the telephone lines, though and no more coming in from the webcast. So ladies and gentlemen, thank you for your attendance. As I mentioned before, my team and I will be available to answer further questions during the course of the evening. We do have some investor meeting scheduled for tomorrow. But thank you very much for your attendance. And I will now call the webcast closed. Thank you.