CLP Holdings Ltd

HKEX:2

Earnings Call Transcript 2020-Q2

[Angus Guthrie, executive]

Welcome, ladies and gentlemen, to CLP's Interim Results Announcement Webcast for 2020. We launched our interim results today at the Hong Kong Stock Exchange around mid-day, now are available also on our website along with the presentation that we will address today. I'm joined on the stage here by our CEO, Mr. Richard Lancaster; and CFO, Mr. Geert Peeters. Following our usual protocol, they will address the presentation first, and then after that, we will have a question-and-answer session. There are some dedicated telephone lines available to local analysts who have preregistered. [Operator Instructions]

With those formalities complete, I'll hand over to Richard Lancaster to start the presentation for today. Please go ahead, Richard.

[Richard Lancaster, executive]

Well, good afternoon, ladies and gentlemen. And thank you very much for joining us on the webcast today. It's been a difficult start to 2020 with COVID-19 impacting communities all around the world. For our part, we've been focused on taking care of our people and our customers, the reliability of our electricity supply, business resilience and supporting relief efforts to the communities in which we operate. In these challenging circumstances, I'm pleased to report that the efforts of our teams around the business have managed to keep the underlying performance broadly in line with last year. In Hong Kong, our focus has been on delivering high reliability and high levels of service while progressing infrastructure investments under the development plan. In Mainland China, the diversification of our generation portfolio mitigated the early impact from the COVID-19 outbreak.

In Australia, our business has seen lower margins resulting from retail price reregulation, lower demand and changing market conditions. And overall, the business performance was broadly in line with last year, except for Australia, where the underlying financial performance was markedly lower. Nevertheless, operating earnings increased by 12% after including significant favorable fair value variations on our hedge portfolio for Australia. Our outlook remains cautious and will be subject to the speed of economic recovery in various markets. We'll focus on preserving our cash flow, delivering on investments under the development plan to meet Hong Kong government's energy policy objectives and investing in the energy transition.

Financially, we reported operating earnings of HKD 6.1 billion, an increase of 12% when compared with the first half of last year. This was driven by a significant turnaround in fair value adjustments in Australia. Operating earnings were HKD 2.43 per share. And the Board has recommended a second interim dividend of HKD 0.63 a share, the same as the first and second interim dividends of 2019. Total earnings were HKD 6 billion, representing HKD 2.38 per share. By comparison in the first half of last year, we booked an impairment of goodwill for EnergyAustralia and therefore, we reported negative total earnings at that time. We've navigated this period with business resilience and minimal disruption, maintaining a strong financial position to support the funding of our business. CLP is committed to achieving 0 harm in all of our activities and operations. In the past year, we've undertaken concerted efforts to improve our safety performance and it's pleasing to see a reduction in our injury rates compared with the first half of last year, and we'll continue our efforts in this area.

In Hong Kong, we continue to maintain our extremely high level of reliability. While we've increased customer accounts, we recorded slightly lower electricity sales in the first half. In Australia, intense retail competition has led to a reduction of customer accounts and electricity sales were further impacted by COVID-19. We've continued to decarbonize our generation portfolio, adding renewable energy projects in India and China, while expanding gas generation capacity at Black Point in Hong Kong and Hallett in Australia. Electricity center out was slightly lower, reflecting lower generation from Jhajjar.

I'll now hand over to Geert Peeters to provide more details on our financial performance.

[Geert Peeters, executive]

Thank you, Richard. And good afternoon, ladies and gentlemen. Our performance in the first half of this year reflected a mitigated impact from COVID-19 on our businesses. Revenue was down by 12%, primarily due to sales in Australia, which decreased by 17% in Australian dollar terms and were down 23% in Hong Kong terms once depreciation of the Australian dollar is taken into account. While we continued to see pressure on operating margins and cash flow across our businesses, the underlying operating performance in Mainland China and Hong Kong was resilient. In Australia, however, underlying performance was down in line with the decrease in revenue, yet operating earnings increased once the impact of fair value changes of our energy hedging contracts were included.

We, therefore, reported operating earnings for the group of HKD 6.1 billion, 12% higher than the first 6 months of 2019. The items affecting comparability mainly represented the HKD 119 million revaluation loss on an investment property. Last year, we recorded an impairment of retail goodwill at EnergyAustralia. After adjusting for items affecting comparability, total earnings were HKD 6 billion compared with a loss of HKD 907 million reported last year for the period. As you all know, we use adjusted current operating income or recurring EBITDA to discuss the underlying segment operating performance of the business. The main point to note in the reconciliation of operating earnings to ACOI is the reversal here in the sign of the fair value adjustments from the first half 2019 to the first half of 2020.

Last year, a steady rise in forward prices in the wholesale electricity markets resulted in a negative mark-to-market or fair value change of our energy hedging contract. In contrast, this year, we have seen a reduction in wholesale prices in Australia, resulting in a positive fair value change. The net impact of this change is a variance of HKD 1.1 billion year-on-year before tax or around HKD 750 million after tax. Finance costs were lower, reflecting the reduced amount of perpetual capital securities and lower rates. While the higher income tax resulted from the higher profit in Australia, amongst others. As a result, we have delivered a consolidated ACOI of HKD 8.6 billion, a 3% reduction compared with the first half of 2019. While the headline ACOI dropped 3% year-on-year after adjusting from foreign exchange movements, the normalized ACOI was essentially flat. The negative foreign exchange impact aggregating to around HKD 222 million primarily reflects the depreciation of the Australian dollar relative to the Hong Kong dollar. As illustrated clearly in this chart, the movement of ACOI over the 2 periods has mainly come from Hong Kong and Australia.

I will now proceed to address each of the business units separately in more details. Starting with Hong Kong. The operational performance of our Hong Kong business was again dependable. Local electricity sales were down 1.2% compared to the same period last year. As a measures taken to restrict the spread of the COVID-19, adversely affected sales in all sectors, apart from the residential sector. Residential sector sales increased as more people spent time at home and higher May and June temperatures led to a greater use of air conditioners. We recorded new local demand peak of 7,264 megawatt, up 58-megawatt or 0.8%. The increase would have been greater even had we not activated demand response. Despite COVID-19 restrictions, we continue to make progress in decarbonizing Hong Kong's electricity generation. This included bringing the new gas-fired generation unit at Black Point online for baseload operation, continuing work on new gas supply sources and infrastructure, the landfill energy from waste project, the rollout of smart meter installations and significant uptake of our solar Feed-in Tariff scheme.

From a financial perspective, ACOI was up 4% which reflects the increase in average net fixed assets of 3.6% over the first half of 2020 over 2019. CapEx for the first half of this year was HKD 4.2 billion. Looking forward, we will continue the decarbonization journey. And we are on track to contribute to government's target of around 50% gas-fired generation in Hong Kong this year. We will continue the development of new gas-fired generation capacity, and will progress construction of the offshore LNG terminal. We will continue to pursue renewable energy, energy efficiency and conservation initiatives under the new [ SoC ]. We will also continue to focus on reliability and support for customers in need during these difficult times.

Over to our operations in Mainland, China. Our diversified portfolio in China is delivering reliable earnings. After the initial impact from COVID-19 in the first quarter of the year, our business has started to recover in the second quarter as did the economy in Mainland, China. Excluding renminbi depreciation, the ACOI has increased by around HKD 79 million or 5%. Our nuclear projects delivered more than half of the earnings in Mainland, China. Daya Bay performed reliably as usual. The sixth unit at Yangjiang helped deliver higher production particularly in the second quarter. However, earnings recorded by CLP from Yangjiang, while lower, primarily due to lower VAT reference and higher spend fuel levy. Earnings from the renewable portfolio benefited from a new wind project and higher solar resources, partially offset by lower hydro resources.

Payment of renewable national subsidies from the central government for renewable energy, unfortunately, continue to be delayed. The aggregate amount from our subsidiaries due is now HKD 1.6 billion. Contribution from our thermal projects increased, in part due to lower coal prices and in part due to lower seasonal competition from hydro power plants, for our Fangchenggang plant in Guangxi. CLP, together with other partners, commenced providing electricity supply services to customers through an incremental distribution network in the high-tech zone at Fangchenggang as from April 2020.

Looking ahead, the pace of recovery from COVID-19 restrictions and the rate of increase in electricity demand will play a major part in determining margins and financial contribution in the second half. Also, the evolution of market regulations and the introduction of market reforms is expected to put further pressure on margins for many of our projects. We will continue to pursue strategies to increase sales from existing projects. And we will look for new zero-emission opportunities in a disciplined and selective manner as the electricity market reforms further. We will also further explore development and diversification opportunities particularly in the Greater Bay Area. In India, the national lockdown has required adjustment to some operations. Including the deferral of a major plant maintenance overhaul of Jhajjar into the second half of the year. Operationally, we achieved good performance of our renewable energy assets. High availability of the Jhajjar plant and 100% availability of our first transmission asset in the first half of the year.

The total outstanding receivables for renewable projects has come down from HKD 805 million to HKD 609 million after receiving several payments in the first quarter. ACOI, after excluding Indian rupee depreciation, was similar to the first half of last year. This included lower cost at Paguthan and Jhajjar. The contribution from the new solar project and our first transmission asset, partially offset by lower capacity revenue at Jhajjar as per the terms of the PPA and the nonrecurrence of interest received on delay payments last year in 2019.

Looking ahead, we will continue to focus on investments in renewable energy and transmission under our partnership with CDPQ. We will commence construction of the Sidhpur Wind Project, and Jhajjar will undertake a major outage in the second half of the year. Jhajjar earnings will also be impacted by lower capacity tariffs as per the PPA. In addition, the financial health of local distribution companies is expected to further weaken as a consequence of socioeconomic impacts from COVID-19. This may lead to higher receivables again. We will be actively pursuing overdue receivables to control the outstanding balance.

Over to Southeast Asia and Taiwan. The operational performance in the region was again steady. Operations at the Lopburi Solar Plant continued to be reliable and benefited from [ higher regions ]. The ACOI contribution was 30% higher than last year, which was mainly due to lower coal costs and higher generation at Ho-Ping. In the future, our efforts in the region will focus on exploring investment opportunities in renewable generation.

Over to Australia. Our business in Australia was impacted by price regulation and lower demand driven by COVID-19 as we focused on maintaining safe and reliable electricity supply and supporting our customers through this difficult time. In our customer segment, our performance was impacted by price regulation, higher energy procurement costs, lower customer numbers, and lower demand resulting from COVID-19 lockdown measures. This resulted in a negative ACOI for the customer segment of HKD 303 million in the first half of 2020. In our energy segment, the national energy market had a very volatile start of the year through bush fires and extreme weather. [ Oil ] prices have since dropped, however, reflecting a fall in business and industrial demand as a result of COVID-19.

The effective management of our combined portfolio of power stations and energy contracts allowed us to navigate through these changes. This was aided, in particular, during the second quarter by higher generation from our Mount Piper facility where adequate supply of coal has been restored. Generation volumes were slightly higher in aggregate and we realized higher prices and margins. As a consequence, earnings contribution from the energy business at the ACOI level increased in the first half of the year. As a result of these changes, EnergyAustralia recorded an ACOI of HKD 1.284 billion, down by HKD 326 million or 20% after excluding Australian dollar depreciation.

Looking ahead, we will continue to enhance asset reliability and optimize our generation portfolio. A major plant outage of Unit 1 at Yallourn has started and will take around 3 months to finish. With another significant maintenance outage also planned at Mount Piper during the second half of the year. In regard to optimizing our portfolio, we signed an offtake agreement for the proposed 250-megawatt Kidston Pumped Hydro facility, which is expected to become operational in 2024. We also received approval from the New South Wales government for a new gas generator at our Tallawarra site. We will continue to progress these and other fast response generation projects. However, in the short to medium term, we expect that a sustained lower level of energy prices will put downward pressure on margins and earnings in the energy business. In the customer segment, we continue to focus on service excellence and customer support particularly amidst the difficulties of COVID-19.

We will remain focused on uplifting compliance, reducing costs and making it easier for our customers to access new products and services. However, we expect that there will be an increase in debt and doubtful debt resulting from hardship for customers caused by COVID-19. We also expect the market conditions will continue to be very competitive.

To finish, a couple of words about the cash flows. This year, cash flow decreased by about HKD 0.5 billion or 9% in the first half compared with the first half of last year, where we received the remaining balance of HKD 1.4 billion from our 40% divestment of CLP India to CDPQ. The group invested around HKD 5.8 billion in the first half. Within this total, HKD 4.7 billion was in Hong Kong, HKD 0.5 billion was for the maintenance CapEx in Australia and HKD 0.6 billion for the other CapEx, which included the construction of wind projects in Mainland China and the acquisition of 2 solar projects in India. After funding these commitments, paying dividends and assuming debt associated with projects acquired in India, our net debt has increased by HKD 4.3 billion to around HKD 48 billion.

Meanwhile, net debt to total capital ratio remains low at around 29%. With significant undrawn debt facilities and high credit ratings, our financial position remains strong. CLP engaged a range of new financing initiatives in the first half of this year to support the operation and growth of the business. In June 2020, we issued a USD 350 million energy transition bond to partly finance the construction of an offshore LNG terminal project. [ NCLP ] Power also issued for a total of USD 1 billion in notes with terms of 10 and 15 years. These issuances attracted strong investor support and achieved favorable rates of 2.125 -- 2.125%, and 2.5%, respectively. I will now hand over back to Richard to discuss the outlook of our business.

[Richard Lancaster, executive]

Thank you, Geert. As we look ahead, we're continuing our commitment to decarbonize our electricity generation portfolio. We've made good progress in key capital projects despite the challenges of COVID-19. In Hong Kong, the new 550-megawatt combined cycle gas turbine unit at Black Point Power Station is online, supplying baseload electricity, which will help CLP support the government's target of 50% gas-fired generation for 2020. Engineering design has been completed and environmental permits have been approved for a second combined cycle gas turbine unit which is targeted to start operation by the end of 2023. Construction contracts were awarded in January for the offshore jetty facility and subsea pipelines of our onshore LNG terminal project, which are now being fabricated.

On the renewables front, we made progress on our wind power developments. These include completing grid connection of our 50-megawatt Laiwu III wind farm in China, in June and a PPA has been executed for the 250-megawatt Sidhpur wind farm in India, which is scheduled to commence operation -- sorry, scheduled to commence construction this year. In Hong Kong, we received favorable response for the renewable energy Feed-in Tariff program with a large number of solar projects being approved. I'm pleased to be able to update that as at the end of July, we have over 10,600 customer applications approved for our solar Feed-in Tariff in Hong Kong, representing over 130 megawatts of potential capacity. In Australia, we're committed to a national electricity system, which provides cleaner, more reliable and affordable energy.

To assist the integration of more intermittent renewable energy into the grid, we'll focus on adding flexible, fast response generation capacity, which includes the Kidston Pumped Storage Hydro project, an expansion of the Tallawarra site and continue to assess other options. As further commitment to decarbonization in Australia, our go neutral product allows our customers to entirely offset the emissions for their use of both gas and electricity. And is one of the market-leading products in this area with around 250,000 customers signed up.

We've made significant investments in digitalization as part of our ongoing efforts to improve the experience of our customers. CLP launched a new mobile app designed to cover the whole digital customer journey from new customer registration to managing electricity use and accessing billing information. Our customers can now enjoy various e-services anytime and anywhere. The continuing rollout of smart meters will provide all customers with access to consumption data to improve their energy efficiency. More than 576,000 smart meters have been connected by the end of June. Cloud-based information technology systems are also helping CLP to provide innovative services to customers, as well as improving operational efficiency and supporting remote working for employees.

And we also leverage data on -- leverage on data analytics to encourage participation in demand side management events. This was recently demonstrated on the 14th of July when a new peak record was experienced in Hong Kong. Which would have been even more significant, if not for around 60 megawatts of demand side management engaged to reduce the load. Similarly, in Australia, we're a leader in demand response management with over 50 megawatts available at critical times. Together, these initiatives are just part of our ongoing commitment to use innovation in our pursuit of excellence in customer experience and operations.

The second half of 2020 is likely to remain highly uncertain for the world for Hong Kong and for CLP. Our outlook remains cautious and will be subject to the ongoing evolution of the pandemic and the speed of economic recovery in various markets. Throughout these challenging times, we're maintaining our focus on operational excellence and continuing to put the safety and well-being of our own people and of the communities we serve at the heart of everything we do. At times like these, the experience and commitment of our people, our diversified portfolio and our strategic commitments to digital transformation and decarbonization serve us especially well. In Hong Kong, we'll continue to focus on providing clean energy infrastructure and enhancing customer experience.

Through China and India, we'll continue to see good quality long-term opportunities to expand our noncarbon emitting portfolio. In Australia, with careful planning and attention, a major maintenance outage of Yallourn has started, which will help ensure that the plant is in the best possible operating condition for the coming summer and for its remaining life. We remain confident in the long-term strength of our market position and the need for investments in fast response generation and storage to manage intermittency and reduce volatility in the market. We'll continue to manage our operations and make investments as guided by our strategic focuses of decarbonization and digitalization. Our strengths in key markets lead us well placed to benefit from the global energy transformation.

So thank you, ladies and gentlemen. And I'll now be very happy to take your questions.

[Angus Guthrie, executive]

Thank you very much, Richard, for running through the presentation and Geert as well. We are now open for Q&A. [Operator Instructions] I think we're ready to take the first question from the telephone lines, which is Pierre Lau from Citigroup.

[Pierre Lau, analyst]

I have 2 questions about the customer business of -- in Australia. The first one is, we reckon that in first half this year, for wholesale market, Australia should go. But why your customer business you have higher energy procurement in first half this year compared to last year? And what will be your outlook in second half this year? And the second question is, we want to know how much better provision that you have made for the customer business in the first half. And given that Australian regulator recently request more help at a port for end users suffering from COVID-19. So how could we quantify the potential impact from bad debt provision and the impairment in the second half?

[Richard Lancaster, executive]

I think Geert it might be best if you take those questions.

[Geert Peeters, executive]

Yes, I will start with those questions. So with respect to the wholesale prices, the wholesale prices have dropped later in the year, but that was not at the very beginning of the year. So the beginning of the year, you may recall there were bush fires, it was extremely hot, and the prices were very high. So we were exposed from time to time to high procurement costs at that period as we normally pre-purchase our inventory for the retail at probability 50 case of energy. So that is what created higher costs in part in relative terms compared to last year, at least at the beginning of the summer. Thereafter, came COVID and we then had a fall of the forward prices in pre-expectation of what may come in the coming future as a consequence of demand being weaker.

With respect to the bad debt provisions that we made in the first half. We do have our formulas, and we test them regularly, if they still correspond to the expectations. We have looked at them in detail. We have not had significant changes in bad debt behavior as of now. But it is true that with the hardship that we expect as people are now engaged with us for payment facilities, how much of that will eventually become bad debt. The future will tell us. What I can say is that we have taken additional provision of about AUD 30 million, 3-0 before tax.

[Angus Guthrie, executive]

Thank you. I don't believe there are any more questions on the lines right at the moment. We do have some questions from the web. I might just read out the first of those from Wilson Ko of Iridium Capital. What is the EBITDA, Australian dollars million for EnergyAustralia, excluding Yallourn Power Plant? Thank you. We may hit, we may need to come back to that. But can I leave that?

[Richard Lancaster, executive]

Yes. What I would say, Wilson, is we don't have the exact amount in mind of the plant itself. We do provide by segment details in the attachment, but not by plant one by one. And I'm not sure also Angus if that is confidential information that we would disclose at that granularity. We don't usually do that.

[Angus Guthrie, executive]

Yes. I was going to suggest that. That's -- we don't usually provide that breakdown. What we can say is that Yallourn generated approximately the same amount of energy as it did in the previous period, but was available during some key times during high price events in the first half. And so the contribution from the Energy segment overall is significantly higher.

[Richard Lancaster, executive]

And of course, Yallourn, given its sheer size is a significant contributor to the EBITDA of EnergyAustralia, undoubtedly.

[Angus Guthrie, executive]

Perhaps we could move to the second question then from William Leung from Overlook Investments. SoC CapEx on the PowerPoint presentation, you said 30% compound average growth rate. Can this be specified? What's the base you use? I would actually like some clarification on that, a 30% compound average growth rate for the SoC CapEx. I can't believe -- I don't believe that we actually did make that statement, but...

[Richard Lancaster, executive]

No. The growth rate of the SoC CapEx is usually between 3% to 4%. It has been on the higher side in the recent years as we are embarked on this decarbonization efforts, but it is for surely not 30%. If you found that, then that must be a typo error for which we apologize and happy to get an e-mail of where you found that.

[Angus Guthrie, executive]

And Geert did refer during the presentation to an increase in the net fixed assets of 3% to 4%. So possibly, that's where that has come from. If I could move to the next question, Simon Lee of Morgan Stanley. The question states impressed with the TSF balance increase despite Hong Kong power sales volume was down 1.2% year-on-year. What is the reason for the tariff stabilization fund balance increase? Can you disclose the details of investment property revaluation loss details? That is a separate question.

[Richard Lancaster, executive]

We can briefly speak to the TSF balance. As we expressed, 1.2% year-on-year, lower sales compared to last year, but that was actually less of an impact than what we had anticipated for this year when we set the tariff in accordance with our models and forecasts. And so the TSF balance has benefited actually from higher consumption than anticipated up until now. That is mainly because of we had extreme hot weather in May and June. And as we mentioned, with people being at home, there was a lot of use of air conditioning energy there. So it's still too early to call out what the TFS -- TSF balance, sorry, will be come the end of the year. We are in the summer, and a lot depends on the consumption in the summer.

With respect to the investment property revaluation loss. We're talking about the building in which we are here, that we have the plan to transform into our new head office. Given this building is from an accounting perspective, held for sale as an investment property, we have to yearly get an appraisal -- reappraised value of that building last year. There was a gain on that. This year, there is a loss. It is noncash. It is just updating the perceived market value.

[Angus Guthrie, executive]

I don't believe we have any other questions at this point. Actually, we do seem to be getting through one more on the lines from China International Capital Corporation. Please go ahead on the telephone line.

[Unknown Analyst]

Thank you, Richard and the management, and we've got some questions on the electricity distribution business in Fangchenggang and can you share with -- a more color on how this business performed, for example, how many customers we got and to CLP [indiscernible] by the local trading platform or some EPC compared with local business. Maybe CLP has ownership on this distribution business unit. Maybe this is a joint platform. And how CLP will [ be appreciating ] this unit? Will this unit allow to sell small class in [ both reproving ] or just this industrial [ move ]? Yes.

[Richard Lancaster, executive]

[ Maybe I'll address that question. Thank you very much for the question, Wang Song. We are in the early days of looking at incremental distribution network ] businesses in Mainland, China. We do have an opportunity in Fangchenggang, a industrial park that we won the contract for the distribution through a tender. This is an area where the national policy is to promote more private investment and more diversity in the operations for industrial parks, so we were amongst the first wave of these tenders. It's a new area for us. We are exploring this business, but it is one that does have very obvious synergies for us, given that we have a large coal-fired power plant in Fangchenggang. So we have gone into this business in partnership -- with partnership with a subsidiary of Tsinghua University, which brings the smart technology. And we -- we'll see how we go with this. And if this business looks promising, we would look for further opportunities, not just in Guangxi Province, but in other neighboring provinces in Southern China.

[Angus Guthrie, executive]

Okay. We have a further question on the telephone lines from Evan Li of HSBC. Please go ahead, Evan.

[Ming-Hon Li, analyst]

In terms of the retail business in Australia, I was wondering, is there any quantifiable cost reduction that we could sort of looked at in the next -- not maybe the more medium term, in the next few years that we couldn't think about when we come out in terms of cost reduction and value restoration. And second of all, it has the -- obviously, you mentioned the value restoration as a strategy in Australia before. With how things have shifted within this year, has the strategy overall changed? How should we think about the business going forward? And the third question I might have is, is there any major debt not that is looking to be refinanced in the second half? And what would be the existing financing costs but that debt that can be disclosed?

[Richard Lancaster, executive]

Maybe I'll address the second question, just a broad strategy on Australia. And then Geert, if you could address the detailed questions on the cost reductions and the major debt refinancing. When we look at our business in Australia, it is one where we see the fundamentals being very, very sound, a high level of affordability, low sovereign risk, a market which is in need of investment to see through the energy transition. And one where we have a strong business with vertical integration with the generation business and an equivalently sized retail business. And we have the scale in that market in order to make us competitive. So we do see that, fundamentally, our business is sound.

One thing that we always see from half to half, when we talk about our results is that when you're dealing in a market which is competitive and where prices are moving about quite frequently that we do see value shifting from our wholesale business to our retail business. So I think it's important when you do look at our business in Australia to put the whole lot together. It is an integrated business. We operate it as an integrated business, but we do report results on a segmented basis. And for us, this is a market where we do see value over the long term. We have been in Australia for 15 years. We have built this business to what it is today. And we do see that there is value there in that business. It is a changing market. It's going through an energy transition. It has very complex and fast-moving regulation.

And we have been adapting to that over the past few years. We have had an exercise in value restoration, and that is continuing. We are still looking to extract value from that business. Part of that is looking at taking advantage of our scale, but it does require us to make investments in the IT side of our business so that we can become more competitive longer term. So fundamentally, we still believe that our business is in strong shape there. But we are looking at specific programs of cost reduction and continuing to do so. And perhaps Geert could.

[Geert Peeters, executive]

Yes. On the cost reduction, you will understand that under the present circumstances with COVID, what has been first in mind for our colleagues, is to continue to deliver to make sure that our customers get their power when there was bush fires. Now, it is to help them get through this hardship and all that, whilst being working from home and juggling with call centers in Australia and amongst others in the Philippines. That doesn't mean that our colleagues have not in mind that we need to keep the costs under control. But what they have mostly had in mind is to operate safely and reliably for our customers. That being said, the cost reduction, as Richard mentioned, is an integral part of the strategy in retail, you must be low cost.

So we have continued to invest in new systems. We have continued despite the hardship to put in operation new systems, and that should deliver cost reductions. With respect to your questions about debt, if we were about to issue soon a major debt initiative, we would not be able to mention that, of course, you understand. What I want to point you to is that we have been very active in the year. And I can say that we have covered all the debt raising that we need to do this year. Just to remind you, we raised about USD 1.3 billion in total, in debt, of which USD 350 million for the LNG terminal under CAPCO. The remainder part of the LNG terminal will be financed mostly with an export credit agency facility with SINOSURE.

On the other hand, for CLP power to finance the combined cycle and all the other initiatives that we have ongoing there. We issued in total USD 1.5 billion. And as I mentioned, we ventured into the 15 years, we had so much success that we ventured into the 15-year horizon with that issuance, and we paid for the 15-year coupon of 2.5%. So that means that the market, despite being complicated is quite open for us still. And so our next -- main initiatives will come next year to fund the capital -- the CapEx funding requirements of that year.

[Angus Guthrie, executive]

Thank you, Geert. We do have another couple of questions that have come in through the web. I might turn to the next one, which is Dennis Ip of Daiwa. The first question, outlook of Australia retail. I think we have actually covered that in reference to the answers on the last 2 questions. So if it's okay, I'll go to the second and third elements of your questions, Dennis. The second question says, given China might issue specialty bonds to relieve the subsidy receivables mainly on wind farms, will CLP if we get back most of the Hong Kong dollar receivables in the next 12 months, are we going to accelerate our new wind farm developments despite subsidies, maybe not being available starting from 2022. There's a third question, which is, in case, Hong Kong electricity sales volumes are weak in the second half and how might that affect the basic tariff [ for you ] starting from 2021?

[Geert Peeters, executive]

Maybe I'll take question two.

[Richard Lancaster, executive]

You take question two, I'll take question three.

[Geert Peeters, executive]

So that would be good news. We also have heard news left and right that the government is definitely wanting to address this receivable story. So again, the first thing would be good news if these outstandings would be paid. On your second part of the question is, would we spend them right away on new wind farms despite the experience of the subsidy. I think actually that the government's intention is not so much to do many new wind farms with subsidies, maybe offshore and in other remote places, but more and more, the government wants to go to grid parity projects. And that is what we are exploring for the moment. It is challenging to have the numbers work. So as long as the numbers don't work, we won't do projects. But if we find the grid parity projects, solar or wind that work without subsidy, then we might, again, build a couple of those. But our new strategy is to have projects working without subsidy, not to rely on subsidies anymore.

[Richard Lancaster, executive]

And just quickly on the tariff review for 2021. It is too early to make any comments really on our tariff review. The sales forecast is one factor that we have to take into consideration, being down 1.2% on last year. When you consider that last year was a particularly hot year, and we had very, very high-growth at an equivalent time last year. It's not a significant reduction. But also bear in mind that fuel costs have come down as well as a result of the COVID impact. So we will be discussing with government towards the end of the year, what the tariff for 2021 will be. And we hopefully will be in a better place than to make some projections about 2021.

[Geert Peeters, executive]

It's a question from Simon?

[Angus Guthrie, executive]

Yes.

[Geert Peeters, executive]

Yes, I can maybe quickly address your questions, Simon. You had a question about the cash flow, how it increased from 5.4 to 6.3. In the back there is a more detailed cash flow statement. But the short answer is that, as I mentioned earlier, with respect to the mark-to-market of our hedge positions in Australia, there was a significant flip of about worth HKD 1 billion. And that had also consequences with respect to the collateral. So the collateral that we had to post when being out of the money has come back, and that has been a significant driver of the difference in free cash flow between the 2 years. If you look at how it starts of the free cash flow, the recurrent EBITDA was about the same at HKD 12.8 billion to start with.

[Angus Guthrie, executive]

There are further questions. Again, we're receiving these through the webcast. Ken Liu of UBS. I understand that EnergyAustralia is in the process of working on a new Tallawarra B gas-fired power station. I think this could be a good project, given the increasing generation mix from renewables, so the amount of peaking capacity would increase over time, and this will be a peaking facility. Can you share with us the CapEx timeline progress and return for this project?

[Richard Lancaster, executive]

The -- well, we do agree with you, Ken, that does make sense for the project. These are very specific questions, which...

[Geert Peeters, executive]

Yes. With respect to the financial numbers questions, we can only tell you that from that perspective, it's early stage for us as well. CapEx, we are in tendering stage. So we are refining the numbers on that. Same for timeline, we will need to see what the contractors can do and cannot do. With respect to the return, there are many, many variables that enter into that, how much wind projects will there be? What will be the volatility peak, off-peak and what will be the gas prices, as you can imagine, there is a whole distribution across that return for an investment of 20 years, as always, in our industry. So no real answer I can give you on that other than that we address that with great discipline.

[Angus Guthrie, executive]

And could I perhaps just add that we have said quite clearly that we'll make the final investment decision on that project towards the end of this year. So it is not yet a committed project at this stage. And there's a further question from Grace Ding of Cohen & Steers. Can I ask whether you have any updated guidance on the retail business in Australia? Previously, you mentioned it will decline by HKD 200 million per annum. Could I actually maybe just clarify that particular point at the time of the impairment, we did say that it would decline by $240 million to $300 million per half. Which annualized would be twice that much, around about $500 to $600 million per annum. That is now fully taken into account. But that is part one of the question. Secondly, also for Hong Kong, how much is the stability fund now? I think that's a reference to tariff stabilization fund? I think the market may be concerned that CLP cannot get enough tariff hike due to the situation in Hong Kong? So those 2 questions, please.

[Richard Lancaster, executive]

Geert, if you take the first question, I'll take the other.

[Geert Peeters, executive]

Yes, I can take it very quickly, sorry, maybe the first question. We don't give specific guidance for any of our businesses. We've given you indications on what drives the retail business. There's still many variables, amongst others. COVID, what will COVID do on the demand or not, what will COVID do on the hardship of the customers or not. With respect to the cost of the retail energy, usually in the second half, we recover more costs that we have in the first half comparably so the cost drivers should be favorable, but there are other ones. I think you need to read in between the lines that we're telling you it is still going to be a challenging and competitive environment for that second half.

[Richard Lancaster, executive]

And just on the tariff, the numbers for the tariff stability -- the tariff stabilization fund are published in our results. Yes.

[Angus Guthrie, executive]

HKD 1.5 billion is the balance as of 30th of June.

[Richard Lancaster, executive]

And the -- as I was outlining earlier, we are perhaps ahead of where we thought we would be given that our projections for sales this year were lower than what they were last year because last year was such a strong growth in sales. So even with a minus 1.2% reduction in sales, that is still ahead of where we expected to be. And the main issue that we are -- are needing to address when it comes to tariff is that in 2020, we are seeing a significant step-up in the amount of gas that we're using. So to meet the government's target of 50% natural gas in our fuel mix, we have to significantly increase the amount of gas. That has a big impact on our fuel account balance. And whilst the volume has increased, the benefit that we get is that oil prices, and therefore, there's some flow-on effect into gas prices has softened quite significantly as a result of the COVID epidemic. So there is less pressure on our fuel prices than we projected. So put all of that together, we will need to do our calculations and our projections at the end of this year, we will have to discuss with Hong Kong government, but there are some factors that so far are working in our favor.

[Angus Guthrie, executive]

We are reaching the end of our allotted time. And there are 1 or 2 more questions. We will just see if we can quickly get through at least one of those. And from [ Hugh Jonas ], we have a question. Does CLP have a future road map or goal in achieving energy production from renewable resources. If so, what percentage of its total energy production will be renewable based?

[Geert Peeters, executive]

I think we can be very fast on that and refer to the sustainability report, where all the details are.

[Richard Lancaster, executive]

And our Climate Vision 2050 document. So Hugh if we could refer you to our website, we have a document called the Climate Vision 2050, which outlines our road map for decarbonizing which will be a shift from our current mix, which is a mix of coal, natural gas, nuclear power and renewables to shifting almost exclusively to the natural gas renewables and nuclear in our generation and also investing in transmission assets as well.

[Angus Guthrie, executive]

Okay. One more question then from [ Tian Chan ] of HSBC. Regarding the Indian grid assets, what is the reason behind termination of 1 of the 3 transmission assets that we announced we were to buy. We have completed one of those. The second one did not proceed. How was the third line situated now. Can you talk about the grid asset performance and how to reassess future deal perspective.

[Geert Peeters, executive]

Well, again, we can address that quite quickly. The third line is still going through approval process, but we have more time on our hands to do that. There was quite a tight timeline for the second one. And given the COVID lockdown, which slowed everything down in terms of government approvals and made it extremely difficult. We were unable to get the approval in time. We do see good opportunities to invest in transmission assets in India. It is needed in order to take the development in renewable energy and transport it to the cities where the power is needed. So there is a need for investment in greenfield transmission lines. This is an area that CLP has extensive expertise from our Hong Kong business. And whilst we're looking at these acquisitions as a way of starting off our foothold, gaining a foothold in the transmission sector in India, we would see that growth would come from both a combination of acquisitions and also greenfield investments.

[Angus Guthrie, executive]

There was a second part to [ Tian's ] question. I think this will have to be the final one regarding the property project, do you expect to book profits in 2020? The revaluation loss in one half '20 has anything related to it?

[Geert Peeters, executive]

I think I can say that we're not commenting about booking profit of that real estate development. We sold most of our rights when the codeveloper came in and there is an earn out, but that will come over time as the apartments there sell. The revaluation loss has nothing to do with that. This is, as I mentioned before, this is the appraisal done by third parties about the value of this building compared to where the market is for offices. And that -- it should not be too much of a surprise, probably that in the course of 2019, with the challenges the city has had. There has not been an increase in value, generally speaking, for the office market in Hong Kong.

[Angus Guthrie, executive]

We will squeeze in one last question. We are going over time. But if you could just bear with us, this is from [ Alice Chay ] of JPMorgan. How should we think about the outlook for wholesale business in Australia in terms of generator availability on a full year basis, given the scheduled maintenance for Yallourn in the second half? And also wholesale price trends. And what's management's thought on the proposal of potential early closure of Yallourn, which I think is in reference to the recent IDMO report. Richard, could I pass that to you?

[Richard Lancaster, executive]

I'll answer this very quickly. I apologize for the rush, but we have run over time. Essentially, we have decided to keep our outages at Yallourn and also at Mount Piper on track. We have had to do extensive planning in order to do that. But taking plant out at a time when wholesale prices are low because demand has been weaker means that there is a much lower impact than if we were to delay them and take them out some time next year when everybody else is doing their maintenance and prices could well be much higher. In terms of the potential for early closure of Yallourn. At the moment, Yallourn has an operating license to run to 2032.

And if it was to reach its natural retirement age, it would run all the way to 2032. Yallourn provides a significant portion of Victoria's generating capacity. In order for Yallourn to be closed down, there needs to be replacement capacity developed and there needs to be a plan developed with both the Victorian government and also the local government to deal with the economic impact in the Latrobe Valley. So a lot of considerations and a lot of discussion between EnergyAustralia and the Victorian government would be needed if that plan was to be brought forward.

[Angus Guthrie, executive]

Okay. Ladies and gentlemen, thank you very much for your attendance at the webcast today and on the phone lines and also directly through the webcast. There may be some additional questions that have come through on the web. We will endeavor to respond to those in due course later on today. But I think that will be what we have time for today. So thank you again. My team and I will certainly be available to answer questions again through this afternoon and in the coming days. Thank you for your attendance, and we look forward to catching up with people in meetings in the coming days. So thank you very much, and I will call the webcast closed. Thank you.