Sembcorp Industries : 2020 AGM Response to substantial and relevant questions

SEMBCORP INDUSTRIES 22ND ANNUAL GENERAL MEETING

• Responses to substantial and relevant questions

Singapore, May 21, 2020 - Sembcorp Industries (Sembcorp) would like to thank shareholders for submitting their questions in advance of our 22nd Annual General Meeting (AGM) to be convened and held by way of electronic means on May 21, 2020 at 10.00 am (Singapore time).

As there were overlaps in the questions received, we will not be providing responses to every question. Instead, we have set out our responses to the substantial questions relevant to the resolutions tabled for approval at the AGM through the following themes:

1. The Energy business
2. The Urban business
3. The Marine business
4. Financial and share price performance
5. Others

Please refer to our responses as set out in Appendix 1.

Other questions relating to the impact of COVID-19 and future outlook

In addition, there were questions received relating to the outlook for Sembcorp's businesses including the impact arising from the COVID-19 pandemic. Shareholders can refer to our press release "Update on the impact of the COVID-19 pandemic" released on the SGXNet on May 18, 2020. More information on this topic as well as responses to some other questions will be covered by our Group President & CEO, Neil McGregor and Group CFO, Graham Cockroft during their presentations at the AGM. The presentation slides will be available on our websitefollowing the AGM.

Appendix 1

Responses to substantial questions relevant to the resolutions tabled for approval at the Sembcorp Industries 22nd Annual General Meeting

Questions	Responses
The Energy Business
General
Have low oil prices affected	We see limited impact of low oil prices on our power plant operations in
your power plants in	China, India and the UK. However, the performance of the Singapore
Singapore, China, India and	Energy business is expected to be negatively impacted as a result of
the UK?	the indexation of many of its energy contracts to commodity prices,
	including its energy-from-waste operations. In addition, the decline in
	the price of oil and its derivatives has significantly reduced the net
	realisable value of the inventory of gasoil reserves in Singapore that is
	required to fulfil certain regulatory requirements.
Do you have any coal	Currently, Sembcorp owns 100% of two 1,320MW supercritical coal-
powered utility plants? If so,	fired power plants in India and 49% of a 1,620MW coal-fired power
do you plan to exit or have	plant in China. In response to climate change, we have set a target to
an exit strategy for your coal	reduce greenhouse gas emissions intensity to 0.42 tonnes of CO2
assets?	equivalent per megawatt hour by 2022. Our power portfolio going
	forward will be guided by this aim and we will restrict investments in
	coal-fired power plants.
	We continue to explore an initial public offering as well as other
	strategic options for our Energy business in India.
The Energy segment of	As a Group with multiple businesses, our valuation by the market is
Sembcorp (with its sizeable	subject to many factors.
renewable energy portfolio)
is under-valued by the local	Sembcorp's renewables portfolio has been growing. Over the last two
financial market. This is	years, we have grown our global renewables capacity by about 20% to
especially so compared to	over 2,600MW. Profit contribution from our renewables business has
recent renewable energy	grown nearly five-fold since 2016, and the business delivered S$80
M&A transactions e.g. the	million of net profit in 2019.
sale of Equis Energy in 2017.
What are your strategies to	Going forward, we will continue to focus on growing our renewables
unlock value or raise market	portfolio and on lifting the performance of our Energy business, which
perception for the Energy	we believe will be recognised by the market in due time.
segment?

2

Sembcorp has traditionally	Backed by the strong track record and scale Sembcorp has
focused on markets such as	established in the region, our strategy has been to focus on
India, Singapore, Southeast	deepening our presence in our key markets. However, should the
Asia (e.g. Vietnam), China	right opportunities surface for other markets, we will consider them
and the UK. Has Sembcorp	on a case-by-case basis.
considered venturing into
other markets that have
potential for renewable
energy like Japan and
Taiwan?
How confident is the Group	Sembcorp is today one of Singapore's largest home-grown
in its ability to compete in the	renewable energy players, operating an international portfolio of wind
renewables sector?	and solar assets. Backed by our strong market positions, project
	development and operations & maintenance expertise, we believe
	that we are well-positioned to compete and grow in this sector.
	In key growth markets such as India, we have the highest
	renewables capacity under self-operations for an independent power
	producer in the country. In Singapore, we have 238 megawatt-peak
	(MWp) of solar capacity, including a 60MWp floating solar
	photovoltaic (PV) system recently awarded by PUB, which will be
	one of the world's largest, inland floating solar PV systems. Across
	our markets, we leverage innovative technologies as a key
	differentiator. For example, we have introduced our Virtual Brain
	platform, an analytics-based digital asset management platform for
	our renewable energy portfolio in India. In addition, we are able to
	offer a suite of solutions to support the sector including battery
	storage and distributed energy solutions.
Singapore
Kindly provide more details	We are in the final stages of making a replacement decision on one
on the plan to replace your	of our cogeneration power facilities in Singapore. Given that we have
Singapore power generation	yet to make a final investment decision to proceed, it is too
asset, in particular the	preliminary to guide on the timeline and financial impact of the
timeline and the financial	project.
impact on the Singapore
Energy operations.
When are your solar power	In Singapore, we currently have 87MWp of solar capacity in
partnerships in Singapore	operation with another 151MWp under construction. We do not
expected to contribute	expect material profit contribution from the current portfolio.
materially to earnings?

3

China

How did the illegal discharge	The incident occurred as a result of the illegal and isolated activities
of off-specification	of a few employees of the joint venture company for a period prior to
wastewater by Sembcorp	early 2017. The Group again wishes to express its deep regret for
Nanjing SUIWU occur? What	the illegal and criminal activities of the joint venture employees
has been done to ensure	involved. This is an isolated incident and we do not tolerate or
something similar does not	condone any illegal activities. The employees have since been
occur in another Sembcorp	charged, tried and sentenced in their individual capacities by the
plant?	local courts. Their employment was also terminated.
	We have strengthened our internal controls and processes in our
	water operations in China. We also enhanced internal audits and
	operation reviews led by a cross-functional team at Group level,
	implemented a proprietary technology platform to track and monitor
	plant performance and compliance, and established a Country
	Centre of Excellence in Shanghai.
UK
How was the acquisition	The acquisition price for UKPR was determined taking into account
price for UK Power Reserve	discounted cash flows and relevant transaction multiples.
(UKPR) arrived at? Please
explain the significant	However, market conditions in the UK have been challenging. The
impairment. Was there	business has been impacted by a combination of political, economic
enough due diligence	and industry factors. The retirement of the UK's coal and older gas-
conducted and what will you	fired power plants has been slower than expected and there has
enhance in the future?	been increased competition from new entrants. In addition, there was
	a reduction in underlying demand. The increase in energy capacity
	and reduction in demand naturally led to more competition causing
	lower prices and impacting the earnings of UKPR.
	Considering the challenges faced by the business including the
	factors outlined above, the business' future performance was
	projected to be below the investment case. As part of the annual
	impairment testing exercise, we therefore prudently assessed the
	value-in-use of its assets and decided to impair the assets.
	We believe that appropriate due diligence was conducted for the
	acquisition. However, market conditions and the regulatory
	environment in the UK are undergoing rapid change which has
	altered the current outlook on future expectations. We have since
	strengthened our in-house domain expertise in the area of the UK
	electricity market trading and grid services to sharpen our forecasting
	abilities, especially for merchant markets in disruption. We still
	believe that flexible generation will create value in the future as the
	UK, and other markets, stride towards their decarbonisation targets.

4

The Urban Business

What is the business model of the Urban business and its value proposition compared to other real estate players?

Sembcorp's Urban business owns, develops, markets and manages integrated urban developments comprising industrial parks as well as business, commercial and residential space in Asia.

Our key capabilities include master planning and urban design, industry positioning and investment promotion, infrastructure and land development, permits and licensing, facilities and operational management. As such, our offering goes beyond that of typical real estate developers. We do however selectively undertake property development in our projects. We are a valued partner to governments, with the ability to deliver the economic engine to support industrialisation and urbanisation by attracting local and international investments.

The Marine Business

Are you looking to divest,	We continue to regularly review our portfolio for opportunities to
privatise or merge Sembcorp	maximise value for our shareholders.
Marine with other oil and gas
companies given the
downturn in the offshore and
marine sector?
Given the downturn in the	In light of the challenging and deteriorating business environment,
offshore and marine sector,	Sembcorp Marine's current priority is to ensure that it has adequate
what are the initiatives in	liquidity to sustain operations and ride through this severe downturn.
place to improve Sembcorp	Sembcorp Marine will continue to focus on safe and timely execution
Marine's performance so that	of its projects and to hunt for pockets of opportunities less affected
it returns to profitability?	by the current business climate.
What is the business'
strategy?	Sembcorp Marine is moving towards businesses and product
	segments that focus on cleaner fuel sources and provide greener
	energy solutions in partnership with its key customers. It will also
	continue its selective investments in strategic innovations,
	technologies and production capabilities to strengthen its competitive
	edge and improve new orders flow.
With low oil prices, how has	Sembcorp Marine has made substantial strategic investments and
Sembcorp Marine diversified	acquired new technologies which allow it to offer diversified solutions
its product offerings to shift	across the offshore, marine and energy value chain. It has
its reliance from the rigs and	broadened its product suites, especially in green solutions such as
platforms segment? What is	gas value chain, offshore wind, battery-powered vessels and ballast
Sembcorp Marine doing to	water treatment solutions.
secure contracts related to
green solutions? Are there	The business aims to gear up for the shift towards cleaner energy
any targets set and target	use, grow order volume in offshore wind by raising brand awareness
regions for growth?	in regions unfamiliar with Sembcorp Marine solutions and its track
	record, and develop new design solutions for the battery- and
	hydrogen fuel cell-powered ship segments.

5

Financial and Share Price Performance
The financial performance	The share price of Sembcorp Industries has been weighed down by
and share price of Sembcorp	a challenging operating environment for our businesses as well as a
have been underperforming	prolonged and severe downturn in the offshore and marine sector.
over the last few years. What	Our subsidiary Sembcorp Marine recorded losses in 2018 and 2019.
are the challenges /
weaknesses that have led to	Positioning our Energy business for the global energy transition also
this? What actions are you	has its challenges with the business model disruption that comes
taking and what are some	with the megatrends of decarbonisation, digitalisation,
opportunities for the future?	decentralisation and demand disruption. There has also been
	intense competition in some of our markets. While we are acting to
	stay ahead of the curve, reshaping our energy asset portfolio
	towards gas and renewables takes time, and so does enhancing
	capabilities and building new skills for the future. However, we
	believe we are making progress. In 2019, net profit in India improved
	from S$47 million to S$100 million, with the thermal portfolio turning
	in a profitable year. Net profit from our renewables business has also
	increased nearly five-fold since 2016 to S$80 million in 2019. Our
	Urban business has been performing well and delivered its third year
	of record profits in 2019.
	Notwithstanding the difficult market conditions, we remain committed
	to managing our portfolio for performance and on executing our
	transformation plan. Anchored by strong fundamentals, we believe
	that Sembcorp is uniquely positioned to deliver solutions to support
	the shift to a sustainable future. With Singapore as our home base,
	we are well-placed to serve markets in Asia where population growth
	is driving rising demand for sustainable solutions that enable rapid
	industrialisation, urbanisation and electrification. Our goal is a strong
	portfolio of businesses that will support sustainable development and
	create value for our stakeholders.
Others
There has been significant	The value of our assets will be subject to regular review and testing
impairment charges across	for impairment.
various business units. Are
we expecting more
impairment given the twin
adverse impact of COVID-19
and the energy price crisis?
Was Sembcorp fairly	The commercial construction business under Sembcorp Design &
compensated for the	Construction was divested for gross proceeds of approximately S$50
divestment of Sembcorp	million. The consideration for the sale was arrived at pursuant to a
Design & Construction? Was	competitive sale process and on an arm's length willing-buyer-
there any divestment gain?	willing-seller basis. We recognised a net gain of S$14 million arising
	from the divestment.
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Are there plans to restructure	As required, we will evaluate various options in the best interest of
Sembcorp to improve its	Sembcorp Industries and our shareholders. We continue to focus on
profitability, especially given	repositioning ourselves as an integrated energy and urban player
the downtrend in the offshore	and on lifting performance for the Group.
and marine sector?
Can you share more about	Sembcorp is actively building its digital capabilities around four
Sembcorp's investment in	themes: establishing a strong and secure information technology
technology and	foundation, digitising our business, embedding innovation and
digitalisation? How will this	managing the digital journey and change. Embracing digital
enhance Sembcorp's	technologies is critical for us to stay ahead of the game as it enables
operations and how much	new business models that offer competitive advantages to early
has been budgeted for	adopters.
building such capabilities?
	For example, we have built insight platforms using machine learning
	and artificial intelligence to radically improve how we operate and
	optimise our thermal and renewables assets. These platforms run on
	an advanced, secure data lake that has over 200,000 internet of
	things sensors streaming real-time operational data from multiple
	markets. Some of the initiatives that we are currently driving, such as
	our work in advanced predictive analytics, are the first of their kind in
	the energy sector. These could also help differentiate us in our
	industry. While we have not disclosed our budget for developing
	these capabilities, majority of our investment in research and
	development goes towards building intellectual property that will help
	improve how we maintain and optimise our assets and reduce
	greenhouse gas emissions in our energy business.

- End -

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