ACWA Power Company (2082) Earnings Call Transcript & Summary

Hello, everyone, and welcome to ACWA Power's Financial Results Conference Call for the 6-month period ended June 30, 2025 [Operator Instructions] I will now hand you over to your host, Ozgur Serin, Head of Investor Relations at ACWA Power. So please go ahead, sir.

Thank you very much, Sam, and good morning, good afternoon, good evening, everyone, as usual, wherever you are joining the call from. Today, we are together to talk about our first half 2025 financial results as well as giving you some insights with respect to our business development space from development until optimization. So as usual, I have together with me -- my name is Ozgur. I'm the Head of Investor Relations, as Sam has mentioned. Together with me, I have Abdulhameed Al Muhaidib, who is sitting next to me, who is the CFO; and we have Marco Arcelli, who is our CFO, joining remotely -- sorry, CEO joining remotely from one of his business trips. Just before we start, I just would like to remind all of us, again, two things. One, in this call, we may be referring and using some forward-looking statements. Obviously, these are all under some disclaimers that are all included in our presented materials. And the second one is everything we're going to be presenting today as well as our financial results, including a detailed management discussion and analysis and an investor report, including Marco's letter to the shareholders and stakeholders is on our website available for your consumption. Now without further ado, it is over to Marco.

Thank you, Ozgur, and I would like to welcome everybody to this call. Today is one of those days where we would like to stand tall and proud on behalf of all our colleagues at ACWA Power for the results that we achieved, not only in the first six months, which is what we're reporting, but more importantly, also a lot of the news that came up in July, in the last three weeks, which really are amazing by any measure. The first one is a reflection. It's now about 2.5 years since I joined ACWA Power, and I reflect back and we see that we doubled the size of the company in the last three years, and we're well on track to double again in the next five. The first big achievement that you have seen on the news recently is the successful completion of the SAR 7.125 billion, so roughly $1.9 billion capital raise, not only was subscribed more than 96%, which I think is a record, particularly in a choppy market and with a limited discount that we offered to the shareholders to limit the dilution, but also in the ramp period that there was a subscription that was more than -- almost 6x. And a lot of that, the vast majority, almost 96%, 97% going to foreign investors. And I think that this is really a vote of confidence for your company. The second big news is the Senegal project, desalination project. So it might be relatively small by our size, but I think being the first one, desalination project that we signed outside of the Middle East is a strong evidence of our leadership in the industry that we want to carry forward and relaunch for the next decade to build this as one of the leading growth and revenue and profit generation for the company. The next point is the signing of this 15 gigawatt PPA that we announced only about 10 days, one week ago, the so-called PIF 5 and PIF 6 in Saudi Arabia. Altogether, this is probably the largest single block PPA signed in the world. And I really would like to recognize the vision of the country and his Royal Highness, the Crown Prince Mohammed Bin Salman for Vision 2030, one of the largest decarbonization programs in the world and the ability for ACWA Power to contribute so massively to it. The next point is another thing that we announced at a big event that we held in Riyadh with our partners, the launch of this initiative to build a bridge, an energy bridge that is both green hydrogen, green ammonia, so green molecules for the hard-to-abate sectors and power exports from the region to neighboring countries and to Europe, which I think could be a significant supporter of growth for your company in the next decade, particularly in the 2030. With this, I think that it's really something remarkable that together with the growth in profitability by about 60% in the period is something that underscored the solid results and the bright future that we have ahead of us. If we can move to the next page. We have a highlight of our performance. On health and safety, it is regrettable that we had two fatalities this year, and it is something where we are strengthening significantly our operation, our contracts, our oversight of our contractors. But at the same time, I would like to couple it with a reflection that we are now reaching approximately 200 million hours worth on our sites. And so this means that the total overall safety performance of the company has improved significantly. Today, we have an LTIR that is about 1/3 of what it was in the first 17 years of the company and 1/2 of what it was in the last 4, 5 years. So the journey is still riddled with a lot of complexity to reach really zero harm to all the people who work at our sites. But at the same time, I see progress, I see improvements, and I see a company that is more than ever determined to make sure that we not only achieve the best result within the company, but together with our partner, we contribute to improve performance in the countries where we operate. In power and water availability, you see a slight decrease in power, but a big increase in water availability at our plant. The power availability is circumscribed to three or four specific situations that were highlighted already in the past, particularly in Morocco, in Oman and one plant in Saudi Arabia. So it is something where we're working on. It's under control, and we're determined to improve the performance in the months to come. If we move to the next slide, you will see highlight a snapshot of what the portfolio looks like today. We have reached about $117 billion of investments. You remember that our target to 2030 is $250 billion, and we come from roughly $60 billion three years ago. So it tells you really how the speed is high. We have accelerated. Today, by the way, that is why some of the questions are always when is the growth going to translate in profitability? If I reflect only about 40% or less of the portfolio is really today under operation. We have today as much capacity under construction as the first 17 years combined of the company. And remember that the company is only 20, 21 years old. So this is a massive acceleration that we're going through, and that will reflect in important and positive profitability in the months and years to come. If we move to the next slide, you see the pipeline going ahead that gives us a positive view about the future. We have a number of opportunities that we will be hopefully announcing in the next few months in water, in power. I'm here on a business trip to further advance the negotiation on some of the future deals. And I think that with this, it's really a very strong semester that we report to you. And I would like to pass to Abdulhameed to continue with the financials. Thank you.

Thank you very much, Marco, and salam alaykum everyone and good afternoon. It's a great pleasure to be here with you today. And as mentioned by Marco, the first half of the year was just fantastic for us. It has been a great, great journey. Some of it actually we've been sharing with you in this presentation, and you have been hearing about the progress in the different announcements, but some of others that has not yet been announced. And I'm sure you will see and reflect on this achievement towards the end of the year. So a great start of the year and a great moment to reflect on the midyear performance, the successful capital raise that we will highlight in the next slide in more detail was definitely a great achievement for the shareholders, for the Board and the management, and it is going to boost our growth journey to achieve 2030 targets. We have been able to balance up and increase our operating income with a great increase by around 60%. And this is an important achievement compared to the first period of last year. Net income has dropped for less than 2%, but the adjusted net income, eliminating the nonrecurring and unusual one-offs has been increased by almost 60%. When it comes to financial closes, we have created a bit of discipline in the reporting as well. So in the past, we used to focus a lot on dry financial close, meaning whenever we sign the financial document, we have now tried to enhance the reporting further by reporting when actually these are considered ready to be utilized and draw down, which is we call it the wet financial close. So that's where the number looks small, which is only SAR 2.4 billion of wet financial closes. But in reality, we have a huge pipeline of financial close that has been already signed dry financial close, but we have not yet announced it waiting for the closing the CPs, and we're going to announce them in the next few months. Assets coming through operation has increased by 3.3 gigawatts will go in detail in later slide, including another 600,000 meter cube of water desalination. Of course, the journey of the last one year has included a capital raise of $1.9 billion or SAR 7.1 billion. It has been a record when it comes to positioning strategy. It was almost the first transaction that associated -- in the Saudi market that was associated capital raise with growth beyond the capacity of the company. In the past, most of the capital raise that has happened in the Saudi market was associated mainly with either specific transaction, for example, an acquisition or a share swap and other elements or for a company that is going through a difficult financial position, they cannot raise any more debt. So they go to the market for a capital to take -- to build up the company basically. So this was a successful transition into the market dynamics when it comes to educating the market, especially locally for this capital raise. We had a strong boost, thanks to our shareholders by committing upfront 77% of the basically underwriting the transaction. We went through the journey and during the initial subscription period, we have covered more than 96%. And when we went to the second round, which is usually the rump-up offering, we have almost 6x our subscription. And that our subscription has been an average of almost SAR 10 higher than the offer price, reflecting that not only we have reached this with the highest, let's say, discount, but also institutional investors were willing to even pay more for this rump offering. Also, we have seen today the exchange that the participation of the international investors has increased significantly so today is considered 4.27% of the total. And if you focus only the free float, it's around 14.5% in a record time of almost 3.5 years since the IPO. When it comes to financial closures, it was important to close two legacy projects that has been started for a period of time in Uzbekistan, both Tashkent Riverside project and Uzbekistan green hydrogen project. They both have achieved financial close collecting SAR 2.4 billion a year. The project of Tashkent has already achieved the COD for the 400, but now we are completing the remaining part of the project, which is the BESS storage. When it comes, to of course, to the remaining of the period of last year, we put the numbers for your easy reference. We do believe that in the next six months, it will be a heavy period for financial closes, as I mentioned earlier, for the projects that has been achieved dry FC and now we are taking them forward. We brought a couple of assets into operation for this quarter. So if you recall, last quarter, we have highlighted the two projects Bash and Dzhankeldy Uzbekistan which achieved COD ahead of schedule. We have also had 2 gigawatts from Shuaibah 2 and we have added into that a few others during this quarter, including the Uzbekistan green hydrogen Redstone CSP project and Shuaibah 3 IWP, which is another 600,000 meter cube per day. We subsequently also announced project [indiscernible] to the market, but we have not included here because it's related to the quarter 3 of this year. Financially, as I mentioned earlier, around 60% improvement in the operating income, and we'll go through the details. Net income has slightly dropped compared to the same period of last year, which reached almost SAR 900 million. Adjusted net income, and we'll go also through that details mainly taking out a few of the one-offs has actually increased by SAR 1.1 billion, which is almost 60% increase. Current operating cash flow has also a record increase of almost 50% to reach SAR 828 million. Putting all that into perspective and taking the net debt to POCF there is a slight increase in the net debt to POCF to SAR 6.94 million and this goes very smoothly with the story that has been shared also with the investors that part of the capital increase is mainly to support us to maintain a solid balance sheet. So we are trying to avoid reaching almost 7x by deploying additional cash into our operation and maintaining the ratios in check. We will start with the operating income. So you can see both sides of the business has contributed positively when it comes to the business development and also the contribution from operation. So business development, as you have seen towards the end of last year, we have been able to secure a lot of project contracts. These projects move to operation and then we started to obtain some procurement and construction management service fees that has pushed up our operating income. The second part related to contribution from operation. As we have highlighted earlier that some of the assets do get into forced outages and these forced outages most of the time is either covered through EPC contractor warranty period or warranty bonds or the insurance coverage. So we've been able to secure a very solid recovery from both sources during the quarter 2 based on which this contribution from operation has increased by around SAR 580 million. We took out basically SAR 400 million related to similar divestment that has been done in the same period of last year, which is related to the Bash and Dzhankeldy of 2024. Moving to the net income. So the first part is mainly coming from the operating income, which we have highlighted the difference. Now for the second item, which is mainly related to, if you recall, a one-off hedging termination that we have accounted for back in the first half of 2024 that has gained net of other pre-hedges termination and hedges termination around SAR 430 million. So that's the second item in the comparison slide. Then you have, of course, the financial charges. We've been actively raising basically equity bridge loans in the last period to inject it into some of the new projects. Some of them you have seen and some of them actually they are still not yet signing the PPA, but we have confidence in the project based on which we have injected some of the funds in the form of limited norms to proceed. And all of that has accounted for a higher financial cost during this period. Item #4 is mainly related to the adjustment for the Noor 3 impairment. When it comes to item #5, it's a combination of both the higher share of NCI and also in relation to other costs that has been incurred during the period. This is a slide that we like to present in the first -- on a half yearly basis, and this is to show you how you mirror our business model with the net income slide. So our business model is depending on four important components, develop, invest, operate and optimize. Here, you can see basically the contribution of each building blocks of these four business units. So the first one, which is A is mainly coming from the development, then the B and C are coming from the invest and the operational part. There you have the -- D and B is mainly from the optimization part of the business model. So here, you can see that there is a good balance coming up from the different sources of the operating model. And we will also expect the same kind of contribution to continue towards the end of the year as well. Finally, towards the last line here, you can see the slightly increase basically on operating costs. That is mainly because of basically the hedge or the mark-to-market losses that we had and the hedge that we terminated related to projects in Africa. We've been able to use 80% of our cash in investments. So that's a good indicator when it comes to our focus on the growth. A few or let's say, less -- slightly less than 20% has been used mainly for the financial charges in the scope and other instrument in the company. This is a buildup to the cash position of the company. So you can see the POCF that we have highlighted earlier on SAR 800 million. If you add up the cash from the beginning of the period and subtract the investment and the financial charges, you will end up at a cash position of SAR 2.5 billion. Of course, this is towards the end of June 2025. And just today, actually, we have collected the SAR 7 billion related to the capital raise. When it comes to net debt to POCF, we'll take you through it -- through this slide. So on the balance sheet, you can see that there is a split of both recourse and nonrecourse debt. I will start with the SAR 30 billion or SAR 30.1 billion. You can see that only SAR 10.5 billion of that is the recourse debt in the form of ABL or a loan or Sukuk that has a specific recourse to ACWA Power as a financial obligation to pay. And then we add around SAR 13.6 billion which is commitment that is sitting on the contingent liability, which is off the balance sheet. And if you add the SAR 13.6 billion with the SAR 10.5 billion, you will end up with a total leverage on the balance sheet of around SAR 24.2 billion. And taking out the cash that we just highlighted, which is SAR 2.5 billion, you will end up with a net liability or net parent leverage of around SAR 21.6 billion. And if you divide that by the POCF, you will get a 6.9 multiple for the net debt to POCF, which was the number highlighted for the period 30th of June 2025. Slightly increased. And of course, you will see it gradually reduced because of the cash coming up reaching today. But also given that we are foreseeing a big investments coming up in the next few months, also that will have its own reflection and impact before we record the year-end net debt to POCF. The final slide we would like to share with you is the overall trend. So focusing in the -- basically in the bottom of the slide, as I highlighted a couple of times earlier also that we are in a business that is difficult to create a reasonable picture if you do a quarter-by-quarter comparison. I think more fair for such a business to focus on the year-to-year progress. So with that, you can see a very solid increase in the last four years when it comes to the operating income, more than 20% CAGR. And when it comes to the operating or say the net income, it is around 18.8% CAGR. This is, of course, first half only. And during the full year, we can also show you the yearly progress. I will pause here, and we'll open it up for Q&A.

[Operator Instructions] We have a question on the telephone line from Giuseppe Villari of Morgan Stanley.

We have a couple, if we may. First one is about financial closes in the second half. You mentioned already, but if you could give us a little bit more color about the pace of financial closes, that will be really helpful. And then secondly, in terms of tendering in Saudi, we've seen this very large PPA for 15 gigawatts. And in terms of the government targets, should we expect similar size of tendering in the next years?

Okay. So maybe I will start with the first question and then Marco, I will hand it over for you for the trend in the following years. So if you take the history of ACWA Power and link it with the PPA signing that we have announced, you will fairly predict and estimate that most of the PPA signed that has not yet achieved financial close, we will be targeting them to achieve within the next six months, which is 2025. If I give you probabilities, I will say that at least whatever PPA we have signed, 60% to 70%, we will target to achieve their financial close within 2025. I have definitely better basically performance for assets that has been signed in Saudi Arabia. I think given the market, usually in the Saudi market, you have closes with commercial lenders and these commercial lenders are slightly faster compared to projects that we signed, for example, in Egypt and Uzbekistan, where you involve development banks. And you can see even today when we announced both Riverside and the green hydrogen of Uzbekistan, this project has been actually having a PPA signed for quite some period of time, more than -- some of them more than 1.5 years. And we just achieved the financial close. So look at the PPA time, split between commercial banks markets and development banks market, you can give a fairly estimate that the commercial banks usually close within this year, whereas the development banks will take quite longer period. Marco, maybe you want to answer the second question.

Yes. On the second question, what I would like to say is that in the recent announcement by the Ministry of Energy, basically, the Saudi program of decarbonization translates into about 20 gigawatt per year of renewables. So 70% of that, there is under the bilateral PIF program that ACWA Power is delivering is about 14 gigawatts per year. So that is in line with what we recently signed. Then of course, all this will be periodically adjusted based on the expected or calculated growth in demand that the ministry will see in the market.

[Operator Instructions] We have two questions from Anna Antonova of JPMorgan. The first written question says, good afternoon. Where do you see group net debt PLFC (sic) [ POCF ] ratio evolving from here versus the roughly 7x reported in half 1 '25. Given the large amount of investments expected over the next 18 months, is it reasonable to expect this ratio to stay around the current levels?

Maybe I will start with the question on the green hydrogen in Uzbekistan, which is a project that basically it's under commissioning phase. So the production of green hydrogen has started. It's not yet fully commercial, and it will be completed in the next few weeks.

So Anna, I think definitely a valid question. And when it comes to -- I was highlighting first that the current net debt to POCF that was highlighted, does not include the USD 2 billion that has been just raised for the capital raise. Now reflecting on the growth and the speed of the growth, definitely, we believe that our net debt to POCF will stay high for the next 18 months if the growth continue in the same way that is being done. Now what we are trying to do to keep our ratio on check is that we are doing the following things. The first one is that we are trying to scale up our capital recycling strategy. So in the past, you have seen that we have been able to divest in a single asset transaction, which is something that is not feasible in the future given the size of the company. And now we have already started and initiated the first cluster divestment. We expect the result of that to come in 2026. It's a significant transaction, and it is definitely will be smoother than doing a single asset. So it is actually a bundle of a couple of assets at one time. The second one is that we are also looking for -- going for the debt capital market next year with an option that is not a normal bond. So we might approach the market for either a hybrid or virtual or other terms of bond. That will allow us also to reduce -- to raise the capital while maintaining our ratios below because as you are aware, some of these instruments are considered only 50% debt or some of them also could be less depending on the ratios itself. So that's definitely another work stream that we are working on. Third, of course, trying to improve our current operating cash flow, and this is something that we are doing in couple of months. Unlike the greenfield assets, we are trying to also look at targeted transaction for acquisition. One of them has been already announced, which is the ENGIE portfolio in Bahrain and Kuwait. That will immediately improve your current operating cash flow that will help you in your net debt to POCF. So taking these three together, we are trying to maximize the effort to reduce our net debt to POCF while we'll continue with this growth target that we are trying to achieve.

So the next follow-up question from Anna Antonova says thank you. And what is the current status of NEOM green hydrogen project, please?

So we usually don't report project by project progress, but I can tell you the NEOM green hydrogen is around 85% progress. When it comes to construction, they are still envisioning shipments in the 2027 for the first order. Yes, I think this is the progress. I don't know, Marco, if you would like to add anything specifically in NEOM green hydrogen?

No, I think that's correct. We also made a reference recently. So by the end of 2026, it will start to produce the hydrogen. That means that in 2027, the production will be available for commercial activity by our products.

Yes. And then just Anna for your information, Air Products had their earnings call actually a few hours ago, where we were exactly on the same day. And I think if you go to their website, you will see. Although they haven't spoken a lot about NEOM, but they have made their earnings call today as well.

We next have a question from [indiscernible] Capital. Saying thank you. One, can you share a time line of project completions by year with capacity additions and percentage share? And two, what is the fair value of your completed assets? Would you be able to divest them to generate liquidity without a loss?

So the first question in relation to unit by unit COD, we do the following. Whenever we sign a project when it comes to financial close or the PPA signing, we announced them to the world with the expected target operation date. Having said that, all these projects, including the ones you named-- different projects through different cycle, they get impacted by delays. So you have projects that they go from 1 to 3 months and sometimes even beyond that to 6 months of delay of construction. So it's difficult to continue announcing them project by project and the time that has been delayed. Specifically, that these projects also does not -- project by project does not have a material impact on ACWA Power. In a group basis, yes, if there is a group of assets that have been delayed, then they have an impact. So we try to look at for materiality. And as we continue to grow, the impact of one project delay does not really have a material impact on the project -- on the company. Any project that has a severe impact to our net income we will announce it. Take an example of Noor 3 when it was basically had a forced outage last year for more than a year. We have -- and that specific delay has a material impact to our net income. We have disclosed that in the market. So that's the way that we usually report. On our annual report, we usually put a list of the number of the projects and investment size. We also put the financial close date. You can basically look at all this kind of breakdown without specific COD date, but you can estimate based on the technology and the size of the projects.

And I think one big one we have also publicly spoken about this is the PIF pipeline in Saudi Arabia. And all of you know that by 2030, Saudi Arabia has target to achieve with respect to renewable energy targets, you know 70% of this is together with us. And today, we are sitting at around 30, 32 gigawatts. And by 2030, this is going to become around 70, 75 gigawatts. So -- and the Saudi Arabia government's ambition is to actually have -- if not all of it, but most of it operational without too much delay beyond 2030. So I think this could also help you to have an estimate of when the current under construction projects of ACWA Power will come into operations in the upcoming 2, 3, 4 years.

Yes. For the next question, I will not link the divestment strategy to the operational assets. We've been fairly active in the divestments or the capital recycling for both assets under construction and assets under operation. For example, in the last three divestments, if you look at them, two related to assets under construction, which is Bash and Dzhankeldy and one was related to assets under operation, which was RAWEC. The fair value of these assets is actually there in the investor's report. So we have highlighted that we have around 100 assets equal to $107 billion. The total value of the assets under operation is around $55 billion. The total value of the assets under construction and partially operation is $26 billion. And the total value of the assets under advanced development is around $25 billion.

[Operator Instructions] And there are no further questions. I'd like to hand back to the management team for any closing remarks.

Thank you, Sam, and thank you, Marco and Abdulhameed. And thank you, everyone, for joining us and listening to us and for your questions. This is the end of the call. If you have any further follow-up questions or any other new questions, you know how to reach to us. And I just wish everyone have a good day or have a good night, wherever they are. Thank you so much.

Thank you.

And this concludes today's call. Thank you all for joining. You may now disconnect your lines.