ACWA Power Company (2082) Earnings Call Transcript & Summary

Welcome, everyone, to the ACWA Financial Results Conference Call for the 6-month period ending June 30, 2026. My name is Lucy, and I'll be your coordinator today. [Operator Instructions] It is now my pleasure to hand over to Mr. Ozgur Serin, VP, Investor Relations and Corporate Strategy to begin. Please go ahead.

Thank you, Lucy. Good morning, good afternoon and good evening, everyone, depending on where you are joining from today. Thank you for being with us in another quarterly earnings call of ACWA. Today, as usual, we will share with you our results as of and for the period ending 30 June 2026. We will be three hosts today, and we are joining from three different locations, and that's why we are not sitting together around one table in this call. Dr. Samir Serhan, who is our CEO, he is joining from Jakarta, Indonesia; and Mr. Abdulhameed Al Muhaidib, our CFO, he's in Riyadh and he's joining from Riyadh. And I Ozgur Serin, as Lucy mentioned, Head of Investor Relations and Corporate Strategy. Today, I'm in Dubai, the Arab Emirates. As usual, we will start with our prepared remarks. Dr. Samir will cover our overall business and strategic performance, while Dr. Abdulhameed will take us through the financial performance. Once these remarks are over, we will open the forum to Q&A. During these remarks and subsequently in the Q&A session, we may be using some forward-looking statements. These must be taken within the framework of our disclaimer that is included in the presentation material. With this, over to you, Dr. Samir.

Thank you, Ozgur. Thank you for joining us today. I would like to begin by providing an update on the business before I pass it on to Abdulhameed to present the financial results. While our financial performance this quarter was impacted by timing shifts in the project development milestones and a more dynamic geopolitical environment, the underlying fundamentals of the business remain strong. We continue to execute against one of the industry largest project development pipeline. We maintain high operational performance across our portfolio, and we continue to make strategic decisions that strengthen our long-term sustainable profitable growth trajectory. This slide summarized the story of the last 6 months. There has been significant strategic momentum across the business that reinforces our long-term growth outlook. From a business development perspective, we achieved certain important milestones. We were granted by the Saudi government, the Clean Energy Export mandate with exclusivity for a green fuels export, which includes green hydrogen and its derivatives such as green ammonia, green methanol and green fuels. This reinforces our long-term strategic role in supporting the Kingdom's clean energy ambitions. I will cover this in a bit more detail in the following slides. We also identified the United States as a growth market, which represents an important step in diversifying our portfolio into one of the world's largest and most attractive infrastructure markets. We have signed power purchase agreement totaling 5.2 gigawatts, water purchase agreements covering 600 cubic meters per day (sic) [ 600,000 cubic meters per day ]. We achieved financial close for a project representing SAR 3.7 billion in total investment cost. We also brought 3 new plants into commercial operation, adding 0.8 gigawatt-hours of battery storage and 900,000 cubic meters per day of desalination capacity. Operational performance across the portfolio remained very strong. Overall, plant availability remained robust with overall power availability exceeding 92%, while renewable power availability reached more than 98%. Water availability remained above 98%. Safety remains our highest operational priority and the foundation of everything we do. During the first 6 months of the year, our team safely delivered more than 38 million hours across our global portfolio, while maintaining a lost time injury rate of 0.018. We also recorded 80 potential fatality and permanent impairment or what we call PFPI incidents. We view this as a positive indicator of a stronger reporting culture and improved hazard identification across the organization. We demonstrate our people are proactively identifying and reporting potential risks before they result in serious incidents, reinforcing our commitment to continuous improvement and ensuring that everyone returns home safely at the end of each day. Turning into the financial performance. As we move our project from construction to operation, the distributions from our growing operational portfolio continue to strengthen operating cash generation. In the meantime, our leverage ratio has shown an increase versus the latest reported period as we continue investing in our committed growth pipeline. Following the geopolitical volatility that has impacted our operations and still affect the region and beyond, there is continued push of positive cautiousness in our business ecosystem. Accordingly, we experienced timing shifts into the second half of the year in several project development milestones that had otherwise been expected during the past 6 months. We also remain focused about the likelihood that some milestones and recognition of associated financial impact may be delayed until next year. At the same time, we launched our high-performance organization program. This is a company-wide transformation initiative designed to improve organizational efficiency and normalize our expense base while supporting sustainable short- and long-term growth. I will also dive a little deeper into this subject in the following slides. Looking beyond the quarter, we remain reasonably confident in the strength of our long-term growth trajectory and the value we are creating. Since our announced growth Strategy 2.0 2023, our power portfolio has almost doubled from just over 50 gigawatts to more than 98 gigawatts today. Water desalination has grown from 6,800,000 cubic meter per day to 9,700,000 cubic meters per day. Asset under management have increased from USD 78 million (sic) [ USD 78 billion ] to approximately USD 127 billion. These numbers demonstrate that we continue to scale rapidly while maintaining disciplined capital allocation. Today, we have 44 gigawatts already in operation, more than 46 gigawatts under construction and almost 8 gigawatts in advanced development. In water, more than 70% of our portfolio capacity is in operation as of today. This balanced portfolio creates multiple avenues for growth while providing visibility on the future recurring earnings profile. Our confidence in the long-term outlook is supported by one of the industry's strongest project pipeline, as I mentioned earlier. Within the immediate pipeline, we have projects that have already been awarded where we are the preferred bidder and are currently awaiting contract signing. This category includes 2.9 gigawatts of power, 9.2 gigawatt hour of power storage -- battery storage and 600,000 cubic meters per day of water. Additionally, we have the projects where we have submitted our bids or tenders and are awaiting results. This category includes 4.2 gigawatts of power and 1,200,000 cubic meters per day of water. What's really even more impressive beyond this imminent pipeline sits a much larger 18-month visible pipeline, consisting of 120 gigawatts of power opportunities, more than 95 gigawatt-hours of battery storage and 3 million cubic meters per day (sic) [ 7.9 million cubic meters per day ] of water opportunities, definitely very impressive project pipeline. We're also progressing the financial close of a portfolio of contracted and awarded project that's made of 13.4 gigawatts of power, 6 gigawatt hour of battery storage and around 3 million cubic meter per day of water capacity over the next 18 months. I want to assure you again that our objective is not simply to win projects. Our objective is to build a portfolio that creates sustainable long-term shareholder value. Let me move to a subject that I mentioned earlier. One of the most significant strategic development during the period was that the Saudi government mandates supporting ACWA role in developing future clean energy exports. This represents an important extension of our existing developer, owner and operator business model. It doesn't replace our existing strategy. It builds on it. The mandate grants ACWA the exclusive right to export Saudi produce green hydrogen and its derivative, green ammonia, green methanol, green fuels to international market. This mandate also assign us responsibility for developing renewable electricity export opportunities, including generation and transmission. In green fuels, our focus remains on developing commercial export opportunities from projects within Saudi Arabia. In renewable electricity export, our near-term focus is on the GCC and Middle East with Bahrain identified as the first export route. It's important to emphasize that our 2030 targets remain unchanged at this point. While the future opportunity arising from this mandate will be assessed carefully and disclosed as they mature. What this announcement demonstrates is the confidence placed in ACWA by the Kingdom, reflecting our track record in developing financial construction and operating large-scale energy infrastructure. And we're, of course, thankful for that offer. Alongside portfolio growth, we're equally focused on strengthening how we operate as an organization. The high-performance organization program is our enterprise-wide transformation agenda. Its objective is straightforward to build a leaner, more integrated, more agile organization capable of supporting next phase of ACWA growth. The program is built around 6 interconnected transformation work streams that improve governance, strengthen performance management, enhance digital capabilities, simplify decision-making and improve organization effectiveness. Ultimately, this is about increasing accountability, ownership, improving execution discipline and creating sustainable long-term value. Overall, while the near-term financial performance has been affected by timing shift, geopolitical volatility, we're still very focused on our momentum moving forward and our growth strategy. Our operating platform continued to perform well. Our development pipeline remains robust. We have secured important strategic opportunity that will shape the company future. And we have launched a transformation program that will improve efficiency and profitability over the long term. With that, I will pass it on to Abdulhameed to go over the financial results. Abdulhameed?

Thank you, Dr. Samir. [Foreign Language], everyone, and good evening. Thank you very much for joining us this evening, and I would like really to take you on the next 8 slides to a bit of details. There has been multiple announcements as highlighted by Dr. Samir during that -- the second half of -- sorry, the first half of the year. And we'll start with a quick outlook of the financial performance. So we have seen and witnessed a very strong distribution from the operating companies, and that has resulted really in a 7% increase in the total current operating cash flow compared to the same period of last year. This comes despite the fact that we had a very tough development period. And during that development period, we have lost quite a bit of our usual weight when it comes to the development fees and some of the services fees that usually comes into play after the project achieving financial closes. So for that specific category, we do believe that most of the impact is timing, and that timing will range between 6 to 12 months, depending really on how the geopolitical escalation gets impacted -- or foreseeing the impact of it for the next upcoming period. We have also witnessed at the same period, unfortunate outages, some of them related to CSP and others related to CCGTs that we believe is a non-recurring outages, and this has impacted us for the first half of 2026. Taking both impacts into -- combined together, there is a lower operating income and net income have been witnessed for this specific period, and I will take you through the details at a later stage. We continue to execute our milestone and pipeline when it comes to development and projects under construction. Out of the full $126 billion of assets under management, only 50% is full in operation. So that gives you a bit of perspective that there is another 50% that are actually in the pipeline, either partial operation, under construction or in advanced development. We announced in July 2026, the Board recommendation for the cash dividends for around SAR 0.46 per share. And also, we had announced the dividend distribution program for the next 5 years, which we'll take you through it in the upcoming slides. Let's start first with the operating income. So this is a waterfall bridge that can take you from a similar period of last year between the SAR 2.2 billion to SAR 1.4 billion, and we'll take you through the components one by one. So you can see the first positive component is the contribution from the existing assets as well as the new project came into operation during the same period of first half of the year. So that contributed around SAR 215 million into our operating income. We announced earlier that we will continue to look at brownfield opportunities, and we have successfully closed 2 acquisitions last year. One is the Shuaibah IWPP additional shares and the other was the portfolio specifically in Bahrain and Kuwait for one of our competitors. This has contributed around SAR 184 million for the same period of last year. When it comes to the SAR 444 million drop, you can see it's purely on the development, procurement and construction services that has been impacted us. I will say in this one, there's 2 really specific items here. One is that 2025 was exceptionally high for the specific fees. And the second that this year was also unexpectedly low when it comes to the development and procurement and construction services fees. We do believe that part of that SAR 444 million impact is timing. But for the clarity of the presentation, we show you the full impact in the operating income. Then you will see that there is a SAR 563 million lower or negative impact or negative variance for the same period of last year. And this is mainly related to a big settlement that we had in Noor 3 last year as well as some of the impact related to the CCGT assets. Finally, there is also SAR 155 million impact related to the same period of G&A expenses related to additional investment in the digital activities and other activities as well. Moving to the net income slide. You will see that there is a big variance impact from the SAR 900 million to SAR 653 million for the same period of 2026. Item 4 is mainly what we have explained in detail just now, which is the operating income. And then you will see that there is a lower impairment that has been impacted us in this year. If you recall, last year, we did a big assessment and then we had recorded an impairment loss of close to SAR 250 million, and that is now shown in item #1. You will see also there is a SAR 130 million impact that is mainly related to one of the derivatives that we have terminated last year and had a negative impact on us. So here, you can see it is a positive variance due to the impact of last year. And the third item is mainly related to an NCI difference between this period and the same period of last year. So that's also a positive variance of SAR 125 million. Together with all these positive variances, there is what we have explained just now, the SAR 763 million total negative variance for the operating income. This is one of the slides that we prefer always to put it in the half year to give you a perspective of the different building blocks of ACWA operating business model. So you will witness immediately that the development and construction services agreement has dropped significantly, almost 50%, and that has contributed only SAR 350 million to basically our net income. The positive impact, you will see it combined between ACWA operation and the net income that came from the assets under operation. Then you will see almost in line 20% increase in the other operating income, mainly related to better cash management for the same period of 2026 compared to 2025. And the overall impact on expenses, which is item #F, it's almost the same. The only impact is 8% related to the same derivative that we just talked about, and that has a loss impact in 2025. Moving from the net income to the cash. So we start with the parent operating cash flow. You will see the distribution from the projects has improved almost 50% to SAR 838 million, whereas the contribution from the development and construction service agreement has dropped to SAR 982 million. So that's around 11% lower compared to the same period of last year. And finally, you will see that there is almost a use of SAR 935 million for all the expenses and G&A, and CapEx investment for that period, which give us an POCF or parent operating cash flow of SAR 885 million. When it comes to the sources and uses of the cash for this period, so we start from where we ended last slide, which is the SAR 885 million plus the operating cash balance of SAR 6.1 billion. You will see that there has been a total use of SAR 1.1 billion, mainly, mainly -- main use was for the actually actual investments. So you will see 72% of the cash has been used for actual investments, whereas 17% of the cash was used for the financial charges on Sukuk and other instruments and 11% was used for the share buyback, which was a continuation of the program announced almost 1.5 years ago. When it comes to the net debt to leverage ratio or net debt to parent operating cash flow ratio, I would really like to start from the SAR 32.3 billion, which is the total on-balance sheet financial -- basically financing and funding facilities. Out of that, the dark blue, which is the SAR 9.8 billion is the recourse debt, while the rest of that debt is non-recourse. So if you pick up the SAR 9.8 billion, which is the recourse debt on the balance sheet and add the SAR 17.7 billion, which is the off-balance sheet, but still recourse to ACWA Power, which is all the ABLs and the equity LCs and so on, you will land at around SAR 27 billion. And if you take out the cash, which is around SAR 5.8 billion, your net leverage will be around SAR 21 billion. And taking the POCF that we explained earlier, the net debt to POCF will land at 6.6x. And this is in line with the guidance that we have given earlier, where most of basically the impact of that increase in leverage is related to additional investment into our pipeline. And in this slide, we are trying to explain what we have announced earlier when it comes to the dividends. So the 2025 proposed dividend is a bit straightforward. We are talking about SAR 353 million, equivalent to SAR 0.46 per share, and this is a 19% payout ratio for the year, subject to the general assembly by this month, it will be basically subject for the shareholder approval, we will be able to distribute that amount. When it comes to the -- what comes after that, really, we try to work extensively between the management and the Board on what will be the best framework that we can continue the journey of ACWA for the next 5 years. There is definitely a big emphasis on the growth factor, and we continue to remain focused to invest between $2 billion to $2.5 billion of cash into the growth, while at the same time, give a bit of guidance to the investors and the shareholders on what will be the distribution framework for the period at the same time. So we have landed with a proposed 30% basically payout ratio, and that payout ratio will start to kick in 2027 for the period of -- for the audited financials of 2026. And at the same time, we try to maintain or give a priority for our cash to be used in the investments. So that's where we have proposed a hybrid solution between cash and noncash basically dividend framework to maintain the priority for the growth definitely, but also to give a minimum 50% of the whole basically payout ratio to be distributed in cash. I will pause here, and we'll hand it over to Ozgur to get into the Q&A section. Thank you.

Thank you. Thank you, Abdulhameed. Thank you, Dr. Samir. And Lucy, I think we can open the forum for the Q&A now.

[Operator Instructions] The first question today goes to Ricardo Rezende.

If I may, a couple of questions. First one, on the interest on the U.S. market, how do you see the competition there? And what would be the plan? Would you have any specific geographies within the U.S. that you would rather focus on any specific technologies as well? And then the second question is on this announcement on the exclusivity on exporting the green fuels from Saudi Arabia. Would it be possible to provide us a bit more information on how would that work in practice? Would you take a fixed fee per unit of molecule exported? Would that be a percentage? How would that work?

Let me start about the market entry into the U.S. I mean the U.S. is the second largest electricity market in the world and definitely goes through tremendous growth as we speak right now because of the electrification and also because of the data centers boom that's happening in the United States. It's a very good fit for us. And it's really that potential is really across all of our verticals. So that means it's renewable, wind, solar storage. It's basically gas to power, and it's also water desalination. And we really see opportunities across all of these verticals that we're planning to pursue. When it comes to the mandate of the government basically for a green hydrogen export, I appreciate the question, but I think it's a little bit too early right now. I mean, as you know, we are doing the FEED for the Yanbu project, which is twice the size of the NEOM project. NEOM is 1.2 million tonne of green ammonia, and we are currently finishing the FEED for Yanbu, which is twice the size, which is going to be done in phases. And that really would be -- when it goes into execution will be a huge market for us to capitalize on this mandate to export green hydrogen or its derivative to the rest of the world.

Yes. And maybe if you allow me, Samir, I would like to add in this specific second question. In reality, what we have witnessed in the green fuels in general that the development cost is extremely high. And definitely, as part of the Vision 2030 target, there is a lot of emphasis on green shoring. And here, when it comes to the exclusivity being mandated to ACWA really is to give ACWA the time and value to spend that development cost that is significant in value to allow us to build these large-scale projects, as mentioned by Dr. Samir when come to the next in line is the Yanbu. And for us to allow -- to be allowed as a company to continue investing heavily on the development of this project, this exclusivity give us a real comfort and real reward for all the spending that will end up before the period started. When it comes to your question about any like specific fees or basically payments to ACWA, definitely, this is not on the table. So there is no specific -- basically fees that will be collected by ACWA for that. The real mandate is to -- for ACWA to lead that specific development on the future, but not specifically to get any fees for others.

And sorry, Dr. Sam, go ahead.

Yes. And it really just -- I really want to emphasize this again, I mentioned it earlier. This really represents a strong vote of confidence in ACWA execution capability and our role in supporting Saudi Arabia long-term energy ambitions. And honestly, when you're into this business of a green power export or a green hydrogen export, competitiveness is a key. And the Kingdom really offer that by significant margin when it comes to wind, solar, storage, when it comes to really hydrogen, ammonia generation, shipping routes. So we do believe that we have a very competitive solution that we really can capitalize on around the world.

Yes. Dr. Samir, I was just going to respond to Rick's question in the U.S. about specific locations. But Rick, it's at an early stage, as Dr. Samir has mentioned that we are in our exploratory stage for the U.S. Obviously, it's too early to talk about any specific locations as we have material progress, of course, we're going to come to the market about our intentions going forward.

And if I may just follow up 2 things in the U.S. How would you compare the expected returns there versus your other geographies? And as there will be a new market entry, would you follow sort of a similar strategy that you had in China with some acquisitions? Or are you looking for something organically in new projects?

We definitely see the U.S. market offering us same returns that we do for other projects around the world and even better. So we're definitely confident that this is going to be positive. This is not about volume. It's not about the quantity. It's really about the quality. So we do see that this is going to really lead into more sustainable profitable growth for ACWA. As Ozgur mentioned, it's really too early to start speculating, but our preference would be really is to go for acquisition basically for a platform, I mean, instead of building a greenfield at the beginning. That would be an easier approach to really tackle.

The next question comes from Anna Antonova of JPMorgan.

Just a couple of follow-up questions from our side. Just on the last one of the U.S. market opportunities. I wonder how do you view the U.S. versus China market opportunities, for example? And does this announcement if you're looking and currently you comment at early stages into the U.S. imply that you are maybe shifting your geographical priorities in terms of kind of project development pipeline? That's the first question.

Okay. Thanks, Anna. I guess let me respond to this. We currently have 5 regions where we operate. As you know, it's KSA, Middle East is one, Africa, Central Asia, China and Southeast Asia. I mean -- and the U.S. would be #6. We really don't look at it one versus the other. We bring one, take one out. It really gives us more opportunity, more pipeline where we can be more selective. I mean, and really deliver where we can have a lower risk profile, better returns where we can add more value. So it's really these regions will be competing for the selectivity, and it's not one versus the other.

That's very clear. Our second question is following up on the green fuels topic. Could you please maybe comment on the current status of the NEOM green hydrogen project? Kind of do you see any delays there? And when can we expect it to start commercial operations?

The plan is basically commercial operation will be next year. I don't want to be more specific, but that is really the target. We currently have the consortium, basically the joint venture there, we have like 9,500 people at the job site. It's basically construction is finished. It's really more now into commissioning and the target to go into commercial operation next year. And it's really -- we would love to invite you all to visit the site because it's really a very, very impressive facility. I've been around the plants all over the world. This is really very unique, and we definitely would love to invite you to come and to see this model.

We would love to actually...

[indiscernible] question, Anna...

Scale. Final question from our side is on the operating trends of your assets in the portfolio. If you could comment on the power and water availability trends going into the second half of this year, maybe in comparison to H1. I understand that Q1 and especially Q2 was a quite challenging quarter. Do you see any normalization in Q3 or it will be a bit more of the same? So how should we think about it?

I think for the first half, our numbers for availability, I believe they were better than the comparable half for last year. And we do expect it's going to be the same or even better for the second half Anna.

The next question comes from Prateek Bhatnagar of Jefferies.

6 I have 2. The first is on the timing shift you talked about in the project development milestones. Could you quantify it a bit so that it's easier for us to kind of forecast what the development and construction revenues might be and how much they have shifted from the first half into the second half or maybe into 2027? That's number one. The second question is on the outages you talked about in the CSP and CCGT. Could you give some color on that? What are they? How long they may last?

So...