Barka Desalination Company SAOG (BRDE) Earnings Call Transcript & Summary

Good morning, everyone. Welcome to the second half yearly MS discussion session for Barka Desalination. First of all, I would like to wish everyone Ramadan Kareem. Before we go any further into the presentation, I would just like to give a disclaimer that the meeting and its contents are being recorded and they can be shared internally or externally. Let's start with the overview of the water market in Oman. 85% of the portable water demand in Oman is met from seawater, which is being desalinated by the plants located throughout the country. NPWP has been contracted -- has a contracted capacity from 11 operational plants throughout the State of more than 1,600 meter liters per day and is responsible to procure the additional capacity for the upcoming projects to meet this growing demand. The Main Interconnected System is the largest part of the water system covering the northern areas of Oman, including the Muscat, Burka and Sohar zones. 7 large plants supply this area with the capacity of more than 1,200 MLD. And for Barka 4, IWP is part of this MIS. The overview of the company, Barka Desalination Company was registered and incorporated as a closed joint stock company on 21st of Jan 2016. Later on, the company was listed on the Muscat Stock Exchange on Feb 2022. The shareholders primarily include ITOCHU, Veolia and WJ Towell, with the 40% of the shares held by the public. The objective of the company to acquire, develop, finance, design, construct, own, operate, maintain the desalination facility of Barka 4, IWP. Plant has the capacity of 281,000 meter cubes per day. Barka 4 is one of the largest operating desalination plant in Oman supplying almost 20% of the water demand in the country. The water purchase agreement is for the span of 20 years from '18 to 2038. And the O&M is interested with Veolia Environmental Services for the same 20 year period. On the screen, you can see the project time line. The project was awarded on November 2015. March 2016 when the WPA was signed and 26th April 2016, the financial close was achieved. The plant started operation as stated earlier, in 2018, June 2018, and it was listed on MSX on Feb 2022. Right now, the plant is in CY 8, starting April 2025. This is just the bird eye-view of the plant. I'll let the CEO of the company, give you some operational highlights.

So the company commenced its commercial operation on 2018. Since then, the company has been supplying more than 521 million meter cube of potable water to Nama Power and Water Procurement Company in accordance with the Water Purchase Agreement. the company has supplied 24 million meter cube of water during the year 2025, which corresponds to 82.40% of the plant capacity. In 2026, so far, the plant reached 79.73% of its capacity. The plan of the annual performance rest of the contractual year CY 9, will be on 17th March 2026. And the company profitability is primarily driven by availability and not impacted by load factor as our consumption. For the water quality, also water quality was maintained at 100% compliance rate and the average schedule plant availability of the period of -- was 99.92 percentage. The result of the concept improvement asset management progress, [indiscernible] robust plant operation ended by the operator. The operator achieved more than 605 million-meter cube since the COD without LTA.

Thank you so much Asim. Now I move on to the financial highlights of the company. We can see that the revenue decreased by 2%, which is OMR 424,000 by a month, which is mainly due to fewer dispatch from NPWP. The operating cost decreased by 3% compared to the same period in the previous year supported by the lower capacity to the [indiscernible] The G&A expenses also decreased by 7% by [indiscernible] compared to the previous year. This is mainly due to the application of the robust cost reduction plans by the company. The finance costs also decreased by 10%, which is OMR 350,000 as compared to the previous year, which is mainly due to the lowering SOFR rate in the market and plus the impact of the loan repayment on a year-by-year basis. As far as the internal control and corporate governance are concerned, the management believes in strong and working internal control system, whereas the company also places high standard and importance to the corporate governance, which are complying with the CCG accommodated by the FSA. As far as the future strategy and plan are concerned, the company is taking its endeavors to continue to take reasonable professional prudent measures to maintain its plants performance by also not compromising on the matters. As far as the future plans are concerned, the company aims to distribute dividends at the steady rate of OMR 0.012 per share every year with biannual delivery in May and November every year. So this was the presentation from our side. If anybody has any questions, please go ahead. No questions for today. So we would be ending the session. Thank you, everyone, for joining us. I wish you a very pleasant day ahead.

I was saying that you finish the whole session in 8 minutes because I was a little bit late.

Yes, we have already concluded our session in 8 minutes.

All right. Okay. Fine. I have a few questions, if you could please answer.

Yes, please. Go ahead.

I mean the first question I have is on the operating activities. Do you envision -- do you -- from now until the end of your contract, I think on 2034, do you envision any major turnaround, any major maintenance from now until then? That might affect your cash flow or could be something too big?

Thank you very much your questions. From the operational perspective, I mean, we own -- I mean, and also the operator is retaining the scheduling of the productive prevents [indiscernible] And for any major requirement as contractually required an investment of, let's say, priority [indiscernible] it will be scheduling and also being will be scheduling and plan or approved by [indiscernible] We jump in to the operations.

So you don't see that you're going to have any major operational maintenance that might create an extra kind of expenses?

No, no, we don't see that. We don't see that in the foreseeable future until the WPA.

No, this is encouraging. Can I ask a few more questions, if that's okay?

Go ahead, please.

My question is around your post debt distribution plans, your dividends. So you've been very generous with OMR 0.012 on an annual basis divided in 2x. I've noted that you actually earning was around OMR 0.021. It looks like that you are paying your -- like the owners or your debt around -- I don't know how much is that and there are some returned earnings as well. My question is post finishing those debts, is there a plan that your dividends might increase?

Look, we have the financing schedule for the same period of the FWPA. So until we pay off that senior debt, senior finances, we can't commit anything as of now. So we're going to continue what we have presented earlier. We also had a slide earlier in this presentation that we're going to be distributing the dividend at the same pace throughout the -- for the next year, for the upcoming year OMR 0.012, which is biannually distributed. So until we pay off our main loan, and considering the uncertainty in the market regarding the interest rate as well as you might be following that there's quite uncertainty going on, even though the interest rates are coming down, but you never know how it's going to be -- the next year is going to be or the future is going to be. So until we pay off, we can't commit or comment on anything.

And how long will it take you to pay your debt?

That's until the term of WPA.

So it's still 2034?

Yes, exactly. Exactly, exactly. It's same as the WPA.

Okay. So -- and what is that? Can you say it? I mean, what is that? How much you're paying out of your earnings?

Sorry, say again?

How many baisa are you using to pay your debt out of your total earnings?

There's a defined the schedule for that one. So around OMR 4 million per annum is going towards the principal repayment of our debt. So it's not -- we haven't calculated in baisa terms. So I have given you the number there.

Okay. Got it. So in a nutshell, I mean, those payments will continue throughout the full contract, which takes you through 2034?

Correct. 2038 basically.

2038. All right. I mean I've got one last question, if that's okay. A question about your debt service coverage ratio. Is there something that you can share on this area? I mean are you within the healthy space? What is currently that ratio? What is the current and projected debt service coverage ratio?

Debt service coverage ratio, I don't remember on top of my head. So I cannot comment right now. But if you want to, you can come back to us separately via the Investor Relations.

Okay, can do that.

So anybody, any questions? So thank you so much. Thank you, everyone. Have a pleasant day. See you