Dhofar Generating Company SAOG (DGEN) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to Dhofar Generating Company. This is discussion session for the first half of 2025. Myself, Amer, and I am the CEO of the company; and Ghulam, our finance team are present in this call. We are going to discuss the unaudited financial statement for the first 6 months of the year and also I will discuss the overall performance of the business. We scheduled the meeting for discussion for almost 1 hour, and we have our presentation about the result after that the floor will be open for the audience to start and their ask question if any. So with this, I'm going to hand over to my colleague, Mr. Esmaeel to discuss more details about our overall performance and operational performance as well. Esmaeel, I hand over to you.

Thank you, Amer. So I'll be covering the financial update for the period, and then we will go to the business performance. And finally, we'll go to the question and answer. So in the financial update, revenue is OMR 32.5 million, which is higher than the last year by OMR 2.5 million, and this is mainly due to the high load factor. For the gross profit, it's almost in line with last year and net profit after tax, OMR 1.5 million, which is lower than the last year, and this is mainly due to the higher maintenance cost and operation expenses. On the financial update, I would say like the cash generation is linked to the availability and all capacity payments are made on time, also cash flow -- the cash flow meeting the anticipation. For the business performance, the availability of the 273 megawatt is 99.5% for 2025 and 99.2% for 2024. And the load factor is 29% for 2025 and 25% for the 2024. For the 445-megawatt plant, the availability is 99% for the 2025 and 99.3% for the year of 2024. And the load factor is 61.9% for 2025 and 56.9% for 2024. On the highlight, for over 10 years, DGC has maintained an impeccable safety track record with zero lost time incident. NOMAC Oman has operated the plant in a safe, reliable and prudent manner despite the challenge of operating 2 plants on different technology. Annual Performance Test successfully conducted in March and April 2025. Emerging industry in Dhofar region have continued to increase the demand for the Dhofar Grid over the last 1 year since 2024. And the productive (sic) [ proactive ] approach by the company and operator aims to maintain a high reliability factor crucial for all the stakeholders. Before we go to the question and answer, there is a disclaimer I would like to read it for you. This presentation contains statements and comments relating to Dhofar Generating Company and its businesses, financial position and other matter. This presentation, its contents and discussion held in relation to this presentation do not constitute and should not be considered to constitute by -- be constructed as an offer, invitation or recommendation in respect of the company's securities. All statements and comments other than statements of historical fact should be considered as forward-looking statements and such statements, comments, projection, estimate and expectation should not be taken to imply any indication, assurance or guarantee of future performance. The financial information included in this presentation is of public knowledge that is disclosed on the MSX website, and it is for information purposes only. So we can go for the question and answer now if there is any.

Thanks, Esmaeel. So the floor is open if you have questions. Mr. Shaoor, you can start.

I have a couple of questions. I'll start with one. If I'm going through your cash flow statement, there's an item under cash flow from investing activities that's titled other inflows of cash. Now this is here during the first half of 2025 of OMR 2.6 million, and it was there in the last year in 2024 and in 2023 as well, close to the amount of OMR 6 million -- just over OMR 6 million. Could you please explain what this amount is in reference to?

This is basically -- Shaoor, this is the treatment for the finance lease. So I mean, as per the IFRS, we have to show this amounts as part of the investing activities. So it's just a reclassification of revenue to show it as per the IFRS standards.

Okay. So does this amount, does this OMR 6 million or just over OMR 6 million, is it included in your P&L as well, in your top line as well?

Correct. Correct. It is part of our revenue.

Okay. Perfect. Now my second question is that based on the historical numbers. First, I'd like to check if my understanding is correct that your current agreement of your OPWP expires in January 2033. Is that correct?

That's correct. Yes.

Right. Okay. So if I go through your financials historically, and we obviously know there's a seasonality in all of the power sector agreements, your EBITDA, your earnings before interest, tax and depreciation has been fairly stable during the last years at OMR 12 million. And we expect, obviously, that this to continue until the end of your agreement. But the thing is that when I am looking at your cash outflows, your principal repayment of debt amounts to close to OMR 10 million and then there's a OMR 6 million interest on that. So your debt servicing totals around OMR 16 million. Now on a OMR 12 million generation of EBITDA, your cash flows, your debt servicing only is OMR 16 million. So would it be fair to assume that for the remainder of this agreement, this PPA, the company would not be able to generate enough free cash flows to distribute any dividends to the shareholders?

Correct. I mean, yes, that understanding is correct because our cash generation is at the moment only enough to cover for our debt service.

Right. And do you expect any change in this -- in the future?

See -- this is Sajjad -- basically -- so definitely, one thing that has always been on the -- as the strategy is to look for an opportunity where we can have refinancing basically and obtain backstop LC as well. So those discussions are considering the credit rating is on an improving trend. So we have been engaging banks locally to see if there is any opportunity or if there is a risk appetite that can -- that they can look into. So from that perspective, we do believe that the current situation because of the higher load factor. So a lot has changed basically in the Dhofar region overall in the last couple of years where we have seen a very high load factor that has resulted in more usage of the plant and requiring certain maintenance as well. So from that perspective, yes, the cash flows got impacted from our earlier forecast. However, as I mentioned, that we do -- we keep -- continue to look for an opportunity where we are able to refinance our debt and generate some extra cash flows that can be distributed as a dividend. As of today, when we speak, there is not any material development that we can share from that aspect. However, the company and the Board will continue to pursue any opportunity with respect.

Perfect. That's great. Now your new plant that the commercial operation date was on January 2018. And this has -- you guys have been given the PPA is for 15 years, right? So in January 2033, the current PPA will expire. And because this plant is fairly new, would it be fair to assume that there would be a re-agreement or this will be rolled over because obviously the technology...

See, looking at the trend over the last couple of years where the offtaker has been very active in engaging all the generators, and we have seen some around 3 to 4 renewals as well, while they have been engaging with other generators as well to -- for renewals. So fairly -- and based on the demand profile of the overall country and in Dhofar region specifically, we do believe that there is a very fair chance that, that will -- it will be rolled over once the date comes in.

It's again -- it's a bit to anticipate that because that involves 7 years for the existing period to expire. So this is something in the near future. But as [indiscernible], we are currently in transformation. [indiscernible] 2018, and then we are close to the expiry dates nearing.

Any other question please.

[Foreign Language]

Some people subscribed to the stock at [ OMR 0.225 ] earlier. Hello?

Yes, we can hear you.

And they received dividend for 2 years. Okay? After that, the distribution stopped, citing the lack of unapproved bank guarantee due the Sultanate of Oman lowered credit rating was low. Now the Sultanate of Oman credit rating has been raised. Is there any intention to resume dividend distribution?

Yes, Khalid [Foreign Language] this is Ghulam. So we have already been pursuing with different banks throughout the years to obtain an LC. And because of the credit rating, this was a bit of challenge. But the company and the management have continuously been engaging with different banks even this year. And now because the country rating is improving, there is liquidity flow. So as soon as there is some -- basically something is materialized, we'll come back to the market and inform the market on any update. Correct. And further to add to that, as per our loan agreements, even though the country rating has moved to investment grade, it has to go up further 2 notches to be in compliance with our loan agreements to have that LC from the bank. So [Foreign Language] I mean, the things are moving in the right direction. But as of nothing is materialized and the management is continuously engaging with the banks and the relevant stakeholders.

If there are no more questions, I'd like to -- final question here, and this is just for my own understanding. I hope I'm audible. My question is that, obviously, the company is generating an EBITDA that is barely enough to cover the debt servicing repayments. And we have -- obviously, something went wrong. And I'd like to -- if you guys could shed some light on what actually went wrong here? How is the company not able to manage or to generate additional cash flows? Is it because -- my understanding is a lot of your debt is already hedged. So are there any external factors that impacted? Or is it some of the internal factors? What actually went wrong there?

So Shaoor, I mean, we are generating enough cash flows to cover our debt service. And in the previous year, we were generating cash -- free cash flows to pay out the dividends, but that had been sort of after the cash sweep had kicked in, that was restricted. From -- I mean, 2025, there -- I mean, you must have seen the directors' report and the financials. There has been a significant increase in the demand, especially in the old plant and the new plant as well overall in Dhofar region. And because of this increase in demand, we have to sort of prepone our maintenance activities, which is sort of affecting our free cash flows, which were there previously. So there is a huge surge in demand, which was -- I mean, in the previous year, it used to be -- for example, for the existing plant, it used to be around 3% to 5%. And now it has gone to 35%. And because of that, our maintenance activities are sort of preponed, and that's where the free cash flow is flowing.

Right. That makes sense. Any chance that the cash sweep is off the table before the PPA ends? Or would it continue until the end of the PPA?

Yes. I mean, as I explained before also, we are engaging with different financial institutions to sort of either get an LC or restructure the loan. So only after one, that thing materializes with someone, we would be able to do the cash sweep.

I have question in Arabic.

Go ahead. [Foreign Language]