Musandam Power Company SAOG (MSPW) Earnings Call Transcript & Summary

Welcome everyone to the Musandam Power H1 Discussion Session with the business analysts and investors. Today, we are going to present the company report and give you high-level highlights about the performance of the company operationally, financially, [Indiscernible] CSR. Throughout the first half of 2025. I will share the screen. I trust that the screen is visible to everyone. I will start with the operational section. The company has noticed a growth in demand by around 8% from 160 gigawatts to the same period last year and has reached 173 gigawatts in June 2025. This is mainly because of the increase in demand in the governance of Musandam. Reliability still, we are maintaining high-level reliability to 99.84%. We noticed 0 LTI, Lost Time Incidence during the period and the steak has extended to 1,349 days, 0 LTI, LTI free steak. This was operational. Financially, the company has noted an increase in revenue by around 1%, mainly due to the increase in the capacity charge due to increase of indexation compared to the previous period in 2024. The profit before tax before interest and tax has noticed little -- slight reduction by around 1% as well. This is mainly because of the increase in general and administrative expenses. The main reason driving this increase in expenses and the G&A expenses is because of payment of the remuneration this year compared to the previous year. Previous year, as approved by the shareholders, they have ceased or stopped the remuneration payment for the Board last year in 2024. This is why there's an increase in the expenses. Overall, the net profit has shown an increase of around 7%, compared to the previous period, mainly in addition to whatever reasons we have mentioned before earlier, mainly because of the reduction in the finance cost, which is as per the facilities agreement. It noticed a reduction of around 6%. The share price stood at QAR 283 in June 2025 compared to QAR 245, which is reflecting improved investors' confidence. As of today, share price is standing at RO 285 per share. In terms of CSR, we have so far 3 initiatives. One is, contributing by 4,000 [Indiscernible] to a march out for organization. The second one is contributing around 6,200 to the Director of Health Services in the Governance and 1,000 to the Administration of Education in support of AI workshop benefiting students and educational staff in the governance of. This is a high-level presentation and walk-through the performance of the company. Your questions are most welcome. Sincere apology. I at least introducing ourselves, the management, CEO, Mr. Murshid Al-Yarubi; I'm the Head of Internal Audit, Mr. [Saeed Masoumi]; Senior Accountant, [Hamid Ebrahimi], head of IT, [Saeed Pournapoli], [Saeed Alkasabi], he's attending remotely from the site, senior operational engineer, [Indiscernible], Head of HR and [Indiscernible], IT Engineer. The questions are welcome.

I have a question regarding your debt servicing. I'm going through your cash flow statement, I can see a loan of 3 million and repayment of 3 million as well. Now if my understanding is correct, your PPA is expiring in 2032, right? The loan that you currently have on your balance sheet, which is close to QAR 50 million has to be repaid by them. My question is what, actually is your debt servicing in terms of principal repayment and interest because if I'm calculating it on my end, I'm getting a number close to QAR 7 million to QAR 8 million, out of which QAR 6 million is your principal repayment and QAR 1.5 million to QAR 2 million is your interest expense. Are these calculations correct? If you'd be able to shed some light on it, please?

It is as you mentioned -- whatever you mentioned almost right. That service throughout the year it will reach around QAR 7 millions to QAR 8 millions, mainly due to repayment of the loan. As for the services agreement and also the short-term borrowings. Yes, you are right. It is reaching to this level this year anticipated.

My follow-up question would be that the company is making an EBITDA, obviously, with the seasonality and keeping the seasonality in view the EBITDA from the last some years, you guys have been generating an EBITDA of QAR 8 million, which is the net cash that you are getting. Now on an EBITDA of QAR 8 million, QAR 8 million is your debt servicing, how would the company be able to generate any free cash flow to be distributed as cash dividends? How have you been able to do it in the past as well because there has been dividends in the past, I can see it. My question is, how do you guys manage it? What is your outlook for the future? Would you be able to maintain it on the same pace that has been in the past?

Yes, I don't think to maintain payment, paying the same level of dividends. As we have in the previous year, in the previous years, we are having or we are utilizing short-term borrowings, short-term borrowings from the bank to fund any shortfall of cash and to pay to the suppliers. By doing that, by following this strategy, we've been able to pay the dividends in the previous years and also in the current year. We are expecting the cash position will improve in the coming years and we are evaluating or we are evaluating the status of cash and the liquidity health of the company prior any dividend payments. This is why – also, in the last board meeting, we have discussed the dividend payment in September as approved by the shareholders thoroughly and the matter is still under discussion. Once it's been decided and checked by the lenders, by the board, by all the stakeholders, we'll move ahead with disclosing the second payment of dividends of 2025. In the future, we're expecting better health position of the company. We are evaluating our debt service or the free cash flow every year. We are keeping an eye on the cash performance of the company.

That's very helpful of the management to maintain the dividends for the shareholders, and that's a very good initiative taken. My final question would be, you mentioned that in the future, you obviously expect the cash position to improve. What drivers would help this sort of improvement because your PPA is obviously fixed, the return that you get on your capacity charge is fixed. All of the rest is passed-through and your debt repayments are also mentioned that you are -- you take short-term debt in case if there is any shortfall of cash. That would only impair your cash position. Where is this improvement you foresee?

The improvement comes from -- yes, the capacity charge is fixed somehow, but not the entire capacity charge. We are having some elements are subject for annual indexations and it is linked to the US CPI and the Oman CPI. This part is also getting indexed and getting raised year-after-year due to the inflation applied to the tariff or to the capacity charge. This is one of the reasons and also the management and the board are putting strict controls over the general and administrative expenses, which are falling under the controls of the management on the board. This is another element. One of the main elements also, we are noticing also a huge reduction in the finance cost. I know I'm not talking about the EBITDA in specific. I'm talking about the profitability of the company. You'll see, you'll notice, a huge improvement in the profitability is year-after-year because of the reduction in the finance costs, which is estimated to be around 250,000 improvement.

I have one question with you. In one of the earlier calls, I remember the company said that they target to repay the entire debt five years after the expiry of their PPA, that is by 2037, so is it still holding? Are you still targeting to repay the entire debt by 2037 or are you planning to pay as your PPA ends by 2032? This is my question.

Current plan is to pay it as per the facilities agreement, which is by 2037. It's for the current -- as per today's plan, but still under discussion with the various stakeholders.

As per the facility agreement, it is by 2037.

Yes, you're right.

I would like to understand, how the company plans. Suppose if the PPA doesn't get renewed, so from where the cash flow bill arises to repay the -- to service the debt in that case for the five years after PPA?

This is a very extreme case. Probably, it won't happen. We are under discussion with the MPWC regarding extending the agreement and hopefully it will succeed. Secondly, we are the only power generator till to-date. Musandam government so to phase out our company from the grid, it would create a chaos in the grid because it's an isolated grid. It's not connected to any other grid. Third, to answer your question, in case it didn't get renewed for any reason, the company has an asset that will have a value by end of the PPA, like January 2032. We can liquidate all these assets and the definitely the priority will go to that.

I would like to -- like a related question would be, is the -- are you participating in the spot market and how do you see, like, is it feasible the rates which are prevailing currently. Are that feasible or are they getting better? I have read, I think last year, so some company like Barakah Power, they said in their note that the rates are not feasible to operate. How is the condition? Can you comment on that, please?

Currently, we are not participating in the spot market because still price is volatile [Indiscernible] 2032. As I stated earlier, we are operating in isolated project. There is no competition so far within the grid of power. We've followed MPSS, Musandam Power Service System. There's no reason for us to participate in the sport market as long as we are the only power generator in this field.

There are also like OPWP has not given their 7-year statement after ‘23. Can you confirm if there are any renewable power development in Musandam or not?

As far as we know, there is it. But we can't confirm it from our end. You can't get the answer from regulators from the concept parts like APSR or OPWP.

Thank you so much, management, for your time and have a great day. All the best.

Thank you.