National Central Cooling Company PJSC (TABREED.AE) Earnings Call Transcript & Summary

Good afternoon, everyone, and welcome to Tabreed's 9 Months 2025 Earnings Conference Call on the 14th of November 2025. Please note that this call today is being recorded. [Operator Instructions] So without further ado, I'd like to pass the line over to Mr. Yugesh Suneja, the Head of Investor Relations at Tabreed. Please go ahead, sir.

Thank you, Luis. Good afternoon, everyone, and thank you for joining us. On behalf of Tabreed's management team, I am pleased to welcome you to our earnings call for the first 9 months of 2025. Before we proceed, I would like to highlight the disclaimer on this slide. Some of the information shared today includes forward-looking statements regarding future performance. These statements reflect our current expectations and are subject to risks and uncertainties. Please review the details on this slide for further information. With that, let's move on to today's agenda. Joining me today are Adel Al Wahedi, our Chief Financial Officer; and Salik Malik, Vice President of Finance. We will start with a summary of financial and operational performance, including an update on the strong progress we have made on our growth plans. After that, we will take a deeper look at our financial performance for the period. We will then wrap up with an update on our guidance and outlook, followed by a Q&A session. With that, I will hand it over to Adel to begin the discussion on results. Over to you, Adel.

Good afternoon, everyone, and thank you for joining our earnings call. Over the past few years, Tabreed has consistently strengthened its market-leading position in district cooling sector. Our regional platform remains strong and scalable, and during the first 9 months of this year, we delivered steady financial results while advancing on our long-term growth strategy. We achieved record organic capacity additions and completed two landmark transactions, reinforcing Tabreed's role as a trusted regional cooling partner and our commitment to creating sustainable value. Total connected capacity reached 1.38 million tons with 52.9, almost 53,000 RTs of organic additions, nearly double the capacity added in all of 2024. This growth was driven by commissioning of 3 new greenfield plants, including 2 in the UAE. We continued our expansion existing concessions with minimal CapEx, thereby unlocking higher returns. Consumption volumes increased marginally versus last year, supported by capacity growth but partially offset by milder weather in first quarter and the third quarter of this year. Group revenue increased to AED 1.87 billion, up 1% year-on-year, driven by capacity additions in the UAE. EBITDA increased 5% to AED 975 million with margins improving to 52%, reflecting the scale benefits and disciplined cost control. Beyond the strong operational performance, we progressed on our growth agenda this year with the acquisition of PAL Cooling from Multiply Group and commencement of construction on our largest ever greenfield project at Palm Jebel Ali, a 250,000 RT exclusive concession. Overall, Tabreed's financial position remains robust, supported by investment-grade credit rating for Moody's and Fitch. Free cash flow over the past 12 months, excluding advance deposited in escrow to acquire PAL Cooling, reached AED 955 million. This translates into a free cash flow yield of more than 10%, this ability to generate strong cash flow and enables our shareholders to approve interim dividend of 6.5 fils per share for the first half of this year. The increase in net debt-to-EBITDA to 4.5x at the end of the September '25 mainly reflects advance of our share of equity distribution to acquire PAL Cooling, and this transaction has achieved financial closure in October. Moving to the next slide. This slide highlights the strength of Tabreed's existing platform and the foundation it provides for future growth. Our current capacity, combined with future site capacity, positions us for scalable growth in district cooling. Our key strengths include market-leading position in most of the markets and diversified presence in the region, proven operational track record of delivering innovation and efficiency, derisked growth pipeline through secured concessions, long-term contracts with highly creditworthy customers, ensuring steady revenue and cash flow visibility. Building on this strong base, we are now expanding beyond our core through two strategic transactions, first one, Palm Jebel Ali concession, executed in partnership with Dubai Holding Investments, represents an investment of AED 1.5 billion spread across multiple bases, adds 250,000 RT concession capacity, equivalent to nearly 20% of our current capacity, strengthens our market position in Dubai and enhance long-term revenue visibility. Construction already started in Q3 this year and first cooling capacity expected to be delivered by end of 2027, thereby contributing to revenue from early 2028. Secondly, acquisition of PAL Cooling with enterprise value of AED 4.1 billion, executed in 50-50 partnership with CVC DIF, secures exclusive rights to 8 concessions with leading developers in Abu Dhabi. During the first 9 months of this year, PAL Cooling expanded its capacity to 190,000 RT, thereby uplifting our pro forma connected capacity by 14% to 1.57 million RT. It also has a powerful growth engine with 410,000 RT yet to be connected, mainly to additional 4 new plants, allows us to maintain balance sheet strength. Together, these transactions reinforce Tabreed's leadership, expand our footprint and accelerate our growth trajectory while preserving financial discipline. The expansion of PAL and the ongoing construction of Palm Jebel Ali have progressed in line with our strategic business case throughout the first 9 months. This consistent execution boosts our confidence in providing long-term value to shareholders as we advance our development plans. Turning to the next slide. This slide illustrates Tabreed's strategic growth path. The acquisition of PAL Cooling and Palm Jebel Ali concession constitutes of two of the most strategically important transactions in Tabreed's history. These landmark deals, combined with our existing secured concession capacity of 380,000 RTs, increased our total site capacity to approximately 2.6 million RT. This scale strengthens Tabreed's district cooling leadership and supports capital efficient and long-term growth with strong cash flow visibility. Notably, almost 95% of this secured capacity is based in the UAE, highlighting the country's key position within our expansion plan. Our efforts continue to center on building a strong portfolio of new prospects, especially greenfield projects, to address growing demand as investment in real estate and infrastructure takes place. Looking ahead, the UAE and the broader GCC region continue to offer compelling prospects supported by population growth, capital inflows and government initiatives aimed at achieving national energy efficiency targets. Moving to the next slide. Tabreed has consistently delivered attractive returns to its shareholders over the past 5 years with dividends growing at an annualized rate of 8%, corresponding to average dividend payout ratio of 73%. In line with our strong focus on shareholder value and supported by our solid financial position and healthy cash generation, Tabreed shareholders approved an interim dividend of 6.5 fils per share for the first half of 2025. This marks a significant milestone as the first interim dividend in Tabreed's history, reflecting our confidence in the company's outlook and ability to deliver sustainable value. The payout ratio for this interim dividend, whether measured against operating cash flows or net profit for the period, remains broadly consistent with our historical payout level. With that, I will now hand over to Salik, who will take us through Tabreed's financial performance in more detail.

Thank you, Adel. Good afternoon, everyone. Let me walk you through Tabreed's financial performance for the first 9 months and the third quarter, focusing on our net income statement, balance sheet and cash flow figures. In 2025, Tabreed's business model continues to demonstrate robustness and scalability. EBITDA has increased at an accelerated rate this year, supported by record capacity additions and rigorous cost management. The company maintained strong margins and healthy cash flows, enabling ongoing investment in future growth while upholding a prudent leverage profile and reaffirming our commitment to financial discipline. Tabreed is well positioned to deliver reliable returns to shareholders by maintaining a balanced strategy that prioritizes both sustainable growth and regular dividend distributions. Turning on to the next slide. I'd like to provide a comprehensive update on our operational performance and expansion for the first 9 months of 2025. Since the conclusion of the financial year 2024, we have added approximately 53,000 tons of gross new capacity. Specifically, 4,600 RTs were commissioned in the first quarter, and in the second quarter, it was 37,000 tons. And the remaining 11,300 comes in the third quarter. All this new capacity was generated organically, primarily through commissioning of new greenfield plants in the UAE. Growth was further supported by additional connections within our key existing UAE concessions, which includes the Downtown Dubai, Yas Island in Abu Dhabi, Saadiyat Island and Al Raha. It is important to note that capacity additions are inherently nonlinear as they are contingent upon real estate development timelines. The slower pace of completions last year was attributed to scheduling delays rather than a decrease in our business momentum. This year has seen a significant acceleration in the activity with multiple greenfield sites commissioned and the new loads secured. These timing variances do not affect our long-term growth trajectory as we continue to maintain a robust project pipeline. The UAE remains a principal market, accounting for 82% of our total connected capacity, while the other regional markets comprises the remaining 18%. As previously noted in the first quarter, chilled water volume experienced a temporary decline due to the warmer weather persisting in the third quarter, resulting in the 2% year-on-year reduction in consumption. Nevertheless, overall volume increased modestly over the 9 months time frame. Now I would like to address our revenue performance for the period. Tabreed achieved a record AED 1.87 billion in revenue during the first 9 months of this year, marking a consistent increase year-over-year. The revenue growth in the third quarter was moderated by weather patterns primarily affecting the consumption revenue. In our core chilled water segment, fixed revenue increased by almost 3.5% year-over-year. This growth reflects the additions of nearly 59,000 tons of new capacity over the last 12 months, including 53,000 tons added this year, as Adel had explained in his opening remarks. And alongside, there is also a CPI indexation that attributes to the fixed income increase. These capacity enhancements also help mitigate the impact of weather-related factors on consumption revenue, which saw a marginal increase over the 9-month period. The value chain business saw reduced revenue due to expiration of third-party O&M contracts upon maturity. This [ identified ] network maintenance business segment, due to its low margin and nonstrategic role for Tabreed, remains volatile in each quarter. Moving on to the profitability highlights. Gross profit increased proportionally with revenue increases, reflecting a corresponding rise in operating costs necessary to meet cooling demand. Additionally, continued investment in cooling infrastructure led to higher depreciation expenses, resulting in a modest change in gross profit margins compared to the same period last year. EBITDA, however, rose by 5% to AED 975 million with a margin expansion to 52% when excluding depreciation and amortization of overhead costs, were lower than in the previous year, thereby supporting the improvement in EBITDA margin. Now we move on to the next slide. So the profit before tax and the net profit declined by 1% in the first 9 months of 2025 compared to the same period last year, primarily as a result of increased net finance costs. After completing the refinancing at the end of Q1 this year, the term loan was settled through the issuance of the green sukuk. The higher market interest rate reflects the new issuance debt this year compared to bank debt we secured during the low interest rate environment in 2020, which resulted in elevated finance expenses this year. This effect became more pronounced in Q3 due to greater finance cost savings realized in Q3 last year, onwards following the sukuk buyback over that period. Other income in Q3 included one-off losses that negatively impacted our bottom line. In the first half of '25, we recorded a net one-off gain of AED 2.8 million, primarily from selling a minority stake in one of our associates. In contrast, Q3 featured a net one-off loss of about AED 7.6 million. This is mainly from the write-off of replacement and refurbishment of certain plant equipment. Overall, this led to a net one-off loss of AED 1.8 million over the 9-month period. The share of results from the JVs and associates were also lower than the previous year, as in 2024 included a one-off gain from the divestment of our minority stake in the associates. Excluding these exceptional items, performance across the associates and joint ventures remain stable. In the absence of these one-off items in other income and impact of higher finance costs, net profit would have grown in line with our underlying operating profit and also the EBITDA growth of 5%. This demonstrates the resilient nature of the Tabreed business model and its ability to sustain consistent profit growth. Now let's move to the next slide, looking into the balance sheet. The total assets and liabilities grew by 6% during the first 9 months of this year. Key movements in assets, fixed assets and intangibles declined marginally due to the period depreciation and amortization charges, partially compensated by the new CapEx income. Investment in associates and JVs was largely unchanged as profits were balanced by dividend payout, the disposal of minority stake in one of the associates and fair value adjustments on derivatives held by these associates. Receivables and other assets increased driven by seasonally higher consumption revenue during summer months, resulting in higher trade receivables. There was also an addition AED 1.2 billion related to an advance deposited in escrow account as part of our Tabreed share of equity investment to acquire the PAL Cooling assets, which closed subsequently in October. Moving to equities and liabilities. Equity and reserves reflect the payment of 2024 dividend, accrual of H1 2025 interim dividend and a slight decrease in the derivative fair values, partly offset by the profits generated during the first 9 months. Payables and other liabilities rose mainly due to higher utility costs, payables linked to seasonally higher consumption volumes, which should be settled as per the agreed terms. In addition, payables also reflect the interim dividend payment of AED 185 million, which was distributed in 7th of October 2025. Debt profile increased after the drawdown of AED 900 million under our green revolving credit facility. Profits from this RCF, along with our cash balance in the balance sheet, were utilized to fund the equity investment for acquiring the PAL Cooling asset. For 2025, the outstanding sukuk obligation of AED 973 million equivalent is due in October and the unutilized RCF were settled following the closure of the quarter using a new term loan of AED 1.8 billion dual tranche financing raised from local banks. With this, there are no significant near-term debt maturities on Tabreed's balance sheet. Leverage, net debt-to-EBITDA increased to 4.5x during the period, mainly due to the funding of Tabreed's equity share for acquiring the PAL Cooling asset using a mix of debt and cash. Despite increased leverage, the company maintained strong credit fundamentals as evidenced by the investment-grade credit rating, strengthened by our high-margin, cash-generative business line underscores this resilience. Moving on to the next slide. Tabreed's operations continued to deliver stable and robust cash flows, allowing us to statistically allocate surplus funds to facilitate growth and enhance shareholders' value. During the first 9 months of 2025, the company generated AED 986 million in operating cash flows driven by strong profitability margins. The working capital requirement reflects the seasonally elevated revenue resulting in higher trade receivables. Notably, our DSOs have improved substantially over the recent years highlighting both the effectiveness of our B2B billing model and the high creditworthiness of our customer base. We invested almost AED 170 million to expand capacity within the existing concessions and to progress new greenfield development through the CapEx. Following the advance deposit into the escrow account for our equity contribution towards PAL Cooling asset acquisition, free cash flows were negative during the period. However, excluding this investment advance, our recurring free cash flow profile over the last 12 months amounts to a healthy AED 955 million. Our financing strategy remains prudent. Proceeds from the green sukuk were utilized to settle the maturing debt in Q1, further strengthening our liquidity position. Growth investments were funded through a combination of debt and available cash resources. Additionally, we distributed the full year 2024 dividend of AED 441 million in Q2, underscoring our ongoing commitment to delivering consistent returns to our shareholders. With this, I conclude the summary of our financial results presentation. Now I'll hand it back to Adel to take you through the rest of the presentation.

Thank you, Salik. As of the third quarter of this year, we have achieved 4.5% year-over-year increase in connected capacity, fully consistent with our stated guidance. Our medium-term guidance is unchanged with capacity expected to grow between 3% to 5% annually through the year 2027. Tabreed has a strong pipeline, long-term concessions and expanding geographic footprint to support and sustain growth into 2025 and beyond. PAL Cooling's future capacity growth is not yet included in the guidance and will be announced along with full year results. Following the PAL acquisition, after the end of Q3, the PAL investments will shift from advances to equity on the balance sheet. There is no impact on debt or cash as these were already reflected as of September 30 of this year. From Q4, finance costs related to acquisition debt and our share of results from PAL Cooling assets will be reflected in our P&L. To facilitate organic capacity growth, we project annual CapEx between AED 200 billion to AED 300 million. During the first 9 months, we invested AED 169 million. This amount is expected to increase as construction advances on current expansion projects and the new facilities enter the build phase. EBITDA margin increased by 1.7 percentage points during the first 9 months of 2025 compared to last year, reaching last 12 months margin of 52.7%. This figure is close to the top end of our guidance range of 50% to 53%, and we are confident that our margins will stay within this range. Our net debt-to-EBITDA ratio stands at 4.5x as of September 30, 2025 constantly within the investment-grade threshold. This already reflects our investment in PAL Cooling acquisition. Given our resilient business model, top-tier B2B customers and strong backing from strategic anchor shareholders, we are confident that the temporary increase in leverage from capital investments will normalize quickly as cash flows and EBITDA growth materialize. We have already demonstrated the financial discipline in the past and have proven track record of optimizing our balance sheet. Next slide. We continue to see favorable economic trends across our key markets supporting strong long-term growth for the district cooling industry. Economic activity is expected to accelerate over the next 5 years, driven by population growth, urban development and supportive government policies. Major investments in mega city projects and global events such as Expo and the World Cup will further boost demand for higher-density development that rely on centralized cooling solutions like district cooling. Additionally, national energy efficiency goals and net zero carbon targets will drive greater adoption of district cooling. These trends point to a growing need for an energy-efficient and cost-cutting cooling solution, and Tabreed with its diversified presence and proven expertise is well positioned to capitalize on these opportunities. With that, we conclude the presentation, and we'll now open the floor for the Q&A.

[Operator Instructions] So our first question is from Jean-Pierre from Kepler Cheuvreux.

Two quick questions regarding the bridge between EBITDA and net profit. In Q3, you reported a net loss of AED 4.1 million under other items. Could you please clarify whether this figure includes any nonrecurring elements, particularly write-offs? And if so, could you quantify them roughly? And secondly, looking ahead, I understand that the acquisition of PAL may generate some one-off costs related to transaction fees for advisers, lawyers and so forth. Can you confirm that these costs will be booked indeed in Q4? And if so, could you give us a rough indication of their magnitude? Are we talking about AED 5 million, AED 10 million or more?

Jean, Salik here. I'd like to answer the questions in this order. The one-off items that you are referring is a refurbishment that we did to one of our plant equipment costing AED 8.1 million, which is nonrecurring in nature because as and when the replacement is required, it's not on annual basis. It's not the normal maintenance related stuff. So that is what has been recorded as a one-off. And that's why you see those negative movement of AED 8 million in that, which is recorded in Q3. The second question which is regarding the transaction cost, so typically, in any M&A transactions, as you would notice, the transaction cost ranges between 1% to 2%. And we are going through that finalization process and this will be reported as part of our Q4 results.

Just when you say 1% to 2%, what is the total amount? Are you talking about 1% to 2% of AED 1.2 billion? Or can you clarify?

So at this stage, we are not providing any specific number or data. So this is just for your reference, the typical benchmarks in the market between 1% to 2% of the deal value.

Our next question is from Tomas Laymuns from Barings Asset Management. How do you expect the net leverage to evolve in the coming quarters? Is the company still committed to current ratings? And he also asks, do you expect to tap the international bond markets again soon?

Thank you, Tomas. So let me clarify this. Early October this year, we already settled the sukuk which was maturing in 2025, issued in 2018, the $500 million, through the new term loan that we have obtained of AED 1.8 billion, which we used it both for sukuk as well as our equity contribution for PAL acquisition. So that enables that. The next maturity is due only in 2027 of the debt capital market. Having said that, our cash-generating ability and the balance sheet strength allows us to comfortably meet any other repayment that may come in the near future. But as I said in my speaking remarks as well, there are no short-term maturities that requires any kind of refinancing. And in addition to your next follow-up question about the current ratings, yes, we are committed as a management and the Board and shareholders about retaining the investment-grade status for the company. There is no change in that front. I hope answered your questions, Tomas.