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

Good afternoon, everyone, and welcome to Tabreed's Q1 2025 Earnings Conference Call on the 10th of May 2025. Please note that this call today is being recorded. [Operator Instructions]. So without further ado, I would like to pass the line over to Mr. Yugesh Suneja, the Head of Investor Relations at Tabreed. Please go ahead, sir.

Thank you, Rafal. Good afternoon, everyone. On behalf of Tabreed's management, I welcome you to our earnings call for the first quarter of 2025. I am Yugesh Suneja, Head of Investor Relations at Tabreed. Our financial results, including a copy of this presentation, are already available on Tabreed's website. Video replay and transcript of this call will also be made available on our website. I would like to draw your attention to the disclaimer on this slide. Some of the information in today's presentation is about future performance and forward-looking in nature. These statements are based on our current expectations and are subject to risks and uncertainties. Please refer to this slide for more details. Let us now move to the agenda for today's call.  I am joined today by Adel Al Wahedi, our Chief Financial Officer; and Salik Malik, Vice President of Finance. Adel will start with key highlights of the first quarter. Following this, Salik will discuss the financial results in detail. Finally, Adel will conclude with an update on our guidance and outlook. I will now invite Adel to begin the results discussion.

Thank you, Yugesh. Very good afternoon to you all, and thank you for joining our Q1 2025 results conference call. Before diving into Q1 '25, we would like to take a step back on the past 5 years, which have been a journey of transformation and growth for Tabreed. Tabreed has demonstrated track record of enhancing its market-leading position in the district cooling sector. Tabreed has achieved sustainable growth by unlocking opportunities not only within its core market of UAE, but also by diversifying into other countries inside and outside of GCC.  Tabreed has added around 77,000 RTs of annual capacity in the last 5 years, or annualized growth of 7%. This was achieved through organic growth and selectively pursuing value-accretive merger and acquisition transactions. In all its investments, Tabreed seeks a minimum internal rate of return that exceeds our cost of capital, enabling us to add value to our shareholders. Consistent execution on our growth strategy, coupled with the rising demand for past choline, have led to annualized growth of 12% in consumption volumes in the last 5 years. Revenue and EBITDA have grown at 10% annualized growth. All along our growth journey, we have maintained a strong focus on maximizing value creation by optimizing our operations and delivering exceptional customer service. This allowed us to expand our EBITDA margins, generate healthy cash, improve our balance sheet ability to invest further in future growth, and enhance dividend payout to our shareholders. We remain committed to driving more growth in a capital disciplined manner that drives shareholder value creation.  In the next slide, we are just getting started on a renewed growth journey as we are actively working on expanding our growth pipeline, which will position us to sustain growth momentum in the next phase of our journey. I'm very excited to see a remarkable start to the year 2025. We witnessed significant increase in connections in the first quarter compared to the same quarter last year. Tabreed also entered in a concession in partnership with Dubai Holding Investments to provide 250,000 RTs of cooling to a premium master development of Palm Jebel Ali in Dubai. I will touch upon this in more detail in the following slide.  Another important milestone for Tabreed was the issuance of its first green Sukuk amounting to USD 700 million. This green issuance underlines Tabreed's commitment to finance or refinance eligible projects in line with our green finance framework, which is assured by independent third-party opinion. In terms of financial performance, Tabreed has once again showed resilience to its business model with growing EBITDA and net profit margin expansion and improving returns, strong cash flow generation, and robust improvement in the balance sheet.  Our cash balance increased by 14% year-to-date, and net debt is now at the lowest level since 2019. Our balance sheet leverage has drastically improved from a peak of almost 6x in 2021 to 3.55x at the end of the first quarter of this year, showing highly effective liability management. This financial strength positions us very well to seize growth opportunities while maintaining investment-grade credit rating. Overall, we are pleased with the first quarter performance, which shows continued focus on managing our costs by utilizing the latest technologies and automation, strengthening of our balance sheet, and strong liquidity position. All these efforts are driving an improvement in our margins, higher return on equity, and attractive free cash flow yield.  Moving to the next slide. Let me here elaborate more on our recent partnership with Dubai Holding. Tabreed and Dubai Holding Investments have established a joint venture to undertake district cooling services on an exclusive basis for one of Dubai transformative developments. Tabreed will hold 51% share in the special purpose vehicle, while remaining 49% held by Dubai Holding Investments. This is one of the largest Greenfield deals secured by Tabreed, with size of projects almost equal to 20% of our current connected capacity. It also increases our backlog of contracted capacity significantly, which will not only enhance our future revenue visibility, but also increases the level of our future revenues. And it also strengthens our market position in Dubai district cooling market, which is expected to grow strongly over the coming years.  Subject to customary approvals, Construction of the district cooling network is expected to commence in Q2 of this year, with the first cooling services expected to be delivered by end of 2027 or early '28. Over time, load will be ramped up to meet anticipated total cooling capacity of approximately 250,000 tonnes with an estimated total CapEx of AED 1.5 billion. This CapEx will be internally funded by Tabreed through its cash reserves. Signing this project is a significant milestone for Tabreed. We are confident that it will not only strengthen our market position in Dubai, but also pave the way for future success.  Moving to the next slide. Tabreed continues to be a pioneer in the international Sukuk market, having been a regular issuer over the past 20 years in 2006, its USD 200 million Sukuk issuance was the first to be listed on the London Stock Exchange, which paved the way for other issuers to follow. That issuance was also the first rated Sukuk by a corporate entity in the Middle East. Tabreed returned to international debt capital markets this year with its largest Sukuk or bond transaction ever, and this was the first issuance under our USD 1.5 billion trust certificate program. The issuance attracted strong institutional demand from high-quality local, regional, and international investors, with final issue being oversubscribed by nearly 2.6x. The Sukuk was competitively priced with a profit rate of 5.279%, achieving the tightest ever credit spread for a 5-year instrument by Tabreed and by any regional corporate Sukuk with a similar credit rating. This high demand was supported by investment-grade credit rating from Moody's at Baa3 and Fitch at BBB, consistent with Tabreed's corporate ratings. In the next slide, let me now provide updates on our operational performance and expansion during the first quarter of the year 2025. Compared to the end of Q1 last year, we added gross new capacity of around 27,000 RTs, of which close to 4,600 RTs of new connections came in the first quarter of this year. Mostly of this new capacity was from organic increase in our key concessions such as Al Raha, Aiyas Island, Downtown Dubai, Yas Island, Al Maryah Island, et cetera. In the UAE, we also added 3,000 RTs in other GCC countries. Mainly Oman and Saudi.  Lastly, we have further expanded our presence outside GCC with expansion in capacity in Egypt and India by 1,500 RTs and 3,000 RTs in the last 12 months. We are on track to see increased pace of new capacity this year, which I will discuss later during update on guidance. The UAE remains our core market, representing 83% of total connected capacity, while other GCC markets such as Saudi Arabia, Oman, and Bahrain account for 17% of total connected capacity. We are continuing to pursue opportunities to further our presence outside GCC through our presence in India and Egypt.  As you can see, consumption volumes declined by around 8% in the first quarter due to relatively colder weather in Q1 of this year versus same period last year. However, Q1 is seasonal lowest quarter across the 4 quarters and therefore, should have limited impact on our full year volumes. Moreover, considering majority of our EBITDA comes from fixed capacity charges, this also had limited impact on our profitability for Q1. Capacity charges contribute most of our chilled water revenue. In Q1 of this year, this contribution increased marginally to 72% with a growth of 2% in fixed charges by increased capacity and CPI indexation of 1.66% applied for the year of 2025.  Moving to the next slide. During Annual General Assembly Meeting in March of this year, shareholders approved a dividend of 15.5 fils per share for the year '24, which was subsequently paid in April. In the last 5 years, dividends have increased at annualized rate of 8%. At current share price, this results in attractive dividend yield of 5.7%. Board of Directors have adopted progressive approach in distributing dividends as evidenced by consistent increase in payout ratio over the last 5 years. We expect this trend to continue. Our disciplined capital allocation and the prudent financial management has been at the center of our value creation strategy. Strong business fundamentals and visibility of our future cash flows allow us to sustain attractive cash returns for our shareholders while maintaining investment-grade credit rating.  In the next slide. Cooling has become a critical part of GCC's infrastructure needs, especially important given increasing climate challenges. In the last 12 months, our operations have resulted in substantially environmental benefits with energy savings of 2.6 billion kilowatt hour, equivalent to powering around 150,000 homes, and prevented 1.5 million tonnes of carbon emissions. And as our business grows, so does Tabreed's contribution to reduce environmental footprint with more and more savings in energy consumption. By leveraging advanced technologies and innovative practices, we are not only meeting the immediate cooling needs but also are contributing towards achieving broader sustainability goals.  Simultaneously, Tabreed is actively pursuing a road map to achieve net-zero emissions by 2050, aligning with the UAE Energy strategy sector. We have invested in several new technologies and solutions that improve operational efficiency and reduce environmental impact. Various examples of such achievements include use of variable frequency drives, which is expected to save 23 million kilowatt hour of energy over the next 10 years. Nanofluids parts and our chilled water network, which has been successfully deployed in 4 plants in Dubai, and expected to save energy consumption by 10% at plant level.  Geothermal district cooling project in Madar, which provides 700 RTs of cooling and consumes 3x less electricity than stand-alone air-cooled system. As we ramp up deployment of these initiatives more widely across our portfolio of plants, we expect this to support our margin profile going forward. With this, I will now hand over to Salik to discuss our financial performance in detail.

Thank you, Adel, and good afternoon, everyone. Before I delve into the income statement, balance sheet, and cash flow in detail, let me give you a quarter 1, 2025 financial results highlights, which is highlighting the robust nature of our business model and affirm the stability ensured by fixed capacity charges. Our EBITDA and net profit demonstrated commendable growth even as consumption volumes experienced a slight moderation. Profitability margins and cash collections continue to showcase remarkable resilience, contributing positively to further reductions in net debt and enhancing leverage in relation to gearing. We are optimally positioned to deliver substantial value to our shareholders by strategically combining growth initiatives with consistent dividend distribution.  Moving on to the next slide. The group achieved a revenue of QAR 466 million in the first quarter of this year, demonstrating steady performance year-over-year and an impressive 7% compounded annual growth rate since 2021. In Q1, fixed capacity charges increased by 2%, driven by the addition of 27,000 tonnes over the last 12 months, and also the CPI indexation. Starting '25, CPI indexation was 1.66% is applied as per the 2024 inflation index published by the UAE. This CPI is broadly the same as last year's CPI indexation of 1.6%. Growth in fixed charges effectively balanced the impact of reduced consumption revenue and higher finance lease amortization. While consumption volumes experienced 7% decline in Q1 2025 compared to the same quarter last year, primarily due to lower average temperatures reducing cooling demand. This weather-related shift reflects a natural adjustment in energy usage patterns.  However, as Adel mentioned, this had a limited impact in our profitability as Q1 had a lower consumption volumes across the 4 quarters. Total operating cost demonstrated remarkable stability this quarter, supported by a reduction in utility charges that aligned with our lower consumption levels. Additionally, other direct costs experienced a decline, while the capitalization of assets resulted in an increase in depreciation charges, reflecting our strategic investment in the company's infrastructure. Gross profit demonstrated a consistent stability year-over-year, reflecting positive alignment with our revenue trends. Over the last 4 years, annualized gross profit growth has been a commendable 6%.  Moving to the next slide. Group EBITDA increased by 4% to QAR 283 million with EBITDA margin expanding to 61%. Excluding depreciation and amortization charges, our direct cost and cost overheads were lower than last year as management remained focused on optimization of expenses. Below operating profit, we also realized 7% savings in net finance cost following continued reduction in our net debt. We also saw sustained growth in the share of results from our JVs and associates. Overall, net profit grew by 3% to INR 115 million in this first quarter compared to INR 112 million in the same quarter last year. On a historical basis, net profit has increased at a compounded annual growth rate of 7%. And excluding the impact of UAE corporate tax, Profit before tax grew at 10% annualized growth rate driven by effective debt management.  Let us look at the balance sheet on the next slide. Total assets and liabilities remained stable year-to-date. Major movements in assets are the change in the fixed assets and intangibles were primarily driven by depreciation and amortization, complemented positively by the capital expenditure investments. Investments in associates and JVs experienced a modest increase, reflecting the profits generated during the period, which were only slightly tempered by minor adjustments in the fair value of derivatives held by the associates. Receivables and other assets experienced a reduction due to the successful closure of hedge position coinciding with the full repayment of the bank debt matured in Q1 2025. Additionally, overall customer collections demonstrated consistent improvement, while the cash balance strengthened, supported by robust cash generation from operations.  Looking at the movement in equities and other liabilities. Equity and results reflect a modest adjustment, primarily driven by the allocation of the 2024 dividend amount to current payables and a slight decrease in the fair value of derivatives. This adjustment was partially balanced by the positive profit generated during the first quarter of this year. The increase in payables and other liabilities primarily reflects the allocation of 2024 dividend amount designated for shareholders, which was successfully distributed in April this year. The overall gross debt remained stable as the bank debt was successfully refinanced through the proceeds of Tabreed's inaugural green Sukuk amounting to USD 700 million, which garnered significant interest from our investors. This refinancing has enabled the majority of our borrowings to transition into longer-term maturities. For 2025, the only outstanding Sukuk obligation amounts to AED 970 million due in October.  With our current cash balance and anticipated cash generation during the rest of the year, we are well positioned to comfortably address this liability through our cash reserves or refinance with a new debt should the need arise. Net debt witnessed a remarkable reduction to AED 4.5 billion at the end of the first quarter, marking its lowest position in 5 years. driven by robust cash generation and stable gross debt levels. In tandem, the net debt-to-EBITDA ratio improved significantly to 3.55x, further underscoring the strength of our credit fundamentals. Our financial position is notably robust, demonstrated by the gearing of 37%. The stability provided by long-term contracts ensures excellent visibility on future cash flows, offering a prudent buffer to adjust the gearing ratio, if required, to support the potential funding needs for growth opportunities.  Moving on to the next slide. Tabreed's operation consistently generates substantial cash, enabling strategic allocation of surplus funds towards business expansion, effective management of debt obligations and the delivery of rewarding dividend to our shareholders. Our operations successfully generated net operating cash flow of $207 million, supported by consistently strong profitability margins. The robustness of our cash collections is highlighted by significant improvement in our DSOs over the recent years. Tabreed's B2B billing structure and exceptional creditworthiness of our customers serves as a vital strength enhancing our credit profile and ensuring minimal counterparty risk. We have invested $25 million during the first quarter to support the expansion of capacity within the existing concession and to advance the development of new greenfield plants. Although the Q1 capital expenditure rate has been modest, it is expected to accelerate as ongoing greenfield projects move closer to completion, aligning with the anticipated growth in customer demand.  During the first quarter, Tabreed achieved remarkable free cash flows totaling AED 182 million, complemented by an impressive AED 966 million over the past 12 months, demonstrating a robust free cash flow generation yielding 12%. Our financing approach has exemplified strategic foresight and disciplined management. The proceeds from the inaugural Green Sukuk were efficiently channeled to reduce our bank debt, ensuring financial resilience and continuity in servicing our obligations. By the close of the first quarter, we achieved a notable 14% growth in our cash balance, reaching AED 1.2 billion. Additionally, the availability of undrawn $600 million green RCF underscores our strong liquidity position, providing us with the flexibility to seamlessly implement our well-defined capital allocation strategy. With this, I conclude the summary of the financial results presentation for the Q1. I'll now hand it back to Adel to take you through the rest of the proceedings.

Thank you, Salik. In the following section, I will talk about our medium-term guidance, which remains unchanged. We provided a capacity growth guidance of 3% to 5% per year until the year 2027. As of the first quarter of this year, capacity grew by 2% year-on-year, and our business capacity additions are not evenly spread across quarters and therefore, to the first quarter run rate is not an indication of full year growth. And looking at post quarter trends, we expect a strong uptick in capacity additions in the second quarter. Other than new connections in our concession areas, we expect to complete 2 greenfield plants. We are, therefore, confident in delivering against our capacity guidance. To meet this anticipated capacity growth, we expect to incur organic capital expenditure of around between AED 200 million to AED 300 million per year.  In the first quarter, we have incurred AED 25 million CapEx. CapEx run rate is likely to increase over the coming quarters as we complete new plants and connect new load in concession areas. In terms of margins, we saw EBITDA margin expansion of almost 2.5% in the first quarter versus the same quarter of last year. We delivered EBITDA margin of 52% on the last 12 months basis, which is closer to a higher end of our EBITDA margin guidance of the 50% to 53%. Our current leverage ratio, which mainly refers to net debt to EBITDA stands at 3.5x. This is well below the threshold required to maintain investment-grade credit rating. Our intention is to keep our leverage within the levels of investment grade. This leaves us with sufficient room to invest in growth. Moreover, the resilient nature of our business, our B2B top-tier customers and backing from our major strategic shareholders allow leverage ratios to trend above the requirement of a temporary period as cash flows and acquired EBITDA would mean that these ratios will go back to normal levels in a short period of time. Therefore, our leverage target is aligned to our approach of keeping a fine balance that meets the requirements of various stakeholders.  The next slide shows how Tabreed will deliver on its guidance while leaving significant room for upside. Tabreed has already secured significant pipeline of about 370,000 RT new capacity, which will take our capacity to 1.7 million RTs once fully connected. And this figure does not yet include the 250,000 RT from Palm Jebel Ali concession, which will further uplift the secured capacity and future visibility. This secured growth will be materialized after construction progress in the master developments. Almost 80% of this secured capacity is in the UAE, which remains at the center of our growth strategy. This contracted capacity is in the form of either concession agreements for certain master developments where any new development will be connected to Tabreed or we have signed master agreements with the developers.  This expansion offers a steady and secure organic growth at minimal increment CapEx and therefore, will drive improvement in returns going forward. We are also focusing on developing a new pipeline of opportunities in the form of both organic and inorganic growth. We are targeting new greenfield opportunities to meet demand from increasing investment in real estate and infrastructure projects. UAE will continue to offer such prospects considering inflow of population and capital as well as a strong push from government to meet national energy efficiency targets. International markets hold significant potential in this area as deem for sustainable cooling is growing rapidly and district cooling remains underpenetrated. We also anticipate further opportunities in the form of mergers and acquisitions. In UAE, developers will still own captive assets, which can be monetized at the right time. We have right of first offer to acquire MR's district cooling assets in Dubai if it decides to monetize. Similarly, we are also actively looking to other opportunities in the market. The international landscape also provides opportunities for growth through mergers and acquisitions, where Tabreed can acquire captive assets owned by developers or public sector entities.  In conclusion, our extensive expertise in the district cooling industry uniquely positions us to capitalize on these opportunities, while our robust financial framework ensures sustainable value creation for our shareholders. In the next slide you will see a favorable macroeconomic trends in the key markets where we are present that should support strong growth for the district cooling industry. Economic activity is expected to pick up over the next 5 years in most of our markets, driven by population growth, urbanization and increasing disposable income. We also see increasing investments in larger-scale development of mega cities or hosting mega events such as Expo Olympics, World Cup, et cetera, in our core markets. These trends drive demand for high-rise buildings, master communities and high-density developments, which typically demand centralized cooling systems such as district cooling.  National energy efficiency targets and net zero carbon emissions goals are also supportive factors for higher adoption of district cooling. National Cooling Action Plan of India is one such example where government is encouraging the use of DC and all new commercial developments. District cooling regulations are another important step in boosting confidence among all stakeholders to increase use of district cooling. Such regulation aim to build a strong trust between consumers and service providers and environment of transparency by ensuring high-quality, reliable and customer-friendly services at competitive prices. All these market trends are expected to drive a rise in energy needed for space cooling and increasing use of more energy-efficient, reliable and cost-effective district cooling. Tabreed with its diversified presence across various countries, markets is well placed to capitalize on these opportunities. With this, we conclude the presentation. We'll allow now open the floor for Q&A.

[Operator Instructions] Our first question comes from Anand from JPMorgan. Please go ahead. Your line is now open.

Yes. Can you hear me well?

Yes, we can hear you.

Anand [indiscernible] from JPMorgan. Could you please talk a bit more about the Jebel Ali Palm concession on the Slide 7. For example, are there any carve-outs to your exclusivity for this project? And then how front-loaded the CapEx deployment will be? Thank you.

Yes. As we mentioned, we formed the JV with Dubai Holding Investments, 5149 ownership. It is exclusive district cooling provider for that JV over the concession period tenure. As I mentioned, it will be 30 years, okay, with expecting opportunity to also renew another 25 years. So it is an exclusive. Definitely, it is a greenfield project, okay, in 2 phases, 250,000 RT at a range of maybe the tenure will be maybe around 10 years more or less. As we know, this depends on the acceleration of the real estate market and the economy in the country and in the region. EUR 1.5 billion of CapEx also expected. Phase 1 to be concluded or to commission the operational gas plant end of '27, beginning of '28 expected an RT capacity of 13,000. The other anything, the other part carved out. Yes. This is sufficient enough or anything more, please let us know.

That's very helpful. Just a clarifying question. So you mentioned that the first volumes will be supplied in the end of 2027, beginning 2028. You mentioned the Phase 1 of 13, 1 3 kilotons of capacity out of 250, is that correct?

Yes. Definitely.

And then the Phase 2, when do you expect the Phase 2 and other phases to begin after that, like similar internal?

Yes, phases will follow with the developments of the PA there. It will follow then always.

That is clear. And in terms of CapEx deployment out of the AED 1.5 billion, so I would assume a minor part will be deployed into the next 2 years for the first Phase 1. Is that correct?

Yes, exactly, exactly. It is expected that a yearly CapEx and continuation of all phases a range of between AED 100 million to AED 150 million, okay? And it will be sourced from our internal cash operations.

Our next question comes from Jean-Pierre from Kepler.

Just a quick clarification regarding your anticipation of a strong uptick in connected capacity in the second quarter. Could you clarify if this is based on organic investments or if you also include M&A opportunities in these expectations? And just could you also share with us the main greenfield projects expected to be started up in the second quarter and their contribution to capacity addition?

Yes. See, it's coming from an organic growth for the first question, okay? It is related to also to meet our guidance. The greenfield, this is the [indiscernible], one of them, but any other that we can mention, it is about different concession and areas related to the financial part or revenue part, just we are bound by the ESC and DFM regulation disclosure that we cannot provide any certain future numbers about it, but it is within the Tabreed aspirations and the performance returns and rates.

Okay. Just a different question regarding consumption as we are already halfway through the second quarter. Can you share with us the trend so far in terms of consumption in the second quarter of this year compared to the previous year?

Again, let me start with the same point that we are bound with the DFM disclosure that we cannot provide something certain. But what I can mention that the company's performance is doing really well, and we are witnessing growth year-over-year. And definitely by year-end, it will be shall positive performance and results shall.

We are now moving to the next question from Ildar from HSBC.

Just a clarifying question about the Palm Jebel Ali project. Are you funding the total CapEx of EUR 1.5 billion or are you responsible for only 51%? That's my first question. And then secondly, if you could share with us some guidance on total CapEx for 2025 and 2026, that would be great.

Thank you for the question. Yes, the funding for the new project will be complete. And as Adel mentioned in his comments to the previous question, it will be within our guidance of the CapEx between $150 million to $200 million that we annually incur for greenfield and the maintenance related CapEx. So it will be within that we will be incurring into this project.

So it's total, okay. Understood. And 1.5 billion is the total project CapEx, which you are fully funding. Is my understanding correct?

Yes. Yes. But that is spread across over a period of years because it is, as we said, it is driven into multiple phases. So the first phase is coming with 13,000 tonnes. So accordingly, it will be within that $130 million to $150 million of over spread across the next 2 years.

And is there any economic contribution of Dubai Holding to this project in any way?

Yes. At the SPV level, we can comment upon it. But yes, Tabreed level, yes, this is the contribution that we would be investing as part of the initial growth. And there would be something coming from Dubai Holding because they are doing the other infrastructure part of it, which I cannot comment upon that.

[Operator Instructions] Our next question is a text question from Akshit from ABI Analytics.  There are a few questions, so I'll do them one by one. Can you tell the expected revenue potential of the concession agreement signed with Dubai Holding Investments?

So thank you, Akshit. So the revenue potential is similar to what we expect in our business. So the total concession is for 250,000. So when the mature it will be similar to our existing tariff structure, which will be capacity and consumption. The majority of this coming will be under capacity, 60% and the 40% will be the consumption. When the total concession matures, it will be approximately for the entire 250,000 in line with our existing tariffs.

Okay. Perfect. The second question from Akshit is what is the capacity expansion Tabreed had planned outside UAE?

Again, in the short term, medium term, UAE would remain the key focus and the core market for us. As you noticed today, we are 83% of our total connected capacity comes from the UAE and the remaining 17% comes across GCC, including India and Egypt. So that trend will be there for at least between next 3 to 5 years in terms of growth.

Okay. Perfect. And the last question from Akshit is, recently, Multipli Group showcased interest in selling its district cooling assets. Is Tabreed interested in picking up this asset?

Tabreed cannot comment on any market speculation about it. But normally, Tabreed will continue to pursue opportunities, prospects to grow its portfolio and its business and we'll study any prospects around us if it will meet our criteria. So it will add value to our portfolio, definitely, we will try to pursue that. This is what I can comment about.

Okay. Perfect. Our next text question comes from [ Darmi Patel from Al ramz] . There are 2 questions. First one, I would like to understand why EBITDA margins improved by 6% quarter-on-quarter in Q1 2025, but net profit margins remained flat sequentially.

So thank you, Derik. So as I mentioned, Adel mentioned in his comments as well, the consumption volumes are lower compared to the last year first quarter, which effectively improves the EBITDA margin. In addition to that, the operational and fixed cost has been effectively managed with the management focus on cost savings efforts through a lot of innovation and automation strategies. So that is the reason that our EBITDA has increased. When it comes to the net income margin, why it is very slight margin because as you noticed, the margin on net income has increased from 24% to 25%. The reason again is some depreciation in the last 12 months, we have capitalized it as part of my explanation as well in the slides that we went through. So we have invested over the period of last 12 months, which has capitalized it. And as a result of that, the depreciation that has impacted. And those are all the reasons that from EBITDA to net income.

Okay. And the second question from [ Darmi ] is, I missed your comment on fixed and variable charges. Could you please share some highlights on the change in prices for both?

I don't think there was any changes or that we mentioned is the margin because when the revenue mix changes, so curly, our revenue mix usually consists of between 60% of our revenue focuses on capacity and the remaining 40% is on consumption. If there is any variations, meaning consumption volumes reduction will lead to lower mix and capacity will be higher. So the margins tend to increase. That is what [indiscernible] and myself are referring to. And there are no changes in the tariff structure itself. It is just the revenue mix based on the volumes. And generally, in the first quarter, it tends to be softer because of the weather conditions that is prevalent in the UAE. And as you noticed in this year as well, the weather was colder than the usual, which should mark that in the coming months, the temperature will increase, the volumes would increase and it will neutralize.

Our next questions are from Ambereen Jiwani from Ajeej. Please can you explain the IRR curve for any new project?

Thank you for your question. So generally, our IRR, and we have mentioned this, is in high single digit and low double-digit returns. That's what is our target, which is way above our WACC when it comes to any new projects that we target, accreting value to our equity shareholders.

Okay. The second question is how much is your maintenance CapEx?

Generally, our maintenance CapEx is not significant. It will be less than $25 million a year. But we capitalize the maintenance CapEx. On the benefit of this is more than 12 months. In the ordinary course of business, if there is any CapEx that are normal running in nature, we expense it into our [indiscernible]

Perfect. And last question from Ambereen is, are you looking at RAK or Kuwait as new markets?

We are identifying different markets that are in the region of a little bit further. And yes, we have no reservations to explore anything there, but nothing happened so far about it.

I believe we have a follow-up question from Ildar from HSBC.

Just a general question about the market dynamics. If we compare your existing fleet today and the new projects which you are starting at the moment, I mean, are you observing any inflation in CapEx overall per unit of capacity? I mean, are these costs are going high in general? And similarly, if that's the case, would the capacity charges go high as well? I mean, is there a big difference between the existing projects you have and the new ones which are coming to the market?

Thank you, Ildar. We have not noticed any significant increase in any of our CapEx expectations. It is almost in line with our existing projections and which we have mentioned. It ranges between 8,000 to 12,000, depending on the size of the network. Otherwise, there is nothing that we are seeing any significant increase, which could lead to any potential change in capacity.

And we signed a long-term framework agreements with our main vendors. That's why it is one of the measures to control any inflation or potential inflation.

Okay. Now next question comes from Mark Adeeb from CI Capital. It's a text question. Do you expect any changes regarding the dividend policy in light of the new expansion plans along with maturing debt in Q4 2025...

Yes. As we speak, it is a guidance that where the dividend distribution, it will grow as long as the business or the performance of the company portfolio and the returns, it is growing into as net, the dividend distribution that it will grow. We don't have that precise policy as of now, but it is under study.

Perfect. Second question from Mark. Could you please provide some color on JV income annual improvement throughout 2025? And are there any updates regarding Saudi Tabreed IPO or expansion plans?

Can you please clarify your first question, because we couldn't hear that.

The question was, could you please provide some color on JV income annual improvement throughout 2025? And are there any updates regarding Saudi Tabreed IPO or expansion plans?

For the first part, which JV? Which JV? It's not clear to us, but still to be clarified. Tabreed IPO, again, it was a market speculation that we cannot comment on that. And once we have any decision taken there, definitely we will be transparent and to share it with the market. But I'm sorry, for the first part, still not clear to us, which JV?

Maybe, Mark, we can touch with you after this call to clarify this one.

So we have just received a follow-up from Mark. Share of results of associates 8.1 million in Q1 2025 versus 6.2 million.

So yes, when it comes to the contribution, it will remain in line with what we have noticed during the first quarter, which is our subsidiaries, our main JVs are Saudi and TPI. So these are TPI, for example, it has its full connection. There are no further growth potentials within that project. And in the next 12 months, there is no other than the existing trend that you noticed will not be having any significant jump or negative into it.

Our last question comes from [indiscernible]. Can you provide details about the current energy mix and the costs related to them?

You mean the current energy mix within electricity coming from any other source. If that is the question, I did note the energy that we procure is from the authorities. And we get it from the grid. And in the grid, there will be a lot of inputs that comes from normal fossil fuel plus solar and nuclear energies that would come. But that's not been identified by the authorities for our consumption. So for us, all the consumptions that we have is from the grid. And the tariff remains the same. There are no changes at least as of now.

So at this point in time, we are seeing no further questions. So I would like to pass the line back to the Bridge team for their closing remarks.

Thank you, everyone. Thanks for your participation in today's call. If you have further follow-up questions, please feel free to reach out to us, and we will be happily taking and responding to these questions. With that, we conclude today's call. Thank you, and have a good day.

Thank you. We'll be now closing all the lines. Goodbye.