Nebras Energy Q.P.S.C. (QEWS) Earnings Call Transcript & Summary

Good day, and welcome to the Qatar Electricity & Water Company Q2 2022 Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Rao. Please go ahead.

[Foreign Language] and Good evening -- Good afternoon to everybody. I'm Narayana Rao, acting CFO of the Qatar Electricity & Water Company. As you know, our results are out on 18th of July for the half year ended 30th June 2022. We actually had a loss, a reduction in the profit compared to half year last year, as you know very well. And we had only QAR 685 million for the half year -- this half year against QAR 785 million against the half year in 2021. Of course, by looking into this figure, you feel company is not performing well. It is down by -- the performance, it's down by 13% or whatever. But in realistic sense, it is not like that way. We had some nonrecurring items in the P&L, if you see this time, mainly the loss of QAR 86 million from sale up for -- assets held for sale. That is the same land we kept as asset held for sale for the last few quarters. And under the instruction of the Board, we had to sell it up for -- in a given period. Of course, our market also, not recovering on real estate market, thus we [ haven't ] sold. And finally, we sold it during the quarter. That has added the QAR 86 million to the -- reducing the profit by QAR 86 million. And one more item, which is significant is the -- in Nebras, we had a big provision of QAR 113 million against the Ukraine assets. As you know, Russia and Ukraine war had a significant effect on the assets held in the Ukraine. And finally, we decided to provide 100% against the [ 5 of ] solar power plants, which we are having 75% interest in Ukraine. QAR 113 million is the amount provided in the account. This one, QAR 113 million, plus QAR 86 million, it is almost QAR 199 million, almost EUR 200 million additional expense as charged, which is nonrecurring during this half year. With this, I'll start just to review the performance of the half year. We had a revenue almost same. There is no -- but the explanation required, it is mainly -- our plant availability is more or less same as last year. Of course, sent out water is up by 5% and sent out -- sorry, sent out power is up by 5% and sent out water is minus 1%. Of course, this all was by the demand in the Qatar last year, because corona. Most likely power demand was a little less than this year. Whatever, there's not a significant difference. And our revenue remained at the same level as last year. And the gross profit, as concerned, it is down by 3% mainly due to some more reduction in -- increase in the gas cost and EBITDA. That is things before interest, tax, depreciation and amortization, there's also a little reduction impact is mainly due to the gas costs. Then our profits from -- going to [ enter ], it is showing a significant reduction of 35%. As I explained earlier, it is the major reason for this is the loss from the Nebras, which is mainly due to the Ukraine, 100% impairment provision for the Ukraine assets, which is QAR 113 million. And of course, last quarter, we're poised for Tunisia, whose whole year which is around QAR 34 million. These 2 together making QAR 144 million loss -- reduction in the profit during the first half year. This -- the main contribution for the reduction of joint venture profit by QAR million 298 to QAR 165 million. Otherwise, it would have been income. Other income is up by QAR 198 million. This is mainly because of QAR 90 million increase in the dividend, which is mainly due to Qatar -- Industries Qatar dividend, which we discussed in the last quarter. And of course, this time, we have got some AES investment, one of the asset managers declared dividend, QAR 10 million in second quarter -- around QAR 11 million in the second quarter. Last year, it had come to third quarter. That makes a little difference for the QAR 90 million increase there in the dividend income. And we have got some reversal of the provisions on the inventory and all those things, which is around QAR 64 million. That also contributed to take the other income from QAR 150 million to QAR 297 million. Net impact of all this is our net profit is down from QAR 785 million to QAR 685 million, lower net profit and lower net profit margin is mainly due to the lower profits from JVs and loss on sale of asset held for sale, as I explained already. It is partially set up by higher dividend income. That's what general estimation we can give on this subject. Now I will move to the balance sheet. Balance sheet, we have got the total assets gone up by -- in balance sheet, total assets gone up by 13%. This is mainly because of the USD 550 million loan, which we have taken, which is sitting in the cash now because we have not paid to the Qatar Holding against the -- our consideration for the purchase of 40% of the shares in the Nebras Power Company, which is going to happen in the near future in the third quarter. Now almost all things have been tied up and only a few things outside Qatar, whatever required on Nebras deal is concerned, everything finished. Only some ministry approvals within Qatar is pending, which may be done within a few days or 1 week. By that time -- by the end of this month, anyway, we are closing this Nebras deal and a purchase of 40% shares in the Nebras Power Company by 100% subsidiary, RAF, for now, pending update. That is still on the -- again, it is QAR 2 billion loan increases there. But here, it is only QAR 1 billion -- wait a minute, total assets. Yes, it has gone up by QAR 2 billion, but I will give you explanations separately for noncurrent and current, then you will understand what is the complete reason. Noncurrent assets are concerned. It is down -- increased by 11%. What, in figures, I can say around QAR 1.5 billion. This increased due to increase in the investment in joint ventures if you see the balance sheet in detail. Then balance sheet -- actually, there is no additional investment in the joint ventures. This is joint venture investments gone up by QAR 1.55 billion, mainly due to the increase in the fair market value of the hedges, which is almost QAR 1.5 billion. I think for whoever understand the financial figures, this will be clear by looking into our balance sheet. And our current assets, we have got the -- even we have gone up by 26%. That is almost QAR 1.1 million. Here, what happened is, as I explained already USD 550 million we have to take from the Mizuho Bank for financing Nebras deal. That's sitting in the -- almost, you can say, it is almost QAR 2 billion. It is sitting on the cash. Also, we repaid 2 loans. That is SMBC QAR 125.6 million and the Bank of China, QAR 125.6 million, 2 same amount, total adding up to QAR 251.2 million. I think it is almost QAR 900 million. Net of that, around QAR 1.1 million increase in the current assets. All that put together, we have got 13% increase in the total assets. Then coming to the cash and cash equivalent, as I explained already, it is QAR 550 million loan, minus QAR 250 million, QAR 1.2 million loan repayment. Together adding up to around QAR 1 billion to the cash. That's QAR 3.6 billion to QAR 4.8 billion. QAR 1.2 billion increase in the cash is there. And the available for sale investments, it is showing a 2% increase, if you see our balance sheet. And this is because of 2 reasons. One of -- one is the sale of shares. We house -- hold the share worth of -- we're on the QAR 63 million. And that's profit until it's recognized in the -- our equity statement. Only does not come to profit due to the requirements of the international financial reporting standards. And also change in fair value is around QAR 124 million. In net, around QAR 61 million increase in the R&D, available for just investments in the current Qatari state. Now going to the total equity. Here also you'll -- you can see around QAR 1.5 billion increase. But this, I think, not much explanation is required. It is due to fair market value of just as it happened in the investments of the joint venture companies, because both of the hedges are from joint venture companies. QWEC's -- all IFRS adjustments are negligible compared to our joint venture companies. Total debt has gone up also by QAR 5.62 billion, QAR 6.3 billion, around QAR 6.6 billion, around 17%. That is because of the -- as I explained already, $550 million loan taken from the Mizuho and the repayment of QAR 251.2 million loan to SMBC and Bank of China. If we analyze it then, of course, next slide, net debt, this is only total debt minus cash availability that you can see around QAR 200 million only the difference there. If you compare the noncurrent liabilities and current liabilities, noncurrent liabilities, there is no major movement. Only a small 4% increase is there. Current liabilities is concerned, it is -- there is a movement upside, upward movement of 36%. This again, as I explained, in the cash and current assets, here, lower portion is coming. That cash portion is coming only that difference, USD 550 million from Mizuho minus QAR 251.2 million repayment to SMBC and, we would say, Bank of China. In total, this debt to which we have repaid QAR 251.2 million, this repayment is temporary because in the next quarter, you will find the increase of QAR 251.2 million since we are working with other banks, especially SMBC. First, we are -- HSBC is contributing same loan amount, a little delay there in processing the loan amount. So that will be added to our cash in the next quarter. Most likely within next 1 week, we will be getting that QAR 125.6 million. And we are working on Bank of China of -- for getting back that QAR 125.6 million, which we paid because they requested us to repay it. And they will repay it back and all legal documentation, all those going on now. In next quarter, this is -- we are getting back this amount. You'll see QAR 251.2 million increase in loans in next quarter. This is the general picture of our balance sheet and P&L. And in Nebras, of course, you can see we have got 2 additional projects now we are working on, mainly 1 in Bangladesh, which is 400 megawatts. We are the 24% owners and it is of natural gas [ vestigial ] project. And in Kazakhstan, we have got -- we are working on a 600-megawatt project here, PPA-signed and everything getting finalized by the end of the year. And in this project, we certainly are having 33.33%. That's 1/3 ownership. About QEWC's own projects are concerned, we have -- as you know, we are working on the -- this Siraj 1 project. Siraj Energy is working on the Siraj 1 project, which is supposed to be commissioned partly during this half, which has not happened that -- actually -- we are close to commissioning, actually. It may happen any time now, not later than middle of August, because, well, from the Kahramaa and all those things they're waiting for and they already started commissioning process. 100% commissioning will be sure done by the end of September. It is supposed to be commissioned before September end, but to have some -- this one, of course, I'll -- definitely, it will be commissioned by the end of September. And the facility project is concerned, we are still in the tendering process, and it will become as planned. Now as for the Kahramaa plant is that -- plan is that this project should be commissioned by 2024, '25. That background, we are looking into that and still a tendering process is not over. Probably next quarter, it may be getting over. That's what we expect. This is the general information on the performance of the half year and other general things, whatever related to the financials. One more thing which I want to add is roughly, I can put the movement from last year to this year, like this, QAR 658 million -- QAR 785 million is the last year. And this year, Ukraine provision and Nebras is concerned. Ukraine provision out, CPC Tunisia and all those things, around QAR 150 million has been -- has to be deducted from the QAR 785 million and QEWC's higher dividend of QAR 90 million has to be added and loss on sale of assets held up for sale, that was -- the QAR 86 million has to be deducted. And we will -- some reversal of provisions and reversal of depreciation, all those things, close to QAR 107 million has to be accounted. And operating expenses and interest expense income except a net QAR 61 million has to be deducted. Totally, QAR 685 million is the profit for the year. That's after adjustment in the half of the whatever, total performance of the company during the first half year. In reality, company has not made a loss. If you take normal expenses, it is not a loss, no reduction in the profit in reality, in operational way is we're talking about. But nonrecurring expenses made it to -- the only reason for this reduction in the profit of around QAR 100 million compared to first half of 2021. With this, I will conclude my explanations, and I welcome any clarification required by the investors, thank you. Thank you, and end there.

[Operator Instructions] We currently have no questions. [Operator Instructions]

I think I explained the most of the things, just laid them out so.

We now have a question from [H. N. Al-Abadi ] of [ Arran Investments ].

[Technical Difficulty] I had a couple of questions, if I may. Just to clarify on -- hello?

Please go ahead, yes.

Yes. Yes. So on the Nebras provision, the QAR 113 million, is this the whole for Nebras as a whole? Or it is a QEW's (sic) [ QEWC's ] consolidated number? Because you own 50% of Nebras as of now.

Yes, it is QEWC's consolidated number.

QAR 113 million is what you took...

Yes, it is included in the -- yes, it is included in the JV profit and loss.

JV thing, so it will -- total provision for Nebras was QAR 188 million. That's right?

You are right. Yes, yes.

Okay. And the Tunisian thing, how much was that, sir?

That -- our share, just 1 minute. It just come in last quarter, actually.

Not in Q2?

It is in QAR 34 million. Yes, QAR 34 million-something our portion. Yes, QAR million.

Okay. This is, again, QEW's (sic) [ QEWC's ] share?

It's the -- yes, for sure. You are right. Yes, yes, yes. You are right. Right.

So for the first half, it was -- the profit was QAR 685 million. So what would be the normalized thing, so as per you?

Normal, if you add -- sorry, QAR 61 million -- QAR 113 million, it should be -- sorry, 13...

Sorry, QAR 685 million, plus QAR 113 million, plus QAR 34 million, minus QAR 62 million.

Yes, makes a lot of sense. Yes. It is something more than whatever last year. Last year, it was QAR 785 million, right, last year.

Yes, it will be QAR 854 million?

Now -- the difference is QAR 100 million now. Difference is QAR 100 million. Now 1/3 -- if I take Tunisian -- not Tunisia -- let's say it's really this last quarter. I'm not talking QAR 113 million this quarter from Nebras, the QAR 86 million loss on sale of asset. To put together makes it to QAR 199, right? The QAR 86 million loss on asset held for sale and QAR 113 million loss on -- impairment loss on the Ukraine what makes QAR 199 million. We have got QAR 100 million differences. Of course, we have some inventory provision reversal. And last year, we had a QAR 40 million reversal. This year, we have got total -- one last sale and that's the final thing. We made a full complete excise on inventory and we finally ended up with reversing so many things. Otherwise, we had a negative provision more than the inventory because of old policy. Now we changed the policy. And we recategorized some part of inventory as fixed assets also. That's a long-term usage -- high value assets and all the things in the current with the IFRS requirements. After doing all those net impact of around [ QAR 1 million, not QAR 7 million ] reversals there, then QAR 199 minus [ QAR 1 million, not QAR 7 million ], if you make. It is QAR 92 million then some. QAR 685 plus QAR 92 million if you add, it is 7 -- the 18 minus 9...

QAR 777 million.

Yes, QAR 777 million. Actually, last year also, QAR 40 million reversal is there, reflected, QAR 40 million, in the inventory. Then last year's is QAR 745 million. QAR 745 million versus QAR 777 million is the real comparison. Last year is QAR 745 million, this year is QAR 777 million. Yes, this is the real comparison.

Yes. Okay. And in -- right. And in terms of reversal on the provisions, inventory provisions, are we seeing any more coming in, in the next few quarters or we are done with...

No. No, no, it is enough with -- we are working on that almost 1.5 years now. Now we ended up with the final result. Yes. It is the end. And no...

And you also -- you also -- right. And you also mentioned about the JV investment going up because of increase in hedges. So this is the old cash flow hedges, which you had taken and you had made money on it. So with the interest rate going up, do we see more gains coming in from the hedges?