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

Hello and welcome to the Qatar Electricity & Water Conference. [Operator Instructions] And finally, I would like to advise all participants that this call is being recorded. Thank you. I'd now like to welcome Bobby Sarkar to begin the conference. Over to you.

Thank you, Gavin. Hello, everyone. This is Bobby Sarkar, Head of Research at QNB Financial Services. I wanted to welcome everyone to Qatar Electricity and Water Company's Third Quarter 2022 Results Conference Call. So on this call, we have Narayana Rao, who is the acting Finance Manager at QEWC; and Gojy Augustine, who is the Head of Management Accounts. We will conduct this conference with management first reviewing the company's results followed by Q&A. I would like to turn the call over to now to Narayana. Narayana, please go ahead.

Yes. Assalamu alaikum, and good afternoon to everybody. As you have seen in the newspapers and all, we declared our results after our Board meeting, after our Board approved the results on 26 October. We have had a very good profit during this nine months ended on 30th September, it is QAR 1.25 billion against QAR 1.17 billion or QAR 1.18 billion last year for the same period. These are taking an increase of 6% in the net profit. I will just go through our results actually through our P&L. We had a revenue of QAR 1,911 million against the QAR 1,840 million last year, resulting in an increase of 4%. Yes, this increase is mainly due to the consolidation of the Nebras power company into QEWC books during the current quarter. As you know, we bought the 40% of the Nebras Power, where we -- actually we had 60% earlier itself in this company, 40% we bought through our 100% subsidiary rest upon operating company and transaction has been completed in early this quarter. Due to this, from July 1st onwards, we consolidated Nebras accounts into QEWC books, earlier it was a joint venture company with 60% ownership. Due to this, if you see our balance sheet, is considered lot of differences compared to previous year result this status as of 31st December 2021 versus status as on 30th September 2022, lot of movements are there. P&L, only Q3 results of the -- this Nebras Power has been taken into the -- in the consolidation and up to 30th June, it was based on the joint venture concept only, that is equity method has been followed until 30th June. Revenue is concerned, QAR 48 million has been added because of the Nebras due to which this 4% increase -- small increase on power, there is some equitability and cash of goods sold has gone up by 6%. Here, of course, very small addition due to the Nebras Power around QAR 6 million something. Otherwise, it is in line with the last year. Small increase is because of gas price and some additional power production increase in power production, that maybe the taken as the reason of the increase in the cost of goods sold. Gross profit, of course, just 1% increase net impact of all this. Other income, you'll see a big increase, in our presentation, of course, you will see in the accounts which has been broken up into three items. In presentation, we also shown 506 million against 194 million last year, that is 190% increase. As per our publisher accounts are concerned, there you will see 3 items against this, one is bargain purchase gain arising on business combination, QAR 194 million, step-up acquisition on deemed sale of 60% -- 60% of the Nebras, QAR 36 million. In effect, I can say this QAR 36 million just by assuming our 60% ownership, which we treated as joint venture until 30th June has been sold. This is deemed sale as for IFRS 3, which resulted in QAR 36 million profit. And bargain purchase is the -- it is the -- our total value of the Nebras against the fair value of the Nebras, we just compared and it is QAR 194 million gain was there since it's a negative goodwill, it has to be taken as income during the year. Total QAR 230 million has been added on account of the Nebras transaction. Balance other items, QAR 361 million, we have got the profit, which has shown as separately in the published accounts. It includes mainly our increase in interest around QAR 48 million compared to last year, increasing dividend of QAR 80 million. Then inventory valuation which we discussed in the last quarter, which resulted in a QAR 62 million gain, last year also QAR 33 million gain was there under that. Of course, this is what we have taken under other income, other heads totally the inventory valuation has resulted in QAR 107 million gain in this year and QAR 40 million has recognized last year also against that. Totally QAR 361 million versus QAR 194 million due to all these things, QAR 505 million against QAR 194 million is the summary of all this item together. Of course, minus QAR 186 million, QAR 86 million we have taken under loss on sale of asset held sale that is sale and in the P&L separately, that also deducted from this. After deducting it, it appears as QAR 505 million. If you have got -- if you want any clarification, you can ask question later. And general and administration expenses, it is QAR 143 million versus QAR 106 million. Here QAR 31 million pertained to third quarter for -- this Nebras Power, if I deduct it, it is QAR 114 million versus QAR 106 million, which is a reasonable increase of 7%. Finance cost has gone up very much -- 99%, but here QAR 42 million pertain to Nebras -- for Q3, then it is 130 -- real comparison should be QAR 132 million versus QAR 88 million. Again here, as you know, we have taken USD 550 million loan from the Mizuho in the January 5th of 2022. Interest on that is around QAR 20 million. If you deduct that also, then it is QAR 112 million versus QAR 88 million is comparison point which is merely, basically this QAR 24 million is the difference, it is resulted because of the increase in the labor and so far rest during the year. Then share of profit from joint venture, appears in the accounts as QAR 389 versus QAR 486 million fall off whatever is a big fall is there, which is mainly due to deducting Nebras portion one thing, last year we had a QAR 54 million profit from Nebras in the third quarter, which is to be deducted for comparison. If you deduct it, last year which is QAR 434 versus this year QAR 389 million. So again, we added QAR 100 million on the share of profit from the JVs and the association of the Nebras. And impairment provision on Ukraine assets QAR 113 million and discontinued operation of CPC Tunisia, if you take all those around QAR 140 million deduction is there because of the Nebras and QAR 100 million addition there because of Nebras. If you make all these adjustments, it will become around QAR 429 versus QAR 434, which is a reasonable comparison is concerned, it is very much reasonably as far as share of profit from the JV 36%. In effect, net profit is QAR 1,250 million versus QAR 1,175 million, it is 6% increase compared to last year. Of course, I know you'll ask later some questions on this. Anyway I will explain now itself for comparison after deducting the some items which is -- are not -- or to say, not recurring items -- non-recurring items, one is QAR 230 million. If I deduct that, that's Nebras total effect of the 2 items I explained already which is due to the Nebras acquisition. And inventory valuation -- this provision reversal settlement, the provision reversal due to our new scheme of valuation, QAR 107 million has been deducted -- sorry, added to the income, if I deduct that also now from the income. And Ukraine, QAR 113 million extra provision made and land sale QAR 86 million loss accounted, all those things if you adjust to QAR 1,250 million, which will come to QAR 1,112 million. Last year they have just QAR 40 million, which is the addition of the provision made on the inventory. If I adjust that, it will become QAR 1,136 million, QAR 1,112 million versus QAR 1,136 million, we are almost on the same line after taking out the recurring -- nonrecurring items from that. Other one thing you have to note down is that last year due to COVID -- COVID-19 situation some maintenance jobs are not carried out which would have been the -- would have been resulted with some lesser profit, if we have done it during the last year. Taking into all this account, you definitely -- we can get that this year's 9 months result of the QEWC is very good compared to last year. With this, I will move to the balance sheet. Balance sheet is concerned, as I told already, due to Nebras consolidation, we will be seeing very good jump in the each asset, it's mainly current asset -- sorry noncurrent asset, I'll start with noncurrent asset. It is almost QAR 18 million versus QAR 14 million -- sorry, QAR 18 billion versus QAR 14 billion, QAR 4 billion jump is there in the noncurrent asset. I will see group it into 2 major reasons, one is the property, plant and equipments, all fixed assets, you can take first 4 lines in the balance sheet, which is adding up to -- sorry, you add it and previous year also if you -- as of 31st December '21 position also, if you add, you will be getting QAR 1.5 billion difference there. It is mainly because of the Nebras consolidation, not a real difference. Last year, Nebras consolidation was not there -- in last year's figures. This year, Nebras consolidation is there, including Nebras in the QEWC financials is the reason as a subsidiary reason for this QAR 1.5 billion jump. Other major changes, investment in joint ventures and investment in associates. If you club it and deduct from last year, you will get QAR 2.5 billion difference there. Out of this QAR 2.5 billion, QAR 2 billion is just because of the higher value -- fair value reserve adjustment on the hedging and yes hedge and the interest rate -- sorry, interest changes and foreign currency translation that arose. QAR 2.2 billion out of QAR 2.5 billion is just QAR 2 billion came from this one adjustment from all joint venture companies and our -- yes, mainly our joint venture companies in these investments. And QAR 0.5 billion balance, it is because of the addition of the Nebras and deletion of the Nebras as joint venture, combination of that Nebras associates and joint venture companies, amounting to almost QAR 3.6 billion has been added here. And Nebras as joint venture company has been removed, which is around QAR 3.2 billion. In effect, QAR 0.4 billion added here, QAR 0.1 billion balance that is QAR 100 million is just because of the profit and dividend adjustments. With this, we can move to current assets. Current assets is concerned, it is QAR 8.6 billion this year versus QAR 4.5 billion last year, around QAR 4 billion increase. Again here also QAR 4 billion, total assets have gone up by QAR 8 billion. This is mainly because of cash and bank in the Nebras, which is almost QAR 3.1 billion. You also should note that we sold this year some shares which we invested in the what say equity instruments at fair value through other comprehensive income you can see in the balance sheet, it is the investment in the listed companies in Qatar Stock Exchange. By selling it, we realized around QAR 0.44 billion. This explains almost QAR 3.1 billion, plus QAR 0.44 billion -- QAR 3.54 billion increase in the current assets and balance, of course, QAR 0.4 billion in other funds, other assets -- other reasons due to our operational cash generation and all those things. Next we can move to equity. Equity has gone up from -- gone up by almost QAR 3 billion 15 versus QAR 12 billion -- QAR 3 billion, equity has gone up from QAR 12 billion to QAR 15 billion during the 9 months. Major reason for this increase is as I explained already fair value of figures and foreign translation -- foreign currency translation reserves, which is almost QAR 2.1 billion. That QAR 0.1 billion roughly I will put it net the effect of these things. One is net profit of QAR 1.25 billion added, their profit from sale of shares where I told already, we have got QAR 0.44 billion in cash realization, but profit realization against that is QAR 0.18 billion or around QAR [ 1.78 ] million it is in real terms. And dividend, we paid around QAR 880 million, that also deducted. These are the major reasons for the movement of QAR 3 billion here. Next, let us move to noncurrent liabilities, where we can see around QAR 2.5 billion movement. It is [ 6.22, 3.7 ] yes, around QAR 2.5 billion movement. It is because of the interest-bearing loans by the addition of the Nebras, by adding Nebras we have added to the -- our liability also since Nebras is a subsidiary now. As of Jan [ 2023 ] it is equity-based account as I explained already. And last item is current liability, current liability is also again, it has gone up by QAR 2.5 billion, QAR 5.3 million is the current -- present QAR 2.8 million is the 31st December 2021, in effect QAR 2.5 billion increase. This is due to mainly the addition of USD 255 million loan we have taken by the Mizuho, which is almost QAR 2 billion equivalent. Balance is due to some QAR 0.5 billion, that QAR 500 million is due to the Nebras addition, partly this in the interest bearing loans and partly in other hedges like trade and other payables, the liability need for distribution, liability held for re-distribution and all those things. One thing I want to note here that we have -- we paid QAR 251 billion -- QAR 251.2 million, that is USD 125.6 million to Bank of China and USD 125.6 million to SMBC during the last quarter, that is Q2. In Q3, we have taken USD 125.6 million, again from Bank of China at a better rate and USD 125.6 million from the HSBC Middle East, means the cash flow impact is that last year, whatever we have paid this year -- this quarter -- not last year, last quarter, whatever we paid this quarter, we have taken it back either from the same bank or from the different bank. Cash flow is concerned, it is nullified, there is no impact on the cash flow and even asset position also it is nullified. This is the overall picture of the QEWC in asset phase, as well as balance sheet [indiscernible] and our net worth side, I explained everything. Other thing you can note that our market capitalization is almost QAR 19.27 billion now. We are -- even as of the end of September, it is QAR 17.52 per share of QAR one share. Our projects are concerned, as you know, facility still -- it is under -- it is bidding stage, it is a 2600 million MW of megawatts of power and 100 MAD of water capacity. As you see from our accounts, we have signed the sale purchase agreement with Qatar Energy for sale of our 49% stake in SIRAJ Energy for a price of USD 64.5 million. This transaction may complete in the Q3, that is present quarter and year-end we may be recognized more profit due to this transaction. Nebras is concerned, they signed a consortium -- signed a PPA in Uzbekistan, of course it is a consortium with Nebras as part of that and to construct and operate, they call this project as SIRAJ 2 combined cycle gas thermal power plant, with capacity of 1,600 megawatts. Currently, equity equivalent of capacity of Nebras is 2,200 megawatts. It means it is taking our percentage of ownership in the Nebras, it is 2,200 megawatts. I think with this given the information, which as a shareholder you are looking into any other questions or clarifications, you are welcome to ask the question -- ask us and we will try to clarify whatever possible from our side within the given time. Thank you very much. Thank you for all.

[Operator Instructions] Your first question comes from the line of Abdullah Amin from Qatar National Bank.

Hi, thank you for the call. We appreciate this a lot. I just want to have some clarification on the loan profile of the company, given that you have acquired Nebras Energy, resulted in a bigger loan book -- loan on your balance sheet than previously. It also says that the current portion of the loan is QAR 4.2 billion, which has to be paid next year because it's a one-year loan. How do you think it's going to span out because either you have to cut dividends or you will reborrow, refinance this thing? And given the interest rates are high these days, what period do you think that you will be able to refinance it at a higher rate than currently or at a lower rate or the same rate? Thank you.

Thank you for your query. Actually, you are right that now it is showing a big figure as per the short-term of charter loan is concerned, of course, long-term also. Short term -- long term okay anyhow you know, payment planning will always be there. But short term is concerned, as you know, QAR 2 billion, that is USD 550 million we bought for the -- for acquiring 40% stake of Nebras during the year-end or beginning of this year and it has been utilized only in this quarter. This USD 550 million loan is due for the payment on January 5th 2023. We have already have the plans to repay this loan. Of course, banks are ready to renew, but we are -- we want to repay, we don't want to renew this loan. As of now that's what our plan. We are already having other short term loans are concerned, USD 150 million, we are going to renew most likely in this quarter, which is due for renewal on November 24. We are having the planning to renew it for one more year at a very good rate compared to today's market and balance 2 loans to QAR 125.6 million each that is USD 251.2 million are falling due for renewal in the August 2023. These loans whether to renew or to repay, we will decide based on the interest market and our cash flow position at that time. But USD 550 million, we have got the 2 billion loan which is falling on January 5th 2023, we have got a very proper plan to repay, that's why...

So because 2 billion is a big amount given the balance sheet, like if it's total asset is 26 billion slightly 8% -- 7%, 8% if I remember, so will it affect the dividend payment?

Yes, yes, but other side, you can see we have got a huge cash also, right?

Understand, I understand, but because if you want to maintain certain ratios like current ratio and liquidity ratio, I'm just wondering, will it affect the dividend payment at the year-end because the loan premium is exactly in January, results usually come in maybe end January or early February. So will it affect the dividend payment? Maybe just for the Board, I understand it's not for your decide, but are there any certain ratios that you need to maintain?

Yes, no, what I'm going to -- see it is, as you rightly told, it is Board's business to decide on the dividend. But in a -- what you say, in general, QEWC always had money to pay dividend as per its plan in the future -- in past, in future also, we will see that dividend -- normal dividend payments will not affect because of the any loan repayment rental. We always have an alternative arrangement for the -- everything, it will not affect the dividend, yes, normal.

Because your finance cost...

Dividend is a decision of the board, but financially concerned, it will not affect the dividend payment, that's what I can issue.

I understand. I had two other questions. One is the, if you look at the income statement, your cost of sales have gone up and the revenue has gone up primarily from the capacity charge, not from the things that you sold like electricity and water. Can you explain a bit more on that? Why the cost has gone up, but the actual selling price I think might be lower and...

Of course, I think Mr. Gojy can explain this better than me. But of course, generally, cost of sales gas is the major reason and revenue is concerned, you have to remove this Nebras portion for the Q3, which is around QAR 44 million or something, one minute, yes, I think QAR 44 million something you have to remove then you have to compare. Gojy, you will take up this question?

Yes, sure. Thank you very much for this question, yes. In fact, the -- there was a difference between the sales mix of last year versus this year because there was a 5.7% increase in the send out power, whereas there is only -- I mean, the send out water was almost same as last year. So as you know, when we produce -- when we sell power, there is a cost -- I mean, fuel cost is there, but water is coming as a byproduct of power production. So that sales mix when you sold more power, you incurred more gas cost. But last year, your -- the power production was less and so the gas cost was less. But you had a higher -- I mean, comparatively higher water sales in last year. So that made the difference.

Sure. But I just want to clarify, there's no increase in gas cost per unit for QEWS from Qatar Energy this quarter?

Yes, compared to quarter alone you are talking about or full year?