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

Hello and welcome to the Qatar Electricity & Water. 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. Bobby, over to you.

Thank you, operator. Hi, hello, everyone. This is Bobby Sarkar, Head of Research at QNB Financial Services. I wanted to welcome everyone to Qatar Electricity & Water Company's First Quarter 2023 Results Conference Call. So on this call, we have Narayana Rao, who is the acting Finance Manager at QEWC and Abdulla Al-Janahi, who is the cost and budget controller. So we will conduct this conference with the management first reviewing the company's results followed by a Q&A. I would like to turn the call over now to Narayan. Narayan, please go ahead.

Okay. thank you Mr. Bobby. [Foreign Language] and good afternoon to everybody. QEWC yesterday had its Board meeting and we announced our results afternoon yesterday under the chairmanship of His Excellency Saad bin Sherida Al Kaabi, our Ministry of State for Energy Affairs of Qatar and leadership of Mr. Mohammed Al-Hajri, QEWC performed very well in quarter 1 comparatively. Of course, last year quarter was also -- it is a very well performance -- if you compare to that we have done almost similar, what is the performance we can see. QEWC reported a revenue of QAR 658 million compared to QAR 564 million during the Q1 2022. It is around 16% increase compared to last year. Operating profit of QAR 339 million versus QAR 332 million last year. There also around 2% increase. Net profit attributable to QEWC shareholders, it is QAR 401 million. versus QAR 389 million last year, overall increase of 3%. Of course, in our slides, if you have gone through first we have given the, more description on the Nebras. Nebras has got around 20 -- first Nebras has become 100% subsidiary of QEWC in the Q3 2022. Before that, it is a joint venture with QEWC holding 60% of the shares. Due to that, in Q1 2023 as well as in the coming quarters, that is Q2 -- H1 2023, we have -- having this little comparison difficulty between this year and previous year because this year's figures are 100% consolidated, as far as Nebras is concerned, whereas previous year's figures are with the Nebras as a joint venture company, no line by line consolidation. Totally, I will just tell a few things about Nebras before going into the details. Now, Nebras has got 22 power generating assets located in various countries. I think around 8 countries. It contains a mix of solar, natural gas, coal, hydroelectric, et cetera. Equity adjusted capacity at Nebras is 1,800 megawatts. And this is -- we are talking about commissioned projects, but now under construction and development stage, we have got around 800 megawatts projects. Out of this, around 3 companies, we are including in 100% consolidation in Nebras' books, but the 3 companies -- companies involved are still more, but it is 3 major groups, including Ukraine, Brazil and one in Netherlands. And we have got 2 main projects are in focus there. One is in Bangladesh, they call it Unique Meghnaghat Power, which is supposed to be commissioned in Q4 2023. It is 584-megawatt project with Nebras holding 24%. And we have got one in Uzbekistan, which is known as Syrdarya II with 1,600 megawatts has -- Nebras is having 33.33%, that is 1/3 of the ownership. It is supposed to be commissioned in 2025 or 2026 -- beginning of 2026. Coming to the QEWC, QEWC has got as a group around 10,590 megawatts of the electricity and the 543 MIGD of water in Qatar, this is excluding Nebras. Nebras already -- I told already. And we have got a market capitalization of QAR 19.47 billion and shareholders' -- shareholding is QAR 1.1 billion. With this, we can come to P&L account, profit and loss account. Profit and loss account is concerned, our revenue has gone up, as I told already, by 16%. It is mainly due to some changes in our account recognition concept in the RAF-B project where earlier we used to recognize the account based on the sent-out water and power, now we are recognizing the committed offtake based on the IFRS requirements. But profit wise, it has got not much impact, only sales have gone up and as I said gas cost has gone up. Year-end, it is becoming zero, differential impact is zero. Only recognition period is getting changed because of this change in the recognition concept, it is only in the RAF-B. On RAF-B1, we are working under the new contracts now where energy billing will be more than the energy billing in earlier years. That's also contributed little to increase in the gas cost as well as the revenue. Now revenue is concerned, it has gone up by QAR 93 million. This is around 16% as told earlier, but it includes around QAR 33 million from the Nebras. This year -- last year, as I told already, it is a joint venture concept which we followed, equity matter of accounting, we followed that. There is no revenue in the -- revenue of Nebras included in the total revenue of [ QAR 565 million ] last year. After deducting it is [ QAR 625 million ] versus [ QAR 565 million ] you have around -- only 11% decrease. It implies around QAR 61 million increase in the revenue, which is mainly due to the reasons already I explained. Then the cost of goods sold has also got a significant increase of around 26%. Here also if I exclude Nebras, it is only 19% increase, QAR 430 million versus QAR 360 million, that is around QAR 70 million, out of that major increase is due to gas, which -- reason for that already I explained, while explaining the -- this method of accounting and RAF-B1 contract. Gross profit is concerned, there is no movement at all in -- it is only 0.49%, QAR 204 million versus QAR 205 million. It is, of course, automatically explained based on the explanations given already. Now let us move to -- of course, we disclosed the EBITDA, earnings before interest tax, depreciation and amortization which is showing 11% increase, QAR 421 million versus QAR 379 million. This is mainly due to consolidation of Nebras and recognition of profit on sale of Siraj Energy shares to Qatar Energy. We had 49% ownership of Siraj Energy until -- now in this quarter, we transferred everything to the Qatar Energy. Of course, the agreement has been entered in Q4 2022 in October 2022 but real share after completion of all the requirements -- lenders requirements and getting it approved in AGM and all those things, it was completed in Q1 2023 only. Because of that -- that's one of the reasons for increase in EBITDA and this thing we realized actually QAR 78 million by this sale during this quarter, which is also a part of the profit earned during the quarter. Now coming to the gross profit, over already -- I explained revenue, this is over -- then share of profit from joint venture companies. Joint venture companies, we have got QAR 132 million [indiscernible] as shown in the -- our presentation. But if you show -- if look into the accounts, here, it is QAR 113 million -- QAR 112 million versus - yes, QAR 113 million or QAR 112 million something like that, it is mentioned there, rounding of differences will be there. It is -- whatever, QAR 113 million versus QAR 92 million. I'll go to P&L, 1 minute, because my presentation, it is clubbed, all things. Here it is, yes, QAR 120 million, other income, share of results from equity accounted [indiscernible] net of tax is QAR 113 million versus QAR 92 million last year. It's -- here, it has been taken and we have got [indiscernible] the profit from discontinued operation, net of tax QAR 19 million. Below that in the next -- after the next few lines, which is explained in the note #25, where you get full details, where it has come. It is mainly because of the operations discontinued during 2022, that is one operations discontinued by Nebras in 2022 in the case of [ CPC ], where some assets which has been realized now based on that, we have recognized this QAR 19 million profit during the quarter, QAR 19 million. It has been clubbed here with the share of the profits from [indiscernible] in our presentation. That's why QAR 120 million plus this QAR 19 million has become [ QAR 132 million ]. We are comparing it with QAR 92 million of the last year. Whatever, here also, as I told Siraj Energy, which we sold now, there is no profit from that. Last year, QAR 5 million profit is there. Nebras also last year included joint venture companies. That's also included in the QAR 92 million. And we have got this year some profit from the associated and joint venture companies of the Nebras, which is clubbed here, whereas, last year it is equity-based accounting. It is not by line by line consolidation. If I exclude all these items, it becomes QAR 75 million versus QAR 117 million, just I compared local joint venture companies, which is around QAR 42 million difference. It is because of the major maintenance activities carried out by the joint venture companies during this quarter -- during the quarter 1, 2023, that is during this quarter. Then going to the -- if we can go to other income, which is showing QAR 274 million versus QAR 168 million. Here also in our presentation, we clubbed a few items whereas in the financials published -- financial data has been shown in the different lines, mainly interest income, QAR 76 million versus QAR 25 million. It has been clubbed here, whereas in the financials, it has been shown separately. And I think gain on disposal of the assets held for sale, that is QAR 78 million, which I showed already due to the sale of the 49% ownership in the Siraj Energy. These 2 items are the major items, which has -- taken separately. Then other income -- here, it is shown as QAR 120 million in the accounts versus QAR 143 million. Yes, interest -- previous year, it was QAR 25 million plus QAR 143 million, QAR 168 million we have taken, QAR 25 million is the interest income, previous year. This year, interest income has been gone up by QAR 25 million to QAR 76 million, mainly because of the increase in the LIBOR and SOFR rates. Of course, other income is mainly -- recent decrease in the other income from QAR 143 million to QAR 120 million, it is mainly due to the decrease in the dividends received. Last year, we received a very good dividend from Industries Qatar. This year, it is not there because of that -- of course, it has come down. I won't mean that it is not there. And the net impact is our dividend income has come down QAR 45 million. With this, interest income, you can -- I think I explained why interest income has come down -- gone up by 38%. QAR 78 million is the major reason and interest income increase is the major -- interest income increased by -- [ 25 to 76 ] and gain on disposal of Siraj Energy shares, QAR 78 million, those are the major reasons, even in midst of QAR 45 million reduction in the dividend income, our other income has gone up by 38%. Now going to the, I think, other income over financial costs, we have not included here any slide but the financial cost is concerned, it has gone up very much during the year. Even if I exclude Nebras, it has gone [ 75 versus 32 ], around 140%, it has gone up. Here, major reason is the LIBOR and SOFR increase. Of course, this is there in every company, all companies you'll -- you can observe this increase during the year. And net profit in general, I can say, it is due to the various reasons, of course. Major reason is higher finance costs, it has reduced our net profit and lowered dividend of QAR 45 million. It has reduced our income and increase in income is mainly profit on the sale of 45 -- 49% ownership Siraj Energy, that QAR 78 million has been added here. Of course, in Nebras also, last year, we had a big loss in quarter 1 because of various reasons of I think mainly the discontinued operation. As I explained already last year, we had a loss there. But this year, it is adding something in net impact and we made around a QAR 40 million difference in the profit compared to last year. And JV companies already I told because of the major maintenance, some reduction of around QAR 42 millions are there. It is, of course, onetime event, next quarter, it will not be there. Due to all this impacts, QAR 389 million net profit of last year has become QAR 401 million net profit during the current year. I think with this, I have given the major explanation for the -- on the balance sheet items -- sorry, P&L items. On balance sheet items, I will explain you something before closing my speech. Balance sheet is going -- I think [indiscernible] in the total assets that actually -- already mentioned that total assets. I will just explain, noncurrent assets, balance sheet-wise, what was shown in the balance sheet, in general, I will give you some explanation in 2, 3 minutes. If you see in the balance sheet, current assets -- noncurrent assets gone down by QAR 600 million, come down by QAR 600 million. This is mainly due to investment in JV associates that is due to the negative movement in IFRS valuations and JV profit minus dividend, whatever, mainly due to the negative movement in the IFRS hedge. And we have got also -- if you see equity investment at fair value, it has come down by around QAR 345 million. That's mainly -- because of we sold around QAR 216 million worth of shares during the year. And the fair-value adjustment of QAR 129 million is there, totally it is QAR 349 million. And other assets has come down almost -- gone up by QAR 400 million. It is because of some Nebras transactions. And current assets are concerned, it has come down by 25%. That's mainly because of repayment of the USD 550 million, this is QAR 2 billion equivalent loan to Mizuho in the -- on January 5, 2023. Loan balance has accordingly has come down. Of course, we have got paid a good dividend also, QAR 1 billion plus. And of course, we received a sale proceeds of QAR 300 million plus by sale of shares, net of all that things it has -- cash balance has come down by QAR 2.2 billion, which is the reason for the decrease in the current assets by QAR 2.3 billion. Then equity is concerned, we have got -- hedge reserve has come down by QAR [ 3.2 million ] already. The reason explained -- is explained in noncurrent assets and fair value equities investment -- fair value has come down QAR 129 million, as explained already. And retail earnings has come down by QAR 500 million. It is mainly because of the dividend payment of QAR 1 billion plus and profits earned around QAR 400 million. And sale of shares, that is, listed shares resulted in the QAR 100 million profit, which has taken directly into the equity, that is retained earnings. The noncurrent liabilities and current liabilities, I will explain together because there is nothing -- not much movement, totally debt reduction of around QAR 2 billion is there. It is purely due to the repayment of loan of USD 550 million already, QAR 2 billion already, as I said already. I think with this, I explained all major things in the balance sheet as well as P&L. We welcome any queries, which we will try to address if possible from our side to the extent possible.

Hi, operator, we can open up to questions.

[Operator Instructions]. Your first question comes from the line of Seki Mutukwa of Ashmore.

A couple of questions, please. Narayana, could you repeat what you said was the costs of goods sold from Nebras? I think I jotted down QAR 37 million, but I may have been wrong. The second question is, just where we are sort of today in terms of a blended cost of borrowing? And any sort of comments you can make about the outlook for that, whether you fixed a lot of it or you're sort of still expecting an increase in that. And then finally, a request I've made before. It's just about operational KPIs for Nebras, if even on an annual basis or however you see fit, to maybe just publish a bit of what's going on there, albeit there are a number of equity associated investments they make, too, but it would just be interesting to see how those ops are going.

Okay. Your first question not clear to me. Nebras, you're telling first question.

Yes, sorry. It was just what the costs -- the COGS from Nebras was. I think I jotted down QAR 33 million revenue from Nebras in the first quarter but I wasn't sure what you said the impact on cost of sales was, please?

Okay. Cost of the sales, I'd say, I think I told, there is QAR 33 million revenue, okay, QAR 24 million cost of sales, QAR 24 million. And -- but all other things, it is added, this year also first quarter is not good for Nebras in general, around QAR 10 million plus profit added from the Nebras, last year it is a loss of QAR 30 million plus. Yes. Yes. That's what. And second question, blended cost of borrowing, actually, as you know now, the trend is that interests were going up very much during the -- since second -- third quarter of 2022. Now it is almost getting normal and we are expecting, of course, some decrease in the latter part of the year. Given that -- as for our budget versus actuals are concerned, we are in place but last year versus this year will be -- impact will be there in Q1 and Q2, especially, of course, to some extent in Q3 also, maybe there. But other side, we have repaid USD 550 million loan. Given that interest cost will some extent come down. Otherwise, that QAR 2 billion used to pay a good interest there, that is not there during this year. As I said, we have got a good interest income also, next, I can explain now in this year about finance cost. I have not explained much there but finance costs, excluding Nebras, we had 75% versus 32%, that is 140% increase during the first quarter compared to last year's first quarter. But interest income, we had QAR 36 million versus QAR 25 million last year. If I deduct that, it is QAR 39 million versus QAR 6 million only. That is around QAR 32 million increase on net finance cost during the year. That's what we stated in the Q1 and -- but given the increase in LIBOR and SOFR rates, compared to that, our performance is good, it is not bad, QAR 32 million on increase when we are having the loans -- such a significant loan. I think it is not bad actually. Total debt is around QAR 9 billion now. Total net -- with that, with so much of increase in the SOFR and LIBOR rates, we incurred only QAR 32 million extra expense. And third question is about Nebras investments. And of course, general disclosure is there in the -- this year's financials -- of course, year-end financials detailed disclosure is there on Nebras. Quarter 1 also, we have given the extent possible whatever we can disclose and we'll try to improve it in the later periods. I think I replied to all your queries.

At this time, your next question comes from the line of [ Mohamed Adel of AFII ].

Could you please repeat your comment on Nebras, you said that [ QAR 63 million ] of revenues, QAR 23 million of COGS. And you said something like last year, the Nebras performance was better.

No, no. Last year, it's not better. This year, better.