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

Hello and welcome to the Qatar Electricity and Water Company Conference Call. I would like to advise all participants that this call is being recorded. Thank you. I'd now like to welcome Mr. Bobby Sarkar to begin the conference. Bobby, over to you.

Thank you, operator. 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 Fourth Quarter and Year End 2023 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. So we will conduct this conference with management first reviewing the company's results followed by Q&A. I would like to now turn the call over to Narayana. Narayana, please go ahead.

[Foreign Language] And good morning to everybody. I am Narayana Rao, Acting Finance Manager of Qatar Electricity and Water Company. As you know, we had our Board Meeting on 14 February and we declared results after -- immediately after the Board Meeting. QEWC had a total revenue of QAR 2,911 million compared to last year, it is a 7% increase; and profit is QAR 1,551 million, it is actually a reduction of 9% compared to last year. Last year, as you know, we had so many things, which is non-recurring in nature, mainly QAR 255 million we accounted last year against the 40% purchase of the Nebras ownership to become 100% owner of the Nebras Power. Due to PP evaluation and all those things, we had a profit of QAR 255 million in the case of Nebras, which made higher profits last year. This year also we sold our 49% ownership in the Siraj Energy to Qatar Energy. Due to that we made a QAR 78 million during the year. If we deduct these 2 things, QAR 255 million from last year, QAR 78 million from this year, this is QAR 1,473 million versus QAR 1,456 million, 1.2% increase in the profit. Mainly, these 2 major items if we deduct. Of course, I am just telling for the comparison. There is not much change in sent-out water or power and availability. Sent-out power as shown in our presentation, it is 0.4% decrease and sent-out water is 0.2%. The available is almost same. Again, QEWC retained this rating as A1 stable with stable outlook, and the company's performance is -- always it is showing an improvement and our -- even asset structure also looks well. If you look into stock market, our market capitalization is QAR 20.68 billion as of the year end. Dividend, if you look into last year we paid QAR 0.95 per share, this year it has come down to QAR 0.86 per share. If you see our profit, it has come down by 9% compared to last year. Dividend also equivalent 9% it has come down, QAR 0.86 you see, QAR 0.95 minus 9% on that. We maintain that rate around -- it is coming to around 61% on the profit earner by the company. Total capacity of the company is -- plans of the company remains same 6,264 megawatts on equity basis and 394 MIGD of water. In Nebras also, we have got around 2,639 megawatt equity, that is proportionate equivalent of the capacity. Of that, operational capacity is 1,056 megawatts and capacity of the construction -- plants under construction is 683 megawatts. This is about the general things on the company. Now coming to the performance of the company. Revenue increased by 7%. Of course, as last year, we explained it is similar to the last year first half year we did not have Nebras consolidation. At that time, it was treated as the joint venture company. This first half year Nebras fully consolidated, because of this, comparison becomes little difficult. Nebras, if you want to compare properly, we have to deduct first half year performance -- figures of the Nebras. If you do that, it is only 4.83% increase QAR 2,840 million against QAR 2,721 million. This small increase of QAR 119 million is because of revision of PPA of RAF B1 plant. Cost of goods sold gone up by 14%, but if you deduct that Nebras first half, it is only 11%. This is also mainly because of higher gas cost of B1 and A1. A1 because of the revision of the -- sorry this -- our contact expired last year, as you know. Then new contact we entered into Kahramaa, where our gas cost is a little higher side, that's the major reason. And depreciation has gone up by around QAR 50 million. Mainly it is QAR 36 million last year, we had a reduction because of our change in policy of the treating the inventories. Portion of the inventory we regrouped it into fixed assets, so many things have been done under the new policy on the inventory provision, et cetera. There we had a reduction of QAR 36 million last year. That's the major reason because of some increase in depreciation during the year. And other income is concerned, it is QAR 618 million versus QAR 612 million, a small reduction -- sorry, QAR 678 million to QAR 612 million, a QAR 67 million reduction is there in other income, 11% around yes. Here we have got so many things, which has to be excluded and for the real comparison. The interest of the -- interest cost gone up by QAR 135 million. The reason is very well-known because of the LIBOR and SOFR rates have gone up during the year. And profit on sale of the Siraj, QAR 78 million is there this year, last year QAR 250 million Nebras-related, which I explained already. And last year we had a loss of QAR 86 million by the sale of Lusail land, and around 47 higher dividend, et cetera. If you deduct all -- make adjustment to all these things, it is QAR 428 million versus QAR 443 million, which is not a big difference, just QAR 15 million variation. G&A is concerned, it is QAR 285 million versus QAR 298 million, looks like a 4% variation. This is actually not the real variation because Nebras H1 we have to deduct QAR 43 million. If we take out and impairment, last year we had QAR 83 million impairment on RAF A -- sorry RAF A1 and -- not RAF A1 sorry, RAF B1 and Dukhan Plant QAR 83 million impairment was there. And this year, we have got some expected credit loss on this receivable from Ukraine, which is around QAR 27 million, which has taken under G&A. If we make all adjustment to this, it is just QAR 215 million versus QAR 215 million, almost exactly matching G&A expenditure is concerned. There is no major variation at all -- not major variation at all. And finance cost is concerned, it is QAR 507 million versus QAR 287 million. If we deduct H1 cost of Nebras, it is QAR 399 million versus QAR 287 million, only 39% increase. This is well-known because of the SOFR and LIBOR contributed lot for the increase in the finance cost, as well as finance income during the year. Share of JV and associated companies, if you see there in our presentation, it is QAR 665 million versus QAR 672 million, only QAR 7 million decrease. But last year's first half of Nebras came in the JV, afterwards only consolidation started. If I deduct that and this year includes Nebras -- first half includes the JV companies of Nebras here, which was not there last year. And last year, it includes Siraj Energy profit of QAR 10 million, which is not there this year. And last year, it includes the deferred revenue of UHP, which is one-time income of around QAR 114 million. If we deduct all those things we will make adjustment for all this, I mean, it is a QAR 92 million reduction this year. This is mainly because of lower charge rates in RGPC for the year and some O&M at RGPC and UHP, et cetera. I think I explained almost all the hedge funds at the P&L. Now, coming to more -- some explanations given in our presentation also. If we go to the quarterly performance. Quarterly revenue has come down from QAR 810 million to QAR 733 million, around 10%. It is mainly because of the RAF B recognition method as we explained in our earlier quarterly investor calls also. We changed the procedure. This year it is uniformly spread over, whereas, last year it used to fall in the last quarter, because of that some reduction is there in the revenue in the last quarter. Gross profit, of course, very small, not a significant difference. And then, if you look into the share of profit from JVs, there also big reduction is there, mainly as I explained already, Umm Al Houl Power QAR 140 million default revenue accounted last year under this year, that's the major reason. Higher other income is mainly because of the reversal of provision for Nebras' Ukraine assets by QAR 38 million. In Nebras, what happened is, in Ukraine, of course, all of you are much interested to know about what is going on in Ukraine. Ukraine 3 plants out of 5, 3 companies are under the control of now Russian military. On those plans, we are not receiving any payments at all and our receivable is not coming at all. Given that, now what we did is, on the advice of the auditors and all after looking into the various scenarios, we deconsolidated these 3 plants. Actually, as you know, we provided 100% on Ukraine already. Also we recognized QAR 27 million as the impairment on receivables during the last -- during the year, totally QAR 27 million already charged impairment on receivables also. Now, because of this deconsolidating these 3 plants, you can refer more details of Note #40 in our financials. We made a profit of QAR 38 million here by doing that. Of course, QAR 27 million other side we charged it as expense, you have to look into that. Net impact is only QAR 11 million, but that QAR 38 million included in other income. Because of all this, our net profit for the quarter is QAR 442 million versus QAR 461 million, 4% deduction, just about the quarterly performance. Now, going to the balance sheet. There is a small reduction in the -- sorry, I am looking debt equity -- first I'll look into assets, current -- non-current assets, also there is a small reduction of, I think around 1.3% only. There is mainly increase in -- sorry, equity accounted shares, investments have declined by QAR 0.6 billion due to reclassification and additional investment in Nebras. Additional investment in Equitix and [ UNPL ] adding up to around QAR 450 million and movement in fair value of hedges. Reduction in equity investment is also there, which is due to sale of shares. As you know, we sold around QAR 300 million worth of shares during the year, which is first quarter -- I think it is in first quarter only QAR 300 million worth of the shares, and that also reflecting in the equity accounted investees. And, of course, loans for receivable has gone up by QAR 1.1 billion, big amount. Here, 2 factors are there: one is, loan provided to associated companies by Nebras around QAR 500 million, and reclassification of equity accounted investments into these loans receivable from the related party. That is the major reason. And current assets has gone up by -- gone down, sorry, it has come down by a big amount around 46%. This is because of the cash balance, if you see it has come down QAR 8 billion to QAR 3.8 billion, around QAR 4.4 billion -- I think QAR 4 point -- yes QAR 8.2 billion to QAR 3.8 billion. If you take around QAR 4.3 billion to QAR 4.0 billion cash and bank balances has come down. As we explained in earlier quarters also, our policy during the year 2 year is to liquidate all short-term loan to the extent possible. Not all, I mean, short-term loan to the extent possible. But in QEWC, we liquidated all the short-term loans. We paid around QAR 3.8 billion. It is QAR 1 billion plus short-term loans during the year to various banks. With this short-term loans under current liabilities -- sorry, current assets, current liabilities, it has come down, as well as our cash balance also significantly came down. This QAR 3.8 billion, whatever cash we are having also maximum portion of that around QAR 2 billion plus is pertained to Nebras. Our cash balance has come down to QAR 1.4 billion now, which used to be close to QAR 4 billion earlier, QAR 3 billion to QAR 4 billion. Now, coming to the equity and liabilities, here also reduction is just 1.6%. This is because of the retained earnings around -- it has come down to -- sorry, retained earnings gone up to QAR 9.2 billion from QAR 8.7 billion, QAR 1.5 billion almost it has gone up. This is due to QAR 1.5 billion profit, which you can see in the P&L, minus QAR 1 billion dividends we paid during the year. That is a major moment at one place. And hedge reserve and other reserves declined by around QAR 700 million, that's the other major reason. And then fixed assets come down by QAR 0.2 billion. This is all normal finance lease receivable, QAR 0.2 billion. That's all normal. Net impact is [ 1.61% ] reduction, means QAR 0.2 billion only, QAR 200 million. The non-current liabilities is concerned, we have got a QAR 27 million -- 27% reduction there in non-current liabilities. It is mainly due to Nebras non-current liabilities has come down QAR 1.6 billion. That is mainly interest-bearing loans. Yes, sorry, totally it is QAR 1.9 billion, it has reduction. Out of that QAR 1.6 billion in Nebras and our normal loan repayments, QAR 300 million, QAR 1.6 million, because of the reclassification. They reclassified non-current to current. Current, it has gone up, here it has gone down. Net impact QAR 1.9 billion, non-current liabilities have come down. And current liability is concerned, it is 44% reduction. It would all be more because of the reclassification of QAR 1.5 billion -- around QAR 1.6 billion from Nebras has made current liability to go up and non-current liabilities to come down. But it would have come down around -- here short-term loans would have come down by QAR 3.8 billion. But at the same time, it has -- because of Nebras it has gone up, QAR3.8 billion, already, I explained in the cash balance and I explained the -- cash balance. Short-term loans we paid -- repaid during the year, which is equivalent to QAR 3.8 billion. Net impact is only -- reduction is only around QAR 2.5 billion in the interest-bearing loans and borrowings. This is all about the balance sheet. I think I explained everything properly. If you have got any questions, please, I'm very happy to reply to your question -- answer to your question. And Mr. Gojy Augustine, our Head of Management Accounts also available to look into your doubts or any questions, anything. We together try to answer your questions. Thank you.

[Operator Instructions] Our first question comes from the line of [ Mark Krombas from TFI ].

I wasn't expecting to be the first, but anyway, just a quick question about the 2 loans that you made to related parties. One to the Moorabool Wind Farm and the other to, I'm not sure what it is, Equitix Aragorn to Nebras subsidiaries. Could you just elaborate on why they needed separate funds from the parent? What's the outlook for both of those assets?

These loans actually, it is -- as you pointed out, it is made by the Nebras, our 100% subsidiary. It is as per the understanding between the shareholders, instead of contributing as equity partly, we are supposed to contribute as loans. And it may be later -- they may look into whether to convert to equity or whatever. It is a -- it was the financing mode only for the project.

Which project is Equitix Aragorn?

Equitix is in U.K., new project which we acquired during the year 2023.

Okay. So maybe you could just talk a little bit in general about...

It contains 8 wind farms actually -- wind farms and a capacity of around 2.4 gigawatts.

Yes. Okay. Maybe you could talk a little bit more about Nebras and how you view its performance last year? And what you're expecting from it this year? Or what guidance they've given you for this year?

Yes, this year actually -- last year if you see our Nebras performance was very bad because of the lot of provisions on Ukraine. As I explained already, we provided complete last year against the loss, which we expected from Ukraine. And this year, we are in a better stage because of absorbing all the expenditures. Last year, it was the biggest, of course. Even though we had a QAR 27 million provision against the equity credit loss and, of course, QAR 38 million we gained also because of earlier the additional provision, which we've made. And talking generally about Nebras, I can say, of course, updating what is going on in the Nebras, acquisition of the business interest in U.K. offshore wind portfolio in December '23 consisting of 8 wind farms with the gross capacity of 2.4 gigawatts. And all the required test demonstrating COD under PPA have been completed by Unique Meghnaghat Power, that is Bangladesh project. It is 584 megawatts gas-fired combined-cycle power plant located in Meghnaghat in Bangladesh. This was completed in, of course, after balance sheet event actually. It was completed in January 2024. The project company awaits final approval from the off-taker, which should allow PPA to commence effective -- PPA to be effective. During the year, financial close reached for Syrdarya second project 2, project in Uzbekistan to support ongoing construction, means it is still in the construction stage. It will take minimum 1 to 2 years to complete the construction. That's what I feel. Commissioning for one 13.4 megawatt power in Duisterweg project Netherlands, started in fourth quarter of 2023 with the full COD expected in first quarter of 2024. Increase in share of Amman East and IPP 4 projects in Jordan is under -- still under the discussion and target close move to first quarter of 2024. Further business development activities are ongoing in target markets such as Brazil, Uzbekistan, South Africa, and others. This is the latest update, which I can provide on Nebras. And this year, Nebras performed almost well. Actually, we have got almost QAR 250 million profit from the Nebras for the whole year.

Our next question comes online from the line of Soha Saniour of Arqaam Capital.

I have a couple of questions here, please. Can you quantify the reversal of gas -- fuel gas provision mentioned in the presentation on Q4 2023 and where is it reported? Is it part of the organic expenses or is it part of COGS? Also, on the JV level, the profit declined significantly. And I am sorry if you explained this already because it wasn't very clear. But even if we factor out the one-off provision versus provision on the full last year, profitability is still down on the JV level. Can you please explain that as well? And the last thing is, we see SG&A expenses dropping significantly in Q4 this year versus last year. Can you remind us if there has been any one-off expenses in SG&A last year that we should be aware of?

Excuse me, will you please repeat? Your voice is not clear.

Sorry?

Your voice is not clear. I have not caught exactly the question. Will you please just repeat your question?

Okay. Can you quantify the reversal of fuel gas provision that is booked in Q4 2023? Can you quantify that as mentioned in the presentation?

Okay. Gas provision. Okay. Okay, next question?

And the next question is around the JV profitability decline in Q4 as well versus last year, even if you factor out the -- versus provision on the whole, it's still down. And on the SG&A...

You are talking about the deferred income which I noted in the discussion? Okay. Anyhow you are talking about JV profitability, that's fine, okay. Next question?

And the SG&A expenses, they dropped significantly versus Q4 of last year. Can you remind us if there were any one-off costs in 2022 and Q4 2023 in the SG&A expenses?