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

Hello, and welcome to the Qatar Electricity and Water Conference Call. Please note that this call is being recorded. [Operator Instructions] Now I would like to hand the call over to Bobby, you may begin.

Thank you, Angela. 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 2024 Results Conference Call. On this call, we have Shahzad Iqbal Gill, who's the Chief Finance and Planning Officer at QEWC; we have Dan Sabitov, who's the Corporate Planning Performance and IR Manager; and Gojy Augustine, who is the Budget, Reporting and Control Manager. So we will conduct this conference with management first reviewing the company's results followed by a Q&A session. I would now like to turn the call over to Shahzad. Shahzad, please go ahead.

Thank you very much, Bobby. Good afternoon, everyone. I welcome you to Qatar Electricity & Water Company's Q4 2024 Financial Results Presentation. We shall start with the headlines, and then we'll go into the details and comparisons with prior year. Moving to Slide 4 of the deck. Net profit for the year is QAR 1,416 million, which is 9% lower than last year. We'll get into the details as we go along. The Board has recommended a dividend distribution of QAR 0.53 per share for the second half of 2024. The company has already distributed an interim dividend of QAR 0.25 earlier in the year. This brings the total distribution for 2024 to QAR 0.78 per share. This is pending approval from the shareholders at the Annual General Assembly meeting scheduled for 26th of Feb, 2025. We'll move to Slide 5 of the deck, where we have some performance highlights. Revenue for the year is up 3% at QAR 2,999 million. EBITDA of the company is QAR 1,320 million, and net income for the year is QAR 1,416 million. QEWC Group's gross power capacity is 20 gigawatt, while net ownership adjusted capacity is 8.5 gigawatt. Gross water capacity is 541 MIGD, net is 392 MIGD. Renewable operational capacity is 4.2 gigawatt, net 1 gigawatt. And under construction at the moment is 3.2 gigawatt gross, and 1.1 gigawatt net. I'll then move to Slide 7, where we have an overview of the growth and expansion that's going on in the company. Within Qatar, QEWC is working on development of Facility E along with Qatar Energy and a consortium of international sponsors. This project will have power generation capacity of 2.4 gigawatt and 110 MIGD of water production capacity. QEWC's share in this project is 55%. Project is expected to achieve commercial operations in first half of 2029. Another project within Qatar is RAF peaking unit that QEWC is working on. This is going to be 100% owned by QEWC. This will be a 500-megawatt open-cycle gas power plant. Some of the key project agreements for this project have been signed in Q4 2024. Construction is anticipated to begin in Q2 this year and commercial operations expected in 2027. On the international front, Nebras has completed the process to acquire additional stakes in IPP1 and IPP4 Power Projects in Jordan. Nebras, shareholding increased as a consequence of this acquisition from 24% to 50%. In Uzbekistan, our construction -- under construction projects, Syrdarya II. Construction is making progress as planned. Expected completion for the construction and commercial operations is expected in third quarter of 2026. Also in Uzbekistan, Nebras is in the process of developing 1.6 gigawatt power project in Surkhandarya region. This is along with EDF, Siemens and Stone City, the other sponsors. Nebras shareholding in this project is 35%. Construction commenced in early 2024, and expected start of commercial operations will be in third quarter of 2027. In January last year, or 2024, unique SUNPower project in Bangladesh completed its commissioning and the commercial operation started in January 2024. Nebras Power slightly increased its shareholding in offshore U.K. Wind Power Project. And also, we added 2.5 megawatt to our solar energy portfolio in Brazil. I'll then move to the next slide on our deck with the operational highlights. Sent out Power was 5.3% higher compared to last year, while sent out water was 1% lower. Power plant availability was slightly lower than last year, driven by planned outages, while water plants availability was at the same level as last year. With this, I shall hand over to Dan to go through the variance analysis. Dan, over to you.

Thank you, Shahzad, and good afternoon, everyone. Today, I'll first cover full year financial performance of the company, followed by the results for quarter 4. Turning to Slide 9. Revenue was QAR 2,999 million for the year versus QAR 2,911 million for 2023, which represents 3% increase. This was largely driven by higher sent out power. EBITDA amounted to QAR 1,320 million in 2024, whereas EBITDA for prior year was QAR 1,337 million, 1% decrease explained by lower fuel savings at one of RAF units, which is driven by a higher demand for offtaker, scheduled outage and maintenance costs. This was partially offset by higher revenues, as explained earlier. Net profit for the year was QAR 1,416 million versus QAR 1,551 billion a year ago. In addition to EBITDA change, the variance was driven by one-off items, such as sale of Siraj Energy and reversal of provisions in 2023. Lower interest income on deposits. This was partially offset by lower finance costs in 2024, following the repayment of short-term loans during 2023. As a result, the company reported earnings per share in the amount of QAR 1.29 million comparing to EPS of QAR 1.41 to last year. We will skip Slide 10 as we already covered those drivers. As you can see on Slide 11, share of profit from our joint ventures and associates increased by QAR 8 million in comparison to last year's results, which is mostly driven by start of commercial operations of SUNPower plant in Bangladesh, additional share in two gas power plants in Jordan and construction revenue and finance income for Syrdarya II plant in Uzbekistan following concession accounting. This was partially offset by other drivers in other businesses. Interest and other income decreased from QAR 595 million to QAR 469 million this year. The decrease is explained by lower interest income on deposits from lower cash available, given QEWC repaid all short-term loans in 2023. As for other income, the decrease mainly driven by one-off items, including reversal provisions and EPC LD settlement in 2023. Net profit was QAR 1,416 million, which was 9% lower compared to 2023. In addition to the drivers previously explained, net profit variance was impacted by sale of Siraj Energy in 2023 and higher income tax expense this year. High-level comparison of financial results for quarter 4 is presented on Slide 12. I'll give more detailed overview in the next 2 slides. Turning to Slide 13. Revenue is in line with previous year. Higher sent out power was offset by revenue indexation true up recorded in the fourth quarter of 2023 by one of subsidiaries in Qatar. Lower gross profit is explained by the reversal of fuel cost in one of RAF units in quarter 4, 2023, revenue indexation, as described earlier and higher maintenance costs. EBITDA variance is due to the same drivers. Now turning to Slide 14. Decrease in share of profit from JVs and associates mainly driven by lower financial results recorded by our assets in Qatar from true up of maintenance costs for prior periods, reversal of provisions in Q4 2023 and higher O&M costs. Other drivers include outages and higher operating costs in Paiton Energy and catch-up adjustment for 2023 and lower generation in Stockyard Hill wind farm in Australia. Lower interest and other income is largely due to lower interest on deposits and reversal of provisions in Q4 last year. Lower net profit driven by the items just explained. Now moving to financial position on Slide 15. The total assets of the company stand at QAR 22.7 billion, with 2% decrease compared to previous year. 25% decrease in cash is mainly due to payment of dividends for 2023 and incurring dividend for 2024. Increasing value of available for sale investments driven by change in the market price of shares. Turning to Slide 16. Total equity of the company increased by nearly 3% and reached QAR 15.6 billion. Net profit was partially offset -- offset by dividends declared and paid this year. Total debt decreased by QAR 800 million and amounted to approximately QAR 6 billion by end of 2024. The decrease was driven by repayments of the project loans and term loans at Nebras Power. A minor decrease in net deposition reported for the year. So with that, we will open up for questions. Over to you, Andrew.

We will now begin the question-and-answer session. [Operator Instructions] And your first question comes from the line of Mark Krombas with The First Investor.

I think I have a difficult question because this is the second year in a row the Electricity and Water has cut their dividend by 9%. And yet, you sit on over QAR 2.1 billion worth of investments. And the shortfall of the dividend that you've cut is around QAR 180 million each year. And your payout ratio still remains low at 60%. So I'm just asking why the Board has chosen to do this and not to liquidate some of those investments? And why the company's priority is more to the investments than to distributing dividends to shareholders?

Thank you for the difficult question. So just taking you back to last year before I get into the details. The company did liquidate some of the investment to pay off the debt. And as we go along, we'll keep doing this analysis. And when it will make sense, we'll liquidate more to either pay off debt or to fund growth. Please bear in mind that the company is in a growth phase at the moment through its international investments and within Qatar. This is, I would say, in a long time, that 2 projects -- 2 power projects are happening within Qatar at the same time or being developed. Also internationally, there is pipeline of projects that we are looking at through Nebras umbrella. And you would have seen in 2024 that Nebras has been quite active and we expect the same for 2025 and years beyond. So coming back to your question, yes, there is investment on the -- short-term investments on the balance sheet held for sale, which we will use as we go along, primarily to fund growth or to pay off debt at the right time.

Yes. So I just want to voice as a shareholder, and I think I speak for the majority of shareholders, is that for us, our priority is much greater on the dividends that we receive. And in our opinion, it would be much better if instead of retaining those investments, you would use those and sell them partially in order to stabilize a dividend at a higher payout ratio and not to have it cut. That's my perspective. You're a utility stock, one of the main attributable factors to it is a dividend that you receive. Anyway, that's my 6 cents worth. Sorry for any controversy, but that's my opinion.

I appreciate your direct opinion.

Your next question comes from the line of Seki Mutukwa with Ashmore.

Two questions, please. The first one is just on Slide 7 about the peaking power station. Is that a net addition of 500 megawatts or it sort of -- is it replacing anything else in terms of existing capacity, just to understand that plant in particular. And then second question, is there any indication you can give us on CapEx for 2025, I think including what your contribution is to the joint ventures? Or perhaps if you can't give us the number, maybe an indication of when you think you will see peak CapEx over the next few years as you invest for growth?

For the first question, a 500-megawatt peaking unit, this is going to be an addition. This is not replacing any capacity in the portfolio. On the CapEx side -- sorry 1.5 -- this is only for the peaking unit, right? So Seki, can I clarify? Your question is related to peaking unit CapEx or your question is more broader?

It was broader for the group, like how much you'll spend in 2025. But if you can't give an exact number, just maybe getting a sense of when you forecast peak in terms of what you pay consolidated plus also what you need to contribute to joint ventures? Yes.

Yes, this is Dan. So we will not provide a specific guidance on 2025, but given facility and the peak, so we do expect a peak in growth in the next 3 years. .

Sorry, peak CapEx, just to be clear, over the next year, you'll be at elevation?

Yes, higher growth CapEx in the next 3 years.

Okay. Your next question comes from the line of Abhinav Sinha with Lesha Bank.

Actually, my question was on the gross profit. And I see that you mentioned that it was due to a reversal of fuel costs in 4Q, which is why the gross profit decline. So how should we think about normalized gross margin? Of course, these one-off things will keep on coming. But is -- would it be fair to assume that 33%, 34% as your gross margin at a normalized level?

Yes, if you take average for 2 years, this will be normalized to avoid the [indiscernible] division amongst quarters. .

[Operator Instructions] And your next question comes from the line of Mark Adeeb with CI Capital.

I just have one question, if I may. Can you please provide more details on the changes regarding the joint venture income? Because third quarter, it was exceptionally higher than previous year's quarter. And again, fourth quarter was exceptionally lower. So can you please just like shed more light on this?

Yes. Indeed, if we look at the quarter 4, the share profits are much lower compared to previous quarter, but it's a combination of drivers, including timing of outages as well as one-off items. So broadly speaking, half of it is one-off items and the rest is high maintenance costs and outages impact.