Saudi Energy Company (5110) Earnings Call Transcript & Summary

Hello, and thank you for joining the Saudi Energy Full Year 2025 Earnings Call. My name is Claire, and I will be coordinating your call today. [Operator Instructions] I will now hand over to Sayed Al Gohary, Investor Relations Expert at Saudi Energy to begin. Please go ahead.

Thank you, Claire. Good afternoon, and good morning, everyone, on the call, and I'd like to welcome you to Saudi Energy Full Year 2025 Earnings Conference Call. My name is Sayed Al Gohary from Saudi Energy Investor Relations team. I have with me on the call today Engineer Salim Al-Ghamdi, our President and CEO; Mr. Abdulaziz bin Al-Muhaiza, Executive Vice President and the Group CFO; and Mr. Oqab Al-Nefaie, our Executive Director of Control and Reporting. Before we start the call, I need to direct your attention to our disclaimer in Slide #2 of the presentation. As usual, a Q&A session with the management will follow the presentation. So please join the conference to ask a question. I will now give the floor to our CEO, Engineer Al-Ghamdi, who will provide key highlights of 2025.

Thank you. Ladies and gentlemen, good day, everyone, and thank you for joining us today. I'm very delighted to start with introducing our new branding initiative, which you might have heard about. I'm pleased to begin by introducing a milestone in our journey. At the end of the last week, we officially launched our new corporate identity and announced our rebranding to Saudi Energy. This transition reflects more than a name change. It represents the natural evolution of our role within the Kingdom of Saudi Arabia energy ecosystem and aligns with the structural transformation underway across Saudi Arabia's energy sector. Saudi Energy today plays a broader and more strategic role. Beyond operating the electricity network, we are enabling the transformation of the national energy system by integrating renewable capacity at scale, advancing energy storage solutions, modernizing and automating the grid, enhancing localization, attracting investment and strengthening energy security of supply. This evolution supports Saudi Vision 2030 and reinforces our mandate to deliver reliability, resilience and long-term sustainability. 2025 has been a defining year, not only for us in Saudi Energy, but for Saudi Arabia itself. As Saudi Arabia accelerates towards a more diversified and sustainable economy, Saudi Energy stands at the center of this transformation, serving as the backbone of national progress. Today, power is far more than a utility service. It requires infrastructure deployment at unprecedented scale delivered with uncompromising reliability and operational excellence and discipline. We, at Saudi Energy, is fully embracing this responsibility. The transformation underway across the Kingdom is reshaping our industry. Rapid industrialization, the growth of the data and digital ecosystem, larger-scale urban development and the transition toward a more diversified energy mix are fundamentally redefining how power systems are planned, built and operated. In this context, Saudi Arabia represents one of the fastest-growing power systems globally, and Saudi Energy is at the forefront of that evolution. We are building and modernizing the electricity infrastructure that powers daily life, enables economic growth and strengthens national competitiveness. In 2025, we delivered tangible and measurable progress, first on advancing our mandate as an integrated energy national champion. We strengthened network reliability and system resilience while meeting record demand growth, accelerating large-scale renewable integration and battery energy storage systems. Again, our role within the Kingdom's evolving energy mix has become increasingly central, reflecting both operational capability and strategic relevance and importance. Second, execution excellence at scale. We continue to execute and deliver infrastructure expansion at historic levels without compromising reliability, safety or operational efficiency. At the same time, we enhanced service quality and customer experience. Third, sustainable high-quality growth. Our regulated required revenue framework continues to provide structural earnings, visibility and long-term investment clarity. This enables disciplined and efficient capital deployment, predictable returns and sustained expansion of our regulated asset base, underpinning quality low-risk earnings conversion. Finally, financial strength and balance sheet resilience are maintained. Our strong balance sheet and investment-grade profile will position us to fund growth efficiently while maintaining financial discipline. This resilience ensures our ability to continue expanding our asset base and deliver long-term value to shareholders during a high investment cycle. In summary, 2025 reflects execution excellence, structural growth and maintained financial strength, positioning Saudi Energy for sustained value creation in the years ahead. Let me now turn to the numbers that underpin this 2025 performance. As I said, our growth and strong earnings in 2025 were structural, demand-driven, and supported by execution excellence and operational efficiencies. We are seeing structural moment across business driven by demand expansion, regulated asset base growth and record investments that will position us for sustained future growth. Energy sold reached 349.2 terawatt hours, reflecting 7.9% increase year-on-year. This growth was supported by strong demographic trends, accelerating electrification, expanding industrial capacity and vibrant non-oil economic activity across the Kingdom. Moving to our regulated asset base, which remains the core driver for our long-term quality earnings expansion, our transmission and distribution required asset base reached SAR 256 billion, representing 10.8% growth year-on-year, marking a double-digit growth for the second consecutive year. This reflects both the scale and the pace of grid modernization and expansion. Supporting our future growth trajectory, we delivered record capital expansion of SAR 82.2 billion, up 66.7% year-on-year. These investments support both near-term growth and our long-term energy transition objectives, ensuring that we remain at the forefront of the Kingdom's power sector transformation. Now let us look at our financial performance. This acceleration is operational and asset growth translated into record financial performance. Revenues increased 15.3% to SAR 102.2 billion, achieving the highest revenue on record. Net profit increased 88.9% to almost SAR 113 billion, reflecting high revenue operational efficiencies and absence of previous year's nonrecurring impacts. Excluding one-off items in 2024, including SAR 5.7 billion legacy settlement expense and SAR 481 million settlement income, EBITDA increased 10.1% to SAR 41.5 billion, demonstrating strong earnings conversion. Also, excluding the aforementioned one-off items in 2024, net profit in 2025 would have rose 7.4% to SAR 13 billion, demonstrating sustainable earnings growth. Turning to operational excellence. This slide clearly demonstrates the strength and the discipline of our execution across the system and continued successful strategic delivery. Starting with security of supply, despite rising demand and system complexity across generation, transmission and distribution, system reliability and operational readiness improved materially. Overall, generation availability remained high at 87.3%, supported by a 25.5% reduction in the forced outages. Furthermore, generation availability during 2025, summer peak remained very high at 95.9%, ensuring security of supply during peak demand periods and reinforcing system resilience. Power generation remains a cornerstone of Saudi Energy's mandate to deliver reliable, affordable and sustainable power to the Kingdom. Distribution losses also improved to 7.4%, a 7.5% reduction year-on-year, highlighting better network efficiency and stronger loss management. On network reliability and operational excellence, we continued to deliver measurable improvements. SAIDI improved to 68 minutes per customer, down 1% year-on-year, while SAIFI declined 8% to 1.35 interruptions per customer. These reductions reflect sustained grid reinforcement, predictive maintenance and automation investment directly improving customer reliability and rising customer expectation levels. Automation remains a key structural driver as well. Distribution automation increased to 40.8%, up 12% year-on-year, and this enhances fault detection, reduces restoration time and strengthens operational control, positioning us for a more digital and smarter grid. For localization and ESG perspective, we -- progress has been made equally strong. Our local quantity score increased to 64.17, while our S&P ESG score rose significantly to 65, reflecting a 30% improvement year-on-year. With pride, this significant ESG score puts us at the #1 position among all listed companies in Saudi Arabia and #1 among all electric utilities in the MENA region. Additionally, it will position us among all global utility benchmark as we are 66% higher than the global sector average. This is a cumulation of our sustainability advancement journey anchored in our net-zero 2050 ambition and well-integrated sustainability strategy in our corporate strategy. Finally, on customer experience, customer satisfaction improved to 86%, while time to connect was reduced to 2.57 days, a 14% improvement year-on-year. This is tangible evidence that our operational upgrades and progress are translating into better customer outcomes. Overall, these indicators confirm that 2025 was not just a year of investment expansion, but a year of measurable operational enhancement across reliability, efficiency, sustainability and service quality, and very in line with our strategic ambitions and priorities. With that, let me hand over to our CFO to take you through the operational and financial performance. Thank you.

Thank you, Engineer Khalid. And ladies and gentlemen, good afternoon, and thank you for joining us today. I'm really pleased to take you through a detailed operational and financial performance of the year. Moving to Slide #9. The company has expanded across its core businesses, generation, transmission and distribution and to look into more details on the generation side, which was backed -- which is backed by a very strong purchase power agreement take-or-pay. The total capacity of the company during the year, we ended up with 55 -- sorry, 56.7 gigawatt own generation capacity, representing 64% of the market share in the entire generation business here in the Kingdom. These capacities have generated 237.6 terawatts of power during the year with an efficiency of 37.4%. When we look at the transmission business, which is backed by the regulated asset base regulations, the -- also, we have expanded massively in this business with 104,600 circuit kilometer of transmission assets increasing by 4.9%. The number of transformers and also substations also have increased by -- in the range of 4% to 7%. Also, the fiber optics have also expanded by 9%. The company have also added 8 gigawatts of battery storage capacity that have already been energized during the year of 2025. When we look at the distribution and retail business, the total distribution network line have increased by 6.6%, reaching to 860,000 circuit kilometers. The number of transformers and also substations have increased between -- in the range of 2% to 2.1%. The customers served have increased by 260,000 customers reaching to 11.5 million customers today. We have sold in 2025, 349.2 terawatt hour, which represents 7.9% increase in energy sold compared to 2024. Moving on to Slide #10, where we are showing how we are strengthening our security of supply and transforming the energy mix and executing the energy transition. Our generation portfolio -- our generation project portfolio has now reached to 23.4 gigawatts including 11 gas thermal projects under development, but we have realized during 2025, 3.4 gigawatts, which is the signing and the completion of PP 13 and 14 as well as Gray expansion IPP 3 gigawatts. When we look at the energy transition, 22.3 gigawatts, 8 projects under transition from liquid to gas, and that's the aim that we are aiming to achieve by 2030. We successfully completed the 1.7 gigawatts of PP10 conversion, and we also started the conversion of Rath 2 projects, 2.8 gigawatts. On the renewable trends, the company was successfully awarded 600 megawatts last October, the solar PV Santa projects in the Southern side of the Kingdom, which positioned the company as a major developer to -- in the renewable space in the Kingdom. The company also, as part of its strategy, continue to participate in all of the SPPC's tenders projects, including the one -- the upcoming one, the round 7. When it comes to boosting the security of supply and reliability, the company has successfully also restored 10 units and extended its life to make sure that we have enough capacity to fulfill the demand that is needed in the system that is coming from all type of customers, which we will be taking more in details in the upcoming slides. Now in the next slide, we will shed some light on the business expansion and the execution. If we look into the details of the transmission and distribution, we have been adding more capacity, more transmission lines, and also unique investments in battery storage, and also in automation of systems and network. And this is not going to be just a 1 year of growth, but in fact, it's a sustainable growth that you will -- that we will see year-on-year up to until 2030, where we will be reaching the overall Vision 2030 targets. So when we look at the transmission line, today, we are standing at $104.6, and the aim is that we will be reaching 146,000 circuit kilometers. The number of substation by 2030 will be reaching 1,500 substations. The transmission distribution line will be reaching 1,124,000 circuit kilometers of distribution line and 872,000 substation of distribution across the Kingdom. When we look at -- along the side of the growth in the regulated business, there has also been a growth in the nonregulated business portfolio as well. And we can also look into more details with fact, figures and numbers here. So when we look at the telecom business, the telecom now has added 3 million IoT SIM cards support the smart meter of SEC, the expansion also on the broadband reached 34 cities. We have added 75,000 customers reaching to 890,000 customers on the FTTx. On the PVC side, there is a major projects that are being executed by the project development company, 1,324, valuing almost SAR 52 billion worth of projects under execution. It is part of the group to have the Energy Infrastructure Consortium company, which is the arm of SEC that bids for new capacity with the SPPC. Today, they have been awarded 23.4 gigawatts of portfolio of capacity that are under construction. When we look into more details of how this is being translated in 2025 financials, the revenue have grew by 15.3%, reaching to SAR 102.2 billion, gross profit increased to SAR 20 billion, 18.9% growth. The operating profit has grew also by 62.1%. The net profit, we managed to have a very successful year with an increase compared to the normalized last year by 7.4%, SAR 12.9 billion. This has resulted of an earnings per share to SAR 0.96 per share and the normalized EBITDA grew by 10.1%, reaching to SAR 41.5 billion. When we look in the -- how this revenue and growth and top line growth and what is it being supported by, it's clearly the electricity sales, as I mentioned, increased by 9.3% year-on-year, supported by growth in the quantity sold 7.9%. Electricity sales have generated an additional revenue of EUR 6.2 billion. Meter maintenance, electricity connection and transmission user system combined have contributed for an additional EUR 350 million. The other operating revenue almost reached to SAR 7 billion, supported by the balancing account and the required revenue of the -- of SEC. Now when we look into more details, what's the driver of the increase of electricity sales, it's across all businesses, across all segments, industrial, commercial, government and industrial as well. But it is all with high single digits and or double digits in some of these sectors, which indicates, again, a growth in the economy and a potential growth of SEC's business in the next 5 years. Moving on to Slide #15, where we're showing in more details how this is being achieved of an income bridge compare 2025 with 2024. The key driver of this, again, is the operating revenue and the balancing account. And excluding the fuel settlement that was settled last year, the company has been very effectively and efficiently managing its operational cost as the business and the assets grow year-on-year. Moving on to the more details of the capitalized assets, and how much we have grown our business in terms of the regulation, and how much the regulator is going to compensate us from a RAP perspective. The capitalized assets from capital work in progress, as shown in the slide, has been growing year-on-year. I think the majority of it has come this year from transmission with 31.4 billion, including the investment in batteries as well as a strong and sustainable growth in distribution investments. This has resulted, and again, in a double-digit growth in our RAP, which has resulted in a greater return to our shareholders based on the weighted average cost of capital that is -- that was set by the regulator. When we look in the investing, and how much we've invested during the year, significant investments compared to 2024, SER 66.7 billion, major investments, again in transmission as well as in distribution, capturing the growth, connecting renewable energy, supporting the energy transition as well as investments, as I mentioned, in smartification and customers' experience, taking SEC's operations and customers' experience to the next level. We're expecting this is slightly lower than last year in terms of the amount of investment in 2026 to be in the range of SAR 70 billion to SAR 70 billion. When we look in the debt portfolio and the funding pool of SEC, the company maintained a really balanced debt maturity in the next 5 years and beyond, managing its maturity effectively without any specific spikes in any years. And also, we are working on diversifying the source of funding from different pool of liquidity regionally, locally as well as internationally coming from the capital markets, from syndications, and export credit agencies and other aspects. The company remains active in the green and sustainable financing, as it's in line with our strategic goals in supporting energy transition here in the Kingdom. We remain with all of this growth, having a balanced balance sheet and balanced gearing when we look into a comparable ratios of similar utilities globally at the size of SEC. We remain -- have a very strong equity base and a very efficient capital structure in order for us to be able to finance all of our projects in the most efficient way to deliver the cheapest levelized cost of electricity for the Kingdom. The total assets have reached now to 635.8 million. And also, we're expecting this to grow this year with all the projects that we have to support the Vision 2030, obviously, goals and some of the major activities that are upcoming in the Kingdom, like the Expo and the World Cup and other things, which requires a huge amount of investments from our side to be able to fulfill all the demand that would come from all the events that are going be here hosted here in the Kingdom, along with the -- some of the initiatives of the -- of division itself. In conclusion, we remain with the same strategy and same business plan that we have been basically communicating and speaking to the market. We continue with a specific strategic sustainable growth in the business, supported by a very well-established regulatory regime that is supporting the company to accelerate its financial performance and record greater returns to our shareholders. We remain from a strategic perspective, focused on operational excellence and supporting the resilience of our grid and reliability and efficiency for our operations. And we remain diversifying and maintaining our financial sustainability to be a financially sustainable company to finance its growth, and capturing the greatest value to our shareholders as well as the stakeholders, and as well in partnering with the governments to execute the Vision 2030 targets and beyond. Thank you.

Now back to you, Claire for Q&A.

[Operator Instructions] Our first question comes from Ildar Khaziev from HSBC.

I have a few questions. I'll start with one. First of all, can you comment please on how your financials have been impacted if there is any impact by the HLA 2 tariff surcharge? Is that affecting the distribution revenue? And if yes, how would that be reflected if and when that part of that revenue will be transferred to the regulator? That's my first question. If I can, there's one more also. Any chance you could comment on the utilization of the solar plants, which have been connected to the grid? I think there were quite a few. So I think that's it for me.

I got your first question, but the second question is not clear. Maybe let me answer your first question. Just to clarify, I mean, the change in tariffs, and you mentioned the HLA 2 changes, which is part of the heavy consumption tariff scheme that was implemented by the regulator. Just to give a perspective on the regulatory regime that we are operating in, we're not impacted by change in tariffs or change in fuel prices. We have a regulatory regime that compensate us based on a specific formula, which is basically the regulated asset-based model plus the PPA for generation, which is the required revenue. The required revenue get calculated by a specific formula, which is RAP on our assets plus depreciation plus return on investment plus pass-through cost and O&M. And this is how it's being calculated, and that's why SEC is being shielded from any risks associated with any of the government changes in policies. So just to simply answer your question, if there is an -- the increase in HLA 2 is not impacting us. And if there is a decrease, won't be impacting us because that's a pass-through to the balance in the account of the government. Your second question...

Since you're collecting -- yes, sorry, just to clarify, but since you're collecting the tariff still from the customers, is it part of your distribution revenue in any way or it's not? I understand that it's being passed through.

Yes, it is part of our distribution revenues, that's correct. And whatever shortage that we might have from the required revenue, you will see that the other revenues, which is the balancing account will cover this.

Okay. Yes. And my second question was about the average capacity utilization of the solar plants last year within your grid system because there have been quite a few new projects, which just being launched. And I just wonder how much that capacity actually contributes to the generation. Like any comment in terms of percentage, like is it 30%, 40% or higher would be very helpful.

So just to answer this question, I think the total renewable capacity is keep picking up here in the Kingdom as renewable in general is being penetrating the system. I don't have a specific answer how much now -- how much it's contributing, but they are operating as a base load. And I think the Investor Relations, you can reach out to them later. They can give you a specific answer to how much they are contributing to the system on average, maybe.

[Operator Instructions] We have a follow-up question from Ildar Khaziev from HSBC.

I actually have quite a few questions. So one of the topic I wanted to sort of to investigate was the possible impact on the liquid fuel consumption in 2026. So you said that you've completed conversion of one plant and there was another one in the pipeline, and there is a ramp-up of Jafurah Gas Plant, but possibly gas supply coming to the new gas-fired capacity. Do you expect the liquid fuel consumption to decline in 2026? Or this will be dependent on the overall demand growth and other factors?

I think the plan for the energy transition and the conversion from liquid to gas is based on a scheduled plan between the company, and obviously, the Ministry of Energy and the ecosystem, and obviously, Saudi Aramco. The plan is we have successfully closed one of the projects. The rest is going to come. What we can assure and give an assurance on is that by 2030, the target is to complete all of the 22.3 gigawatt of liquid-fired generation to gas. And that's now what we are aiming for. We are starting gradually. I think we will be peaking by '28, '29 in terms of closing projects. But by 2030, we will complete all of the conversion of the old capacities.

So it's rather going to be like '27 and 2028 when it will really -- so you expect that growth in conversion to be similar for now in the next 1 or 2 years, and then it should pick up, right?

That's true.

Okay. And maybe if I can, I mean, if there is no one else in the queue. So in the full financials, which I understand are not available yet, you usually provide financials for the subsegment. And I was quite curious to understand how profitability changed year-on-year in generation capacity and distribution. And I understand that in distribution, there was a specifically strong growth over the past 2 years. Can you comment on what is driving this? Is it just the growth in overall connections and the expansion of the network overall? Or this is demand or this is more.

So the driver for the generation increase in revenues and profitability is obviously different than transmission and distribution. Here, it's being packed by the PPA, which as long as you are available, you have available capacity, whether you're dispatching or not, then you will be getting your CCR or you're going to get paid whether you dispatch or not. In terms of the transmission and distribution, the more we grow our RAP, the more return and the more revenue we are going to have for transmission and distribution. And this is how the regulation is being designed. And that's what has been the focus for the company is to have more efficient available generation capacity, although the actual capacity of 2025 did not that much of an increase compared to previous years, but what we have successfully did, we have made more capacity available for dispatch, and that's why that's the driver for more revenue on the generation side.

And any chance you could share with us some -- any outlook on the expected revenue growth in 2026? Should we expect the same very strong rate of growth to continue this year?

Well, I think that's very clear in our presentation. I mean, we are, again, a company that is being driven by and incentivize to execute more. Transmission and distribution, the growth year-on-year is expected to be the same, especially with the targets that we have for 2030. On the generation side, we are executing, and the portfolio is really big in Slide #10, under construction, 23.4 gigawatt of capacity, let alone the partnership that we have on the IPPs as well. So we're expecting the growth across all the businesses. I mean, the core regulated business as well as the nonregulated business, too.

[Operator Instructions] We currently have no further questions, and I would like to hand back to Sayed for any closing remarks.

Yes. Thanks so much. Thank you for your continued engagement and for joining us today. Today's presentation and all the supporting material will be available on our website as well as our Investor Relations app, which you can see the QR code on the screen. Once again, thank you very much, and we look forward to engaging with you again in our next call. Thank you.