Sembcorp Salalah Power & Water Company SAOG (SSPW) Earnings Call Transcript & Summary

Okay. Good morning, everyone. Welcome to our live MSX discussion session. Thank you for taking the time to join us today. [Operator Instructions] There will be a dedicated Q&A session at the end, where we'll be happy to address your questions. Today, we will be presenting the company's financial results for the 6-month period ended 30th June 2026. In today's session, we will cover company background, financial performance, operating performance and then a Q&A session. Let me begin with the company background. Construction began in 2009 and we reached commercial operation on 25th May 2012. Total project cost was around $1 billion originally financed on a 75:25 debt equity ratio. The company was initially a joint venture between Sembcorp and Oman Investment Corporation, holding 60% and 40%, respectively. In October 2013, 35% of the shares were offered to the public through an IPO. Today, Sembcorp owns 40%, Oman Investment Corporation holds 13% and the remaining shares are held by public and institutional investors. Project debt of about USD 750 million was funded by consortium of 9 international and local banks. We're pleased to report that the company has paid the loan fully on 30th June 2026 ahead of its scheduled repayment date of 30th September 2026. Our original 15 years PWPA expires on 3rd April 2027. The new PWPA begins 4th April 2027 and runs until 3rd April 2037. The contracted power capacity of the power plant under the existing PWPA is 445 megawatt and the water plant is 15 million gallon per day. In new PWPA, contracted power capacity will increase to 465 megawatts, while water capacity remains unchanged at 15 million gallon per day. PWPA remains a take-or-pay structure, which secures predictable cash flows as long as the plant is available. This is the main reason our PFO and EBITDA stay stable year-to-year basis, regardless of actual power or water dispatch. We also have an O&M contract with Sembcorp Salalah O&M Services Company, 70% owned by Sembcorp and 30% owned by Oman Investment Corporation. In addition, we maintain a long-term service agreement with GE. Today, we supply around half of the region's electricity and desalinated water demand, underlining our strategic importance. For the first half of 2026, the company reported a net profit of OMR 10.8 million, slightly lower than the OMR 11.5 million recorded in the same period last year. The small decrease was mainly due to higher contractual service maintenance costs, partly offset by lower finance costs. Revenue rose 6.6% to OMR 45 million, mainly on higher fuel charge revenue, which is pass-through items together with higher capacity charge revenue. EBITDA was OMR 18.8 million and PFO was RR 13.3 million. Both lower than the last year, primarily due to increase in contractual service maintenance costs. On dividends, the company paid baizas 8 per share for 2025. For 2026, the approval was sought from shareholders for a dividend of up to baizas 16 per share to be paid on 1st November 2026, effectively double last year's payout. Profit after tax was lower than the same period last year, mainly due to higher contractual service maintenance costs. Increase in revenue is mainly due to increase in capacity charge revenue arising from higher plant reliability and fuel charge revenue, which is pass-through in nature. Operating costs increased due to increase in contractual service maintenance costs and increase in fuel costs. Fuel cost is a pass-through in nature, which increased in line with the increase in revenue. Finance costs reduced due to repayment of loan. Total assets decreased primarily due to the depreciation on plant and machinery. The balance sheet strengthened. The company fully repaid its term loan on 30th June 2026, ahead of scheduled repayment of 30th September 2026. So gearing reduced to nil and the total liabilities fell by OMR 34.2 million. Net assets per share increased due to the growth in retained earnings. On statement of cash flows, operating cash flow was OMR 12.2 million below last year, mainly reflecting working capital changes and lower profitability. Working capital movement reflect normal timing differences and overall operating cash flow remained closely in line with EBITDA movement. Investing cash flow turned positive at OMR 12.8 million, mainly from the maturity of fixed [ wallet ]. Financing outflows were higher, reflecting the early full repayment of the term loan. Over the last 5 years, the company has consistently delivered strong and stable EBITDA and PFO supported by our capacity-based business model. Net profit has shown steady year-on-year growth, demonstrating the company's financial resilience. On operating performance of the company, electricity generation remained broadly in line with the previous year. Water production was slightly lower due to reduced demand from the government. As highlighted earlier, variation in generation or production do not significantly affect profitability since variable revenues are designated to cover variable costs. Power plant reliability improved to 99.82%, up from 98.13% and remains well within the industry benchmark. Water plant reliability was 99.98%, in line with last year and still exceptional. Planned outages were within the PWPA's allowable limit, and therefore, it does not have any financial impact. This concludes our presentation. We now welcome your questions. Please raise your hand and introduce yourself before asking questions. Yes, please.

This is [indiscernible]. I am investment analyst at Ubhar Capital and covering the power sector in Oman. So I have a couple of questions. Like you mentioned earlier that your power purchase and water purchase agreement is old power purchase and water purchase agreement. It's expiring next year, and it has extending [indiscernible] for more 10 years. So regarding PPA and PWPA, I have questions that you have mentioned that the operating lease income will expect it to decline to OMR 17 million after the PPA expiration. So does it include only the ROE portion because that will be not [ moved? ]

Yes, it is only an investment charge portion, yes. Correct.

So your earnings are also expected to decline before in 2027, right?

Yes, correct.

So you also mentioned that you have retired the -- all the long-term debt. Is there any plan to take further debt?

There is no plan yet, yes, but I will not rule out this option, but there's no plan approved by the Board of Directors at the moment.

And also for dividend, like you mentioned that the payout is expected to double in 2026 compared to last year. So I am asking that this payout is sustainable like baiza 18 after 2027?

Okay. So actually, I will not be able to comment on the future dividends because it all depends upon the Board of Directors' decisions and dividend policy. I -- but you can look at the cash flows of the company, and you can guess that, okay, what will be the our forecasted dividend. I will not be able to comment on the forecasted dividends.

One last question about your deferred tax liability, you have around 23.5 million as of June 2026. Can you explain what is the...

Sorry, I didn't get your question, sorry. Can you come again?

Sorry, my voice [indiscernible] I am asking about the deferred tax liability. You have 23.5 million deferred tax liability as of June 2026. Can you explain the treatment of this liability, how you treat in the future?

Okay. So the tax depreciation is different from the accounting depreciation. So the deferred tax liability mainly comes from the temporary difference as in from the difference between the tax depreciation, accounting depreciation. Tax depreciation is 15% and accounting depreciation is -- accounting depreciation basically is on a straight-line basis over the useful life, from life of the asset. So what happens when the asset -- we have a 15% of tax depreciation on return on value basis means that the assets return on value declines faster than the accounting return on value. So the difference will be -- the difference creates the deferred tax liability. Now how we will settle it that, okay, future tax liabilities will be higher than -- will be higher mainly because the company will start paying higher taxes in the future compared to their profit -- accounting profit.

This is Manna from United Securities. Am I audible? Can I proceed?