SMN Power Holding SAOG (SMNP) Earnings Call Transcript & Summary

[Foreign Language] I would like to welcome everybody on this call, and thank you very much for joining us this morning for the interactive session, which will start now. We could maybe wait a little bit, but because it's already 10:30, perhaps we can proceed if it's okay with everyone. [Foreign Language] The structure of today would be as follows. We will start by giving some highlights of the financial results for the 6 months period from January to June 2025, the results of which have been already uploaded on MSX portal on the 11th of August. Then after that, we will give some overview of the latest developments and the key activities currently undergoing at our SMN Power Company and Barka Power Company. Then after that, we will discuss dividend distribution that have been announced. And then finally, we will give the floor to the investors for any questions they would like to ask us. [Foreign Language] Just to provide a quick overview of the financial results for 2025. As you have seen in the published financial statements for the 6 months period from January to June 2025, the company generated an overall consolidated revenue of OMR 33.4 million for that period, and that's resulting in a gross profit of OMR 2.117 million for the same period. In terms of the net profit, the company generated OMR 1.443 million for the same period of 2025 against OMR 3.5 million for the same period in 2024. And the company have also disclosed additional information, including the EBITDA in our preliminary disclosure to the market to help our investors, give an understanding of the net profit as per the accounting rules and the EBITDA, which is a close approximation of the cash flow for the business for that period. In addition, the company also disclosed a supplement note providing additional information to investors on the variances between 2024 and 2025, which mainly due to having now new agreements, new contracts in place with OPWP, Oman Power and Water Procurement Company. And these new contracts have new terms and condition and new tariffs. So we are trying to help investors compare like -- when they see the results. In addition to the key activities for Rusail and Barka, for Al Rusail, we would like to highlight to our investors that the dismantling project of GT1 to GT6 is ongoing and the expectation that this process to be fully completed hopefully by end of this year. It's a major process. It's a major activity. There are a number of factors that need to be considered, including the impact of health and safety and environment and also other human related, HR matters. And we are working very closely with the buyer to ensure that things and milestones are achieved in accordance with the agreed time line with them. In relation to SMN Barka and as you know, Steam Turbine number 2 was out in November, and the company has taken the necessary steps as soon as possible to get the repair work done and then to get the steam turbine back in operation as soon as possible. And as disclose to the market, the Steam Turbine number 2 have been put back into the operation in February 2025 and the company disclosed all related information, including the financial impact. In relation to other activities at SMN Barka, we are working very closely with the operator to ensure maximum efficiency possible, and we ensure also that operations are carried out in line with a signed contract with the operator and the signed agreement with OPWP. In relation to other activities, again, as disclosed to the market. Both SMN Barka and Al Rusail are contributing to the spot market, but this contribution and this participation has no impact on the company revenue or profits given that both companies are subject to a contractual agreement with OPWP for the coming years. And finally, in relation to the dividends and as disclosed to the market, the company has disclosed and announced an approval from the Board and subject to final AGM approval of dividend distribution of OMR 0.025 per share. As you know, the company has announced and paid last year, our core dividend of OMR 0.073 per share, which has been fully paid to investors. And earlier this year, the company announced the receipt of OMR 3 million from Al Rusail Power Company in quarter 1 and now the company announced the receipt of another OMR 2 million from another sister company, SMN Barka totaling OMR 0.025 per share, which will be distributed to the investors immediately after fulfilling all the commercial company law requirements, mainly the audit requirements and all the covenants under the financing agreement. And the company would like to also confirm to all investors its commitment to distribute dividends as soon as the cash is available and all requirements have been filled, including legal requirements and contractual requirements, which is the policy of the company. So this is basically in a nutshell, a quick overview of the financial performance, a quick overview of the key activities at both plants and a quick overview of the dividend distribution plan for the company. So now we will open the floor to our investors for any questions they would like to ask. [Foreign Language]

Yes, Joice. Please go ahead.

Just 1 question from your financials in first half. And when I connect it on your G&A expenses, you reported second quarter G&A at OMR 419,000 and the first quarter G&A was independently at OMR 181,000. So if I add both these quarters independently, the total G&A would be around OMR 600,000. But in the income statement, what you have reported for the first half is OMR 407,000 only, which is lower than what you have reported for the second quarter, and first quarter combined. So just -- I was trying to understand what could be the reasons for this decline in G&A?

Thanks, Joice, for this question. To be very honest, this is in context to the refinancing and the tendering activity that we took up in 2024, commencing from like mid of 2023 and stretching all the way to end of 2024. Generally, what happens is the consultants are -- there is this overruns in the expenses and it is a long process. So there were some provisions based on some consultancy costs and some adviser costs for which upon negotiations, those were worked out in our favor. And particularly those provisions have been reversed. So on a face value, yes, it appears to be a drop, but it is to a onetime activity of a consultancy cost getting reversed.

I understood that in the first quarter, you had a reversal of OMR 80,000. But then additional OMR 174,000 was added in the second quarter, which is taking the total amount to OMR 600,000. So I was a little confused on that.

I am not sure where is that OMR 600,000 appearing, because...

OMR 80,000. Not -- OMR 600,000 is first quarter OMR 181,000 plus second quarter OMR 419,000.

See, up until June, our G&A looks like QAR 400,000.

Correct. But you have reported a second quarter OMR 419,000 and OMR 181,000 in first quarter. OMR 181,000 is, I can understand there was a reversal of OMR 80,000 expenses.

The movement. Movement is OMR 181,000. That's what you saying, Joice?

No. First quarter independently, you reported OMR 181,000.

OMR 181,000. That's the G&A you see in the consolidated financials for quarter 1.

Correct. Second quarter, OMR 419,000.

OMR 419,000. Yes. So that's the increase, right?

Second quarter, I'm talking about second quarter. 3 months...

Okay. Okay. This is supposed to be the combined number. But I don't know...

That's not the combined number. Combined number you're reporting at OMR 407,000.

Yes, that's combined number.

Yes. OMR 407,000 is a combined, but you're independently reporting OMR 181,000 and OMR 419,000. So how is it possible?

So sorry, OMR 181,000, that's quarter 1 you see. That's you're saying, yes?

Correct.

Quarter 2 combined OMR 407,000.

Combined, you are reporting OMR 407,000?

Yes, that's 6 months period.

That's 6 months?

Yes.

But the second quarter, you have reported OMR 419,000. So OMR 419,000 plus OMR 181,000 should be OMR 600, 000. That's my question.

Happy to help you, Joice, on that thing. But for 6 months, the G&A expense is INR 400,000 on totality, 6 months put together.

That's not -- but I'll take it offline.

We can take it offline, no problem. But check the breakdown again because they see some disconnect on the numbers. So that's what is in the...

Okay. So 1 more question that I have, there's a difference between your energy charge revenue and the energy cost. On an annual basis, that's somewhere around OMR 2 million. Is this efficiency gain that you're reporting? Or is there other calculations associated with this?

Again, on that thing, to be very honest, the plant is functioning absolutely robust in terms of availability and in terms of the efficiency pertaining to the variable portion. With regards to a gap, it is broadly comparative against what was the old contract versus the new contract commencing because if you see the numbers, the June was -- June 2024, the comparative column that you're referring to, June 2024 pertains to the old contract. We -- like we commenced our operations under new contract from June 2024 itself. So it was only 1 month in the previous year that was reflecting to the new one. But the entire 5 months of revenue in the comparative last year number pertains to old contracts. So that is broadly the impact of the new revenue structure.

No, no, no. I'm not referring to the old contract and new contract. I'm referring to the contracts. So when I say this difference, I'm talking about this 23 million energy charge that you have received. And at the same time, your energy consumption cost was OMR 21.8 million. So there's a difference of, let's say, around OMR 1.3 million during the first half of the year. And if I look at your old contract as well, I can see the same. There's a OMR 2 million difference between your energy charge revenue, which is in the first half that you have reported OMR 23 million and your energy consumption cost is around OMR 21.8 million.

See, again, that variation that comes out is to be looked upon from a loan perspective as well, which is not -- the bottom line impact for the company generally is on a pass-through concept.

But that's not essentially pass-through. When I look at your historical data also. When I look at the historical data, I see a OMR 2 million gap between the revenue and the cost. So I just wanted to check what could that be?

Just a minute. All right. So sorry, Joice, but if you can repeat it again. So -- to give you a detailed number. So I'll just open up the particular section.

The energy charge that you have reported, energy charge revenue is OMR 23.1 million, right?

Yes.

And your energy consumption cost is only OMR 21.8 million.

Yes.

So is this efficiency gain? Or are there any other components built into it?

I mean it also includes the variable portion of the contract fee to O&M, which is if you see coming on to be OMR 1.2 million. So when we say energy charge, it is technically also including the consumptions and the incremental cost for the O&M company. So it would tie up against energy consumption in the cost section, along with the variable fee for plant operation, OMR 1.2 million.

Okay. Okay. Got it. And could you please give us an idea of assuming there is 100% plant availability for both the plants, what could be the annual EBITDA target that we can look at?

Yes. So of course, like as we have kept our discussions earlier, we will not be able to fully drill down to you in terms of tariff. But of course, it's more similar from analysis perspective that we are exactly seeing in middle of the year with 6 months of operations conducted with the new tariff. So there is no clean figure revenue structure in line. And for the current 6 months, the EBITDA has come around OMR 6.3 million. So pretty much going forward being a contractual revenue structure, we anticipate that to continue with a slight deviations here and there with regards to CapEx that we might be having in the next 2 or 3 years. But again, it is a staged CapEx and not very heavy loaded. So broadly, that's the range that we are referring to. So OMR 6.3 million is again on the 6 months number to be very precise.

Got it. And what's your average CapEx that you might be incurring for next 3 to 5 years?

Not heavy, to be very honest. But again, it all -- as you know, there's a lot of lead time that involves under the orders placed with some OEMs and the delivery that we receive and certain times the alignment with the winter period and the plant outages that we have. But on a broader aspect, it is not supposed to be a significant CapEx on a yearly basis, but roughly around -- say around OMR 1.5 million. This is again on a very high level that I'm trying to give you perspective -- Omani Rials. This is all in Omani Rials. This is something which I'm saying that if things work out, then on a yearly basis, this is how it has to be there. Sometimes it happens that 1 month here and there would shift in the calendar year. So the impact can go between the first year and the second year. But broadly speaking, around OMR 1 million, OMR 1.5 million is not expected in 5 years, but next, let's say, another 1 or 2 years more from here. Yes. But this is, Joice, and...

This is the total or your plan for an annual basically average per year?

This is an average for next 1 or 2 years. And then it would be significantly less because you would like to do the upgrades upfront. So there won't be substantial overall expenses after that anticipated.

And this is, Joice, this is on a high level, okay, because we always review the CapEx program. And then sometimes we prioritize, sometimes we can change the time lines depending on the performance, on the priorities. But this is -- you can take this at a high level.

I understood. I understood. So if we rephrase it in such a way, maybe for the next 5 years, probably you are looking at maybe around OMR 4 million to OMR 5 million CapEx?

Yes. You can say so. In fact to be very honest, that won't be up until 5 years. Let's be very honest because if we have received an expansion for 9 years, out of which 1 year is already gone, there's no point doing for another 5 years the upgrades. So it is pretty much for next, let's say, 3 or 4 years, max. But on an annual basis, around OMR 1 million, OMR 1.5 million. That's a broad indicative that I'm trying to give you.

Got it.

And Joice, after the 5 -- fifth year, as Mitesh mentioned, but of course, maybe we spend more at the start but then less at the end years as you know. Yes, so this is expected. That the program may be expected over the next 5 years, but then less after that.

Got it. Got it. And your annual debt service will be around OMR 7 million. Am I correct?

In terms of Omani Rial?

Yes.

Yes. Yes, including interest, correct?

Including interest.

Correct. Correct.

This is Abbas. Joice was obviously a great guy to follow because most of your questions get answered when Joice speaks. So I was waiting for Joice. I just wanted to -- just a follow up from Joice's question. Now I know that you said that you can't really drill down at the EBITDA level, but we can. The reason is your new contract effectively came on stream in June of last year. So now I have second half of last year and I have the first half of this year. Now what I am thinking is in the second half of last year, if I drill down in terms of what the EBITDA was, which is the second half minus first half. So that was close to OMR 6 million on the CFO basis before any working capital changes. And now you have first half of this year's numbers, which is whatever, OMR 6.5 million, which is a 30% drop to your earlier sort of contract, just based on the numbers you've given me. Now is my understanding correct? Or am I missing something? For example, last year, your last year, your full year was close to, I think, OMR 15 million, out of which OMR 9.7 million was in the first half. So naturally, the remaining OMR 5.5 million to OMR 6 million was in the second half in terms of the CFO before working capital changes. Am I on the right track? Does it make sense? Because there's no reason for the second half number to change, is there?

I mean the number you're comparing the second half of last year...

Yes. Yes. I was waiting for the -- I'm almost talking about the trailing 12 months, right? If I look at your June numbers, I'm trying to make sense of the trailing 12-month numbers and then, of course, try to make sense of what the dividend paying capacity of this company can be. Now naturally, in my position, someone would do that. Now what am I missing here?

Yes, yes. I mean, generally speaking, I think you're not too far from the expected outcome, Abbas. But there are a number of factors you need to take into account. Now as you know, we have -- the plant operates under some assumptions, for example, the forced outages, force majeure. There are some risk allocation that are different between the old contract and this contract. So there are some risks that we accepted under the new contract. We were not there on old contract, previously may be accounted for as force majeure. This time will be accounted for forced outages. Another factor we need to take into account is CapEx program. The new PPAs come with a new also CapEx program to ensure that we deliver the capacity as per the contract. And then other factors also you need to take into account any reversals, any provisions, any site restorations, provisions review that could impact the numbers.

Fair. Okay. Clear.

So just 1 more thing on that, Abbas, sorry.

Yes. Yes, please go ahead.

In fact, I mean, as Abdullah said and in fact, pretty much what you have also done is broadly in line. I'm not, to be very honest, getting into the percentage or the numbers that you have given, but giving you an overview that broadly, yes, it aligns. One thing to be noted is that when you are making a basis based on 6 months trailing from the previous year contract, we had a Steam Turbine 2 outage. So pretty much that is a conservative view to be taken. You're getting my point, right?

Yes, that's a fair point. That's a fair point. Yes, that's fair.

That's something that is like -- with that basis also, what the number you have would be on a conservative side. But again, let's not be too detailed. But broadly, yes, you are in line.

Yes, because then what I was looking at is actually, I was looking at this EBITDA sort of number that you have for the first half. Now that includes 1 summer quarter and 1 winter quarter. I know that in the previous calls, you've clarified that there's a seasonality element in the new tariff. It's not a straight line sort of thing. But even then, if I take the second half into account because of 1 summer and 1 winter quarter, I'm assuming you're looking at a OMR 12.5 million to OMR 13 million EBITDA. And then you have this repayment of debt of close to OMR 7.5 million that you -- including interest. And then the tax liability should be around OMR 1.5 million, correct? Am I right with that, the tax liability?

Broadly, yes.

Annually -- cash taxes. Okay. Okay. So then you're left with like OMR 4 million, OMR 4 million or something, which could be distributed. And in this case, I'm not taking care of the CapEx. Now CapEx you already clarified on the call, how it's going to be over the next 4 to 5 years.

Yes. Yes. So only thing on the income tax is that, again, to be very precise here. Income tax is something which is tricky to preempt here because we will be having a competition to be done under income tax law and there could be certain scenarios. But again, the number won't substantially shift or even if it changes on an overall EBITDA, it doesn't impact much.

Right. Clear. And sorry, I joined the call a little late because there was another call that I was on. Now in terms of all those one-offs that we are looking at, those turbine sales and this OMR 0.025 that you declared, that does not include that, right? You said that the OMR 0.025 is going to go from the subsidiary to the parent. Now obviously, the parent needs to pay the shareholders after your audit is complete. But other -- this is from operational or this includes any one-offs from turbine sale or any other one-offs that you have?

I mean this includes that, Abbas. It includes that as well.

Okay. And in terms of time line, you're looking to pay this next year after your audit, I imagine. Or is there a sooner?

Well, we would love to do it sooner, to be honest with you. We would love to do it sooner. And of course, again, we have to watch second half of the year. But based on experience, most likely that this will be distributed next year, given taking the cost of the audit and the logistics involved, better distribute this to investors next year. The cost to auditors, we prefer to pay this cost to investors as extra dividends rather than cost to auditors.

Okay. So this OMR 0.025, but includes everything. Okay. Is there -- the trapped cash issue is entirely resolved or there's still some trapped cash?

There's still some trapped cash out of the sale. And we are working with our auditors to try and find a solution within the accounting standards that allow us to distribute further dividend out of this trapped cash. But there's also other factors we are taking into consideration, Abbas. We have site restoration for Al Rusail, which is almost 80% of the trapped cash. And there is some comments from the auditors that perhaps the company should consider ensuring that [ reserve ] is there and cash is there to meet the site restoration obligation. So we are looking at some ways to try and maximize distribution, taking this consideration into account.

So Abbas, just to add on to this OMR 0.025 to be very -- linked up again between the entities. If you see Barka has given -- SMN Barka has given around OMR 0.010, which is the recent disclosure and OMR 0.015 pertains to Rusail, which was somewhere in quarter 1 of the current year. Now just to define the basis behind it. So -- but SMN Barka giving OMR 0.010 is fully operational in nature. There is no one-offs included here. In fact, it has some -- the impact of the steam turbine hitting it. So broadly speaking, it's fully operational portion. In terms of Rusail, the OMR 0.015 that was being distributed in March, it includes 3 things: the sale of gas turbines, the release of cash trapped to a certain extent and the operational income. So that's...

What was the second one? I missed the second one. What was the second one? The lease of?

Release of -- a partial release of cash trapped.

Clear. Okay. Got it.

This is Rusail we're referring to.

Yes. Yes, we're talking about Rusail.

So these are primarily 3 portions which contributed OMR 0.015. So like this is just a heads up that Barka is fully operational and Rusail has some operational and some one-offs that happened.

Yes. No, see, honestly, my estimate is OMR 0.015 is the dividend that you can generate. This is my estimate based on everything that I've analyzed. I look at OMR 0.015 an operation sort of cash flow that will be left for shareholders once the one-off...

As we going forward, you mean, Abbas?

Yes. Going forward. Annual basis, OMR 0.015. This is my estimate. That after you release all the one-offs, the company will generate OMR 0.015 which is, I think, approximately OMR 3 million, which will be left for distribution.

Now Abbas, just again, we are not confirming here anything. This is up to auditors, up to our Board, how the numbers come out and how it gets approved. So nothing as an indication to any of the investors here. We have discussed EBITDA numbers. You have the EBITDA, you have the repayment profile, you have a clarity on how the company is going to move forward. So just a straight disclaimer that OMR 0.015 is not something that we are vouching for. It can be higher, it can be anything, but the point is this is not something which is agreed.

But what we can confirm, Abbas, and all the investors in this call. What we can confirm now is that company committed to a very transparent dividend policy and in excess cash within the company to be distributed immediately to shareholders. So that's we are committed to that. We distributed OMR 0.073 last year. We are committed to OMR 0.025 for the first quarter of this year. We're working very closely with the operator, okay? We have a very competent technical team at SMN, working very closely with the operator to ensure that we control all the variables such as outages, repair, maintenance, CapEx program to be optimized as much as possible, prioritized as possible. So that's something also we are committed and we're confirming to everybody in this call. We're also confirming to you that we're working very closely with OPWP for optimization of the terms, conditions and future possibility for extension for the plant, especially Rusail, which is strategically located in Muscat. So the management and the Board are doing everything we can to maximize operational results and then any excess cash to be distributed to shareholders.

Point well noted. I was just giving my answer, but thank you for the disclaimer. Much appreciate it.

And just to add to it, Abbas, SMN Barka in continuation to what Abdullah said, in fact, that's pretty much covering everything. On top of that, SMN Barka will strive to give dividends on a [ semester ] basis, 6 monthly basis. So that is something that is going to be restarted after we finish our refinancing and commencing the new journey under the new contract.

And dividend will continue, Abbas. Dividend will continue. Just I mean -- difficult to put a number on it now, but dividend will continue. It could be more than what you expected to be a little bit less than what you expected, but dividend will continue from SMN.

Clear. Just now that I have you on the call, just to sort of ask you a question about what's happening in the industry because you've already been through this power 2025 kind of power '24, '25 process. Now there are a whole bunch of PPAs that are going to come up for renewal now in, I think, '27, '28, '29. Now when I look at your EBITDA, right, this 30% discount that I saw compared to Y-o-Y numbers for the first half. Now part of the discount is obviously based on your -- because if every cost is a pass-through, okay, your capacity charge is a function of debt and equity charge, the debt charge coming down could be one of the reasons why the EBITDA has come down, right? It doesn't mean that you've sort of compromised on your equity charge. It could just mean that the EBITDA has come down because the debt servicing cost has come down. Can you sort of just throw some color on this? Because I'm trying to make sense of the new PPAs that will come up for extension. Now clearly, the spot market in Oman seems to not be the preferred mode of operation for both parties, OPWP and contractors. So I'm thinking there might be a renewal that comes in. For me, just to appreciate this renewal sort of EBITDA that could come in. So is it -- is the right way to look at it this way that if every charge is a pass-through, the capacity charge falling could not necessarily mean compromising on cost of equity versus the earlier PPA, it could be that the debt service charge itself has come down?

Thanks to raise it up, Abbas. Of course, like as you said that there's a lot of things, even we have heard that there is some things going around. Of course, the companies who would be participating there would be in a better position to refer to that. But on a broader basis, yes, this is not a compromise to equity to be honest. This is the surplus that you have because your debt service will go down to a certain extent. With regards to another 2 things that what is the implication of the spot market, again, it is not the thing that was forming part of our renewal contracts. But I'm not sure whether what is going around for the new discussions that are going on with the other project companies. And lastly, in terms of Y-o-Y decrease that you were referring to, broadly, the concept is correct. In terms of percentage, it is more of what seat are you sitting and how things move. And it's a pure commercial discussion to be clear. So your understanding is right, and then it falls in hands of negotiations end of the day.

Okay. So you'll not be able to -- because you had this cash sweep, it's very difficult for me to ascertain that how much of this drop is, thanks to the debt service coming down, because otherwise, I have to go back and adjust your cash flows in your amortization in a way that it was equal. But in your case, it wasn't equal. There was a cash sweep that came in, then that went away. So I was just trying to make sense of -- just from the regulator's point of view, how much of it was the discount that you saw 30% drop, how much of it is because of the debt servicing coming down? And how much of it then is negotiating you when it comes to your equity charge? It was just for me to get some color on that.

Still Abbas, that include form -- that will include form part of disclosing the tariffs. So...

Yes. No, no, it's fine. It's fine. Just I was thinking aloud because the whole market is trying to make sense of some of these utility companies, right, that are trading at pretty -- I mean, I won't say expensive or cheap, but you've seen a big run-up in prices when it comes to some of these sector companies who are coming up for renewal. So just trying to make sense of which direction we are looking at.

Just to add to that, Abbas, I completely understand that we were having cash sweep before. But it seems that no other company is having cash sweep as of now. However, in terms of our dividend profile, it's better than the dividend profile, which was there before cash sweep. So currently, what we are giving, of course, OMR 0.073 is an exceptional -- OMR 0.073 is an exceptional one, but the OMR 0.025 that we're giving now or the going forward versions are better than what was before cash sweep. So that's sort of understanding. Of course, I will not be able to get into tariffs.

No, no, sure. It's always a pleasure interacting with you. It's one of these very transparent and open discussions where we all get to learn quite a bit about not just your company, but about the sector as well. Thank you.

Thank you, Abbas. Always a pleasure also speak to people like you guys. You guys are very up to date with the market, enthusiastic. So you bring a lot of positive energy to these calls. And we always strive towards being as much transparent as we can and as more supportive to the stakeholders, to shareholders, to minority investors, to everyone, like that's one of our core way of looking at our -- giving back to the society. Okay. So -- if there are no other questions, of course, you didn't have to wait for interactive session. We are always available. Please reach out to us if you have any questions. We are available at any time and more than happy to take any questions, any clarification you need at any time. [Foreign Language] So in that case, it gives us pleasure then to again have this session with you, and we will close the session now. We'll keep -- leave it at that, and we're available, as I said, for any further queries. All the best to everybody. Thank you again for your time. Wishing you a happy and productive day. Thank you all. [Foreign Language]