TAQA Arabia S.A.E. (TAQA) Q4 FY2025 Earnings Call Transcript & Summary

Welcome to TAQA's Q4 2025 Earnings call. My name is Asjad Yahya, and I head Investor Relations at TAQA. I'm joined by our Group CFO, Steve Ridlington. Please note that this session is being recorded and by participating, you consent to the recording. This presentation will follow our usual format. Steve and I will walk you through prepared remarks followed by a Q&A session. I'll now pass it over to Steve, who will guide you through the highlights of the group in 2025.

Thank you, Asjad, and hello, everybody. Great to be back with you again this afternoon for our full year results. 2025 proved to be a year of strong operational progress for us, reflecting a combination of our commitment to strategic growth and the resilience of our business. The company's top line remained stable at AED 54.8 billion with our distribution business, in particular, offsetting the decline in revenues in oil and gas. EBITDA, on the other hand, recorded a slight decline, which is largely attributable to nonrecurring charges. Meanwhile, net income grew by 6% to AED 7.5 billion, benefiting from a decline in expenses in the EBITDA line. Free cash flow grew sharply to AED 6.6 billion despite a strong rise in CapEx. This was supported by a favorable working capital movement and reduced funding requirements for Masdar. In terms of dividends, Board has proposed a fixed dividend of 1.5 fils per share for Q4 2025 in accordance with the current dividend policy. It has also proposed a variable dividend of 0.7 fils per share, bringing the total for the year to 4.45 fils per share. Furthermore, the Board has proposed a new dividend policy 2026 to 2028, which will be subject to shareholder approval at the AGM. I will cover details of the new proposed policy later in the presentation. 2025 also was -- to build up momentum towards the delivery of our 2030 targets. We are more confident than ever in our ability to meet the ambitious targets we have set for ourselves. Last but not least, the last year witnessed the addition of dirham-based corporate term loan facility to our balance sheet. This brought diversification and an attractively priced new source of funding for TAQA. Turning to the highlights for the year. 2025 was a very busy year for TAQA, both inside and outside the UAE. This progress translated to the company ending last year with growth in power generation capacity of 73 gigawatts. Starting at home, we continue to strengthen our domestic platform, enhance generation capacity as well as the grid. Through our stake at Masdar, we continue to advance what is expected to be the world's first round-the-clock renewables and storage project. It integrates 5.2 gigawatts of solar PV and 19 gigawatts of battery storage to deliver 1 gigawatt of continuous clean power. The project is also supported by the 1 gigawatt Al Dhafra Thermal Plant, which we are developing along with the sizable accompanying grid investments by TAQA Transmission. We, along with DUBAL Holding, are also acquiring EGA's Al Taweelah power and water assets for USD 1.9 billion, adding 3.1 gigawatts of power and 6.25 MIGD of desalination capacity. Following the completion of the transaction, the Taweelah plant will be providing a cleaner mix of water and energy through the grid. Thus, this represents another example of the role TAQA is playing to improve the wider carbon footprint in Abu Dhabi as the utility sector national champion of the Emirates. We also achieved full commercial operations at Fujairah F3 and signed an agreement to reconfigure Shuweihat 1 into a power-only plant, providing up to 1.1 gigawatts of flexible reserve capacity for a further 15 years. Lastly, a PPA was signed with EWEC for the third solar plant in Abu Dhabi. The 1.5 gigawatt Khazna solar plant is being developed by Masdar and ENGIE. On the international front, we announced one of our largest M&A transactions to date in the form of GS Inima. With an enterprise value of $1.2 billion or equity value of $900 million, this transaction will notably accelerate TAQA's global water growth strategy. We anticipate the closing of this transaction later this year. We also acquired transmission investment last year, which marks our strategic entry into the U.K. transmission market. In Saudi Arabia, we reached financial close on Rumah 2 and Al Nairyah 2, which added 3.6 gigawatts of highly efficient gas-fired capacity. Our total capacity in the kingdom now stands at 5 gigawatts. And in Uzbekistan, we acquired a 40% stake in the 0.9 gigawatt Talimarjan plant and advanced additional water opportunities through TWS. We also reshaped the portfolio through selective divestments in the U.S. and India. Morocco also saw exciting developments with TAQA Morocco signing MOUs for large-scale integrated power, water and transmission projects. The anticipated aggregate value of these investments stands at approximately $14 billion. We continue to progress on safe, environmentally friendly decommissioning activities in our oil and gas business. A major milestone achieved in this regard was the removal of the Eider Alpha offshore platform's topside structure in the Northern North Sea. We also supported Europe's first carbon dioxide storage facility through transfer of P18-A, a platform in the North Sea to Porthos. I mentioned earlier that TAQA secured an $8.5 billion floating rate dirham facility last year at competitive rates, and we also repaid a bond worth $0.75 billion. Last but not least, we continue to make progress on the ESG front with our MSCI ESG industry adjusted score rising from 6 to 7.1, just shy of the AA threshold. Turning now to the group financials. Before taking a closer look at financial performance, let me take a moment to note that for the full year 2025 financials, we are now separating the P&L for transmission and distribution. This aligns with our operating model in which the 2 businesses are run independently. So on full year financial performance. Group revenues remained stable year-on-year at AED 54.8 billion, with a strong performance in our distribution business offsetting revenue contraction in oil and gas. Transmission revenues were broadly consistent with 2024. Distribution revenues increased 4.8% year-on-year, primarily driven by higher bulk supply tariffs. Generation revenues remained steady, ending the year broadly in line with the previous year. TAQA Water Solutions revenues grew by 1.5%, reflecting the positive impact of a higher regulated asset value. Oil and gas revenues, on the other hand, fell by 27.1%, impacted by lower commodity prices and a decline in production as we continue to progress decommissioning in the North Sea. Moving to EBITDA. The following factors shaped our results. Group EBITDA decreased slightly by 1.6% to AED 20.7 billion. This marginal decline was largely attributable to oil and gas performance and nonrecurring noncash charges. Transmission EBITDA was down 5% due in large part to nonrecurring noncash items. Distribution EBITDA on the other hand, increased by 8%, benefiting from nonrecurring impacts. Generation EBITDA decreased by 7.3%, primarily driven by noncash impairment charges of AED 841 million related to intangible assets. And this reflected a higher assumed cost of capital in our [indiscernible]. TAQA Water Solutions EBITDA saw 3.5% increase led by higher G&A expenses on the back of transformation initiatives. Oil and Gas EBITDA fell by 14.2% as production ceased at several North Sea fields to unrealized oil and gas prices declined compared to the prior year. Corporate EBITDA provided a significant positive contribution driven by a higher allocation of G&A costs to the operating segments and a higher dividend contribution from ADNOC Gas. Moving to nonoperating items in the profit and loss statement. Depreciation, depletion and amortization DD&A decreased by 3% year-on-year. This was primarily driven by revised useful life estimate for Shuweihat S1 power plant following the 15-year extension agreement signed with EWEC. Net finance costs increased by 4% year-on-year. Our gross finance costs actually decreased by 2% to AED 3 billion. This was offset by a 30% decline in interest income as our cash and cash equivalent holdings declined during 2025. Tax expense saw a reduction of 28% to AED 1.1 billion. This reduction was impacted by the phasing of tax loss utilization within the oil and gas business and favorable deferred tax movements in both generation and oil and gas. Turning to the next slide. The balance sheet, we continue to benefit from ample liquidity, controlled leverage and an attractive cost of debt. Total debt stood at AED 65.3 billion at year-end, marginally increased over the prior year. Average debt maturity was 10.1 years, slightly lower 10.3 years as of December 2024. Total available liquidity has increased significantly to AED 26.4 billion, representing 12.2% of our total assets. This strong position is comprised of AED 6.7 billion in net cash and AED 19.7 billion in unused credit facilities. Our net leverage increased slightly to 2.8x due to higher net debt and a slight decline in EBITDA. The portfolio-wide interest rate remained steady at 4.8%, unchanged year-on-year. Finally, fixed rate debt accounted for 94% of our group's combined debt compared to 99% last year, primarily reflecting the impact of the AED 8.5 billion floating rate term loan I mentioned earlier. Overall, we remain comfortable with the strength of our balance sheet, and it continues to provide the foundation to achieve our growth targets. With regard to dividends, for Q4 2025, the Board of Directors has proposed a fixed payout of 1.5 fils per share in line with the existing dividend policy and a variable dividend of 0.7 fils per share. This brings the full year total for 2025 to 4.45 fils per share, an increase from 4.2 fills in 2024. 2025 marks the last year of our existing dividend policy. Consequently, the Board has also proposed an updated policy for 2026 to 2028. The new proposed policy is a continuation of the existing one and maintains fixed and variable components for total annual dividends. Proposed fixed dividends per share for 2026, 2027 and 2028 are 4 fils, 4.25 fils and 4.5 fils per share. We will continue to distribute these dividends on a quarterly basis. The variable dividend will be based on a discretionary payout free cash flow instead of just oil and gas net profit. The proposed dividend for Q4 2025 and the updated dividend policy are both subject to shareholder approval at the Annual General Assembly. I'll now pass over to Asjad, who will lead us through an overview of the segmental performance.

Thank you, Steve. As Steve indicated earlier, the financial information for transmission and distribution has now been separated for better alignment with the operating models of the businesses and enhanced disclosure. Transmission network availability remained high at 98.8%, which is in line with the performance reported in 2024. CapEx for the year surged by [ 144.1% ] to AED 6.7 billion. This increase is primarily driven by the execution of 3 special projects and the phasing of business-as-usual network announcements and upgrades. The RAB by 6.9% year-over-year to AED 0.5 billion driven by the substantial increase in [indiscernible]. Full year EBITDA remained very consistent with 2024 at AED 6.3 billion. These revenues primarily consist of intrasegment revenues from the distribution business. EBITDA on the other hand decreased by 5% to AED 4.9 billion as Steve highlighted earlier, this is largely attributed to nonrecurring noncash items. Moving to distribution. CapEx for the year was AED 2.4 billion, a 16.1% increase compared to the previous year. This decline reflects the impact of one-off capital additions that occurred in the previous year. RAB grew by 43% to AED 35.5 billion, reflecting our sustained investment in network enhancements. Revenue for the segment increased by 4.8% to AED 5.1 billion, primarily driven by BST pass-through costs. EBITDA rose healthy 8%, AED 4.6 billion, benefiting from the capital additions made in 2024. Turning to generation business. CapEx rose by 21.1% to AED 3.2 billion. This growth is led by the ongoing development of the 1 gigawatt Al Dhafra project, Mirfa 2, Shuweihat 4 RO desalination plant as well as the extension of the S1 power plant. Commercial availability recorded a slight decline of 97.9% compared to 98.3% in the prior year, primarily due to the timing of maintenance activities. Revenues remained broadly in line with 2024, ending the year at AED 12.2 billion. EBITDA declined by 7.3% to AED 6.9 billion, primarily driven by noncash impairment charge of AED 841 million, reflecting a higher assumed cost of capital. Moving to TAQA Water Solutions. CapEx surged 53.1%, reaching AED 1.2 billion for the year. This investment was primarily directed towards storm restoration works, asset enhancements, network rehabilitation and other ongoing strategic projects. RAB grew by 3.5% to AED 18.4 billion, driven by the combination of our sustained capital deployment and the impact of inflation. Revenues increased by 1.5% year-over-year to AED 2.7 billion, reflecting a stable and regulated nature of the business. EBITDA declined by 3.5% to AED 1.5 billion. This was mainly driven by higher G&A on the back of transformation initiatives. Finally, turning to oil and gas. The business continued to -- sorry, finally, turning to oil and gas, continued decline in production on the back of ongoing decommissioning activity and reduced commodity prices remain the key drivers for the business. CapEx decreased by 12.3%. This reflects reduced investment in drilling and completions in North America and the transition to decommissioning activities in the U.K. Production also declined 9.1% as a result of decommissioning at certain Northern North Sea fields. Revenues declined by 27.1% to $4.2 billion. In addition to the decline in production, this was impacted by lower commodity prices. Realized oil price in 2025 fell 17% year-over-year, while realized gas price declined 2%. The same factors also impacted EBITDA, which fell 14.2% year-over-year. I will now hand back to Steve to provide an update on progress towards our 2030 goals and to wrap up the presentation.

Thank you, Asjad. So first turning to 2030 goals. In line with the practice we started last year, I'd like to take you through the progress we have made so far towards our 2030 targets. We are at the halfway point in this journey and halfway towards meeting most of our targets. Starting with gross generation capacity. As I mentioned before, TAQA reached 73 gigawatts as of the end of 2025 with renewables now making up 64% of that total. As a reminder, our 2030 target is 150 gigawatts, of which 2/3 comes from renewables. In terms of net generation capacity, we reached 26 gigawatts, again about halfway towards our target of 50 gigawatts by 2030. Our water generation capacity stood at 1.149 billion imperial gallons per day at year-end with 41% of that capacity now utilizing efficient reverse osmosis technology. Though there is slight decline in capacity in 2025 compared to 2024 is a result of discontinuation of water desalination operations at Shuweihat 1. The investments on this growth has translated into spending of AED 35 billion between 2021 and 2025 compared to an anticipated aggregate spend of AED 75 billion by 2030. Transmission and distribution account for a slightly higher share of the spend, standing at AED 19 billion between 2021 and 2025, while the investment in generation of AED 16 billion. As a reminder, the dissemination of the AED 75 billion spending target, only expenditure contributing to the regulated asset base is considered for transmission and distribution, while anticipated equity investment was considered generation. As we conclude our full year review, it is clear that 2025 has provided another pivotal stepping stone for our 2030 targets. We have successfully expanded our local and international footprint through both organic and inorganic means, a trend we expect to sustain in the coming years. The EGA transaction serves as another prime example of the wider role TAQA plays in reducing the carbon footprint in the UAE. Our resilient utility performance remains underpinned by high availability across all core assets, reflecting reliable operations throughout the year. The new AED 8.5 billion corporate term loan facility is both a reflection of and a testament to TAQA's access to capital through multiple financial channels. We expect to continue to benefit from this for the foreseeable future. Ultimately, we remain confident the company will continue to generate stakeholder value as we progress towards our 2030 targets. Before we turn to Q&A, can I just take a moment to remind that this is my last earnings call presentation as TAQA's CFO. I'll be handing over to Adrian Kershaw starting next week. So let me thank you for your support to TAQA through the years that I have been CFO. It's been a great pleasure and a great privilege to be on the journey. Thank you.

Thank you, Steve. We'll now open up for Q&A. [Operator Instructions] Luke, please go ahead. Introduce yourself and ask your question.

This is Luke from Barclays. So firstly, I wanted to ask about the JV to acquire EGA assets at $1.9 billion. So I was just wondering if you could touch on generally what opportunity you see there and how this overlaps with your existing portfolio and if you see room to realize any synergies.

Can you just -- sorry, Luke, it's very difficult to hear you. We're not hearing you very well at the moment. Can we try again?

Can you hear me better now?

No. Still not very...

Okay. I'll try and type my questions so that you will allow someone else go first. Is it any better?

Have another go. If not well, we'll find another way. But please try again.

Sure. Yes, sorry about that. So firstly, I just wanted to ask about the JV to acquire the EGA assets for $1.9 billion. So I was just wondering generally, you could discuss how that overlaps the existing portfolio, what opportunity you see there and if there's any scope to realize any synergies. Hopefully, you can hear me.

Okay. Is that the only -- is that the full question, Luke?

Yes, that's the first question.

Okay. So I think the important thing that this plant brings to us as well as adding 3.1 gigawatts of valuable capacity to our capacity here in the UAE is that this plant is going to be connected to the grid and we can utilize. It is one of the most efficient, lowest carbon plants in the UAE and at 3 gigawatts, it's pretty big. And it allows us to replace other thermal capacity that we might have otherwise used to supply Abu Dhabi in general through the grid. So the real benefit of this is that it provides us with lower carbon, have more efficient power generation capacity, which also benefits EGA, by the way, because, of course, they have also access to the grid. So they will have greater security of supply. And as I said, we will have the opportunity to use more efficient production. So I think this is a good deal all around for everybody.

Excellent. That's helpful. And then I was wondering if there's any color you can share roughly on expectations in terms of timing of closing that transaction as well as the GS Inima stake.

So the timing and closing of the EGA transaction and GS Inima, is that right?

That's right.

Yes. Both will be this year. I hesitate to say more than that. I think the EGA transaction is fairly close. It is a fairly complex set of agreements, which are all basically done and signed. The main remaining step is financial close. I would expect that if we were here in 3 months' time, if Adrian is here telling you that we haven't yet closed it, I'll be surprised to hear that. So I'll be listening into that. So I think you can expect that in the reasonably near term. GS Inima is a little bit more difficult to predict. I think it will be this year. I'm sure it will be this year, let's not say I think, I'm sure it will be. But because of the number of jurisdictions that they operate in and the regulatory approvals that we need to go through and partner consent, financing consent, it's a pretty complex business. That is likely to take a little bit longer. So I think it will be later in the year, and it's a bit hard to predict much beyond that.

Excellent. And then my last question, I was wondering if there's anything you can share regarding your funding plans for this year, given the M&A. You obviously also closed a sizable loan last year, but you've got a bond due in the next few months. So any plans on funding or accessing the market, if there's any update you can share on that?

Yes. I mean I think it will -- we will be -- we will be going to market -- to the bond market this year. I think that's inevitable and absolutely what we would like to do. We need to keep access. Exact timing though, Luke, again, it's not -- I don't think it's going to be in the near term, it's probably going to be later in the year. Whether that's early summer or the third quarter, I think it's a bit hard to say because it will depend on the timing of spending plans and so on. So I would think a little bit later in the year. And it will not be tied. I mean, it doesn't need to be tied to the bond maturity, which you're referencing. We can go for it if that's not the issue.

[Operator Instructions] All right. It looks like we don't have any questions for this quarter anymore. Thank you very much again for joining us for the call. Looking forward to speaking to you on next call as well as meeting you guys in between. Thank you.

Thank you very much. Thank you.