TAQA Arabia S.A.E. ($TAQA)

Hello, everyone. Welcome to TAQA's Q1 earnings call. My name is Asjad Yahya, and I head Investor Relations at TAQA. I am joined today by our Group CFO, Adrian Kershaw; and the CFO of TAQA Transmission, Stefano Lagna. Please note that this session is being recorded, and by participating, you consent to the recording. This presentation will follow our usual format. Adrian, Stefano and I will walk you through our prepared remarks followed by a Q&A session. I will now pass it over to Adrian who'll guide you through the highlights of the group Q1 2026.

Thank you, Asjad. Following Steve's tradition. Good morning, good afternoon, and good evening to everyone. Whilst this is my first earnings call as TAQA's Group CFO, I'm not new to the group, having much recently served as CFO of TAQA Water Solutions, and before that, a loan distribution company. It is a privilege to step into this role, and I look forward to continuing the dialogue with our investors and analysts. Turning now to our first quarter performance. More than anything else, Q1 2026 is a testament to TAQA's ability to successfully navigate complex external environments. This is evidenced by our ability to maintain continuity of essential power and water services across the portfolio despite the recent regional developments. Moreover, our business model, which is underpinned by a high proportion of regulated and contracted activities, translated into a resilient financial performance during the quarter. Starting with the top line. Group revenues came in at AED 13.7 billion, down [ 3% ] year-on-year. The decline was driven mainly by lower revenues in oil and gas and generation, partially offset by continued growth across our regulated utilities. EBITDA, on the other hand, grew 5% to AED 5.5 billion. This increase reflects the stable earnings profile of our regulated utilities and increased contributions from equity accounting and investments in generation. Net income remained flat year-on-year at AED 2.1 billion. Free cash flow also remained steady at AED 4.8 billion as higher operating cash flows were offset by increased investment in capital projects. CapEx for the quarter increased 45% year-on-year to AED 3.2 billion, reflecting our continued commitment to strategic growth. In terms of dividend, the Board has proposed an interim fixed dividend of 80 fils per share for Q1 2026, in line with the new '26-'28 dividend policy approved by the shareholders earlier in the year. This compares to 75 fils per share in Q1 2025. Last but not least, we updated our existing green finance framework to also include blue financing, further strengthening our sustainable finance credentials. Q1 2026 witnessed a continuation of the strong momentum we've done last year in terms of developing our portfolio. In the UAE, we have added certain strategically important initiatives. We signed a 27-year utilities purchase agreement with ADNOC to supply critical utilities to the disease industrial chemical zone in [indiscernible], further reinforcing TAQA's role in enabling industrial growth of Abu Dhabi. TAQA water solutions, along with [indiscernible] signed a long-term agreement with the government of [indiscernible] to develop the Emirate's largest wastewater treatment plant, with a capacity of 60,000 cubic meters per day to serve up to 300,000 people. Through Masdar, we also achieved financial close for a 1.5 gigawatt [ castner ] solar PV project in Abu Dhabi. And in March, we completed an 870 million green bond refinancing for the [ Aldefra ] solar PV IP, reinforcing TAQA's renewed platform and sustainable finance credentials. Internationally, Masdar continued to build momentum in advancing our global clean energy platform. In our [indiscernible] it achieved financial close, but [indiscernible] 3, the Sultanate's first utility scale and battery storage project, rising 500 megawatts of solar PV and 100 megawatt hours of battery energy storage. [indiscernible] state and it achieved financial close [indiscernible] project, combining 300 megawatts of solar PEV with 75 megawatt hours of battery energy storage. In the U.K., Masdar and RWE secured contract for difference for 3 gigawatts of new offshore wind capacity across the [ Doga Bank ] South projects. And in Germany, Masdar and RWE signed an MOU to pursue battery energy storage investments. Finally, on the government's shareholder front, shareholders elected a new Board of Directors with his excellence suggested [indiscernible] [ Alzabi ], appointed Chairman. They also approved the updated' 26 to '28 dividend policy, which maintains both fixed and variable competitives. Turning to the group's revenue and EBITDA performance for the quarter. Group revenues declined [ 2.7% ] year-on-year to be to AED [ 13.7 ] billion. At a segment level, the revenue performance reflects 2 forward trends. Our regulated business continues to grow, with revenues up across transmission, distribution and TAQA water solutions, supported by RAB growth, regulatory allowances and inflation indexation. This was all then offset by lower revenues in generation, reflecting the ongoing [indiscernible] 1 power plant extension works that we signed last year. And oil and gas, driven by lower gas prices, production mix and a lag between production and sales. Meanwhile, group EBITDA increased 5.2% year-on-year to AED 5.5 billion, supported by growth across the regulated utilities and higher contribution from joint ventures and associates in generation. These gains were partially offset by lower corporate EBITDA, mainly due to the reduced dividend income from ADNOC gas, following its shift from semiannual to quarterly payouts last year. Moving to the nonoperating items in the profit and loss statement. The increase in EBITDA was offset by higher finance costs and tax expense, resulting in stable net income. Depreciation, depletion and amortization expense remained largely stable year-on-year at AED 2.3 billion. Net finance costs increased by 6.5% year-on-year, mainly reflecting higher finance costs as total debt increased. Tax expense increased by 126.3% year-on-year to AED 405 million. This was driven by higher taxable profits across the group, deferred tax movements in the international generation business. This year-on-year comparison was also impacted by a tax refund received in oil and gas last June. As a result, net income remained stable at AED 2.1 billion in Q1 2026. Let's turn to Slide 9 to discuss our liquidity and debt profile. Moving to the balance sheet. TAQA continues to maintain a strong financial position with significant liquidity, controlled leverage and an attractive cost of debt. Total debt stood at AED 71.2 billion at quarter end, up 9% from December '25, reflecting funding to continued growth of the business. Average debt maturity stood at 9.2 years compared to 10.1 years at December 2025, but still representing a well-laddered profile. Liquidity stood at AED 27.3 billion, remaining stable at 12% of total assets, providing ample capacity to fund our future growth plans. Net leverage improved slightly to 2.7x from 2.8x at year-end '25, supported by lower net debt and higher EBITDA. Average interest rates declined marginally to 4.7% from 4.8% at year-end '25, reflecting our continued focus on managing borrower costs. Fixed rate debt represented 84% total debt compared with [ 94% ] at year-end 2025 as we drew down on the bank loan arranged last year. We also borrowed a limited amount against the RCS post the start of war, demonstrating the access to capital market TAQA enjoys. Overall, we remain comfortable with the strength of our balance sheet, and it continues to provide the foundation to achieve our ambitious growth targets. Moving on to the dividend policy. With regards to dividends, shareholders approved TAQA's new '26 to '28 dividend policy at the AGA. The policy maintains the previous structure of fixed and variable components, while providing for a higher fixed dividend over the new 3-year period. Under the updated policy, fixed dividends per share withstanding 4 fils, 4.2 fils, 4.25 fils and 4.5 fills, '26, '27 and '28, respectively. Meanwhile, the variable component will now be based on a discretionary payout from free cash flow at the end of each year. In line with this policy, for Q1 2026, the Board has proposed an interim fixed dividend of 80 fils per share. Overall, the updated policy reflects TAQA's commitment to delivering attractive, sustainable returns to all shareholders, while maintaining a disciplined approach to delivering on its long-term growth ambitions. I will now hand it back to Asjad, who will lead us through the segmental performance in more detail.

Thank you, Adrian. Starting with generation. CapEx declined [ 26.6% ] year-on-year, reflecting the phasing of construction progress. Commercial availability was [ 39.80% ], down 1 percentage point on Q1 '25, but remains strong across the generation [indiscernible]. Revenues declined 4.6% actually because the S1 plan has been taken offline, where in other growth extension was for a 15-year EBITDA. EBITDA contrast was up 6.5% to AED 1.8 billion, led by higher contributions from Masdar, [ Sohar ] and the completion of the acquisition of Talimarjan power plant 1 in Q2 2025. Moving to transmission. Network availability remained strong at 98.4%, broadly line with Q1 '25. Capital expenditure more than doubled to AED 4.5 billion, driven by the institution of key special projects in the phasing of business-as-usual network and operations. The RAB grew 1% year-on-year to AED 45.4 million, supported by continued capital investment across transmission network. Revenues increased 8.7%, supported by growth in RAB, inflation indexation and contributions from special projects such as Nexus, alongside higher revenue and license [indiscernible]. Meanwhile, EBITDA grew 8.1%. The slightly lower EBITDA growth compared to the top line reflects the impact of workforce transmission -- transformation initiatives and development of special projects and the integration on transmission investment which we acquired last year. With regards to distribution, CapEx increased [ 87.7% ] to AED 519 million, primarily reflecting a higher volume of available projects transferred during the period. RAB grew by 0.6% from year-end with [ 535.8 billion ], supported by continued capital delivery across the institution network. Revenues increased to 0.1%, AED [ 19.1 ] billion, driven by higher [ MAR ]. The increase in MAR was supported by growth in RAB, allowed capital expenditure, regulatory depreciation and application of the [indiscernible] back. EBITDA also increased [ 5.4% ] to AED 1.1 billion, reflecting the positive impact of higher regulated [indiscernible]. For the Water Solutions business, network availability increased 3.5 percentage points to 97.2%, reflecting a strong operational performance during the quarter. CapEx increased 57.8% to AED 284 million, mainly driven by higher dividend project transfers, restoration works, asset advancements, network pay mitigation and other ongoing projects. RAB increased 1% from year end '25 to AED 18.6 billion, reflecting continued investment across the water solutions and regulated assets. Revenues increased by 2.7% year-on-year to AED 683 million, again, reflecting the regulated nature of our business and adjustments in [indiscernible]. EBITDA also increased 5.3% year-over-year to AED 418 million, supported by higher regulatory revenue and lower operating expenses, particularly reduced repair and maintenance cost. Lastly, turning to oil & gas. CapEx increased 35.9% to AED 178 million, driven by investment in new gas processing infrastructure in Canada, including a new facility and associated pipeline infrastructure. Production was broadly flat year-on-year at [ 94,600 ] barrels of oil equivalent per day. With regard to commodity prices, average realized oil price increased 11.6% year-over-year to $17.8 per barrel, while average realized gas price declined 9.1% year-over-year to $3.11 per MMbtu in the first quarter. Revenues declined [ 33.4% ] to AED 992 million, mainly reflecting lower gas prices, production rates and the lag been reduction in sales. EBITDA, however, increased 13.9% year-over-year, AED 622 million, as lower revenue were more than offset by the decrease in operating costs. I'll now hand over to Stefano, who is in our transmission business. Starting this quarter, we will provide you a closer look at how our business works, starting with transmission, which accounts for the most significant contribution to our bottom money.

Thank you, and hello, everyone. I'm the CFO of TAQA Transmission, and I've been with the group for 6 years, leading the transformation of this business line of TAQA into one of its powerful [indiscernible]. TAQA Transmission is the backbone of the UAE Power and Water Systems. We plan, own, operate and maintain transmission networks across Abu Dhabi and [indiscernible] Emirates, connecting generation plants, distribution networks and to large industrial customers across the country. Transmission is not simply about wires or pipelines, it is the system platform. This is where reliability is engineered, where [indiscernible] is connected and where energy transition is enabled at scale. In terms of in-store infrastructure, we currently operate 169 power substations, 48 water pumping stations and more than 15,000 kilometers of network in the UAE. This asset base is critical to 3 outcomes that matter, customer and government, stakeholders, security of supply, supporting economic growth and enabling transition to renewables. Beyond the UAE, our recent acquisition of transmission investment gives us a strategic presence in the U.K. and access to the attractive offshore transmission market. Beyond infrastructure we already have in place, the most important message I want you to walk away with is the growth already in execution. These are not early stages planned. They are EPC projects that have been awarded, formalized and are currently under deliver. We are adding 45 new power substations, a 27% growth on the existing base; 4 new water pumping stations, an 8% [ increase ]; and approximately 1,800 kilometers of new power and water lines, which represents 12% network growth. As another reference point, in mature markets like the U.K., new transmission substations are relatively infrequent and take years. For example, [indiscernible] recently highlighted starting work to improve major new substations near [ London ]. Contrast [indiscernible], the 45 substations now currently delivering pipeline. As to the question of why this growth, the answer lies in the portfolio mix. Nearly half of the growth is government-driven, followed by duration and demand-driven needs. We also cater to strategic industrial demand, with key examples being ADNOC and EGA. In fact, this represents a good example of the key role TAQA plays in supporting the wider decarbonization efforts in the UAE. In other words, our CapEx growth is a direct response to customer requests and government policy. It is the practical enabler of both economic growth and decarbonization. I would also like to highlight one specific project, Project Nexus. On our key strategic projects and a clear illustration of [indiscernible] scale and deliver capability. You are likely aware that Nexus encompasses the [indiscernible] power plant like TAQA and the world's first round-the-clock renewable project, Masdar to support Abu Dhabi's AI ambitions. In its current execution phase, it will deliver approximately 2 gigawatts of power and 45 MIGD of water capacity, supported by 14 substations, 1 pumping station, 99 kilometers of high-voltage cables, 90 kilometers of pipelines, 210 kilometers of high-voltage operate line and 2 water storage tanks. More than 20 EPC contractors are working on site, and we are targeting completion in 20 months compared with a more typical 36 months time line for a project of this scope, a reduction of around 44%. Project Nexus is therefore not only a strategic infrastructure project. It is a proof point of our ability to deliver complex, large-scale infrastructure upgrades in response to urgent customer growth needs while maintaining system security. In a nutshell, TAQA Transmission is the back of asset base, including the CapEx growth of revenue execution that will deliver security of supply, customer and policy-driven growth and the transitions renewals. I will now hand back -- the mic back to Adrian to wrap up the presentation.

Thank you, Stefano. Now I'd like to take you through the progress we continue to make towards our 2030 goals. Through the halfway point of this journey, a little about -- a little over halfway towards meeting most of our targets. Starting with gross generation capacity. TAQA reached 77 gigawatts as of quarter end, with renewables now making up 65% of that total. As a reminder, our [ 2030 ] targets sit at 150 gigawatts. In terms of net generation capacity, we reached 29 gigawatts, again, a little ahead of the halfway mark to reach the target of 50 gigawatts by 2030. Our water generation capacity stood at 1,149 MIGD at quarter end, with 41% of that capacity now based on reverse osmosis technology. The investment on this growth has translated into total spending of AED 35 billion between '21 and '25 compared to an anticipated aggregate spend of AED 75 billion by 2030. T&D accounts for a slightly higher share of spend, standing at AED 19 billion between '21 and '25, while the investment on generation stood at AED 16 billion. As a reminder, for the determination of the AED 75 billion spending target, only expenditure contributing to RAB was considered for transmission and distribution, while anticipated equity investment was considered upon generation. Lastly, as been our practice previously, we will continue to update and share this data with you on an annual basis. To wrap up, Q1 '26 reinforces the momentum we booked towards our long-term growth ambitions and our 2030 targets. Ensuring continuity of [ ascension ] power water services in this very uncertain time earlier in the year, is a hallmark of our operational preparedness. Moreover, financial resilience of our business continues to be underpinned by our corporate strategy, whereby regulated, contracted activities accounted for over 90% of revenues and over 85% of EBITDA in Q1 2026. We also continue to benefit from a very healthy combination of ample liquidity and continued access to financial markets, reinforcing our ability to pursue our ambitious growth plans. We have also updated our green freight finance framework to include blue financing, along with expanding the list of eligible projects to include transmission and distribution of clean energy and final change adoption. Moody's Investor Service provided a second-party opinion on the framework, assigning a sustainability quality score of SQS2, maintaining the same SPO rating obtained for the inaugural framework. The updated framework provides a clear alignment with our corporate strategy as well as the factors most relevant to our operating environment. Last but not least, the updated '26 to '28 dividend policy delivers further shareholder value while we continue to invest in our business. This is in line with TAQA's policy of pursuing value maximization for all stakeholders while delivering on a very ambitious growth plan. I'll now hand you back to Asjad to move on to the Q&A session.

Thank you, Adrian. [Operator Instructions] JP, if you can introduce yourself and ask your question, please?

Yes. Andrew, welcome to TAQA in your new role. Here is my question. In terms of new regulation and the allowed returns, given that the regulated activities in T&D and water remain the backbone of earnings generation, how should investors think about the new regulatory results for Abu Dhabi, especially on WACC and the inflation indexation?

JP, just to clarify, your question is on the WACC and regulatory framework, correct?

Yes, if you could give us more color on how investors should think about it as this is -- these are key considerations for your earnings.

So essentially, we have a RAB base that we have paid a WACC of 4.9% on and annual inflation is applied to that. It's covered through the regulatory controls that's, in detail, published in the DOE website, but it's what ensures the consistency of earnings.

All right. As a different question, about AI and data centers, I think that there was an announcement recently with EWEC about securing financing for a new power plant dedicated to AI. Could you clarify the role that TAQA could play in the expansion of AI in the UAE, and the model -- the business model for TAQA's remuneration related to AI and data centers.

Okay. So the project you're referring to is [indiscernible], which recently secured financing. And we also have the Masdar round-the-clock solar PV and battery storage project. So through TAQA and Masdar, we're providing power to the network. And then as Stefano explained, transmission and connect from the power station to the data center through the cables and transformers.

And in terms of the remuneration on these investments, how -- can you give us more color on that?

So generation and Masdar is through the traditional IPPs that we've been doing since '99, and the transmission lines are through the wrap, and you'll see the increased CapEx and then the revenue being impacted by that.

Anyone else? [Operator Instructions] Looks like it's no questions, no more questions left. Thank you very much for joining us. We look forward to speaking to you guys again next quarter. As always, we're available in meeting as well. Feel free to reach out to us, and we can answer any questions you might have. Thank you very much for joining.