Earnings call transcript: Abu Dhabi National Energy Q1 2025 shows revenue growth

Abu Dhabi National Energy Company PJSC, commonly known as TAQA, reported its Q1 2025 financial results, showing a 4% year-on-year revenue increase to 14.2 billion USD. The company’s earnings per share (EPS) came in at 0.02 USD, slightly above the forecast for the year. The stock price experienced a minor decline of 0.32%, closing at 3.12 USD, reflecting mixed investor sentiment. According to InvestingPro data, TAQA maintains a "GOOD" overall Financial Health score of 2.96, with particularly strong growth metrics. The company’s next earnings report is scheduled for May 15, 2025.

Key Takeaways

• Revenue increased by 4% year-on-year, reaching 14.2 billion USD.
• EPS was reported at 0.02 USD, a modest rise compared to forecasts.
• EBITDA declined by 7% year-on-year, indicating some operational challenges.
• Oil and gas production saw an 11% decline, impacting overall performance.
• The company declared an interim dividend of 0.75 fills per share.

Company Performance

TAQA demonstrated resilience in Q1 2025 with a 4% revenue growth year-on-year. Despite this, EBITDA fell by 7%, and net income saw a slight 2% decline. The company continues to face challenges in its oil and gas segment, with production down 11%. Its diversified portfolio across transmission, generation, water, and oil and gas, coupled with strategic investments in renewable energy, helps maintain a strong market position. InvestingPro analysis shows impressive last-twelve-month revenue growth of 40.41%, though the company’s debt-to-equity ratio stands at 2.48, suggesting significant leverage. Based on InvestingPro’s Fair Value model, the stock appears fairly valued at current levels.

Financial Highlights

• Revenue: 14.2 billion USD, up 4% year-on-year.
• EPS: 0.02 USD, slightly above forecast.
• EBITDA: Declined by 7% year-on-year.
• Net Income: Decreased by 2%.
• Total Debt: 63.7 billion dirhams, reduced from year-end 2024.

Outlook & Guidance

TAQA plans to continue investing in its regulated network businesses while reducing capital expenditure in the oil and gas sector. The company is targeting 100 gigawatts of renewable energy capacity by 2030, with Masdar focusing on integrating recent acquisitions. The strategic focus remains on renewable energy and international expansion. With a current ratio of 1.04 and market capitalization of $330.03 million, TAQA maintains adequate liquidity for its expansion plans. For deeper insights into TAQA’s financial health and growth prospects, investors can access comprehensive analysis through InvestingPro’s detailed research reports, which cover over 1,400 top stocks globally.

Executive Commentary

Steve Ridlington, CFO, emphasized the company’s strong defensive business model, stating, "The defensive nature of our business model provides a shield for our investors." He also highlighted the UAE’s ambition to lead globally in AI, which is expected to drive increased demand in the power sector.

Risks and Challenges

• Oil & Gas Sector Volatility: Continued declines in production could affect profitability.
• Macroeconomic Uncertainty: Global economic conditions may impact investment and growth.
• Renewable Energy Integration: Challenges in integrating acquisitions could delay strategic goals.
• Regulatory Changes: Potential changes in energy policies could impact operations.
• Market Competition: Increasing competition in the utilities sector may pressure margins.

TAQA remains committed to its strategic goals, despite the challenges posed by declining oil and gas production and broader economic uncertainties. The company’s focus on renewable energy and infrastructure investments positions it well for future growth. Trading at a P/E ratio of 23.58 and showing strong revenue momentum, TAQA presents an interesting opportunity for investors focused on the energy transition. Get exclusive access to more detailed financial metrics and expert analysis through InvestingPro’s comprehensive research platform.

Full transcript - Abu Dhabi National Energy Company PJSC (TAQA) Q1 2025:

Asjit/Achal, Moderator/Host, TACA: Hello, everyone. Welcome to our Q1 twenty twenty five Earnings Call. My name is Asjit, and I head Mr. Adhesion Zataka. I am joined by our CFO, Steve Ridlington.

Please note that this session is being recorded. And by participating in this meeting, you consent to the recording. This presentation will follow the usual script. Steve and I will walk you through the operating highlights and the financial performance of the period. We will then open the floor for a Q and A session.

I will now pass it over to Steve, who will guide you through the key highlights of the quarter.

Steve Ridlington, CFO, TACA: Thank you, Achal, and good morning, good afternoon, good evening to everybody wherever you are. And thank you very much for, for joining us again today. Turning to the results overview. The first quarter of twenty twenty five was marked by an unusual level of global macroeconomic uncertainty. However, the predictable nature of our utilities businesses translated into resilient financial performance during the quarter, as reflected by the limited year on year variation in net income.

Revenues grew 4% in the first quarter of the year on the back of a positive contribution from transmission and distribution and tackle water solutions in particular. The oil and gas oil and gas business, on the other hand, exerted downward pressure on revenues and profitability. This led to the 7% year on year decline in EBITDA, while net income fell by a more modest 2% year on year. CapEx continued to be at healthy levels as we invest in our transmission distribution generation businesses in particular. Despite the 30% year on year increase in CapEx, free cash flow generation jumped significantly on the back of working capital.

For the first quarter of twenty twenty five, the board has proposed an interim dividend of 0.75 fills per share. This is consistent with our declared dividend policy for the years 2023 to 2025. The quarter also witnessed the continuation of the business development activity with both Taka and Mastar announcing projects to support The UAE’s AI strategy for 02/1931. We will cover these exciting initiatives in more detail later in the presentation. Taking a closer look at financial performance for the quarter, transmission and distribution proved to be the largest control contributor to the top line growth.

The 12% year on year increase in transmission distribution, in turn, was driven by an increase in both supply tariff pass through costs. Generation revenues remained in line with the levels seen last year. Meanwhile, revenues in water solutions grew 3% year on year, thanks to the regulated nature of the business. Oil and gas proved to be the only business to report a decline in revenues on the back of weaker oil prices and a further decline in production as we progress The UK North Sea decommissioning program. Moving to EBITDA.

Oil and gas again proved to be the main factor driving lower profitability. Transmission and EBIT distribution EBITDA was 2% lower year on year due to one off post merger integration activities at Tacker Distribution. As a reminder, Abu Dhabi Distribution Company and Al Ain Distribution Company were recently merged into a single entity with the aim of achieving significant efficiencies and improving customer service. The 10% year on year decline in generation EBITDA was led by a low contribution from associates and joint ventures. In our water solutions business, remediation works following the exceptional weather events of 2024 drove operating expenses higher.

This in turn translated into a 13% year on year fall in EBITDA for the business. The combination of lower oil and gas prices and the decline in production resulted in a 39% year on year reduction in oil and gas EBITDA. Lastly, corporate EBITDA was supported by 330,000,000,000 dirham dividend income from Admiral Gas, while there was no comparable contribution in the first quarter last year. Moving to p and l items below the EBITDA line. The decline in net income was limited to 2% year on year.

And then on in The UK excuse me. The most notable fact that supported the bottom line was a lower effective tax rate in The UK on the back of our decommissioning activities. Depreciation, depletion, amortization charges also decreased due to a revision of useful life estimates of assets within The UAE. Moving to the balance sheet. At 63,700,000,000.0 dirhams, total debt was largely lower compared to the year end 2024.

Average interest costs across the portfolio remained unchanged, while average maturity also remained largely in line with the levels seen at the end of last year. Meanwhile, liquidity improved on the back of higher cash generation in the first quarter. However, our leverage ratio did end up compared to December 2024 due to the year on year decline in EBITDA in the first quarter that we’ve already talked about. Overall, I remain very comfortable with the strength of our balance sheet, continue to benefit from a mix of ample liquidity, controlled leverage, and attractive cost of debt largely locked across the portfolio. This continues to offer a solid foundation to build on for continued growth.

Our twenty twenty three, twenty twenty five dividend policy will continue to guide us through this year. Based on the utility segment, the fixed dividend for the year is set at £3.75 per share for 2025. Consistent with this, the board approved the first quarter interim dividend of 0.75 bills per share. I will now pass back to Azjad, who will lead us through an overview of the segmental performance. Thank you, Steve.

Asjit/Achal, Moderator/Host, TACA: Network availability remained strong at 98.7% for the transmission and distribution business, a margin improvement over Q1 last year. CapEx increase was driven by timing phasing of project execution relating to water and electricity network construction, enhancements and upgrades. Our RAD increased marketing to $77,200,000,000 as well. As mentioned previously, our efficient distribution revenues increased 12% year over year, driven by an increase in BSE pass through costs. EBITDA, on the other hand, was impacted by higher expenses related to post merger integration activities, which are non recurrent in nature.

Moving to the Generation segment. From an operational standpoint, commercial availability was lower at 95.6% because of planned and unplanned outages across our UAE plants. The surge in CapEx was driven by the accelerated construction of Al Dafra OCTT plant with a one gigawatt capacity, which is being developed in support of The UAE AI Strategy 02/1931. Steve will provide more details later in this presentation on the role Thakkar and Mastra are playing to support UAE’s ambitions to become a global leader under AI. Moving to financial performance, generation revenues were stable year over year.

Meanwhile, EBITDA was impacted by two factors. Firstly, our associates and joint ventures had a lower contribution this quarter. Secondly, G and A increased due to a reallocation of costs from corporate segment post the corporate restructuring that we saw. Moving to Taco Water Solutions. Commercial availability in the business declined to 93.7% during the quarter.

This was driven by remediation works following the exceptional weather event in April. The increase in CapEx was driven by development of new networks as well as rehabilitation, replacement and upgrades to existing infrastructure. In terms of financial performance, revenues grew 3% year over year as we benefit from the regulated nature of the business. EBITDA, however, was impacted by higher operating expenses, which in turn were primarily linked to the extreme weather event of last year. Moving to the last segment, Oil and Gas.

In this business, production continued to trend downwards in Q1 on the back of cessation of production of four U. K. Assets in late twenty twenty. The transition to safe and efficient decommissioning in U. K.

Also contributed to the 50% year 52% year over year decline in CapEx spend. The combination of 11% decline in production and 12% fall in realized oil price resulted in a 2439% year over year drop in revenues and EBITDA for the business as percent. I now hand back to Steve for his concluding remarks, after which we will open the floor for ’20.

Steve Ridlington, CFO, TACA: Thank you, Rastian. Our performance in 2024 put us on a strong trajectory to achieve our long term goals, and 2025 is on track to witness a continuation of the same. On the m and a front, we announced the acquisition of Transmission Investments in April, a leading UK based energy and utility investment platform. Transmission Investments specializes in offshore transmission. It operates 11 assets connecting offshore wind farms to The UK grid.

The strategic acquisition strengthens TACA’s position in the offshore electricity transmission sector, reinforcing our commitment to supporting energy transmission, pursuing international expansion. Masdar is also building on its strong momentum from last year and continue to add to its renewable portfolio via acquisitions. As the largest shareholder of the company, we continue to support its global ambitions. We’re also delivering on our promise of continually improving transparency and disclosure. In particular, our recent published ’24 2024 integration integrated report has a wealth of ESG related disclosures, including scope three emissions data.

I invite you to explore the report, which covers multiple facets beyond ESG. I have started this presentation by pointing out the macro uncertainty the world faced in q one. For the past few weeks or any indicator of this uncertainty is here to stay. In this environment, the defensive nature of our business model provides a shield for our investors. As a as a reminder, contracts and regulated revenues account for 90% of the tax top line, providing stability and predictability for the business.

In terms of TCM activity, we repaid maturing corporate bonds with $750,000,000 in April from cash resources. The strong cash flow generation from our businesses means we did not need to tap the capital markets ahead of the bond repayments, and we want to continue to keep issue plans under review for the time being. Let me finish with a few words on The UAE’s AI strategy 2031. US UAE has made it clear that it plans to be one of the global leaders on the AI front. This places significant additional demand on the power sector, which is translating into new growth opportunities for TAC.

The one gigawatt Al Dafra OCGT project is a clear example of this. Mars Star is similarly capitalizing on this opportunity by developing the world’s first one gigawatt round the clock renewable project. We will also need to invest significantly in our power transmission networks to connect these power sources to the data centers. We thus view the future even more optimistically with our home market of The UAE adding to the wealth opportunities available to Taka for continued growth. Thank you.

Asjit/Achal, Moderator/Host, TACA: Thank you, Steve. Please raise your hands for anyone who’s got questions. I see this one. Luke, could you please introduce yourself and ask your question?

Luke, Analyst, Barclays: Hi. Thanks. This is Luke from Barclays. Thanks for the presentation. So I’ve got two questions.

So, yeah, firstly, as you highlighted, there was a fairly large working capital inflow in Q1. So I was just wondering what you expect that for the rest of the year. And then quickly on the oil and gas segment, obviously, it’s a small part of the business, but it’d be great if you could remind us of the cost structure there and what you expect in terms of profitability closer to spot prices.

Steve Ridlington, CFO, TACA: Okay. I heard the first question well. I didn’t quite get the second question, Luke. But let me ask answer the first one first, and then if you could repeat your question on oil and gas. So the working capital inflow, we did have a very strong positive contribution within our transmission distribution businesses, I don’t think we will expect that to continue.

It may normalize through the rest of the year. So I I think that that that that that could, as I say, normalize as the year progresses. I I mean, what was the question on oil and gas?

Luke, Analyst, Barclays: Thanks. Yeah. I was just wondering if you could remind us what the cost structure of the operations is and in terms of profitability, you know, given the the decline in prices we’ve seen so far in q two, what you would expect there? Thanks.

Steve Ridlington, CFO, TACA: Right. So well, well, the the the cost structure for I I mean, the the primary focus for this discussion really needs to be on Canada because that’s the lion’s share of our production. It’s around 75,000 barrels a day of the 90 odd thousand that we now have. And and and our portfolio is a mix of oil and gas. At current oil prices and current gas prices, we will remain profitable.

I’m I’m pretty confident in that. And but but but the level of profitability is not going to be as it was last year, I think, the current outlook. And therefore, we may invest a little bit less than we might have otherwise done in in new development to maintain production in the Canadian portfolio. So continuing profitability, but probably not at the levels that we saw last year.

Luke, Analyst, Barclays: That’s great. Thanks a lot.

Asjit/Achal, Moderator/Host, TACA: Thank you. Again, if anyone else has any questions, please feel free to raise your hand, and we’ll open the mic to you. Drew, do you have any other questions or it’s just from the first time running?

Luke, Analyst, Barclays: Yeah. That’s all for me. Thank you.

Asjit/Achal, Moderator/Host, TACA: Justin, if I could ask you to introduce yourself and you can ask questions.

Justin, Analyst: Hi. Hi. Thank you for the presentation. Apologies. I joined a little bit late.

Can I understand if you have talked about it, about your CapEx plan? You know, If you can talk about the guidance for the next one to two years. And if you could break it down into the investment in your T and D as well as investment for the oil and gas that you mentioned earlier and as well as investment in Masters. Yeah. Thank you.

Steve Ridlington, CFO, TACA: Okay. Well, look, I think for the first quarter, you’ve seen a a pretty strong kick up in in in capital investments. That really is most of our investments and CapEx investments is in our regulated businesses here in the in in The UAE in Abu Dhabi. So our transmission distribution and water solutions business. And and that is definitely picking up year on year, a very strong pickup.

In terms of our investments in oil and gas, our our CapEx is is focused very much on on the calendar. And as I just mentioned, with weaker oil prices, and and and the gas prices as well, we we we may we may cut back a little bit on capital investments into into the oil and gas business. We’re not really investing CapEx in in any other oil and gas jurisdiction, particularly as The UK is moving towards decommissioning and therefore abandonment expenditure. In terms of Mazda, we had a we had a a pretty heavy investment in Mazda last year because it was that’s how I a very successful year acquiring platforms in The US and Europe, particularly. And we don’t expect that to continue at the rate that it was at last year because a lot of the effort, I think, from that start for this year will will will focus on integrating these new platforms that are being acquired and and adding to them in in investments.

I’m I’m we we don’t give CapEx guidance, Jocelyn, I’m afraid. So but but I think that the trend that you’re gonna be seeing, which I can sort of outline and which I’ll just summarize as being some increase in in capital expendings expenditure in our regulated networks business, less investments in Mazda than we saw in ’24, I think. And capital spending, which is which is not a major part of our sales over CapEx in any event, probably slightly lower in in the oil and gas business that we saw last year.

Justin, Analyst: Thank you.

Asjit/Achal, Moderator/Host, TACA: Thank you. Again, if anyone has any questions, please feel free to raise your hands, and we’ll open up the mic to you. JB, good time to ask you to to introduce yourself and ask your questions.

Jean Pierre Merjean, Analyst, Kepler Cheuvreux: Yes. Hi. Can you hear me?

Asjit/Achal, Moderator/Host, TACA: Yes.

Jean Pierre Merjean, Analyst, Kepler Cheuvreux: Jean Pierre Merjean from Kepler Cheuvreux. Just a quick question regarding your progress on M and A plans. Can you clarify whether this reflects the recent achievements from Masdar or whether you are due to other considerations? In particular, there have been reports in Q1 from Bloomberg saying that Takia has renewed interest for purchasing potential stake in Naturgy. What can you say about that?

And could you remind us the potential strategic rationale for such a move? Thank you.

Steve Ridlington, CFO, TACA: Yes. So in terms of the M and A activity that has taken place, you’re quite right to say that most of that in ’twenty four and somewhat in ’twenty four and ’5 is Mazda. That has been the main focus of our m and a activity so far, and it’s and it’s resulted in a very significant increase in the number of gigawatts that Mazda has, which is an important contributor to our hundred gigawatts twenty thirty targets. In terms of TACA’s m and a activity, we did announce one investment in a company called Transmission Investments in The UK. That was not a very significant investment in terms of scale.

It is a company that is is involved in offshore transmission. So it’s it operates and maintains and develops the transmission lines from the offshore wind farms of The UK to the National Grid, onshore UK. It is an asset manager and operator rather than an investor. So it’s it’s an important business for us to make an initial step out into transmission into The UK and to and to acquire a company that has significant skills in offshore transmission, which is an important part of our business today here in Abu Dhabi as well as elsewhere. So we see that as a as a good acquisition of skills and potential in that in that area, but but not a significant investment.

Naturally, I I there are no ongoing discussions on on on that. That is not something that we’re it was something that we looked at last year. It didn’t work out, and and there are no current plans to to reactivate those discussions. So I know there’s been press speculation, but it’s not based on anything that we are actually doing.

Jean Pierre Merjean, Analyst, Kepler Cheuvreux: Okay. Very clear. Thanks very much.

Asjit/Achal, Moderator/Host, TACA: Thank you, JB. Any other questions, please feel free to raise your hand. We’ll open up the mic to you.

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