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Edited Transcript of TAQA.AD earnings conference call or presentation 19-Mar-20 8:25am GMT

Q4 2019 Abu Dhabi National Energy Company PJSC Earnings Call

Abu Dhabi Apr 2, 2020 (Thomson StreetEvents) -- Edited Transcript of Abu Dhabi National Energy Company PJSC earnings conference call or presentation Thursday, March 19, 2020 at 8:25:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Mohammed Al Ahbabi

Abu Dhabi National Energy Company PJSC - Acting CFO

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by. Welcome to TAQA's Results Call for the Full Year of 2019. We are pleased you are joining us today. My name is Denise, and I am your operator. (Operator Instructions) This call is being recorded. (Operator Instructions) We will refer to the slides that are available on TAQA's website, www.taqaglobal.com in the Investors section. In case of any follow-up questions, please contact our Investor Relations teams, who will be more than happy to assist you. For any members of the media, please be reminded to share your questions separately with TAQA's communications team.

I would also like to draw everyone's attention to the disclaimer on the next page of the presentation, in particular, to the section on forward-looking statements.

I'm joined today by Mohammed Al Ahbabi, who is TAQA's Chief Financial Officer. Please turn to Slide 3, and let me now hand over to Mr. Al Ahbabi.

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Mohammed Al Ahbabi, Abu Dhabi National Energy Company PJSC - Acting CFO [2]

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Thank you, Denise. Welcome, and thank you for joining this call. We are pleased to deliver a continued profitability and strong operational performance for the last quarter and full year of 2019. The group was -- the group saw an increase in our overall production volume and technical availability for the year. These operational improvements have reduced the impact of lower commodity price in oil and gas business revenues. As a result, revenues were AED 17.6 billion, down 1% from 2018.

EBITDA dropped by 5% to AED 9.1 billion, reflecting lower energy prices and higher repair and maintenance costs within the group international power assets and lower income from associates. Finance costs were lower than 2018, following the continued reduction in gross debt and lower tax expenses, mainly within the oil and gas businesses.

All in all, I'm pleased to report continued profit of AED 234 million for 2019, the third consecutive year of profitability for the group. We continued to make progress on deleveraging the business with debt reduction by AED 2.9 billion in 2019 and continued strong liquidity going forward in 2020.

Turning to Slide 4. Our power and water business continued to provide us with stable operation and financial performance, with revenues of AED 11.5 billion and EBITDA of AED 6.6 billion, consistent with last year's results. Technical availability across the fleet averaged 93.4% for the full year period, up from 93.1% in 2018. Strong performance by the UAE fleet offset lower availability in our international business, which was due to an extended period of repair and maintenance to our power plant in [Ghana] in the first half of 2019. As previously mentioned, this resulted in higher operation -- operating expenses for the -- within the power and water segment. The gross power production and water desalination volumes remained constant with volumes last year.

Turning to Slide 5. We will now look at the commodity price environment where our production split is roughly 40% oil and 60% gas and gas liquids. Around 90% of the group natural gas is produced in Western Canada. Most of this gas is sold into a local market based on AECO price, which has been very volatile and averaged around USD 1.34 per million BTU for 2019. Nonetheless, AECO price are up around 15% versus 2018, helped by price freeze in the last quarter. The remainder is sold in Europe with NBP pricing, which was significantly weaker last year. Overall, TAQA realized gas price was lower this year.

The majority of TAQA oil production is linked to Brent, which averaged at approximately USD 64 per barrel, down 10% versus 2018. The market weaknesses was due to reduced global oil demand, including weaker Chinese economy growth alongside trade war fear and increased non-OPEC supply.

Moving to Slide 6. Revenues from oil and gas for the period were AED 6.1 billion, 4% lower than 2018, mainly due to lower realized price. Oil and gas EBITDA reduced by 7% to AED 2.5 billion, mainly reflecting weaker revenues, which was offsetted by lower cost in Europe due to favorable foreign exchange impact on the underlying GPB (sic) [GBP] operating cost based on operational efficiencies.

Average production for the year was around 124,000 barrel per day, representing a 1% increase compared to last year. This was mainly driven by strong production gained in Atrush, where our entitlement production almost doubled to approximately 7,100 barrel per day due to new wells coming online and successful planned debottlenecking efforts. This made up for lower European production affected by natural decline and delay in some of the capital projects. North American output remained broadly constant compared to the same period of last year, averaging 78,300 barrel of equivalent per day.

On Slide 7, TAQA has maintained its capital discipline and continued to focus investment towards core operations. The group's overall capital investment increased to AED 1.8 billion for 2019, up slightly relative to 2018 CapEx spend. The CapEx program remained completely self-funded by cash generated from the TAQA's operation and is focused on sustaining and developing existing power and water and oil and gas assets.

In our power and water business, CapEx was focused on major maintenance program within the UAE fleet, including inspection and overall costs. Oil and gas CapEx fell overall, mainly due to the lower spend on TAQA European asset due to the delay of some of the capital projects, as previously mentioned.

Turning to Slide 8, which contains more detail on our financial performance. Revenues and EBITDA were weaker due to lower energy price for oil and gas business, but increased operating expenses and lower associated -- associate income also fed into lower EBITDA number. TAQA net income fell to AED 234 million for 2019, reflecting the lower EBITDA in addition to unfavorable market-to-mark -- mark-to-market movement on Red Oak asset, offset by FX gain and lower finance costs. Free cash flow reduced to AED 6.8 billion, reflecting lower operating cash flow and increased capital investment to protect and sustain the value of our assets.

Moving on to Slide 9, we will look at our liquidity and key ratios. TAQA liquidity position remained robust at AED 14.3 billion. This consists of AED 2.9 billion in cash and cash equivalents, and AED 11.5 billion of undrawn credit facility. In late December, we successfully refinanced and upsized TAQA revolver credit facility from USD 3.1 billion to USD 3.5 billion. The group continued in progress to reduce debt with a decrease of AED 2.9 billion over the last year. Gross debt stood at AED 63.3 billion at the end of the year.

In conclusion, our result continues to reflect stable operational and financial performance despite the challenging environment in which we operate. We continue to work on our strategy of maximizing value and efficiency from our existing asset base.

Thank you very much for your attention, and we will now begin the question-and-answer session.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question comes from [Anil Garumal] from Bank of America.

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Unidentified Analyst, [2]

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I mean I was just wondering if you can provide us an update in regards of the potential merger with the -- I mean the utilities assets of your parent. I mean what's the time line that we are looking at? And also when will we have more information about the assets? Will you publish a document on ADX maybe in second quarter? Can you just give us a little bit of color about the time line here?

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Mohammed Al Ahbabi, Abu Dhabi National Energy Company PJSC - Acting CFO [3]

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Yes, sure. As you're aware, the group received on February 2020 an offer from its parent company, Abu Dhabi Power Corporation, to transfer certain assets into the group in exchange of issuance of additional shares in TAQA to ADPC, in addition to terminate the land lease agreement between ADPC and TAQA. According to the offer, we received from ADPC, the transfer of asset to include most of the ADPC water and electricity generation, transmission and distribution assets. The assets combined report net income of AED 4.8 billion and total assets of approximately AED 120 billion for the year ended December 2018.

The offer is currently under study by TAQA Board who have appointed an independent financial advisers to help conduct due diligence and provide an overall fairness opinion. A third-party fairness opinion is only one several factor, and it's important factor to be considered by the Board in resolving whether to recommend the offer to shareholders. Should that happen, shareholder approval must be subsequently be sought by -- through the legal regulatory Department of Energy and Security Commodity Authority (sic) [Securities and Commodities Authority]. We acknowledge the positive market reaction and announcement of this offer. The rating agencies have also placed our rating under review for possible upgrade ahead of the resolution of this offer. We will decline on commenting further on the proposal offer at this stage.

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Unidentified Analyst, [4]

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Okay. And if I can, with just a follow-up question regarding your operation, can you give us a guidance for CapEx for next -- for this year, for 2020?

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Mohammed Al Ahbabi, Abu Dhabi National Energy Company PJSC - Acting CFO [5]

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We don't disclose our future projection on commodity price. The weaker result on oil and gas business last year was driven by combination of lower volume in Europe due to natural decline and lower realized price. This was partially offset by increase in tightened production over Atrush field. Overall, EBITDA margins will decrease.

The near -- the new suppressed price environment remained a recent development but, certainly, should this become prolonged, we expect this to have a negative impact on profitability of oil and gas business, with the reconfirmation of -- on future capital expenditure and development plans.

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Operator [6]

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(Operator Instructions) There are no further questions.

Thank you, Mr. Mohammed Al Ahbabi for your time, and thank you to all the participants for your time and questions. The conference call now has ended.