Hello everyone. Welcome to TAQA's Q1 2024 earnings call. My name is Asja Grbić. I'm the Head of Investor Relations at the company. I'm joined by our CFO, Stephen 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 operating highlights and the financial performance of this period. We will then open the floor for Q&A. I'll now pass it over to Steve, who will guide you through the key highlights of the group in Q1 2024.
Thank you, Asja. It's good to be here again for our Q1 results. So, hello everybody. Let's turn to slide five first, which gives a results overview. First, our utilities business continued to perform strongly in the first quarter of 2024, with the addition of SWS Holding and adding to this underlying performance. This helped offset pressure from the oil and gas segment, which in turn resulted mainly from lower commodity prices. Both revenues and adjusted EBITDA were up 5% year-on-year, driven by the utilities business. Our reported net income recorded a drop as the comparative period last year benefited from one-off items, in particular, the recognition of the value of our stake in ADNOC Gas. Excluding these, clean net income was up 7% year-on-year.
CapEx for Q1 2024 reached AED 1.7 billion dirhams, translating into a 60% year-on-year increase. This was led by higher spending in T&D and generation segments. Free cash flow generation also declined in the quarter on the back of a combination of higher CapEx, further investments in Masdar, and changes in working capital. On the project development front, we continued to make inroads into the Saudi market. As part of this, we announced the first of its kind, AED 1.5 billion dirham independent strategic water reservoir project in Makkah, and a steam and electricity cogeneration plant for a joint venture company between Saudi Aramco and TotalEnergies. Last but not least, the board has proposed a dividend of 70 fils per share for the first quarter of 2024, consistent with our declared dividend policy. Turning for a moment to SWS Holding.
This is the acquisition of the sewage business and recycled water business in Abu Dhabi that we announced last year, buying this company from Abu Dhabi Power Corporation. The transaction is near completion, with only certain procedural steps remaining for legal completion to occur. Under the terms of the agreement, economic contributions from SWS are to be assumed by TAQA from the first of January 2024. As such, SWS's financial performance is included as part of TAQA's Q1 results. As a reminder, SWS is responsible for wastewater collection, treatment, and reuse in Abu Dhabi. The addition of SWS expands TAQA's production portfolio and further enhances the company's position as Abu Dhabi's fully integrated utility. SWS is compensated under the RC2 framework and adds AED 16 billion to our regulated asset base.
In terms of the first quarter of 2024, SWS contributed AED 620 million of revenues, AED 457 million to adjusted EBITDA, and AED 186 million to net income. Turning to slide seven, group revenue and adjusted EBITDA. Taking a closer look at revenue for the first quarter, transmission and distribution proved to be the largest contributor to the group's top-line growth. The business recorded 9% year-on-year increase on the back of higher pass-through BST, recovery of corporate income tax, and increased revenue from supply and distribution of power and water to customers. Conversely, generation revenues witnessed a 6% decline, primarily due to lower pass-through fuel revenue in Morocco.
The oil and gas segments also saw a 17% year-over-year decrease in revenues, mainly impacted by declines in average realized commodity prices and a reduction in volumes due to planned cessation of production in several North Sea fields. Moreover, SWS made a healthy contribution to the top line, supporting overall growth. In terms of adjusted EBITDA, the T&D segment recorded an 11% year-over-year improvement, driven by higher revenues and an improved EBITDA margin. Generation adjusted EBITDA increased by 7% year-over-year on the back of improved commercial availability in India, and a higher contribution from associates and joint ventures. Meanwhile, oil and gas experienced a 39% year-over-year decline, primarily due to lower commodity prices and reduced production. Lastly, as mentioned earlier, SWS added AED 457 million EBITDA for the quarter, along with a healthy 74% profit EBITDA margin. Sorry.
Turning to slide eight, non-operating P&L items. These are the items below the EBITDA line, where TAQA continued to be a net beneficiary of the rising global interest rates, as net interest expense declined 5% year-on-year in the first quarter of 2024. Gross debt increased by about 1% to AED 62.5 billion, compared to the end of December 2023. This was driven in part by the addition of AED 1.5 billion in new debt recognized upon consolidation of SWS. You may recall the first quarter of 2023 had benefited from the recognition of the value of our 5% stake in ADNOC Gas. The absence of this AED 10 billion one-off item led to a sharp decline in other gains.
Similarly, we recognized the AED 1.2 billion one-off charge in the first quarter of 2023 upon recognition of deferred tax liabilities on the enactment of UAE corporate tax. The absence of these led to considerable drop in overall tax charges for the quarter. Excluding the aforementioned one-off items, clean net income increased 7% year-on-year. This was driven by an improvement in the bottom line of the utility segment, which was further boosted by the addition of SWS. Earlier in the year, we also announced that we have entered a definitive agreement to sell our interest in the Atrush oil field in the Kurdistan Region of Iraq. Given that the sale is expected to be completed this year, these assets have been reclassified to discontinued operations. Then to slide 9, liquidity and debt profile.
Moving to the balance sheet, we continue to benefit from a mix of ample liquidity, controlled leverage and an attractive cost of debt, largely locked across the portfolio. Total debt increased by 1% compared to the year-end in 2023, on the back of consolidation of AED 1.5 billion of debt related to SWS, AED 0.3 billion of debt related to construction of the M2, RO, and S4 plants, and AED 0.4 billion reclassification of debt. Our net debt to EBITDA ratio remains markedly unchanged compared to December 2023. Please note that we utilized a trailing 12-month average EBITDA to calculate this ratio, and as a result, have included Q2-Q4 2023 EBITDA for SWS, purely for the purposes of this calculation.
We remain comfortable with the strength of our balance sheet, and this continues to offer us a solid foundation to build on for the continued growth. I'll now pass back to Asja, who will lead us through an overview of the segmental performance. Asja?
Thank you, Steve. Starting with the transmission and distribution business, the business posted strong operational and financial performance in the first quarter of the year. Network availability remained healthy at 98.3%, while CapEx increased 10% on the back of timing and phasing of project implementation throughout the sector. Our regulated asset base also increased 3.6% to AED 78 billion. We also announced AED 1.5 billion strategic reservoir project in Makkah, as Steve has just mentioned, which extends our T&D reach in the region. As Steve indicated earlier also, T&D revenues increased 9% year-over-year, driven by a combination of increase in pass-through revenues, reimbursement of corporate income tax, and higher revenue from supply and distribution of power and water to customers.
Meanwhile, adjusted EBITDA increased by 11% year-over-year, benefiting from the impact of inflation and RC2 framework. Moving to generation. From an operational perspective, commercial availability experienced a slight decline to 97.4% from the previous year's 98.8%. This resulted mainly from unplanned outages in plants in UAE and Ghana. CapEx jumped to AED 557 million on the back of construction progress on Mirfa 2 and Shuweihat 4 reverse osmosis desalination plants. We also announced during the quarter that TAQA, along with JERA, will develop an industrial steam and electricity cogeneration plant for a joint venture between Saudi Aramco and TotalEnergies. On the financial front, generation revenues declined 6.5% year-over-year, mainly due to lower pass-through fuel revenue in Morocco.
Adjusted EBITDA, on the other hand, increased 7% year-over-year, supported by higher contribution from associates and JVs. Contribution from Masdar in particular stood at AED 99 million for the first quarter of 2024. Moving to our third business line, oil and gas. Continuing with the trend seen in recent quarters, production declined in Q1 2024 compared to the corresponding period of the previous year. This resulted from natural decline in production and decommissioning in our U.K. late life assets. Meanwhile, CapEx in the segment declined 25% year-over-year due to lower drilling completion. Sorry, lower drilling, completion, and tying costs. The year-over-year comparison is also impacted by a major facility expansion project that was undertaken in 2023 in North America.
We also announced earlier in the year that we have reached a definitive agreement to sell our interest in the Atrush oil field. We expect this transaction to be completed later this year, pending regulatory approvals. Finally, the financial performance of the oil and gas segment was impacted by a combination of lower commodity prices and decrease in production. This resulted in 17% and 39% year-over-year decline in revenues and EBITDA, respectively, for the business segment. I now hand over back to Steve for wrap-up.
Thank you, Asja. So in summary, the acquisition of SWS represents an attractive addition to TAQA's portfolio, the benefits of which will be reflected in our first quarter 2024 results. From an ESG perspective, we obtained third-party assurance for Scope one and two GHG emissions for the 2019 to 2023 period. This is reflected in our continued drive to improve the depth and quality of ESG-related disclosures. Given the availability of ample liquidity, the bond maturities this month, that's May, were repaid from our free cash balances. We continue to assess the market, and we'll tap it when we feel the conditions are favorable. Finally, as I indicated earlier, our solid balance sheet remains one of our biggest strengths and allows us to continue to evaluate organic and inorganic growth options to drive further growth.
As such, we continue to see TAQA's future filled with optimism. Thank you.
We'll now open the floor to Q&A. Feel free to either raise your hands or type in the questions, Luke, if you could introduce yourself and start with your question.
Hi, yeah, Luke from Barclays. I was just wondering if you could provide any comments at this stage on the discussions in relation to Naturgy and the potential acquisition of the stake, given, you know, the fairly large size of the entity relative to TAQA. So any color there on how this could fit into your expansion plans and the potential strategic rationale would be helpful, as well as how you might look at funding and what the structure could look like if this goes through. Thank you.
Thank you, Luke, for that question. I'm afraid I can't really answer your questions in any detail. We made a statement some time ago to the ADX and to the CNMV in Spain, the local regulator, saying that we were in early stage discussions with two funds to buy their shares with Spanish shareholder with regards to a partnership. Those discussions are ongoing, but they are not yet complete. Until they are, and if they are, and as of when they are, we'll make a further a further announcement. But at this stage, it's too early to speculate about what may happen if, as and when we complete that transaction.
Understood. Thank you.
Again, if there are any other questions, please feel free to raise your hands or type in the questions. Hervé, sorry, I don't... apologize if I'm pronouncing your name correctly. Please introduce yourself and ask your question.
Yeah, sure. It's Hervé from Generali Asset Management. No, I had a question regarding the recent extreme weather events that we've seen in the region over the past few weeks ago, I think. And I was just wondering how you do manage that, and does that mean you will have to do additional CapEx to prevent the impact on your infrastructure?
Yeah, okay. Thanks. Well, look, I mean, the, that—the weather event, most recently, certainly was one of the most extreme, I think which for 75 years or something in the UAE, and it certainly had an impact. So it did lead to some interruption of service, understandably, I think, given the scale of the storm water and the flooding. However, everything is working fine. As I say, there were some interruptions caused by that. There may be some capital cost implications of some remedial work that needs to be done. I don't think they're gonna be hugely significant, but everything is working well today.
And so therefore, we'll see how that develops as some of the estimates are refined. But overall, I would say yes, some interruption. Everything is now working very well, but potentially some incremental cost that we will have to look at.
Please go ahead again, Hervé, if you have another question.
Yes, it's just to confirm. So it means that the conception of infrastructure itself is not put into question correctly?
Yeah, it is.
Yeah, yeah. There's no issues on the infrastructure as such.
Okay. And my last question relates to the one which was formulated before. In terms of timing, do you expect to conclude your negotiations in Spain by year-end, before year-end? Is it seeing a good outcome?
I think my answer has to remain the same as the last one. I think it's really too early to start talking about when they might conclude or what the results may be so. But we will make a further announcement if, as, and when we make progress there, so-
Okay.
I think I need to leave it there for now. Thank you.
Okay. Thank you.
... Again, if you have any questions, please feel free to type them in or raise your hand, and we'll open up the mic to you. Okay. So we have a question from Anjali Doshi, asking: "Can you please discuss issuance plans for this year? Will you consider a green format?
Okay. Thank you for the question. Yes, as I think I indicated, we had a Euro bond maturity earlier this month, and we repaid that from free cash balances. So, we haven't gone to the market to refinance that, so we haven't needed to. We're keeping it under review. I think, it depends largely on our CapEx plans. If we make progress on any of the significant opportunities that we are pursuing, then that could lead to a requirement. And we will for sure consider a green bond. Obviously, we have a green bond framework, so we'd need to make sure that any proceeds were used in the appropriate way.
But subject to that, I think, yes, we would certainly consider a green bond if, if and when we go to market.
The floor is open again for any more questions. All right. Looks like there's no more questions. Thank you very much for joining us for this results call, and we look forward to speaking to you again on the next results calls, of course, and seeing you in between as well, hopefully. Thank you very much.
Thank you.