Hello, everyone. Thank you for joining TAQA's 2023 earnings call. My name is Asjad, and I'm the head of Investor Relations at TAQA. I am joined by our CFO, Steve Ridlington. During this call, Steve and I will walk you through operating highlights and the financial performance for 2023. We will then open the floor for Q&A. Please note that this session is being recorded, and by participating in this meeting, you consent to the recording. I'll now pass over to Steve, who will guide you through the key highlights of the group in 2023.
Thank you, Asjad, and good afternoon, good morning, good evening to everybody on the call. Thank you for joining us for our full year 2023 results. Starting with the 2023 overview, the results for 2023 reflect the resilience of our business model, with the utility segment performing strongly amid a challenging operating environment for the oil and gas business. Our top line growth was led by a combination of pass-through items , impact of higher inflation, and positive revisions under RC2, the regulated framework governing our transmission and distribution business in Abu Dhabi. EBITDA, on the other hand, was impacted by the performance of the oil and gas segments on the back of lower commodity prices and production. This performance was partially offset by healthy growth in transmission and distribution, in particular, which recorded an 11% year-on-year growth in EBITDA.
Our net income more than doubled to AED 16.7 billion for the year. This bottom line was impacted by a couple of one-off items, namely, a AED 10.8 billion dirham gain on recognition of our stake in ADNOC Gas, and a AED 1.2 billion dirham deferred tax charge associated with the introduction of UAE corporate tax from January 2024. 2023 also stands out as the year we revised our longer term growth targets upwards to reflect TAQA's ambitious growth plans. We introduced the new 2030 targets as part of our Q3 results, and I will take you through some more of these details later in the presentation. We also strengthened our portfolio through organic and inorganic expansions to ensure we are on track for the strategic goals we have set ourselves.
Our free cash flow generation remains healthy, which in turn allowed us to meet our dividend commitments. The proposed full-year dividend of 3.95 fils per share is comprised of a fixed and variable component, which again, I will cover in detail later in the presentation. Among other notable achievements for the year, we issued a very successful dual tranche $1.5 billion bond, which was nearly 10 times oversubscribed. This included our inaugural green bond. Last but not least, we remain a sector leader on the ESG front. In 2023, we further reduced Scope 1 and 2 emissions in absolute terms, as well as GHG intensity-based revenues. Turning to the next slide, highlights for the year. Before we get into the details of the 2023 financial results, I'd like to take you through our key business highlights from last year.
Our portfolio saw a number of changes and long-term growth implications for the company. Most notably, we expect the planned acquisition of SWS Holding to bring a multitude of benefits. Apart from adding new expertise in the form of water treatment services, the acquisition is expected to boost RAB, regulated asset base, by 20% and enhance cash flows from regulated revenues. TAQA also reinforced its position as the partner of choice for companies seeking to reduce their carbon footprint. As part of this process, TAQA and ADNOC partnered up to bring sustainable water supply to ADNOC's onshore operations. We will also continue to build our reverse osmosis-based capacity on the water generation front through the Mirfa II RO project. Furthermore, while in January 2024 event, I'd like to highlight that we have signed a definitive agreement to sell our interest in the Atrush oil field in Iraq.
This represents a rationalization of our oil and gas portfolio, and we will remain focused on value maximization from our continuing operations across Canada and Europe. On a related note, 2023 marked an active year for M&A activity at TAQA. Notably, we acquired a stake in Xlinks, which is a unique project that, upon completion, is expected to supply 8% of UK's electricity needs from renewable sources in Morocco. We also increased our stake in Taweelah B to 70% and entered the attractive UAE O&M market through acquisition of a 25% share in the plant's O&M company. We also received a 5% stake in ADNOC Gas prior to its IPO. This reflects the strong relationship between TAQA and ADNOC and the benefit we bring in the form of freeing up gas for exports via a buildup of non-gas utility infrastructure.
2023 also witnessed the announcement of RC2, which sets the regulatory framework for the 2023/2026 period. RC2 brings a number of advantages over RC1, including an increase in WACC from 4.6% - 4.9% in real terms, an increase in CapEx and OpEx allowances. We also laid out the path to more ambitious long-term growth in the form of upgraded 2030 targets. Notable revisions include a tripling of the 2030 target gross capacity to 150 GW, while targets have been introduced for the first time for water and net power generation capacities. Meanwhile, the renewable energy portfolio is expected to reach approximately 65% of power generation capacity by 2030. Moreover, total spend for the execution of this plan is projected at AED 75 billion.
I'll provide a more granular breakdown of this spending plan later in the presentation. We've had a busy year in terms of financing-related activities. Most notably, we issued a highly successful $1.5 billion dual tranche bond, which was nearly 10 times oversubscribed. This included our inaugural green bond, which was issued under our newly established Green Finance Framework. The Green Finance Framework in turn received an SQS 2 or very good rating from Moody's. We also achieved financial close on a number of other projects, the most prominent of which included the AED 1.81 billion sustainable water supply project for ADNOC's onshore operations, a AED 2.3 billion Mirfa II RO project, and a AED 1.6 billion S4 RO project. Last but not least, we continue to make strides on the ESG front during 2023.
Scope 1 and 2 emissions, excuse me. Scope 1 and 2 emissions reduced by another 13% year- on- year in 2023, equating to a 19% decline compared to the base year of 2019. GHG intensity based on revenues also fell 16% in 2023. Our efforts on this front continue to translate into improved ESG ratings, with CDP recently assigning a rating of B for both climate change and water security categories, compared to a global average of C for both categories. We also won a number of awards and accolades from organizations recognizing excellence on the ESG front. The most notable of these included Forbes ranking us at the top of its list of sustainability leaders in the energy and utilities sector. Turning to the next slide, group revenue and adjusted EBITDA.
Transmission and distribution recorded the strongest performance, the segment rising 19% year-on-year. T&D revenues benefited from a combination of higher pass-through bulk supply tariffs, the impact of higher inflation, and positive impact of changes in RC2. Both generation and oil and gas, on the other hand, witnessed a drop in revenues. The former declined 8% year-on-year, mainly due to lower pass-through fuel costs and the absence of a contribution from Red Oak. The terminating agreement for Red Oak came to an end in Q3 2023 and had contributed revenues of AED 833 million last year. The oil and gas segment recorded a steep 21% decline in revenues on the back of lower commodity prices and reduced production. Realized oil prices fell 13% year-on-year, while realized gas prices declined 29%.
Meanwhile, production declined 7% year-on-year on the back of natural fall in late life U.K. assets. As I mentioned earlier, we recently signed a definitive agreement for the sale of our Iraqi assets. Consequently, the contribution from Iraq is excluded from production, revenue, and EBITDA figures for both 2022 and 2023, and has been reclassified to discontinued operations. In terms of adjusted EBITDA, both transmission and distribution and generation recorded a positive trend, which was offset by the performance in the oil and gas segment. The adjusted EBITDA of transmission and distribution improved 11% on the back of positive RC2 revisions and higher inflation. The increase in adjusted EBITDA for generation was driven by a higher contribution from the UAE fleet, as well as the absence of non-cash charges recorded last.
With regards to associates and joint ventures, Emirates Global Aluminium saw a significant drop in income due to lower aluminum prices, while Masdar recorded an AED 27 million loss in 2023. Profitability of the oil and gas segments, on the other hand, was impacted by lower commodity prices and a decline in production, with adjusted EBITDA for the segment declining 35% year-on-year. Overall, adjusted EBITDA for the group declined 6% year-on-year, as the performance of the oil and gas segment overshadowed positive underlying trends in the utility business. Turning to slide 9. Net income, as I mentioned, was more than doubled in 2023. The most significant contributor to the bottom line in this regard was an AED 10.8 billion gain recognized against our 5% stake in ADNOC Gas. No consideration was paid by TAQA for this stake.
On the flip side, the company also recognized a one-off AED 1.1 billion dirham deferred tax charge associated with the introduction of UAE corporate income tax on the first of January, 2024. Adjusting for these one-off items, net income for 2023 declined 13% year-on-year. I'd like to take this opportunity to bring your attention to the successful cash management of the company last year, which resulted in a 15% decline in net interest expense, despite gross debt remaining largely at the same level as the year earlier. Our finance costs declined 3% year-on-year in absolute terms, despite new issuances both at the corporate and subsidiary levels. Interest income, on the other hand, jumped 190% year-on-year, as we managed to capitalize on higher interest rates on bank deposits.
Lastly, as I indicated earlier, the contribution from Iraq has been reclassified as discontinued operations. Net income from this source declined sharply in 2023, reflecting lower oil prices and production. Turning to the next slide, our balance sheet remains a pillar of strength and allows us to continue to explore new growth opportunities. In order to maintain financial discipline, we continue to focus on retaining standalone investment-grade ratings. In this regard, our net debt to EBITDA ratio, 2.4 times at the end of 2023, provides ample room for borrowing to finance growth while maintaining this strategic objective. $1.5 billion bond issue also reinforced our liquidity, bringing it to 14.2% of total assets versus 13% last year.
Almost the entirety of our AED 61.2 billion of debt is locked in at an attractive fixed interest cost, 4.6%. Moreover, our average debt maturity profile extended to 10.7 years by the end of 2023, slightly longer than the previous years. Lastly, we continue to deliver on our shareholder dividend policy, and TAQA remains one of the few companies in the region that offers quarterly dividends. Turning to the dividend for last year, the board proposes a 2023 final dividend of 2 fils per share, which is comprised of a 1.3 fils per share fixed dividend from utilities for Q4 2023, and a 0.7 fils per share variable dividend from the oil and gas segment. This translates into a proposed full-year dividend of 3.95 fils per share.
The variable payout aligns with a 52% payout ratio from the 2023 net income for the oil and gas segment. I'll now pass the floor to Asjad, who will lead us through an overview of the segmental and fourth quarter for 2023 forwards.
Thank you, Steve. Starting with transmission distribution, this segment proved to be the strongest performer within our business lines during 2023. Network availability remained healthy at 98.4% for the year, showing only a slight dip from the previous year's 98.6%. We also witnessed a notable uptick in CapEx as project development and execution picked up significant pace. The increase in CapEx also supported an increase in our regulated asset base, which recorded a 2% year-over-year growth to AED 76.9 billion. In terms of financial performance, revenues increased 19% year-over-year to AED 31 billion, driven by a combination of increase in pass-through revenues, heightened inflation rate, and favorable regulatory changes under RC2. Adjusted EBITDA also recorded a healthy 11% year-over-year improvement.
This increase is attributable to both higher inflation rates and positive changes under RC2, including the increase in WACC from 4.6%- 4.9%. Moving to generation. At an operational level, commercial availability experienced a marginal decline to 97.9% from the previous year's 98.1%. Meanwhile, CapEx remained at a moderate level, though higher than the previous year. The 8% decline in revenues for generation in 2023 is primarily attributable to the absence of contribution from Red Oak, which, following the conclusion of its tolling agreement in Q3 2022, did not contribute anything in 2023, and of course, lower pass-through fuel costs.
The 4% year-over-year increase in adjusted EBITDA was driven by higher top line contributed from UAE assets, resulting in improved margins and the absence of non-cash charges, which stood at AED 416 million in 2022. The EBITDA margin also climbed 350 basis points to 58.3% in 2023. The oil and gas segment faced a challenging operating environment in 2023. Commodity prices declined significantly during the year, while our production also fell 7% due to the natural decline in late-life UK assets. Our midstream gas oil business, however, continued to perform very strongly and remains an important contributor to Europe's energy security. In terms of financial performance, average realized oil price fell 13% in 2023, while average realized gas prices declined by 29%.
This drop, combined with the reduction in production, proved to be the primary cause for the 21% and 35% fall in revenues and adjusted EBITDA, respectively, during 2023. Moving to the financial performance of Q4 2023. We had saw very strong performance from T&D and generation segments, which drove profitability during the quarter. In terms of top line, a 30% year-over-year increase in T&D revenues proved to be the biggest driver for the overall 8% increase in group revenues. The utilities business also recorded strong EBITDA growth, with T&D adjusted EBITDA up 13% year-over-year, and generation up a stronger 49% year-over-year. However, the performance within the oil and gas segment offset these gains, with the group adjusted EBITDA largely in line with the level seen in the previous year.
Group net income improved 5% year-over-year, due to a 33% increase in transmission and distribution, coupled with generation recording a AED 187 million net profit versus a AED 214 million dirham loss in Q4 2022. Additionally, net income grew to AED 300 million-- grew, net income grew due to the AED 300 million dirham dividend received from ADNOC Gas in Q4 2023. Last but not least, free cash flow saw a significant jump in Q4 2023. This can be explained by the fact that the fourth quarter of 2022 saw an outflow related to Masdar acquisition payment. However, there was no similar outflow in Q4 2023, and hence the marked improvement in free cash flow. Sorry, just going to moving on to the. Sorry, sorry.
Moving on to our, a bit more detail on the revenues and EBITDA. As I indicated earlier, the healthy 33% year-over-year growth in transmission and distribution revenues was the main driver for revenue growth in Q4 2023. The increase in T&D revenues was primarily attributable to higher pass-through bulk tariffs and positive RC2 changes. Meanwhile, generation revenues fell 6% year-over-year, mainly on the back of lower pass-through costs. Oil and gas revenues also dropped 35% due to lower gas prices and a decline in production. Lower commodity prices and production also explained the 58% year-over-year decline in adjusted EBITDA for the oil and gas segment. This fall offsets the positive trends seen in the utilities business.
The 13% growth in adjusted EBITDA for transmission distribution was primarily attributable to inflation in RC2, while the sharper 49% jump in adjusted EBITDA for generation was driven by higher contribution from UAE fleet and absence of non-cash charges recognized in Q4 2022. Now, moving to the final section of this presentation, I'll now take you through some additional details of the 2030 target. As Steve mentioned earlier, we've we introduced our upgraded targets as part of the Q3 2023 results. Apart from a significant upward revision, the updated goals are also designed to enhance disclosure quality through introduction of metrics such as net, net, capacity target. As part of this process, we have provided the market further granularity on our planned AED 75 billion spend to achieve our 2030 targets.
While AED 40 billion will be spent on RAB-related investments within the T&D segment, the remainder has been allocated for generation. A little over half of this AED 35 billion will be directed towards Masdar as it progresses towards its 100 gigawatt gross capacity goal. Meanwhile, about AED 14 billion is expected to be spent on TAQA's own conventional generation capacity expansion and the remainder on water capacity expansion. Note that by the end of 2030 investment cycle, renewable energy is expected to account for over two-thirds of generation capacity, while around two-thirds of water generation capacity will be based on highly efficient reverse osmosis technology. I will now hand over to Steve again to cover the key takeaways from this presentation.
Thank you, Asjad. To conclude, our refreshed 2030 targets have laid out the path for more ambitious, longer-term growth. The revised targets will see us accelerate the development of the new power and water generation assets, while simultaneously investing in our transmission and distribution infrastructure. We continue to be a leader on the ESG front, as reflected by our improved ratings, as well as recognition through the likes of Forbes. We remain committed to enhancing the quality of our disclosure, and you can expect us to continue to make strides on this front. Furthermore, a combination of organic and inorganic expansions in 2023 has set TAQA on a path of further growth. In particular, planned acquisition of SWS Holding should bring substantial benefit in the form of new expertise, as well as boosting regulated revenue.
We also continue to benefit from strong liquidity and a strong balance sheet. Moreover, the successful bond issuance last year reflects our ability to tap into capital markets' attractive terms, even in difficult market conditions. Finally, our unwavering commitment to shareholder value creation remains a fundamental principle in driving every major decision making at the company. Thank you. With that, I'll hand over to questions.
Thank you, Steve. Floor is now open for Q&A. Please raise your hands, and I'll open up the mic to you for any questions you may have. Luke Roberts, please introduce yourself and ask your question.
Hi. Yeah. Luke Roberts from Barclays. Thank you for the presentation. I just had a couple questions on the AED 75 billion spend plan to achieve the 2030 target. So firstly-
Sorry, your voice is cutting. Sorry, your voice is cutting off a little bit. If you could speak a little louder, it might help.
Hi, can you hear me okay?
... Slightly better, yes.
Great. Yeah, I just had a couple questions on the AED 75 billion spend plan to achieve the 2030 targets. So firstly, I noticed that the AED 40 billion previously announced in 2021 is also included. So I was wondering if the new AED 75 billion spend includes any of that expenditure, which has been previously spent since then? And I was also wondering how the AED 75 billion is expected to be funded and also what we can expect the spend profile to be like too. Thank you.
Okay. Thank you, Luke. So first of all, I think the first part of the question, AED 40 billion for T&D within the AED 75 billion, as we announced in 2030, sorry, 2021. So that component, our spending on T&D, remains at AED 40 billion. Dirhams, by the way, not dollars. And the balance, AED 35 billion is for dirhams, is for generation. So no change to the T&D target. In terms of how we're going to fund the AED 75 billion dirhams, well, it's gonna be through a... This is essentially our equity investment to 2030, so we will continue to fund that through ongoing cash flow from operations, as well as utilizing the debt capacity that we have, given our current low level of debt relative to our EBITDA.
As we said in the presentation, our Net Debt to EBITDA is essentially 2.4 times today. We could probably go 2 turns higher on that, whilst maintaining our investment grade rating, and that will give us the additional capacity. So a combination of corporate funding and debt funding and internal cash flow generation.
Great. Thank you.
Anna? Anna, if you could introduce yourself and ask your questions, please.
Hi, it's Anna Popina from T. Rowe Price. Thank you for the presentation. Just to follow up on the CapEx question, would Masdar cash injections into Masdar, are they, they included into this figure? You could provide some guidance on that, on what would be the cash injections into Masdar?
Sure. So if you look at, on the slide that we are on right now, if you look at the pie chart at the bottom right, it's a breakdown of the AED 35 billion. As you can see, about a little over half of this AED 35 billion is expected to be invested in Masdar. So it's basically a function of the business growth plans that we have outlined for Masdar, and based on that, the projected about 55% of AED 35 billion will go into that. In terms of timeline, obviously, given the nature of the growth taking place in the company, it's difficult to really guide you exactly on when that's going to flow through, but on an aggregate basis, we're fairly comfortable with the number. Sorry, was there anything on follow-up or?
Yeah. There was. Thank you very much. So that includes Masdar.
Yes.
Just another question, you have obviously highlighted the disposal of Iraq O&G assets. What would be the use of proceeds? What is the indicative disposal price? And if you can disclose that, and what would be the use of proceeds? And then another question is whether we should expect a general further divestment, select divestment from O&G segment. Thank you.
Thank you. Thank you, Anna. So, so look, first of all, on the disposal proceeds, they're going to be really quite immaterial. So I, I, I don't think in the context of our, of our cash flows and so on. So we haven't disclosed the price. We can't, because of the nature of the agreements that we have with the buyer. But it isn't really significant, so it's not something that I think needs to be focused on. In terms of whether this indicates a possible disposal of other oil and gas assets or a change, the answer is no. We conducted our strategic review a couple of years back, decided to keep the assets. The disposal of our interest in Iraq is really more tactical than strategic.
It's really quite small, and we have decided that we don't want to focus on that going forward. We're going to focus our attention much more on our bigger opportunities or our biggest assets in Canada and Europe.
Luke, you've got your hand raised again. Just wanted to check if you have a follow-up question or was that from before?
Thanks. No follow-up questions.
If there any more questions, we're happy to take them. We'll wait another minute or so, and if then there are no questions, we'll wrap up. Anna, please go ahead again.
... Sorry, just another question from me. You mentioned that you expect contribution from SWS Water into regular gas space. Do I understand correctly that that is yet to come in for year 2024, but it hasn't been taken into consideration yet?
Absolutely. You're quite right, Anna, that transaction hasn't closed yet. We are expecting it to close certainly this year and hopefully quite soon, but we're still going through the final set of approvals that we need. So no, that addition to the regulated asset base is not reflected in any of our numbers at this stage. It will be added as of when we close the transaction. Sorry, Anna.
Thank you. No more questions from me.
Thank you. Any more questions from the audience? Looks like there's... Oh, sorry. Yeah. Deep, if you could please ask your question, introduce yourself and ask your question.
Hi, this is Deep from JP Morgan. Can you hear me well?
Yes, we can hear you.
Yeah. Thank you. Sorry, there might be some network discrepancies, but I will try to be short. First of all, you mentioned that there will be AED 75 billion CapEx expected in 2030. Do you have, I mean, will it be front-loaded, or it will be spread throughout for next six years? And how... So, and also, are you planning to issue any debt in 2024 for this purpose?
Yeah. Thanks for the question, Deep. I wouldn't like to say whether it be front-loaded or not. I think as Jad mentioned earlier, these are figures that will run, will accumulate to AED 20-30 billion. Some of these numbers will include acquisitions, and therefore the timing of those and new projects and the timing of new projects is difficult to predict. So we will announce those as and when they happen. So I'm afraid we can't be very specific about that. I think the AED 40 billion that we have for transmission distribution, you probably could expect that to be rather really quite linear, linearly spread through the period.
So, sort of dividing that by 10 and using $4 billion a year is probably not a bad place to start. But for the others, a lot of that CapEx will be on new projects for which we don't know the timing yet. I'm afraid we'll have to watch this space. In terms of debt issues this year, we do have a $1 billion bond maturity in May. We're currently considering how and whether and when we're going to refinance that. I think we may have debt issues, but the timing is yet to be determined.
Yeah. Thank you. Just a second question on generation capacity. What is the total generation capacity currently for the company, and how much it is renewable energy? And also, if you can just let me know, what is the coal exposure as well?
So we are about 39 gigawatts on a gross capacity basis, as of the year end. This includes both us and Masdar combined. On a net capacity basis, we're about 17 giga, 17, as you can see from the chart, at the middle of the chart at the bottom. 17 gigawatts is basically we are on a net capacity basis. In terms of where we sit, on renewables, over 40% of our capacity on a gross basis is renewable. And obviously, this will increase, 45% to be more precise, and effectively, this is going to move towards, you know, becoming two-thirds of the capacity as we move towards 2030. Sorry, there was one more part of the question that you asked?
What is the coal exposure? Is there any?
So yes, we do. We do have a coal exposure. So from a revenue standpoint, there is two ways, two important ways to look at it. So, so from our coal asset, what we have is that we have a significant amount of pass-through revenues that come through, whereas it is important to note that we don't have pass-through, fuel revenues from the UAE. So there's a little bit of a lopsided factor that comes in. Excluding the, the pass-through revenues, we're looking at about 2% of revenues coming in from coal-related assets, and on a, on an accumulated basis for this year, it will be less than 10% including, if I include the pass-through as well.
Thank you so much. And just, last question. Would you be able to provide any guidance for 2024 on revenue, EBITDA, net leverage?
No, we don't provide any guidance. We haven't done, and we're not proposing to do so at this point in time. So, I think it's partly because of the while our utility business is very sort of stable, oil and gas is not. It depends on commodity prices and so on. So, we prefer to focus on the 2030 targets that we've outlined here. And we won't provide any guidance for this year.
Thank you so much. No further questions from my side. Thank you.
You're welcome. Any more questions from the audience? I've just seen one, written question from Anjali. Oh, sorry. That was, that was covered, related to Masdar spend. Anjali, just, just on your questions, regarding return to capital markets, so Steve mentioned that's something that we're still considering, and whether the new debt issues will be in green format is again, subject to, you know, would be the decision we take going forward. Any more questions from the audience? All right. Looks like we covered the questions for today. Thank you very much, everyone, for joining us for the call. We're always available if you have any follow-up questions, later on, and looking forward to speaking to you guys again, both during, before and during the next quarters call.