Hello everyone. Welcome to TAQA's 2022 results call. My name is Asjad, and I'm the Head of Investor Relations for TAQA. I'm joined by Stephen Ridlington today, our CFO. For today's presentation, we will run you through prepared remarks, followed by Q&A. Now just a quick note, this call is being recorded for quality and information. With that, I hand over to Steve.
Thank you, Asjad, and hello everybody. Good to talk to you again on the occasion of our full year results for TAQA. Turning to slide five, let's start there. Gives us a an overview of our results. There we go. 2022 overall was a very strong year for TAQA, driven by elevated commodity prices and robust operating performance. This is reflected by robust earnings metrics. Revenue is up 10%, adjusted EBITDA up 7%, and net income up 35%. Revenue growth were driven primarily by the oil and gas business on the back of strong oil and gas prices. Meanwhile, our more predictable and stable utilities business continued to perform in line with expectations. Adjusted EBITDA growth was dampened by non-cash items, which I will discuss shortly, whilst net income benefited from normalized D&A expense.
Free cash flow declined and is mainly as a result of the $1 billion payment the company made for its investment in Masdar. In continued strength of the business, particularly in the form of stable cash flows, the board has proposed a final dividend of AED 0.033 per share. This is comprised of a final quarterly dividend of AED 0.012 per share in line with our dividend policy and a special dividend of AED 0.021 per share. Combined with the quarterly dividends of AED 0.006 per share had already been paid for each of the first, second, and third quarters, the total dividend for the year stands at AED 0.051 per share, representing a payout ratio of 72%. The proposed final dividend is subject to shareholder approval in the upcoming AGM in March.
Turning to slide six, this just gives us an overview of performance highlights beyond the financial results for the full year. 2022 was a major step for TAQA in setting the stage for an expanded clean energy footprint. As I outlined in the previous slide, we delivered robust financial performance, allowing us to maintain our standalone investment-grade credit rating while enhancing our positioning and ability to fund growth. We announced a new ESG strategy with ambitious greenhouse gas emissions reduction targets for 2030, and clear targets on reverse osmosis, water preservation, and gender diversity. These new targets and our ongoing achievements have been recognized by external counterparts and particularly ESG rating agencies. The year also saw us completing the acquisition of our stake in Masdar, which is firmly positioned as Abu Dhabi's flagship clean energy company.
This transaction brings TAQA's aggregate generation capacity to just under 30 gigawatts. Cleaner energy accounts for about 28% of aggregate generation capacity. As a reminder, our 2021 corporate strategy targets 50 gigawatts capacity by 2030 and clean energy to account for at least 30% of the total portfolio. Our board also took a strategic decision to retain the oil and gas business. Our primary focus will be to sustain production capacity across Canada and Iraq, while decommissioning assets in the North Sea in an environmentally friendly manner. Future growth will be driven by organic and inorganic initiatives. Al Dhafra, our second solar project and the world's single largest solar PV farm, successfully supplied early generation to the network in 2022.
Taweelah Reverse Osmosis was also successfully tested. We announced financial close for the $3.8 billion project to decarbonize ADNOC's offshore production operations. We also increased activity on the M&A front, signing a binding agreement to acquire 40% of the Talimarjan power complex in Uzbekistan and selling 100% ownership in the upstream oil and gas business in the Netherlands to Waldorf Energy. We have also announced an intention to acquire a 50% stake in EGA's 6.4 gigawatt power generation assets.
Last but not least, we saw significant developments on the financing side, including successful pricing of the $700 million green bond by Sweihan, a $1 billion refinancing for the Mirfa plant, and refinancing our $3.5 billion group RCF, revolving credit facility that is, which resulted in an extension of its tenor while reducing its cost. Turning to slide seven, let's take a closer look at the growth drivers of the top line and the EBITDA for the year. Revenue growth was largely driven by the oil and gas business, with additional support from generation. Oil and gas benefited primarily from higher commodity prices, where realized oil prices increased 37% and gas benefited from an even higher jump of 72%. Production, oil and gas production also increased 1% over the same period.
Generation, on the other hand, benefited from higher pass-through fuel revenues and grew 12%. T&D revenue remained broadly stable year-on-year despite a higher comparable base in 2021 linked to catch-up revenue with battery projects in ADDC. EBITDA growth was entirely driven by the oil and gas business' operating leverage impact. In contrast, T&D and generation saw a drop in EBITDA during 2022. The former declined primarily because of the absence of catch-up revenues in 2022, whilst generation dropped due to the non-cash charges to cover expected credit losses and project costs. This results in a 140 basis point decline in EBITDA margin to 441.5% in 2022, albeit still above the average for the last three years. Slide eight takes a look at non-operating P&L items.
As I mentioned, we delivered 36% growth in net profit for 2022 and strong margin accretion. Growth was supported by a 14% decline in depreciation in 2022 as the expense returns to a more normalized run rate. The elevated depreciation level seen last year was linked to a one-off asset retirement obligation in Europe. Financial expense also continued to decline as our total debt declined to around AED 62 billion. In contrast, 2022 recorded AED 89 million of losses versus a near AED 1 billion gain last year in other gains and losses. This is largely explained by the recognition of one-off relief in 2021 against future decommissioning costs in the North Sea and lower contribution from the sale of non-core assets that we registered in 2021 in Canada.
Lastly, as a reminder, the upstream oil and gas business assets in Netherlands earmarked for sale have been reclassified as discontinued operations. Turning to slide nine, take a look at our balance sheet, where our focus remains to remain investment-grade credit rating on a standalone basis while preserving our ability to grow the business. We've increased the proportion of the fixed rate debt to 98% and refinancing of Sweihan and MIPCO slightly extended the average debt maturity to 10.4 years by the end of 2022. Average interest rates also increased slightly on the back of the refinancing exercises. Available liquidity remains robust, representing 13% of total assets. Our net debt to EBITDA declined to 2.5x as regular debt repayments continued. We did not tap the debt market beyond the refinance given our healthy cash position.
Lastly, I want to mention a technical loan covenant breach within FAPCA, one of our IWPPs here in the UAE, which has resulted in the debt temporarily being recognized as short-term liability. This issue is expected to be resolved in the first quarter of 2023 and when there is no material impact from this technicality. Turning to slide 10. In 2021, the combination of strong profitability and healthy cash flows has allowed the board to propose a special dividend of 2.1 fils per share. This is above and beyond the final dividend of 1.2 fils per share based on our existing dividend policy. Taking 2022 as a whole, combining these with the 0.6 fils per share dividend previously announced for each of the first three quarters, total dividends for 2022 will stand at 5.1 fils per share.
Moreover, given that our existing dividend policy expires with the 2022 payout, the board is proposing a new policy for the 2023-2025 period. The new dividend policy is based on a combination of a fixed and variable dividend. The fixed part relates to the utilities business and is set fils per share, 3.5 fils per share, and 3.75 fils per share for each of 2023, 2024, and 2025. These dividends will continue to be paid quarterly in a line with the existing policy. The variable component, on the other hand, will be discretionary and based on a percentage of annual net profit of the oil and gas business, and it will be paid annually.
We believe this new policy is better suited to our portfolio of businesses and the best guarantee of value generation for our shareholders in the years to come. The proposal will be submitted for shareholders approval at the annual general assembly in March. I'll now hand back over to Asjad to take us through the segment performance.
Thank you, Steve. As Steve said, we now look at, take a closer look at the three business lines, starting with T&D. The transmission and distribution business, operationally speaking, continued to do well. We had a network availability of 98.6% in 2022, a margin improvement over the previous year. Our regulated asset base decreased 2.9% to AED 71.5 billion in 2022 due to the rate of depreciation outpacing new additions. In terms of CapEx, delays in execution of new projects have led to a 26% year-over-year drop, which ties back into the decrease in the regulated asset base. Top line for the business remains steady at AED 26 billion due to rise in pass-through bulk supply tariffs, partially offset by the absence of battery project revenues recognized in 2021.
The absence of these battery project revenues also had a much bigger impact on EBITDA, which largely explained the 5.6% decline in EBITDA in 2022, as well as the 200 basis points decline in margin, EBITDA margin to 30.3%. With regards to the generation business, we completed the most prominent event of the year was the completion of the 43% stake in Masdar, which has set the stage for more rapid clean energy expansion for the group. We also entered an agreement for privatization and acquisition of a thermal power plant in Uzbekistan. Other notable activities during the year included the pricing of the $700 million green bond that Steve alluded to, as well as the $1 billion refinancing from Mirfa.
Commercial availability, which forms the basis of payment for the generation business, remained strong at 97.8%, while the CapEx declined 22% during the year. In terms of financial performance, higher pass-through fuel revenues explain the bulk of the 12% year-over-year growth that we saw for the business, while contribution from UAE declined as Taweelah A-two was decommissioned. Adjusted EBITDA, on the other hand, was negatively impacted by non-cash items, primarily to cover expected credit loss and project costs. The O&G business, the oil and gas business, performed strongly with improved profits and margins due to favorable commodity prices. As highlighted earlier, TAQA's board took a strategic decision during 2022 to retain the oil and gas business with operational activity to focus on Canada and Iraq.
Production for the year stood at 123.8 thousand barrels per day, up 1.1% year-over-year. Among notable operational achievements during the year, we played a significant role in securing Europe's energy supply by ensuring that the capacity was filled at our Bergermeer asset in Netherlands. As is the case with the wider group, the oil and gas business is also actively implementing key projects to reduce GHG emissions. Notable projects in this regard include the Crossfield asset gas injection in Canada, Gas Solutions project in Iraq, and the off-gas compressor project in Bergermeer. Moving to the financial performance of the business line, revenues stood at AED 10.1 billion, up a strong 43% year-over-year. Adjusted EBITDA similarly jumped 60%, while net income from the business accounted for over 50% of the group's net income.
Average realized oil prices stood at 87.79 barrels in 2022, up 37%, while average realized gas prices stood at 8.21 MMBtu per MMBtu, up 72%. Before we wrap up this presentation, I'd like to take a moment to quickly drill into the Q4 quarterly results as well. During the quarter, positive aspects of the quarter were offset by non-cash items. Revenues remained stable year-over-year with limited variation across the business lines. Adjusted EBITDA, however, declined 17%. The drop was driven by the generation business and can be explained largely by the non-cash items that i alluded to earlier.
As is the case for the full year, net income for the quarter benefited from normalization of depreciation, while the $1.02 billion payment for our 43% stake in Masdar was the key item leading to the decrease in free cash flow. That being said, we remain very confident about the outlook for our business, and it remains well positioned for growth. As I indicated on the previous slide, there was no significant movement on the top line within the business lines. Revenues for T&D were largely flat despite the absence of catch-up revenues associated with the battery project in the previous year, while generation similarly recorded little change during the year. In contrast, oil and gas rose by 4%, mainly on the back of favorable commodity prices.
In terms of adjusted EBITDA, T&D saw a marginal decline due to the absence of recognition of catch-up revenues. Generation, meanwhile, explains the bulk of the decline in EBITDA seen during Q4 2022. Key items of note include AED 400 million non-cash item to cover credit loss exposure and project costs. AED 257 million impact in contribution from associates and JVs. Decommissioning of Red Oak, which contributed AED 88 million in Q4 2021, and of course, no contribution in Q4 2022. Lastly, lower contribution from Morocco due to planned outage of the quarter. Now I'll hand back to Steve to wrap up the presentation.
Thank you, Asjad. Overall, a very successful year paving the way for more growth for TAQA, I think. Our newly announced ESG strategy emphasizes greenhouse gas reduction targets by 2030, making TAQA a regional leader in terms of ambitions. Closing the Masdar transaction advances TAQA towards our 50 gigawatt capacity goal by 2030. Our utility business remains stable, forming a solid foundation for the company. Strong cash flows and balance sheet support significant growth opportunities. Overall, TAQA is well-poised to take advantage of any growth opportunities. With that, I think we close the presentation, Asjad.
We're open to any Q&A. Please raise your hands if you have any questions, and we'll take your questions. Rakesh, please go ahead. No, Rakesh
Hello.
Hi. Please go ahead.
Hello. Am I audible?
Yeah. Yes, you are. Yes, you are.
Yes. Thank you for the presentation. Congratulations on the good set of results. I had one question, basically. If you could help us understand, this is more from an ESG standpoint. First of all, would you be able to give us kind of a sense of what percent of your total revenues are derived from coal?
Sorry, say that again. You broke up a little bit.
Let me repeat. My question is, what percent of your total revenues are derived from thermal coal? Basically, power plant activities that are coal-based. I have a rough sense, but just want to confirm the number with you.
Okay, thanks, Rakesh. We can get precise numbers to you. I mean, it does vary year by year depending on the oil and gas business, but it's around 5%, I think, at the moment for 2022. Something of that order of magnitude.
If my understanding is correct, TAQA Morocco is the one plant that is using thermal coal as its input, as the raw material. We'll wait for you to confirm. What I'll do is I'll send out a mail as well regarding more details. I think this is something that we as a company need to discuss. We need to have a more detailed conversation on this. I just wanted to raise it as a point, something that we are looking at. There is some pressure on us to divest from businesses that derive a significant proportion of their overall revenues from coal-related activities. In this context, what we would need to understand is, A, what is the precise percent that is derived from coal? What is the plan regarding that? How does that number change now, post the Masdar acquisition?
Things around that. I will send a mail, and we will schedule a more detailed discussion, but, just wanted to bring that up.
Yeah. No. Okay, Rakesh, we're very happy to answer those questions. Let me just say a few words of this, put this in the context of our ESG strategy for the benefit of others on the call. It is true that we have coal-generated power, mainly in Morocco, but also in India. As I've said, it's a very small part of our business today. It's potentially around 5%, to be confirmed. You know, I mean, we recognize that the world is moving on. We have published a very clear ESG strategy. We have published very clear ESG emissions reduction targets, along with water reduction target losses, women in management, et cetera.
We are fully committed to that ESG, those ESG targets. Included, which include, which are based on the existing asset portfolio that we have. The world is in transition, and it is a transition. We see ourselves as at the heart of that. We have to continue to supply our customers with the power they need. We are on a journey towards net zero. We've announced net zero target. We're fully committed to it, but it will take time to get there. We have to recognize that in everything we do. That's the way we see the world. I appreciate you may see it slightly differently, Rakesh, and we'd be very happy to answer your questions in more detail going forward.
Sure. Sure. Thank you very much.
If anyone else has any questions, please feel free to raise your hand.
Hi, Tatiana. You can go ahead with your question.
Thank you very much. Can you hear me?
Yes, I can.
Yes. Perfect. First of all, congratulations on the very strong set of results, and thank you very much again for the presentation. It's extremely helpful. A question, perhaps a little bit of follow-up on the previous one, but not necessarily looking at coal. As you mentioned, there's been a strategic decision made to maintain oil and gas assets going forward, you know, in a way that you mentioned exiting North Sea and focusing more on other sort of parts of the business.
Obviously, when we think about this year and this, you know, very, very strong oil prices has been a very strong driver of performance, but if we start thinking longer term and in line with your ESG ambitions, do you see the share of energy business of oil and gas business sort of declining perhaps as a part of the global strategy and sort of the whole business? It's going to be still quite, you know, impactful on the whole performance? Just how do you see this from a long-term perspective?
Yeah. Thank you. Thank you, Tatiana, for the question. Yeah. I think, yeah, the short answer to your question is we do see it declining. The reason for that, as we do for coal, by the way, because we're not going to be growing those businesses, the oil and gas business, and we're not gonna be growing the coal business. We are going to be growing in renewables, in transmission and distribution networks. When we look at our overall direction of travel, we are transitioning to the clean energy world through investing much more heavily in clean energy than in other businesses.
Our investments in oil and gas will be limited to maintaining the value of the businesses we have in Canada and Iraq. We will be doing some additional drilling in those areas to maintain production because the production is still needed in today's world. We will be focusing very much in the UK on decommissioning, and that is already ongoing. We will be decommissioning over time and then decommissioning in a responsible, safe way and recycling products as much as we can. Overall, the direction of travel is extremely clear. We will continue to own these businesses, but we will not invest more, and therefore they will become increasingly less important as time goes on.
Understood. Thank you very much. If I may, just a second question. When we think about, sort of, you know, as you said, investing more on the green energy side of things, are you thinking sort of domestically or perhaps also internationally, this kind of, you know, your investment drive on that item?
Absolutely, internationally. I mean, and both, in other words, it needs to be said. We, as you may know, we have the mandate to own a minimum of 60% in any new generation project that gets built in Abu Dhabi. That includes the renewable energy projects that are planned for Abu Dhabi going forward. As you know, we are already the owner of one of the world's largest single site PV plants. It's fully operational, and we're building a second plant even bigger right now, and that is coming on stream soon. We will be absolutely front and center in renewables growth in Abu Dhabi.
Through Masdar, we will continue to grow internationally. Masdar has a very significant global portfolio. They are represented, and we are represented through Masdar in most markets, most geographies of the world, and that will continue to be the case, and we will continue to see investment in growth, on a global basis through Masdar.
Thank you very much.
Thank you. Again, if anyone's got a question, please raise your hand, we'll pass on the mic to you. Any more questions? Looks like there's no more questions. Thank you everyone for joining the call. Again, we're very pleased to run you through what we feel are very strong results, and as Steve mentioned, we feel very confident about our future of the company and looking forward to speaking to you either on the results calls or in between seeing you guys beforehand and on a virtual conference or in our offices. Thank you very much.