Hello everyone. Welcome to our Q1 2025 earnings call. My name is Shadi, and I head investor relations at TAQA. 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&A session. I will now pass it over to Steve, who will guide you through the key highlights of the quarter.
Thank you, Shadi, and good morning, good afternoon, good evening to everybody wherever you are. Thank you very much for joining us again today. Turning to the results overview, the first quarter of 2025 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 TAQA Water Solutions in particular. The 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, and 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 movements. For the first quarter of 2025, the board has proposed an interim dividend of AED 0.75 per share. This is consistent with our declared dividend policy for the years 2023 to 2025. The quarter also witnessed the continuation of business development activity with both TAQA and Masdar announcing projects to support the UAE's AI Strategy 2031. 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 contributor to the top-line growth.
The 12% year-on-year increase in transmission and distribution, in turn, was driven by an increase in bulk 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 progressed the U.K. North Sea decommissioning program. Moving to EBITDA, oil and gas again proved to be the main factor driving lower profitability. Transmission and distribution EBITDA was 2% lower year-on-year due to one-off post-merger integration activities at TAQA 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 lower contribution from associates and joint ventures. In our Water Solutions business, remediation work 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 GBP 313 million dividend income from ADNOC Gas, while there was no comparable contribution in the first quarter last year. Moving to P&L items below the EBITDA line, the decline in net income was limited to 2% year-on-year. The most notable factor that supported the bottom line was a lower effective tax rate in the U.K. on the back of our decommissioning activities.
Depreciation amortization charges also decreased due to a revision of useful life estimates of assets within the UAE. Moving to the balance sheet, at AED 63.7 billion, total debt was markedly lower compared to the year-end 2024. Average interest cost 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 and continue to benefit from a mix of ample liquidity, controlled leverage, and an attractive cost of debt largely locked across the portfolio.
This continues to offer a solid foundation to build on for continued growth. Our 2023-2025 dividend policy will continue to guide us through this year. Based on the utility segment, the fixed dividend for the year is set at AED 0.0375 per share for 2025. Consistent with this, the board approved a first quarter interim dividend of AED 0.0075 per share. I will now pass back to Shadi, who will lead us through an overview of the segmental performance.
Thank you, Steve. Network availability remains strong at 98.7% for the transmission and distribution business, a marginal improvement over Q1 last year. CapEx increase was driven by timing and phasing of project execution relating to water and electricity network construction, enhancements, and upgrades. Our RAB increased marginally to GBP 77.2 billion as well. As mentioned previously, transmission and 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 Aldafra OCTT plant, with a 1 GW capacity, which is being developed in support of the UAE AI Strategy 2031.
Steve will provide more detailed data in this presentation on the role TAQA and Masdar are playing to support UAE's ambitions to become a global leader on the 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&A increased due to a reallocation of costs from the corporate segment post the corporate restructuring that we saw. Moving to TAQA Water Solutions, commercial availability of the business declined to 93.7% during the quarter. This was driven by remediation work following the exceptional weather event in April last year. The increase in CapEx was driven by the 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 2024. The transition to safe and efficient decommissioning in U.K. also contributed to the 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 24% and 39% year-over-year drop in revenues and EBITDA for the business. I will now hand back to Steve for his concluding remarks, after which we will open the floor for Q&A.
Thank you, Shadi. 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&A front, we announced the acquisition of Transmission Investments in April. A leading U.K.-based energy and utility investment platform, Transmission Investments specializes in offshore transmission. It operates 11 assets connecting offshore wind farms to the U.K. grid. This strategic acquisition strengthens TAQA'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 continues to add to its renewable portfolio via acquisitions. As the largest shareholder of the company, we continue to support its global ambitions. We are also delivering on our promise of continuing improving transparency and disclosure.
In particular, our recent published 2024 integrated report has a wealth of ESG-related disclosures, including Scope 3 emissions data. I invite you to explore the report, which covers multiple facets beyond ESG. I had started this presentation by pointing out the macro uncertainty the world faced in Q1. If the past few weeks were any indicator, this uncertainty is here to stay. In this environment, the defensive nature of our business model provides a shield for our investors. As a reminder, contracted and regulated revenues account for 90% of TAQA's top line, providing stability and predictability for the business. In terms of TCM activity, we repaid maturing corporate bonds worth $750 million 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'll 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. The 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 TAQA. The 1 GW Al Dhafra OCTT project is a clear example of this. Masdar is similarly capitalizing on this opportunity by developing the world's first 1 GW around-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 must view the future even more optimistically, with our home market of the UAE adding to the wealth opportunities available to TAQA for continued growth. Thank you.
Thank you, Steve. Please raise your hand for anyone who's got questions. I'll just use one this week. Luke, could you please introduce yourself and ask your question?
Hi, yeah, thanks. This is Luke from Barclays. Thanks for the presentation. I've got two questions. Firstly, as you highlighted, there was a fairly large working capital inflow in Q1, so I was just wondering what you expect there for the rest of the year. Then quickly on the oil and gas segment, obviously it's a smaller 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. Thank you.
Okay, I heard the first question well. I did not quite get the second question, Luke, but let me answer the first one first, and then if you could repeat your question on oil and gas. The working capital inflow, we did have a very strong positive contribution within our transmission and distribution businesses, particularly. I do not think we will expect that to continue. It may normalize through the rest of the year. I think that could, as I say, normalize as the year progresses. What was the question on oil and gas?
Thanks. Yeah, I was just wondering if you could remind us what the cost structure of the operations is, and in terms of profitability, given the decline in prices we've seen so far in Q2, what you would expect there. Thanks.
Right, okay. The cost structure for, I mean, 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. Our portfolio is a mix of oil and gas, current oil prices, and current gas prices. We will remain profitable. I'm pretty confident in that. The level of profitability is not going to be as it was last year, I think, given the current outlook. Therefore, we may invest a little bit less than we might have otherwise done in new developments to maintain production in the Canadian portfolio. Continuing profitability, but probably not at the levels that we saw last year.
That's great. Thanks a lot.
Thank you. Again, if anyone else has any questions, please feel free to raise your hand, and we'll open the mic to you. Luke, do you have any other questions, or is this from the first timer?
Yeah, that's all from me. Thank you.
Jocelyn, if I could ask you to introduce yourself, and you can ask your questions.
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, 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&D, as well as the investment for the oil and gas that you mentioned earlier, and as well as the investment in Masdar? Yeah, thank you.
Okay. Look, I think for the first quarter, you've seen a pretty strong kick-off in capital investments. That really is most of our investments, CapEx investments, is in our regulated businesses here in the UAE, in Abu Dhabi, so our transmission distribution and Water Solutions business. That is definitely picking up year on year, a very strong pickup. In terms of our investments in oil and gas, our CapEx is focused very much on Canada, and as I've just mentioned, with weaker oil prices, particularly, and gas prices as well, we may cut back a little bit on capital investments into the oil and gas business. We're not really investing CapEx in any other oil and gas jurisdiction, particularly as the U.K. is moving towards decommissioning and therefore abandonment expenditure.
In terms of Masdar, we had a pretty heavy investment in Masdar last year because Masdar had a very successful year acquiring platforms in the US and Europe, particularly. We do not expect that to continue at the rate that it was last year because a lot of the effort, I think, from Masdar for this year will focus on integrating these new platforms that have been acquired and adding to them in investments.
We don't give CapEx guidance, Jocelyn, I'm afraid, but I think that the trend that you're going to be seeing, which I've just sort of outlined and which I'll just summarize as being some increase in capital expenditure in our regulated networks business, less investment in Masdar than we saw in 2024, I think, and capital spending, which is not a major part of our total CapEx in any event, probably slightly lower in the oil and gas business than we saw last year.
Thank you.
Thank you. Again, if anyone has any questions, please feel free to raise your hands, and we'll open up the mic to you. Jean-Pierre, if I could ask you to introduce yourself and ask your questions.
Yes, hi, can you hear me?
Yeah.
Yes, I have around Jean-Pierre from Kepler Cheuvreux. Just a quick question regarding your progress on M&A plans. Can you clarify whether this reflects the recent achievements from Masdar or whether you allude to other considerations? In particular, there have been reports in Q1 from Bloomberg saying that TAQA has renewed interest for purchasing potential stake in Net4Gas. What can you say about that? Could you remind us the potential strategic rationale for such a move? Thank you.
Yeah, so in terms of the M&A activity that has taken place, you're quite right to say that most of that in 2024 and somewhat in 2025 is Masdar. That has been the main focus of our M&A activity so far, and it's resulted in a very significant increase in the number of gigawatts that Masdar has, which is an important contributor to our 100 gigawatt 2030 target. In terms of TAQA's M&A activity, we did announce one investment in a company called Transmission Investments in the U.K. That was not a very significant investment in terms of scale. It is a company that is involved in offshore transmission. It operates and maintains and develops the transmission lines from the offshore wind farms in the U.K. to the national grid onshore U.K. It is an asset manager and operator rather than an investor.
It's an important business for us to make an initial step out into transmission into the U.K. 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. We see that as a good acquisition of skills and potential in that area, but not a significant investment. Naturally, there are ongoing discussions on that. That is not something that we're—it was something that we looked at last year. It didn't work out, and there are no current plans to reactivate those discussions. I know there's been press speculation, but it's not based on anything that we are actually doing.
Okay, very clear. Thanks very much.
Thank you, Jean-Pierre. Any other questions? Please feel free to raise your hand. We'll open up the mic to you.