Good afternoon, everyone, and welcome to Tabreed's nine months 2025 earnings conference call on 14th of November 2025. Please note that this call today is being recorded, and all participants are in listen-only mode. After the presentation is completed, there will be an opportunity to ask questions. Without further ado, I would like to pass the line over to Mr. Yugesh Suneja, the Head of Investor Relations at Tabreed. Please go ahead, sir.
Thank you, Lewis. Good afternoon, everyone, and thank you for joining us. On behalf of Tabreed's management team, I am pleased to welcome you to our earnings call for the first nine months of 2025. Before we proceed, I would like to highlight the disclaimer on this slide. Some of the information shared today includes forward-looking statements regarding future performance. These statements reflect our current expectations and are subject to risks and uncertainties. Please review the details on this slide for further information. With that, let's move on to today's agenda. Joining me today are Adel Al Wahedi, our Chief Financial Officer, and Salik Malik, Vice President of Finance. We will start with a summary of financial and operational performance, including an update on the strong progress we have made on our growth plans. After that, we will take a deeper look at our financial performance for the period.
We will then wrap up with an update on our guidance and outlook, followed by a Q&A session. With that, I will hand it over to Adel to begin the discussion on results. Over to you, Adel.
Good afternoon, everyone, and thank you for joining our earnings call. Over the past few years, Tabreed has consistently strengthened its market-leading position in district cooling sector. Our regional platform remains strong and scalable. During the first nine months of this year, we delivered steady financial results while advancing on our long-term growth strategy. We achieved record organic capacity additions and completed two landmark transactions, reinforcing Tabreed's role as a trusted regional cooling partner and our commitment to creating sustainable value. Total connected capacity reached 1.38 million tons with 52,900, almost 53,000 RTs of organic additions, nearly double the capacity added in all of 2024. This growth was driven by commissioning of three new greenfield plants, including two in the U.A.E. We continued our expansion in existing concessions with minimal CapEx, thereby unlocking higher returns.
Consumption volumes increased marginally versus last year, supported by capacity growth, but partially offset by milder weather in first quarter and the third quarter of this year. Group revenue increased to AED 1.87 billion, up 1% year-on-year, driven by capacity additions in the U.A.E. EBITDA increased 5% to AED 975 million, with margins improving to 52%, reflecting scale benefits and disciplined cost control. Beyond strong operational performance, we progressed on our growth agenda this year with the acquisition of PAL Cooling from Multiply Group and commencement of construction on our largest ever greenfield project at Palm Jebel Ali, a 250,000 RT exclusive concession. Overall, Tabreed's financial position remains robust, supported by investment-grade credit rating from Moody's and Fitch. Free cash flow over the past 12 months, excluding advance deposited in escrow to acquire PAL Cooling, reached AED 965 million. This translates into free cash flow yield of more than 10%.
This ability to generate strong cash flow has enabled our shareholders to approve interim dividend of AED 6.5 fils per share for the first half of this year. The increase in net debt to EBITDA to 4.5 multiples at the end of September 25 mainly reflects advance of our share of equity contribution to acquire PAL Cooling, and this transaction has achieved financial closure in October. Moving to the next slide. This slide highlights the strength of Tabreed's existing platform and the foundation it provides for future growth. Our current capacity, combined with future site capacity, positions us for scalable growth in district cooling. Our key strengths include market-leading positions in most of the markets and diversified presence in the region. Proven operational track record of delivering innovation and efficiency. De-risked growth pipeline through secured concessions. Long-term contracts with highly creditworthy customers, ensuring steady revenue and cash flow visibility.
Building on this strong base, we are now expanding beyond our core through two strategic transactions. First one, Palm Jebel Ali concession, executed in partnership with Dubai Holding Investments, represents investment of AED 1.5 billion spread across multiple phases. Adds to 50,000 RT of concession capacity, equivalent to nearly 20% of our current capacity. Strengthens our market position in Dubai and enhance long-term revenue visibility. Construction already started in Q3 this year, and first cooling capacity expected to be delivered by end of 2027, thereby contributing to revenue from early 2028. Secondly, acquisition of PAL Cooling. With enterprise value of AED 4.1 billion executed in 50/50 partnership with CVC DIF. Secures exclusive rights to eight concessions with leading developers in Abu Dhabi.
During the first nine months of this year, PAL Cooling expanded its capacity to 190,000 RT, thereby uplifting our pro forma connected capacity by 14% to 1.57 million RT. It also has a powerful growth engine, with 410,000 RT yet to be connected, mainly through additional four new plants. Allows us to maintain balance sheet strength. Together, these transactions reinforce Tabreed's leadership, expand our footprint, and accelerate our growth trajectory while preserving financial discipline. The expansion of PAL and the ongoing construction of Palm Jebel Ali have progressed in line with our strategic business case throughout the first nine months. This consistent execution boosts our confidence in providing long-term value to shareholders as we advance our development plans. Turning to next slide. This slide illustrates Tabreed's strategic growth path.
The acquisition of PAL Cooling and Palm Jebel Ali concession consists of two of the most strategically important transactions in Tabreed's history. These landmark deals, combined with our existing secure concessions capacity of 380,000 RTs, increase our total site capacity to approximately 2.6 million RTs. This scale strengthens Tabreed's district cooling leadership and supports capital efficient and long-term growth with strong cash flow visibility. Notably, almost 95% of this secure capacity is based in the UAE, highlighting the country's key position within our expansion plans. Our efforts continue to center on building a strong portfolio of new prospects, especially greenfield projects, to address growing demand as investment in real estate and infrastructure expands. Looking ahead, the UAE and the broader GCC region continue to offer compelling prospects, supported by population growth, capital inflows, and government initiatives aimed at achieving national energy efficiency targets. Moving to the next slide.
Tabreed has consistently delivered attractive returns to its shareholders over the past five years, with dividends growing at an annualized rate of 8%, corresponding to average dividend payout ratio of 73%. In line with our strong focus on shareholder value and supported by our solid financial position and healthy cash generation, Tabreed's shareholders approved an interim dividend of 6.5 fils per share for the first half of 2025. This marks a significant milestone as the first interim dividend in Tabreed's history, reflecting our confidence in the company's outlook and ability to deliver sustainable value. The payout ratio for this interim dividend, whether measured against net operating cash flows or net profits for the period, remains broadly consistent with our historical payout levels. With that, I will now hand over to Salik, who will take us through Tabreed's financial performance in more detail.
Thank you, Adel. Good afternoon, everyone. Let me walk you through Tabreed's financial performance for the first nine months and the third quarter of 2025. Focusing on our net income statement, balance sheet, and cash flow release. In 2025, Tabreed's business model continues to demonstrate robustness and scalability. EBITDA has increased at an accelerated rate this year, supported by record capacity additions and rigorous cost management. The company maintains strong margins and healthy cash flows, enabling ongoing investment in future growth while upholding a prudent leverage profile and reaffirming our commitment to financial discipline. Tabreed is well-positioned to deliver reliable returns to shareholders by maintaining a balanced strategy that prioritizes both sustainable growth and regular dividend distributions. Turning on to the next slide. I'd like you to provide a comprehensive update on our operational performance and expansions for the first nine months of 2025.
Since the conclusion of the financial year 2024, we have added approximately 53,000 tons of gross new capacity. Specifically, 4,600 RTs were commissioned in the first quarter, and in the second quarter it was 37,000 tons, and the remaining 11,300 tons in the third quarter. All this new capacity was generated organically, primarily through commissioning of new greenfield plant in the UAE. Growth was further supported by additional connections within our key existing UAE concessions, which includes the Downtown Dubai, Yas Island in Abu Dhabi, Saadiyat Island, and Al Raha. It is important to note that capacity additions are inherently non-linear as they are contingent upon real estate development timelines. The slower pace of completions last year was attributable to scheduling delays rather than a decrease in our business momentum. This year has seen a significant acceleration in the activity with multiple greenfield sites commissioned and the new load secured.
These timing variances do not affect our long-term growth trajectory as we continue to maintain a robust project pipeline. The UAE remains the principal market, accounting for 82% of our total connected capacity, while the other regional markets comprise the remaining 18%. As previously noted in the first quarter, chilled water volumes experienced a temporary decline due to the warmer weather persisting into the third quarter, resulting in a 2% year-on-year deduction in consumption. Nevertheless, overall volumes increased modestly over the nine-month time frame. Now I would like to address our revenue performance for the period. Tabreed achieved a record AED 1.87 billion in revenues during the first nine months of this year, marking a consistent increase YoY . The revenue growth in the third quarter was moderated by weather patterns, primarily affecting the consumption revenue.
In our core chilled water segment, fixed revenue increased by almost 3.5% YoY . This growth reflects the additions of nearly 59,000 tons of new capacity over the last 12 months, including 53,000 tons added this year, as Adel Al Wahedi explained in his opening remarks. Alongside, there is also a CPI indexation that attributes to the fixed income increase. These capacity enhancements also helped mitigate the impact of weather-related factors on consumption revenue, which saw a marginal increase over the nine-month period. The value chain business saw reduced revenue due to expiration of third-party O&M contracts upon maturity. This second-tier network maintenance business segment, due to its low margins and non-strategic role for Tabreed, remains volatile each quarter. Moving on to the profitability highlights. Gross profit increased proportionally with revenue increases, reflecting a corresponding rise in operating costs necessary to meet cooling demand.
Additionally, continued investment in cooling infrastructure led to higher depreciation expenses, resulting in a modest change in gross profit margins compared to the same period last year. EBITDA, however, rose by 5% to AED 975 million, with a margin expansion to 52%. When excluding depreciation and amortization, overhead costs were lower than in the previous year, thereby supporting the improvement in EBITDA margin. Now we move on to the next slide. The profit before tax and the net profit declined by 1% in the first nine months of 2025 compared to the same period last year, primarily as a result of increased net finance costs. After completing the refinancing at the end of Q1 this year, a term loan was settled through the issuance of the Green Sukuk.
The higher market interest rate reflects the new issuance debt this year compared to the benefit which secured during the low interest rate environment in 2020, which resulted in elevated finance expenses this year. This effect became more pronounced in Q3 due to greater finance costs being realized in Q3 last year onward following the Sukuk buyback over that period. Other income in Q3 included one-off losses that negatively impacted our bottom line. In the first half of 2025, we recorded a net one-off gain of AED 2.8 million, primarily from selling a minority stake in one of our associates. In contrast, Q3 featured a net one-off loss of about AED 7.6 million. This is mainly from the write-off upon replacement and refurbishment of certain plant equipment. Overall, this led to a net one-off loss of AED 4.8 million over the nine-month period.
The share of results from joint ventures and associates were also lower than the previous year, as 2024 included a one-off gain from the divestment of our minority stake in the associates. Excluding these exceptional items, performance across associates and joint ventures remained stable. In the absence of these one-off items in other income and impact of higher finance costs, net profit would have grown in line with our underlying operating profit and also the EBITDA growth of 5%. This demonstrates the resilient nature of the Tabreed business model and its ability to sustain consistent profit growth. Now let's move on to the next slide, looking into the balance sheet. The total assets and liabilities grew by 6% during the first nine months of this year.
Key movements in assets, fixed assets, and intangibles declined marginally due to the periodic depreciation and amortization charges, partially compensated by the new CapEx incurred. Investment in association JVs was largely unchanged as profits earned were balanced by dividend payouts. The disposal of minorities taken one of the associates had fair value adjustments on derivatives held by these associates. Receivables and other assets increased, driven by seasonally higher consumption revenue during summer months, resulting in higher trade receivables. There was also an addition of AED 1.2 billion related to an advance deposited in escrow account as part of our Tabreed share of equity investment to acquire the PAL Cooling assets, which closed subsequently in October.
Moving to equities and liabilities, equity and reserves reflect the payment of 2024 dividend, accrual of H1 2025 interim dividend, and a slight decrease in the derivative fair values, partly offset by the profits generated during the first nine months. Payables and other liabilities rose mainly due to higher utility costs, payables linked to seasonally higher consumption volumes, which will be settled as per the agreed terms. In addition, payables also reflect the interim dividend payment of AED 185 million, which was distributed in 7th of October 2025. Debt profile increased after the drawdown of AED 900 million under our green revolving credit facility. Proceeds from this RCF, along with our cash balance in this balance sheet, were utilized to fund the equity investment for acquiring the PAL Cooling assets.
For 2025, the outstanding Sukuk obligation of AED 973 million equivalent is due in October, and unutilized RCF were settled following the closure of the quarter using a new term loan of AED 1.8 billion dual-tranche financing raised from local banks. With this, there are no significant near-term debt maturities on Tabreed's balance sheet. Leverage. Net debt to EBITDA increased to 4.5 x during the period, mainly due to the funding of Tabreed's equity share for acquiring the PAL Cooling assets using a mix of debt and cash. Despite increased leverage, the company maintained a strong credit fundamental, as evidenced by the investment-grade credit rating, strengthened by our high-margin, cash-generative business line underscores this resilience. Moving on to the next slide. Tabreed's operations continue to deliver stable and robust cash flows, allowing us to strategically allocate surplus funds to facilitate growth and enhance shareholders' value.
During the first nine months of 2025, the company generated AED 986 million in operating cash flows, driven by strong profitability margins. The working capital requirements reflect the seasonally elevated revenues, resulting in higher trade receivables. Notably, our DSOs have improved substantially over the recent years, highlighting both the effectiveness of our B2B billing model and the high creditworthiness of our customer base. We invested almost AED 170 million to expand capacity within the existing concessions and to progress new greenfield developments through the CapEx. Following the advance deposit into the escrow account for our equity contribution towards PAL Cooling assets acquisition, free cash flows were negative during the period. However, excluding this investment advance, our recurring free cash flows profile over the last 12 months amounts to a healthy AED 955 million. Our financing strategy remains prudent.
Proceeds from the Green Sukuk were utilized to settle the maturing debt in Q1, further strengthening our liquidity position. Growth investments were funded through a combination of debt and available cash resources. Additionally, we distributed the full-year 2024 dividend of AED 441 million in Q2, underscoring our ongoing commitment to delivering consistent return to our shareholders. With this, I conclude the summary of our financial results presentation. Now, I will hand it back to Adel to take you through the rest of the presentation.
Thank you, Salik. As of the third quarter of this year, we have achieved 4.5% YoY increase in connected capacity, fully consistent with our stated guidance. Our medium-term guidance is unchanged, with capacity expected to grow between 3%-5% annually through the year 2027. Tabreed has a strong pipeline, long-term concessions, and an expanding geographic footprint to support and sustain growth into 2025 and beyond. PAL Cooling's future capacity growth is not yet included in the guidance and will be announced along with full-year results. Following the PAL acquisition, after the end of Q3, the PAL investments will shift from advances to equity on the balance sheet. There is no impact on debt or cash, as these were already reflected as of September 30th of this year.
From Q4, finance costs related to acquisition debt and our share of results from PAL Cooling assets will be reflected in our P&L. To facilitate organic capacity growth, we project annual CapEx between AED 200 million-AED 300 million. During the first nine months, we invested AED 169 million. This amount is expected to increase as construction advances on current expansion projects and the new facilities enter the build phase. EBITDA margin increased by 1.7 percentage points during the first nine months of 2025 compared to last year, reaching a last 12-month margin of 52.7%. This figure is close to the top end of our guidance range of 50%-53%, and we are confident that our margins will stay within this range. Our net debt to EBITDA ratio stands at 4.5 multiples as of September 30th, 2025, comfortably within the investment-grade threshold.
This already reflects our investment in PAL Cooling acquisition, given our resilient business model, top-tier B2B customers, and strong backing from strategic anchor shareholders. We are confident that the temporary increase in leverage from capital investments will normalize quickly as cash flows and EBITDA growth materialize. We have already demonstrated this financial discipline in the past and have proven track record of optimizing our balance sheet. Next slide. We continue to see favorable economic trends across our key markets, supporting strong long-term growth for the district cooling industry. Economic activity is expected to accelerate over the next five years, driven by population growth, urban development, and supportive government policies. Major investments in mega city projects and global events such as Expo and the World Cup will further boost demand for higher density developments that rely on centralized cooling solutions like district cooling.
Additionally, national energy efficiency goals and net zero carbon targets will drive greater adoption of district cooling. These trends point to a growing need for energy efficient and cost-cutting cooling solutions. Tabreed, with its diversified presence and proven expertise, is well-positioned to capitalize on these opportunities. With that, we conclude the presentation and will now open the floor for the Q&A.
Thank you very much. We will now move to the Q&A part of the call. If you would like to ask a question, please press star two on your phone. That is star two if you are connected from the phone. If you are connected from the web, you can type your question in the box provided or request to ask a voice question. We will wait a few moments for the questions to come in. Okay. So our first question is from Jean-Pierre from Kepler Cheuvreux. Your line is now open. Please go ahead.
Yes. Good afternoon, everyone. Two quick questions regarding the bridge between EBITDA and net profit. In Q3, you reported a net loss of AED 4.1 million under other items. Could you please clarify whether this figure includes any non-recurring elements, particularly write-offs? If so, could you quantify them roughly? Secondly, looking ahead, I understand that the acquisition of PAL may generate some one-off costs related to transaction fees for advisors, lawyers, and so forth. Can you confirm that these costs will be booked indeed in Q4? If so, could you give us a rough indication of their magnitude? Are we talking about AED 5 million, AED 10 million or more? Thank you.
Thank you. Good afternoon, Jean. Salik here. I would like to answer the first one in this order. The one-off items that you are referring is a refurbishment that we did to one of our plant equipment costing AED 8.1 million, which is a non-recurring in nature because as and when the replacement is required, it is not an annual basis. It is not the normal maintenance related stuff. That is what has been recorded as a one-off. That is why you see those negative movement of AED 8 million in that, which is recorded in Q3. The second question, which is regarding the transaction cost. Typically, in any M&A transactions, as you would notice, the transaction cost ranges between 1%-2%. We are going through that finalization process, and this will be reported as part of our Q4 results.
Just when you say 1%-2%, what is the total amount? Are we talking about 1%-2% of AED 1.2 billion, or can you clarify?
At this stage, we are not providing any specific number or data. This is just for your reference, the typical benchmarks in the market between 1%-2% of the deal value.
Of the deal value. Thanks very much.
Thank you. Our next question is from Tomas Laymuns from Barings Asset Management. How do you expect the net leverage to evolve in the coming quarters? Is the company still committed to current ratings? He also asks, do you expect to tap the international bond markets again soon?
Thank you, Tomas. Let me clarify this. Early October this year, we already settled the Sukuk, which was maturing in 2025, issued in 2018, the $500 million through the new term loan that we had obtained of $1.8 billion, which we used it both for Sukuk as well as our equity contribution for our PAL acquisition. That enables them. The next maturity is due only in 2027 of the debt capital market. Having said that, our cash generating ability and the balance sheet strength allows us to comfortably meet any other repayment that may come in near term. But as I said in my speaking remarks as well, there are no short-term maturities that requires any kind of refinancing.
In addition to your next follow-up question about the current ratings, yes, we are committed as the management and the board and shareholders about retaining the investment grade status for the company. There is no change in that front. I hope I answered your both the questions, Tomas.
Thank you. Our next question is from Ambereen Jiwani from AJH Capital. Thank you. Please can you help us understand the reasons for lower consumption? Was it just the temperature or anything else? What is the update on tariff adjustment driven by the new water drainage charges? How was the receivable collection? Any slowdown?
Hi, Ambereen . This is Salik Malik . Thanks for your questions. Let me break down your questions, which is first is on the lower consumption. Again, it was purely due to the minor weather that we have recorded in Q3 as you would have seen, same in Q1. Q2 had a warmer weather, so volumes increased. It's nothing beyond that. With regard to your tariff adjustments on the EWEC, yes, we are in talks with the RSB in Dubai. This is mainly applicable in Dubai. So we have not seen any kind of limitations so far in passing on this tariff positions. With regard to your last question, which is on the receivable collection, I haven't seen any slowdown in the receivables. The increase in receivables is more seasonal and cyclical based on the summer.
Thank you. Just like to give a reminder that if you'd like to ask a question, it's star two. If you're connected from the phone, star two, and if you're connected from the web, you can ask a voice or text question. Our next question is from Malak Hatem from EFG Hermes. Finance costs have stayed elevated for two quarters after the Green Sukuk issuance and the PAL acquisition. How do you see financing expenses evolving from here? Is a return to lower levels expected? Ladies and gentlemen, please stand by. It looks like we lost connection with the Tabreed team. Thank you very much. We are reconnecting with the Tabreed team. Please stand by. Thank you. Hello.
Can you hear us now?
Hi, Salik. Yes, I can hear you.
Okay. As I said, I do not know where I got lost, but the thing is, as I was saying, the current market rate or the market rate that will be in future because this is the normal market condition that will be there. So ones that were there before were purely based on the market disruptions due to COVID and all the stuff that we did in 2020 at that time. Otherwise, the financing cost is in the range of high fours or low fives. That is it.
In a nutshell, the financing cost will evolve in line with the net debt.
Without any going forward, for sure. That is our commitment.
Thank you. We will give it a few more moments for any new questions. It is star two if you are connected from the phone, and if you are connected from the web, you can send a text or voice question. We will just wait a few more moments. Okay, it looks like we have no further questions. I will now hand it back to the Tabreed team for the conclusion.
Thank you all for joining us today and for your continued interest in Tabreed. As you have seen throughout this presentation, we remain focused on delivering sustainable growth, maintaining financial discipline, and creating long-term value for our shareholders. With a robust pipeline, strong liquidity, and strategic initiatives, Tabreed is well-positioned to capitalize on favorable market trends and drive continued success. We appreciate your support and confidence in our journey. If you have further follow-up questions or need any clarifications, please feel free to reach out to us. Our contact details are mentioned at the end of this presentation. With that, we conclude today's call. Thank you for your time and participation. Have a good day and excellent weekend.
We will now be closing all the lines. Thank you and have a nice day.