Good afternoon, everyone, and welcome to Tabreed's Q1 2025 earnings conference call on May 14th, 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, Rafael. Good afternoon, everyone. On behalf of Tabreed's management, I welcome you to our earnings call for the first quarter of 2025. I am Yugesh Suneja, Head of Investor Relations at Tabreed. Our financial results, including a copy of this presentation, are already available on Tabreed's website. Video replay and transcript of this call will also be made available on our website. I would like to draw your attention to the disclaimer on this slide. Some of the information in today's presentation is about future performance and forward-looking in nature. These statements are based on our current expectations and are subject to risks and uncertainties. Please refer to this slide for more details. Let us now move to the agenda for today's call. I am joined today by Adel Al Wahedi, our Chief Financial Officer, and Salik Malik, Vice President of Finance.
Adel will start with key highlights of the first quarter. Following this, Salik will discuss the financial results in detail. Finally, Adel will conclude with an update on our guidance and outlook. I will now invite Adel to begin the results discussion.
Thank you, Yugesh. A very good afternoon to you all, and thank you for joining our Q1 2025 results conference call. Before diving into Q1 2025, we would like to take a step back on the past five years, which have been a journey of transformation and growth for Tabreed. Tabreed has demonstrated track record of enhancing its market-leading position in the district cooling sector. Tabreed has achieved sustainable growth by unlocking opportunities not only within its core market of U.A.E., but also by diversifying into other countries inside and outside of GCC. Tabreed has added around 77,000 RTs of annual capacity in the last five years or annualized growth of 7%. This was achieved through organic growth and selectively pursuing value accretive measure and acquisitions transactions.
In all its investments, Tabreed seeks a minimum internal rate of return that exceeds our cost of capital, enabling us to add value to our shareholders. Consistent execution on our growth strategy, coupled with rising demand for space cooling, have led to annualized growth of 12% in consumption volumes in the last five years. Revenue and EBITDA have grown at 10% annualized growth. All along our growth journey, we have maintained a strong focus on maximizing value creation by optimizing our operations and delivering exceptional customer service. This allowed us to expand our EBITDA margins, generate healthy cash, improve our balance sheet ability to invest further in future growth, and enhance dividend payout to our shareholders. We remain committed to driving more growth in a capital disciplined manner that drives shareholder value creation.
In the next slide, we are just getting started on the renewed growth journey as we are actively working on expanding our growth pipeline, which will position us to sustain growth momentum in the next phase of our journey. I am very excited to see a remarkable start to the year 2025. We witnessed significant increase in connections in the first quarter compared to the same quarter of last year. Tabreed also entered an acquisition in partnership with Dubai Holding Investments to provide 250,000 RTs of cooling to a premium master development of Palm Jebel Ali in Dubai. I will touch upon this in more detail in the following slide. Another important milestone for Tabreed was the issuance of its first green Sukuk amounting to $700 million.
This green issuance underlines Tabreed's commitment to finance or refinance eligible projects, in line with our Green Financing Framework, which is assured by independent third party opinion. In terms of financial performance, Tabreed has once again showed resilience to its business model with growing EBITDA and net profit margin expansion and improving returns, strong cash flow generation, and robust improvement in the balance sheet. Our cash balance increased by 14% year- to- date, and net debt is now at the lowest level since 2019. Our balance sheet leverage has drastically improved from a peak of almost 6x in 2021 to 3.55 x at the end of the first quarter of this year, showing highly effective liability management. This financial strength positions us very well to seize growth opportunities while maintaining investment-grade credit rating.
Overall, we are pleased with the first quarter's performance, which shows continued focus on managing our costs by utilizing the latest technologies and automation, strengthening of our balance sheet, and strong liquidity position. All these efforts are driving an improvement in our margins, higher return on equity, and attractive free cash flow yield. Moving to the next slide. Let me here elaborate more on our recent partnership with Dubai Holding. Tabreed and Dubai Holding Investments have established a joint venture to undertake district cooling services on an exclusive basis for one of Dubai's transformative developments. Tabreed will hold 51% share in the special purpose vehicle, while the remaining 49% is held by Dubai Holding Investments. This is one of the largest greenfield deals secured by Tabreed, with the size of project almost equal to 20% of our current connected capacity.
It also increases our backlog of contracted capacity significantly, which will not only enhance our future revenue visibility, but also increases the level of our future revenues. It also strengthens our market position in Dubai district cooling market, which is expected to grow strongly over the coming years. Subject to customary approvals, construction of the district cooling network is expected to commence in Q2 of this year, with the first cooling services expected to be delivered by end of 2027 or early 2028. Over time, load will be ramped up to meet anticipated total cooling capacity of approximately 250,000 tons, with an estimated total CapEx of AED 1.5 billion. This CapEx will be internally funded by Tabreed through its cash reserves. Signing this project is a significant milestone for Tabreed.
We are confident that it will not only strengthen our market position in Dubai, but also pave the way for future success. Moving to the next slide. Tabreed continues to be a pioneer in the international sukuk market. Having been a regular issuer over the past 20 years, in 2006, its $200 million sukuk issuance was the first to be listed on the London Stock Exchange, which paved the way for other issuers to follow. That issuance was also the first-rated sukuk by a corporate entity in the Middle East. Tabreed returned to international debt capital markets this year with its largest sukuk or bond transaction ever, and this was the first issuance under our $1.5 billion trust certificate program. The issuance attracted strong institutional demand from high-quality local, regional, and international investors, with the final issue being oversubscribed by nearly 2.6 x.
The sukuk was competitively priced with a profit rate of 5.279%, achieving the tightest ever credit spread for a five-year instrument by Tabreed and by any regional corporate Sukuk with a similar credit rating. This high demand was supported by investment-grade credit rating from Moody's at Baa3 and Fitch at BBB, consistent with Tabreed's corporate ratings. In the next slide, let me now provide updates on our operational performance and expansion during the first quarter of the year 2025. Compared to the end of Q1 last year, we added gross new capacity of around 27,000 RTs, of which close to 4,600 RTs of new connections came in the first quarter of this year. Mostly of this new capacity was from organic increase in our key concessions such as Al Raha, Saadiyat Island, Downtown Dubai, Yas Island, Al Maryah Island, et cetera.
In the U.A.E., we also added 3,000 RTs in other GCC countries, mainly Oman and Saudi. Lastly, we have further expanded our presence outside GCC with expansion in capacity in Egypt and India by 1,500 RTs and 3,000 RTs in the last 12 months. We are on track to see increased pace of new capacity this year, which I will discuss later during updates on guidance. The U.A.E. remains our core market, representing 83% of total connected capacity, while other GCC markets such as Saudi Arabia, Oman, and Bahrain account for 17% of total connected capacity. We are continuing to pursue opportunities to further our presence outside GCC through our presence in India and Egypt. As you can see, consumption volume declined by around, say, 8% in the first quarter due to relatively colder weather in Q1 of this year versus the same period last year.
However, Q1 is seasonal, our lowest quarter across the four quarters, and therefore should have limited impact on our full-year volumes. Moreover, considering majority of our EBITDA comes from fixed capacity charges, this also had limited impact on our profitability for Q1. Capacity charges contribute most of our chilled water revenue. In Q1 of this year, this contribution increased marginally to 72%, with a growth of 2% in fixed charges by increased capacity and CPI indexation of 1.66% applied for the year of 2025. Moving to the next slide. During annual general assembly meeting in March of this year, shareholders approved a dividend of 15.5 fils per share for the year 2024, which was subsequently paid in April. In the last five years, dividends have increased at annualized rate of 8%. At current share price, this results in attractive dividend yield of 5.7%.
Board of directors have adopted progressive approach in distributing dividends as evidenced by consistent increase in payout ratio over the last five years. We expect this trend to continue. Our disciplined capital allocation and prudent financial management has been at the center of our value creation strategy. Strong business fundamentals and visibility of our future cash flows allow us to sustain attractive cash returns for our shareholders while maintaining investment-grade credit rating. In the next slide. Cooling has become a critical part of GCC's infrastructure needs, especially important given increasing climate challenges. In the last 12 months, our operations have resulted in substantial environmental benefits with energy savings of 2.6 billion kilowatt hour, equivalent to powering around 160,000 homes and prevented 1.5 million tons of carbon emissions. As our business grows, so does Tabreed contribution to reducing environmental footprint with more and more savings in energy consumption.
By leveraging advanced technologies and innovative practices, we are not only meeting the immediate cooling needs, but also are contributing towards achieving broader sustainability goals. Simultaneously, Tabreed is actively pursuing a roadmap to achieve net zero emissions by 2050, aligning with the UAE Energy Strategy sector. We have invested in several new technologies and solutions that improve operational efficiency and reduce environmental impact. Various examples of such achievements include use of variable frequency drive, which is expected to save 23 million kilowatt hour of energy over the next ten years. Nanofluids particles in our chilled water network, which has been successfully deployed in four plants in Dubai and expected to save energy consumption by 10% at plant level. Geothermal district cooling project in Masdar City, which provides 700 RTs of cooling and consumes 3x less electricity than standalone air-cooled system.
As we ramp up deployment of these initiatives more widely across our portfolio of plants, we expect this to support our margin profile going forward. With this, I will now hand over to Salik to discuss our financial performance in detail.
Thank you, Adel, and good afternoon, everyone. Before I delve into the income statement, balance sheet, and cash flow in detail, let me give you a Q1 2025 financial results highlight, which is highlighting the robust nature of our business model and affirm the stability ensured by fixed capacity charges. Our EBITDA and net profit demonstrated commendable growth even as consumption volumes experienced a slight moderation. Profitability margins and cash collections continue to showcase remarkable resilience, contributing positively to further reductions in net debt and enhancing leverage in relation to gearing. We are optimally positioned to deliver substantial value to our shareholders by strategically combining growth initiatives with consistent dividend distribution. Moving on to the next slide. The group achieved a revenue of AED 466 million in the first quarter of this year, demonstrating steady performance year-over-year and an impressive 7% compounded annual growth rate since 2021.
In Q1, fixed capacity charges increased by 2%, driven by the addition of 27,000 tons over the last 12 months, and also the CPI indexation. Starting 2025, CPI indexation was 1.66% is applied as per the 2024 inflation index published by the U.A.E. This CPI is broadly the same as last year's CPI indexation of 1.60%. Growth in fixed charges effectively balance the impact of reduced consumption revenue and higher finance lease amortization. While consumption volumes experienced 7% decline in Q1 2025 compared to the same quarter last year, primarily due to lower average temperatures reducing cooling demand. This weather-related shift reflects a natural adjustment in energy usage patterns. However, as Adel mentioned, this had a limited impact on our profitability, as Q1 had lower consumption volumes across the four quarters.
Total operating costs demonstrated remarkable stability this quarter, supported by a reduction in utility charges that aligned with our lower consumption levels. Additionally, other direct costs experienced a decline while the capitalization of assets resulted in an increase in depreciation charges, reflecting our strategic investment in the company's infrastructure. Gross profit demonstrated a consistent stability year-over-year, reflecting positive alignment with our revenue trends. Over the last four years, annualized gross profit growth has been a commendable 6%. Moving to the next slide. Group EBITDA increased by 4% to AED 283 million, with EBITDA margins expanding to 61%. Excluding depreciation and amortization charges, our direct costs and cost overheads were lower than last year as management remained focused on optimization of expenses. Below operating profit, we also realized 7% savings in net finance costs following continued reduction in our net debt.
We also saw sustained growth in the share of results from our JVs and associates. Overall, net profit grew by 3% to AED 115 million in this first quarter compared to AED 112 million in the same quarter last year. On a historical basis, net profit has increased at a compounded annual growth rate of 7%, and excluding the impact of U.A.E. corporate tax, profit before tax grew at 10% annualized growth rate, driven by effective debt management. Let us look at the balance sheet on the next slide. Total assets and liabilities remained stable year-to-date. Major movements in assets are the change in fixed assets and intangibles were primarily driven by depreciation and amortization, complemented positively by the capital expenditure investments.
Investments in associates and JVs experienced a modest increase, reflecting the profits generated during the period, which were only slightly tempered by minor adjustments in the fair value of derivatives held by the associates. Receivables and other assets experienced a reduction due to the successful closure of hedge positions coinciding with the full repayment of the bank debt matured in Q1 2025. Additionally, overall customer collections demonstrated consistent improvement while the cash balance strengthened, supported by robust cash generation from operations. Looking at the movement in equities and other liabilities, equity and reserves reflect a modest adjustment, primarily driven by the allocation of the 2024 dividend amount to current payables and a slight decrease in the fair value of derivatives. This adjustment was partially balanced by the positive profit generated during the first quarter of this year.
The increase in payables and other liabilities primarily reflect the allocation of 2024 dividend amount designated for shareholders, which was successfully distributed in April this year. The overall gross debt remains stable as the bank debt was successfully refinanced through the proceeds of Tabreed's inaugural green sukuk amounting to $700 million , which garnered significant interest from our investors. This refinancing has enabled the majority of our borrowings to transition into longer-term maturities. For 2025, the only outstanding sukuk obligation amounts to AED 970 million due in October. With our current cash balance and anticipated cash generation during the rest of the year, we are well-positioned to comfortably address this liability through our cash reserves or refinance with a new debt should the need arise.
Net debt witnessed a remarkable reduction to AED 4.5 billion at the end of the first quarter, marking its lowest position in five years, driven by robust cash generation and stable gross debt levels. In tandem, the net debt to EBITDA ratio improved significantly to 3.55x, further underscoring the strength of our credit fundamentals. Our financial position is notably robust, demonstrated by the gearing of 37%. The stability provided by long-term contracts ensures excellent visibility on future cash flows, offering a prudent buffer to adjust the gearing ratio if required to support the potential funding needs for growth opportunities. Moving on to the next slide. Tabreed's operation consistently generates substantial cash, enabling strategic allocation of surplus funds towards business expansion, effective management of debt obligations, and the delivery of rewarding dividends to our shareholders.
Our operation successfully generated net operating cash flow of AED 207 million, supported by consistently strong profitability margins. The robustness of our cash collections is highlighted by significant improvement in our DSOs over the recent years. Tabreed's B2B dealing structure and the exceptional creditworthiness of our customers serves as a vital strength, enhancing our credit profile and ensuring minimal counterparty risk. We have invested AED 25 million during this first quarter to support the expansion of capacity within the existing concession and to advance the development of new greenfield plants. Although the Q1 capital expenditure rate has been modest, it is expected to accelerate as ongoing greenfield projects move closer to completion, aligning with the anticipated growth in customer demand.
During the first quarter, Tabreed achieved remarkable free cash flows totaling AED 182 million, complemented by an impressive AED 966 million over the past 12 months, demonstrating a robust free cash flow generation yielding 12%. Our financing approach has exemplified strategic foresight and disciplined management. The proceeds from the inaugural green sukuk were efficiently channeled to reduce our bank debt, ensuring financial resilience and continuity in servicing our obligations. By the close of the first quarter, we achieved a notable 14% growth in our cash balance, reaching AED 1.2 billion. Additionally, the availability of undrawn AED 600 million Green RCF underscores our strong liquidity position, providing us with the flexibility to seamlessly implement our well-defined capital allocation strategy. With this, I conclude the summary of the financial results presentation for the Q1. I will now hand it back to Adel to take you through the rest of the proceedings.
Thank you, Salik. In the following section, I will talk about our medium-term guidance, which remains unchanged. We provided a capacity growth guidance of 3%-5% per year until the year 2027. As of the first quarter of this year, capacity grew by 2% year-on-year. Our business capacity additions are not evenly spread across quarters, and therefore, the first quarter run rate is not an indication of full year growth. Looking at post-quarter trends, we expect a strong uptick in capacity additions in the second quarter. Other than new connections in our concession areas, we expect to complete two greenfield plants. We are therefore confident in delivering against our capacity guidance. To meet this anticipated capacity growth, we expect to incur organic capital expenditure of around between AED 200 million -AED 300 million per year. In the first quarter, we have incurred AED 25 million CapEx.
CapEx run rate is likely to increase over the coming quarters as we complete new plants and connect new loads in concession areas. In terms of margins, we saw EBITDA margin expansion of almost 2.5% in the first quarter versus the same quarter of last year. We delivered EBITDA margin of 52% on the last 12 months basis, which is closer to a higher end of our EBITDA margin guidance of the 50%-53%. Our current leverage ratio, which mainly refers to net debt to EBITDA, stands at 3.55 x. This is well below the threshold required to maintain investment-grade credit rating. Our intention is to keep our leverage within the levels of investment-grade. This leaves us with sufficient room to invest in growth.
Moreover, the resilient nature of our business, our B2B top-tier customers, and backing from our major strategic shareholders allow leverage ratios to trend above the requirement over a temporary period as cash flows and acquired EBITDA would mean that these ratios will go back to normal levels in a short period of time. Therefore, our leverage target is aligned to our approach of keeping a fine balance that meets the requirements of various stakeholders. The next slide shows how Tabreed will deliver on its guidance while leaving significant room for upside. Tabreed has already secured significant pipeline of about 370,000 RT new capacity, which will take our capacity to 1.7 million RTs once fully connected. This figure does not yet include the 250,000 RT from Palm Jebel Ali concession, which will further uplift the secured capacity and future visibility.
This secured growth will be materialized as their construction progress in the master developments. Almost 80% of this secured capacity is in the U.A.E., which remains at the center of our growth strategy. This contracted capacity is in the form of either concession agreements for certain master developments, where any new developments will be connected to Tabreed, or we have signed master agreements with the developers. This expansion offers a steady and secure organic growth at minimal increment CapEx, and therefore will drive improvement in returns going forward. We are also focusing on developing a new pipeline of opportunities in the form of both organic and inorganic growth. We are targeting new greenfield opportunities to meet demand from increasing investment in real estate and infrastructure projects.
The U.A.E. will continue to offer such prospects considering inflow of population and capital, as well as strong push from government to meet national energy efficiency targets. International markets hold significant potential in this area as the need for sustainable cooling is growing rapidly and district cooling remains under-penetrated. We also anticipate further opportunities in the form of mergers and acquisitions. In the U.A.E., developers still own captive assets, which can be monetized at the right time. We have a right of first offer to acquire Emaar's district cooling assets in Dubai if it decides to monetize. Similarly, we are also actively looking to other opportunities in the market. The international landscape also provides opportunities for growth through mergers and acquisitions, where Tabreed can acquire captive assets owned by developers or public sector entities.
In conclusion, our extensive expertise in the district cooling industry uniquely positions us to capitalize on these opportunities, while our robust financial framework ensures sustainable value creation for our shareholders. In the next slide, you will see favorable macroeconomic trends in the key markets where we are present that should support strong growth for the district cooling industry. Economic activity is expected to pick up over the next five years in most of our markets, driven by population growth, urbanization, and increasing disposable income. We also see increasing investments in larger scale developments of mega cities or hosting mega events such as Expo, Olympics, World Cup, et cetera, in our core markets. These trends drive demand for high-rise buildings, master communities, and high-density developments, which typically demand centralized cooling systems such as district cooling.
National energy efficiency targets and net zero carbon emissions goals are also supportive factors for higher adoption of district cooling. National Cooling Action Plan of India is one such example where government is encouraging the use of DC in all new commercial developments. District cooling regulations are another important step in boosting confidence among all stakeholders to increase use of district cooling. Such regulation aim to build a strong trust between consumers and service providers, and environment of transparency by ensuring high quality, reliable, and customer-friendly services at competitive prices. All these market trends are expected to drive a rise in energy needed for space cooling and increasing use of more energy efficient, reliable, and cost-effective district cooling. Tabreed, with its diversified presence across various countries markets, is well placed to capitalize on these opportunities. With this, we conclude the presentation. We'll now open the floor for Q&A.
Thank you. Thank you very much for the presentation. We are now opening the question- and- answer section. If you would like to ask a question, please press star two on your phone and wait to be prompted. If you are dialed in by the web, you can type your question in the box provided or request to ask a voice question. We will just wait a moment or two for the questions to come in. Our first question comes from Anna from JP Morgan. Please go ahead. Your line is now open.
Yes. Good afternoon, gentlemen. Can you hear me well?
Yes. Yes, we can hear you.
Thank you. Thank you for the presentation. Anna Antonova from JP Morgan. Could you please talk a bit more about the Jebel Ali Palm concession on the slide seven? For example, are there any carve-outs to your exclusivity for this project? How front-loaded the CapEx deployment will be? Thank you.
Yeah. Hi, Anna. As we mentioned, we formed a JV with Dubai Holding Investments, 51-49 ownership. It is exclusive district cooling provider for that JV over the concessioned period tenor. As I mentioned, it will be 30 years, with expecting opportunity to also renew another 25 years. So it is an exclusive. Definitely, it is a greenfield project in two phases, 250,000 RT at a range of maybe the tenor, it will be maybe around 10 years, more or less. As we know, this depends on the acceleration of the real estate market and the economy in the country and in the region. AED 1.5 billion of CapEx also expected Phase 1 to be concluded or to commission. The operation of first plant, end of 2027, beginning of 2028. Expected an RT capacity of 13,000 RT. The other part, no carved out. Yeah.
This is sufficient enough, or anything more, please let us know.
Thank you. That's very helpful. Just a clarifying question. You mentioned that the first volumes will be supplied in the end of 2027, beginning 2028. You mentioned the Phase 1 of 13 kt of capacity out of 250 kt. Is that correct?
Yes. It's 13 kt. 13 kt.
Thank you. Thank you. When do you expect the Phase 2 and other phases to begin after that? Like similar intervals?
Yeah. Phases will follow with the developments of the path there. It will follow them always.
That is clear. Thank you so much. In terms of CapEx deployment out of the AED 1.5 billion, I would assume a minor part will be deployed into the next two years for the first Phase 1. Is that correct?
Yeah, exactly. It is expected that a yearly CapEx, in continuation of all phases, a range of between AED 200 million -AED 150 million. This will be sourced from our internal cash operations.
That is very clear. Thank you so much for your answers.
Okay. Welcome.
Okay. Thank you. Thank you very much. Our next question comes from Jean-Pierre from Kepler. Please go ahead. Your line is now open.
Yes, good afternoon, everyone. Just a quick clarification regarding your anticipation of a stronger peak in connected capacity in the second quarter. Could you clarify if this is based on organic investments or if you also include M&A opportunities in these expectations? Could you also share with us the main greenfield projects expected to be started up in the second quarter and their contributions to capacity addition? Thank you.
Yeah. This is coming from an organic growth for the first question. This is related to meet our guidance. The greenfield, this is Palm Jebel Ali, one of them. But any other that we can mention, it is about different concession and areas. Related to the financial part or revenue part, we are bound by the SCA and DFM regulation disclosure that we cannot provide any certain future numbers about it. But it is within the Tabreed aspirations and the performance returns and rates.
Okay. Just a different question regarding consumption, as we are already halfway through the second quarter. Can you share with us the trend so far in terms of consumption in the second quarter of this year compared to the previous year?
Again, let me start with the same point, that we are bound with the DFM disclosure, that we cannot provide something certain. But what I can mention, that the company's performance doing really well, and we are witnessing growth year-over-year. And definitely by year-end, it will be [Non-English content] positive performance and results shown.
Okay. Fair enough. Thank you very much.
Thank you.
Thank you. We are now moving to the next question from Ildar from HSBC. Please go ahead. Your line is now open.
Yes. Hi, thank you so much for the presentation. Just a clarifying question about the Palm Jebel Ali project. Are you funding the total CapEx of AED 1.5 billion, or you are responsible for only 51%? That is my first question. And then secondly, if you could share with us some guidance on total CapEx for 2025 and 2026, that would be great. Thank you.
Hi, Ildar. Hi, good afternoon. Yes. Thank you for the question. Yes, the funding for the new project will be by Tabreed. As Adel mentioned in his comments to the previous question, it will be within our guidance of the CapEx between AED 150 million -AED 200 million that we annually incur for Greenfield and the maintenance-related CapEx. So it will be within that we will be incurring into this project.
So it is total. Okay, understood.
Yeah.
AED 1.5 billion is the total project CapEx, which you are fully funding? Is my understanding correct?
Yes, but that is spread across over a period of years because, as we said, it is given in multiple phases. The first phase is coming with 13,000 tons, so accordingly, it will be within that AED 130 million - AED 150 million, spread across the next two years.
Is there any economic contribution of Dubai Holding to this project in any way?
Yeah. I see the level of we can comment upon it, but Tabreed level, this is the contribution that we would be investing as part of the initial growth. There will be something coming from Dubai Holding because they are doing the other infrastructure part of it, which I cannot comment upon that.
Understood. Thank you so much.
Okay. Thank you. Thank you very much. Just a quick reminder, if you are connected via the phone and you want to ask a voice question, please press star two on your keypad and wait for your name to be prompted. If you are connected via the web, you may also ask a voice question or send your question as a text. Our next question is a text question from Akshit from ABI Analytics. There are three questions, so I will ask them one by one. Can you tell the expected revenue potential of the concession agreement signed with Dubai Holding Investments?
Thank you, Akshit. The revenue potential is similar to what we expect in our Tabreed industry. The total concession is for 250,000 RT. When the mature comes, it will be similar to our existing tariff structure, which will be capacity and consumption. The majority of this coming will be under capacity 60% and the 40% will be the consumption. When the total concession matures, it will be approximately for the entire 250,000 RT in line with our existing tariffs.
Okay, perfect. The second question from Akshit is, what is the capacity expansion that Tabreed had planned outside U.A.E.?
Hi. Again, in the short-term, medium-term, U.A.E. would remain the key focus and the core market for us. As you noticed today, 83% of our total connected capacity comes from the U.A.E. and the remaining 17% comes across GCC, including India and Egypt. So that trend will be there for at least between next three to five years in terms of growth.
Okay, perfect. And the last question from Akshit is, recently, Multiply Group showcased interest in selling its district cooling asset. Is Tabreed interested in picking up this asset?
See, Tabreed cannot comment on any market speculation about it. But normally, Tabreed will continue to pursue opportunities, prospects to grow its portfolio and its business. We will study any prospects around us if it will meet our criteria, so it will add value to our portfolio. Definitely, we will try to pursue that. This is what I can comment about it.
Okay, perfect. Our next text question comes from Dharmik Patel from Al Ramz. There are two questions. First one, I would like to understand why EBITDA margins improved by 6% quarter-on-quarter in Q1 2025, but net profit margins remained flat sequentially.
Thank you, Dharmik. As I mentioned, even Adel mentioned in his comments as well, the consumption volumes are lower compared to the last year first quarter, which effectively improves the EBITDA margin. In addition to that, the operational and fixed cost has been effectively managed with the management focus on cost savings efforts through a lot of innovations and automation strategies. That is the reason that our EBITDA has increased. When it comes to the net income margin, why it is very slight margin, because as you noticed, the margin on net income has increased from 24% - 25%. The reason, again, is some depreciations. In the last 12 months, we have capitalized it as part of my explanation as well in the slide that we went through, right?
We have invested over the period of last 12 months, which has capitalized it, and as a result of that, the depreciation that has impacted. And those are all the reasons that from EBITDA to net income, that reduction.
Okay. Thank you. And the second question from Dharmik is, I missed your comment on fixed and variable charges. Could you please share some highlights on the change in prices for both?
Hi. Dharmik, I don't think there was any changes or anything that we had mentioned. It is the margin because when the revenue mix changes, so apparently our revenue mix usually consists of between 60% of the revenue focuses on capacity and the remaining 40% is on consumption. If there is any variations, meaning consumption volumes reduction will lead to lower mix and capacity will be higher. So the margins tend to increase. That is what Adel and myself, they are referring to. There are no changes in the tariff structure itself. It is just a braving of mix based on the volumes. Generally, in the first quarters, it tends to be softer because of the weather conditions that is prevalent in the U.A.E..
As you noticed this year as well, the weather was colder than the usual, and we should mark that in the coming months, the temperature will increase, the volumes will increase, and it will neutralize.
Okay. Thank you. Our next questions are from Ambreen Jiwan from Ajeej. Please can you explain the IRR curve for any new project?
Hi, Ambreen. Thank you. Thank you for your question. So generally, our IRR, and we have mentioned this, is in high single digit and low double-digit returns. That is what is our target, which is way above our WACC, when it comes to any new projects that we target, accreting value to our equity shareholders.
Okay. Thank you. The second question is, how much is your maintenance CapEx?
Generally, our maintenance CapEx is not significant. It will be less than AED 25 million a year. We capitalize these maintenance CapEx only the benefits of this is more than 12 months. In ordinary course of business, if there is any CapEx that are normal running in nature, we expense it into our P&L.
Perfect. Thank you. Last question from Ambreen is, are you looking at RAK or Kuwait as new markets?
We are identifying different markets that are in the region or a little bit further. Yeah, we have no reservation to explore anything there, but nothing happened so far about it.
Okay. Thank you. Thank you very much. I believe we have a follow-up question from Ildar, from HSBC. Your line is now open. Please go ahead.
Thank you again. Just a general question about the market dynamics. If we compare your existing fleet today and the new projects which you are starting at the moment, are you observing any inflation in CapEx overall per unit of capacity? I mean, are these costs going high in general? Similarly, if that's the case, would the capacity charges go high as well? I mean, is there a big difference between the existing projects you have and the new ones which are coming to the market? Thank you.
Thank you, Ildar. We have not noticed any significant increase in any of our CapEx expectations. It is almost in line with our existing provisions and which we have mentioned. It ranges between AED 8,000-AED 12,000, depending on the size of the network. Otherwise, there is nothing that we are seeing any significant increase which could lead to any potential change in capacity. No.
We signed a long-term framework agreements with our main vendors. That is why it is one of the measures is to control any inflation or potential inflation.
Understood. Thank you.
Welcome.
Okay. Thank you. Next question comes from Mark Adeeb from CI Capital . It is a text question. Do you expect any changes regarding the dividend policy in light of the new expansion plans along with maturing debt in Q4 2025?
Yeah. As we speak, it is a guidance that where the dividend distribution, it will grow as long as the business or the performance of the company portfolio and the returns it is growing into as a net count. The dividend distribution, that it will grow. We do not have that precise policy as of now, but it is under study.
Perfect. Thank you. Second question from Mark. Could you please provide some color on JV income annual improvement throughout 2025? Are there any updates regarding Saudi Tabreed IPO or expansion plans?
JV income.
That's okay.
Hi, Mark. Mark, can you please clarify your first question because we couldn't hear that.
The question was, could you please provide some color on JV income annual improvement throughout 2025? Are there any updates regarding Saudi Tabreed IPO or expansion plans?
For the first part, which JV? It is not clear to us, but still to be clarified. Saudi Tabreed IPO, again, it was a market speculation that we cannot comment on that. Once we have any decision taken there, definitely we will be transparent and to share it with the market. But I am sorry for the first part, still not clear to us which JV.
Maybe Mark, we can touch base with you after this call to clarify this point.
We have just received a follow-up from Mark. Share of results of associates, AED 8.1 million in Q1 2025 versus AED 6.2 million.
Hi, Mark. Yeah, when it comes to the contribution, it will remain in line with what we have noticed during the first quarter, which is our main subsidiaries. Our main JVs are Saudi and TPI. TPI, for example, has its full connection. There are no further growth potentials within that project. In the next 12 months, there is no other than the existing trend that you have noticed, we will not be having any significant jump or negative into it.
Okay. Thank you. Our last question comes from Fadwa Aouini of AlphaMena . Can you provide details about the current energy mix and the costs related to them?
So you mean the current energy mix within electricity coming from any other source? If that is the question, sadly, no. The energy that we procure is from the authorities, and we get it from the grid, and in the grid, there will be a lot of inputs that comes from normal fossil fuel plus solar and nuclear energies that would come. But that's not been identified by the authorities for our consumption. So for us, all the consumptions that we have is from the grid, and that has remained the same. There are no changes, at least as of now.
Perfect. Thank you very much. At this point in time, we are seeing no further questions. I would like to pass the line back to Tabreed's team for their closing remarks.
Thank you, everyone. Thanks for your participation in today's call. If you have further follow-up questions, please feel free to reach out to us, and we will be happily taking and responding to these questions. With that, we conclude today's call. Thank you, and have a good day.
Thank you. We will be now closing all the lines. Goodbye.