Tabreed full year 2023 earnings conference call. My name is Adam, and I will be your operator today. If you would like to ask a question during the Q&A portion of today, [audio distortion ] to begin. Yugesh, please go ahead when you are ready.
Thank you, Adam. Good afternoon, everyone. On behalf of Tabreed management, I am pleased to welcome you all to earnings call for our full year 2023 results. I am Yugesh Suneja, Head of Investor Relations at Tabreed. Before we start, let me talk about a few housekeeping points. Today's presentation may contain forward-looking statements. Kindly refer to the disclaimer on the slide for more details. It contains important information and a cautionary advice on the interpretation and limitations of historical data and forward-looking statements. Today's call is recorded, and the transcript of the call, along with presentation and other earnings materials, will be available on the IR section of Tabreed's website. Moving on to the agenda for today's call. I am joined today by our Chief Financial Officer, Adel Al Wahedi, and Vice President, Finance, Salik Malik.
Adel will begin the presentation with the key highlights and strategic progress for the full year 2023. Following that, Salik will discuss financial performance in detail for the full year 2023. At the end, Adel will provide an update on guidance and outlook for the company. We will then open the lines for your questions. I will now hand it over to Adel to start the presentation.
Good afternoon, everyone, and thank you for joining us today. We will go to the first slide now. This slide shows the key achievements of 2023 under three main themes, financial, strategic, and sustainability. We are pleased to see positive results across three areas. Tabreed delivered strong financial results, demonstrating growth in revenues, which was driven by strong consumption volumes and an increase in connected load. Our normalized net profit grew 14% year-on-year, and the company continued to see strong cash generation. This has put us in a solid financial position with a strong balance sheet at the end of 2023. We are delivering on our strategic growth plans with the expansion in core markets of UAE and GCC while diversifying our presence internationally. We are now present in six countries, having started operations in India and Egypt during 2023.
We have a strong pipeline of new opportunities that we are evaluating to maintain the growth momentum while ensuring new projects align with our disciplined approach to generate healthy returns for our shareholders. Sustainability remains at the core of our operations. Year 2023 was a remarkable year, with many new initiatives launched to advance our ambitions. We started the region's first geothermal district cooling plant in partnership with ADNOC and Masdar. After the successful operations of this plant, we will now explore more opportunities to tap into this renewable cooling for our customers. We also signed financing framework. This tool support to meet growing demand and sustainable district cooling and invest in innovative technologies such as our pilot project of using nanofluids that further enhance energy efficiency of district cooling. Moving to the next slide. This slide shows key highlights of year 2023 financial performance.
Tabreed's connected capacity reached 1.304 million RT, increasing by 3% compared to year 2022. The company started operating its first district cooling plant outside the GCC region following acquisition from Tata Realty in India. We also commenced operations of our plant in Egypt. Group revenue grew at a strong rate of 9% year-on-year, driven by the robust performance of our core chilled water business, which contributed 97% to total revenue. The growth was driven by various factors, including new connections in existing concessions, new plants, higher consumption volumes, and a positive CPI impact. The company delivered a healthy and sustainable EBITDA of AED 1.2 billion, with a resilient margin of 50%. The year 2023 net profit before tax attributable to parent came in at AED 751 million. Growth of 25% versus 2022, the year 2022.
However, reported net profit of AED 431 million was impacted by recognition of one of non-cash deferred tax liability treatment, as mentioned before, adjusted for one-offs normalized net profit, so robust growth of 14% year-on-year. Strength and sustainability of our operations is clearly evident in solid cash flow generation profile, with free cash flows of AED 1.2 billion increasing by 8% compared to year 2022. We also prudently managed our financial position. Following proactive debt management exercise to reduce our debt, we saw leverage improving further with net debt to EBITDA at 4.1x at the end of year 2023. The strength of our balance sheet, strong visibility, and predictability of cash flows and positive outlook was reinforced by both rating agencies, Moody's and Fitch, which maintained our investment grade rating following recent review with a stable outlook.
Tabreed's board of directors recommended AED 0.155 cash dividend per share for year 2023, an increase of AED 0.02 from year 2022 level or 15% higher. This shows their confidence in Tabreed's future growth outlook and ability to generate attractive returns for shareholders. Tabreed now offers a dividend yield of 4.7%, which is quite attractive considering future interest rate environment, combined with Tabreed resilient business model and potential growth upside. Moving to the next slide. Let me now talk about operational performance and update on our expansion plans. As you know, our chilled water revenues consists of fixed capacity charges and consumption charges. Fixed capacity charges contributed 56% of our chilled water revenues in year 2023. Growth in fixed charges was driven by increase in connected capacity and CPI increase. Rest of the 44% of chilled water revenue came from consumption charges.
Our consumption volumes increased by 2.6 billion RTH per hour, growing by 8% year-on-year. This was driven by higher connected capacity, as well as increasing demand for cooling in our core markets, which have relatively hot climate. In terms of capacity, UAE remains our largest and core market, accounting for 83% of connected capacity, while remaining capacity coming from our regional presence in Saudi Arabia, Oman, Bahrain, India, and Egypt. Historically, our connected capacity has grown by 8% per annum since year 2018. In year 2023, we have added new connections of 53,000 RTs, mostly organic growth from our existing concession areas. Of the new connections, 31,000 RT came from UAE, 14,000 RT from Saudi Arabia, 3,000 from Bahrain, 1,000 came from Oman. Beyond UAE and GCC, Egypt contributed 3,000 and India 1,000.
During the year, we continued to monitor our portfolio and disposed two plants in Abu Dhabi. These plants were quite old and needed higher maintenance CapEx. Management took prudent decision to sell these assets to streamline and optimize our portfolio returns. In addition, small load adjustments were carried out, leading to a net increase 39,000 RT in connected capacity. Moving to the next slide. On this slide, I will take you through the strategic progress achieved during 2023. We remain committed to delivering on our growth plans. We started operations of six new plants that contributed 40% of incremental capacity addition. Of these, five plants were greenfield and one plant in India came through brownfield acquisition. The rest of the capacity addition was from new connections in our existing concession areas across UAE and GCC. To secure our future growth, we also announced two new significant projects.
First one was for a total district cooling concession capacity of 125,000 RT in India's Hyderabad Pharma City. Phase I will be of 2,500 RT, and it will be ramped up in line with the development of master community. Expected CapEx of phase I is AED 36 million. Second project was King Salman Park in Saudi Arabia. This is for a total concession capacity of 60,000 RT, with phase I of 20,000 RT and estimated CapEx of AED 200 million. We are also channelizing our efforts to enhance efficiencies in our operations and use of sustainable energy sources. We recently concluded phase III of our extensive program to retrofit plant pumps with the variable frequency drives. This is expected to drive savings in electricity consumption. During the last quarter of year 2023, Tabreed also announced successful commencement of geothermal district cooling plant in Masdar City in partnership with ADNOC.
This plant utilizes underground heat to chill water and meet partial requirement of cooling Masdar City. We are now exploring other areas in the UAE that can utilize geothermal renewable energy and replace grid electricity. We have also completed pilot project to use a new innovative nanofluid technology in our chilled water pipes that help to significantly increase heat transfer efficiency of our network and thus s ave up to 15% energy. In a nutshell, strong business fundamentals and visibility of future cash flows allow us to optimally invest in future growth, innovate to maintain industry leading position, and generate attractive returns for our shareholders. This slide provides an overview of Tabreed's contribution to enable sustainable use of energy and positive impact of its operations on environment. We are contributing to the region's growth through efficient and environmentally friendly cooling. As our business grows, so does Tabreed's positive environmental footprint.
We are proud to report that Tabreed's operations have resulted in the saving of approximately 2.5 billion kWh of energy consumption in the year, up to the end of the year 2023, enough to power over 143,000 homes for a year, and equivalent to the annual prevention of over 1.5 million tons of CO2 emissions. We are part of DFM's UAE ESG index, aimed to measure ESG best practices followed by UAE-listed companies. Tabreed delivers significant power efficiencies compared to other cooling alternatives. We believe that the carbon emissions prevented through our sustainable cooling services are essential in enabling governments in the region to meet their sustainability targets for the future. As a result, Tabreed is committed to invest in innovative district cooling solutions to meet growing demand in the region and beyond. Next slide.
Sustainability is at the core of Tabreed's long-term strategy, and we remain committed to integrating sustainability in our operations. Tabreed has set ambitious targets for reducing energy consumption and emissions. We will leverage innovative technology solutions and environmentally friendly operating practices such as the use of treated sewage effluent, thermal energy storage, use of seawater, et cetera, to achieve these targets. We are further committing to increase operational energy efficiency and water efficiency by 20% by investing in innovative solutions. Lastly, in line with the UAE government's strategic goals, Tabreed remains committed to its sustainability objectives. Tabreed has demonstrated its commitment to decarbonization and net zero by signing the UAE Climate-Responsible Companies Pledge. I will now hand over the presentation to Salik, who will discuss in details our financial results for the year 2023.
Thank you, Adel, and good afternoon, everyone. Let me start with the income statement summary for the full year 2023. Tabreed reported a revenue of AED 2.4 billion in the year 2023, which was up by 9% year-on-year. Operating cost and general administrative cost have recorded a similar increase on a normalized basis. In addition to these increases, we're offset by a significant reduction in our net finance cost. It was higher than net other income and also stronger growth in share of income from JVs and associates. As a result, profit before tax increased by 24% year-on-year to AED 785 million and AED 7.51 million to the parent. However, as we previously reported during the Q3 2023 results, there was a non-cash deferred tax liability recognized on account of UAE corporate tax implementation.
This impacted our net reported profit to AED 431 million. Moving on to the next slide, which we'll discuss in detail the income statement. Here in this slide, the top left chart refer to the revenue movement. 9.9% increase in year-on-year is primarily driven by a performance of our cold chilled water business segment. This is attributed to the organic business growth through addition of 53,000 tons during the last 12 months, majorly through new connections in existing concession areas. It also includes four out of the six new plants commissioned during the year through consolidated entities. Our consumption volumes also experienced an increase of 8% year-on-year, and we also benefited from the positive CPI impact of 4.8%. On the top right, the 2023 gross profit increased by 4% year-on-year to AED 1.1 billion.
At a normalized basis, the increase in operating cost is in line with the increase in revenue. However, in 2022, there was a reversal of utility provisions, and this year's one-off increase in maintenance costs related to temporary chillers have contributed this operating cost to be higher. Adjusting for this, the increase was in line with the consumption volumes increase. The bottom left chart refers to the EBITDA movement. Tabreed delivered a healthy EBITDA of AED 1.2 billion, sorry, with a margin of 50%, demonstrating our ability to generate sustainable EBITDA margin between 50%-51%. 2023 EBITDA and EBITDA margin were in line with our historical averages. The lower margin compared to the previous year is due to the one-off mentioned earlier, which aggregates to an increase of 16% year-on-year.
Increase in G&A was due to these reversals that we recorded in Q4 of 2022, and then the additional charge that we charged in 2023 for consultants and due diligence costs related to some projects that were under pursuit. In addition, there was also an impact on divestment of 50% stake in Tabreed Parks Investment LLC in Q3, which reduced the contribution to EBITDA due to this deconsolidation. These impacts were more than offset by a reduction in net finance costs by 24% year-on-year. This was on account of the lower interest cost after the prepayment of some of our existing debt facilities and unwinding of positive interest rate swaps, and the partial buyback of sukuk started in Q4 2023, as we prudently manage our debt and cash flows.
On top of these, we also had a higher fixed deposit income due to the better management of our idle cash on rising interest rate markets. Other income more than doubled in 2023, driven by the factors that we had mentioned earlier during the year 2023. These were, one is the liability management that we took, and then the fair valuation gain with the introduction of PIF in 2023, and lastly was the divestment of 50% stake in Tabreed Parks and Investments. These one-offs were partially offset by some prudent provisions against the development costs. Therefore, Tabreed delivered an exceptional growth in profit before tax attributable to parent, a 25% increase year-on-year. Reported net profit after tax is at AED 431 million, with the impact of the recognition of deferred tax, a non-cash liability. Moving on to the next slide.
This slide shows our normalized results to provide like-for-like comparison of our financial performance. Net profit before one-off items and deferred tax is at AED 603 million, an increase of 14%. This is the normalized net profit for the year 2022. This growth was driven by stable operating profit and reduced net finance cost. In summary, Tabreed maintained a consistent growth in underlying operational and financial performance for the year 2023. Moving on to the next slide. Here in this slide, we present the summary of balance sheet as at the end of December 2023. The key movements, the fixed assets, and the intangible asset movement is representing the deconsolidation of Tabreed Parks post our 50% divestment and the year-on-year movements. Increase in associates and JVs is also mainly attributable to the reclassification of Tabreed Parks Investment LLC from fixed assets to an investment in associates.
Followed by that is the fair value adjustments on our investment in Saudi Tabreed. Decline in receivables and other assets represent improved collections and the MTM movements in our interest rate swaps. Changes in equity and reserves mainly reflect the payment of 2022 dividends to our shareholders and the MTM changes on the fair value of derivatives. On our net debt position, debt we have decreased to AED 4.9 billion as of end of December on a strong cash generation during the period and the decline in gross debt by AED 850 million from the debt management exercise that we conducted during the year 2023, with the settlement of early debt and the partial buyback of sukuk in Q4. Overall, our balance sheet continues to be strengthened with an improved leverage ratio of net debt to EBITDA at 4.1x, and also improved gearing ratio at 48%.
Our financial position remains healthy with two fixed rate debt capital market instruments, sukuk and bond, and 100% hedge corporate loan. This effectively shielded Tabreed from the higher interest rate costs, which demonstrated effective risk management policies being implemented at Tabreed. Moving on to the next slide. Tabreed remains highly cash generative business following the typical utility business-like model. Cash flow from operations, which is an equivalent to EBITDA, amounted to AED 1.2 billion, highlighting the company's resilient business model and a sustainable cash flow generation ability. This was further complemented by positive working capital movement, indicating effective and efficient management of collections and the strong credit profile of our customers. Our net operating cash flows to EBITDA ratio for 2023 stood at 110%, demonstrating prudent financial practices. CapEx during the year was AED 180 million, enabling us to expand operations and maintain growth.
We divested 50% stake in one of our subsidiaries, and the net cash inflows due to this was AED 686 million, allowing us to effectively recycle capital. All in all, we generated free cash flows of AED 1.2 billion in the year 2023. The financing activity primarily represents the cost of debt, the settlement of bank facilities as part of the debt management program, and the payment of dividends for the year 2022 in 2023. Overall, 2023 recorded a robust cash flow generation, resulting in a healthy closing cash balance of AED 1.5 billion. In addition, we signed a green revolving credit facility of AED 600 million, which provided us with enhanced liquidity to fund any major acquisition that may turn around.
We are well-placed to capitalize on strong financial position, combined with our solid cash generation ability to deploy cash towards funding growth opportunities, strengthening balance sheet, and returning cash to our shareholders. With this, I conclude the financial result presentation and hand it back to our CFO, Adel Al Wahedi, to take you through the rest of the proceedings.
Thank you, Salik. Let me please provide an update on our capacity guidance. For years 2022 and 2023 period, we provided a guidance of 120,000 RT. We have delivered 109,000 RT in this period, which marks an increase versus 96,000 RT delivered in our previous two years' guidance period. There was slight shortfall against our guidance, but this was mostly related to equity accounted entities, consolidated entities. Which directly contribute to revenue and EBITDA, represented 87% of a new capacity over the period 2022 and 2023, compared to expectations of 70%, and thus exceeded guidance by delivering 95,000 RT. For the next two years, that is years 2023 and 2024, we maintain our guidance for new capacity addition of 120,000 RT. This is aligned with our previous guidance.
Approximately 60% of this guided capacity expansion is expected to come from consolidated entities, with the remaining contribution coming from the equity accounted entities. As of end of year 2023, we have already made substantial progress by delivering 53,000 RT in 2023, with the remaining capacity to be delivered in 2024. We are also introducing new capacity guidance for the next three years, 2024 - 2026. We expect annual growth in connected capacity of 3%-5%. This is driven largely by new projects currently being developed and award of new projects in year 2024, which will be completed by 2026. On the next slide, we'll show you key drivers of growth in district cooling industry. Due to renewed focus on accelerating climate action and advancing sustainability goals, we see strong tailwinds for district cooling sector.
Cooling typically accounts for 50% of electricity consumption, which is 70% at peak demand, especially in Tabreed's key markets, which exhibit relatively hot climate. Energy demand for cooling is expected to increase at drastic pace, demanding huge investments in electricity systems. District cooling is 50% more energy efficient, more reliable, has longer asset life, and more economical over a life cycle compared to conventional cooling, and thus offer huge potential to save energy and avoid massive investments. Given its high efficiency, DC will be critical enabler to meet strategic net zero emissions targets announced by various governments in the region. Further efficiency improvements brought in by new technological developments such as thermal energy storage, zero water consumption solutions, renewables energy, et cetera, make district cooling a preferred choice for smart and sustainable developments.
Economic growth is expected to accelerate over the next five years compared to last five years in most of our markets. Some of these markets, such as Saudi Arabia and India, hold a huge potential given relatively under-penetrated DC markets and significant size of cooling demand. Governments remain focused to increase use of DC systems and integrate it with master urban planning, and we are excited to be present in these markets and play leading role in this evolution. This slide or the next slide provides an overview of our medium-term growth outlook. Tabreed's ability to steadily increase its connected capacity reflects significant growth opportunities in the key markets across the GCC and Asia. Let me break down growth opportunities into two parts, locally in the UAE and international markets. In UAE, we see growth largely driven by organic additions.
We have already secured growth to add additional capacity in our existing concession areas. Example, our downtown district cooling plant assets has total concession size of 235,000 RT with current contracted capacity of more than 185,000 RT. Similarly, Saadiyat, Al Maryah Island, Al Raha Beach, Yas Island, Masdar, and et cetera, are concessioned areas. All in all, we have about 300,000 RT that can be added over the medium term. We also see further M&A opportunities in the UAE, although the scale is not expected to be same as our historical acquisitions. M&A opportunities in the UAE are expected to be of a smaller scale to acquire standalone plants from captive assets owners or from the developers.
In terms of new geographies and international markets, we are continuing to evaluate multiple opportunities and markets such as Saudi, India, and wider Asia region to build greenfield plants or enter into new concessions. Another prominent route to grow internationally is through M&A. For example, in Saudi Arabia, Saudi Tabreed operates more than 500,000 RT for assets owners, and this could be a potential pie to buy assets from owners. All in all, our expertise and diversified presence allows us to capitalize on commercial opportunities as they materialize. We are therefore excited by the prospects of our diversified presence across GCC and now in Asia through our entry in India. We are confident of maintaining the positive momentum in the medium term and ensuring that the opportunities are value accretive to our shareholders. This concludes our presentation, and we will now open the floor for questions and answers.
As a reminder, if you would like to ask a question today, please use the raise hand button at the bottom of the screen or use the text Q&A box provided. We will start with a text question that has been submitted by Franklin Templeton. Hi team. To reconfirm the AED 200 million CapEx for King Salman Park project, is this for phase I or the entire project? Can you confirm timelines for the Hyderabad Pharma City project and the King Salman Park project? Thank you.
Hi. Welcome. Thanks, [Franklin], for your question. The AED 200 million CapEx for King Salman Park is representing for the phase one, which is the 20,000 tons of the 60,000 tons capacity, transition capacity. Regarding the Hyderabad Pharma City, we are currently in negotiation with the developer, [TSIIC] , the Telangana government itself. We are sure from the phase I, but in the whole phase, up to the 125,000, we are in discussions. As and when we come across differently, we will be doing a press release and we will inform you accordingly the new at the completion stages of different phases.
And as a reminder, that is the raise hand icon or the text box in the top right corner. Final call for questions. That is the raise hand button or the Q&A box provided. We have no further questions, so I will hand the call back to the management team.
Yeah. Let us wait for a few more seconds to see if there are further questions.
Of course. As a final reminder, that is the raise hand button at the bottom of the screen or the text box provided.
All right. Seems that there are no further questions. Please feel free to reach out to us at ir@tabreed.ae if you have any follow-up questions, and we would be happy to answer that. Thank you everyone for joining in today, and have a good day.
This concludes today's call. Thank you very much for your attendance. You may now disconnect your lines.