Hello, and welcome to the Qatar Electricity and Water Conference Call. I would like to advise all participants that this call is being recorded. Thank you. I would now like to welcome Bobby Sarkar to begin the conference. Bobby, over to you.
Thank you, Havesh. Hello, everyone. This is Bobby Sarkar, Head of Research at QNB Financial Services. I wanted to welcome everyone to Qatar Electricity and Water Company's second quarter 2023 results conference call. On this call from QEWC, we have Narayana Rao, who is the Acting Finance Manager, and Abdullah Al Janahi, who is the Cost and Budget Controller. We will conduct this conference with the management first reviewing the company's results, followed by a brief Q and A. I would like to turn the call over now to Narayana. Narayana, please go ahead.
Thank you, Mr. Bobby. Asalam alaikum, and good afternoon to everybody. As you know, QEWC had a board meeting on the 7th of August, that is the day before yesterday. The Board of QEWC approved the financial results of QEWC for the half year ended 30th June 2023. As you know, we reported a net profit of QAR 760 million. This is a 20% increase compared to the first half of 2022. Revenue of the company has also gone up by 15%. If we look into only Q2 net profit, it has gone up by 24%, and net profit totally it is 12%. As of 30th June, market capitalization of QEWC is QAR 19.47 billion. That is QAR 17.7 per share, for 1.1 billion share, if you multiply you will get that amount. QEWC has retained its credit rating at A1 with the stable outlook. This is Moody's rating.
Small reduction in the sent-out power and water. If you see our disclosure, there you can see some small, that is I think 4% in power and 2% in water. And quarterly, if you see it is 4% and 6.6%. It is due to some scheduled or unscheduled outages during the period. Compared to last period, this year it is a little more. Of course, it is not negligible. It is not a big amount. Revenue increase by 15% is mainly due to change in revenue recognition policy of RAF B, which is to be in line with the accounting standards. We went for this. Actually, this half year we based on the dispatch. We used to recognize the revenue based on the dispatch. Now we are recognizing based on the committed offtake.
The effect is not much because other side gas cost also going up in the similar way. Since both sides we changed the policy of recognition. Nebras is the one of the factors apart from this, which is to be considered since last year first half Nebras was treated as joint venture company with 60% ownership by QEWC. From second half, that is from 1st July 2022, we changed the status as the subsidiary. Line by line consolidation started from the 1st July after our taking over 40% ownership. That is after our becoming 100% owner of Nebras. If I exclude Nebras, our increase in the sales is coming down to 9%, actually it is not 15%, for comparison purpose, if I look into that.
Then increase will be only QAR 109 million, which is mainly due to, as I explained, RAF B gas and RAF B-1, we have got some increase due to the renewal of the agreement, that is agreement with Kahramaa. Its result where gas cost has gone up based on the new term Kahramaa as well as QatarEnergy, of course, on the fuel agreement is concerned. Gas cost has gone up. Because of that, our energy billing also proportionately gone up, which is also resulted in some additional revenue of QAR 79 million, RAF B around QAR 92 million. These are the major reasons for the increase in the revenue. Then coming to the gross profit. Gross profit has come down as shown in the schedule. That's because of increase in revenue and minus increase in the cost of goods sold.
Cost of goods sold is actually gone up from QAR 737 million to QAR 947 million. There, again, Nebras is the major reason. QAR 53 million has come from the Nebras there, and as I told already, B-1 gas cost has gone up. RAF B gas cost also gone up because of the change in revenue recognition. Put together all those things, around QAR 110 million increase in the gas cost is there. Of course, here it is only mainly the policy of the company on recognizing the revenue and the gas cost. Some additional provisions has to be made in the accounts when we are accounting the other side based on the offtake committed uptake. Those are the major reasons, and the RAF B-1 is increasing gas cost compensated by the increase in the revenue billing to Kahramaa also. Next, there is no impact on the profit of the company by these arrangements.
That's about the cost of goods sold and the gross profit. Gross profit, in effect, it has come down by 6% due to all these things. EBITDA is concerned, as happening before interest, tax, depreciation, and amortization. We have got some 15% increase, which is mainly due to the full consolidation of the Nebras and recognition of the profit on sale of interest in Siraj Energy. Siraj Energy, as you know, we sold our ownership, that is 49% to the QatarEnergy. During the last year, we signed the agreement subject to some conditions which has been maybe raised in this year, and we recognized the revenue of around QAR 78 million because of that. That is also one of the reasons for increase in the EBITDA. Then coming to the G&A. G&A, we have not given any schedule in our chart in our presentation, but G&A is in control.
If I exclude the Nebras cost increase, only 5% in general and administration expenses. Finance cost, of course, every company you will see this year increase in the finance cost because LIBOR as well as SOFR rates have gone up like anything compared to the last year. Of course, in our finance cost, we have got around QAR 192 million finance cost of the Nebras, which is not there in the last year's P&L. In comparison, you have to exclude that also. Sorry, QAR 108 million Nebras. If you exclude that, it will be a different figure. Net only QAR 84 million increase is there in the finance cost. It is increase in the SOFR and LIBOR rates. Due to SOFR and LIBOR rates, reasons of the increase. Other income, it shows QAR 390 million. Sorry. I think I have got it wrong. I think it shows QAR 137 million against QAR 43 million. Sorry, I mixed that wrong.
Other income, QAR 398 million versus QAR 210 million. QAR 210 million last year, QAR 398 million this year. QAR 398 million, yeah. Yes. QAR 398 million versus QAR 211 million. Right. QAR 398 million, actually, in the our accounts, if you see, we have shown QAR 12.5 million profit from discontinued operations. This also from one of the joint venture company, and that's why we clubbed that also. Sorry, it has been clubbed with the share of the profit from JVC clubbed. That's why here QAR 398 million includes interest income also. Interest income is a major income. Interest income is QAR 150 million this year against QAR 49 million last year. This is the major reason for the difference, and gain on loss on sale of the asset, that is Siraj Energy, QAR 78 million we gained there. That is also added there. Of course, last year we have got QAR 86 million loss on the sale of Jubail land. It was clubbed in last year's result.
Last year, we had around QAR 46 million increase in dividend income also. Put together, all those impacts is this QAR 398 million income increase in QAR 398 million to QAR 211 million, 89% increase in the other income. Of course, it includes QAR 96 million from the Nebras, which was not there last year. That also one of the major reasons for the increase. Then share of profit from the joint venture companies. That's also gone up from QAR 165 million to QAR 331 million. Here, it is due to last year's Nebras we have to exclude to comparison. This year, we have got a lot of Nebras joint venture companies' profit. Around QAR 133 million came from the joint venture companies of the-- Joint venture associate companies or equity accounted companies of the Nebras. QAR 331 million includes that QAR 133 million. As I told, QAR 12.5 million of CPC, that is discontinued operation of the Nebras joint venture, that's also included here.
Last year, QAR 76 million loss also we excluded. If you compare that, it is quite a big increase this year. Artificially, some companies, I think, bit reduction also there this year compared to last year, which is the reason for this small decrease in the joint venture and associated company profit as per the QEWC alone is concerned. Of course, next, in chart, we have given the net profit only with individual head-wise I explained. All heads, I think. Total net profit is QAR 769 million against the QAR 865 million of the last year, 12% increase in effect. This 12% increase, mainly I can say here few factors, QAR 78 million of Siraj Energy. Profit from the sale of Siraj Energy is one of the major reasons for the increase in the profit.
Dividend income last year it is higher, this year it has come down, and this year finance cost is more. Many impacts are there. Totally, and last year in Nebras, we had a loss for the half year. This year we have a profit of around QAR 90 million. We are now providing for all the expected spin details. Totally, position is improved compared to last year, there is no doubt on that. Going to the balance sheet. Balance sheet is concerned in the case of assets, total assets, of course, you will see a little fall in the total assets. I will explain here current assets and non-current assets separately because much explanation required on the non-current assets, because only 2.37% increase is there. It is around QAR 400 million only.
This QAR 400 million is mainly due to the reduction in investments in the listed shares, listed company shares. As you know, it reflects in our cash flow also, we sold around QAR 360 million worth of the shares, listed shares, which is shown in the balance sheet as equity. That is what they use equity investment at fair value through other comprehensive income. Around QAR 0.4 billion, that is QAR 400 million reduction is there in this item only. It is QAR 360 million due to the sale of shares, and the balance is due to change in the fair value, which is a minimum. Again, we will see some movement in two heads mainly, that is, loans receivable from the related party and reduction in the equity accounted investees. One side it is increased QAR 0.5 billion, other side decrease of QAR 0.5 billion. This is due to some reclassification.
Earlier it was not correctly classified last year, then this year we just modified it. This, of course, effect only QAR 0.4 billion reduction is there. Current assets are concerned, you will see there around QAR 1.5 billion decrease. That is around 20% decrease, which is, if you look into the bank balances and cash, reduction is in only this item, others are negligible reduction. It is because of the repayment of the $ 550 million loan to the Mizuho in the first quarter of the year. Coming to the equity. Equity also you will see only minimal reduction of around QAR 400 million, around QAR 500 million, you can say. Out of that QAR 300 million, around QAR 200 million+ it is in the retained earnings only. Retained earnings, it is actually just you need not make any calculation for that. It is dividend paid minus the profit earned every six months, roughly.
That is also the reduction, others are minimal in other heads. Non-current liabilities, you will see a reduction of around QAR 1.4 billion there. This is, if you edify here in the balance sheet, the interest-bearing loans and borrowings have come down to that extent. Here, in reality, there is no reduction. It is the reclassification in the Nebras asset, because of the, what to say, term of the loan. If it comes below one year, it has to be reclassified as the current liability. It has gone to current liability instead of-- here it is reduced and increased other side in current liability. Otherwise, there is not much movement in non-current liability except the regular repayment of the installments of the loan. Current liability is concerned, as I told already, cash balances affected by the repayment of $ 550 million Mizuho loan.
Here also, it is affected by reduction of the interest-bearing loans and borrowings. Just QAR 2 billion it has been reduced, and QAR 1.4 billion it is increased due to the Nebras reclassification from non-current asset to current asset. We moved QAR 1.4 billion from non-current asset to current asset. In effect, it is almost QAR 0.5 billion reduction only. I think that's only the movement in the current liabilities also. Non-current liabilities and current liabilities, both I explained. I think balance sheet recovered. Now, of course, as I understood, generally, people want to know more about the Nebras, which we have not given much detail in our presentation. I would just highlight what is the status on the Nebras. Construction of the solar PV project in De Esterberg with 14.5 MW capacity in the Netherlands is going on, with the target COD by the end of the year.
Nebras has 40% in the project, with the remaining stake owned by the local developer. This is other information. In Brazil, Nebras and Local Energia agreed to form a joint venture focused on the greenfield gas-fired power generation. Partial closing occurred earlier this year for one of the development projects, with the bidding process scheduled for this year. A 584 MW gas-fired combined cycle power plant in Bangladesh, that is Unique Meghnaghat Power Limited , they call it, UMPL in short form, is under construction. The plant is expected to start commercial operations before end of 2023. UMPL has already signed a long-term power purchase agreement. Nebras has 24% ownership in this project and other big projects, Syrdarya II project in Uzbekistan achieved financial close in August. This after balance sheet event. It is a 1,600 MW natural gas project.
Of course, we expected to be commissioned in 2025 or early 2026. It is now financial close secured. It is under construction. Furthermore, business development activities are ongoing in collaboration with the partners in the other markets as well. For instance, Saudi Arabia, Uzbekistan and South Africa and Australia. In Ukraine, situation seems to be under control, but QEWC is concerned. We provided 100% on our investment, but now we are studying whether any other impairment is under and receivables and all. As of now, there is no material impairment. Anyhow, we have to wait and see, but only good thing is we provided 100% on the investment that will take care if anything happens later also. Only we have to concentrate on other impairments, if any, on receivables and all.
With this, I conclude my speech, but QEWC did very well even compared to the last year and we are going to do better in coming quarters. That's what the assurance we are going to give. With this, I conclude my speech. Thank you to one and all. You can ask questions if any from your side.
Thank you. If you would like to ask a question, simply press star followed by the number one on your telephone keypad. That is star one to ask a question. Our first question comes from Lana Abdullah Amin from QNB. Please go ahead with your question. Hi, Mr. Abdullah Amin, your line is open. You may proceed. It appears we have no response from his line. Once again, if you would like to ask a question, please press star followed by the number one on your telephone. That is star one to ask a question. Mr. Abdullah Amin from QNB, please go ahead.
Hi, can you hear me now?
We can, yes.
Yes. Thank you for the call. I have few clarification kind of questions I need to ask. If you can go to your half yearly report. If you go to footnote number 15, revenue, it says that there is a split between operating lease revenue capacity charges of QAR 209 million for the quarter and revenue from customer by selling the product QAR 492 million. If you go to cost, the cost exactly around QAR 492 million, QAR 240 million, slightly different. You are not really making money on selling the product, it is only the capacity charge that is making money? That is my first question.
No, I am not following. Note number?
Note number 15 and 16.
Okay, 15 and 16.
If you go to note number 15, it says. There is a breakup of revenue. One is a capacity charge of QAR 209 million and the other is QAR 492 million for the quarter of 2023, second quarter. Charges from customer directly QAR 492 million. Similarly, when you go to the cost structure, note number 16, the cost is also QAR 492 million. Other than the capacity charge, are you guys selling the product at the same price as you are producing?
One minute. I'm not sure where you are taking this figure. QAR 492 million.
Note number 15 and 16.
Okay, QAR 492 million. Where it is, that figure?
It's at the bottom of the page number 17. If you see revenue from customers contract with-
Okay. Quarterly figure you are telling, okay. Sale of water.
Yes.
Okay, quarterly figure.
Even half yearly the same.
Okay. Cost of sales it is QAR 306 million, QAR 705 million depreciation, QAR 492 million, QAR 240 million. Cost of sales.
Yeah. If you look at note number 15, end part of note number 15, A, it says revenue from contract with customers is also QAR 492 million. If you remove the capacity charges, is QEWC selling the product at whatever they are producing at? How does that work? I just wanted to understand that.
One minute. I am just trying to understand your first question and this grouping. One minute. QAR 137 million total revenue is QAR 137.96 million, QAR 439.6 million. This is about QAR 46 million. Cost of sales, QAR 492 million. It is group profits revenue. Okay, this is regarding mainly here, if I am right, contract with purchases of water there is included the water purchase agreements with the takers of wholesale status Qatar. Total revenues are not one. Here operating revenue capacity charges, footnote nine. Revenue contract revenue from contract with the customer, sale of water. So water into here. Cost of sales includes. Cost of sales includes others also, right? Here it is the revenue, only I think.
Yeah, I agree. It covers others, but the amount is so close to each other that if there was no capacity charges of QAR 209 million, that would be like selling at the same price as the cost of production.
Uh-
If I am wrong somewhere, please let me know.
See, mainly energy billing is almost equal to cost, RAF gas billing, right? Normally, generally, it has its reimbursement, right?
Sorry, I didn't understand. I didn't understand. Sorry. Can you explain?
Energy billing. Energy billing means it is based on the gas cost we incurred. We are billing the-
Okay
Kahramaa also. As if it goes, some inflation adjustments and all those things are there.
Okay.
Yeah.
It will move in line with the
Yeah, with the gas cost and that. Yeah.
Okay.
That's true.
Second question is on the footnote number 20 of operating segments continued part B.
Okay.
Should I start? If you see the operation outside Qatar, the segment profit before tax is only QAR 85 million, which is, I think, primarily Nebras, right?
Yeah, that is right.
Yeah, but the asset size is huge, QAR 9.9 billion. The investment is around QAR 9 billion, and the profits is only QAR 85 million, while Qatar is contributing QAR 688 million on asset size of QAR 15.5 billion.
See, total profit from the Nebras is not a big amount as of now. Only future we can expect more profit. You are selling revenue, only total revenue, right? You are comparing it to the total revenue.
No, I am comparing the segment profit before tax, QAR 85 million.
Okay. QAR 85 million is profit.
I was just thinking that it is a very small number compared to the asset size.
Asset size, most of them are under construction and all. Most of the projects.
Did you capitalize any interest this year or first half year for this as well? If so, what was that amount?
Pardon, interest capitalized or interest charge you are talking about?
Interest capitalized, because if it is part of the construction, you can capitalize the interest. Is there an amount that we can know how much you have capitalized this first half?
Capitalization of interest in the case of Nebras, we are not aware of anything on that. I do not think anything capitalized, because these projects, cost and all, handled by their side, right? All the projects, whatever joint venture they invested. There, of course, directly project loans are capitalized. Interest on the project loans definitely capitalized at their end.
Sure.
Nebras is not-
Can we know the amount?
Of course, we are not having the details here now. We can try to find out later.
No, thank you. I can ask that question on email, and you can reply to me.
Yeah.
Just one last question. What is the difference of interest earned, in the percentage terms, and average cost you are paying on your loans? Is it positive? Is it negative?
Pardon, interest earned and interest we are paying, right?
Paid. Yeah, average. Average interest rate paid and average interest rate earned.
It is bound to be negative. There is no question of it becoming positive. But QEWC alone, I can say, QEWC alone, we paid higher finance cost to net off interest income on QEWC alone. It is QEWC, of course, excluding Nebras, I am talking. RAF Gas included, $60 million.
Is there a strategy to reduce the debt because you have a strong cash?
Yeah. You have to remember that we paid $550 million in the beginning, on January 5th of the year.
Sure.
So QAR 2 billion has gone out from the system. After balance sheet event, I can say we paid already $125.6 million loan back to Bank of China on, I think the 5th of August.
Sure.
Tomorrow, we are repaying $125.6 million to HSBC. Around $251.2 million loan will come down. Almost around $900 million plus loan will come down.
I understand. I just wanted to understand the concept of having QAR 6 billion of cash on your balance sheet when you have a negative interest differential when you lend it to a short-term deposit.
Of course, that includes the Nebras cash also, not only QEWC cash. So there, of course, they kept it for some projects which they are working on now.
Okay.
We have to invest there and all that. It is more than half of the amount pertaining to them on that. Yeah.
Okay. Thank you. Thank you for the clarification.
100% consolidation appears together here, right?
No, thank you. Thank you very much.
Yeah. Last year we excluding Nebras. Sorry, last year first we included Nebras. Right. Yeah. Balance sheet-
On your presentation as well, one last question, if I can ask it .
Okay.
If we go to footnote, sorry, page, slide 18. There are a lot of one-offs, like slide 18, which financial performance comparison with previous years. High share from profitable JVs due to full consolidation of Nebras. There was impairment last year, plus in other income, Siraj Energy is also part of it, where there was a loss of QAR 36 million of land to sale. Are there any more one-offs left in the pipeline, or is it over now?
I think, see, these things, we cannot project sometimes, but as per my understanding, nothing left as of now.
Okay.
Yeah.
Thank you.
Because last year and all that, we made inventory revaluation, all those new things we have taken up. This year, we did not take up anything like that way. Only this year, mainly Siraj Energy 49% sale. That is one the event happened, which is also there in 2022. But transaction happened in 2023. But nothing like that way, which is started now, it is going to happen in future. Nothing like that way. Yeah.
Sure. Thank you. Much appreciated.
You are welcome.
No further questions at this time. I will now hand the call back to Bobby Sarkar.
Hi, it is Bobby. If we have no further questions, we can end the call for today. I want to thank Narayana for taking the time to answer our questions and for the presentation, and we will pick it up next quarter. Thank you so much.
Thank you. Thank you, everybody. Thank you very much.
Thank you. This concludes today's conference call. You may now disconnect.