Hello, welcome to the ACWA Power Financial Results conference call for the year ended December 31st, 2023. If you wish to ask a question after the presentation has finished, please use the raise hand function on Zoom or type your question into the Q&A chat box, or you can press star one on your telephone keypad if you have dialed in via telephone. I'll now hand it over to Ozgur Serin, Head of Investor Relations, to begin. Please go ahead.
Thank you. Thank you very much. Good morning, good afternoon, and good evening, everyone. Thanks for participating in today's conference call, which is for the purpose of presenting to you the results of our fiscal year 2023. As usual, I have with me Mr. Marco Arcelli, who is CEO of ACWA Power, and I also have Abdulhameed Al Muhaidib, who is the CFO of ACWA Power. Together with them, we will be taking you through a presentation material which is already prepared and following which we are intending to take your questions and intending to answer them in the call. The materials in relation to the financial results of ACWA Power for the year 2023 are already uploaded onto our website as well as Tadawul's website, together with all the other management's discussion and analysis documents.
Without further ado, let me pass the call, pass the presentation to Marco.
Thank you, Ozgur, and good morning and good afternoon, everybody, depending on where you are. I'm really, really proud of the team of ACWA Power for some very solid results that were delivered in 2023. Next month marks one year since I took over, and every day, I'm really excited by the good news that I receive from all over the world, from the financial closings, from the inaugurations, from the new wins, and especially as you see on these slides, also the operational results, which are very important because as I remember, we're not just a growth company, but we have a large pipeline, a large portfolio of projects that we operate. In 2023, we achieved improvement on the lost time injury rate, as you can see. Improvement on the availability of our power plants, from 87 roughly to 91.9%.
A remarkable achievement given by the strong focus that we put on operation through our operating team of NOMAC. Availability on the water side that is substantially in line with the previous year at a very high level that is in line with the industry best practices. We can move to the next slide. On the portfolio, this year has been a remarkable year again. We have added roughly 20%-25% of the portfolio, depending on whether you count on number of assets under management, gigawatts of power, we added more than 10 GW, renewable power in particular, and water desalination plants with 1.4 million m³/ day in addition. We still maintain a goal of net- zero emission by 2050, and we are increasingly adding, as you see, renewable energy versus the conventional and flexible generation.
I would like here to make a remark that we operate in the Gulf, which is a region that historically has burned oil to make electricity and is going through one of the most ambitious decarbonization programs in the world. Saudi Arabia, for instance, wants to be 50/50 renewables and combined cycles. That means there will be a lot of combined cycles built. Similar it is in Kuwait and in other countries. Similar it is in countries in the Global South where we operate, for instance, Bangladesh, for instance, South Africa, for instance, Uzbekistan.
That is why we believe that the combined cycles in the regions of the world that experience this very high economic growth of 6%, 7%, 8%, and where we still need to elevate the standard of living of the population, we believe that combined cycles remain a viable, sustainable, and mitigating technology compared to the status quo. That is why investing in new combined cycles is something that we will continue to do, but we see the bulk of the growth for our company in renewable energy. Moving on to the business development. Since we talk about the new opportunities, we also had a record year in financial closes, 12 financial closes for SAR 59 billion, which is really a world record. We were discussing with Abdulhameed, this is 3x, 4x times what we used to do only four or five years ago.
It's a sign of really how the platform is really scaling up and able to deliver to an order of magnitude that is bigger than what it was in the past. Recently, in February, we signed a new financial closing at Hassyan water project in the Emirates, which we recently announced as a win last year. You see also in terms of wins, that we maintain a healthy number of wins standard basically in the industry, which combined with the negotiated program, both in Saudi Arabia and outside, gives us a very solid platform basically, to justify—w e move to the next slide—a n increase of the expected equity commitments that we will have every year compared to what we had announced in the IPO guidance, which will help gradually to recover basically, an improvement of results compared to what we have had historically.
Already in 2023, this equity commitment reached SAR 5.8 billion, which compares with the SAR 3.8 billion to SAR 4.9 billion that was in the IPO guidance. We are in now this transition where we are adding to the portfolio, and this will translate into operational capacity and operational results as the capacity comes online in the coming years. I would like just to remind you, the key pillars which we reinforce and reiterate to basically be a leader in the four technologies that we operate. Renewable power, which includes storage, because storage is battery storage, most often in hybrid plants like our plants, and also CSP is considered as a storage. We provide a solution that is not only sustainable, but it is also flexible many times. Water desalination, where we are already the largest player in the world.
Green hydrogen, where I believe that we are the largest player for export markets, both with the NEOM Green Hydrogen project with our partners and with the second project that we launched in Uzbekistan that will be converted into fertilizers locally, and then the fertilizers will be exported. Then the flexible generation, as I mentioned, mostly the CCGTs, low emissions compared to oil or coal or other technologies that are the alternatives today in the emerging markets. Four technologies in the four regions, KSA, Middle East and Africa, Central Asia, and Southeast Asia and China. We have reflected this in a new organization that we launched just a few days ago, where basically we are now going to work in a matrix where the business unit, business development, construction, and operation will be matrixed with the four key geographies where we deliver.
This will enable us to build a stronger, more institutionalized platform to support an acceleration of our growth. We have largely promoted the people from within, and I think that that gives us also strong confidence of the development programs that we have put in place. I was recently, for instance, at IMD in Lausanne, where we launched the new program for our top 100 people, to develop them to be the next leading executives in the company. Other programs, including an accelerator for the CEOs and project directors of the operating companies and the graduate development program to continue to build the pipeline also from the bottom. I am very happy with the progress we have done in this year, accelerating our internal focus on people that will be so important for the future. The last point is the supply chain and R&D.
I would really like to commend on the Innovation Day that we had in January at KAUST, which was attended by more than 300 or 400 people from around the globe, basically from partners in technology, research institutions. It is really positioning us as an enabler of the energy transition worldwide, but also as a leader and a driver of this improvement. On the supply chain, continuous improvement in the strategic sourcing and strategic partnership with our EPC contractors and key suppliers that will make us stronger in bidding and better equipped for the negotiated deals to retain a competitive edge.
The news, if we move to the next slide, that we have compared with the past time that we spoke, is the formal announcement by Saudi Arabia of the stepped-up ambition in the renewable program, where I remind you that we are responsible with PIF to deliver 70% of, together with Aramco. It's a great way to contribute our skills as lead developer and also bring in partners like Aramco, who are basically, through us, having a way to recycle profits from oil and gas into renewables and transform Saudi Arabia into a powerhouse of low carbon technology. This means that of the 20 GW or so that will be tendered every year, as announced by the Minister of Energy, roughly 14 GW per year will be developed by us as a lead developer. Moving on to this, we have Central Asia.
Actually, let me step back one point. The other point in Saudi Arabia is the announcement of the 7.2 GW per year of combined cycles. You know that last year we already won 3.6 GW, together with SEC, and we will continue to tender on this, and we expect that we can have competitive results. Really, I think that this is a good opportunity going forward. Moving to Central Asia, we continue to build on the strong momentum there, both in Uzbekistan, Azerbaijan, and we're continuing to develop the 1 GW project in Kazakhstan. We are partnering with Masdar and SOCAR to develop 500 MW renewable project in the Nakhchivan region of Azerbaijan, which shows that basically we are not only a developer, but also an enabler, bringing different parties together into elevating and maturing the energy transition in these countries.
Finally, China, where I was there already twice this year. We see that the team is coming along with a lot of opportunities that we continue to advance. I reiterate that we expect in the next few months to have positive announcements of potentially first investment in the country, as we had announced in the previous meetings with you. To conclude my section, and before introducing Abdulhameed to go through the details of the figures, I'm very happy with first results of this first year. Very solid results, as Abdulhameed will go through in details, but also of the increased opportunities that we see, both in Saudi Arabia, that will continue to account for about 60% of all our future growth.
The big momentum in Central Asia, the potentials for the entry in China, and the leadership position that we have in green hydrogen and the water expansion around the world. For funding this growth, we will continue to watch the ratios and optimize corporate debt to equity balance as Abdulhameed will go into more detail. We see opportunities that are very much balanced with our ability to capture them. At the same time, I always remind you that our business model is very much predicated on new projects coming into the portfolio, financial closes happening. As you know, this might slip from one month, before or after. I always encourage, despite the good results that we continue to show, not to focus just on the single individual quarter, but focus on this trajectory that we have and that we have very solid for the future.
Now, Abdulhameed, I pass it to you.
Thank you. Thank you, Marco, and good afternoon, everyone. [Foreign language]. Good to be back on this earnings call for the year-end. First of all, I would like to really congratulate all the stakeholders, investors, partners of success for the great results that we have announced this morning pre-market. I would like to really build up on the momentum that Marco has shared in term of the achievement of 2023 and build from there on how we reached the numbers that we have reached on 2023. Just on the first element, which was 12 financial closes that Marco has shared. Actually, there was a very good structuring or let's say, momentum that close to SAR 60 billion has been raised in the various countries that we are operating in. The landmark transactions remain, the NEOM Green Hydrogen one, which was achieved early March of last year.
We have been also able to close a big project, a round of PIF, which is the PIF Round 3 . This was quite close to the end of the year. Along with a territory entry, which is the Azerbaijan wind. This is the first financial close we have in Azerbaijan for the 240 MW project. Thereafter, actually just yesterday, we have also announced today in the market, we have achieved the financial close for Hassyan facility , which is the first water project in Dubai. It's also the first full green independent water plant that we have in our portfolio. Moving to the next slide.
We talk about more on the units that has been completed, that is also a significant milestone for us as these projects, whenever it kicks into operation, it will start contributing to both our investment and operational pockets, as we're going to show you later on. Excellent also achievement. More than 11 units has achieved high CODs during the course of 2023. We had a couple of units on the renewables. We had Jizan Group that also have achieved unit 2 operation. Also, we have a couple of the water projects including Jubail 3 and Taweelah IWP , which is almost full operation except for just a small part that we are expecting to complete it within 2024.
Sudair, which is embarking our largest or the first gigawatt project of solar PV that we have in Saudi Arabia, have also achieved two different phases of operation during the course of 2024. Finally, I think Hassyan, a huge plant that has achieved full plant operation, which is the 2.4 GW during the course of 2023. Taking these two into consideration, looking at specifically the balance sheet or sorry, the net income of ACWA also, on a bottom-line kind of view, Alhamdulillah, we have achieved almost 8% increase. That is SAR 1.6 billion figure that we have achieved in 2023.
That is also, I think if you reflect also on the increase, it's not only 8% increase on the bottom line, Also, if you remove the last one-off kind of divestment gain that we had last year, then you will see also a close to 27% increase on the bottom line. From an operating income point of view, it's a around 14% increase, so that's getting us close to SAR 3 billion operating income. POCF, or parent operating cash flow is SAR 2.4. We'll go through it in a different slide go through the details. Building up on the momentum that I had discussed earlier with the financial totals, this definitely means that we are putting more equity into new projects. Thus, our equity investment has increased around 30% to SAR 5.7 billion.
Also, we have the parent net debt, which will also go through the detail of it, increased around 53%. Our net debt-to-POCF has reached 5.5x, which is fairly, while it has increased on 2023, it is fairly below our benchmark that we have on the guidance that we have shared earlier around 6x- 6.5x. Perhaps we'll start with the operating income to go through the buildup, comparing it with 2022 figures. You have seen that a couple of these projects that came into operation, which is the new unit, has contributed around SAR 200 million into our new operating income. Whereas reliability of supply and improvement on the availability of the existing project has improved significantly give us around SAR 400 million extra operating income compared to the previous year. Development and closing these projects has also contributed around SAR 100 million extra compared to last year.
When comparing, let's say, the other side of the operating income, last year we did record an LD and insurance recovery that is around SAR 150 million higher than what we have recorded this year. Also, we had a higher overall corporate and G&A cost, around SAR 170 million. Moving to the net income, specifically, we had this, let's say, benefit of the higher operating income. That is around SAR 370 million, which we just showed you the breakdown of it. We had, comparing to last year, a lower deferred tax, mainly in Morocco for the three assets that we have there, and also the wind assets, so total around four assets there in Morocco. That is around SAR 180 million benefit compared to last year. On the other side, we had seen a continuous high-interest rate environment.
With the issuance of the new Sukuk or Phase 2 of the Sukuk, we have seen around SAR 100 million increase in the, let's say, the finance cost. We also had around SAR 100 million of other costs, mainly related to the share of NCI and also lower impairment cost compared to last year. Finally. Referring to the capital recycling that we had last year, that is around SAR 227 million higher as you compare 2022 to 2023. Overall, this is built up when you compare 2022 figures with the 2023 SAR 1.6 billion figure. In this specific slide, we like to build up on the business model, and we show you the breakdown in a different way .
This is if you look at the net income and how is it built from the, let's say, the four pillars of our business model, which is develop, invest, operate, and optimize. You will see a fairly good breakdown between the various components. On the development side, you can see around SAR 940 million increase. We have reached around SAR 940 million in the development side. Contribution from projects and the investment side, this has also hit a close to SAR 300 million increase, so around SAR 1 billion. NOMAC continues to perform better. You have seen that we are close to SAR 600 million contributions from NOMAC. Other operating income and other corporate income together combined has increased around SAR 120 million. This is mainly from better cash management and also higher contribution from the services ACWA Power provided to various project companies.
Main, I would say, component that has been on the reduction side is the capital recycling, where we had last year or the year before, we had a specific gain on Sudair divestment where we didn't have any as compared in 2023. This brings us to around SAR 1.6 billion, again, net income, and we don't have any adjustments for this year. We'll talk about more specifically the POCF, so the parent operating cash flow for this year. POCF comparative with last year, you will see almost a 30% reduction on the cash inflow. Whereas if you take the breakdown of the cash inflow, you will see that distribution and development fees, other contributions, all of them has been extremely positive as compared to last year. This is in the range between 14% to almost 50% increase compared to last year.
The negative increase on the cash inflow was mainly on the capital recycling. This is again, if you compare it to 2022. In 2022, we had a big refinancing related to RAWEC and also the divestment of SQWEC, which both of them together has contributed significantly on the capital recycling part. Looking at the cash outflow, this is mainly related to the increase in G&A and also the tax on a payment basis that you have seen increase compared to 2022. This will bring us to around SAR 2.4 billion of parent operating cash flow. Building up on the cash position, taking the SAR 2.4 billion POCF, we have raised last February around SAR 2.4 billion, which is the Sukuk Tranche 2. With that, we had also a higher operating balance of around SAR 4 billion.
The total cash that we had on our account is around SAR 9 billion. If you look at where that money has been spent during the course of 2023, almost 75% was spent on investments. That is through a cash injection directly to a couple of opportunities for an EBL repayment that was used as a bridging tool to some of our investments which we had paid during the course of 2023. We had around 11% mainly finance charges related to Sukuk and other components of the facilities that we have in our books. We have also paid dividends during the 2023 for the payments of 2022. All of that together, if you take it out, we close the balance with around SAR 4.7 billion in cash.
Now, I would like also to give you a bit of background on how did we build up the 5.5x, which is the net debt to POCF for the year 2023. Looking at it from specifically the balance sheet, balance sheet has around SAR 28.4 billion of, let's say, liabilities. If you build up and break it down between recourse and non-recourse, again, the focus on the recourse will be around SAR 10.3 billion. The rest, which is around SAR 18.1 billion, it's debt sitting in our balance sheet but has no recourse, mainly coming in our balance sheet due to the consolidation. That SAR 10.3 billion, which is the recourse debt in our balance sheet. If we take also and build it up from the off-balance sheet contingencies, it's around SAR 7.8 billion.
Together we have around SAR 18.2 billion of recourse debt, both in off balance sheet and on balance. Taking back, let's say, the cash that we had in our books, which we just showed you, around SAR 4.7 billion, it will bring up the net debt to around SAR 13.5 billion. That is the net debt that we have on the books. If you take the POCF that we have presented earlier, you will see that the net debt to POCF is around 5.5x. As a comparison basis from 2022 to 2023, you will see a significant increase on the net debt to the POCF, which is from 2.1x to 5.5x. However, there is a big part of last year that has been dropped, which was related to the RAWEC refinancing and SQWEC divestment. If you put that back, it's around 6.4x.
On a comparison basis, it will be actually a drop of around, let's say, 1x. We always like to present the full picture, and then we can also show you the comparison. We are still below the guideline that we gave earlier, which is around 6.5x net debt to POCF. Maybe we move to the next slide. Can you move to the next slide?
Yeah, sorry.
Okay. Sorry. I think there is a lag on the screen. No, we have it on the other slide. The final slide is the distribution related to the shareholders that we have announced yesterday. Overall, we have in the last two years, we have been able to distribute SAR 1.2 billion between 2021 and 2022. This year, distribution was a bit unique, I must say. This year has been a distribution of kind of a hybrid solution between a typical dividend distribution together with a bonus share that we have announced in the market today morning. The way that we have actually looked at this is different this year as we are trying to achieve a couple of things.
First, after looking at the 300+ investors that we have met during the course of 2023, we have seen that a big interest and a big focus for the investor is about the growth of ACWA Power. That growth momentum was very much key for them. Linking it with the funding capacity, it was very much key for most of the investors to see the company redeploy the cash for the growth that we have seen in the next six to seven years of ACWA Power. Building on that with the IPO guideline that we have built earlier during the course of 2021, we also would like to maintain our, let's say, guideline when we said that we would like to distribute a dividend during the course of 2020 and around 6%-9% increase for the next two years.
Building on two of these components together, we decided to split the distribution of this year between a normal cash distribution with the bonus share that together will give you a kind of growth on the distribution that is more than the guideline that we are giving, which is a 6%-9% increase on an annual basis. That is basically the way that we have seen the distribution, and this is, of course, subject to the general assembly approval that will come up on a date that will be announced in the course of the next few months. Looking at the final slide, I would like really to take you through is actually how we are affecting against the three years' performance that we have against the IPO guideline that we gave. The first point is the business growth.
I think, we have been able to grow in terms of equity commitment, in terms of solar capacity, in terms of assets under operation, much better than what we have given the guideline. This is something that has been demonstrated in the course of the last few years. Operating income, we were expecting it to double the number in 2022. I think if you look at our number today, we are around 23% lower than what we have given the guideline. This again has a different factor that has played into the last three years of operating income. The first factor is really related to the COVID-19, which has delayed a lot of the projects under construction. Some of them delayed by six months, others have been delayed for one year. It also has created and inflated the pricing for many of these projects to be completed.
Then we also had another impact related to the Russia- Ukraine war that has mainly drove delays and financial cost impact on projects that we have in Central Asia. The increase on interest rates has really impacted also the finance cost, whether it is at the corporate level or also at the project level. Together with that, we still have actually improved our operating income significantly in the last three years. However, 23% lower than what we had expected back in 2020 guideline. On the equity commitment, again, this is a positive momentum, as I mentioned earlier. Net debt to POCF, we gave a guideline, a long-term target of 5x- 6x. We have maintained that, even with the high costs that we have seen in 2023, thanks to the strong parent operating cash flow that has been contributed.
Distribution is the 6%-9% annual growth on distribution. This is basically what I have highlighted in the previous slide, that we continue with that. This concludes also the guideline that we have given in terms of distribution. During the course of 2024, we will also come back to the market, perhaps with a new guideline. In terms of decarbonization for our portfolio, we are very much close to the, let's say, the first pillar of having 50% of our portfolio or installed capacity on renewables. We are also on track for the target for 2023 to reduce 50% of our carbon emission of our installed capacity in 2030. This is all from my side. I think we will leave it now to Ozgur for the Q&A questions. Thank you.
Yep. Thank you very much, Marco and Abdulhameed. Terry, I think we can open the floor for questions. If you will kindly lead us through.
Thank you. As a reminder, if you'd like to ask a question on Zoom, you can use the Q&A chat box or the raise hand function. If you've joined us via the telephone lines today, you can press star followed by one on your telephone keypad. We do have an audio question from Zoom from Syed Akhtar of Olayan Saudi Investment Company. Please unmute yourself locally and proceed with your question.
Terry, we cannot hear the question.
Syed, please unmute yourself locally and proceed.
Maybe we can move on to the next question, and then we can take it later.
Of course. We have a question from the telephone lines. Question from Ricardo Rezende from Morgan Stanley. Your line is now open. Please go ahead.
Hello. Good afternoon, thanks for taking my question. I guess, two follow-ups on something that Marco mentioned during the presentation. The first one, about a week after you had your Capital Markets Day, Prince Abdulaziz was talking about some increased targets for the Saudi renewables program. During the Capital Markets Day, you were very optimistic with the potential in China. How do you balance it on potentially having even more deployment in your home market, and also all of these opportunities in China? The second one, it's on when you mentioned that there's still going to be some growth in combined cycle, even though the bulk of the growth is coming from renewables, would you be able to just give us some color on the economics that you're seeing for combined cycle versus the economics that you're seeing for renewables? Thank you.
Yeah. Of course, we retain a role as a national champion in renewables, we take the program of renewables in Saudi Arabia as the pillar of everything that we do. In our targets that we had communicated before to the market, we were considering, if you remember, various scenarios. I think that what we have been confirmed today is that we are kind of like on the high side of the various scenarios that we were considering. Most of that was already included in our preparation. That's also, by the way, one of the reasons why it is not catching us by surprise, the machine was already working to step up and be able to deliver all these. There's a continuous rebalancing, basically, of the opportunities that we follow.
I think that the more that we find in different geographies and that basically we get on a negotiated basis or by winning the tenders, the more for the rest of the portfolio it builds for us optionality then to focus on the higher margin or strategic areas where we want to play. The second about the CCGT economics. So far we have looked and we are building one project in Uzbekistan, and we now won two projects here in Saudi Arabia. What we see is that these projects can deliver at the level or actually probably even a little better than renewables. Mostly it's because of the complexity of the projects, you will see probably a little less competition, let me say, and a little more focus on the bringing together the best solution that you can have for these projects.
Okay. Thank you, Marco.
Thank you.
I think Ric also has been asking about the economics, competitive economics of CCGT projects versus renewable.
Yeah, that's what I said.
Oh, you answered that?
Yeah.
Thank you. We have a question from Syed Akhtar of Olayan Saudi Investment Company. Your line is now open. Please go ahead.
Hi. Hello. Thank you very much for the presentation and congratulations on the results. I have a couple of questions regarding your leverage. Since your leverage has reached to around 5.5x . What is the plan? How do you see the leverage ratio going forward in the next coming three to five years?
Thank you. look, I think, sorry, you have another question?
No.
Okay. Thank you. During the IPO time also, we have looked at this net debt to POCF, and we give a guideline around 5x, ceiling of 6x-7x. Whereas, today with the growth that we have seen, we've been able to manage 2023 with 5.5x, which we believe is fairly acceptable range for us over the, let's say, long term. If I look at it today and look at the funding study that we have in mind with the growth that is coming up, and almost close to $1.8 billion of equity commitment coming up on the next six years, definitely, we will see a growth, also on the leverage side.
Now, as a guideline, we are trying to also balance our growth and utilize the different source of funding to ensure that our ratios maintain in check, whether it is with the lenders or also as a guideline with the investors. Today, we believe that on an average basis over the long term, it should not go above 6x. However, we also believe that, in a short-term basis, that sometimes it will go above that, in a short-term basis, where we have to rebalance. Perhaps talking about this specifically, we do believe that the growth will need to use different sources of funding. We will not rely on only debt raising to ensure the growth is maintained. We will try to maximize our debt issuance to ensure that we are creating more value to our investors.
Ultimately, over the next six years, we will end up requiring an equity raise to make sure that we'll be delivering the growth that we are trying to achieve and tripling the capacity by 2030.
Thank you. Do you think that this high leverage, when you look at the optimal capital structure, do you think that the 5.5x or 6x in the short term? This is my question. My question was like this, you have already reached 5.5x leverage as compared to the long-term target of 6x. In the short term, your target is still 7x, as an investor, there's more concerns from the investors are looking for more clarity on this leverage, this is one of the key concern for the investors. Do you think that this capital structure is optimal for the company to generate enough amount of returns for the investors?
Yes. I'm not sure your reference point 7x is coming from where, look, as I mentioned, long term, we believe it's going to be on the range of 6x. Depending on the timing also of different tools that we'll be using, it might go slightly up, upper than that. For a company that is looking at tripling the capacity in the next six years, for a company that is today deploying around close to $2 billion in a pipeline, that is fairly comfortably focused on a, more- than- investment- grade countries like Saudi, almost 50% of the pipeline coming from here. We are very fairly comfortable actually with going and investing our growth with the ratios that have maintained with the 6x - 6.5x over the next six years.
We will of course, as I mentioned earlier, maintain that position and try to reduce it ultimately. That is, I believe, the guidance that we are giving to the investors at the IPO time, we are remaining that same guideline. We are not expecting that to reduce as I mentioned, the pipeline is very healthy. The next six years full of opportunities, we will try to leverage, maximize our shareholder value from that angle.
Thank you. It was much clear. My last question is about, as you said, we know there's huge pipeline for ACWA. In terms of execution risk, if you apply the probability, what is the probability that ACWA will be able to achieve the goal by 2030? The second question is regarding, do you see that ACWA will become the sole power generator in KSA?
Will become the?
The sole.
Sole.
Sole.
The sole.
Yeah.
I would love to. It's not a question to ask me, however. We participate in the tender. I think that we have been successfully growing in the market. Today, we supply 20%-30% of the market in the four countries where we operate: Saudi Arabia, Oman, Bahrain, and the Emirates. We've been very successful, but again, you have to follow what the regulatory regime is, which today it is what it is. In terms of delivering the growth, of course, we rolled out a strategy. It's a strategy that one year on, we still believe in. We don't see a context that is different from what we had before. We continue to monitor it.
Of course, I think green hydrogen is an emerging industry, we are developing as much as possible everywhere we can and where it makes sense, without becoming too, let me say, lean on too many things. We're focusing on getting our stakes. We're focusing on developing the projects. The industry is developing. That is something that we are doing, but there is, let me say, an industry growth rate behind it. Renewables, on the other hand, I think that if you think of what we do, it's a very small fraction of everything that is going on, particularly if you look at China and our ambition in China compared to the total market.
That is why we don't give a guidance, say 2030, how much you're going to be in one country or one specific technology, because this will be depending on the context and the actual growth rates, and the regulatory context in each geography. On the overall macro, we are very confident that we can achieve that.
Okay. Thank you.
Thank you. Our next question comes from Oliver Connor of Citigroup. Please unmute yourself locally and proceed with your question.
Hi. Thank you for taking my questions. First one, just on the earnings trajectory. You mentioned obviously, this year was slightly down on the IPO target of double 2020. How should we think about the phasing of earnings growth 2024, 2025 relative to that 2020 baseline? The second question, just coming back to the sort of leverage point and potential of the equity raise. How do you think about order of magnitude of that and sort of staging of those equity raises, if there are multiple equity raises? I guess I ask because obviously the equity performance has been very, very strong, so interested to know how you think about potentially bringing forward the equity raise given the strength of valuation. Thank you.
Thank you. Thank you very much. Excellent questions. On the first question, related to the guideline. Since IPO, we have not given any guideline for the last three years, except that we have shared during the IPO roadshow. Having said that, I do believe that, most probably this year, it is a good year to start looking at this again and start analyzing what we can offer to the investor community in terms of guideline for the future. Today, we don't have anything to share with you as a guideline for the future. However, we take your comments seriously, we will explore how can we give, during the course of 2024, the guideline for the next three years or so. This is something that we are seriously taking into account. This is related to your first question.
The second question, was it related to?
Equity raise.
Equity raise. When we reflect on the funding strategy and we deploy around, or we have to mobilize around, let's say, on average $1.8 billion- $1.9 billion on a yearly basis, and you put this on our cash flow, there is a funding gap, definitely. That funding gap would require us to go to the market for a capital raise. In terms of timing that and put it into a perspective of the overall project, it's, I would say, it's a moving part, depending on many parameters. If you look at our balance sheet during the course of 2024 and the pipeline of the project, we have so far been able to secure the commitment that we would like to deliver on 2024. There is no urgent need for cash today. Ratios are maintained on check.
Whether it is what we are sharing with you today and all whatever we are sharing with the lender. However, I don't see it as a long-term solution. It should be more closer to that. We will come to the market describing that capital raise, if when is this required, how much is the size, and the period, very close to that. We will announce this to Tadawul . Then we will also share the details during the roadshow that we should perform for that.
Sorry, Oliver, you had one more question. As much as I collected it was on interest rate impact on the valuation, but the line was not very good. Can you repeat it kindly, please?
They were my two questions.
Okay.
I mean, I would be happy to hear the answer on that if you do have one, because I would be interested
What I collected from you was asking the interest rate environment and impact on the valuations going forward.
I will talk about it, impact on the company, before we talk about maybe valuation. We as a company, we have a hedging strategy and a board mandate to go and maintain our books with around 70% hedging position. Overall, we try always to maintain a solid hedging position within the balance sheet for whatever recourse and also non-recourse, but it ultimately has an impact on ACWA Power. Overall, today, we have actually a solid ratio higher than 80% of hedge position overall. We have seen the resilience of our balance sheet in the last two years of high interest rates, and the impact on ACWA Power was minimum compared to a lot of companies that we have seen.
As we go forward, we will try to maintain that we usually capture the facilities for low-interest rate environments where we maximize our hedging position close to 100%. Then later on, these hedge positions will be unlocked at different times on a high-interest rate environment. That is from a corporate impact point of view or corporate strategy direction. On these projects that we are closing. In the last year, when we closed 12 financial projects, the high interest rate has been already embedded in the new tariff, and you have seen the tariffs of, let's say, the PV projects, in the past where they are close to SAR 0.012 per kilowatt-hour. Ultimately, when we closed this project last year, it was closer to SAR 0.016, SAR 0.017.
This means that the high interest rate or the high finance cost has been already embedded in this tariff. The inflation has been already embedded in this tariff. As we go forward, we'll continue to hedge not only the position that is related to the project financing, but also to our equity bridge loans, for the construction period. Going forward, I think we already have a hedging committee where we, on a monthly basis, try to evaluate the position and try to capture or unlock some positions on the, whether it is in the Sukuk, on the EBL, on the financing of the project. Sometimes we do actually with the re financing opportunities that arise for some projects. I think overall this is the hedging criteria that we are following. Marco, you want to add to that?
No, I think that's very well covered.
Thank you.
Thanks, Oliver.
Thank you. Our next question comes from Anna Antonova of JP Morgan. The line is now open. Please go ahead.
Good afternoon, gentlemen. Thank you so much for the presentation. A quick question from our side. Can you please comment on how the NEOM project is currently progressing? Do you see any changes to the budget or the timeline for the startup of it? Any color would be much appreciated. Thank you.
Hi, Anna. I think the question was about NEOM project timeline.
NEOM?
NEOM timeline. Okay.
Yeah. Sorry. NEOM Green Hydrogen. Yes. Thank you.
Okay, NEOM Green Hydrogen, the project has achieved financial close last year. It's fairly in an early stage of execution. We have seen good progress over the last, on 2024 when it comes to construction. We had the first wind blades arriving to NEOM. Construction is ongoing there. As per the last construction report we have received, the project has some delays but ultimately did not have a delay on the commercial operation date. This is definitely a significant project, and we are paying close attention to it. Not only because it's a first of a kind utility- scale green hydrogen project, but also it is the largest or one of the top three projects that we have under our portfolio. We'll keep monitoring it. Nothing will come up this year or the year after.
I think the plan for the start of the commercial operation remains as it is targeted today but t here is, today some delays that we have seen in the early execution work.
Thank you. Do I understand correctly that it should come online roughly in the end of 2026, as per your earlier guidance? Is that correct?
I believe end of 2026 to beginning of 2027.
Okay. Thank you.
Thank you. We have a few text questions. Are your new projects mostly associate level investments or consolidated? Trying to understand why profit from equity associates not grown much in FY 2023.
Okay. If you look at the portfolio that we have, most of the assets is indeed equity accounted. We have only a few assets that are consolidated. For example, Morocco portfolio and some other portfolio that we own more than 50% of their shareholding. Of course, the breakdown is already there in the audited financials. On these projects that have been added during 2023, these projects did not yet came to full operation so they can contribute. Some of those contributions actually in other lines that you can see. For example, if the project we just achieved the financial close or the development Let's say fees and construction management fees will be shown in a different slide. You will not see their contribution until really this project come into operation.
On specifically the question you had, I think if you go to note seven on the financials, you will see the breakdown and the adjustment that we have, you can realize that some of the projects, like Noor Energy and others, you have, let's say a technical or the accounting risk has been impacting it negatively. This is mainly due to the delay in the project and the cost overrun, basically, which there has been a negative impact to that. Some projects this actually had a positive impact, but others, this had a negative impact, basically, which the net off has been seen as you have seen in the short amount.
Thank you. As a reminder, if you'd like to ask a question, you can use the raise hand function or the Q&A chat box on Zoom. If you have joined us via the telephone lines, you can press star one on your telephone keypad. Our next written question asks, the results show around SAR 4.52 billion revenue represented by thermal and water desalination in 2023, or around 74% of the total. Is it possible to give a number or a rough indication of what portion of this is represented by water specifically?
Look, while I still around 50%, maybe the simple answer will be the 50%. Also, I mean, I would like to emphasize more on that the portfolio is a breakdown between consolidated assets and equity accounted assets. Looking at the revenue and then breaking down between different technologies to understand the growth on the technology will not give the reader the full answer that he's looking for. That's why in the presentation, we always try to break it down to the project capacity-wise, so the readers or the investors can have the full visibility on the growth, specifically to the technologies, and to the jurisdictions that we are operating in. At the POCF, we are trying to give you a breakdown of the four, let's say, earning streams of ACWA Power.
We have not break it down technology-wise, because also it's going to be difficult to break it. For example, we have a lot of assets as well. They are integrated for power and water. I'm not sure the reason is why he's looking for that specifically but this is going to be very challenging for us to reach the ultimate number for water growth .
If I may add up, actually, this is why we have one of the reasons to disclosure seven is exactly this. There you can see a much more detailed revenue split, for example, by project. Even in itself, this is not going to be fully representative because we have a lot of eliminations during the consolidation process. That's exactly why ACWA Power's key one or the key KPI is not revenues. It is extremely difficult. Obviously, internally, we have methods of monitoring that one, but so far we have not been disclosing more than we are disclosing so at the moment. Again, if you're looking for a revenue for whatever purposes, disclosure seven is a better place to look at.
Thank you. At this time, we currently have no further questions. I'll hand back to management about any further remarks.
Do you have any final thoughts ?
No.
No.
Thank you.
Okay. Thank you everyone for listening to us and joining us today. If you have any further questions, you know how to reach us. Thank you very much really for your time.
Thank you.
Thank you. Goodbye.
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