ACWA Power : Financial Results Conference Call for the year ended December 31 2022

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ACWA Power Financial Results Conference Call for	Thursday, 02 March 2023
the year ended December 31 2022
Ozgur Serin	Good morning and good afternoon, everyone, who is joining us today in the Earnings

call. That's the call for the purposes of going through the Financial Results of ACWA Power for the fiscal year ended 31st December, 2022. For those of you who may not know us, bear with me for very quick introductions.

As Sam introduced, I'm Ozgur. I'm the Head of Investor Relations at ACWA Power. To my left is sitting Paddy, Mr Paddy Padmanathan, and who is the President and the CEO of ACWA Power. And to Paddy's left is sitting Mr Abdulhameed Al Muhaidib, and he is the current CFO of ACWA Power.

We have some prepared remarks, as usual, for you, which Paddy and Abdulhameed are going to mostly cover, and then we will open the forum for questions and answers. In the meantime, the presentation we will be sharing with you is already on the website. You might have already seen it. And in addition to that one, we have a very detailed management discussion and analysis which is also available on the website for detailed analysis of financial results. So with that, I am passing the word to Paddy. Paddy?

Paddy Padmanathan Thank you. Good day to all of you, and once again, thank you very much for taking the time to participate in this call. It's my privilege and pleasure to be sharing with you our performance for year 2022. World over, it has been a very tumultuous, very challenging environment, a very difficult year.

At some levels, no different, and we are in the world, interconnected, very much relying on all the supply chains, all the partners right across the world, but very, very, very privileged and blessed to be able to announce that we have been able to deliver a very robust financial result.

I think I'd like to claim all the credit, but in fact, the honest truth is, yes, there's a very large team of people who are responsible for delivering the services that we provide, who develop the services, who then take it through to deliver it and present these financial results.

But underneath it all, it's our very robust develop, invest, operate and optimise business model that we have always talked about that, as you will see as I present these results, has put us in this excellent position. Every metric, operating profit, adjusted net profit, reported net profit, everything is well above our performance of the previous year. So we're very, very happy. Some are excellent performance, earnings per share doubling.

But this is all, as I said, underpinned or fed by a record volume of capacity that we have brought online during the course of 2022, which is starting to kick into supplying earnings, and a record amount of power purchase and water purchase agreements that we have signed, in terms of volume and in terms of capacity, which also has contributed to the developed segment of our value creation. And you've got the numbers in front of you.

What I'd like to point out is that in the 5.4 GW of new PPAs that we have signed, 2.1 or 2.06 is from that PIF pipeline, the framework contract that we have to deliver 75% of the capacity that the Kingdom of Saudi Arabia will be procuring, the renewable energy, between now and 2030, that many of you who follow us are familiar with. So 2.06 MW [ACWA Power: Mr. Padmanthan meant to say "2.06 GW"] is additional in that pipeline that we have signed.

Issue 1.0 03/03/2023

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ACWA Power Financial Results Conference Call for	Thursday, 02 March 2023
the year ended December 31 2022

And in terms of the other thing I want to… I'll touch on it just now, that 5.4 GW represents a 12% capacity addition to our portfolio. Interesting news? The entire amount of that 5.4 GW is in renewable energy. So we have added 12% to our portfolio, all of it in renewable energy.

And the 600,000 cubic metre a day water purchase agreement we signed is adding 10% to our desal capacity. So these are all very large plants. There may be one or two or three, but they tend to be of significant volume, we have achieved three financial closes. That's over SAR 8 billion. And we have also happily brought seven plants into different stages of production, adding 1.8 GW and 1.1 million cubic metres of desal water a day, which is contributing to our revenues.

For me, and I'm sure for the world, one of the most exciting things that everybody is watching is this at-scale green hydrogen plant that we have been developing, which had already gone into construction during the course of 2022. Just in the last few days or I think on 1st March, yesterday, we announced the financial close, we call it dry because, okay, it's all irrevocably signed-off finance documents, we're just completing some CPs or drawdown, of 6.3 billion non-recourse project finance debt into this project.

So this project is actively fully funded now, and as I said, construction is earnestly underway. So we're truly, truly, truly excited about this, more than anything else, because okay, first of all, we have seized the first-mover advantage on what the world recognises as potentially a significant game-changer for decarbonization by 2050, possibly giving as much as 20% of the energy of the world green hydrogen. But also, this allows us in order to now rush forward and replicate this plant with the confidence and the knowledge that we have gained through this first project.

But everybody is focused on the hydrogen piece. But I think we shouldn't forget, behind that, what is fuelling that 600 tonnes per day of carbon-free hydrogen is 4.6 GW of solar and wind energy. So it's the largest, by far, green hydrogen plant being fed by the largest single-site wind farm and the largest single-site photovoltaic farm. Exciting project. Very much looking forward to getting this completed and into production, but also now starting to replicate this elsewhere.

And all of this adds to the decarbonization focus that we have as a company. Well, as I've already pointed out, all the power generation capacity was renewable energy that we added in 2022. And then on top of that, we managed to convert a couple of carbon-emitting assets. The most significant, in my view, is the Hassyan IPP, which was being built as a coal-fired power plant, which we have now worked with the offtaker to convert to a gas-fired power plant, thereby ending up with savings of 30 million tonnes of carbon dioxide by 2030.

And Shuaibah IWP, an independent water and power project in Saudi Arabia, which has been utilising 22 million barrels of heavy fuel oil if we were to carry on operating it beyond 2025, coming to an agreement with the government to shut it down and decommission it by 2025, saving 9.5 million tonnes of carbon dioxide per year, but from 2025 onwards, and replacing that with a desalination plant, a reverse osmosis desalination plant.

All done very much in accordance with the PPA and with a close collaboration with the Kingdom of Saudi Arabia Ministry of Energy, again very much reinforcing the Kingdom's commitment to decarbonising the power generation fleet as fast as possible, shutting down oil output power generation by 2030.

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ACWA Power Financial Results Conference Call for	Thursday, 02 March 2023
the year ended December 31 2022

As I said to you, I think the real value is showing through of the develop, invest, operate and optimise pillars of our business model. So I already have covered the significance of actions in the develop and invest and operate part. And on the optimise part also, we had a very, very satisfactory year.

We were able to raise new debt very competitively. In fact, the pricing was, albeit at the top end, but at the two-digit range, and it was very heavily oversubscribed, just showing the demand that we had and the confidence of the market places in us. We were able to recycle capital by partly divesting some of our assets, and we were also able to refinance, a fairly significant refinancing of RAWEC and Barka, and a restructure and refinance at Shuaibah 3.

And in terms of managing liquidity, having raised money in order to then optimally utilise that money, we have prepaid a convertible loan that we had taken from Silk Road Fund, and we also repaid some of our EBLs and partially paid down ACWA 39 bond. Even though that bond, quite frankly, at that time when we placed it was a very competitive landmark transaction, given the pricing at which we are able to raise debt now and given the size of our portfolio, it made sense for us to start doing that.

Moving on now to the operational side of the business, here, got to be the first to acknowledge that we could have and should have done better. At some levels, we have, but the most challenging for me, and for the people concerned, of course, was the unfortunate losses we had in life. Even though we are struggling to implement and really drive home a zero-harm environment, we did have accidents and we had loss of life during the course of 2022. Tragic.

It focuses our attention on placing high priority on this subject, and our view is that we should be placing higher priority on this subject than on any other subject as we go forward. And from right through 2022, we have already started to take some very specific actions to enhance workplace safety.

We have worked, during the year, 80 million man hours. The company… Look, I don't even really want to even get into this, but I am going to just make the passing comment. We've got a rapidly growing fleet. We've got a rapidly growing construction portfolio. As I said, in 2022, we worked 80 million man hours, but we did lose lives. We did injure people. And that's not acceptable. So I think we need to continue to work hard at that.

And also, on the operating platform, we have had outages. If we look at on the water plants, our availability is very robust, 97%. Love to be even higher than that. We'll continue to strive towards it. But this is okay. This is something that we can live with.

On the power side, it has not been so pretty. Availability as a number is a stark 87%, which is for sure way below standards and way below where we would like to be. Our balanced portfolio and this four-pillar model allows us to continue to deliver, well, the excellent result that we have delivered.

But I think, on a long-term basis, we need to focus very much our attention on the things that we are poor at, where even within this balanced portfolio, within all these wonderful other things that we do, I think we want to strive to be doing everything as best as we can. And definitely, enhancing power availability is something that we will focus at.

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ACWA Power Financial Results Conference Call for	Thursday, 02 March 2023
the year ended December 31 2022

But if you look at it a little bit more deeply, you will find that we actually have a few problem children in our fleet. We have got 38, 42, now I'm going to get into trouble by omitting numbers, operating assets, of which we have got two very difficult children, Noor 3 and Al Mourjan. We're very aware of the issues. We've been working through their issues.

Noor 3 actually is now back online, okay, early days of being back online after a very long outage, so we're still having a bit of teething issues. But okay, hopefully, we are on the right track. Al Mourjan, we know exactly what the issues are, so we're working through that. If we take those two out, then the availability bumps up to around about 90% level. Still not good enough, so we will continue to…

So we've got a very specific reliability of supply programme that we are working through plant by plant, looking at single points of failures, looking at increasing monitoring, increasing automation, trying to do more and more preventative maintenance, and adding a hell of a lot more digital capability to these plants in order to continue to improve their performance. So that's the confession, and we are working on it. But otherwise, we are doing fine.

I want to touch on the green hydrogen project, as I say, because there's an enormous amount of global attention at it. We ourselves, it's a huge project for us one of our largest single investments, and I think it's worth spending a couple of minutes on this. As I said, we've achieved dry financial close on 1st March, US $5.9 billion of senior limited recourse project finance debt and $0.5 billion of mezzanine debt.

Bearing in mind that this is the first project of this scale, albeit of fairly well tried and tested, robust technology, having limited recourse project finance and bringing on 26 banks and three financial institutions as our partners in this, I think, is a remarkable feat, and we are very, very, very satisfied with the outcome.

The plant has been developed… We started developing the plant three years ago, so it's a pretty fast development phase, to be quite honest, given that it was not the conventional one, where we respond to an RFP. Here, we created this project, we convinced partners, so three years is pretty rapid. Two years into the development, we were confident enough to go into full construction. So, in fact, the project is well into construction now.

But because of the way in which… And the world during this three-year period completely changed, turned upside down, coming… Well, COVID. Soon after we started developing, COVID crash-landed on earth. And coming out of COVID, then we had… Well, okay, I don't want to go through all the messes, the tragic war and all the rest of it. So we have had inflation impact, no question, and we have also had base rate increments. So project financing costs have gone up. And so, all in all, the project costs have gone up.

But we have been able to maintain the development phase, and we have been able to structure a project that was viable enough for it to be funded on a limited recourse basis, having all these other additional partners, and for us to be satisfied to invest and go forward with. We are truly excited about the opportunity this project has provided us.

Within the project, we can get into any details if anybody is interested in it, there are opportunities for us to continue to improve performance as we bring the project online. The plant capacity is actually higher, for a variety of reasons, than the contracted values, as one example. So there is a lot of opportunity. And I think, exactly like what we have

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ACWA Power Financial Results Conference Call for	Thursday, 02 March 2023
the year ended December 31 2022

done in all our other plants, as we get into operations, we are confident that we'll continue to be able to optimise operations and maintenance.

And we have embarked on the third leg to our business, if you like, renewable energy, desalination, or energy and desalination, and now green hydrogen. So as we develop more plants, we will again be able to take advantage of those new developments, even to filter back into this development.

Quickly, looking forward, before I hand over to Abdulhameed, on 2023. Priority, safety first. We really, really do need to focus on, and we are focusing on creating and maintaining a zero-harm environment. And the second priority, as I said to you, I think we need to be honest and accept the things that we are weak at, continue to do the things we are good at, very good, but at the same time, put the focus on the things that we are not so good at.

Reliability of supply, that generates a steady stream of cash income. That's a long-term, enduring year-by-year cash flow. So we're putting a lot of effort into reliability of supply. And then it's the routine business. We will complete all the projects that we are lining up to financially close, and then, of course, some of the projects that are in construction will come into either initial commercial operation or project commercial operation, the full commercial operation. So we need to remain on track and not allow anything to slip by.

And, well, we are very busy adding new capacity in terms of bids. So just taking the PIF pipeline, and I know, I think that's one of those things that everybody is tracking very carefully, I think in the IPO… Not I think. I know, in the IPO prospectus, we had forecasted that by 2025, we should be contracting 11 GW in that pipeline. Well, I'm happy to say we are ahead of schedule.

We have got 1.5GW Sudair project in construction, as you know. I just now told you that we signed PPAs for 2.1 GW in 2022. Just in the first two months of this year, we have submitted over 4 GW, a couple of projects, of new offers within this pipeline, which obviously we'll be working very hard to convert to PPAs during the course of this year. So that's about 8 GW already of our ambition to be at 11 GW of contracted capacity by 2025. So we are in 2023.

So I'm very confident that, well, first of all, we're clearly on track. We are clearly ahead of track. And all of this gives us confidence, and we will remain focused at decarbonising our portfolio. And we will continue to lead the energy transition on a global basis, particularly as the Kingdom of Saudi Arabia and some of the markets that we work in offers us stunning opportunities. Thank you. Abdulhameed. Sorry for taking longer than I should have.

Abdulhameed Al Muhaidib Thank you very much, Paddy, and salaam alaykum. Good afternoon, everyone. And I would like to pick it up from the great detailed intro that has been presented by our CEO and President, Mr Paddy. What I will do, I will actually take you through the key KPIs from the bird's-eye view, and then we'll go through the details of each, and the main drivers for these changes.

So starting with operating income before impairment and other expenses, we have seen a great growth this year to reach a level of SAR 2.6 billion. We have seen gradual, continuous, consistent growth over the last three years. Similarly, for adjusted net profit attributed to the equity holders of the parent, we have reached SAR 1.5 billion, a great new record also for 2022. This is around a 32% increase from last year.

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